Watkin Jones (LSE:WJG) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the WATKIN JONES PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish our responses where it is appropriate to do so.

0:29 Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from WATKIN JONES PLC. Alex, good afternoon, sir. Good afternoon, everyone, and thanks very much for giving me the time to join us in presenting our FY twenty four financial results. So I'll be joined by Simon Jones, our CFO, and it it is always tricky doing these these presentations online to a to a larger group. We're we're not going to run through every slide with a script that we that we utilized on our initial presentation last week, but we will try to run through and and really give you a feel of the key areas of business that we think we push to be focusing on and that we are focusing.

1:18 And hopefully, that will gender, you know, good information for you guys. And likewise, we're we're very happy to pick up sort of anything that we haven't picked up under q and a. So I shall look to kick start that. So just in terms of an agenda, you know, I'm just gonna give a short overview reflecting on, I I guess, the key areas of the business as I see it. I'm then going to sort of move and touch on the market overview sort of that's really the transactional investment markets as we see it as well as the the operational strengths of the sectors that we operate in. Simon will then clearly run through the financial results, cash balance sheets, etcetera, before having a little little look at the outlook.

2:03 We're then going to give a brief update in sort of the key divisional updates and take take you through sort of, I I guess, the progress we made in the year there before summarizing and moving to q and a. So hopefully, that will, you know, cover a good breadth of the business. So turning first to the overview. Well, I I think, you know, as a management team, we have to be pleased with the the overall operational performance of the business, you know, over the last twelve months. You know, the the market circumstances have remained challenging. I think you're all aware of, you know, the challenges of inflation, you know, the result of knock on impacts on interest rates and and the slower than hoped for reduction in those. I think people will be very aware of the guilt rates and the spike in those and and clearly just, I guess, the political uncertainty that we had caused by the general election. So with that economic backdrop, you know, I I think our financial performance and our operation performance really has been quite strong.

3:07 And and it's it's kinda continued the theme that I talked about last year. I I think when I spoke last year, we we we recognized that we really had to focus on ourselves as a business. We had to really make sure that we were driving efficiencies within the business. We were really maximizing any opportunities that did present because we couldn't rely on the external market. And I I think it's that real focus on the detail in the business, which is, you know, largely contributed to a much improved adjusted operating profit of 10,600,000. I think also very importantly, you know, really strong cash performance for the business. We've outperformed the cash from 2023. I think we've outperformed the cash from our own forecasts with a gross cash of 97,000,000 at year end and a net position of 83,000,000, which clearly means that we've also been able to pay down a significant amount of our debts over that twelve month period.

4:04 I think those are two absolute key pillars in our sort of financial resilience as we sit. And the third of those is is our HSBC facility, which we successfully renewed right at the close of the calendar year and gives us an extra two years now with which to look to give us firepower, you know, when when we're operating in the land market and looking to acquire new sites to build out our pipeline. Simon will take you through those sort of financial positions. You know, I I I will, you know, say that he has made a material impact on the business since joining. I think his real pedigree and sort of financial elements of the real estate has really added something to the business, and he's too modest to say himself. So I I will give him a shout out because it it's made a a big difference.

4:52 So as I see it, those key financial pillars, profit, cash, and and that deposition really give a good underpin and resilience underpin for the business. I think if you then look at the operational side, you know, I think, clearly, liquidity in the investment markets does remain constrained for for all the reasons I just outlined. And what we've tried to focus on in the business is how how do we innovate, how do we demonstrate transactional agility, how do we make deals work even when the the external markets are challenging. And, know, I think we've absolutely demonstrated that this year. We'd like to have done more transactions, but the transactions we've done have been high quality and they've been profitable. And I think that's very much borne out by the deal we did in Stratford, which was a sort of joint venture with HGP who are part of the Lloyd's banking group.

5:44 Change in structure for us, but one which gives us gave gave us a significant cash boost to the business. It also provides us with a secure margin position, and then it also provides us with the opportunity to outperform that margin position when the scheme is delivered and stabilized, and that's something you don't normally get with a full fund structure. So we believe that the market will correct. There's likely to be some yield shift over the next couple of years, and we're likely to see more rental growth coming through. And if those manifest, then we we should be able to generate additional margins from this structure, which in the current market and the current timing, we think is sensible. I think another part of key facet of the business, which I talked about last year, was our revenue diversification.

6:34 And we'll come back to sort of the detail of that, but, again, we've been very encouraged by the early starts that we've had on our refresh business and our development partnership business, and and they will form a a really core part of the business going forward as we look to diversify and create more resilient income streams for the business. But on on the more traditional sense, in terms of pipeline growth, again, you know, as a business, we we really try to make sure that we're we're keeping to our viability sort of criteria. You know, we're not there to buy sites which aren't profitable, and and it's been challenging buying sites in the last two, two and a half years due to viability constraints. But, nevertheless, we are seeing much more opportunity in the land markets at the moment, you know, much more viable land opportunities.

7:22 We were able to buy two new sites over the course of last year, and we're under offer on a further four. So we think that's showing good progression, and and and and we're pleased with that progress. And you'll see later when we come on to our overall pipeline, we now have a circa 2,000,000,000 or just short of a 2,000,000,000 pipeline, which, again, is, you know, part of the end game is to rebuild that pipeline to generate revenues and margins sort of long into the future. Moving to the next slide. Again, I I won't dwell too long on this. This is what we're trying to do is really operate the business across two distinct time horizons. You have the short term time horizon where, undoubtedly, market challenges still remain. And, again, I I won't repeat myself. You know, that that that real suppression of liquidity has has been challenging, but we have demonstrated that we're able to do development transactions and then they are deliverable when driven by the right quality and and the right structuring.

