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CREATING THE
FUTURE OF
LIVING
Annual report and financial statements 2020
Watkin Jones is the
UK’s leading developer
and manager of
residential for rent.
We have unrivalled experience of
developing purpose built student
accommodation (“PBSA”) across
the UK, over more than two
decades. We now have a rapidly
growing presence in the exciting
build to rent (“BtR”) market.
Our development operations
are complemented by Fresh,
our specialist accommodation
manager. This gives us an
end-to-end solution for
the investors who buy our
developments and generates
invaluable feedback from
tenants, helping to ensure our
future schemes meet their
evolving needs.
We also develop private
housing for sale, ranging from
starter and executive homes
to apartment buildings.
OUR PURPOSE
is to create the
future of living.
This means creating residential
properties at the forefront of
societal change, in which
people choose to live.
We aim to develop places that will be
attractive to live in for years to come,
which help residents succeed through
quality homes and customer service, and
which play a meaningful part in fixing the
UK’s housing shortage. This will generate
attractive, long-term returns for our institutional
partners, encouraging them to invest more
in the burgeoning residential for rent sector.
Front cover image:
The Helm,
Bournemouth
The Helm,
Bournemouth
CONTENTS
Strategic report pages 2 to 77
Governance pages 78 to 97
2
Financial highlights
4 Business highlights
28 Key performance indicators
30 Operating review
6 Our response to COVID-19
38 Sustainability
8
9
At a glance
Investment case
10 Chairman’s statement
12 Q&A: Richard Simpson
14 Chief Executive Officer’s review
16 Market opportunity
20 Business model
24 Our strategy
25 Strategy in action
54
Sustainability Accounting
Standards Board
56 Engaging our stakeholders
58 Section 172 statement
59
How stakeholders influence
key Board decisions
60 Financial review
68
Risk management
and principal risks
78 Board of Directors
90
Directors’ remuneration report
80
Chairman’s introduction
96 Directors’ report
81 Corporate governance
84 Audit Committee report
88
Nomination Committee report
Financial statements pages 98 to 151
98 Directors’ responsibilities
99
Independent auditor’s report
104 Consolidated statement
of comprehensive income
105 Consolidated statement
of financial position
106 Consolidated statement
of changes in equity
107 Consolidated statement
of cash flows
108 Notes to the consolidated
financial statements
148 Company statement of
financial position
149 Company statement of
changes in equity
150 Notes to the Company
financial statements
Company information pages 152 to 153
152 Advisers
152 Shareholder information
153 Glossary
153 Financial calendar
Watkin Jones plc // Annual report and financial statements 2020
1
Strategic reportGovernanceCompany informationFinancial statements FINANCIAL HIGHLIGHTS
A resilient performance despite the challenging
conditions caused by COVID-19.
Revenue
£354.1 million
(2019: £374.8 million)
-5.5%
Adjusted operating profit2
£51.7 million
Gross profit
£75.9 million
(2019 restated1: £80.0 million)
-5.1%
Operating profit
£31.2 million
(2019 restated1: £55.6 million)
(2019 restated1: £53.0 million)
-7.1%
-41.1%
Adjusted profit before tax2
£45.8 million
Profit before tax
£25.3 million
(2019 restated1: £50.4 million)
(2019 restated1: £47.9 million)
-9.3%
• Solid financial performance, showing the resilience of the
business during a challenging period for the UK economy.
• Revenue down 5.5% for the year, primarily as a result
of forward sales of developments being deferred due
to COVID-19 uncertainty.
• Robust gross margin for the year of 21.4% (FY19: 21.4%).
-47.1%
• Strong liquidity position:
• £134.5 million gross cash at 30 September 2020
(30 September 2019: £115.6 million).
• £94.8 million net cash at the year end (after deducting
loans, but excluding IFRS 16 operating lease liabilities),
up from £76.8 million at 30 September 2019.
• Repaid at the start of FY21 all Government financial
assistance received to support furloughed staff, totalling
£0.8 million.
• £100.0 million revolving credit facility with HSBC
renewed to May 2025, of which £65.0 million was
undrawn at 30 September 2020.
• Full-year final dividend of 7.35 pence per share proposed,
in line with policy of 2.0x cover by adjusted earnings,
reflecting strength of financial performance and
cash position.
• Exceptional costs of £20.5 million, including £14.8 million
in relation to remediating cladding on a number of past
developments and £5.7 million of additional costs in
relation to COVID-19.
2
Watkin Jones plc // Annual report and financial statements 2020
Strategic report St Davids,
Swansea
Adjusted EBITDA3
£61.3 million
EBITDA3
£40.9 million
(2019 restated1: £65.0 million)
(2019 restated1: £62.5 million)
-5.8%
Gross cash
£134.5 million
(2019: £115.7 million)
+16.3%
Adjusted basic earnings per share2
14.7 pence
(2019 restated1: 16.1 pence)
-8.7%
Dividend per share
7.35 pence
(2019: 8.35 pence)
-12.0%
-34.6%
Adjusted net cash4
£94.8 million
(2019: £76.8 million)
+23.4%
Basic earnings per share
8.2 pence
(2019 restated1: 15.2 pence)
-45.8%
Adjusted return on equity5
22.9%
(2019: 27.3%)
-4.4 percentage points
Adjusted performance measures have been provided where appropriate to help users of the annual report gain a clear view of the
underlying financial performance of the Group. An explanation of the purpose of the alternative performance measures used and their
calculation is provided on page 67.
1. IFRS 16 ‘Leases’ was applicable to the Group for the first time for FY20.
The Group has adopted the fully retrospective approach in applying the
standard, recognising its material impact on the Group’s results and statement
of financial position. The comparative results for 2019 have therefore been
restated according to the transition arrangements set out in the standard.
Further details on the nature of the changes to the Group’s accounting
required by this standard, as well as its main impacts and the adjustments
made to restate the comparative figures, are detailed in note 5 to the financial
statements.
2. Adjusted operating profit, adjusted profit before tax and adjusted basic
earnings per share are calculated before the impact of exceptional charges
of £20.5 million (FY19: exceptional charge of £2.6 million).
3. EBITDA comprises operating profit plus the Group’s profit from joint ventures,
adding back charges for depreciation and amortisation. Adjusted EBITDA is
stated before the exceptional charges noted above.
4. Adjusted net cash is stated after deducting loans, but before deducting
IFRS 16 operating lease liabilities of £134.4 million at 30 September 2020
(30 September 2019: £137.5 million).
5. Adjusted return on equity is calculated as profit after tax, adjusted to exclude
exceptional items and the related tax, as a percentage of average total equity
for the year.
Watkin Jones plc // Annual report and financial statements 2020
3
Strategic reportGovernanceCompany informationFinancial statements BUSINESS HIGHLIGHTS
Further good progress with delivering our strategy.
Build to rent development
Student accommodation development
• Exciting progress with BtR strategy, delivering 159-unit
scheme in Bournemouth and making good progress
on site with developments at Reading, Wembley,
Sutton and Stratford, which are all on track for
completion in FY21.
• Secured four significant new sites in Birmingham, Bath,
Glasgow and Lewisham, London and, subsequent to
the year end, a site in Belfast.
• 928 apartments across five sites forward sold for
delivery over the period to FY22. Further three sites
(722 apartments) currently in negotiation for sale for
delivery over the period FY22 to FY23.
• Planning obtained for 538 BtR apartments on schemes
in Brighton and Hove and Lewisham, London.
• Total secured development pipeline of 4,466 apartments
across 13 sites, for delivery between FY21 and FY25.
Read more
P 30
& 31
• Resilient operational performance, with 2,609 beds
delivered. Six developments were completed ahead of
the academic year despite lockdown restrictions and
one scheme subsequent to the year end.
• 2,730 beds across six sites forward sold for delivery
in FY21, with a further development (462 beds) in
negotiation for forward sale.
• 1,168 beds across four sites forward sold for delivery
in FY22, including sites in Bristol, York and Leicester
forward sold subsequent to the year end.
• Added prime sites to the pipeline in Bristol, Bath,
Edinburgh, Guildford and Manchester.
• Obtained planning for 1,217 PBSA beds across five
sites, including an additional 100 beds at Kelaty
House, Wembley.
• Signed an on-campus partnership agreement with
Cranfield University for delivery in FY21 (415 beds) and
FY22 (198 beds).
• Total secured development pipeline of 7,910 student
beds across 20 sites, for delivery between FY21
and FY24.
Read more
P 32
& 33
4
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Duncan House,
Stratford
Accommodation management
Residential
• Fresh continued to perform well during the pandemic,
as we focused on supporting student and tenant
welfare.
• At 30 September 2020, Fresh managed 20,179
student beds and BtR apartments across 66 schemes
(30 September 2019: 17,721 beds and apartments,
across 64 schemes).
• Nine new PBSA schemes (3,593 beds) mobilised in the
year, ready for occupation and management from the
start of the 2020/21 academic year.
• Good performance against backdrop of COVID-19
pandemic, with 95 sales completions (FY19: 150
completions), including 25 apartments in our
developments at Stratford and Bath.
• Completed the 35-apartment development at Trafford
Street, Chester, which was forward sold in FY19.
• Strong pick up in sales in the summer months following
the lifting of the initial COVID-19 lockdown measures
and introduction of temporary stamp duty relief, with
25 sales reserved or exchanged going into FY21.
• Won mandates during the year for the future
• Commenced development of a site for 97 homes in
management of 1,414 PBSA beds.
Preston, including 34 affordable homes.
• Currently appointed to manage 21,790 student
beds and BtR apartments by FY23, including
expected renewals.
• Pilot testing opportunity to combine our residential
delivery capability with our proven residential for rent
development model in the affordable housing sector.
• Began to implement new management system for both
BtR and student accommodation, for roll out in FY21.
• Achieved COVID-secure accreditation for the
properties Fresh manages and provided significant
support to student and residential tenants throughout
the pandemic.
Read more
P 34
& 35
• Secured, subsequent to the year end, our first
affordable homes site for 245 homes in Crewe, with an
offer progressing for the forward sale of 159 affordable
and BtR homes.
Read more
P 36
& 37
Watkin Jones plc // Annual report and financial statements 2020
5
Strategic reportGovernanceCompany informationFinancial statements OUR RESPONSE TO COVID-19
As the tragic consequences of the COVID-19 pandemic
became increasingly apparent, we worked hard to ensure
the wellbeing of our employees, tenants and partners,
while limiting the impact on our operations.
Section 172:
read more
on page 58
Protecting health and safety
In responding to COVID-19, our top priority
was to protect the health and safety of our
people, tenants and supply chain partners.
In particular:
• all our office-based staff switched to agile
working, to ensure they could continue to
work safely from home, quickly enabled by
our IT systems;
• Fresh focused on ensuring students and
tenants were COVID-secure, introducing
new ways of working to protect them and
our people from risk of infection, while
ensuring we could continue to provide
high-quality services and support; and
• the Group received COVID-secure
accreditation from the British Safety
Council in September 2020, following a
complete audit of control measures across
the Group and a rigorous review of our
management and operational response to
the pandemic.
• we put our people first and went beyond
Government guidance by closing all of our
development sites from 23 March 2020,
while we assessed the required changes
to working practices;
• we adopted all relevant guidance from the
UK Government, Public Health England and
the World Health Organization;
• we introduced one-way systems, additional
canteen and welfare facilities, infrared
thermometers and social distancing rules,
enabling us to swiftly remobilise our sites;
• the Group Development and Delivery
Director reported weekly to the Executive
Committee, keeping them informed of the
number of people on site, ensuring that all
risk assessments and method statements
were in place, and that the Health & Safety
Director was satisfied we were complying
with all necessary legislation;
Focusing on delivery
On-time delivery of our developments is
fundamental to our business, particularly
PBSA schemes which need to be completed
for the start of the new academic year. To
maximise our ability to deliver on time, we:
• reprogrammed all of our student
schemes due for FY20 delivery, including
contingency scenario planning, to develop
a unique delivery solution and risk
mitigation programme for each site;
• introduced extended hours and weekend
working, while rotating shift patterns to
ensure our people had sufficient rest;
• worked closely with our supply chain
partners, to manage continuity as we
ramped up on-site activity; and
• liaised closely with our institutional clients,
ensuring transparency about the situation
we were managing and our progress.
This enabled us to deliver six of our seven
FY20 student schemes ahead of the academic
year, with a phased handover of the seventh
scheme in Walthamstow, for which two blocks
were completed for the new academic year
and the third completed subsequent to the
year end. We also completed the BtR scheme
in Bournemouth as planned.
6
Watkin Jones plc // Annual report and financial statements 2020
Strategic report As the pandemic continues, we remain focused on
supporting our employees and customers, and on ensuring
that our operational delivery capability is maintained.
Supporting customers
Recognising the difficulties faced by the
students and tenants in the schemes we
manage, we:
• waived rent for students in our leased
accommodation, who were unable to return
for the 2019/20 final term, and allowed other
students to stay after the end of term to
enable them to manage their travel;
• worked hard to create online communities
in all of the schemes we manage, including
creative virtual events and encouraging
students moving in in September 2020 to
take part before their arrival, so they felt
part of the community;
• launched our Be wellbeing programme
for students and tenants, including social
events, fitness classes, opportunities for
residents to get to know the Fresh team and
their housemates, and providing links to
mental health resources; and
• continue to support students through
the further difficulties caused by the
latest lockdown measures and will
respond appropriately as the situation
continues to evolve.
Preserving our financial strength
While the Group is soundly financed and
has robust liquidity, the unprecedented
nature of the pandemic meant we initially
opted to conserve our cash resources as a
precautionary measure. This included:
• accessing the Government’s Job Retention
Scheme for furloughed employees, which at
its peak saw 43% of the Group’s employees
(c.185 people) furloughed. Given our
financial strength, at the beginning of FY21
we repaid all of the £0.8 million of financial
assistance we received;
• topping up salaries to 80% of base, for
employees whose basic salary was above
the Government’s cap;
• not implementing the annual pay increase
from 1 April 2020 and temporarily
reducing senior executive base pay and
Non-Executive Directors’ fees by 20%;
• cutting costs by reducing discretionary
spend; and
• suspending the interim dividend, with the
subsequent decision taken, in light of the
Group’s strong operational performance
and financial position, to pay a full-year
dividend following the publication of the
FY20 results.
At the same time, we ensured our supply
chain partners were paid as normal,
recognising the critical importance of cash
flow to these businesses.
Building the pipeline
While the last few months have been an
exceptionally difficult time for everyone, we
have kept the business running and continued
to secure attractive sites for our BtR and
PBSA pipelines at fair prices.
During the second half of the year we secured
nine new sites, ahead of our expectations
and supporting our future growth potential.
We secured a further five sites after the year
end, including three under forward sales
agreements.
Watkin Jones plc // Annual report and financial statements 2020
7
Strategic reportGovernanceCompany informationFinancial statements AT A GLANCE
We have four complementary businesses, which
together position us to create the future of living.
Build to rent development
We have growing momentum in this market, drawing on our
expertise in PBSA to deliver purpose-designed BtR properties for
institutional investors. BtR’s contribution to the Group’s revenues is
set to be comparable to PBSA in the medium term.
Student accommodation development
We are the UK’s leading developer of PBSA, with a reputation for
high quality and on-time delivery. We have operated in this sector
for over two decades and it currently remains the main contributor
to our revenue and profits.
Revenue
£94.0 million
(2019: £77.4 million)
Revenue
£226.0 million
(2019: £246.1 million)
Accommodation management
Fresh is a leading independent manager of PBSA and BtR assets.
It presents our institutional clients with a unified accommodation
management offering.
Residential
Our residential development business currently builds properties
ranging from apartments and starter homes to executive housing.
Going forward, we see an opportunity to reposition the business as
an affordable housing-led developer.
Revenue
£7.6 million
(2019: £7.5 million)
Revenue
£26.3 million
(2019: £34.3 million)
Student
accommodation (PBSA)
Build to rent (BtR)
Arundel House,
Coventry
8
Watkin Jones plc // Annual report and financial statements 2020
Barnard Point,
Wembley
The Helm,
Bournemouth
Strategic report
INVESTMENT CASE
We have a strong position in growing markets,
positioning us for further success.
Strong track record
based on consistent delivery
We are a specialist in residential for rent, with a 20-year track
record of delivery, combined with consumer insights that
position us to be at the forefront of product development.
Attractive markets
Growing consumer demand in the residential for rent market,
in both PBSA and BtR, offers the potential for us to grow
for the long term. We also see potential in helping the UK to
address the shortage of affordable housing.
Tudor Place,
Chester
Bollin Meadow,
Macclesfield
Complete solution for investors
Consumer demand makes the sector appealing for
institutional investors, who are looking to acquire suitable
assets and employ specialist operators to run them. We have
excellent institutional relationships and can offer them a
complete solution for their needs.
Low-risk, capital-light business model
This strong investor demand enables us to forward sell
developments, normally before we start construction. Under
the forward sale model, the client purchases the land and then
pays for the development works as they progress. This de-risks
our development activity and gives us a capital-light business
that generates attractive cash flows and high returns.
The client also benefits, by acquiring the asset at a modest
discount to the cost of a completed scheme, in recognition
of the development risk they assume.
Corinthia House,
Chester
Resilient business with excellent visibility
Our development pipeline and forward sale business model
gives us excellent visibility of our revenues, earnings and cash
flows. Combined with our robust balance sheet and deep
supply chain relationships, this makes us a resilient business.
The Helm,
Bournemouth
Competitive advantages
We have strengths that are difficult for others to match,
ranging from institutions’ desire to work with experienced
developers, such as Watkin Jones, to our sourcing, planning
and transaction expertise.
Barnard Point,
Wembley
Barnard Point,
Wembley
Watkin Jones plc // Annual report and financial statements 2020
9
Strategic reportGovernanceCompany informationFinancial statements Strategic report
CHAIRMAN’S STATEMENT
This has been a difficult year for
everyone, but Watkin Jones has
proved its ability to adapt and
respond to the most challenging
of times.
Grenville Turner
Non-Executive Chairman
The resilience of our business was soundly
tested this year by the COVID-19 pandemic
and I am pleased to say that we have
emerged in good shape. This is testament
to our strong executive leadership, our
ability to adapt our operations quickly
and effectively, and the support of our
people, supply chain, shareholders and
institutional clients.
Performance
Our operations have performed well
through the pandemic and we delivered
solid financial results, proving the
robustness of our business.
Since the onset of the pandemic,
protecting the health and wellbeing of our
people, tenants and supply chain partners
has been our absolute priority. While
Government advice did not require us to
close our development sites, we did so
from 23 March 2020 until we were sure we
could operate them safely. Introducing new
working practices on our sites enabled us
to deliver six of our seven student schemes
ahead of the start of the academic year. For
the seventh development, in Walthamstow,
we agreed a staged handover with the
client, with final completion early in FY21.
However, we did incur some extra costs as
a result of the disruption to our operations
and measures taken to accelerate works,
as well as some late delivery damages in
relation to Walthamstow.
Build to rent again made a material
contribution to our performance, as we
completed one development and made
further progress with the other schemes
on site. The residential business had
a good recovery in sales following the
easing of the initial “lockdown” and
Fresh continued to perform well, while
successfully adapting to operating in a
COVID-secure environment.
While the Group is soundly financed and
has good liquidity, in a highly uncertain
environment at the beginning of the
pandemic, we considered it prudent
to implement comprehensive cash
conservation measures. At the year end,
we had a net cash balance of £94.8 million
and headroom within our debt facilities of a
further £75.0 million, giving us confidence
in our financial position.
Dividends
On 1 April 2020, we announced the
temporary suspension of dividend
payments. The Board did not therefore
declare an interim dividend in FY20.
However, in light of the Group’s
performance and our strong cash position,
we have resumed our previous dividend
policy of paying a dividend 2.0x covered
by adjusted earnings. The Board is
therefore proposing a full-year dividend of
7.35 pence per share, which will be paid on
26 February 2021 to shareholders on the
register on 29 January 2021.
Board, management and people
I have been hugely impressed by the way
our people, throughout the business, have
responded to the challenges of COVID-19.
Their flexibility, expertise and commitment
enabled us to react effectively and in a way
that reflects our culture, and I thank them
all on the Board’s behalf.
Our operations
performed well
through the pandemic
and we delivered
solid financial
results, proving the
robustness of our
business.
Arundel House,
Coventry
10
Watkin Jones plc // Annual report and financial statements 2020
Tudor Place,
Chester
Barnard Point,
Wembley
The Board has always focused carefully on
the Group’s culture and how the decisions
we make could affect it. As one example,
at our quarterly reviews of health and
safety performance we always ensure
that the health and safety team feels it
has the support it needs to make the
right decisions and to prioritise protecting
people above all else. This in turn helps to
reinforce a culture where our people feel
valued and respected, and are incentivised
to perform.
The Group has strong executive leadership
and we have seen the benefits of that this
year. One of the Board’s responsibilities
is to ensure that we have the breadth
and depth of leadership we will need in
the future, so we can meet our growth
objectives. The Board therefore spent
time during the year reviewing talent
across the Group and considering
succession planning. This exercise
demonstrated the great strides we
have taken with building our leadership
pipeline in the last twelve months.
There were no changes to the composition
of the Board or its committees during the
year. The Directors continue to work well
together and we significantly stepped up
our formal and informal interactions this
year, as we oversaw and supported the
Group’s response to the pandemic.
Governance
As I describe in my introduction to
corporate governance on page 80,
we have continued to evolve and reinforce
our corporate governance framework so
it remains fit for purpose as the Group
grows. One example is the formal and
rigorous review of our strategy during the
year, supported by an external facilitator.
Our discussions considered how we
can make a difference in our markets,
how we should be structured to best
take advantage of the opportunities we
see, and the associated risks we face.
Since the end of the year, this work has
enabled us to approve a new strategy
to evolve the residential business into an
affordable housing-led developer, under a
capital-light partnership model. We intend
to carefully trial the new model, through a
pilot in the North West. The Board also put
considerable focus on risk management
during the year, ensuring we have a real
understanding of the risks facing the
business and the barriers we have in place
to limit their potential impact, as well as
the costs and consequences of getting
it wrong.
As part of our ongoing enhancements
to governance, we recruited our first
in-house Company Secretary, who will
join us in 2021. I want to thank Prism for
their excellent support to our company
secretarial function.
Environmental, social and governance
(“ESG”) initiatives are firmly on the Board’s
agenda, reflecting both the importance
of these matters to our stakeholders and
their potential to influence the Group’s
long-term success. The Executive team
has worked hard to develop and refine our
approach this year and you can find more
information on pages 38 to 57. Our decision
to be proactive about undertaking remedial
cladding works, despite not being legally
required to do so, is one example of our
determination to do what is right.
