Watkin Jones Regulatory News (WJG)

Watkin Jones plc

('Watkin Jones' or the 'Group')

Half year results for the six months to 31 March 2017

Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector, announces its half year results for the six months ended 31 March 2017. The Board is pleased to report a successful first six months of the financial year with trading in line with its expectations.

Financial Highlights

· Revenues for the half year were in line with management's expectations, down 8.4% on the prior half year due to the timing of forward development sales and £11.7 million of non-repeating inventory sales of completed residential apartments in the first half of the previous year. Revenues are expected to be stronger in the second half of the current financial year

· Strong profit growth for the half year driven by student accommodation developments. Gross profit for the period increased by 23.8% to £29.1 million (H1 2016: £23.5 million)

· Gross margin for the six months to 31 March 2017 of 21.8% (H1 2016: 16.1%), reflecting the location and quality of student accommodation schemes in development, as well as a full six months contribution from Fresh Student Living, which was acquired into the Group on 25 February 2016.

· Progressive dividend policy: 10% increase in the interim dividend to 2.2 pence per share (FY 2016: Interim dividend of 1.33 pence per share, equivalent to 2.0 pence per share on a full year basis)

· £11.7 million net cash at 31 March 2017 (£15.4 million at 31 March 2016), reflecting normal seasonal working capital profile.

Notes

1 Adjusted EBITDA comprises operating profit from continuing operations plus the Group's profit from joint ventures, adding back charges for depreciation and amortisation. For H1 2016, the figure is stated before exceptional IPO costs.

2 For H1 2017 there is no difference between profit before tax and adjusted profit before tax. For H1 2016, adjusted profit before tax is stated before exceptional IPO costs.

3 For H1 2017 there is no difference between basic and adjusted basic EPS. For H1 2016, adjusted basic EPS is calculated using the profit for the period from continuing operations excluding exceptional IPO costs and based on the number of shares in issue at 30 September 2016.

Business Highlights

Student Accommodation Development

· £216 million development value of seven student accommodation developments (2,580 beds) sold since 1 October 2016, including one operational asset (590 beds)

· £292 million development value in legal negotiations for forward sale of nine further student accommodation developments (3,649 beds)

· Development pipeline of over 11,200 student beds across 31 sites, with 15 forward sold and nine more in legal negotiations

· Delivery pipeline:

· FY 2017 deliveries - All ten student developments (3,314 beds) have been sold and are on target to be completed ahead of the 2017/18 academic year

· FY 2018 deliveries - Ten student developments (3,415 beds) scheduled for delivery. All sites are secured and have planning consents. Five developments are forward sold (1,854 beds) and the remaining five (1,561 beds) are in legal negotiation for sale

· FY 2019 deliveries - Nine student developments (3,545 beds) scheduled for delivery. Eight sites secured (3,191 beds), with the remaining site in legal negotiation to purchase. Six sites have planning (2,676 beds), with the remaining three sites progressing through planning. One development forward sold (511 beds) and four developments (2,088 beds) in legal negotiations for sale

· FY 2020 deliveries - two sites secured and one in legal negotiation to purchase, with a number of additional site acquisitions progressing.

Build to Rent Development

· Build to Rent Development pipeline is growing. One site secured with planning in Sutton, two further secured sites are progressing through planning in Belfast and Leicester and three further sites are in negotiation for development subject to planning. These six schemes are currently targeted for delivery over the period FY 2019 - FY 2021.

Accommodation Management

· Fresh Student Living - student beds under management increased from 8,310 beds in FY 2016 to 12,117 beds in FY 2017. Currently contracted to increase to 19,532 beds under management by FY 2020

· Five Nine Living - currently contracted to manage 535 Build to Rent units, including the scheme completed in Leeds in the current year.

Commenting on the results, Mark Watkin Jones, Chief Executive Officer of Watkin Jones plc, said: "We are very pleased to be reporting a strong set of half year results. The Group has seen good profit growth in the first half, driven by our student accommodation developments which are fundamental to the business. We are seeing increased institutional demand for good quality purpose built assets, and there are several new international funds that have entered the market recently, which highlights the continued attractiveness of the sector. Our forward sale model and student accommodation pipeline of 31 developments provides us with excellent visibility on earnings and cash flow.

We are encouraged by the progress we have made in the Build to Rent sector and we are pleased that the Group has already secured an excellent site in London, with solid progress also being made on a number of other specific development projects. Our student accommodation management businesses Fresh Student Living has had an excellent first half and is contributing well to overall Group performance. The Group has made progress in developing the Five Nine Living business to provide similar letting and operational management services for the Build to Rent Sector. Like our student accommodation development business, accommodation management provides us with good future earnings visibility.