8:21 I think the medium term is is very much where we should focus because we still believe there's very, very strong sector fundamentals and growth opportunities within the sectors we operate. You know, I still can't think of any of areas of real estate in The UK that I'd rather be operating as a business. We feel like there's strong political support with this continued structural undersupply and suppressed delivery very importantly. Yeah. I I think these positives fundamentals drive investor demand and, you know, in in some ways, it's unbelievable. But over the last two and a half years, which have been tough, investor sentiment has never waned. You know, we still see huge investor sentiment wanting to deploy into residential for ends in The UK, and I I think that is good reason for medium term optimism.

9:11 Moving to the next slide. So I I guess in terms of how how we look at the business, how how we're trying to evolve the business, how we're trying to position ourselves for growth. Well, the first of those I've touched on already, just pure execution. They're really making sure that we've got cost controls and efficiencies. We're looking at every area of the business, looking to optimize performance. You that's apparent in our delivery side where we're looking to drive margin across, you know, the whole the whole area of that outside of the business. And then also in in our transactions, how we design them, how we plan them, constantly looking for that outperformance. I think a a real key element that we'll be talking about is is how do we broaden our revenue base. I think this business is very, good at generating huge amounts of cash and profitability when markets are very, very liquid.

10:04 I think, clearly, we've hit a liquidity wall. And so what we're trying to do what we wanna create is a much firmer, more visible, granular income base, and we're trying to achieve that through our refresh refurbishment business, through our development partnership businesses, and also through our existing fresh operational platform. And we also believe there's opportunity to drive asset management fees, which will be more of a recurring nature in certain structures that we can do with investors. So the key aim here is to create a solid base which will augment the more traditional transactional subjects of planning deals that we do. So overall, looking to grow the business. We're not looking to shrink our transactional business. We want to grow that as well. But if we can create a firmer base, we think that will drive resilience into that medium term.

10:54 So I I think that's really, you know, all all there is to say on that. I think the the one area that to to pick up on because we we did do a market update in August where we talked about our funding opportunities. And I think that's still very much something that we're interested in looking at. We do believe there's huge opportunity available in the sectors that we operate. We want to find the right ways to to access those. So we continue to explore whether there's more interesting development structures that we can do with our investors. Is there something more programmatic that we can look at which might fast track pipeline coming through both on our existing pipeline, but also on future pipeline. So, again, we we feel like we're doing it from a position of strength of financial resilience, but if there is more innovative structures we can employ, then it makes sense to explore them.

11:44 So I think that that covers the the broad headlines for what we're looking at in our in our business and what what's important to us. If if we just look at that sort of market review market review and backdrop,

12:00 As I as I said, sort of from an operational basis, the the sectors we operate in, which are predominantly the PBSA markets and build to run markets, you know, they they still are continuing to perform, you know. And I I think there's very good rental growth has still come through. We are expecting very much that rental growth to moderate to much more sort of inflationary led pattern, but lettings remain high. And and we are we are seeing seeing that growth in custom demand still coming through. I think on student numbers, they're still forecast to grow. UK domestic students, we we still are expecting 2% year on year growth in a in 18 year olds in The UK over the next few years. So we we expect that supply demand balance to to absolutely remain, and and and that will continue driving good occupancy levels and and rental growth performance.

12:54 I think I think that turning then to the investment market, as I said, you know, we all know it's being constrained. You know, perhaps some people don't realize how constrained it has been. I I think if you look at the transaction volume in 2022, you know, it's upwards of 12,000,000 versus a sort of transaction volume in '24 of about 6,500,000,000. You know, that that is a stock sort of drop off, and and transaction volumes in '24 were significantly below the five year average. I think, importantly, from our point of view, is looking at how how we're faring in the markets. And I I think for a good while, we've maintained that as a a development business and a construction business and an operational business. We are absolutely holding our own, and we believe that we're outperforming, you know, the vast majority of our competitors.

13:44 And, you know, some analysis that we've looked at just on the PVSA student side, we believe we were responsible for about 16% of the volume of PVSA development transactions last year. And that plays against a long term average for us of about 13% of market share. So we feel that's a a good demonstration of us us maintaining and actually slightly enhancing our market share, which will bode well as as as markets recover. I think the question that we've been asked by a lot of our shareholders, you know, is on that market recovery and it is on that investment sort of landscape. And, yeah, I I guess, conveniently, Knight Frank did did publish one of their investor sentiment surveys the the day we announced our results and and that identified circa 45,000,000,000 of capital looking to allocate in The UK residential sectors over the next five years, which is, you know, clearly a significant number.

14:42 You can't hang your hat on it. It's a it's an investor sentiment survey. But, nevertheless, it is a good pointer. And, you know, something that is more tangible is when you see new entrants coming into the market and, you know, we are certainly seeing that. And just to pick out a couple, Goldman Sachs, you know, they've historically played, you know, quite heavily in in UK, PBSA and then exited. They've now come back in. They they did a couple of transactions just before Christmas. And then you've got new funds like the Australian Superannuation Fund. So they've just announced a new UK PBIS PBSA mandate, and they've already started deploying in their first transaction. So that that's always a really good line in the sand for us just to look at is capital coming back into the market, you know, and we are seeing that alongside our ads, some more traditional players. So M and G, you know, a core institutional player in the residential for rent sectors.