Looking forward
We remain in highly uncertain times, both
in terms of the progress of the pandemic
and its economic impact. Even so, we
are confident in the underlying strength
of the UK’s higher education sector, in
the growing demand for more build to
rent properties, and in our ability to adapt
to changing circumstances, which will
enable us to continue to deliver for our
stakeholders.
Grenville Turner
Non-Executive Chairman
19 January 2021
Watkin Jones plc // Annual report and financial statements 2020
11
Strategic reportGovernanceCompany informationFinancial statements Strategic report
Q&A:
RICHARD SIMPSON
Watkin Jones CEO Richard
Simpson shares his views
on the impact of COVID-19,
progress in build to rent,
repositioning the residential
business and the importance
of managing ESG issues.
COVID-19 has reinforced our view
that we operate in structurally
attractive and resilient sectors.
Q:
What effect has the pandemic
had on your growth prospects?
A:
The pandemic did reduce our revenues
in FY20, as it pushed back some of the
forward sales we expected to make
this year. However, we’re better placed
than many businesses in that the large
majority of those revenues have been
delayed rather than lost. That means
we should see a good revenue uplift in
FY21, both from underlying growth in the
business and from forward sales that
weren’t completed this year.
It’s important to note, though, that the
full impact will take time to unwind and
it’s not as simple as adding this year’s
revenue shortfall to next year. Our
development cycle is typically three to
four years and the pandemic has delayed
key steps in that process, such as
gaining planning consent.
That means some of our development
pipeline has been delayed by about
a year.
Q:
Is build to rent progressing
as you expected?
A:
Absolutely. We’ve talked for a few years
about the exciting opportunities we see
in BtR and both our performance so far
and our pipeline are really beginning to
reflect that. We set out a clear growth
strategy last year, which will see us
significantly increase how much of our
business is BtR. Our expectation was
that our revenues from development
would be roughly 50:50 PBSA and
BtR by FY23 or FY24. Right now, our
pipeline is just over 50% BtR and we’re
really benefiting from getting into this
market early.
Ultimately, the BtR market is likely
to be much bigger than student
accommodation, so it makes sense
to push on with our growth plans.
Q:
What effect has COVID-19 had
on your markets?
A:
COVID-19 has reinforced our view that
we operate in structurally attractive and
resilient sectors. It was inevitable that
institutions would be less active during the
early part of the pandemic but towards
the end of the financial year it was clear
that they were starting to invest again and
we’re pleased to have restarted forward
sales since the year end.
Residential for rent looks very attractive
to investors, in particular when
COVID-19 has had such an impact on
the retail and office sectors. The level
of consumer demand means the sector
offers a defensive income stream and
historically it’s also been a good hedge
against inflation, making it an even better
long-term investment.
In terms of consumer demand, lockdown
has focused people’s minds on where
they live and the facilities they have
access to. Clean, well-managed BtR
properties are very appealing in those
circumstances.
In PBSA, there’s been an inevitable
impact on occupancy in the short term
and the current second wave of the
pandemic will undoubtedly exacerbate
the disruption through the remainder of
the 2020/21 academic year. However,
there’s still strong and growing demand
for a UK university education and our firm
expectation is that we’ll see good demand
for PBSA in the coming years.
12
Watkin Jones plc // Annual report and financial statements 2020
Richard Simpson
Chief Executive Officer
Q:
You’ve announced a cost to
remediate cladding of £15 million.
What was your thinking here?
A:
This is about keeping people safe.
We got new guidance from the
Government in January about cladding
systems that were widely used on high
rise residential buildings in the past. For
the first time, the guidance talked about
the fire risks of high pressure laminate
cladding. We immediately checked all
the buildings we’d developed and found
eight with this cladding.
We feel we have a responsibility to
help in making the buildings safe,
even though we’re not legally liable,
and we’ve been working closely with
the building owners concerned. I also
think it’s in the best interests of the
business and shareholders if we keep
our reputation for being a responsible
partner to our institutional clients.
We’ll be looking to recover some of
the cost from the subcontractors and
consultants we engaged when the
cladding was installed, but this is going
to take some time.
Q:
You’ve clearly stepped up your
approach to ESG issues generally.
Why is this so important to you?
A:
ESG is essential for any business that’s
going to stay successful. These issues
go right to the heart of our business:
how we look after and develop our
people, the quality of the places we
create – which matters to our clients,
the people who live there and the
communities around them – and our
impact on the planet. The framework
we’ve introduced this year will help us to
manage these issues strategically, so we
future-proof the business. It’s part and
parcel of creating the future of living.
A lot of the focus on ESG relates to the
environmental and social aspects, but
I think the governance side is equally
important. We aim to be transparent, to
manage risk effectively and to continue
to develop our governance framework,
which is one reason we have recently
recruited a Company Secretary.
Q:
Why have you decided to enter
the affordable housing market?
A:
We are in the process of starting a
pilot for this model in the North West
region. If it’s successful, we see
several benefits:
First and foremost, there’s a desperate
need for more affordable housing in the
UK. Every year, the number of new units
delivered averages around 100,000
less than is needed. This is a chance
for us to make a small contribution to
addressing this housing need, which
aligns with our objective to make a
positive difference to society through
the homes we develop. Our intention is
for every development to include more
affordable units than we’d be required to
produce under planning obligations.
The way this market has developed
means we can do this in a capital-light
way that fits our business model. We
can identify sites and then partner with
registered providers and institutions
to forward sell the affordable housing
and BtR elements. Then we can
develop private housing on the
balance of the site, which makes
the financials attractive.
Finally, this strategy makes our existing
residential business a core part of a
potentially exciting new business stream.
The division has always been important
to us but it had become less central to
the Group as PBSA and BtR have grown.
We now have scope to really leverage the
skills and experience in that area.
Watkin Jones plc // Annual report and financial statements 2020
13
Strategic reportGovernanceCompany informationFinancial statements
CHIEF EXECUTIVE OFFICER’S REVIEW
Our people made
an outstanding
contribution in the
year and this enabled
us to deliver a strong
operational and
financial performance.
This was an exceptionally
challenging year, but one which
fully demonstrated the quality of
the business and its people.
Richard Simpson
Chief Executive Officer
Performance
Despite the inevitable disruption from
COVID-19 in the second half of the year,
we built on our strong first half and
delivered a robust financial performance
for FY20 as a whole. We also made further
strategic progress as the UK’s leading
developer and manager of residential
for rent.
This outcome reflects the outstanding
contribution from our people across the
Group. I want to thank them all for their
hard work and their willingness to innovate,
overcome problems and adapt to new ways
of working. It also demonstrates the highly
defensive nature of residential for rent as an
asset class, and the support of our clients,
customers, supply chain partners and
communities, which we truly appreciate.
Revenue was £354.1 million (FY19:
£374.8 million), a reduction of 5.5%,
which was primarily due to the delay in
some anticipated forward sales in the
second half of the year.
Gross profit was £75.9 million (FY19:
£80.0 million), while operating profit was
£51.7 million (FY19: £55.6 million) before
exceptional charges of £20.5 million
(FY19: £2.6 million). The exceptional
charges mainly relate to the anticipated
cost of remediating cladding on past
developments (see page 13), as well as
additional costs and impairment charges
incurred as a result of the pandemic.
The pre-exceptional operating margin
was 14.6% (FY19: 14.8%).
While the business is soundly financed and
has substantial headroom in its banking
facilities, we prudently took the early
decision that we should conserve cash
during the pandemic. This helped us to
achieve a strong closing cash balance of
£134.5 million (FY19: £115.7 million).
Our rapid response to COVID-19 enabled
us to meet the revised delivery schedule
for student accommodation we set out
at the half-year. This strong operational
performance contributed to revenue in
the year of £226.0 million for our student
accommodation division, compared with
£246.1 million in FY19. In total, we delivered
2,609 beds across seven schemes.
For FY21, we have seven schemes with
3,192 beds scheduled for delivery. Of this,
six schemes with 2,730 beds have been
forward sold, with the remaining scheme
in negotiation for sale.
Build to rent development again made a
significant contribution to our performance,
with revenue of £94.0 million (FY19:
£77.4 million). We made good progress with
the developments in Reading, Wembley,
Sutton and Stratford, which are all moving
forward as planned for completion in FY21.
We also completed our development in
Bournemouth in the year, albeit later than
planned due to some issues with on site
management and the installation of the
cladding system, compounded by the
onset of the pandemic.
The Helm,
Bournemouth
14
Watkin Jones plc // Annual report and financial statements 2020
Strategic report We have continued to add attractive
sites to the pipeline for both BtR and
PBSA developments, supporting our
growth ambitions in the residential for
rent market. We secured nine sites during
the second half of the year and a further
four sites after our year end, three of which
were under forward sales agreements.
Fresh delivered another solid performance,
with revenue of £7.6 million (FY19:
£7.5 million). Nine new PBSA schemes
(3,595 beds) were mobilised in the year,
ready for occupation and management
from the start of the 2020/21 academic
year. At the end of the year, the division
had a total of 20,179 student beds and
BtR apartments under management
across 66 schemes, up from 17,721 units
across 64 schemes at the start of the year.
Fresh won mandates during the year for the
future management of 1,414 PBSA beds
and, by FY23, Fresh is currently appointed
to manage 21,790 student beds and
apartments, including expected renewals.
The residential development business
achieved revenues of £26.3 million (FY19:
£34.3 million), with a strong pick up in sales
following the lifting of the initial COVID-19
“lockdown” measures and introduction of
the temporary stamp duty relief.
Strategy
We continue to successfully implement
the growth strategy we set out last year.
BtR development will be the biggest
contributor to growth in the coming years,
and as I discuss on page 12, we expect
it to make a comparable contribution to
revenues as PBSA by FY23, based on our
current pipeline. We have also identified an
opportunity for a closely aligned residential
development business, which combines
affordable housing with our BtR and
residential for sale offers. More information
can be found on page 13.
Streamlining and investing in our
operations is a key pillar of our strategy,
helping us to deliver better outcomes for
clients and customers while improving our
own efficiency. We continued to implement
the restructuring I outlined in my report
last year, in particular combining three
regional student accommodation delivery
divisions into one. The development
side of the business is now organised
around cross-functional hubs, responsible
for delivering both PBSA and BtR
developments, which supports our ability
to leverage our PBSA expertise into the
BtR market.
We have created a strategic framework
for managing ESG initiatives. As I discuss
on page 38, I see being a responsible
company as a business imperative.
Our ESG framework is set out on pages
40 and 41. In addition, one of the key
attractions for us of the affordable housing
market is the opportunity to help meet a
pressing social need that will make a real
difference to people’s lives.
ESG performance
Health and safety is vitally important to
us, in terms of protecting the people and
subcontractors who work for us and in
ensuring that residents have a safe place
to live. This ethos underpinned our careful
response to COVID-19, as described
on pages 6 and 7, and our decision to
remediate cladding on properties we had
previously developed, despite having no
legal liability to do so.
I am pleased to say that we have continued
to improve day-to-day health and safety
performance within the business this year.
Our incident rate, which is the number of
incidents recorded per 100,000 employees,
was 128 (FY19: 152), which compares with
2,420 for the wider industry (source: HSE).
See page 46 for more information.
Other examples of our commitment to
ESG include our decision to ensure that
everyone who was furloughed during
the early stages of the pandemic would
continue to receive 80% of their pay,
rather than just the amount covered by
Government assistance. In addition,
we took the decision that the executive
team and the Directors would take a 20%
pay cut during the period we received
furlough money from the Government.
We subsequently repaid the financial
assistance we had received once we
were certain the business was in sound
shape. We appreciate that this affected our
profits but we believe that a highly ethical
approach to business is best for our clients,
investors and society, and is therefore best
for shareholders.
I am a firm believer in the importance of
culture to long-term business success.
The reorganisation of the development
and delivery divisions has helped to flatten
our structure, empowering our people and
making communication and engagement
easier and more effective. This structure
also gives more transparency about career
opportunities, so our people can better
see where they can take their careers in
Watkin Jones.
The introduction of agile working
(see page 44) also supports our culture,
by allowing our people to make their
own decisions about how and where
they work most effectively, while aiding
collaboration. This will help us to attract
and retain people who will thrive in such an
environment, while also allowing us to reap
the benefits of a more diverse workforce.
We also continue to work hard to minimise
our environmental impact and to ensure
we engage effectively with all of our
stakeholders. More information can be
found on pages 38 to 57.
Brexit
As I reported last year, we did a significant
amount of work in preparing for a range of
possible Brexit outcomes. We are pleased
to see the agreement of a trade deal with
the EU. This will further help ensure our
supply chain continuity and we do not
believe Brexit will affect the timely delivery
of our development schemes.
Outlook
Institutional forward sale markets started to
recover in the final quarter of FY20 and this
has enabled us to complete three forward
sales of PBSA developments since the
year end. These schemes are in Bristol,
York and Leicester and total 909 beds for
delivery in FY22.
The COVID-related delays to our
development cycle will take time to unwind,
as I discuss on page 12. However, the
resumption of forward sales, the increase in
the number of student beds for delivery in
FY21 and the scheduled completion of four
BtR developments should see us return to
growth in the coming year, assuming we
do not see further significant disruption
to our activities from COVID-19. While the
new lockdown in January 2021 requires
us to continue supporting our employees
and customers, we have safe operating
procedures in place to continue our on
site developments, and we are closely
monitoring the situation.
Our work this year to add attractive new
development sites to the pipeline also
underpins the visibility of our revenue and
earnings in future years. We will continue
to secure new sites in the coming months,
while being careful to protect our liquidity.
In summary, I am fundamentally optimistic
about our business, the dynamics of the
sectors we operate in and the strength of
investor demand for our product.
Richard Simpson
Chief Executive Officer
19 January 2021
Watkin Jones plc // Annual report and financial statements 2020
15
Strategic reportGovernanceCompany informationFinancial statements MARKET OPPORTUNITY
Build to rent
The opportunity
Several factors are creating strong demand for build to rent
accommodation, as increasing numbers of people rent their
homes for the medium to long term.
There is a long-standing structural supply and demand imbalance
in the UK housing market. The Government continues to target
300,000 new dwellings each year, but delivery has often fallen
well short. The net housing supply over the last 15 years has
averaged around 150,000 dwellings per year. With around
200,000-250,000 additional households being formed in England
alone each year, this means there is a significant UK housing
deficit. The shortage of new builds contributes to high house
prices in parts of the country with strong local economies, pricing
many people out of the market. Stricter mortgage regulations and
the need for larger deposits have also increased the barriers to
home ownership.
Urbanisation is another important factor. The UK has one of
the highest rates of urbanisation, which influences issues such
as infrastructure constraints, competition for land, planning,
logistics and housing affordability. Many locations where we see
the greatest potential for BtR are in urban areas with universities,
where education leads to employment and the need for housing.
Lifestyles are also changing. People are increasingly getting
married and having children later, delaying the point at which they
buy a house. Young people in particular often see renting as a
better lifestyle choice, providing quality of living while maintaining
flexibility, in the expectation of changing jobs more frequently
than in the past.
While COVID-19 did have a short-term impact on the BtR
market, as people were prevented from moving during
lockdown, the easing of restrictions has seen demand pick up
again. The pandemic may ultimately increase demand for BtR,
by making high-quality, clean and well-managed accommodation
even more attractive, particularly if more people work from home.
BtR offers good home working facilities, combined with a sense
of community.
Key statistics
Alma Court,
Canterbury
With consistently strong demand for housing, the supply of BtR
apartments continues to grow and has increased by 20% over
the last year, although it remains less than 1% of privately rented
homes. The total number of BtR apartments completed, under
construction or in the pipeline now amounts to c.172,000 units.
At full maturity, the BtR sector could grow to 1.7 million units
(source: Savills), providing significant scope for growth.
Ownership of UK rented housing is fragmented and dominated
by small buy-to-let landlords, with little over 5% being owned by
institutions. This compares with around 40% in the USA, which is
a more mature institutional market.
Institutions are increasingly attracted to BtR assets, which
provide high income security with occupancy and rent collection
rates typically over 95%. According to Savills, by the end of 2020,
investment into the UK’s BtR sector had reached c.£15 billion,
an increase of c.£4 billion on 2019. New institutions and overseas
money continue to enter the market and seek opportunities,
whether buying income-producing assets or funding
developments, with c.35% of the investment in 2020 coming
from new entrants to the market. Conversely, the individual
private landlords who dominate ownership of rental homes
are exiting the market, following changes to the tax regime and
tightening regulations. Large-scale professional BtR landlords
are well placed to absorb this change. Using Savills’ estimate of
1.7 million units, investment would increase to around £544 billion
by 2071, based on the current supply rate of a net 30,000 units
being added each year.
Our response
We are leveraging our PBSA design, planning and delivery
expertise and our supply chain, to capitalise on the strong
similarities to BtR. Our consumer and institutional knowledge
help us to create leading-edge products.
The UK’s population is
growing at a rate of
200-250,000
households every year
The Government
is targeting
300,000
new dwellings each year
BtR could
grow to
Investment into the UK’s
BtR sector had reached
1.7 million
units (source: Savills)
£15 billion
by the end of 2020
16
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Student accommodation
The opportunity
The number of full-time students in the UK is a key determinant
of demand for PBSA. In 2018/19, there were nearly 1.88 million
full-time students and 2.38 million in total, split UK 1.9 million,
EU 0.14 million and non-EU 0.34 million.
Underlying trends in demand for university places remain
positive. Following years of decline, the number of 18 year olds
in the UK will grow over the next 20 years, resulting in rising
numbers of people of university age each year. UCAS data
showed a 2% increase in 18-year-old applicants for 2020/21 and,
as of July 2020, a record 40.5% of UK 18 year olds had applied
for university.
Non-EU international applications for 2020/21 were a record
89,000, up 10% on 2019/20 and 58% higher over a decade, whilst
the number enrolled increased by 9% on the previous year to
44,300 (c.50% of applicants). This suggests sustained appetite
for study in the UK, which is the second most popular market
after the US.
EU student numbers make up around 6% of the UK student
population. While the impact of Brexit on EU student numbers in
the UK is unclear, Government policy towards international students
has become more positive, recognising their benefits to the
economy, supporting our belief that international student numbers
will grow overall. As noted above, total international applications for
UK university places significantly outweigh the number of places so
there is scope for non-EU students to make up any shortfall in EU
numbers if it occurs.
While COVID-19 has disrupted the number of UK and international
students taking up accommodation for the 2020/21 academic
year, the pandemic is only expected to have a short-term effect
on occupancy. Students clearly prefer to study away from home
at their chosen university and more normal occupancy levels are
anticipated for 2021/22. The economic impact of COVID-19 may
also increase student numbers by encouraging post-graduate
study or retraining, as was seen during the financial crisis.
Arundel House,
Coventry
A notable trend in higher education is the “flight to quality”.
With universities charging the same tuition fees and no cap on
student numbers, better institutions have grown and lower-quality
institutions have struggled. This has clear implications for the
location of new PBSA developments.
There is a long-term demand-supply imbalance for PBSA, which
is only expected to increase, with the predicted annual increase
in the number of students exceeding the supply of new beds.
There are currently around 650,000 PBSA beds in the UK, with
privately owned PBSA accounting for more than 50% for the first
time in 2019. As of June 2020, around 23,000 new beds were
advertised for 2020/21, with around 114,000 beds in the pipeline.
However, some developers have postponed schemes due to
COVID-19, so fewer will become operational in the short term.
Much PBSA stock is outdated and needs redevelopment,
presenting further opportunities. Around one quarter of total
PBSA was built pre-1999 and university accommodation is even
more dated, with around 50% built pre-1999 and 74% pre-2009
(source: Cushman & Wakefield).
As PBSA has become increasingly established, developers
from other sectors have looked to diversify into it. However,
the barriers to entry are high and we have recently seen smaller
and less specialist developers looking to sell sites, when they
have not been able to fund developments.
Institutional investors are attracted to UK PBSA as a mature,
stable and income-producing asset class. Investor activity slowed
initially in response to COVID-19 but investment has restarted since
the summer and new capital continues to explore opportunities.
CBRE has noted investors moving to counter-cyclical sectors
post-COVID-19, with student accommodation well known for
its strong returns and rental growth.
Our response
We continue to see good growth prospects in PBSA. We intend to
target the best locations and develop buildings that meet the current
and future needs of students, based on our customer insights.
Key statistics
Around
0.48 million
students are from
outside the UK
EU students
represent just
c.6%
of the student population
An increase of
58%
A record
40.5%
over the last decade for
non-EU applications
of UK 18 year olds
applied to university
Watkin Jones plc // Annual report and financial statements 2020
17
Strategic reportGovernanceCompany informationFinancial statements MARKET OPPORTUNITY continued
Accommodation management
The opportunity
The market for professional accommodation management
services continues to grow, as institutional investors seek
management partners to work with them to drive the performance
of the PBSA and BtR assets they own. Opportunities for
accommodation management providers continue to arise as new
buildings are completed, as well as a growing secondary market
as existing contracts expire and are retendered. Overall growth
in the market is directly linked to demand for new student
accommodation and BtR developments, as described on the
preceding pages. Opportunities to tender to manage PBSA
assets remain strong, with opportunities for BtR and similar offers
such as co-living starting to increase as these types of assets
progress through the development cycle, providing increasing
scope for growth in the coming years.
Many of the larger accommodation managers are the in-house
arms of owner operators. The pool of pure third party operators
remains small, with Fresh being the largest third-party manager of
student property in the UK.
Tudor Place,
Chester
Successful operation in the market requires sufficient scale to
invest in the infrastructure and the specialist skills required (see
the business model on pages 20 to 23 for more information).
Approximately 5,000 beds under management is seen as the
minimum level, making it difficult for new operators to enter the
market. As a result, no notable new entrants have been seen in
the student market in recent years. A similar dynamic is expected
in the BtR market as it develops.
Our response
We will continue to grow our business by demonstrating the
value we bring to clients in driving net operating income,
achieved by delivering a strong customer proposition
underpinned by excellent customer service, which results in high
occupancy, rental growth and low tenant churn. We are uniquely
positioned with our strong Fresh brand, national infrastructure
and excellence in service delivery to become the manager of
choice across the residential for rent sector.
The market for accommodation management services continues
to grow, as institutional investors seek professional management
for the PBSA and BtR assets they own.