On behalf of the Board I would like to thank all our staff for helping the Group deliver a very good first half year performance, and we look forward to the second half with much confidence."

Chief Executive's Statement

Results for the six months to 31 March 2017

The Board is pleased to report a growth in profits for the six months to 31 March 2017, compared to the same period last year.

Revenues for the half year were in line with management's expectations, down 8.4% on the prior half year due to the timing of forward development sales and £11.7 million of non-repeating inventory sales of completed residential apartments in the first half of the previous year. Gross profit increased by £5.6 million to £29.1 million (H1 2016: £23.5 million), giving a significantly increased gross margin for the period of 21.8% (H1 2016: 16.1%), reflecting the location and quality of student accommodation schemes in development, as well as a full six months contribution from Fresh Student Living, which was acquired into the Group on 25 February 2016.

Overhead costs for the period amounted to £9.7 million, compared to £6.5 million for H1 2016. The increase reflects the cost of additional personnel to support the growth in the business, a full six months overhead cost for Fresh Student Living and the additional overhead cost associated with operating as a listed company.

Operating profit, excluding exceptional costs, increased by 14.1% to £19.4 million (H1 2016: £17.0 million).

The Group made a profit on the disposal of its joint venture interest in Athena Hall (Jersey) Limited in the period of £0.9 million, realising a net cash inflow from the sale of £5.5 million. The Group's share of profit in joint ventures amounted to £1.1 million (H1 2016: £ Nil) and arose in respect of developments in progress in Belfast.

After accounting for net finance costs of £0.3 million, the Group's profit before tax for the period amounted to £21.1 million (H1 2016: £9.9 million loss).

Adjusted EBITDA for the period, including the profits from the Group's joint venture interests, was £21.9 million and compares to an adjusted EBITDA for the prior period of £17.3 million, excluding exceptional IPO costs of £26.6 million.

Basic earnings per share were 6.7 pence for the period, an increase of 28.8% compared to the adjusted basic earnings per share for the prior period of 5.2 pence (calculated on a proforma basis using the profit for the period from continuing operations, excluding exceptional IPO costs, and based on the number of shares in issue at 30 September 2016).

Segmental review

Student accommodation development

Revenues from student accommodation development amounted to £115.2 million for the period and were £7.4 million lower than for the comparative period last year. This was in line with management's expectation and is attributable to the timing of forward sales transactions. The value of developments in progress for completion is higher than for the prior year and this will be reflected in the revenues for the full year.

The gross margin for the period on student accommodation developments amounted to 21.7%, compared to 17.9% for H1 2016. This is a further strong improvement in the gross margin reflecting the increased contribution from higher margin developments in progress.

The Group has a strong student accommodation development pipeline, currently comprising 31 development sites which will deliver in excess of 11,200 beds to the market with an appraised development value in excess of £920 million. This compares to a pipeline of 31 development sites delivering 11,300 beds, with a development value of £850 million, reported in the Group's interim report last year. Of the current development pipeline, 28 are for delivery by FY 2019 and three are for delivery in FY 2020.

All developments for completion in the current financial year are sold (3,314 beds), including one operational asset, and all are on target for completion ahead of the 2017/18 academic year.

Ten developments (3,415 beds) are scheduled for delivery in FY 2018 and of these, five have been forward sold and five are in advanced legal negotiations for sale.

Looking ahead to FY 2019, nine developments (3,545 beds) are currently scheduled for delivery, eight of which are secured and the purchase of the remaining site is in legal negotiation. Six of the sites have planning (2,676 beds), with the remaining three sites progressing through planning. One development has been forward sold (511 beds) and four developments (2,088 beds) are in legal negotiations for sale.

Since 1 October 2016, seven developments have been sold (2,580 beds) and nine are in legal negotiations to sell (3,649 beds), with a total development value of £509 million. By comparison, this is more than double the £200 million value of sites forward sold or entered into legal negotiations in the equivalent prior period.

Build to Rent development

The Group has made good progress in securing its Build to Rent development pipeline. During the period a site has been acquired in Sutton, London with planning for 132 units, two secured sites in Belfast and Leicester are progressing through planning and three further sites are in negotiation for development subject to planning. These six schemes are currently targeted for delivery over the period FY 2019 to FY 2021.

Significant work has been undertaken in preparing the Group's Build to Rent development specification, which has been essential in order to specify our product offering to potential clients and to enable potential schemes to be appropriately costed.