15:39 They've they've they've just announced a deal they did in December back back end of December on a forward fund PVSA in in Stratford. So there there are some emerging signs of of capital deploying again. I I think the the next slide is is quite important to explain what's happened in the market, and and it it really comes down to, you know, the the different types of capital he wants to deploy and the changes that we've seen within it. So in effect, we we group capital in four key buckets. You've got core, which is the lowest risk, lowest cost of capital, all the way through to your opportunistic, which tends to be the higher risk, but higher return requirements. And, you know, typically, your call will be your your core institutions, your legal and generals, etcetera, and your opportunistic is more likely to be private equity led vehicles, but it does blend across different houses.

16:36 So I guess the key thing to come out in in the last sort of eighteen months in the market is, whilst core strategies have stayed relatively level, the the deal focus for core strategies has changed. So historically, core strategies would do development funding. They would fund you through a development period. They retrench from that a little bit just because the economic risk the wider economic risk was viewed as, you know, higher. So they they they saw more risk averse deals. And then the the real big movement has been the 20% reduction in core plus strategies. Now core plus strategies tends to have the right blend of risk approach and cost of capital to really be the engine room for development fundings. And and with them exiting it, the market or or or reducing their profile, that's being replaced by more opportunistic money.

17:30 So you can see in the graph beneath that has led to a massive reduction in in the forward fund markets over over the last couple of years. It's about 50% off the sort of ten year average. And that really explains you know, for very succinctly what's happened in the market. The reason why we're looking at more innovative structures has been to, you know, step towards the capital and and create deals that that can work and can be profitable still.

17:59 Moving forwards, though, you know, we we absolutely believe, you know, there will be a pathway back to more traditional forward funding. You know, we fundamentally believe core money will come back into the development funding arena and core plus strategies will will come back. And what gives us this optimism? Well, know, firstly, the constraint supply. You know, we are continuing to see demand growing, but if whatever metric you want to look at, if you want to look at planning consents or planning applications or starts on sites or units being delivered across both residential and students, they've been reducing. And that lag will take a decent amount of time to to correct it. It can't correct instantly. So that's gonna continue driving that demand.

18:44 I think investors like scale, and investors want a scale of opportunity, and they will be looking to deploy in the scale. And, historically, they've they've gained that scale through forward funds. That's given them the best opportunity to grow their pipelines and and and grow their models. Forward funds still represent an attractive way in for investors. They like to buy the newest kit, you know, the most up to date with building safety, ESG, and the best locations with with the most, you know, modern sort of soft furnishings, etcetera, to to sort of drive that rental profile. Ford Fund allows them to do that. And, fundamentally, whilst people don't know the velocity of interest rate reductions, you know, I I think there there is a relatively uniform view that interest rates will come down over the course of '25 and '26.

19:39 Gilt rates will come down, and that will very much help drive stability and and enable the sort of core and the core plus, you know, financial strategies to deploy again. So overall, we we do have good positivity about that market recovery. And if you look back to the GFC, which was probably the large, you know, the the biggest, most recent property downturn, if you look at the sectors which came out quickest on the rebound and and and most successfully, it was the PBSA markets, it was the residential markets. And if you look at the businesses that came out on top coming out of the GFC, WATKIN JONES were absolutely one of those businesses.

20:20 We mobilized quicker than others. We were able to generate revenues and margins quicker than others. And but that that's absolutely the aspiration for Simon and myself and and the wider management team is is making sure that we are on the front foot as as the cycle does correct. So I'm I'm now gonna hand over to Simon to just give you a high level overview on on the sort of the key financial highlights for the business. Yeah. Thanks. Thanks very much, Alex. Just just before going through the numbers, I'll I'll just do one on this slide just for a moment. Obviously, as Alex mentioned, this is my first annual results presentation for WATKIN JONES, and you can see here our card scheme for legal and general.

21:01 They're built right next to Cardiff City's railway station, and I think it really does show show to me this the sheer capability of the WATKIN JONES business in terms of managing all the implicit risks from site selection planning, divestment, and delivery. You really cannot be impressed as you get off a train at the city stations to the the scale and quality of this department. Now moving on to our financial results. You can see here the trading profit loss account for '24 versus '23. Whilst our revenue went up slightly, I think the key thing I'd like to draw out here is the improvement in our core trading gross profit of 12%, just over £14,000,000.

21:49 One of the key transactions that we delivered in the year was the divestment of our scheme in Stratford to a joint venture owned 75 by Housing Growth Partnership, and that's a St. Julian Lloyd's Banking Group and 25% by WATKIN JONES. Under accounting standards, this is considered a sale of a subsidiary. And as such, we cannot show the divestment without within our operating margin in the financial statements. So here, for comparability, I have shown that profit within core gross trading profit for to a comparability and understanding of what's going on in our numbers. And equally, as it was considered a sale of a subsidiary, the the the the revenue is not shown within revenue, and that's one of the main reasons why revenue is is is down by that 12%.

22:41 It accounts for approximately half of that decline in revenue. If it had been a traditional forward fund sale, that would have been shown within revenue.

22:51 Despite the inflation environment, we continue to work really hard, not only in terms of operational costs but overhead costs. And you can see here that, that continues to bear fruit in terms of an inflationary environment where over the year inflation was about 3.5%. We constrained our overheads coming down by £600,000 year on year. And this has driven the significant improvement in operating profit to £10,600,000 as Alex mentioned, which is a great result and a true testament to the strength of the business and the resilience and hard work of all the people within WATKIN JONES.