18
Watkin Jones plc // Annual report and financial statements 2020
Caledon Court,
Aberdeen
Strategic report Cestria II,
Chester
In response to the COVID-19 pandemic, the Government has
sought to increase liquidity in the property market by temporarily
reducing the level of stamp duty payable until March 2021.
During this period, no stamp duty will be payable on the first
£500,000 of the purchase price.
The Government is also consulting on proposals for planning
reforms, in an attempt to streamline and modernise the planning
process and make more land available for development where it
is needed.
Our response
As outlined on page 13, we see an opportunity to pivot our
residential housing division to become part of a new business
stream, led by affordable housing. If our North West trial of
this new model is successful, it has the potential to deliver
important social benefits through the provision of much
needed affordable homes.
Residential
The opportunity
As noted in the description of the BtR market on page 16,
the structural shortfall in new housing supply creates attractive
opportunities for housing developers.
Alongside the demand for private housing to buy, there
is also a significant need for more affordable housing.
Demand for affordable housing is estimated at 145,000 units
per annum but delivery has averaged only 46,000 units per
annum since 2013. To help close this gap, traditional registered
providers are diversifying their activities, so as to subsidise the
provision of affordable housing, and partnering with the private
sector to support delivery. At the same time, new private and
institutional capital is entering the affordable housing market and
the Government is providing grant funding totalling £12.2 billion
via Homes England to support the delivery of 180,000 units.
Affordable housing is increasingly delivered as part of
mixed-tenure schemes, which incorporate an element of BtR and
private housing for sale. This enables the delivery of a meaningful
number of affordable units, while the inclusion of the other
tenures makes the scheme more economically viable.
The UK housing market is subject to frequent political
intervention, in particular as the Government has sought to make
purchasing a house more affordable. The Help to Buy scheme
provides loans towards deposits for new-build homes or offers
a shared-ownership arrangement. However, this scheme is now
being wound down and will be withdrawn completely by 2023.
The UK housing market is subject to frequent political
intervention, in particular as the Government has sought
to make purchasing a house more affordable.
Watkin Jones plc // Annual report and financial statements 2020
19
Bollin Meadow,
Macclesfield
Strategic reportGovernanceCompany informationFinancial statements Strategic report
BUSINESS MODEL
By understanding consumer and institutional client demand, and
deploying our development and property management expertise in
the residential for rent sector, we aim to create the future of living.
Inputs
Development model
The inputs to our
business model
The following tangible and
intangible resources help
us to create value for our
stakeholders:
People
We employ excellent people,
with significant experience of delivering
on time and to the highest standards.
Accommodation
management
5
Knowledge
We have a deep understanding of
our markets and how to develop
and manage schemes that meet the
needs of our institutional clients and
customers.
Relationships
Our strong relationships with our
customers, institutional clients,
supply chain, agents, consultants,
planning authorities and universities
all underpin our success.
Financial resources
We are a well-capitalised business
with strong cash generation, giving us
the financial resources to fund our
growth strategy.
Natural resources
Our building processes use
natural resources including land,
materials and energy.
Identify
potential
developments
1
Ty
pic
a
l
l
y
3
-
7
y
e
a
r
s
(
r
e
n
e
w
a
b
l
e
)
Site
procurement
and planning
2
s
r
a
e
5 y
-
Typically 3
4
Construction
and delivery
3
Transaction
and funding
Read more about our
development model
on pages 22 and 23
20
Watkin Jones plc // Annual report and financial statements 2020
Our approach to sustainability is fundamental
to our business model – more information can
be found on pages 38 to 57.
Our competitive advantages
Returns
Outputs
Track record and reputation
Our strong reputation for delivery, built up since
we undertook our first PBSA development in 1999,
makes us a partner of choice for key investors.
Scale
Institutions’ desire to work with tier 1 developers,
such as Watkin Jones, is an important barrier to entry.
Transferable skills and experience
We organise our development business into hubs,
which are cross-functional teams responsible for
both PBSA and BtR developments. This enables
us to effectively leverage our two decades of
experience in PBSA into the newer BtR market.
Access to consumer insights
Fresh continuously engage with students and BtR
tenants, keeping us up to date with the latest trends,
so we can design our developments accordingly.
In-house planning expertise
Our in-house planning resource is unusual in
our sector and gives us a significant advantage,
allowing us to obtain planning permission more
quickly and at a lower cost.
Advantages in sourcing sites
Our network of contacts enables us to buy many of
our sites off market. Our track record and reputation
help us to buy sites at attractive prices, since we
can offer vendors more certainty of completion.
A complete solution
We offer a complete property development and
management solution for investors, which combines
national scale with local knowledge, differentiating
us from our largely regional competitors.
How we
generate returns
Forward sales give us
excellent visibility of our
earnings and cash flow, as we
bill the institutional purchaser
for the land upfront and then
receive stage payments each
month during construction.
This limits the working capital
the business requires. We
receive a further lump sum
final payment when we
complete the property.
Our residential business
generates returns from the
construction of homes for
housing associations and for
private sale.
Fresh generates an income
stream beyond completion,
with contracts setting out a
minimum fee and appropriate
level of risk sharing with the
client, depending on the level
of occupancy. The Group also
receives some rental income,
from six historic leased PBSA
and three small BtR assets.
We look to carefully manage
our costs and have agreed
national rates with key
suppliers. Most of the work
on our sites is performed
by our established chain of
subcontractors. We look to
place orders for the main
subcontract packages when
we commence construction,
thereby helping to fix our
build costs.
This financial model, with
its inherent predictability
and favourable cash flow
characteristics, ensures we
can pay suppliers on time and
supports attractive dividends
to shareholders.
The value we create
Our business creates
value for a wide range
of stakeholders:
For institutional
investors
Institutions benefit from high-quality
assets that meet their investment
criteria and management services
that help to maximise their returns.
For customers
Student and BtR tenants and
the occupiers of our homes gain
from high-specification homes,
excellent service and vibrant
communities.
For our people
Our people get the opportunity
to develop their careers in a
successful and growing business.
For our supply chain
Suppliers benefit from a
consistent workload and the
opportunity to grow their
business alongside ours.
For communities
Our developments free up houses
of multiple occupation, making
them available for local families,
provide new homes to rent and
improve community facilities.
For government
We contribute to both local and
national services through a variety
of taxes.
For shareholders
Shareholders benefit from
rising earnings, cash flows
and dividends.
Watkin Jones plc // Annual report and financial statements 2020
21
Strategic reportGovernanceCompany informationFinancial statements Strategic report
BUSINESS MODEL continued
We have a five-stage development model, supported by our
approach to operating responsibly, which we are increasingly
embedding in the way we work.
Our development model in detail
1
2
3
Identify potential
development sites
Site procurement
and planning
Transaction
and funding
The starting point for each development
is our insight into what customers want,
gained through Fresh. We then use our
market knowledge and understanding
of institutional client demand to
screen different regions, cities and
towns across the UK, to decide which
locations will most successfully meet
the needs of both customers and
our clients.
We identify sites through our own
staff and our network of agents and
other consultants. Having identified
a site, we then work up a detailed
proposal for the development, which
must be approved by our Investment
Committee before it can proceed.
Sustainability:
read more on page 43
• Incorporating
stakeholder views
• Bringing brownfield
sites back to life
We typically reduce risk by acquiring
sites subject to receipt of a satisfactory
planning consent, although we may
occasionally buy sites unconditionally
where the margin potential outweighs
the additional risk and we are confident
that an appropriate planning consent
can be obtained. Once a site is secured,
our expert in-house teams liaise with the
planning authority, helping us to obtain
planning permission more quickly than
using external resource.
Sustainability:
read more on page 43
• Strict environmental and
social impact assessments
• Robust environmental
remedial activity
We generally aim to sell each scheme to
an investor before we start construction,
reducing our risk and our working
capital requirements. We may on
occasion decide not to immediately
forward sell a development, when we
can earn a higher sale price by waiting,
but ultimately we do sell all of them.
Selling our developments means we
do not compete with our institutional
clients, encouraging them to share
their plans with us. We also look for
ways to add value for clients, such as
negotiating direct letting arrangements
with universities for student
accommodation.
Sustainability:
read more on page 43
• Rigorous adherence
to ethical standards
and anti-bribery and
corruption laws
• Capital-light model supports
returns for shareholders
22
Watkin Jones plc // Annual report and financial statements 2020
Typically 3-5 years
Accommodation
management
5
Identify
potential
developments
1
Ty
pic
a
l
l
y
3
-
7
y
e
a
r
s
(
r
e
n
e
w
a
b
l
e
)
Site
procurement
and planning
2
s
r
a
e
5 y
-
Typically 3
4
Construction
and delivery
3
Transaction
and funding
4
5
Construction
and delivery
Accommodation
management
Fresh manage both PBSA and BtR
schemes and focus on repeat business
with institutions, so they can manage
portfolios of assets for them.
Fresh has a scalable platform,
having invested significantly in
systems and processes which
are tailored to residential for rent.
The required investment, and the need
to employ experts across numerous
disciplines such as health and safety,
marketing, property management,
customer experience and finance,
means that accommodation managers
need significant scale to operate
profitably and barriers to entry are high.
Sustainability:
read more on page 43
• Strong focus on customer
health, safety and wellbeing,
and creating communities
Unlike many developers, we are
experienced constructors,
employing expert construction directors
and project managers to deliver the
majority of our schemes. We will use
a third-party contractor where the
geographic location of the development
warrants it or to provide additional
operational capacity, while providing
project management oversight.
We have long-term relationships with
key suppliers and our supply chain
often works for us on scheme after
scheme, making them experts in our
developments. This helps us to deliver
to a high standard and improves project
sequencing and efficiency.
By staggering our PBSA and BtR
developments, we can use the same
supply chain for both.
Sustainability:
read more on page 43
• Contractor alignment
to our values and focus
on health and safety
• Emphasis on being
an environmentally
conscious developer
• Regular community
engagement during
project delivery
Typically 3-5 years
Typically 3-7 years
(renewable)
Watkin Jones plc // Annual report and financial statements 2020
23
Strategic reportGovernanceCompany informationFinancial statements
OUR STRATEGY
Our strategy is designed to deliver sustainable growth
across the Group, while continuing to improve the
way we operate and ensure we meet our wider responsibilities.
1
Growth
Our growth strategy is to:
Link to risk:
• continue to leverage our leadership position in student
Economic cycle
Increased
competition
Land availability
Liquidity
accommodation development;
• grow in the BtR market by leveraging our expertise in PBSA,
our supply chain and our institutional relationships;
• subject to a successful pilot, evolve our residential business
into an affordable homes-led developer, replicating our
capital-light business model by forward selling under
partnerships with registered providers of social housing and
institutional BtR investors, whilst including an element of
private sale housing to enhance profitability; and
• offer institutional-grade letting and management services, so
institutions engage us to manage their PBSA and BtR assets.
Page
25
Strategy in action
2
Operational
excellence
We continue to look for ways to enhance our
delivery of our developments and accommodation
management services, for example by:
• optimising the way the business is structured, to support
cross-functional working and empower our teams;
• investing in our systems and processes to increase efficiency
and effectiveness;
• continuing to embed our desired culture throughout the
Group; and
• adopting technology, for example to support agile working.
Link to risk:
Project delivery
Build quality
Capacity, culture
and capability
Page
26
Strategy in action
3
Responsible
operations
Link to risk:
Health and safety
Failure to comply
with legislation
Our strategic framework for environmental, social
and governance (“ESG”) issues incorporates:
• Our future people: creating an engaged and motivated
workforce that interacts with honesty and integrity to create
long-term value for our stakeholders;
• Our future developments: building residential for rent and
affordable homes which help to meet the housing need;
• Our future places: building environments for a more
responsible world, in harmony with our neighbours; and
• Our future planet: driving efficient and responsible resource
stewardship.
More information on our ESG strategic
framework can be found on pages 40 and 41
Page
27
Strategy in action
24
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
STRATEGY IN ACTION
1 Growth
We made good progress with implementing
our growth strategy in FY20.
Progress
• Successfully completed six student developments and one BtR
development during the year, with the seventh student scheme
completed after the year end.
• Made further progress on site with current BtR and PBSA
Priorities in FY21
• Continue to deploy our financial strength cautiously to acquire
further sites to add to the development pipeline, in order to
realise the growth opportunity to deliver 1,500 BtR apartments
and 3,000 PBSA beds per annum by FY25.
developments for completion in FY21/22.
• Achieve further forward sales of BtR and PBSA developments
• Signed an on-campus partnership agreement with Cranfield
University, paving the way for similar university partnerships.
to grow contracted revenues, earnings and cash flows.
• Progress planning on sites secured subject to planning
• Secured a total of ten BtR and PBSA sites during the year,
• Make further progress in positioning Fresh to be the leading
Barnard Point,
Wembley
third-party operator of BtR assets.
• Implement the steps to begin to trial the affordable homes-led
development model in the North West.
including nine in the second half, with a further four secured
after the year end, significantly strengthening our near-term
and medium-term pipeline to 4,466 BtR apartments and
7,910 PBSA beds.
• Completed three forward sales of PBSA developments since
the year end.
• Fresh PBSA beds and BtR apartments under management
increased to 20,179 at the start of FY21.
• Agreed the strategy to potentially evolve our residential
business into a capital-light, affordable homes-led developer.
• Secured, after the year end, our first affordable homes site for
245 homes in Crewe.
Development pipeline
Future value of secured BtR and
PBSA pipeline of c.£1.5 billion
University partnership
Signed partnership agreement
with Cranfield University
Residential
Agreed strategy for affordable
homes‑led opportunity
Fresh
Continued growth in units
under management
Thames Quarter,
Reading
Watkin Jones plc // Annual report and financial statements 2020
25
Strategic reportGovernanceCompany informationFinancial statements STRATEGY IN ACTION continued
2 Operational excellence
We continue to optimise the way we work, so we can
deliver enhanced outcomes for our stakeholders.
Arundel House,
Coventry
Progress
• Successfully responded to the COVID-19 pandemic,
rapidly introducing revised working practices on site and
reprogramming schemes to support delivery.
• Restructured PBSA delivery teams from three regional divisions
into one, operating on the same systems and platforms and
under single leadership.
Priorities in FY21
• Continue to evolve and embed organisational changes to
support effective delivery.
• Increase the capacity of the acquisition and divestment
“hubs” and enhance planning expertise to support the growth
opportunity.
• Increase the use of third-party contractors to facilitate and help
• Undertook a review of delivery options, to facilitate growth
de-risk delivery growth.
through the use of third-party contracting.
• Strengthened compliance function to support delivery
of high-quality buildings.
• Continued Brexit preparations to ensure continuity of
operations.
• Implement the operational structure and begin house type,
specification and construction methodology design to support
the move to an affordable housing-led model for the residential
business.
• Increase focus on product innovation and design, aided by
• Implemented a new financial system, Summit, in the Watkin
using insights from Fresh.
Jones development business.
• Began implementing a new management system, Yardi, in
Fresh, to support operation of both PBSA and BtR properties.
• Prepared for the introduction of agile working as the new norm
post COVID-19 lockdown restrictions.
• Continue the implementation of Summit into other areas of the
Watkin Jones development business, including sub-contract
order processing and implementation of automated authority
levels.
• Complete the implementation of the Yardi management system
in Fresh.
• Implement agile working and embed cultural change to continue
to create a dynamic, modern, customer-focused business.
Operations
Successfully adapted to COVID‑19
ways of working
Financial systems
Implemented new financial
and management systems
Brexit
Prepared for a range of outcomes
to ensure continuity of operations
Culture
Introduced agile working policy
26
Watkin Jones plc // Annual report and financial statements 2020
Strategic report 3 Responsible operations
During FY20 we developed our ESG framework,
to help us meet our responsibilities effectively.
Between Towns,
Oxford
Progress
• Improved health and safety performance, with incident rate
Priorities in FY21
• Make continued progress with health and safety, as a
of 128 per 100,000 employees (FY19: 152).
top priority.
• Established ESG strategic framework.
• Establish ESG priorities and operating objectives.
• Began to work with property owners to remediate cladding.
• Continue to support students and employees through
• Fresh launched Be wellbeing and lifestyle programme.
• Waived final term’s rent for students in our leased PBSA
properties, who were unable to return after lockdown.
• Engaged with students and universities to support students in
navigating COVID-19.
the pandemic.
• Continue to engage closely with our stakeholders, to ensure
we understand their issues.
• Continue to remediate cladding, in conjunction with property
owners.
• Surveyed our people to help provide support during lockdown
• Look to further enhance environmental performance.
and formulated agile working policy.
• Obtained COVID-secure accreditation for our workplaces and
the properties managed by Fresh.
• Appointed employee representatives and introduced an
employee forum.
• Rolled out unconscious bias training across the Group.
• Diverted 95% of waste from landfill (FY19: 93%).
• Ensured all developments met or exceeded BREEAM
“Very Good” rating.
Cladding remediation
Proactively worked with property
owners to ensure tenant safety
Customers
Fresh launched Be wellbeing
lifestyle programme
Health and safety
Obtained COVID‑secure
accreditations
Employee engagement
Appointed employee
representatives
Watkin Jones plc // Annual report and financial statements 2020
27
Strategic reportGovernanceCompany informationFinancial statements KEY PERFORMANCE INDICATORS
We have established a range of key performance indicators
for the Group, to measure our progress towards achieving
long-term, sustainable growth for shareholders.
Financial KPIs:
Gross margin1
(%)
Basic EPS (adjusted)1
(pence)
Cash inflow from operating
activities1 (£m)
21.4%
14.7p
FY20
FY19
FY18
FY17
FY16
21.4%
21.4%
20.6%
21.8%
20.6%
FY20
FY19
FY18
FY17
FY16
14.7p
16.1p
15.1p
13.0p
11.9p
Purpose
Shows our ability to maintain and improve
the quality of our earnings over time.
Definition
Gross profit as a percentage of revenue.
Performance
The gross margin was unchanged for
FY20 at 21.4%. The achieved margin
reflects the higher margin contribution
from our PBSA development activities,
which increased to 24.0% from 22.3%
last year, reflecting the absence of
anticipated forward land sales at lower
margins in the latter part of the year.
The growing contribution from BtR
revenues at a margin of 15.8% accounts
for the resultant overall margin for the
Group being in line with last year. Gross
margins across the Group remain
consistent and in line with our targets.
Purpose
Shows our ability to deliver profitable
growth and underpins our progressive
dividend policy.
Definition
Profit from continuing operations
attributable to ordinary shareholders,
adjusted to exclude exceptional items,
divided by the weighted average
number of shares in issue in the year.
Performance
Adjusted earnings per share
retracted by 8.7% compared to
FY19, reflecting the impact of the
COVID-19 disruption on the business
and in particular the delay in new
forward sales of developments.
The five-year performance remains
robust, despite the interruption caused
by the pandemic.
£38.3m
FY20
FY19
FY18
FY17
FY16
£38.3m
£23.5m
£23.8m
£19.2m
£59.4m
Purpose
Demonstrates that our working
capital-light, forward sales model
ensures we turn our high-quality
profits into cash, which underpins
our dividend payout.
Definition
Cash flow generated by our
operating activities.
Performance
We generated a strong cash flow
from our operating activities in the
year. The cash inflow from our trading
operations, before deducting the cash
cost of exceptional items, finance costs
and tax payments was £63.5 million,
an increase of £24.1 million on the
prior year.
1. The comparative figures for gross margin, basic EPS (adjusted) and cash inflow from operating activities have been restated to take account of the retrospective
impact of adopting IFRS 16. Basic EPS (adjusted) is calculated before the impact of exceptional items.
28
Watkin Jones plc // Annual report and financial statements 2020
Tudor Place,
Chester
The Helm,
Bournemouth
Strategic report Adjusted measures exclude the impact of exceptional
items, to better reflect our underlying performance.
The performance measures we currently use to manage
our ESG commitments can be found on page 39.
Non-financial KPIs:
Secured BtR pipeline
(apartments)
4,466
FY20
FY19
FY18
2,312
1,478
FY17 966
FY16 322
Secured PBSA pipeline
(beds)
No. of student beds and build to
rent units under management
7,910
20,179
4,466
FY20
FY19
FY18
FY17
FY16
7,910
6,670
7,534
9,120
8,232
FY20
FY19
FY18
FY17
FY16
20,179
17,721
15,421
16,617
12,337
Purpose
Shows our ability to grow our BtR
development pipeline, which supports
our future revenue and earnings growth.
Definition
The number of BtR apartments
expected to be delivered from
development sites which are secured.
Performance
Strong growth in the secured BtR
development pipeline, with 2,313
apartments added and 159 apartments
completed in the period, giving a net
increase of 2,154 apartments.
Purpose
Shows our ability to maintain our PBSA
development pipeline, which currently
provides the core of our earnings and
cash flow.
Definition
The number of PBSA beds which
are expected to be delivered from
development sites which are secured.
Performance
Achieved a net increase in the PBSA
development pipeline of 1,240 student
beds, with 3,849 beds added and
2,609 beds completed in the period.
Purpose
Shows our ability to expand our
high-margin accommodation
management business, which provides
an ongoing regular income and
cash flow.
Definition
The number of student beds and build
to rent units that Fresh is contracted to
manage on behalf of our institutional
clients.
Performance
Fresh achieved further good growth in
the number of student beds and BtR
apartments under management.
Barnard Point,
Wembley
Watkin Jones plc // Annual report and financial statements 2020
Alma Court,
Canterbury
29
Strategic reportGovernanceCompany informationFinancial statements Strategic report
OPERATING
REVIEW
BTR
BUILD
TO RENT
Key statistics
Delivered FY20
159
apartments
1
scheme
Secured pipeline
4,466
apartments
13
schemes
Forward sold
928
apartments
5
schemes
The Helm,
Bournemouth
30
Watkin Jones plc // Annual report and financial statements 2020
Sutton Court Road,
Sutton
The Helm,
Bournemouth
The Gateway,
Sheffield
BtR is an important and growing
contributor to the Group’s financial
performance. Revenues in the year were
£94.0 million, up 21.4% from £77.4 million
in FY19. This revenue performance
reflected the completion in the year of the
159-apartment scheme in Bournemouth,
and good progress on site with the
forward sold developments in Reading,
Wembley, Sutton and Stratford which
are due for delivery in FY21. Despite
temporary disruption on site resulting from
COVID-19, construction is proceeding to
plan for all four schemes. The completion
of the development in Bournemouth was
hampered by on-site management issues
and problems with the cladding system,
which were further compounded by the
initial COVID-19 disruption.