Accommodation management

Fresh Student Living Limited ('Fresh'), which provides ongoing student letting and management services, was acquired by the Group on 25 February 2016 in order to complete the Group's end-to-end service offering to its clients, from the sourcing of sites through to the operational management of the completed developments. Fresh receives a fee for its management services, with all the direct operating costs of a property remaining the responsibility of the property owner. Fresh is engaged under management contracts which are typically for between three and seven years, although some are for longer.

For the six months ended 31 March 2017, Fresh contributed revenues of £3.0 million and a gross profit of £1.9 million, giving a gross margin of 63.2%. For the comparative one month period from the date of acquisition to 31 March 2016, Fresh contributed revenues of £0.4 million. For comparative purposes, for the six months ended 31 March 2016, Fresh recorded revenues of £2.2 million.

Fresh continues to grow rapidly in terms of its beds under management. For the current year, Fresh is contracted to manage 12,117 beds across 43 schemes. This compares to 8,310 beds across 32 schemes under management in the prior year. By FY 2020, Fresh is currently contracted to manage 19,532 beds across 65 schemes, which is an increase of 1,608 beds since the date of the Group's last interim report and an increase of 896 beds since the Group published its Annual Report in January. Opportunities to develop the Fresh business are a key focus for management and we continue to succeed in winning contracts to manage non-Watkin Jones Group developed assets.

Aligned to Fresh, the Group has made progress in developing the Five Nine Living Limited ("Five Nine") business to provide similar letting and operational management services to the Build to Rent sector. Five Nine now has 535 units under management, across five schemes, including the scheme recently completed in Leeds.

Residential development

In the six months to 31 March 2017, the residential development business achieved 31 sales completions, as compared to 79 in H1 2016. The lower number of sales completions was in line with management's expectation and reflects the fact that in the first half of last year the division completed sales of 60 apartments from two legacy development sites at Gorse Stacks, Chester and Logie Green, Edinburgh that were in stock at the start of the period. Excluding sales at these two developments, sales of new build stock are ahead of the prior year. Expected new build sales for this year are heavily weighted to the second half.

Revenues for the residential development business amounted to £6.3 million, compared to £16.4 million for the equivalent prior period. The gross margin improved to 17.5% from 7.4% in the prior period. This improvement reflects the impact of nil margin sales totalling £7.9 million in H1 2016 from the legacy development site at Gorse Stacks, Chester.

Dividend

The Board has adopted a progressive dividend policy and has declared an interim dividend for the period of 2.2 pence per share, which is a 10% increase on the full year equivalent interim dividend paid last year. It will be paid on 30 June 2017 to shareholders on the register at close of business on 9 June 2017. The shares will go ex-dividend on 8 June 2017. The Board expects to announce a similar increase in the full year dividend.

In the prior year an interim dividend of 1.33 pence per share was paid. As Watkin Jones plc was only admitted to trading on AIM shortly before the end of the first half year in FY 2016, the Group declared interim and final dividends representing two thirds of the value the Board would have declared had the Company been admitted to trading for the full year. On this basis the pro forma interim dividend for the six months to 31 March 2016 would have been 2.0 pence per share.

Balance sheet and cashflow

The Group had net cash at 31 March 2017 of £11.7 million, comprising cash of £25.1 million less borrowings of £13.4 million. This compares to net cash at 31 March 2016 of £15.4 million and at 30 September 2016 of £32.2 million.

The reduction in net cash for the period of £20.5 million reflects the Group's normal cashflow profile which, depending on the timing of forward development sales, sees a cash utilisation in the first half of the year, followed by cash generation in the second half of the year as development sites for delivery in future years are forward sold and the significant final payments due on completion of the current year's developments are received. The cash outflow in the first half of the year reflects payments made in respect of land acquisitions required for the development pipeline, predominantly those which are currently in legal negotiations for sale. Other cash outflows related to dividends (£6.8 million) and tax (£3.1 million). Cash benefitted from the proceeds from the disposal of the Group's joint venture interest in Athena Hall (Jersey) Limited (£5.5 million) and a cash inflow from the Group's development joint ventures in Belfast (£2.0 million).

The completion of the forward sale of those developments currently in legal negotiations, together with the final payments due on completion of this year's schemes will contribute significantly to the Group's cash position in the second half of the year.

The Group's interest in joint ventures was reduced by £5.3 million in the period as a consequence of the disposal of the Group's interest in Athena Hall (Jersey) Limited.

Inventory and work in progress fell by £2.0 million in the period to £126.0 million. However, a further reduction is expected in the second half of the year as the forward sales of the sites currently in legal negotiations complete.