23:30 If I now break down the gross margin a little bit further, I've illustrated here the forward sold margin, gross margin at the start of the year. That amounted to some £24,000,000 or 60% of our outturn of £40,000,000. The biggest element of our growth during the year was the forward fund of our gasoline scheme in Bristol and the divestment of our strike site I just mentioned. And this in total these two in total added about another £10,000,000 to our gross margin. Our new business area refresh, which is effectively refurbishing PBSA and VTR schemes across The UK from a standing start had a truly successful first year, delivering a margin of almost £2,000,000 in the year, substantially in excess of budget.

24:21 And Fresh, our accommodation management business, delivered a further contribution of £4,000,000, bringing the total to the £40,000,000. Moving on to our our cash flow. We delivered a truly impressive performance in terms of trading cash flow, showing substantial growth to £55,000,000 from an outflow of £31,500,000 in the prior year. Now again, just to aid comparability, I've shown Stratford within the trading cash flow, whereas in the financial statements, it's presented further down the cash flows in investing activities. This, together with our debt more than halving due to the sales of Gaslane and Stratford, resulted in a year end cash balance that Alex has already mentioned of £97,000,000 gross or £83,000,000 net.

25:17 One of the things we also achieved during the year was the extension of our £50,000,000 RCF facility with HSBC, which for a further two years, which is really testament to the strength and the quality of our business with HSBC supporting it for a further two year period. And that gives us the flexibility in terms of financing to use to fund growth opportunities over the medium term. If we move on to the balance sheet, we can see net assets have increased to £132,600,000 in the year or 47p per share, reflecting the profit, and that 47p excludes the goodwill elements on the balance sheet, so it's just tangible net assets. Inventory and WIP have reduced, reflecting the same of the two schemes in the year, and the practical completion of six further schemes and consequential cash bullets that we received have reduced the contract assets again in the year further.

26:17 Overall, the provision for building safety has fallen by just under £7,000,000 to £48,000,000 as we completed on time annual budget three schemes and further schemes on on plan during the year. However, we have taken a small incremental provision of £7,000,000, and this is driven by the completion of investigations on some further properties, including the remaining work is needed, so necessitating the provision, together with some additional scope changes to properties already under undergoing works. However, we have been very successful in securing contributions from building owners to these works, and we retained £7,600,000 on the balance sheet, which will be recovered as works are unpaid taken.

27:05 And further, we're continuing to evaluate evaluate recovery of costs from our supply chain, and we've got a team actively engaged in this giving us confidence we will achieve some cash recovery. So if we move on to the outlook for the future. As Alex has said, market conditions have been challenging, but we are seeing signs of improvement, and the pace of this is almost certainly gonna be continued driven by the further reduction or this the pace of further reduction in interest rates and especially Gilberts. So that's that said, there remains a range of outcomes for market conditions over the remainder of the year. During 2024, we focused on controlling our costs and efficiently managing cash flow to deliver the truly exceptional operational performance I've just mentioned.

28:02 We've got a good pipeline of sites either in planning or expected to secure planning in the year. These are in the market and shortly to and and will surely to be marketed, and we've been pleased with the end interest so far that these projects have been achieving. That said, investors do remain cautious when transactions are taking longer whilst the the market backdrop remains volatile. So it's really difficult at this stage to be more definitive on how many transactions we can conclude by year end. What we do expect, though, is our focus on refreshing development partnerships will augment the traditional forward funded business, such that the total transaction pipeline pipeline is likely to increase in number but with a smaller average size.

28:54 As all these business areas have progressed over the next few months, we'll provide a further update at the half year. I mentioned the good momentum we're getting with Refresh, and that's true in as well as new business area of development partnerships. And that's giving us a medium term aspiration to grow in these areas of the business from their current 20% of revenue to 40% depending on how the on how and when the traditional market recovers. We see clear positives in this diversification. It will allow much more predictable business performance over time by counteracting the uneven profile created by the large upfront land profit associated with traditional forward funds.

29:43 For each of these business areas, we expect margins to be largely in line with the guidance that we've given. And as the existing pipeline is fulfilled and new schemes transacted, we expect these margins will turn to these levels. If we do see a significant shift towards refresh and global partnerships, that would flow through to the group margin overall, but we believe the visibility and predictability benefits will more than justify that. So in summary, we're looking to create a much more resilient and so visible revenue base. Moving on to the pipeline. You you can see from this slide, we've got a significant, replenishment of the pipeline to total just under 2,000,000,000 of live opportunities, And we've worked incredibly hard over the year to grow the pipeline, and it's especially encouraging to see a number of the new assets have entered into the pipeline in the last year.

30:42 Importantly, just over a quarter of this pipeline has a planned consent, and in the year, we achieved consents on four sides amounting to about two two thousand five hundred and seventy beds. These schemes are ready to be divested to deliver revenue and profit. Equally, to have built a £240,000,000 hyperlite of development partnerships with sites and legals or Ford sold gives us great a great grace for our strategy of augmenting our existing business with different partnerships and refresh. So in summary, as I said, this is my first presentation of WATKIN JONES results, and I'm really pleased to be able to present to you such a strong set of results with operating profit of 10,600,000 and an outstanding gross year and cash figure of $977,000,000.

31:36 Finally, I've just outlined some exciting plans to evolve our business model with refreshed development partnerships supported by a growing pipeline of additional opportunities. So I'll just hand back over now to Alex to go through the divisional updates. Okay. So, yeah, I think quite a lot of this has been covered already as as we've gone through the slides and the divisional updates. So I'm I'm not going to lay with lay with these slides too long. Clearly, we we've talked about the development pipeline growing. That's that's a key key aim for us to provide that sort of longevity of revenues and margins. We've we've done very well in in planning and and we think, you know, our our land buying, you know, the opportunity is getting better and better there. So that that gives us good good reasons for positivity.