Gross profit for the year was £14.9 million
(FY19: £13.8 million), at a margin of 15.8%
(FY19: 17.8%). The margin achieved in the
year is consistent with our guidance of an
average 15% margin for BtR developments
in the medium term. The margin in FY19
benefited from a strong contribution from
the Reading scheme, which was the main
contributor to BtR revenues in that year.
The Group secured four significant new
development sites during the year, three
of which are subject to planning. These
sites are in Birmingham (550 apartments),
Bath (343 apartments), Glasgow (779
apartments ) and Lewisham, London
(322 apartments). Subsequent to the year
end a further site was secured subject to
planning in Belfast (778 apartments).
There were no new forward sales in the
year, due to a slowdown in institutional
client investment activity caused by
the COVID-19 related uncertainty.
The forward sale market began to recover
towards the end of the year and we are
currently negotiating on the sale of three
developments (722 apartments).
We also obtained planning permission
for 538 BtR apartments at sites in Brighton
and Hove (216 apartments) and Lewisham,
London (322 apartments) for delivery
in FY23.
The current BtR development pipeline is as shown in the table below:
Forward sold
Forward sales in negotiation
Sites secured with planning
Sites secured subject to planning
Total secured
Site acquisitions in legals
Total BtR pipeline
Total pipeline
928
722
—
2,816
4,466
247
4,713
BtR apartments
FY21
857
—
—
—
857
—
857
FY22
71
184
—
—
255
—
255
FY23
—
538
—
—
538
—
538
FY24
FY25
—
—
—
1,117
1,117
247
1,364
—
—
—
1,699
1,699
—
1,699
The appraised future revenue value to the Group of the above secured development pipeline is c.£900 million, of which c.£90 million is
currently forward sold.
Watkin Jones plc // Annual report and financial statements 2020
31
Strategic reportGovernanceCompany informationFinancial statements Strategic report
OPERATING
REVIEW
SA
STUDENT
ACCOMMODATION
Key statistics
Delivered FY20
2,609
beds
7
schemes
Secured pipeline
7,910
beds
20
schemes
Forward sold
3,898
beds
9
schemes
32
Watkin Jones plc // Annual report and financial statements 2020
Arundel House,
Coventry
Revenues from student accommodation
development were £226.0 million (FY19:
£246.1 million), a decline of 8.2%.
The reduction in revenue was primarily
due to a delay in the anticipated forward
sale of a scheme which is currently in
build in Leicester, for delivery in FY21, and
in the forward sale of several other new
developments, as the COVID-19 pandemic
caused a hiatus in institutional clients’
investment activity.
The division recorded a robust gross
profit of £54.3 million (FY19: £54.9 million),
despite the disruption caused by the
pandemic. The gross margin of 24.0% was
ahead of the 22.3% for FY19, reflecting the
delay to new forward sales of land, which
typically attract a lower margin than we
achieve on the subsequent works carried
out under the development agreement.
As discussed on page 6, we closed all
our development sites on 23 March 2020,
as we assessed our response to the
pandemic and introduced COVID-secure
working practices, with close to full
working capacity achieved by the end
of May. By carefully reprogramming our
developments, including appropriate
scenario planning, and introducing
extended working hours and rotating shift
patterns where required, we were able to
complete six schemes with 2,256 beds
that were due for delivery ahead of the new
academic year.
For the seventh scheme due in FY20,
a 353-bed development in Walthamstow,
we agreed a phased delivery with the
client, with two of the three blocks handed
over for the 2020/21 academic year and
the third block completed approximately
three months later. While we incurred
some damages as a result of the late
completion, our close working relationship
with the client and the efforts we made to
recover the delay caused by the COVID-19
disruption and to complete as quickly
as possible, enabled us to negotiate an
improved position.
The cost of the damages is included
in the exceptional COVID-19 cost to
the business. In addition, the business
incurred exceptional costs relating to the
waiver of 2020/21 final term rents due
from students who were tenants of the
Group’s leased student accommodation
properties and were unable to return to
their accommodation as a result of the first
lockdown and due to a further impairment
to the carrying value of one of the leased
properties, which was already impaired,
as a result of lower occupancy due to the
pandemic. More information on exceptional
items is included in the financial review
on pages 60 to 67.
We forward sold one PBSA development
in the year, the 348-bed scheme at
Wilder Street, Bristol, for delivery in
FY21. This follows an option agreement
announced in October 2018, which was
conditional on full planning consent being
achieved. The consideration payable to
us for Wilder Street is c.£33.8 million, net
of all client funding and acquisition costs,
and is payable over FY20 and FY21 as the
development works progress.
The current PBSA development pipeline is as shown in the table below:
We also obtained planning for and
completed an agreement with DWS to add
a further 100 beds to the scheme at Kelaty
House in Wembley, for delivery in FY21.
In April, we signed an on-campus
partnership agreement with Cranfield
University to develop 415 beds for
delivery in FY21 and a further 198 beds
for FY22. The development value to us is
£48.0 million, payable over the period FY20
to FY22. The agreement also contains an
option for a second phase of 252 beds.
This is a significant addition to our PBSA
development pipeline and paves the way
for similar university partnerships.
The Group secured a further six PBSA
development sites in the year, four of
which are subject to planning. These
comprised two sites in Edinburgh
(644 beds) and sites in Bath (335 beds),
Bristol (387 beds), Guildford (375 beds)
and Manchester (419 beds).
After our year end we entered into
forward sales agreements for three new
development sites, for which the clients
concerned acquired the land directly.
These were in Bristol (291 beds), York
(368 beds) and Leicester (250 beds), all for
delivery in FY22 and with a total forward
sold development value of £65.2 million.
The Group obtained planning for 1,217
beds, comprising the additional 100 beds
for the Wembley site, 984 beds for sites in
Edinburgh and 133 beds in Exeter.
Forward sold
Forward sales in negotiation
Sites secured with planning
Sites secured subject to planning
Total secured
Site acquisitions in legals
Total PBSA pipeline
Total pipeline
3,898
714
1,117
2,181
7,910
1,998
9,908
FY21
2,730
462
—
—
3,192
—
3,192
PBSA beds
FY22
1,168
—
777
—
1,945
—
1,945
FY23
—
252
340
1,846
2,438
662
3,100
FY24
FY25
—
—
—
335
335
570
905
—
—
—
—
—
766
766
The appraised future revenue value to the Group of the above secured development pipeline is c.£600 million, of which c.£215 million is
currently forward sold.
Watkin Jones plc // Annual report and financial statements 2020
33
Strategic reportGovernanceCompany informationFinancial statements Strategic report
OPERATING
REVIEW
AM
ACCOMMODATION
MANAGEMENT
Key statistics
Student beds and build to rent
apartments under management
FY20
17,721
FY21
20,179
64
schemes
66
schemes
The Helm,
Bournemouth
34
Watkin Jones plc // Annual report and financial statements 2020
Barnard Point,
Wembley
Barnard Point,
Wembley
Sharman Court,
Sheffield
Fresh generated revenues of £7.6 million,
broadly in line with the £7.5 million recorded
in FY19. Gross profit was £4.5 million (FY19:
£4.6 million), reflecting a margin of 59.8%
(FY19: 61.5%). The stable revenue position
reflects the fact that Fresh’s revenues
largely derive from fixed management fees,
but with a modest level of variable income
based on the level of occupancy revenues
achieved. The disruption to student lettings
in the final term of the 2020/21 academic
year resulted in a small reduction in
expected fee income and consequential
decrease in the gross margin relative to
FY19. The gross margin was, however,
in line with our normal target of 60.0%.
At the start of the financial year, Fresh had
17,721 student beds and BtR apartments
under management, across 64 schemes.
This compared with 15,421 units across
56 schemes a year earlier.
Fresh continued to perform well, mobilising
nine new PBSA schemes in the year
(3,593 beds) and winning mandates for the
future management of 1,414 PBSA beds.
At the end of the financial year, Fresh had
20,179 PBSA beds and BtR apartments
under management across 66 schemes,
and is currently appointed to manage 21,790
beds and apartments by FY23, including
expected renewals. Fresh is now the fourth
largest operator of student beds in the UK
(source: CBRE), up from sixth in 2019, and it
remains the largest third-party operator.
Ensuring customers were living in a
COVID-secure environment was a key
focus for the business from March,
with occupancy levels in student
accommodation remaining relatively
high during lockdown. Around 60% of
students were still in residence at the
start of lockdown, with more than one
third of beds still occupied in June. This
required Fresh to develop new ways of
working, so customers could continue to
receive essential services and support
during the pandemic. In September 2020,
the Group was awarded COVID-secure
accreditation by the British Safety Council,
reflecting the rigorous approach adopted
by Fresh and the Group’s other divisions.
The latest lockdown measures will impact
students who had planned to return to their
accommodation for the start of the 2020/21
spring term. We will continue to respond
to the situation as it evolves and to provide
them with the necessary support.
At the start of FY20, Fresh launched its Be
wellbeing and lifestyle programme, which
puts residents at the heart by creating
communities that thrive and care for each
other, where our residents feel welcomed
and connected, and can enjoy a range of
tailored activities, events and support.
Adapting the Be programme during the
pandemic to provide online communities,
support activities and advice has enabled
residents to remain connected and feel
supported during this difficult period.
The business continues to invest in its
infrastructure systems, to support service
delivery to both residents and to clients.
The implementation of our new single
management platform Yardi is progressing
well and will launch in 2021. This will
result in a seamless customer journey for
residents from the point of initial booking
through the whole length of their tenancy.
Live data via our new app will enable
residents to manage all aspects of their
tenancy, as well as connect with our on site
teams and their neighbours in a way that is
convenient for them.
Yardi will give Fresh a best-in-class
control framework and the ability to
provide dynamic reporting to clients.
Fresh is also moving to a single consumer
brand. The consolidation of the Fresh
Student Living and Five Nine Living
brands under the new single Fresh brand
will be complete in early FY21 and will
communicate a clear customer proposition
that is relevant to the broader residential
for rent market, while also enabling the
targeting of specific audiences with
relevant messaging and creative concepts.
Watkin Jones plc // Annual report and financial statements 2020
35
Strategic reportGovernanceCompany informationFinancial statements Strategic report
OPERATING
REVIEW
R
RESIDENTIAL
Key statistics
Sales completions
95
houses and apartments
Pipeline
745
houses and apartments
Bollin Meadow,
Macclesfield
36
Watkin Jones plc // Annual report and financial statements 2020
Bollin Meadow,
Macclesfield
Cestria II,
Chester
The Gateway,
Sheffield
The residential business delivered revenues
of £26.3 million in FY20, down from
£34.3 million in FY19. Overall, the division
achieved 95 sales in the year, compared
to 150 in FY19. Revenues in the prior year
were helped by strong sales from the
apartment development at Duncan House,
Stratford. Sales in FY20 were inevitably
impacted by the initial COVID-19 lockdown
in the critical spring period and by the
temporary suspension in site build. We did,
however, see a good pick up in sales in
the summer months, following the easing
of the initial lockdown and introduction
of the temporary stamp duty relief, and
the division entered FY21 with 25 sales
exchanged or reserved.
Important contributions to revenue in the
year came from:
• a solid performance from the division’s
operations in the North West, and
in particular the development at
Macclesfield;
• further sales of apartments at the
Duncan House, Stratford, and Riverview
Court, Bath developments; and
• the completion of the 35-apartment
development at Trafford Street, Chester,
which was forward sold in the previous
financial year.
Gross profit for the year was £4.0 million
(FY19: £7.2 million), representing a margin
of 15.4% (FY19: 20.9%). The lower margin
reflects the mix of revenues this year, and in
particular the contribution in the prior year
from the high-margin sales of apartments
at Duncan House, Stratford.
We acquired and commenced a
development site for 97 homes in
Preston during the year and commenced
development of a site for 29 homes in
Bontnewydd, North Wales.
Subsequent to the year end, we secured
our first site under the strategy to pilot
the opportunity to reposition the business
based on an affordable housing-led
partnership model, as discussed on
page 13. This site, for 245 units in Crewe,
has planning and is targeted to deliver
90 affordable, 69 BtR and 84 private for
sale homes, and should start to contribute
to revenues from the end of FY21. Offers
for the forward sale of the affordable and
BtR homes have been received and are
progressing into legals.
With the addition of the above site the
future pipeline stands at c.745 homes
and apartments.
Watkin Jones plc // Annual report and financial statements 2020
37
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY
INTRODUCTION
FROM THE CEO
Developing and managing people’s homes means
we have significant responsibilities. We have to
keep our people and customers safe, provide homes
that are comfortable, high quality and long lasting,
and limit our impact on the environment.
Richard Simpson
Chief Executive Officer
Great places to live are good for
customers, investors and our shareholders.
For students, the accommodation we
develop and run is often their first home
away from home. Build to rent provides
homes for individuals, families and friends,
and creates communities. At the same
time, environmental, social and governance
(“ESG”) issues have rapidly climbed the
agenda of both investors and companies,
and we firmly support the view that many
stakeholders have a legitimate interest in
how businesses are run and the impact
they have.
During the year, we have therefore created
a strategic framework to help us manage
the risks and seize the opportunities
presented by ESG issues, while continuing
to embed responsible business practices
in our DNA.
The UN’s Sustainable Development
Goals (“SDGs”) were the starting point for
this framework. With the help of expert
consultants, we reviewed in detail the 169
targets that underpin the UN SDGs, to
identify the precise areas where we could
have the most positive impact or needed
to minimise our footprint. The areas we
identified fall within three themes – our
people, places and planet – and combine
to help us deliver our purpose, to create
the future of living. More information
on the framework can be found on
pages 40 and 41.
We believe our actions this year have
demonstrated our commitment to
responsible business. Our response to
COVID-19, which is described in more
detail on pages 6 and 7, looked to protect
the interests of all our stakeholders,
from our people and subcontractors to
customers, shareholders and clients. This
commitment came from our executive
team, with firm support from the Board.
Our approach to the Government’s revised
guidance on cladding, which was released
in January 2020, put the safety of tenants
first. At the same time, we have continued
to rigorously focus on health, safety and
our environmental performance, as a core
part of how we operate.
The Board and executive team are
committed to enhancing our management
of ESG issues and we now have a
framework in place to help us succeed.
I look forward to reporting on our progress
next year.
Richard Simpson
Chief Executive Officer
19 January 2021
SDG framework
Potential for high positive impact
Potential for positive impact
Responsibility to mitigate
potential negative impact
See ‘Our future people’ and
‘Our future places’ on pages 44 to 51
See ‘Our future people’
on pages 44 to 47
See ‘Our future people, ‘Our future
places’ and ‘Our future planet’ on
pages 44 to 53
38
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
ESG
PERFORMANCE
Set out below are the metrics
we use to monitor key aspects
of our ESG performance.
Alma Court,
Canterbury
Health and safety
Environmental
Incident rate
2020:
128
Rationale
2019:
152
The safety of our people and those working for us is our
first priority. The incident rate is a standard HSE measure
and demonstrates our safety performance by calculating
the number of recordable incidents per 100,000 full-time
workers over a one-year period.
CO2 emissions (kg emissions as % revenue)
2020:
0.24%
Rationale
2019:
0.30%
We look to manage and reduce our emissions.
We closely monitor our performance and seek to
identify opportunities to achieve environmental and
potentially economic benefits.
Social
Gender diversity
2020:
M: 56%
F: 44%
Rationale
2019:
M: 55%
F: 45%
Governance
Non-compliance events
against our company policies
2020:
0
Rationale
2019:
0
Diversity is an important aspect of our culture and we
are committed to equal opportunities when it comes to
recruitment, selection and career development.
We set high ethical standards for our employees and those
we work with. We closely track incidents of non-compliance
with company policies and have a zero-tolerance approach
to contraventions.
Watkin Jones plc // Annual report and financial statements 2020
39
Strategic reportGovernanceCompany informationFinancial statements Strategic report
SUSTAINABILITY continued
OUR ESG
STRATEGIC
FRAMEWORK
Objective
Theme
Focus
Performance
Highlights
2021 objectives
Creating the
future of living
Our Future People:
• To create an engaged and motivated
workforce that acts with the highest
standards of ethics and integrity, to create
long-term value for our stakeholders.
Our Future Places:
• To develop buildings that are great places
to live now and for the long term and that
enhance the communities around them.
• Develop our people and retain the intellectual
capital we create within the business, including
technical, operational and relationship
considerations.
• Support a more inclusive workforce and foster a
culture that promotes diversity.
• Deliver high-quality services and developments
for our institutional clients (“ICs”).
• Embed responsible and ethically sound business
practices.
• Provide a safe and healthy environment for our
employees, subcontractors and people living in
the communities where we build.
• Meet the expectations of customers and
communities, by delivering sustainable places
to live that satisfy the requirements for future
housing.
• Listen to customer demands and deliver
continually improving services and
developments.
• Make a positive contribution to society, through
our time and capital commitments.
• Integrate our institutional clients’ ESG
considerations into acquisition, planning and
development processes.
• Engage our supply chain to maintain disciplined
and responsible operating practices.
• Nine hours of relevant
• Held staff conference in November 2019, focusing on:
• Support our people and promote
training per employee.
people, the customer, innovation, how we create the
their success.
• 13.2% employee
turnover.
• Health and safety
incident rate of 128.
future of living and culture of the workplace.
• Maintain zero non-compliance
• Diversity and inclusion training rolled out across the
performance of our policies.
Group, from the Board down.
• Worked to further improve our “speak-up” culture.
• Drive a zero harm at work agenda.
• Implement agile working policy and
• Zero non-compliance
• Prepared to formally introduce agile working across
continue to embed cultural change to
events.
the Group as the new norm post COVID-19 lockdown
create a more collaborative organisation.
• 44% of employees
are female.
restrictions.
incident rate by 16%.
• Continued to improve safety performance, reducing our
refurbish London office to create attractive
• Design and fit out new Chester office and
workplaces, aligned to our purpose to
create the future of living and providing
good collaborative spaces.
• Fresh scored a 93%
• Fresh survey conducted to gather student feedback.
• Drive further engagement with our BtR
satisfaction rating.
• Engaged with students and universities to support
• £22.1 million tax paid
students navigating COVID-19 and waived 2020/21
and PBSA occupants to inform our
strategy.
to Government.
final term rents amounting to £1.1 million for students
• Support our supply chain to know what is
of Watkin Jones leased assets who couldn’t return
because of lockdown.
expected of them and to meet increasing
environmental and social expectations.
• Evolving long-term partnerships to drive improvements
• Continue to evolve our approach to
in responsible sourcing for our developments.
community engagement and impact.
• Introduced a pilot scheme with Scottish Power at our
• Further align our ESG principles with
Trafford Street development in Chester that will be
those of our institutional clients.
entirely powered by renewable energy.
• Introduced target at our new development in Bath
to reduce regulated CO2 emissions by 35%.
• Continued to engage with our institutional clients, with an
ever-increasing focus upon effective ESG management
throughout the lifecycle of our developments.
Our Future Planet:
• To drive efficient and responsible resource
stewardship.
• Reduce the environmental footprint of our
development and operating activities.
• Maximise low carbon opportunities in all aspects
of our business, through innovation.
• Integrate resource-efficient materials and
products into our developments.
• Continued to follow strict procedures in waste disposal
• Achieve further increase in percentage
and engaged with the right sub-stakeholders to produce
of waste diverted from landfill.
a range of environmental reports.
• Seek ways to reduce the carbon/
• Ensured all developments met or exceeded BREEAM
environmental footprints of our
“Very Good” rating.
developments through the construction
and occupancy lifecycles.
• 0.24% actual CO2
emissions (kg) as a %
of revenue.
• 100% of our
developments
achieved a “B” EPC
rating or above.
• 95% of waste diverted
from landfill, ahead of
target.
For a more in-depth look
at our SDG analysis, visit
www.watkinjones.com
40
Watkin Jones plc // Annual report and financial statements 2020
Objective
Theme
Focus
Performance
Highlights
2021 objectives
Creating the
future of living
Our Future People:
• To create an engaged and motivated
workforce that acts with the highest
standards of ethics and integrity, to create
long-term value for our stakeholders.
Our Future Places:
• To develop buildings that are great places
to live now and for the long term and that
enhance the communities around them.
• Develop our people and retain the intellectual
capital we create within the business, including
technical, operational and relationship
considerations.
• Support a more inclusive workforce and foster a
culture that promotes diversity.
• Deliver high-quality services and developments
for our institutional clients (“ICs”).
• Embed responsible and ethically sound business
practices.
• Provide a safe and healthy environment for our
employees, subcontractors and people living in
the communities where we build.
• Meet the expectations of customers and
communities, by delivering sustainable places
to live that satisfy the requirements for future
housing.
• Listen to customer demands and deliver
continually improving services and
developments.
• Make a positive contribution to society, through
our time and capital commitments.
• Integrate our institutional clients’ ESG
considerations into acquisition, planning and
development processes.
• Engage our supply chain to maintain disciplined
and responsible operating practices.
Our Future Planet:
• To drive efficient and responsible resource
stewardship.
• Reduce the environmental footprint of our
development and operating activities.
• Maximise low carbon opportunities in all aspects
of our business, through innovation.
• Integrate resource-efficient materials and
products into our developments.
For a more in-depth look
at our SDG analysis, visit
www.watkinjones.com
• Nine hours of relevant
training per employee.
• 13.2% employee
turnover.
• Health and safety
incident rate of 128.
• Held staff conference in November 2019, focusing on:
people, the customer, innovation, how we create the
future of living and culture of the workplace.
• Diversity and inclusion training rolled out across the
Group, from the Board down.
• Worked to further improve our “speak-up” culture.
• Zero non-compliance
• Prepared to formally introduce agile working across
events.
• 44% of employees
are female.
the Group as the new norm post COVID-19 lockdown
restrictions.
• Continued to improve safety performance, reducing our
incident rate by 16%.
• Fresh survey conducted to gather student feedback.
• Engaged with students and universities to support
students navigating COVID-19 and waived 2020/21
final term rents amounting to £1.1 million for students
of Watkin Jones leased assets who couldn’t return
because of lockdown.
• Evolving long-term partnerships to drive improvements
in responsible sourcing for our developments.
• Introduced a pilot scheme with Scottish Power at our
Trafford Street development in Chester that will be
entirely powered by renewable energy.
• Introduced target at our new development in Bath
to reduce regulated CO2 emissions by 35%.
• Continued to engage with our institutional clients, with an
ever-increasing focus upon effective ESG management
throughout the lifecycle of our developments.
• Fresh scored a 93%
satisfaction rating.
• £22.1 million tax paid
to Government.
