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Watkin Jones, a leading developer and builder of rental properties and student accommodation, has provided a trading update for the year ended 30 September 2024 (FY24). Despite challenges in the market, the company expects to deliver a materially improved performance compared to the previous year.
Market Challenges Impacting Transactions
As previously indicated in its half-year results announced on 21 May 2024, Watkin Jones had several schemes actively marketed during FY24. The company successfully completed the sale of a significant Purpose-Built Student Accommodation (PBSA) development in Stratford, London, in July. However, overall market activity during the summer months has been slower than anticipated. The ongoing uncertainty surrounding the pace of interest rate cuts has contributed to this sluggishness, and the company now believes it is unlikely to close any further transactions before the financial year ends.
Operational Progress and Strategic Initiatives
Despite the slower transaction pace, Watkin Jones has continued to execute effectively on its broader operational objectives during the second half of the year. The company's new "Refresh" initiative, aimed at enhancing its market offerings, has gained significant traction, with the first project completed and a growing pipeline of opportunities emerging. Additionally, the in-build schemes are progressing as planned, with two further practical completions expected before the financial year ends.
While the absence of additional forward funds before year-end will result in lower-than-anticipated performance, Watkin Jones still expects to show significant improvement in FY24. The company currently anticipates adjusted operating profit to be in the range of £10 million to £12 million, a marked improvement from FY23’s adjusted operating profit of £0.2 million.
Strengthened Cash Position
Watkin Jones has been effective in its focus on cash generation during the second half of FY24. The company anticipates that as of 30 September 2024, its gross cash will be approximately £80 million, up from £67 million on 31 March 2024. Net cash is also expected to improve, reaching approximately £65 million, compared to £44 million at the end of March 2024. These figures are ahead of previous expectations, underscoring the company’s strong financial management.
The company’s position regarding the exceptional provision for remedial works on legacy properties remains unchanged.
Outlook and Future Prospects
Looking ahead, the pace of recovery in Watkin Jones' markets has been slower than initially expected. However, the recent UK interest rate cut in August 2024, along with forecasted future cuts, is expected to improve forward fund liquidity. The lower number of transactions in FY24 will likely impact results in FY25, as revenue contributions from schemes will be delayed until they are forward sold. While Watkin Jones has several schemes planned for the market in FY25, the company is adopting a more prudent outlook, anticipating that adjusted operating profit in FY25 may not exceed FY24 levels.
The Group’s performance in FY25 will be significantly influenced by the evolution of forward fund liquidity. While there is potential for year-on-year progress, this will depend on market conditions improving at a faster pace as the new financial year begins.
Medium-Term Focus and Strategic Review
In the medium term, Watkin Jones remains confident in the strength of its end markets, supported by the continued shortage of rental and student properties, positive signals from the UK Government, and an improving interest rate environment. The company has also made progress in diversifying its earnings base through initiatives like the Refresh program.
Watkin Jones is actively exploring opportunities to expand its longer-term pipeline, with an increasing number of attractive potential opportunities in the land market and through alternative transaction structures. These will be crucial in driving profitability in FY26 and FY27.