32:25 I think also, they look looking at that sort of the the more macro, the the government policy support for future residential developments is is very good. They we've clearly got a target of 1,500,000 additional homes. I don't think there's anyone in the market who who doesn't think that's a challenging figure, but I do prefer to look at the that figure optimistically. You know, that is a statement of intent. That is that is ambition. That is drive, and and and that's what the sector needs. And, you know, for the last ten, fifteen years, everyone in the market has complained about the planning planning situation. You know, labor are coming in and and and the rest of it is good so far. You know, we need to see more detail, but they've made some big landmark decisions which, you know, bode well. They've they're clearly making statement of intents to say, we want to get Britain building again. So the MNS on Oxford Street is a prime example of that where, you know, they've ultimately chosen growth and and prosperity over, you know, heritage and and ESG.

33:26 So they're they're making a number of clear signals that they want to see an evolution in planning and and then they want to see more more growth and, you know, we've we've got to applaud that. I think also people tend to forget sometimes that actually probably 90% plus of what WATKIN JONES do is urban brownfield regeneration, and that sits very, very comfortably alongside labor's policies wanting to increase that density in in in cities. If you look at the new planning sort of guidance that that's come out, there's some very supportive new wording gone in about the presumption to grant planning consent in urban brownfield locations. You know, we need to see that manifest in detail, but, again, highly supportive of what we're trying to do sort of going forward.

34:17 I think, obviously, this sort of divestment side we we've covered in in the market and our progress. And Simon's touched on our development partnership strategy, which which is, you know, so far given us a visible pipeline of, you know, near nearly a £250,000,000, which is which is a very promising sort of start. And I I will come on in more detail. We we signed up recently to a development partnership in Saint Helens. So a great regeneration opportunity delivering 295 affordable homes on a very, very capital light basis to WATKIN JONES. So I'll cover that in the case study in in the in the slide or so. So just looking at absolute case studies.

35:02 So we have talked about this this Stratford Stratford JV a little bit, but what what what I think it really demonstrates is, firstly, our adaptive approach, you know, ability to be agile, look look at what capital requires, look at what the market's doing, and then profit profitably structure a a a deal. It gives us a secured level of profits, which was in line with our budget margins, but then it also delivers that upside potential. You know, the ability to lock into a market recovery later driven by rental growth or yield shift whilst not actually having a a material cash flow impact, you know. The cash flow impact on the on this structure has been very, very similar to our normal forward fund structures. And it also gives the opportunity for operational alignment with the developer, with with the contractor, and we'll also be the end operator. So our our own ability to control our own destiny is is really important on on this deal.

35:58 And I I think it's it's a very good structure for us considering the market. The the next case study is is, a good illustration of what development partnerships mean. So in in this instance, we we were able to partner with the Howard Group who owned the sites up in Saint Helens and then achieved an outline consent for residential. We we stepped in and we provided all of the detailed planning guidance, detailed design to make sure that the scheme was viable and, you know, appropriately structured. We so we unlock that value through achieving that detailed planning consent, and then we were able to deliver the value by being that developer and delivery conduit for Taurus Housing Association.

36:49 So we will be that that deliverer of of that scheme. All of that's been achieved without us putting any capital inflows in into the deal. I think the maximum we've been out of pocket is probably £30,000 on legal costs, but we've been cash flow positive all the way through the rest of the development. So from a rocky perspective, it's great for us, and to us, it's delivering a very sensible risk adjusted margin sort of around that to the 10% mark. But we haven't had to take, you know, any exit risk in terms of the investment markets. So to us, it's a great great risk adjusted reward for for for this project. I think I I won't touch too much on delivery, but I have seen a couple of questions come through on on inflation.

37:35 So I I will pick up on a couple of bits. To to me, our delivery capability is one of our key differentiators in the market. It's it's one of our key differences to other developers, and it's a real enabler for us to pivot our model. You know, the ability for us to do our refresh, refurbishment model, the ability to do development partnerships, all of those are are bought about by us having that in house construction expertise. I think the other bit that having your in house construction, it gives you much greater cost control, design control, making sure you're doing the right value engineering, make sure you're maximizing the scheme. You're you're not incumbent on a third party contractor to do that. And then, you know, we we've been doing this a long, long time. We've got very, very established supply chains and buying power in the sectors, and we do think that gives us the opportunity to outperform other developers and and other contractors.

38:32 And how does that manifest on an inflation basis? Well, look, to us, inflation is absolutely moderated. It's it's it's down at the sort of two and a half, 3% sort of level. We have become much, much better as a business at analyzing inflation and and and checking its direction and adjusting our our underwrites accordingly. So we have a bimonthly inflation committee, which sits looks at the forecast and then adjusts our models to reflect, you know, our our current thoughts on where inflation is. What I'd say at the moment, we we have inflation contingency on all of our projects that are in build, and we are well within those. So we feel like we're performing well in in the current inflation environment.

39:20 So turning turning to refresh, we we've we've spoken quite a lot about it already. And just to remind people, this in effect is our ability to refurbish, repurpose, reposition existing residential assets. And that could be work streams including remedial works, you know, fire safety works. It could be ESG works looking to boost the credentials of a building, or it could be more on a cosmetic nature, a refurbishment designed to reposition an asset or increase its net net operating income. And the reason we like it so much is because it does create a a hedge for us in in effect. It's much less market liquidity transactionally linked. It's much more granular in its nature. You have projects which might be only 500 k's worth of revenue.

