Watkin Jones plc – Full Year Results

Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi-occupancy residential property assets, with a focus on the student accommodation and build to rent sectors, announces its annual results for the year ended 30 September 2018 ('FY18').  The Board is pleased to report a successful financial year with revenues and underlying earnings (which excludes non-recurring profit items) slightly ahead of its previous expectations.

Financial Highlights

·    Strong revenue and gross profit growth driven by student accommodation development

·    Robust gross margin of 20.0% (FY17: 21.0%), in line with our expectations and reflecting the high-quality locations of our student accommodation developments

·    Adjusted profit before tax¹ increased by 15.7% to £50.1 million and adjusted basic earnings per share¹ increased by 13.8% to 16.0 pence

·    Proposed final dividend of 5.13 pence per share, to give a total dividend of 7.6 pence per share, up 15.2% and in line with our progressive dividend policy

·    Good cash performance, with a net cash inflow from operating activities of £54.4 million (FY17: £19.2 million) contributing to net cash at the year end of £80.2 million (30 September 2017: £41.0 million)

Business Highlights

Student accommodation development

·    Ten developments (3,415 beds) completed as scheduled in FY18

·    Nine developments (4,490 beds) currently forward sold for delivery in FY19 and FY20

·    Total secured development pipeline of 7,534 student beds across 17 sites, for delivery between FY19 and FY21

Build to rent development

·    Entered into development agreements with investors to deliver apartment schemes in Reading and Wembley, for occupation in FY21

·    Secured development pipeline, including Reading and Wembley, of approximately 1,500 apartments across seven sites, for delivery over the period FY20 to FY22

·    The Board continues to explore ways to enhance shareholder returns from the build to rent opportunity, including the possibility of establishing a new investment vehicle

Residential

·    Completed 175 sales (FY17: 94 sales), comprising homes and apartments in the North West

Accommodation management

·    At the start of FY19, Fresh Property Group ('FPG') had 15,421 student beds and build to rent apartments under management across 56 schemes (FY18: 16,617 beds and apartments across 57 schemes)

·    Strong underlying growth, including first contracts in Ireland, offset by the previously announced loss of 4,597 student beds following a portfolio sale by the Curlew Student Trust

·    In total, FPG contracted to manage 18,258 student beds across 65 schemes by FY21

·    Build to rent apartments under management contracted to increase from 546 across five schemes to 820 across six schemes by FY21

Board changes

·    As previously announced, Richard Simpson joined the Board as Chief Executive Officer on 2 January 2019, with Mark Watkin Jones stepping down as CEO as of that date and as a Director of the Board on 15 January 2019

·    Liz Reilly will join as an independent Non-Executive Director from 21 January 2019

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

“Today Watkin Jones has reported a record set of full year results which show that the Group has performed strongly across all key financial metrics of the business.  We continue to have excellent visibility of our future revenues and earnings, supported by the pipeline of forward sold and secured sites for student accommodation.  The locations and forward sale values we have achieved for these schemes underpin our earnings expectations from this division over the next twelve months and beyond.

Our success in securing the significant build to rent development agreements in Reading and Wembley, together with our secured pipeline of sites, is highly encouraging.  In addition, our residential and accommodation management divisions are well positioned to contribute to progressive earnings growth.  As a result, we remain confident in the outlook for the Group.

On a personal note, having only recently joined the Group, I am very much looking forward to working closely with my new colleagues, stakeholders and shareholders to continue to deliver the excellent performance for which Watkin Jones is known.”

CHAIRMAN'S STATEMENT

Performance and dividend

The Group's performance was driven by another excellent result in our core business, student accommodation development, with encouraging progress in build to rent.  The accommodation management and residential businesses also did well in FY18 and increased their contribution.  Overall, the Group delivered pleasing revenue growth, whilst maintaining a strong gross margin, resulting in a double-digit increase in earnings.  The cash performance was also excellent, reflecting the favourable working capital profile of our business model and contributing to a robust balance sheet at the year end.

This year's performance was particularly pleasing in the context of a challenging market.  The political environment in the UK has increased uncertainty and we are seeing more competition for our people.  As an emerging sector, build to rent is also attracting new entrants.  The outturn for the year is therefore a credit to the executive team and everyone in Watkin Jones.

We look to reward shareholders through growing dividends and continue to target a payout which is twice covered by earnings by FY19.  Having paid an interim dividend of 2.47 pence per share, the Board has recommended a final dividend of 5.13 pence per share, to give a total for the year of 7.6 pence per share.  This represents 15.2% growth over the 6.6 pence per share paid in respect of FY17.  The total dividend is 2.1 times covered by adjusted basic earnings per share.

The final dividend will be paid on 28 February 2019 to shareholders on the register at the close of business on 25 January 2019.  The shares will go ex-dividend on 24 January 2019.

Board, management and people

In my statement last year I noted that, for personal reasons, Mark Watkin Jones had advised the Board of his intention to stand down as Chief Executive Officer.  Once again, I want to thank Mark on behalf of the Board for his immense contribution to the Group, which has transformed Watkin Jones into the successful business it is today.

After a thorough search, we were delighted to appoint Richard Simpson, who joined the Board as CEO on 2 January 2019, to succeed Mark.  Richard is highly regarded in the sector and has significant senior-level experience, most recently as Group Property Director of Unite plc, where he worked closely with Watkin Jones on several occasions.  He also chaired the British Property Federation's cross-sector Student Accommodation Committee from 2013 to 2015.  His knowledge and skills will be invaluable to the Group as we continue to grow.

Over the last year the transition arrangements have been put in place to ensure a smooth and orderly handover of CEO responsibilities.  This has been possible through the work we did in strengthening the senior management structure in the previous year.  This allowed us to broaden the leadership team's responsibilities, enable effective delegation and support the development of the team and the layers of management beneath.  The leadership team has responded superbly and their combined strength has made the transition to a new CEO much easier.  Given the strength of the broader management team and their ability to support Richard in taking the business forward, the Board and Mark have agreed that this was the right time for him to step back from the business and he stepped down from the Board on 15 January 2019.  Mark and the Watkin Jones family remain highly supportive shareholders.

One of the Board's objectives for the year was to appoint an additional independent Non-Executive Director, who would become Chair of the Remuneration Committee.  We were therefore delighted to announce that Liz Reilly will be joining the Board on 21 January 2019.  She has an outstanding background in human resources and the real estate sector and is currently Group Human Resources Director at SEGRO plc, a FTSE 100 Real Estate Investment Trust.  Liz adds valuable skills and experience on the Board and we look forward to working with her.  Her appointment also means that the Non-Executive Directors will form a majority on the Board, including myself as Chairman.

We recognise the need to retain and motivate our senior leaders and after consultation with major shareholders, introduced a new long-term incentive plan this year.  Details of the plan can be found in the Remuneration Committee report in the Group's FY18 Annual Report.

Looking forward

The Board remains confident in the Group's prospects.  We will continue to grow the business through our focus on student accommodation, while making further progress in build to rent, which has the potential to become a second important income stream for Watkin Jones over the next few years.

Grenville Turner

Independent Non-Executive Chairman

14 January 2019