• 0.24% actual CO2
emissions (kg) as a %
of revenue.
• Support our people and promote
their success.
• Maintain zero non-compliance
performance of our policies.
• Drive a zero harm at work agenda.
• Implement agile working policy and
continue to embed cultural change to
create a more collaborative organisation.
• Design and fit out new Chester office and
refurbish London office to create attractive
workplaces, aligned to our purpose to
create the future of living and providing
good collaborative spaces.
• Drive further engagement with our BtR
and PBSA occupants to inform our
strategy.
• Support our supply chain to know what is
expected of them and to meet increasing
environmental and social expectations.
• Continue to evolve our approach to
community engagement and impact.
• Further align our ESG principles with
those of our institutional clients.
• Continued to follow strict procedures in waste disposal
• Achieve further increase in percentage
and engaged with the right sub-stakeholders to produce
a range of environmental reports.
of waste diverted from landfill.
• Seek ways to reduce the carbon/
environmental footprints of our
developments through the construction
and occupancy lifecycles.
• 100% of our
• Ensured all developments met or exceeded BREEAM
“Very Good” rating.
developments
achieved a “B” EPC
rating or above.
• 95% of waste diverted
from landfill, ahead of
target.
Watkin Jones plc // Annual report and financial statements 2020
41
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY continued
HOW ESG SUPPORTS
OUR BUSINESS MODEL
We engage with our stakeholders throughout the
development cycle to ensure we get the most out of
the resources we have to create the future of living.
Link to business model
Accommodation
management
5
Identify
potential
developments
1
Typic
all
y
3
-
7
y
e
a
r
s
(
r
e
n
e
w
a
b
l
e
)
Site
procurement
and planning
2
s
r
a
e
y
5
-
3
y
l
l
a
c
pi
Ty
4
Construction
and delivery
3
Transaction
and funding
The business model on pages 20 to 23 sets out our five-stage development model. We carefully identify and manage ESG risks
and opportunities as a core part of this approach, and engage with our stakeholders (see pages 56 and 57), so we can collaborate
and meet their expectations. We constantly seek new ways to improve how we operate and aim to get the most from our tangible
and intangible resources.
42
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
We collaborate to meet and where possible exceed
stakeholder expectations and are constantly seeking
ways of improving the way we do things.
1
Identify potential
developments
2
Site procurement
and planning
3
Transaction
and funding
4
Construction
and delivery
5
Accommodation
management
We incorporate stakeholder views into our
selection of potential developments, notably
using market insights from customers and
institutional clients, as well as taking account
of clients’ ESG policies.
We often look to bring brownfield sites back
to life, supporting community and economic
activity.
Our approach to obtaining planning consent
includes a strict environmental and social
impact assessment. We have highly skilled
planning teams, who have defined processes
for engaging with the Environment Agency
and other stakeholders involved in the
approvals process. We undertake detailed
planning and execution of remedial activity
on brownfield sites, considering all the
environmental sensitivities of the area.
We take a disciplined approach to securing
transactions and funding, ensuring we follow
our anti-bribery and corruption processes
and setting high ethical standards, as we
engage with leading institutional clients.
Our approach to planning is informed by
the regulatory environment and we seek
to exceed regulatory requirements where
possible, to meet BREEAM “Very Good”
or above.
Our capital-light business model ensures
robust working capital management,
supporting value creation for shareholders.
We look to develop strong relationships
with our supply chain partners, and select
suppliers and subcontractors who share
our values and focus on health and safety.
Robust management processes and regular
and systematic engagement ensures
alignment with our Group policies.
We are an environmentally conscious
developer, with a well-defined environmental
policy that governs the development and
construction process. Waste management,
recycling and reuse are a key focus. We
aim to use energy-efficient materials across
developments to exceed current regulations.
During the delivery process, we engage with
the community so they understand what we
are doing and the benefits of each scheme to
community members.
We gather feedback from customers,
to inform our service delivery and future
developments. We prioritise the safety of
our customers, and look to support their
wellbeing through our recently launched
Be wellbeing programme.
Creating communities within the
developments is an important part of our
approach, both in their design and through
organising events and using social channels.
Watkin Jones plc // Annual report and financial statements 2020
43
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY continued
OUR FUTURE
PEOPLE
Responsibility and management
Since investing in our human resources
(“HR”) function in 2019, which included
recruiting our first Group HR Director,
we have continued to harmonise and
standardise our people processes.
In November 2019, we moved to an
organisational base structure, which
supports efficient lines of communication
and a single approach to controlling our
business continuity.
We have a wide range of policies relating
to how we manage our people. These cover
maternity, paternity and adoption leave,
equality and diversity, employee privacy,
dignity at work, equal opportunities,
pensions and grievance procedures.
Throughout the COVID-19 pandemic,
we focused on modernising our policies
to accommodate more work-life balance
and flexibility, as well as to protect the
health and safety of our people and
subcontractors (see below).
We have several routes for our people
to report compliance issues relating to
our people policies. They can discuss
any issues with their line manager or, if
they feel unable to do so, with their HR
manager. If the issue remains unresolved,
we have a formal grievance procedure, as
set out in our grievance policy. In addition,
we have an outsourced whistleblowing
service, which allows our people to raise
concerns confidentially about a wide range
of matters.
Our employee survey, annual staff
conference and our employee
representatives (see page 45) also give
people the opportunity to provide feedback
about the operation of our policies.
Throughout the pandemic we have been
working to ensure that risk assessments,
procedures and practical measures are in
place to ensure all our sites and offices are
COVID-19 secure. These procedures and
measures are constantly being reviewed.
We achieved the British Safety Council
COVID-19 Secure Statement following an
in-depth audit of our policies, procedures
and measures put in place.
Recruitment and retention
As a growing business with developments
across the UK, we actively seek to recruit
from labour markets close to our sites.
This approach recognises the importance
of work-life balance and has increased
our ability to attract and retain talent. Our
employee turnover for FY20 was 13.2%,
compared to our target of 15%.
During the year, we launched careers
websites, designed to improve the
candidate experience and make it easier to
apply for vacancies.
Diversity and inclusion
The Group HR Director presented a
diversity and inclusion (“D&I”) plan to the
Board in July 2020. The first phase of the
plan included securing sponsorship from
the Board and raising awareness around
the business of the meaning of D&I and
equality. We have begun to roll out D&I
training about unconscious bias across
the Group, including the Board, and have
looked to improve our speak-up culture and
generate more-inclusive feedback for our
leadership.
As part of the organisational redesign
during the year, we included a D&I section
in the application process for new roles.
This was the first time we have scored
people’s insights into D&I issues.
An important workstream during the year
was to prepare for the formal launch of
agile working. While this is relevant to
all our people, we believe a key benefit
will be in helping us to attract and retain
a more diverse workforce, by opening
up employment opportunities to people
who need more flexibility in how or where
they work.
We have allocated all our people to one of
four categories, ranging from people who
need to be at one of our locations to do
their work effectively (such as site or office
support staff) to people who can work from
a variety of locations, depending on the
requirements of their role. At the same time,
we are moving away from set hours of work
each day, giving our people more flexibility
to choose when they work, provided they
reach their contracted hours. We are
also providing our people with the right
technology to support agile working and
we are creating better offices, designed to
provide good collaborative work spaces.
Gender diversity
The table below shows our gender diversity
as at the year end.
2020
2019
Men Women Men Women
Board
4
1
4
1
Senior
management
Other
employees
Total
47
11
49
17
355
406
310
329
300
322
382
318
Construction has traditionally been a
male-dominated industry. While the growth
of Fresh is helping to bring more women
into the Group, including in senior roles,
the gender and ethnic diversity of our
workforce is not good enough and we
are committed to improving it.
44
Watkin Jones plc // Annual report and financial statements 2020
Strategic report The Helm,
Bournemouth
Do you feel you have been
more or less productive
working from home?
More productive:
57%
Towards the end of FY20, we appointed
employee representatives, who will come
together as a forum to support consultation
with our people and to enable employees
to feed back to the executive team. We will
support the representatives with training, to
help them be effective.
Watkin Jones working from home
employee survey
We undertook a working from home survey during the initial
COVID-19 lockdown to understand our employees’ views
and how we could better support them.
How easy have you found it to
adapt to working from home?
Are you enjoying
working from home?
Easy or very easy:
74%
Like it or love it:
61%
Engaging with our people
We conduct an employee survey every
two years, with the last one taking place
in summer 2019. The feedback prompted
a number of changes, such as increases
to our paternity and adoption leave policy.
This year, we conducted a Group-wide
survey to find out how working from home
in response to COVID-19 had affected our
people and their ability to work effectively.
This identified that 88% of our people felt
that offering flexible working made an
employer more attractive, with just 4%
disagreeing. This survey has helped to
inform our approach to agile working (see
diversity and inclusion on page 44).
Around 300 employees attended our
staff conference in November 2019,
which included an afternoon dedicated to
innovation and creating the future of living.
Attendees were divided into five hubs, to
discuss:
1. People
2. The customer
3. Innovation
4. How we create the future of living
5. The culture of the workplace
The output from this has informed our
strategy and led to workstreams such
as a review of rewards and benefits.
Watkin Jones plc // Annual report and financial statements 2020
45
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY continued
OUR FUTURE
PEOPLE continued
Health and safety
We have a Group-wide health and safety
policy, which provides a comprehensive
description of responsibilities for
health and safety throughout the
organisation, from the Board to the
people working directly on site. It also
details the arrangements which form our
robust health and safety management
system, such as necessary training, risk
assessments, supervision and the use of
protective equipment.
The divisional managing directors (“MDs”)
lead health and safety for their divisions.
They are supported by the Group health
and safety department, which comprises
our health and safety advisers. The health
and safety advisers conduct an inspection
and audit of all sites every two weeks
and all offices each month. Sites are
scored after each audit and results are
reported to the divisional MDs on a weekly,
monthly and quarterly basis. The Group
team hold weekly conference calls with
the site teams to discuss performance,
any issues identified and any incidents
that have occurred.
A monthly meeting with the divisional MDs
is held to review health and safety issues,
any initiatives being conducted and other
key areas such as training. The quarterly
analysis looks to identify any recurring
incidents and trends in performance.
Contract managers and directors are also
required to audit sites each month, with the
results reviewed by the Group team.
Our subcontractors play a key role in
on-site safety. Everyone working on site
must have a general induction before they
reach the site, followed by a site-specific
briefing before commencing work. No one
is allowed on site without first proving their
competency, for example by checking they
hold a valid Construction Skills Certification
Scheme card. This proves their identity,
the qualifications they hold and the training
they have received. All sites must have a
team talk with contractors on health, safety
and environment (“HSE”) topics each week.
These are reviewed at the weekly health
and safety meetings.
Team building
activity
During the year, the Group’s internal
auditor, KPMG, audited health and safety
across the business. This concluded that
we had a comprehensive approach to
health and safety, as well as identifying a
number of areas for further improvement.
We are currently setting up a best practice
hub for HSE. This will help us to share
best practice across the Group, using a
tablet-based system called Field View.
The system allows our people to enter best
practice ideas, with immediate distribution
to the rest of the business.
In addition, we have been running a
campaign throughout the year to ensure
dropped object prevention plans are
in place on all our sites and that they
are regularly reviewed, to prevent injury
and damage from dropped objects when
working at height.
Welfare issues are an important focus for
Watkin Jones. In particular, we have carried
out a significant amount of training on
mental health first aid and aim for each site
or office to have at least one mental health
first aider.
Health and safety performance
Our incident rate, which is a standard Health
and Safety Executive reporting metric,
was 128 per 100,000 employees for FY20,
compared with 152 for FY19. There were
no material health and safety events during
the year and two reportable accidents.
Our incident rate is 5.29% of the national
incident rate for the construction industry.
Our lost time productivity is 0.76%.
Throughout 2020, we have been targeting
manual handling incidents and we are
pleased that we have reduced manual
handling incident rates by just over 48%
compared to last year.
Manual handling incidents
1,000
800
600
400
200
0
989
511
2019
2020
Incident rate and reportable accidents rate
Incident
rate
350
303
300
250
200
150
100
50
0
275
231
152
128
Reportable
accidents
rate
5
4
3
2
1
0
2016
2017
2018
2019
2020
Incident rate: This is an HSE standard reporting metric, being the number of recorded incidents
multiplied by 100,000 divided by the average number of full-time employees.
Reportable accidents rate: This is the absolute number of accidents reported by the Group to HSE
in accordance with the RIDDOR regulations.
46
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
Ensuring compliance
We ensure all new and existing employees
have appropriate training to understand
their rights and responsibilities under our
human rights-related policies.
Employees can report any issues of
non-compliance with our employment
policies through the same routes described
in the responsibility and management
section on page 44. Any person with
concerns about slavery or human
trafficking must raise them through their
line manager, our Compliance Officer or
through our whistleblowing procedures.
Our Compliance Officer has primary
responsibility for overseeing the
anti-slavery and human trafficking
policy, monitoring its use and effectiveness,
dealing with any queries about it, and
auditing internal control systems and
procedures to ensure they are effective
in countering modern slavery.
We are not aware of any material
breaches of our human rights policies
during the year.
Training and development
We recognise the importance of learning
and development, particularly in respect
of developing our future leaders. We set
training targets for our people and have
full training records for everyone. We are
currently looking at defining the minimum
and desirable training levels, to match
against job specifications.
Human rights
Human rights policies
We have several policies covering aspects
of human rights, both within Watkin Jones
and in our supply chain. These include
our policies on dignity at work, equal
opportunities, equality and diversity,
and anti-slavery and human trafficking.
The aims of these policies include ensuring
that we:
• have a work environment free of
harassment and bullying, where
everyone is treated with dignity and
respect;
• provide equal employment opportunities
and avoid unlawful discrimination in
employment and against customers;
• avoid any kind of unfair or illegal
discrimination on the basis of colour,
race, nationality, ethnic background,
language, religion, sex, age, marital
status, sexuality or disability; and
• prevent any slavery or human trafficking
in our own operations or within our
supply chain.
Employee conference,
November 2019
Anti-bribery and corruption (“ABC”)
Anti‑bribery and corruption policy
We have a detailed ABC policy. It sets
out the basic rules for our people and for
third parties working on our behalf, and is
designed to give them sufficient knowledge
to detect and prevent bribery and
corruption, and guidance on where to seek
advice. The policy is supported by practical
examples, which illustrate how to apply the
rules in the context of our business.
Ensuring compliance
We promote compliance with the ABC
policy in a number of ways. These include:
• conducting risk-based due diligence on
all agents and other third parties who will
be conducting business on our behalf;
• promoting employee and third-party
awareness of, and compliance with,
the ABC policy through appropriate
communication, training and disciplinary
procedures;
• raising ABC awareness through specific
online training during induction and
annual refresher training; and
• requiring each employee to sign an
annual declaration to confirm they have
complied with the policy.
Directors, managers and supervisors are
personally responsible for monitoring
compliance:
• in respect of all business matters they
are managing or supervising; and
• by everyone involved in matters they
are managing or supervising, including
third-party agents, joint ventures and
contractors working for and on behalf of
Watkin Jones.
Anyone with suspicions about an ABC
policy violation must report it to their
supervisor, manager or director, or by
contacting the Compliance Officer or
the whistleblowing line. An update on all
whistleblowing submissions is presented
to each meeting of the Audit Committee.
We are not aware of any breaches of the
policy during the year.
Watkin Jones plc // Annual report and financial statements 2020
47
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY continued
OUR FUTURE
PLACES
Arundel House,
Coventry
Responsibility and management
We aim to create places that will be
attractive to live in for years to come,
which help residents succeed in life
through quality homes and the customer
service they receive, and which play a
part in fixing the UK’s housing shortage.
We supplement our in-house planning
and design expertise with insights from
customers, gained through Fresh, and
through understanding the needs of our
institutional clients. This helps us to find
the rights sites and then to design and
deliver places that support our vision and
provide the best experience for the people
who live there.
All proposals for new sites must be
approved by our Investment Committee
before they go ahead. Our delivery teams
look to develop buildings to high standards
and free from defects, and we aim to
find new and innovative ways to work
and to share that knowledge across the
business, so we consistently produce
better outcomes.
Through Fresh we create engaged
communities and help to provide an
exceptional living experience for residents.
Our teams aim to provide best in class
customer service and through our
Be wellbeing and lifestyle programme we
deliver engaging events, both online and
in person, and support residents wellbeing
through a range of activities and services.
Managing our supply chain
Our supply chain is crucial to successfully
delivering our schemes. We look for
opportunities to work closely with our
supply chain partners, for mutual benefit.
This includes negotiating national rates
with key subcontractors, while they benefit
from a highly visible and growing workload
with us. By carefully managing our supply
chain, we simplify our construction
process, reduce risk, and generate cost,
maintenance and environmental benefits.
Any new contractor we work with goes
through a rigorous pre-qualification
process, including obtaining references
and details of their qualifications
and accreditations. The evaluation
also considers their quality, HSE and
financial performance.
Arundel House,
Coventry
48
Watkin Jones plc // Annual report and financial statements 2020
Strategic report We are proud that many of our
subcontractors have grown alongside
Watkin Jones over the last 20 years,
reflecting the strength of our relationships.
At the same time, we continually push our
suppliers to improve.
As part of this, our compliance department
uses Field View to record any defects and
communicate them directly to the supply
chain. This improves efficiency and ensures
accountability.
Avon Studios,
Bath
Ensuring fire safety
The fire safety of the buildings we
develop is paramount. We construct our
developments to high fire management
specifications, complying fully with
applicable building and fire regulations,
and with rigorous fire safety management
and maintenance regimes. We use
external consultants to vet our detailing
and employ accredited subcontractors
on fire protection to undertake their own
independent surveys of the work. We are
also further enhancing the robustness of
our processes, for example by using Field
View to store photographs and videos
showing the installation of fire protection.
In January 2020, the Government issued
updated guidance on the suitability of
certain cladding systems which had
previously been widely used on high rise
residential buildings. For the first time,
the guidance expressly covered high
pressure laminate cladding. Following
the issue of the guidance we carried
out a review of the properties we have
previously developed to identify those
where some cladding remediation might
be required and, without accepting liability,
have worked proactively with the owners
of the properties concerned to ensure
the continued safety of tenants. More
information on our approach to rectifying
cladding issues can be found on page 13.
Our impact on the UK
Student
accommodation (PBSA)
Build to rent (BtR)
Number of residential units
delivered
2,821
Number of WJ employees
705
Number of suppliers
1,470
Total supply chain spend1
£255.0 million
Total contribution to UK Treasury
directly and indirectly
£22.1 million
1. The CBI state that for every £1 spent within the construction space nearly £3 of value is created for the UK economy (https://www.cbi.org.uk/media-centre/
articles/fixing-foundations-of-uk-construction-business-model-can-unleash-sectors-full-potential-cbi/)
Watkin Jones plc // Annual report and financial statements 2020
49
Strategic reportGovernanceCompany informationFinancial statements
SUSTAINABILITY continued
OUR FUTURE
PLACES continued
Engaging with our communities
Through our development activities
we make a positive impact on local
communities. As a condition of obtaining
planning consent for our developments,
we often undertake improvement work
in the local area, which can range
from providing affordable homes to
contributions towards new schools,
landscaping and enhancing roads and
public realm areas. BtR developments
are a high-quality source of new homes,
which help to relieve pressure on local
housing stock. Councils also often
see PBSA developments as a way of
addressing housing shortages. A large
PBSA development can free up more than
100 homes that were previously occupied
by students, making them available to
local families.
Alma Court,
Canterbury
We look to build and maintain strong
relationships with the communities around
our sites. This includes ensuring we work
within the planning guidance hours and
noise limits we are given. Our policy is to
register all of our development sites under
the Considerate Constructors Scheme.
Each site has an administrator who keeps
the local community informed through a
monthly newsletter covering, for example,
how the scheme has progressed and our
planned works for the next month or eight
weeks. When areas of the building are
completed, we often invite members of the
community in to discuss what we are doing
and show them around, helping to show
our desire to be good neighbours.
The Watkin Jones Community Fund
supports projects that make a real
difference to the communities in which
we work. The fund aims to support a
wide range of projects with a particular
emphasis on enhancing the physical
environment and improving quality of
life for local people. Applications are
welcomed from community-based groups
and not-for-profit organisations. During
FY20 the fund made donations to a range
of charities and schools.
We also recognise the importance of
encouraging young people to consider a
career within our industry. We visit local
schools and colleges to discuss careers
available and invite students to tour our
developments to gain an insight into
our work.
Barnard Point,
Wembley
50
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Case study
Enhancing community facilities
Through our development activities we
can enhance the facilities available to
local communities.
As part of our student accommodation
development in Coventry, which we
completed in FY20, we demolished the
outdated Boys and Girls Youth and Sports
Social Club building on the site and
replaced it with a new facility comprising
sports hall, boxing gym, activity room and
café, as well as a rooftop sports area.
The new Club facility attracted over
600 young people following its opening
and has made a significant contribution
to the wellbeing of young people in the
Coventry area.
Case study
Improving community safety
Ensuring that our developments contribute
to improving local safety and reducing
anti-social behaviour is an important part
of any new project design.
At our new student accommodation
site in Birmingham, we are working with
the Canals and Rivers Trust to provide
additional safety along the canal tow path
which is used by local residents and will
be a route for future students living in
the development to walk to and from the
University of Birmingham.
Various measures are being considered
alongside the opening up of overgrown
spaces, including installation of lighting
and provision of CCTV.
Case study
Listening to our student customers
Fresh continuously engage with students,
seeking feedback through surveys and
focus groups to enable us to shape our
service and design our developments
accordingly.
Using feedback from c.14,000 of our
residents who completed the National
Housing Survey, we identified that the
most important features when choosing
a room are the facilities within the room
for study, and in particular the size and
configuration of the desk and type and
quality of lighting.
By analysing the results of the survey we
have been able to determine the optimum
desk layout and size, and the lighting
configuration, and these requirements are
now being incorporated into the design of
our future schemes.
Watkin Jones plc // Annual report and financial statements 2020
51
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY continued
OUR FUTURE
PLANET
Responsibility and management
Improving the environmental performance
of both our business and the buildings
we develop is important for our long-term
success. We recognise the potential impact
of climate change on society generally and
on our operations, for example through
storms and flooding affecting construction
on site. Our institutional clients are also
increasingly aware of their environmental
responsibilities. Our buildings are usually
constructed to high BREEAM standards
and the increasing focus on energy
efficiency helps to underpin demand for
our products, as they replace older and
less energy-efficient buildings.