40:10 We've done a couple of 5,000,000, and we're in exclusives exclusivity on one, which is closer to the 50,000,000 mark just depending on the scope of work. So we like the granularity, you know, and we like the fact that it's it's gonna be recurring income. There's gonna be assets up and down the con country consistently needing some form of repositioning or refurbishing. We are really happy with our progress. You know, we've doubled our revenue budgets for '24, and and also we doubled our margin budgets, and and we got good validation on the margins that we were assuming. So, again, we we've we've looked at achieving 10 to 12% margins on these schemes, and and that's what we've been able to deliver, which is really encouraging. I think the opportunity the scale of the opportunity is larger than than we thought when when when we launched this last year. You know, we've identified over 500,000 PBSA beds alone, which we think could have the potential of some form of refresh strategy.

41:12 We also think it could spread into more PRS, more private rented sector residential, less less build to rent because build to rent is more modern, but certainly in that, the block management to PRS, we think there's there's a real possibility there. And also the university markets. Universities still hold a large number of student accommodation. It tends to be older, and they tend to like to partner with the private sector. And I think that that is a real opportunity for us. And that and that's really sort of resulted in, you know, a quite substantial tracked pipeline for us of over 100,000,000, of which 50 millions worth of revenue we are in exclusive negotiations. So, again, really, really good progress and something we're looking to build on and and equip the business to build on.

41:59 The the the case study here is is just a a refresh project, which is very much more on the the cosmetic refurbishment side. So this was an asset which was completed in 2016. Fresh operated the building and they were able to originate a refresh deals, you know, by liaising with their clients. It was a private equity investor. They wanted to increase their NOI. They they are likely to look for a sale in this asset. They wanted to maximize the potential of the scheme. And in doing so, we agreed an accelerated eleven week program to effectively refurbish all of the communal areas, bedrooms, kitchens within the scheme to help them, you know, chain changes position within the market.

42:45 This generated revenue just short of 5,000,000 over, you know, that short time period and and again was very much in line with that sort of margins that we've we've been targeting. And I I think it's a great, you know, exemplifying sort of case study of what we can do. This is very capital light. There's no particular lead in time with planning or site enabling. So, again, just a real benefit to the business, I think. Just passing the time. I'm gonna just give a couple of words on Fresh. I have I seen a couple of questions on Fresh. So let Sam cover that and and then the ESG side and then we also look to close and go to q and a. Great. Thanks. Thanks, Alex. So last year, Fresh had the same market challenges that that we faced in WATKIN JONES, less developments coming through the market due to the current economic climate.

43:42 Despite an overall fall in units because a client insourced a number of units as part of their strategic plans, we did successfully onboard 2,335 units, and that makes Fresh now the third largest third party managing agent for PBSA in The UK, holding about 11% market share. Operationally, we continue to make great improvement in terms of client and residents' experience. And in 2024, our client NPS score rose to plus 62 and the resident score up to plus thirty thirty six, which is significantly above the industry average. Although student demand does remain strong, our overall occupancy did take a step back mainly due to one city where we mobilized two new assets.

44:30 However, many cities continue to perform incredibly well achieving over 98% occupancy. In our development pipeline, there are over 90,000 beds in cities with planning, applications, consents, or under construction. So combined with the 6,000 beds we're tracking in pricing of 25 and additional 9,000 beds until '28, we're confident that growth is achievable. Indeed, we've already secured about 400 beds this year and have the preferred bidder on about another 700 progressing toward legal agreement. So just now moving on to ESG. This year, we've seen excellent progress with our future foundation strategy. One of the key ways we can assure we have a positive impact on the areas in which we develop is through the design of our buildings.

45:24 As I mentioned on the slide here, all our schemes are designed to BREAM excellent or HQM four star, ensuring we continue to provide sustainable homes that improve the local communities. We also continue to make progress in reducing the overall carbon footprint of our operations. This is achieved by, for example, specifying green products, advancements in construction, so kitchen pots, for example. We trialed in terms of greenfield for our site machine and improving our recycling targets way beyond our internal metrics. As part of our commitment to having a positive impact on the local environment is our commitment to being considered contractor. We achieved an average score of 42 this year, again well above target.

46:16 Our teams continue to work hard to raise significant amounts of money for good causes, totaling over 38,000 through charitable events. Fresh have deepened their partnership with the British Heart Foundation, who benefited to the tune of £116,000 and prevented 44,000 kilos of waste going to landfill. So just handing back over to Alex for some concluding remarks. Thanks. I think I'll save the concluding remarks right to the end because I'm just conscious that there's been a lot of questions come through and kick in that that we can answer some of them. So just what what I'm gonna try and do, the the the there's lots of variations on themes.

47:01 So I I think we we've had some on margin and and and overall margins. So I guess where where the business has been historically has been, you know the the target was for student accommodation. It was a 20% gross margin. And for build to rent, it was a 15% gross margin. And, you know, up until sort of the real economic challenges, we were, you know, traditionally hitting hitting those numbers. I think it's it's very important to stress that they those figures were outperforming the market by quite a considerable amount, and they were they were outperforming the market by the fact that we've we're quite a unique business. We can add value at the site buying stage, the planning stage, the design stage, the construction stage, and the operational stage. And we we look at our returns holistically, and and those combined together, you know, we're we're enabling us to achieve those sort of high margins.