Outlook

The Group's student accommodation development business continues to be underpinned by the attractive fundamentals of the student accommodation market, with the Group continuing to see strong demand from UK and international clients. We have seen increased institutional demand for good quality purpose built assets, with a number of new international funds recently entering the market. This has had a positive effect on development values as competition has increased and yields have sharpened. Clients looking for scale see partnering with Watkin Jones as the best way to secure new assets in prime locations. The forward sale model and student accommodation pipeline of 31 sites provides the Group with excellent visibility on future earnings and cash flow.

Encouraging progress has been made in the Build to Rent sector, with development opportunities gathering momentum. The Group has secured an excellent site with planning in Sutton, London and we are actively progressing on other sites through the planning process as well as negotiating several specific development opportunities.

The student accommodation management business through Fresh is expected to continue making an increased contribution to the Group's results. We have high visibility on the significant growth in its contracted beds under management through to FY 2020 and we will continue to target further expansion of this burgeoning business. Leveraging the expertise in Fresh, the Five Nine Living offer to the Build to Rent sector is becoming established and we remain positive in the future outlook for this still evolving market.

The status of the forward sold student accommodation development pipeline, together with the progress being made in the Group's other business segments, supports a positive outlook for the Group's performance.

Mark Watkin Jones

Chief Executive Officer

1 June 2017

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Notes to Editors

Watkin Jones is a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector. The Group has strong relationships with institutional investors, and a good reputation for successful, on-time-delivery of high quality developments. Since 1999, Watkin Jones has delivered over 31,800 student beds across 98 sites, making it a key player and leader in the UK purpose built student accommodation market. In addition, Watkin Jones has been responsible for over 50 residential developments, ranging from starter homes to executive housing and apartments.

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 six month period ended 31 March 2017 (unaudited)

Consolidated Statement of Financial Position

as at 31 March 2017 (unaudited)

Consolidated Statement of Changes in Equity

for the six month period ended 31 March 2017 (unaudited)

Consolidated Statement of Cash Flows

for the six month period ended 31 March 2017 (unaudited)

Notes to the consolidated financial information

1. General information

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

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

The consolidated interim financial statements of the Group for the six month period ended 31 March 2017 comprises the Company and its subsidiaries. The basis of preparation of the consolidated interim financial statements is set out in note 2 below.

The financial information for the six months ended 31 March 2017 is unaudited. It does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The consolidated interim financial statements should be read in conjunction with the financial information for the year ended 30 September 2016, which has been prepared in accordance with IFRSs as adopted by the European Union. The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 434 of the Companies Act 2006.

This report was approved by the directors on 31 May 2017.

2. Basis of preparation

The interim financial statements have been prepared based on IFRS that are expected to exist at the date on which the Group prepares its financial statements for the year ended 30 September 2017. To the extent that IFRS at 30 September 2017 do not reflect the assumptions made in preparing the interim financial statements, those financial statements may be subject to change.

The interim financial statements have been prepared on a going concern basis and under the historical cost convention.

The interim financial statements have been presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.

The interim financial statements do not include all financial risk information and disclosures required in the annual financial statements and they should be read in conjunction with the financial information that is presented in the Company's audited financial statements for the year ended 30 September 2016. There has been no significant change in any risk management policies since the date of the last audited financial statements.

3. Accounting policies

The accounting policies used in preparing these interim financial statements are the same as those set out and used in preparing the Company's audited financial statements for the year ended 30 September 2016.

4. Segmental reporting

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

a. Student Accommodation Development - Purpose built student accommodation developments.

b. Residential Development - The development of traditional residential property.

c. Fresh Accommodation Management - The management of purpose built student accommodation and private rented sector property.

Corporate - central revenue and costs not solely attributable to any one division.

All revenues arise in the UK.

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

5. Disposal of interest in joint venture

On 9 December 2016 the Group disposed of its joint venture interest in Athena Hall (Jersey) Limited, realising a profit on the disposal of £930,000. The proceeds received from the disposal, including the repayment of a loan to Athena Hall (Jersey) Limited, amounted to £6,210,000, of which £700,000 remains owed by way of a loan to the purchaser and is repayable within 3 years from the date of the transaction.

6. Income taxes

The tax expense for the period has been calculated by applying the estimated tax rate for the financial year ending 30 September 2017 of 19.1% to the profit for the period.

7. Earnings per share

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

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

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

Using the number of shares in issue at 30 September 2016, the adjusted proforma basic earnings per share from continuing operations (excluding exceptional IPO costs) for the 6 months ended 31 March 2016 would have been 5.196 pence and for the year ended 30 September 2016 would have been 12.397 pence.

8. Dividends

An interim dividend of 2.2 pence per ordinary share will be paid on 30 June 2017. This dividend was declared after 31 March 2017 and as such the liability of £5,616,000 has not been recognised at that date.

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

10. Analysis of net cash

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