CO2 emissions
Tudor Place,
Chester
We have an environmental policy
statement, which sets out our commitment
to protecting the environment, preventing
pollution, and monitoring and reducing
the impact of our operations on the
environment and local communities.
The policy requires us to work with
our clients to promote best-practice
environmental management techniques
and with our suppliers to ensure strong
environmental supply chain management
and to promote sustainable sourcing of
products and materials. We also have a
separate policy covering our approach
to waste management. This details our
process for minimising waste production
and requires us to use registered
and approved contractors for waste
management services.
CO2
1,400
1,200
1,000
800
600
400
200
0
1,301
1,200
1,248
1,200
1,065
1,200
1,132
1,300
859
1,100
2016
2017
2018
2019
2020
Actual CO2 emissions (tonnes)
CO2 emissions target (tonnes)
Actual CO2 emissions (kg)
as a % of turnover (£)
Waste diverted from landfill
Waste
m3
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
38,013
34,211
29,626
27,552
33,644
31,625
31,434
29,213
25,473
24,212
2016
2017
2018
2019
2020
Waste produced (m3)
Waste diverted (m3)
Diversion target (%)
Actual diverted (%)
%
0.6
0.5
0.4
0.3
0.2
0.1
0.0
%
100
95
90
85
80
75
We ensure compliance with our
environmental policies in a number of
ways. These include:
• implementing business-specific
environmental management systems,
with the Group being accredited to
ISO 14001;
• developing objectives, supported by
detailed targets, to manage all potentially
significant environmental aspects;
• developing meaningful key performance
indicators to measure resource use,
waste and emissions, and to promote
environmental best practice; and
• providing training to staff and
subcontractors, to raise awareness
of environmental issues and to
ensure effective management of
our environmental impacts.
As an ISO 14001 accredited company, our
environmental policy and waste monitoring
procedures are well established throughout
the Group and we are regularly audited by
the British Standards Institute to ensure we
comply. Our internal experts and advisers
ensure we keep abreast of regulatory
developments.
Improving our environmental impact
The Group uses a range of measures
to ensure energy resources are used
responsibly. We design our buildings using
the principles of high insulation and low
air leakage, and use options including
combined heating and power energy
supplies, photovoltaic cells and air source
heat pumps, to keep energy use as low as
possible. We monitor our own energy use
across our offices and sites and set targets
to improve efficiency. We use fuel-efficient
vehicles and plant, and low energy options
such as LED lighting and energy-efficient
cooling and heating systems.
52
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Our water use is continually monitored,
so we can investigate and address
any increase. We use water-efficient
components in our offices and temporary
facilities on sites, and look to use water
recycling technology where possible.
Our buildings are designed in accordance
with BREEAM Wat 01 and we produce a
water strategy, with the aim of reducing the
consumption of potable water for sanitary
use in new buildings.
Bathroom Pods are fitted with dual flush
toilet cisterns, aerated basin taps and
“Eco” seven-litre per minute shower
heads all fully compliant with BREEAM
water-saving efficiency design standards.
We also install leak detection systems and
surface water attenuation (“SUDs”)
on some of our projects.
We commission ecological appraisals,
to ensure we do not have a negative
effect on the surrounding habitats.
An environmental impact report for each
project details specific measures to protect
the surrounding environment. Emissions
to water are controlled on site through
management of the site’s surface water
and by providing a wildlife corridor between
rivers and canals and the building site.
We monitor waste management on site
and carry out duty-of-care checks on our
own and our contractors’ waste carriers
and environmental permits. Regular
waste management inspections of skips,
including their contents, ensure waste is
placed in the correct skips. We recycle
timber on site and segregate and divert
timber waste for recycling away from landfill
sites. We only use sustainable sources for
our timber used on sites.
Case study
Reducing energy waste
with instant hot water
We continually look to innovate and
improve the environmental footprint of
our developments, which in turn helps to
future-proof our business. For example,
our 35-apartment build to rent scheme in
Chester has the UK’s first instantaneous
hot water (“IHW”) system using a
400-volt electricity supply, provided from
renewable energy sources in partnership
with Scottish Power.
IHW systems replace traditional, larger
floor-standing cylinders, to improve
sustainability and maximise the internal
space available for customers. IHW
systems heat water instantly as it is
required, rather than storing hot water
in a tank, which leads to waste through
heat loss. The reduction in energy waste
amounts to as much as 0.23 tonnes of
CO2 per year per home and a £60 saving
for bill payers annually.
Case study
Targeting an
“Excellent” rating in Bath
At our student accommodation
development in Bath, we are planning
a range of significant environmental
enhancements. These include targeting
a 35% reduction in regulated CO2
emissions, compared to the targets set in
the Building Regulations. We will employ
highly efficient air source heat pumps for
hot water production and roof-mounted
photovoltaic panels to generate
renewable energy.
The development will be car free,
promoting more sustainable travel, with
cycle storage provided for every resident.
The building will have biodiverse green
roofs and the site will benefit from a
significant increase in the quality and
quantity of planting and landscaping.
We will also restore and revitalise the
existing stream, with improved planting,
biodiversity, water and wildlife habitats.
Overall, our target is to achieve a
BREEAM “Excellent” rating for this
development.
Watkin Jones plc // Annual report and financial statements 2020
53
Strategic reportGovernanceCompany informationFinancial statements SUSTAINABILITY ACCOUNTING STANDARDS BOARD
In our commitment to transparency and sharing
relevant and material ESG information, we have
elected to report to the Home Builders SASB
industry standard.
Land use and
ecological
impacts
Number of (1) lots and (2) homes
delivered on redevelopment sites
Number of (1) lots and (2) homes
delivered in regions with High or
Extremely High Baseline Water
Stress
Total amount of monetary losses
as a result of legal proceedings
associated with environmental
regulations
Discussion of process to
integrate environmental
considerations into site selection,
site design, and site development
and construction
Locations
Units
BtR
PBSA
1
7
159 apartments
2,606 student beds
Homes
2 brownfield sites
50 houses and apartments
1 greenfield site
6 houses
Two PBSA sites fell within a High/Extremely High Baseline Water Stress Area:
• Forest Road, Walthamstow – 353 student beds; and
• Albion Way, Wembley – 283 student beds.
We have had no legal proceedings brought against Watkin Jones and
therefore suffered zero losses.
Our environmental policy statement sets out our commitment to protecting
the environment, preventing pollution, and monitoring and reducing the
impact of our operations on the environment and local communities.
We conduct environmental impact assessments during our site procurement
and planning development phase. The expectations of our institutional
clients, which is codified in their relevant policy documentation, also informs
our diligence processes.
Workforce
health
and safety
(1) Incident rate and (2) reportable
accidents
Incident rate
128 per 100,000
employees
Reportable
accidents
2
152
2
Design for
resource
efficiency
(1) Number of homes that
obtained a certified HERS® Index
Score and (2) average score
100% of our developments achieved a “B” EPC rating or above.
Percentage of installed water
fixtures certified to WaterSense®
specifications
Number of homes delivered
certified to a third-party
multi-attribute green building
standard
Description of risks and
opportunities related to
incorporating resource efficiency
into home design, and how
benefits are communicated
to customers
100% of properties are fitted with equivalent UK water efficiency
standard fixtures.
100% of our developments met a “Very Good” BREEAM Standard or above.
See Our Future Places on pages 48 to 51 and Our Future Planet on pages
52 and 53 to understand how we think sustainably in our developments and
how we engage with our stakeholders.
54
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Arundel House,
Coventry
Community
impacts of new
developments
Description of how proximity and
access to infrastructure, services,
and economic centres affect
site selection and development
decisions
Number of (1) lots and (2) homes
delivered on infill sites
We consider how each development will be used by the occupants from
the moment we consider a location for investment. Proximity to university
campuses, amenities and other services is a key component to our
development process, as outlined in our business model on pages 20 to 23.
BtR
PBSA
Homes
1 site
7 sites
2 sites
159 apartments
2,606 student beds
50 houses and apartments
(1) Number of homes delivered
in compact developments and
(2) average density
BtR – average – 159 apartments / site area 0.91 ha = 174.7 dph1
PBSA – average – 2,606 student beds / site area 2.04 ha = 1,277.5 dph1
Homes – average – 247 houses and apartments / site area 8.02 ha = 30.8 dph1
(Homes density is based on the total number of permitted units, not the
number of units completed in FY20)
Climate change
adaptation
Number of lots located in
100-year flood zones
None
Description of climate change
risk exposure analysis, degree
of systematic portfolio exposure,
and strategies for mitigating risks
We integrate climate risk analysis and activities into the preparation and
execution of each of our developments. Our sustainability policy and
ISO 14001 accredited environmental management systems codify and
operationalise our approach to both physical and transitional climate-related
risk management. As a business, we continue to assess our approach to
managing climate risk.
Activity metric
Number of controlled lots
BtR – c.4,466 apartments
PBSA – c.7,910 student beds
Homes – c.745 houses and apartments
Number of homes delivered
BtR – 159 apartments
Number of active selling
communities
1. Dwellings per hectare.
PBSA – 2,606 student beds
Homes – 56 houses and apartments
BtR – 174 apartments
PBSA – 0 student beds
Homes – 17 apartments
Watkin Jones plc // Annual report and financial statements 2020
55
Strategic reportGovernanceCompany informationFinancial statements ENGAGING OUR STAKEHOLDERS
We have a responsibility to all our stakeholders, which include
our people, our institutional clients, the customers who live in the
buildings we develop or manage, our supply chain, shareholders
and local communities.
Employees
Institutional clients
Customers
Supply chain
Shareholders
Communities
Watkin Jones employs around 700
people, across numerous disciplines.
Having a highly engaged and motivated
workforce is central to achieving our
growth plans.
We work with a growing list of
institutional investors. They purchase
the PBSA and BtR developments we
create, usually on a forward-funded
basis, and employ Fresh to manage
assets on their behalf.
We are responsible for managing
over 20,000 student beds and BtR
apartments. Delivering high-quality
service to these customers is key
to ensuring they have an excellent
experience of living in the developments
we manage, helps to ensure high levels
of occupancy for our institutional clients
and contributes to rental growth.
Our subcontractors and suppliers are
responsible for providing the skilled
people and materials we employ
to construct our developments.
As such, they are a central part
of our delivery model.
To be a sustainable business,
we need a well-informed and
supportive shareholder base.
We therefore look to ensure regular
and open communications with our
shareholders, while delivering strong
and consistent performance.
We look to be a good neighbour
and to deliver real value to our
local communities through
our developments and via the
Watkin Jones Community Fund.
Interests
Our people’s interests include:
• labour standards;
• learning and development;
• career opportunities;
• reward and benefits;
• workplace culture, whether at home,
office or development site;
• health, safety and wellbeing;
• internal communication and
collaboration;
• feeling valued for their work; and
• the Group’s strategic direction
and success.
How we engage
Our employee engagement activities
are described in the Our Future People
section on pages 44 to 47.
Interests
Our institutional clients’ interests
include:
Interests
Our customers’ interests include:
• the location, specification and quality
• the location, specification and quality
of their homes;
• the sense of community within their
buildings;
• on-site facilities, including internet
connectivity;
• customer service levels, including
how friendly and knowledgeable our
staff are; and
• value for money.
How we engage
Our primary engagement with
customers is through our on-site
managers and other team members.
They are responsible for delivering
the high standards of service we
promise and for gathering and acting
on customer feedback. We use that
customer feedback to help in the
specification and design of future
developments.
of our developments, including
sensitivity to ESG issues;
• integration of ESG management
processes into the development and
construction phases;
• future-proofing through innovative
design and development;
• on-time delivery of completed
developments;
• quality of customer service;
• the safety and wellbeing of tenants;
and
• financial returns from completed
developments, including occupancy
levels and net rental performance.
How we engage
We maintain close relationships with
current and potential institutional
clients, so we can understand the types
of development and locations that
are attractive to them. By sharing our
knowledge of the markets in which we
operate and our insight into consumer
requirements, we create developments
that meet their aspirations and those of
their customers.
We foster these relationships both
formally and informally and at a variety
of levels, including during the marketing
of individual assets. Our investment
team is primarily responsible for our
client relationships.
56
Watkin Jones plc // Annual report and financial statements 2020
Interests
Interests
Interests
Our supply chain’s interests include:
Our shareholders’ interests include:
Our communities’ interests include:
• our development programme and
• financial and operational
the volume of repeat business we
performance;
• the development of buildings which
make a positive contribution to the
• our development pipeline and growth
local community;
• effective and respectful working
can offer;
relationships;
• pricing and payment terms; and
• health and safety.
plans;
• strategy;
• market trends;
• climate resilience;
• Board and management;
• sustainability and responsible
business;
• corporate governance;
• management pay and incentives; and
• dividend policy.
• the development of, or making of
financial contributions to support,
local infrastructure projects;
• employment and business
opportunities;
• local housing supply;
• affordability;
• our environmental impact (noise,
water usage and air quality during
the construction phase); and
• support for community causes.
How we engage
How we engage
How we engage
Our process for selecting and managing
Our interactions with our shareholders
The way in which we engage with
our supply chain partners is described
are set out on page 83.
communities is described on page 50.
on page 48.
Our quantity surveyors and procurement
specialists have primary responsibility
for liaising with the supply chain.
Strategic report Watkin Jones employs around 700
We work with a growing list of
We are responsible for managing
people, across numerous disciplines.
institutional investors. They purchase
over 20,000 student beds and BtR
Having a highly engaged and motivated
the PBSA and BtR developments we
apartments. Delivering high-quality
workforce is central to achieving our
growth plans.
create, usually on a forward-funded
basis, and employ Fresh to manage
assets on their behalf.
service to these customers is key
to ensuring they have an excellent
experience of living in the developments
we manage, helps to ensure high levels
of occupancy for our institutional clients
and contributes to rental growth.
• labour standards;
• learning and development;
• career opportunities;
• reward and benefits;
• workplace culture, whether at home,
office or development site;
• health, safety and wellbeing;
• internal communication and
collaboration;
• feeling valued for their work; and
• the Group’s strategic direction
and success.
Interests
include:
of our developments, including
sensitivity to ESG issues;
• integration of ESG management
processes into the development and
construction phases;
• future-proofing through innovative
design and development;
• on-time delivery of completed
developments;
• quality of customer service;
• the safety and wellbeing of tenants;
and
• financial returns from completed
developments, including occupancy
levels and net rental performance.
• the location, specification and quality
of their homes;
• the location, specification and quality
• the sense of community within their
• on-site facilities, including internet
buildings;
connectivity;
• customer service levels, including
how friendly and knowledgeable our
staff are; and
• value for money.
How we engage
How we engage
How we engage
Our employee engagement activities
We maintain close relationships with
Our primary engagement with
are described in the Our Future People
current and potential institutional
customers is through our on-site
section on pages 44 to 47.
clients, so we can understand the types
managers and other team members.
of development and locations that
They are responsible for delivering
are attractive to them. By sharing our
the high standards of service we
knowledge of the markets in which we
promise and for gathering and acting
operate and our insight into consumer
on customer feedback. We use that
requirements, we create developments
customer feedback to help in the
that meet their aspirations and those of
specification and design of future
their customers.
developments.
We foster these relationships both
formally and informally and at a variety
of levels, including during the marketing
of individual assets. Our investment
team is primarily responsible for our
client relationships.
Employees
Institutional clients
Customers
Supply chain
Shareholders
Communities
Our subcontractors and suppliers are
responsible for providing the skilled
people and materials we employ
to construct our developments.
As such, they are a central part
of our delivery model.
To be a sustainable business,
we need a well-informed and
supportive shareholder base.
We therefore look to ensure regular
and open communications with our
shareholders, while delivering strong
and consistent performance.
We look to be a good neighbour
and to deliver real value to our
local communities through
our developments and via the
Watkin Jones Community Fund.
Interests
Interests
Our people’s interests include:
Our institutional clients’ interests
Our customers’ interests include:
Interests
Our supply chain’s interests include:
Interests
Our shareholders’ interests include:
Interests
Our communities’ interests include:
• our development programme and
the volume of repeat business we
can offer;
• effective and respectful working
relationships;
• pricing and payment terms; and
• health and safety.
How we engage
Our process for selecting and managing
our supply chain partners is described
on page 48.
Our quantity surveyors and procurement
specialists have primary responsibility
for liaising with the supply chain.
• financial and operational
performance;
• our development pipeline and growth
plans;
• strategy;
• market trends;
• climate resilience;
• Board and management;
• sustainability and responsible
business;
• corporate governance;
• management pay and incentives; and
• dividend policy.
• the development of buildings which
make a positive contribution to the
local community;
• the development of, or making of
financial contributions to support,
local infrastructure projects;
• employment and business
opportunities;
• local housing supply;
• affordability;
• our environmental impact (noise,
water usage and air quality during
the construction phase); and
• support for community causes.
How we engage
Our interactions with our shareholders
are set out on page 83.
How we engage
The way in which we engage with
communities is described on page 50.
Watkin Jones plc // Annual report and financial statements 2020
57
Strategic reportGovernanceCompany informationFinancial statements SECTION 172 STATEMENT
The Group’s long-term success depends on our ability
to consider and create value for our stakeholders.
Section 172(1) statement
The Board always considers the interests of
all its stakeholders, including shareholders.
This is about doing the right thing, which in
turn ensures we comply with Section 172(1)
of the Companies Act 2006.
The Group’s stakeholder engagement
activities, which are set out on pages
56 and 57, help to inform the Board’s
decisions, by ensuring the Directors are
aware of stakeholders’ interests.
In addition, every significant new
project and investment must have a
business case that explicitly addresses
stakeholders’ interests.
Set out below are the matters the Board is
required to take into account under s172(1):
Matter
Response
a) The likely consequence of any
decision in the long term.
The Group works through a multi-year development cycle (see pages 42 and 43) and
operates in markets driven by long-term demographic and social trends (see pages
16 to 19). The Board is therefore required to consider the long-term implications of
its decisions, for example when reviewing and approving the Group’s strategy.
b) The interests of the company’s
employees.
The Board is closely aligned to the Group’s culture and has a rigorous focus on
key issues affecting employees, such as health and safety. The newly introduced
employee forum will provide a two-way feedback mechanism between employees
and the Executive Directors (see page 45).
c) The need to foster the company’s
business relationships with
suppliers, customers and others.
d) The impact of the company’s
operations on the community and
environment.
e) The desirability of the company
maintaining a reputation for high
standards of business conduct.
f) The need to act fairly between
members of the company.
The Group is reliant on its ability to deliver consistently for institutional clients
and customers, supported by its supply chain partners. The Board therefore
takes a close interest in the Company’s relationships with these groups, through
reports and presentations from the Executive Directors and other members of the
leadership team. See stakeholder engagement on pages 56 and 57.
The newly introduced ESG strategy gives the Group a solid foundation from which
to manage its environmental impact and community relations.
The Group relies heavily on its reputation and the Board therefore prioritises taking
constructive action to resolve issues when they arise. The Group’s actions on
remediating cladding (see page 13) and waiving rents for certain students in its
leased accommodation (see page 41) demonstrate this in action. The Group also
has robust policies and controls in relation to protecting human rights and preventing
bribery and corruption.
When taking decisions, the Board looks to act in the interests of shareholders as a
whole and to ensure all shareholders are fairly treated. The Executive Directors are
required to build up a shareholding of 200% of salary, helping to align their interests
with shareholders as a group.
58
Watkin Jones plc // Annual report and financial statements 2020
Strategic report HOW STAKEHOLDERS INFLUENCE
KEY BOARD DECISIONS
We specifically consider stakeholders’
interests when assessing all significant
new projects and investments.
Case study
Public consultation: build to rent scheme in Brighton and Hove
Engagement with our stakeholders
Throughout the planning process for our Hove Gardens BtR
scheme, a series of meetings were held with the local ward
councillors and the Hove Station Neighbourhood Forum. Our
public exhibition in February 2020 was well attended and allowed
the project team to spend several hours chatting directly with local
people, listening to their views and aspirations for the site.
Improvements made to the scheme design as a result of the
engagement include:
• new community space – 341m2 of proposed commercial
space amended to accommodate potential community use;
• changes to facade design – increased use of glazing to
make the tower appear lighter and more elegant; and
• public realm landscaping – significantly increased
landscaping around the site, with additional trees, planting
and public seating.
Our approach
Our approach to community engagement was acknowledged by
the Hove Station Neighbourhood Forum in its written support for
the scheme: “The improvements to the original scheme have
been significantly influenced by Watkin Jones’ willingness to
acknowledge the need to go beyond a conventional public
exhibition‑led approach and engage more fully with the
Neighbourhood Forum and local ward councillors.”
Several members of the Planning Committee made specific
reference to the strength of our community engagement, and we
believe that ultimately this was key to the positive decision taken
by the committee in approving our application.
Examples of how our Board decisions during the year have considered our stakeholders’ interests
Board meeting
Matter discussed
Board action and stakeholder considerations
3 October 2019
Brexit planning
The detailed work done on Brexit planning was considered, with particular reference to our supply
chain engagement.
8 January 2020
Anti-bribery and
corruption policy
Our updated anti-bribery and corruption policy was reviewed and approved, noting the importance
of this to all our stakeholders.
31 March 2020
COVID-19
The Group’s initial response to COVID-19 was thoroughly considered and approved, including our
approach to enhanced health and safety measures and cash conservation.
31 March 2020
Cladding review
The Board considered and approved the approach with regard to the remediation of cladding on
previously developed buildings, in light of the latest government guidance, agreeing that a proactive
approach should be taken in the interest of tenant safety.
13 May 2020
Health and safety
The Board considered a detailed review of our health and safety arrangements in the context
of COVID-19, to ensure the wellbeing of employees, tenants and the supply chain, clients and
communities with whom we engage.
23 September 2020
ESG
The ESG framework for the Group was considered, noting its significant importance to the Group as
a responsible developer and manager of residential property, for the benefit of all our stakeholders.
23 September 2020
Culture and ways
of working
23 September 2020
Lewisham BtR site
Various
Directors’
remuneration
Proposals for agile working were considered, including feedback from our employees on their
experience of home working during the pandemic, together with our office strategy. These will play
an important part in providing more flexibility to our employees in the way they work and in creating
a dynamic and collaborative culture.
The Board considered and approved the entering into of contracts for the purchase of a BtR site in
Lewisham. Specific stakeholder matters were noted in approving the acquisition, including the level of
community engagement, the sustainability benefits in terms of the minimum targeted BREEAM ‘very
good’ rating, as well as the social and community benefits of developing a significant BtR site in this
location, which would also include affordable homes.