47:56 Rival competitors might be down more than sort of 10 to 12% margin level sort of typically. So nothing has changed within the business which should prevent us growing the margins back to that level. But I think the one thing that has changed is obviously the interest rates environments. And whilst we absolutely expect interest rates to moderate, we don't expect them to go down to zero again. Now if we operated in a very pure market, you know, that interest rate impact would then progress into the pricing, which would then progress into build costs and land prices, and you should still be able to sustain the same margin. But I think we're we're sort of trying to be a bit more cautious in that, and we we've taken down the margin expectation on our sort of core deals to that 14 to 15% sort of level, which again, on a risk adjusted basis, we think is absolutely appropriate is is still in excess of the majority of our competitors in the market, and we still feel it's achievable due to that those those key USPs, in particular, having that in house construction where margins tend to be sort of four to 5%. So you can see how how we build our margins. So that that that hopefully addresses where we're seeing margins and and and and how they'll manifest sort of going forward. And that that's certainly what we're seeing on the new assets that we're we're looking to acquire at the moment.

49:18 The the next question I'll call out is, again, just on the building provisions. So perhaps, Simon, you take this. Yeah. Yeah. That's fine. There's a there's a couple on the sort of building provisions. So I'll try and cover more of them and we'll go. There's there's there's one here talking about a specific building in Wales in the Welsh government pact. A couple of questions about do we think the provision is adequate in this sort cash profile. So first of dealing with the the the building in Wales. So we have signed up to the the Welsh safety pact in in Wales, and the building referred to, doc Victoria, is is under investigation from a remediation perspective. Our initial thinking is there's very limited works need to be doing being done, but as with all the remediation, we're doing an FREEW, which is basically an intrusive survey of the external walls to be sure that there's no additional work or further works that will be needed. That will be done in the next coming months and any work would then be phased accordingly.

50:19 In terms of the size of the provision, we have a provision of £48,000,000, as I mentioned. Guidance from the government has has has recently been issued suggesting that those works, a reasonable period, which is what it says in the Building Safety Act, would be over the next five years. So we're expecting that £48,000,000 to be spent in cash terms over that period. So sort of 10 ish million pounds per year, $1,012,000,000 pounds per year. In terms of is the provision adequate, we believe at this point, based on all the information we have, absolutely that provision is adequate for the works that we've identified that need doing. Know, seeing many companies in the development sector have increased their provisions substantially as it's not gone up substantially at this year end. I don't think anybody can say that there won't be any further provision, but I think what we can take comfort from is the fact that it's gone up by £7,000,000, which is significantly, you know, an order of magnitude difference from where it was the year before of £35,000,000.

51:23 I think that covers all the questions that we've been saying. Yeah. I think so. I I think the next one, which is, yeah, receiving a couple of questions is, Yeah. We obviously made a trading statements update on the August 31, which which covered a number of factors. But I think one area was wording regarding sort of long longer term funding, and there's a couple of questions here sort of asking about the uncertainty of the wording and and arising from that statement and whether we are considering to do some form of rights issue. And and, firstly, I can I can say, you know, it's it's not in our mind at all, you know, doing a rights issue? I I think what we were intending to do, you know, if if you look at the environment that we were in in August last year, you would say the market just has continued to to be right in terms of its recovery driven by the sub and inflation interest rates, etcetera, etcetera.

52:21 And what we were saying is, look, we think there is significant opportunity in the markets that we operate. Want to be able to take advantage of them quicker and grow revenues and margins back quicker, and we want to explore whether there's sort of development funding options available to us, which might be a bit more innovative than we've done before, might be more programmatic, might involve doing sort of something programmatic with one particular investor just to explore whether there's something which will be accretive and capitalize, you know, the the business' recovery. That was very much the intent behind that that statement. If if you look at where we sit now, you know, not a lot has changed from a market perspective. It it still moved right. There's there's still challenges there. We still think the medium outlook is very, very good. I I guess what you'd say has changed within WATKIN JONES.

53:13 We're we're probably more financially resilient in the sense that, you know, we've done well on our cash management as as Simon said. We've renewed our facility, which was, you know, running down back in August. We've now got an additional two years. So I I think that financial resilience is is is very much there. But but equally, we still think there is a massive opportunity in the market, and we want to make sure that we're getting the right balance between being risk off in terms of our cash and making sure that we protect the business and keep that financial resilience, but also take advantage of of what we see ahead of us. And so we'll continue to have conversations with investors. We didn't have we didn't make huge steps in q four last year. It it wasn't the right environment, but, you know, we we are having interesting conversations with, you know, key clients that we work with previously or other investors in real estate where we are looking at, you know, whether there's something interesting. And, you know, I I do think we do this from a position where if it's accretive, great. We'll we'll look at it more. If it's not, then we won't because we fundamentally believe that we can make transactions work, you know, being more innovative on a single transaction basis.

54:25 And we've got a lot of, you know, optimism about our diversification strategies going forward and a market recovery. So hope hopefully, that that covers all all all of those questions relating to to that. There's a question here about transaction structure. Do you wanna pick that up or not? Just talk a little bit about structure. How is this such a change? K. So the question says, why was this such a significant change in the transaction structures in the market? Does this change the economics of the business model? Is it pretty much the same as forward funding? Yeah. Look, I mean, hopefully, I've answered that to a large extent to sort of say, look, the changes in transaction structures have been driven by the interest rate environment and and the change in capital strategies. And it's more about trying to flex the model to protect an investor's downside position, but also make sure that there's enough margin for us to be able to trade profitably, you know, a sort of base case scenario.