As a consequence of the COVID-19 pandemic, the Remuneration Committee met more regularly
to consider Directors’ remuneration, making appropriate adjustments, in the interests of our
shareholders and employees. Further details are set out in the Directors’ remuneration report
on pages 90 to 95.
Watkin Jones plc // Annual report and financial statements 2020
59
Strategic reportGovernanceCompany informationFinancial statements FINANCIAL REVIEW
The Group delivered a solid
financial performance during
the year, despite the impact
of the COVID-19 pandemic.
Philip Byrom
Chief Financial Officer
The Group remains
well capitalised, with
significant liquidity and
substantial headroom
within its banking
facilities, supporting
future growth.
Highlights
Revenue
Gross profit
Administrative expenses
Operating profit before exceptional
items
Exceptional costs
Operating profit
Share of profit in joint ventures
Net finance costs
Profit before tax from continuing
operations
Income tax expense
Profit for the year
Basic earnings per share from
continuing operations
Adjusted basic earnings per share
Dividend per share
FY20
£m
354.1
75.9
(24.2)
51.7
(20.5)
31.2
0.2
(6.1)
25.3
(4.2)
21.1
8.2p
14.7p
7.35p
FY19
£m
374.8
80.0
(24.4)
55.6
(2.6)
53.0
0.3
(5.4)
47.9
(9.1)
38.8
15.2p
16.1p
8.35p
Change
-5.5%
-5.1%
-0.7%
-7.1%
-41.1%
-47.1%
-45.7%
-45.8%
-8.7%
-12.0%
Comparative figures for FY19 have been restated as necessary for the adoption of
IFRS 16 ‘Leases’, as described later in this section.
Byrom Point,
Liverpool
60
Watkin Jones plc // Annual report and financial statements 2020
Strategic report[•] Revenue by operating segment
Student
accommodation
Build to rent
Residential
Accommodation
management
£7.6m
£7.5m
£94.0m
£77.4m
£26.3m
£34.3m
Gross profit by operating segment
Student
accommodation
Build to rent
Residential
Accommodation
management
£14.9m
£13.8m
£4.0m
£7.2m
£4.5m
£4.6m
FY20
£226.0m
£246.1m
FY20
FY19
£54.3m
£54.9m
FY20
FY19
Revenue
Revenue was £354.1 million, down 5.5%
from £374.8 million in FY19. The reduction
was primarily the result of delays to
forward sales of developments as a result
of COVID-19, which slowed institutional
clients’ activity during the second half of
the year, as well as lower residential sales.
Revenues from student accommodation
development were £226.0 million
(FY19: £246.1 million). The reduction in the
year was mainly due to a delay in the
forward sale of our scheme in Leicester,
which is currently in build for delivery in
FY21, as well as delays in the forward sale
of other new developments.
BtR development revenues increased
21.4% in the year to £94.0 million
(FY19: £77.4 million), reflecting the
completion of the development in
Bournemouth and continued progress
with the schemes in build at Reading,
Wembley, Sutton and Stratford. BtR
revenues were, however, also impacted
by the delay in the forward sale of new
developments.
Accommodation management revenues
earned by Fresh were £7.6 million, against
£7.5 million in FY19. Despite the disruption
to student occupancy in the second half
of FY20 as a result of the pandemic,
the consistent revenue performance
reflects the fixed management fee income
earned by Fresh, with only a modest level
of fees being variable based on the level
of occupancy revenues achieved.
The latter did, however, suppress Fresh’s
revenues when considering that the
number of student beds and apartments
under management at the start of
FY20 (17,721) was 14.9% higher than
at the start of FY19 (15,421).
The residential business delivered revenues
of £26.3 million, compared to £34.3 million
for FY19. The division experienced a good
recovery in sales following the relaxation
of the initial COVID-19 lockdown measures
and introduction of the temporary stamp
duty relief, but its revenue performance
was inevitably impacted by the disruption
to its important spring selling period and
by the temporary closure to its sites,
which delayed the build completion of
some homes into FY21.
There were no significant revenues
in the year generated by developing
commercial property alongside PBSA and
BtR developments. This activity produced
revenue of £9.5 million in the previous year.
Watkin Jones plc // Annual report and financial statements 2020
61
Strategic reportGovernanceCompany informationFinancial statements FINANCIAL REVIEW continued
Gross profit
Gross profit was £75.9 million
(FY19: £80.0 million), reflecting a gross
margin consistent with last year of 21.4%
(FY19: 21.4%). Whilst we had a shift in
the revenue mix towards BtR, which is at
a lower margin than PBSA, the maintained
gross margin was primarily attributable
to a stronger margin achieved in the
year on our student accommodation
development activities.
The gross profit from our PBSA
development activities was £54.3 million
(FY19: £54.9 million) at a margin of 24.0%
(FY19: 22.3%). The improvement in the
margin reflects the absence of new forward
land sales in the second half of the year,
which would otherwise have added to
revenues but would have reduced the
gross margin. We typically earn a low
or nil margin on the land sale element of
new forward sales, which under IFRS 15
‘Revenue from Contracts with Customers’
is accounted for separately from the
revenues due under the agreement
to carry out the development works.
This means that we typically earn a lower
margin in the year in which the land sale
occurs, followed by higher margins in the
following years as the development works
are undertaken.
BtR development generated a gross
profit of £14.9 million (FY19: £13.8 million),
resulting in a gross margin of 15.8%
(FY19: 17.8%). The margin achieved in
the year was broadly in line with our
expectation of generating a 15% margin
from our BtR development activities in the
medium term, with the slight improvement
reflecting the absence of anticipated new
forward land sales in the second half of
the year, which as noted for PBSA above,
are typically at low or nil margin. The gross
margin in FY19 benefited from a strong
contribution from the development at
Reading, which accounted for a higher
proportion of BtR revenues in that year.
Fresh continued to generate a
highly attractive level of profitability,
with gross profit of £4.5 million
(FY19: £4.6 million) equating to a gross
margin of 59.8% (FY19: 61.5%). The slight
drop in margin reflects the impact of the
modest reduction in variable fee income
as a result of the disruption to student
occupancy in the second half of the year.
Gross profit for the residential business
was £4.0 million, versus £7.2 million
in FY19. The reduction in the gross
margin from 20.9% in FY19 to 15.4% in
FY20 was primarily due to a change in
mix, with the prior year benefiting from
higher margin sales from developments
completed in that year.
Administrative expenses
Administrative expenses were
£24.2 million in FY20, a slight reduction
on the £24.4 million for FY19. As a result
of COVID-19, we took precautionary
measures to reduce spend across a
number of areas, for example suspending
the 1 April pay review, reducing the salaries
for the Executive Committee and the
fees for the Non-Executive Directors by
20% during the period April – June 2020
and cutting back on discretionary
expenditure, including on consultancy
costs. The Group’s profit performance
this year also resulted in a reduction in the
cost of the bonus accrual of c.£1.3 million.
These cost reductions offset increases in
our headcount in the year, with the average
number of management and administrative
personnel increasing by seven to 116,
inflationary cost increases and higher
insurance costs as a result of a more
challenging insurance market.
Operating profit before
exceptional items
Operating profit before exceptional items
was £51.7 million (FY19: £55.6 million).
The operating margin was 14.6%
(FY19: 14.8%), reflecting the maintained
gross margin and holding of
administrative expenses.
Exceptional items
The Group incurred a number of
exceptional costs during the year,
totalling £20.5 million (FY19: £2.6 million).
The largest component was a provision of
£14.8 million in respect of remedial works
relating to cladding, as discussed on
page 13. Of this, £4.9 million was utilised in
the year, with the remainder expected to be
incurred over the next two financial years.
In addition, we incurred exceptional
charges totalling £5.7 million as a result
of the COVID-19 pandemic:
• £2.7 million relating to the additional
direct costs incurred on site as a
result of additional health and safety
measures and the implementation
of accelerated working practices,
to make up for construction delays
caused by COVID-19, as well as the
cost of damages arising from the
late completion of the Walthamstow
PBSA scheme;
• £1.1 million for waiving the final 2019/20
rent instalments for students living in the
Group’s leased student accommodation
assets, who left their accommodation
prior to 23 March 2020 and were unable
to return; and
• £1.9 million in respect of an impairment
to one of the student accommodation
leased investment property assets,
as a result of the reduction in student
occupancy for the 2020/21 academic
year due to the pandemic.
Exceptional costs in FY19 totalled
£2.6 million. This related to the cost of
compensating our CEO, Richard Simpson,
for forfeiting outstanding incentives he
held in respect of his former employer.
Share of profit in joint ventures
The Group’s share of profit in joint ventures
was £0.2 million (FY19: £0.3 million).
These relate to the balance of profits
arising in relation to PBSA developments
completed in Belfast in prior years.
Finance costs
Our finance costs are primarily the finance
cost of capitalised leases under IFRS 16.
Finance costs also include fees associated
with the availability of our revolving credit
facility (“RCF”) with HSBC, and the interest
cost of the loans we have with Svenska
Handelsbanken AB (see “Bank facilities”
below). The net finance cost for the year
was £6.1 million (FY19: £5.4 million),
of which £5.1 million was in respect of
capitalised leases (FY19: £5.2 million).
Profit before tax
Profit before tax for the year amounted
to £25.3 million (FY19: £47.9 million).
Adjusted profit before tax, which
excludes the impact of exceptional items,
was £45.8 million (FY19: £50.4 million).
62
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Taxation
The corporation tax charge was £4.2 million
(FY19: £9.1 million). The effective tax rate of
16.7% (FY19: 18.9%) was less than the UK
corporation tax rate of 19%. The lower tax
rate was primarily due to a prior year tax
credit relating to the taxation of distributions
from the Curlew Student Fund, which had
already been taxed at source, and the higher
proportionate benefit relative to the lower
profit of specific tax allowances, including
land remediation expenditure.
Information on our tax strategy can
be found in the Investor section of our
website, www.watkinjonesplc.com.
Earnings per share
Basic earnings per share from
continuing operations was 8.2 pence
(FY19: 15.2 pence). Adjusted basic
earnings per share, which excludes the
impact of the exceptional items discussed
above, was 14.7 pence (FY19: 16.1 pence).
Dividends
On 1 April 2020, we announced that we
were suspending the interim dividend,
as a result of the economic uncertainty and
disruption caused by COVID-19. However,
given the Group’s subsequent operational
performance, the strength of our financial
position and the Board’s confidence in
the outlook, the Board has proposed a
final dividend of 7.35 pence per share.
The dividend is 2.0x covered by adjusted
earnings, in line with our dividend policy.
At 30 September 2020, the Company
had distributable reserves of £100.8 million
available to pay dividends.
EBITDA
EBITDA is an important measure of our
underlying performance. It is calculated
as operating profit plus profit from
joint ventures, before interest, tax,
depreciation and amortisation.
EBITDA decreased by 34.6% to
£40.9 million (FY19: £62.5 million).
Adjusted EBITDA, which excludes
exceptional items, was £61.3 million
(FY19: £65.0 million), representing
an adjusted EBITDA margin of 17.3%
(FY19: 17.4%).
Statement of financial position
At 30 September 2020, non-current
assets amounted to £134.7 million
(FY19: £142.7 million), with the most
significant item being the carrying value
of the leased student accommodation
investment properties amounting to
£104.6 million (FY19: £110.2 million),
which arises following the adoption of
IFRS 16 (see “Implementation of IFRS 16
‘Leases’” below). Right-of-use assets
relating to office and car leases amount
to £4.8 million (FY19: £5.9 million).
The reduction in the balances in the year
reflect the depreciation and impairment
charges. Intangible assets relating to
Fresh amounted to £13.3 million, reduced
by the amortisation charge of £0.6 million
in the year, and are supported by the future
cash flows for the business.
Inventory and work in progress was
£125.7 million, down from £134.2 million
at 30 September 2019. The reduction was
mainly attributable to the residential sales
in the year, notably from the apartment
developments at Stratford and Bath and
the housing development in Macclesfield,
which resulted in a reduction in residential
stock and work in progress of £12.3 million.
PBSA and BtR inventory and work in
progress was largely unchanged from
last year as we realised cash from the
sale of the Liverpool Road, Chester PBSA
development and the forward sale of
the Wilder Street, Bristol land site, but
spent similar amounts on the PBSA and
BtR developments in build in Leicester
and on the acquisition of a new BtR site
in Glasgow.
Contract assets were £41.5 million
at the year end (30 September 2019:
£25.6 million). These contract assets are
mainly the final payment balances which
will be received on the completion in
FY21 of the forward sold developments
currently in build, of which £30.6 million
related to the developments in build in
Reading, Sutton and Wembley.
Trade and other receivables at
30 September 2020 stood at £23.5 million
(FY19: £13.9 million), with the increase
mainly in respect of certified and retention
balances that will be payable on the
developments in build.
Contract liabilities and trade and other
payables amounted to £106.3 million at
30 September 2020 (30 September 2019:
£86.5 million), with the increase of
£19.8 million due to a higher value of
subcontract and supplier liabilities
(£72.4 million) compared to a year ago
(£50.7 million), reflecting the value of work
performed in the final months of the year
on the developments completed at the end
of FY20 and those in build for FY21.
Our corporation tax liability was reduced
to £0.8 million at 30 September 2020,
from £7.0 million at 30 September 2019,
reflecting our quarterly payments on
account during the year.
The provision for cladding remedial works
of £9.9 million has been split between
current liabilities (£6.3 million) and
non-current liabilities (£3.6 million), based
on our anticipated expenditure over the
next two years.
Interest-bearing loans and borrowings
stood at £39.7 million at 30 September
2020, net of debt arrangement fees of
£0.9 million, compared to £38.8 million
at 30 September 2019 (see “Bank
facilities” on page 65).
Implementation of IFRS 16 ‘Leases’
The Group has applied IFRS 16 ‘Leases’
for the first time in FY20. This standard
affects the Group’s six historic student
accommodation sale and leaseback
properties, as well as leases for the
rental of office space and motor vehicles.
The new standard creates investment
property (leased) assets for the student
accommodation leases, right-of-use assets
for the office and motor vehicle leases and a
liability for future lease payments.
We have adopted the fully retrospective
approach in applying the standard,
recognising its material impact on
the Group’s results and statement of
financial position. As noted earlier,
the comparative results for FY19 and
the statement of financial position at
30 September 2019 have therefore been
restated according to the transition
arrangements set out in the standard.
Watkin Jones plc // Annual report and financial statements 2020
63
Strategic reportGovernanceCompany informationFinancial statements FINANCIAL REVIEW continued
Implementation of IFRS 16 ‘Leases’
continued
The investment property (leased) assets
recognised at 30 September 2020 amount
to £104.6 million (30 September 2019:
£110.2 million), net of impairment charges
of £5.7 million (30 September 2019:
£3.5 million). The impairment charge
at 30 September 2019 was previously
classified as an onerous lease provision.
The right-of-use assets recognised at
30 September 2020 amount to £4.8 million
(30 September 2019: £5.9 million).
Corresponding lease liabilities of
£134.4 million have been recognised
(30 September 2019: £137.5 million), of
which £128.1 million (30 September 2019:
£131.3 million) is non-current and reflects
the remaining length of the PBSA leases,
varying between six and 32 years. The two
leases with the longest remaining terms,
Dunaskin Mill, Glasgow, and New Bridewell,
Bristol, which are profitable, account for
£75.9 million of the total lease liabilities.
The difference between the
right-of-use assets and lease liabilities
at 30 September 2019 of £21.3 million,
net of a deferred tax asset of £3.5 million,
the reclassification of the onerous lease
provision of £3.5 million and previously
prepaid lease rental payments of
£0.6 million, is reflected in a reduction
in retained earnings of £14.9 million at
that date.
In our interim financial statements for
the six months ended 31 March 2020,
the student accommodation leased
assets were included as right-of-use
assets. However, the interaction of IAS 40
‘Investment property’ with IFRS 16
requires that leased assets on which
rental income is received are classified as
investment property. The leased student
accommodation assets have therefore
been reclassified as investment property
(leased) in accordance with IAS 40.
The Group’s income statements for FY20 and FY19 have been impacted as follows:
Gross profit
Administrative expenses
Operating profit before exceptional items
Exceptional costs
Operating profit
Share of profit in joint ventures
Net finance charges
Profit before tax
Adjusted EBITDA
Pre
IFRS 16
£m
72.5
(24.3)
48.2
(20.5)
27.7
0.2
(1.0)
26.9
49.9
FY20
IFRS 16
Impact
£m
IFRS 16
Reported
£m
Pre
IFRS 16
£m
FY19
IFRS 16
Impact
£m
IFRS 16
Reported
£m
3.4
0.1
3.5
—
3.5
—
(5.1)
(1.6)
11.4
75.9
(24.2)
51.7
(20.5)
31.2
0.2
(6.1)
25.3
61.3
76.8
(24.5)
52.3
(2.6)
49.7
0.3
(0.3)
49.7
53.9
3.2
0.1
3.3
—
3.3
—
(5.1)
(1.8)
11.1
80.0
(24.4)
55.6
(2.6)
53.0
0.3
(5.4)
47.9
65.0
Further details on the nature of the changes to the Group’s accounting required by this standard, as well as its main impacts and the
adjustments made to restate the comparative figures, are provided in note 5 to the financial statements.
Cash flows
In a typical year, the Group’s cash
balance peaks around the year end, as
we receive the final payments on student
accommodation developments completing
ahead of the new academic year.
The Group is then a net user of cash
until the following year end, as a result
of outflows such as tax and dividend
payments, overhead costs and land
purchases. The cash balance at the year
end is therefore important for funding
our day-to-day cash requirements and
puts the Group in a strong position when
bidding for new sites to grow the future
development pipeline.
The Group’s net cash flow from
operating activities was £38.3 million
(FY19: £23.5 million), reflecting a strong
cash flow from the Group’s trading
operations in the year. The cash flow
from operating activities, before deducting
the cash cost of exceptional items, finance
costs and tax payments, was £63.5 million
(FY19: £39.4 million). The working capital
balance was relatively unchanged,
decreasing by £2.1 million in the year,
compared to an increase of £26.2 million
in FY19.
Finance costs paid totalled £6.5 million
(FY19: £5.7 million), including the finance
charges on the capitalised lease liabilities
of £5.1 million (FY19: £5.2 million) for
which the capital repayments amounted
to £6.1 million (FY19: £5.9 million).
Dividends paid in the year amounted
to £14.3 million (FY19: £20.1 million)
and corporation tax payments totalled
£10.0 million (FY19: £9.8 million).
At the year end, we had a gross cash
balance of £134.5 million and loans of
£39.7 million, resulting in a net cash position
of £94.8 million. At 30 September 2019,
we had gross cash of £115.6 million,
loans of £38.8 million and net cash of
£76.8 million.
64
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Net cash balances are stated before
deducting the operating lease liabilities
of £134.4 million (30 September 2019:
£137.5 million), arising as a result of
applying IFRS 16. We believe the net cash
balance before deducting operating lease
liabilities is a more relevant measure for the
Group. The lease liabilities relate primarily
to several historic student accommodation
sale and leaseback properties, for which
the lease rental liabilities are expected to
be substantially covered by the future net
student rental incomes to be received, in
the absence of the short-term disruption
caused by COVID-19.
Bank facilities
During the year, we renewed our RCF
with HSBC for five years to May 2025,
while increasing the facility from
£60.0 million to £100.0 million on the same
terms. At the year end, we had drawn
£35.0 million against the RCF, giving
unused headroom within the facility of
£65.0 million. We have also maintained
an overdraft facility of £10.0 million.
The Group also has loan facilities
with Svenska Handelsbanken AB, which
are used to fund our operating build to
rent stock in Sheffield and Droylsden.
These facilities run to March 2022.
The outstanding balance at the year end
was £5.0 million (30 September 2019:
£5.5 million).
Going concern
We have undertaken a thorough review
of the Group’s ability to continue to trade
as a going concern for the period to
31 January 2022 (the “forecast period”).
This review has been undertaken taking
into consideration the following matters:
Liquidity
At 30 September 2020, the Group had a
robust liquidity position, with cash and
available headroom in its banking facilities
totalling £209.5 million, as set out below.
Cash balances
RCF headroom
Overdraft facility
Total cash and
available facilities
£m
134.5
65.0
10.0
209.5
Continuing operations
Operating profit before exceptional items
Exceptional items
Depreciation and amortisation
Impairment of leased student
accommodation property (non-exceptional)
(Increase)/decrease in working capital
Finance costs paid
Tax paid
Net cash inflow from operating activities
Purchase of fixed assets
Cash flow from joint venture interests
Cash flow from other financial assets
Dividends paid
Payment of lease liabilities
Cash flow from borrowings
Increase in cash
Cash at beginning of year
Cash at end of year
Less: borrowings
Net cash before deducting lease liabilities
Less: lease liabilities
Net debt
1. Restated for the impact of IFRS 16.
FY20
£m
51.7
(8.7)
9.4
0.3
2.1
(6.5)
(10.0)
38.3
(0.2)
0.8
—
(14.3)
(6.1)
0.4
18.9
115.6
134.5
(39.7)
94.8
(134.4)
(39.6)
FY191
£m
55.6
(0.4)
9.2
0.8
(26.2)
(5.7)
(9.8)
23.5
(0.3)
—
0.2
(20.1)
(5.9)
11.6
9.0
106.6
115.6
(38.8)
76.8
(137.5)
(60.7)
Strong liquidity has been maintained
through the first quarter of FY21,
providing the Group with a good level
of cash and available banking facilities
for the year ahead.
As noted above, the RCF is committed
and has a five-year term to May 2025.
All financial covenants under the facility
were comfortably met at 30 September
2020 and will continue to be met through
the forecast period.
Business model
Our forward sale business model, is
by definition, capital-light. By forward
selling the majority of our BtR and PBSA
developments, we receive payment for the
land either at the same time as or shortly
after we complete the purchase, and before
we commit to any significant development
expenditure. Once forward sold, we receive
payment for the development works as
they progress.
By being in control of our development
pipeline we are able to ensure that we
only commit construction expenditure to
developments that are either forward sold
or to undertake a modest level of enabling
works. In certain circumstances we may
decide to continue construction activities
beyond the initial enabling phase, without
a forward sale agreement in place, but we
take this decision based on our available
liquidity and can suspend the works should
it prove necessary. This greatly limits our
exposure to development expenditure
which is not covered by cash income.
Sites are normally secured on a subject
to satisfactory planning basis, which gives
us time to manage the cash requirements
and to market them for forward sale.