55:24 And and that's that's what we've done with Stratford. And Simon, if there's any other secure Yeah. So there was also another question about Stratford and how it's accounted for. I mentioned the difference there from the traditional forward fund. So we we do reflect the revenue for Stratford as we build it out within our p and l. So that that's coming through the p and l from from the date of transaction in July until PC in '26. We do hold back because it's a six seventy five twenty five JV, we do hold back 25% of the build margin, so that will be reflected as a profit once the scheme PC is sold in 2026. Just in terms of a little bit of a compare and contrast with forward fund and joint venture, with a forward fund, typically, you get a bullet payment on PC.

56:10 With the JV structure in Stratford, we don't, as such, have a bullet, but at that point that we exit the JV and we can recognize that 25% build margin that's been deferred, we would get a an unsecured cash flow, which we would recognize at that point in time. The the cash flow profiles aren't dissimilar, but they're just slightly different structures. So we we think of the joint venture model as an evolution and and an ability for us to share upside compared to a forward funding model. Yeah. Okay. There's also just a couple of questions about cash, which I'll just quickly cover. And dividend policy as well. So just covering cash, obviously, I mentioned the reasons for strong cash.

56:56 We are looking with HSBC to ensure that we get the maximum return on that cash. Our treasury policy does not allow us to invest as suggesting this question in money markets or short term deals is just entirely in cash deposits, but we're getting the best rate we can from HSBC on that to ensure that we maximize our return. In terms of dividends, our view on dividends is that we would expect to return to dividends in the future, but we need first to see some visibility of the market recovery and some certainty of income and profitability going forward as to quite the timeline of that thing that's going to depend on, you know, market recovery, which Alex has touched on. Just trying to clarify that. I've had a couple of questions from David.

57:44 We're we're not looking at any rights issues. We're not looking to sell equity down the fund. The funding strategies we are looking at are real estate funding strategies with real estate investors. So hope hopefully, that clarifies your your question. We're we're we're not looking at a rights issue position. That that's that's not the intention behind when we're talking about funding options. So, hopefully, that clarifies it because you you put a couple of questions just seeking to clarify. So, hopefully, that does. We've got a couple of minutes left. I'm just trying to see impacts of employers, national insurance. So, I mean, obviously, every business in The UK is is very much a flavor of the news at the moment. Every business is affected by national insurance. Given the nature of our business, it's it's probably not material for us as material for us as other businesses.

58:35 Our expectation is it's in the low hundreds of thousands of pounds for this financial year. So we will look as other businesses are to try and absorb that through efficiencies and, obviously, try to mitigate the impact as far as as far as we can. Okay. What is the maximum capacity for the refresh business and how much is this construction capacity coming from the build trend of PBSA? So, look, I I think the way we look at this at the moment, we we've got an existing sort of resource within our business, which is focused on refurbishment and remedial works of of the our own pipeline and the provision we've talked about. And at the moment, that is comfortably absorbing the refresh works we have on. Where we have boosted overhead is in the business origination side of the refresh business where we may add a couple more heads because we really want to capture this market.

59:28 But structurally, and and from a sort of core overhead point of view, we don't feel like we need to bolt on many more heads. What what we would bolt on is as the work increases, there'll be project costed roles with which we can bolt on. So we don't see it cannibalizing our existing PBSA or or build to rent new build function. We we see this as something separate, but one that we can lever the expertise from the new build and also the buying power from the new build. There's also one here about the massive unsold PBSI inventories that could possibly so, I mean, I mentioned one of the sites we've got is under office. So those sites are out in the market. So depending on market conditions, we're we're we're optimistic that those those units will will get funded over over the next coming months.

1:00:16 Okay. I think we're pretty much out of time. Just chance for one more. What sort of yields and institutional investors looking for from PBSA built rents? Surely, risk free bond prices higher. This will affect the interest in your pro proposition. Yeah. Look. I mean, that that's exactly what we've we've been saying. That that has had an impact. Now, look, investors, it's not binary. They don't just look at I've got a, you know, gil ten year gil to, you know, whatever percent versus my net initial yield on a on a a build to rent product. Because clearly, on a build to rent product, you'll also on top of that, you'll get rental growth and and, you know, investors do look beyond, you know, the sort of short term. They do look at what those values might be in the future, and and they'll also look at where yield compression might come in and what their exit yield is. So I I don't think it's binary.

1:01:11 Clearly, it'd be helpful if gilt rates come down. You know, that's that's no doubt. But, you know, people have been transacting in these sectors across the last two and a half years. It's not as though people aren't deploying. It's just been slower. So, yeah, we we we do believe it it will equalize and and momentum will will pick up and that that will drive competitive bidding. The question is when, not not if to us. Okay. I think we're pretty much out of time. So hopefully, hopefully, we've given you a a good encapsulation of the business. You know, we're very proud of this business. You know, we've got huge drive to to to get it back to where we we believe it should be and and and growing further. I think we've got the right attention to detail. I think we've got the right strategies.

1:01:58 I think we've got the right sectors. And I think, you know, the market will will come back to us, and and we are doing everything we can to position ourselves so we can be the beneficiaries of of that market upturn. Yeah, I'll hand over to, you know, the the moderators of of the session and say thank you very much to all of you for your time. Perfect. Alex, Simon, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of WATKIN JONES PLC, we would like to thank you for attending today's presentation.

1:02:43 That now concludes today's session. So good afternoon to you all.