We also take a cautious approach to
managing our land acquisition programme
to ensure that we have sufficient liquidity
available to complete the acquisition of
the sites without any new forward sales
being secured.
Watkin Jones plc // Annual report and financial statements 2020
65
Strategic reportGovernanceCompany informationFinancial statements FINANCIAL REVIEW continued
Going concern continued
The Fresh business receives a regular
contractual monthly fixed fee income
from its multiple clients and the short
to medium-term risk to its revenue
stream is low.
For our residential business, which is
currently relatively small and only has
a few sites in build, we manage our
development expenditure so that, other
than for infrastructure works, we only
commit expenditure where it is supported
by a forward sales position.
We also receive rental income from tenants
on our leased PBSA assets and operational
BtR assets. The level of rental income
received, whilst reduced in the short
term for the PBSA assets as a result of
COVID-19, is relatively small in the context
of the Group’s revenues as a whole.
Our business model and approach to
cash management therefore provides a
high degree of resilience.
Counterparty risk
Our clients are predominantly blue-chip
institutional funds and the risk of default
is low. The funds for a forward sold
development are normally specifically
allocated by the client or backed by
committed debt funding.
For forward sold developments our cash
income remains ahead of our development
expenditure through the life of the
development, such that if we were exposed
to a client payment default, we could
suspend the works, thereby limiting any
cash exposure.
Fresh has many clients and these are
mostly institutional funds with low
default risk.
Base case cash forecast
We have prepared a base case cash
forecast for the forecast period, based
on our current business plan and trading
assumptions for the year, including a lower
level of revenue from the leased PBSA
assets as a result of COVID-19.
This is strongly supported by our forward
sold pipeline of six PBSA developments
and four BtR developments for delivery in
FY21, as well as Fresh’s contracted income
and the reserved/exchanged sales for our
residential business. Our currently secured
cash flow, derived from our forward sold
developments and other contracted
income, net of overheads and tax, results in
a modest cash utilisation over the forecast
period, with the result that our liquidity
position is strongly maintained.
In addition to the secured cash flow, the
base case forecast assumes a number of
new forward sales and further house sales,
which if achieved will result in a further
strengthening of our liquidity position,
after allowing for dividend payments.
We currently have under offer and are
progressing sales of three BtR schemes
and one PBSA scheme, which will underpin
the additional forward sales assumptions
in the forecast.
Risk analysis
In addition to the base case forecast
and though considered unlikely,
we have considered the following
possible significant downside risks as
a consequence of the pandemic:
• counterparty risk – whilst the majority
of our clients are not considered to
present a default risk, we have identified
two which we consider could be
more vulnerable in the event of further
sustained disruption;
• suspension of the forward sale markets,
resulting from a significant economic
downturn or market uncertainty – this
is our most significant risk as it would
greatly limit our ability to achieve
any further forward sales and would
potentially mean that we have to
complete on secured site acquisitions
without a subsequent forward sale in
place; and
• collapse of the housing market –
in this scenario we have considered
the possibility of a significant reduction
in future house sales.
We have run various model scenarios to
assess the possible impact of the above
risks, including a worst case downside
scenario assuming the following:
• default by the two identified counterparty
risks;
• no further forward sales are achieved,
other than those currently under offer, as
a result of a freeze in the sales markets;
• only 50% of further house sales are
achieved beyond those currently
reserved/exchanged; and
• we continue to complete the acquisition
of our secured sites in line with the
current target programmes, with limited
mitigating actions being taken.
In the worst case downside scenario we
have included for the payment of our
FY20 full-year proposed dividend in line
with our policy.
The cash forecast prepared under the
above worst case downside scenario
illustrates that adequate liquidity is
maintained through the forecast period.
Conclusion
Based on the thorough review and
robust downside forecasting undertaken,
and having not identified any material
uncertainties that may cast any significant
doubt, the Board is satisfied that the
Group will be able to continue to trade for
the period to 31 January 2022 and has
therefore adopted the going concern basis
in preparing the financial statements.
Philip Byrom
Chief Financial Officer
19 January 2021
This strategic report, which includes
the statement of alternative performance
measures on page 67 and the review of
principal risks and uncertainties on pages
68 to 77, has been approved by the Board
and signed on its behalf:
Richard Simpson
Chief Executive Officer
19 January 2021
66
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Alternative performance measures (“APMs”)
We use APMs as part of our financial reporting, alongside statutory reporting measures. These APMs are provided for the following reasons:
1) To present users of the annual report with a clear view of what we consider to be the results of our underlying operations,
enabling consistent comparisons over time and making it easier for users of the report to identify trends.
2) To provide additional information to users of the annual report about our financial position.
3) To show the performance measures used by the Board in determining dividend payments.
4) To show the performance measures that are linked to remuneration for the Executive Directors.
The following APMs appear in this annual report. Definitions of all of these APMs can be found on page 3:
Reconciliation
Adjusted operating profit
Adjusted profit before tax
Reason for use
1
1
Operating profit
Add: Exceptional costs
Adjusted operating profit
Profit before tax
Add: Exceptional items
Adjusted profit before tax
Adjusted basic earnings per share
1, 3
Profit for the year
Add: Exceptional items
Less: Tax on exceptional items
Adjusted profit for the year
FY20
£’000
31,230
20,437
51,667
25,314
20,437
45,751
21,092
20,437
(3,883)
37,646
FY19
Restated1
£’000
53,024
2,576
55,600
47,864
2,576
50,440
38,823
2,576
(255)
41,144
EBITDA
1
Operating profit
31,230
53,024
Weighted average number of shares
255,795,659
255,382,181
Adjusted basic earnings per share
14.717 pence
16.111 pence
Adjusted EBITDA
1, 4
Adjusted net cash
Adjusted return on equity
2
1
Add: Share of profit in joint ventures
Add: Depreciation
Add: Amortisation
EBITDA
EBITDA
Add: Exceptional items
Adjusted EBITDA
Net debt
Add: Lease liabilities
Adjusted net cash
Profit for the year
Add: Exceptional items
Less: Tax on exceptional items
Adjusted profit for the year
Total equity at 1 October
Total equity at 30 September
Average total equity
199
8,863
560
40,852
40,852
20,437
61,289
(39,607)
134,453
94,846
21,092
20,437
(3,883)
37,646
161,095
167,838
164,467
286
8,595
559
62,464
62,464
2,576
65,040
(60,675)
137,522
76,847
38,823
2,576
(255)
41,144
140,090
161,095
150,593
1. Restated for the impact of IFRS 16.
Adjusted return on equity
22.9%
27.3%
Watkin Jones plc // Annual report and financial statements 2020
67
Strategic reportGovernanceCompany informationFinancial statements RISK MANAGEMENT AND PRINCIPAL RISKS
The effective management of risk is essential
to the successful delivery of our strategy.
Risk management process
The Board has established a formal risk
management process, under which it
identifies, evaluates and monitors the
principal risks facing the Group and
the effectiveness of the controls and
procedures in place to mitigate against
them. This includes:
• the Board’s approval of a detailed
corporate risk register, which
identifies the principal risks and is
prepared and kept under review by
the Risk Committee, which meets
monthly as a sub-committee of the
Executive Committee;
• the review of assurance and information
about the management of those risks,
including specific reviews carried out
by KPMG as our outsourced internal
audit provider; and
• an assessment of the Group’s risk
appetite for particular categories of
risk, as a basis against which to assess
whether the principal risks are being
mitigated against to an acceptable level.
Risk categories and risk appetite
Appropriate risk categories for the Group
have been identified into which the
principal risks can be allocated. Against
each of these risk categories the Board
has considered the level of risk it is willing
to accept in order to achieve the Group’s
business objectives. We have no appetite
for risk in relation to health and safety
matters, whereas we have a moderate
risk appetite in relation to our people and
technology, where we are making changes
to the way we work in order to enable us to
deliver future growth and create the future
for living. The risk categories are set out
in this section, together with the assessed
risk appetite.
The Group’s principal risks set out in
this section and the effectiveness of the
controls and procedures in place to mitigate
against them have been evaluated where
applicable taking into account the impacts
of COVID-19. Principal risk 02 – ‘Major
nationwide business interruption/lockdown’
specifically considers the risk to the
business of a COVID-19 type occurrence.
The Audit Committee reviews the risk
register as part of its regular meetings.
The reviews include:
• any substantial changes to the principal
risks, including new or emerging risks;
• material changes to the control
framework in place;
• changes in risk scores;
• changes in risk appetite; and
• progress with any additional mitigating
actions which have been agreed.
The Audit Committee also provides
appropriate challenge to the effectiveness
of mitigating controls, including the review
and testing of mitigating controls for
selected risks by KPMG as part of the
annual internal audit plan.
In December 2020 the Group’s strategic
risk register was reviewed at a special
joint meeting of the Board and Audit
Committee. The conclusion of this
meeting was that while there have been
improvements in the Group’s corporate
risk management, there are still areas in
which management should focus further
in 2021. In particular, the focus of the risk
register will be shifted to events rather
than causes. Risk management will then
focus on identifying barriers that are
aimed at preventing an event occurring
and reducing the harmful impact if such
an event happens.
68
Watkin Jones plc // Annual report and financial statements 2020
Strategic report Heat map
The heat map summarises our exposure
to our principal risks by considering the
likelihood of a risk event occurring and
its potential impact on the Group in the
medium term. It shows the gross risk
assessment before mitigating factors
and controls are taken into account and
the net risk assessment after taking into
account relevant mitigating factors and
controls. The ovals on the heat map show
the Board’s appetite for risk for each risk
category, with the aim that after taking into
account mitigating factors and controls, the
net risk is reduced to a level that sits within
or below the Board’s appetite for risk.
The principal risks and risk appetite have
been assessed using the following scoring
matrix.
Likelihood
Score
Impact
Score
Highly probable
Probable
Possible
Unlikely
Remote
5
4
3
2
1
Extreme
Major
Moderate
Minor
Insignificant
5
4
3
2
1
Principal risks
A principal risk is a risk that is considered
material to the delivery of the Group’s
strategy or its performance, position or
future prospects. The Board, through
the Audit Committee, has undertaken a
robust review of the principal risks facing
the Group. The principal risks which the
Board considers are relevant to the Group
are summarised by risk category and
considered more fully on pages 70 to 77.
Using the above matrix, the gross and net
risk assessment score for a principal risk is
the product of the assessed likelihood and
impact scores.
Principal risk:
Health and safety
01. Health and safety
Strategic
Risk appetite:
Averse
02. Major nationwide business interruption/lockdown
Cautious
03. Economic cycle
04. Increased competition
05. Land availability
Financial
06. Liquidity
07. Financial crime
08. Cyber crime
Operational
09. Project delivery
10. Build quality
Cautious
Cautious
Cautious
Averse
Averse
Averse
Cautious
Averse
11. Disaster recovery and business continuity
Cautious
People
12. Capacity, culture and capability
Moderate
Regulatory and compliance
13. Failure to comply with legislation
Cautious
N
N
N
N
N
N
N
N
G
G
G
G
N
G
N
N
N
N
G
G
G
G
G
G
G
G
Key: Risk appetite Gross risk score = G Net risk score = N
Risk appetite
Risk score
1
2
Averse
3
4
Cautious
Moderate
High
5
6
8
9
10
12
15
16
20
25
Watkin Jones plc // Annual report and financial statements 2020
69
Strategic reportGovernanceCompany informationFinancial statements RISK MANAGEMENT AND PRINCIPAL RISKS continued
Risk
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
A major on-site health and safety incident could
result in significant personal injuries/fatalities,
fines or financial cost, increased insurance
renewal premiums, damage to reputation and
potential project delay.
Likelihood
Impact
Risk score
Health and safety
01. Health and safety
By their nature, construction
sites are inherently high-risk
environments. There is a risk that a
failure to follow established health
and safety procedures could result
in a serious incident or fatality.
Link to business model:
Strategic
02. Major nationwide
business interruption/
lockdown
Link to business model:
National lockdowns lead to a sharp deterioration
in economic activity and would create challenges
in terms of both the Group’s short-term business
activities and its medium-term prospects,
dependent on the severity of the economic
impact of lockdown measures on the Group’s key
markets.
Likelihood
Impact
Risk score
Likelihood
Impact
Risk score
03. Economic cycle
Changes in the political/economic
cycle could have an impact on the
real estate market and investor
confidence.
Link to business model:
A downturn in the economic cycle and
loss of investor confidence in the student
accommodation or BtR markets could have
a significant impact on our ability to forward
sell our developments. An increase in required
investment yields would result in compression of
development values, impacting our margins and
cash requirements.
5
4
20
5
4
20
5
4
20
2
3
6
5
2
10
4
2
8
Yes
• Health and safety is a top priority at Board and Executive Committee level, with regular reporting on findings
• The Group has a rigorous health and safety management framework in place supported by well-established
• The Group has an established health and safety department which regularly conducts health and safety audits
• In light of the increased health and safety risks presented by the COVID-19 pandemic, the British Safety
Council were asked to audit the control measures in place across the Group and awarded it COVID-secure
and recommendations.
policies and procedures.
across all of its sites.
accreditation.
• The Group engages with its insurers to help ensure it maintains best practice.
Yes
• Continuity plans and our IT infrastructure enable all non-site staff to work from home to allow the continuity
of their functions in the absence of access to the Group’s offices.
• Regular monitoring of the latest government guidance enables the Group to respond quickly to directives
in relation to its construction and accommodation management activities.
• The Group monitors its liquidity carefully and seeks to maintain sufficient liquidity through cash balances
and debt facilities to allow it to absorb the short to medium-term financial impacts of business interruption.
Yes
• Our strategy is to focus on our core BtR and PBSA markets, which remain fundamentally attractive and are
generally seen by institutional investors as resilient during times of broader market uncertainty.
• The Executive Committee approves market and city target locations annually.
• Our Investment Committee approval process ensures rigorous review of site acquisitions,
including the downside risk of movements in development values.
• Site acquisitions above £15 million are subject to approval by the Board, who consider the papers reviewed
by the Investment Committee.
• Our business model means we generally forward sell our development sites to institutional investors before
any significant development works have been carried out. Consequently, we have limited direct exposure to
• By forward selling our developments we operate a working capital-light model, which limits the call on the
the impact of falling real estate values.
Group’s own cash.
• Through focusing on its core BtR and PBSA markets the Group operates in markets that management
have analysed and assessed as having significant unsatisfied demand, reducing the risk of them becoming
less attractive to investors.
Key
70
Identify potential
developments
Site procurement
and planning
Transaction
and funding
Construction
and delivery
Accommodation
management
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
Health and safety
01. Health and safety
By their nature, construction
sites are inherently high-risk
environments. There is a risk that a
failure to follow established health
and safety procedures could result
in a serious incident or fatality.
Link to business model:
Strategic
02. Major nationwide
business interruption/
lockdown
Link to business model:
in economic activity and would create challenges
in terms of both the Group’s short-term business
activities and its medium-term prospects,
dependent on the severity of the economic
impact of lockdown measures on the Group’s key
markets.
Impact
Risk score
Likelihood
Impact
Risk score
03. Economic cycle
Changes in the political/economic
cycle could have an impact on the
real estate market and investor
confidence.
Link to business model:
A downturn in the economic cycle and
loss of investor confidence in the student
accommodation or BtR markets could have
a significant impact on our ability to forward
sell our developments. An increase in required
investment yields would result in compression of
development values, impacting our margins and
cash requirements.
5
4
20
5
4
20
5
4
20
2
3
6
5
2
10
4
2
8
Risk
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
A major on-site health and safety incident could
Likelihood
result in significant personal injuries/fatalities,
fines or financial cost, increased insurance
renewal premiums, damage to reputation and
potential project delay.
Impact
Risk score
Yes
• Health and safety is a top priority at Board and Executive Committee level, with regular reporting on findings
and recommendations.
• The Group has a rigorous health and safety management framework in place supported by well-established
policies and procedures.
• The Group has an established health and safety department which regularly conducts health and safety audits
across all of its sites.
• In light of the increased health and safety risks presented by the COVID-19 pandemic, the British Safety
Council were asked to audit the control measures in place across the Group and awarded it COVID-secure
accreditation.
• The Group engages with its insurers to help ensure it maintains best practice.
National lockdowns lead to a sharp deterioration
Likelihood
Yes
• Continuity plans and our IT infrastructure enable all non-site staff to work from home to allow the continuity
of their functions in the absence of access to the Group’s offices.
• Regular monitoring of the latest government guidance enables the Group to respond quickly to directives
in relation to its construction and accommodation management activities.
• The Group monitors its liquidity carefully and seeks to maintain sufficient liquidity through cash balances
and debt facilities to allow it to absorb the short to medium-term financial impacts of business interruption.
Yes
• Our strategy is to focus on our core BtR and PBSA markets, which remain fundamentally attractive and are
generally seen by institutional investors as resilient during times of broader market uncertainty.
• The Executive Committee approves market and city target locations annually.
• Our Investment Committee approval process ensures rigorous review of site acquisitions,
including the downside risk of movements in development values.
• Site acquisitions above £15 million are subject to approval by the Board, who consider the papers reviewed
by the Investment Committee.
• Our business model means we generally forward sell our development sites to institutional investors before
any significant development works have been carried out. Consequently, we have limited direct exposure to
the impact of falling real estate values.
• By forward selling our developments we operate a working capital-light model, which limits the call on the
Group’s own cash.
• Through focusing on its core BtR and PBSA markets the Group operates in markets that management
have analysed and assessed as having significant unsatisfied demand, reducing the risk of them becoming
less attractive to investors.
Watkin Jones plc // Annual report and financial statements 2020
71
Strategic reportGovernanceCompany informationFinancial statements
RISK MANAGEMENT AND PRINCIPAL RISKS continued
Risk
Strategic
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
04. Increased competition
The PBSA and build to rent
markets are attractive, which could
encourage new entrants and result
in increased competition.
Increased competition could increase land
prices or make it harder to secure attractive
sites. More developments would be brought to
market, with a potential reduction in demand
for Watkin Jones’ schemes.
Likelihood
Impact
Risk score
Link to business model:
05. Land availability
The market for acquiring land is very
competitive, which could lead to
difficulties in securing new sites for
development. There is also a risk
that the planning environment may
become more onerous, making it
more difficult to secure the planning
consents we require.
Link to business model:
Financial
06. Liquidity
Cash flow constraints could mean
that the Group is unable to meet its
financial commitments or source
new land opportunities.
Link to business model:
An inadequate supply of available land or
delays in the planning process would inhibit the
Group’s ability to deliver its growth strategy or
could increase the risk of acquiring sites in less
attractive locations or at higher prices.
Likelihood
Impact
Risk score
At its most extreme the absence of sufficient
liquidity could lead to business failure.
More moderate liquidity constraints could limit
the Group’s ability to secure the new sites
required to support its growth strategy, limiting
its capacity to grow earnings.
Likelihood
Impact
Risk score
07. Financial crime
The Group may be unable to
prevent or detect financial crime.
Financial crime could lead to financial loss,
breach of regulations, regulatory censure/fines
and loss of reputation.
Likelihood
Impact
Risk score
Link to business model:
None
4
3
12
3
4
12
3
4
12
3
4
12
3
2
6
3
3
9
2
3
6
3
2
6
Key
72
Identify potential
developments
Site procurement
and planning
Transaction
and funding
Construction
and delivery
Accommodation
management
Watkin Jones plc // Annual report and financial statements 2020
Yes
• The Group has developed the services it offers such that it provides an end-to-end service for its clients.
This provides a competitive advantage and is also a barrier to entry.
• Watkin Jones is recognised as a “tier 1” developer, which is typically a requirement for institutional funds to
engage on a forward sale basis.
• The Group has built up economies of scale and has established subcontractor supply chains and delivery
expertise, all of which makes it harder for new entrants to compete.
• Our target sectors continue to demonstrate significant imbalances between supply and demand which should
provide headroom for the Group to expand its activities.
• The Group’s management team monitors the competitive landscape in order to identify and respond
to changes.
Yes
• The Group has an established land sourcing capability and where possible targets off-market opportunities,
which helps mitigate against any increased competition for land.
• Through its strong track record of the successful delivery of schemes, the Group has a good reputation in the
market for being a reliable purchaser of land.
• Our site evaluation and approval process incorporates macro and micro market analysis and viability
assessments to ensure that the Group’s land sourcing is targeted in the right locations.
• The Group has the capital resources available to commit to opportunities as they become available,
which also provides vendors with increased confidence that it will complete an acquisition.
• We have an established national planning resource which appraises each BtR and PBSA site opportunity from
a risk and compliance perspective, with a view to securing planning consent. This appraisal process includes
high level consideration of emerging/developing policies at a local authority level and their risk to the Group.
• We cross-check our internal planning appraisals with local external consultants to further ensure local
planning policy and design considerations are considered.
Yes
• Our business model of forward selling developments helps to reduce the Group’s cash requirements
significantly.
requirements.
• Through typically structuring site acquisitions such that they are conditional upon obtaining satisfactory
planning, the cost of site acquisitions is generally known several months in advance. This provides
management with good visibility of future commitments and enables the Group to manage its cash flow
• Regular cash flow forecasts are prepared, which are reviewed by the Chief Financial Officer.
• The Group held cash of £134.5 million at 30 September 2020 and had available headroom in its banking
facilities of £75.0 million, comprising £65.0 million in its revolving credit facility and a £10 million overdraft
facility, providing significant liquidity.
Yes
• We operate layers of authorisation checks within the Group’s business processes, in accordance with a
delegated authorities matrix.
• We ensure segregation of duties within our ordering, approvals and payments processes.
• We determine development prices on a negotiated basis, providing little opportunity for price-fixing.
• Senior management takes an active role in reviewing transactions and ensuring that procedures are followed.
Strategic report
Risk
Strategic
Impact
04. Increased competition
The PBSA and build to rent
markets are attractive, which could
encourage new entrants and result
in increased competition.
Increased competition could increase land
prices or make it harder to secure attractive
sites. More developments would be brought to
market, with a potential reduction in demand
for Watkin Jones’ schemes.
Likelihood
Impact
Risk score
Link to business model:
An inadequate supply of available land or
delays in the planning process would inhibit the
Group’s ability to deliver its growth strategy or
could increase the risk of acquiring sites in less
attractive locations or at higher prices.
Likelihood
Impact
Risk score
05. Land availability
The market for acquiring land is very
competitive, which could lead to
difficulties in securing new sites for
development. There is also a risk
that the planning environment may
become more onerous, making it
more difficult to secure the planning
consents we require.
Link to business model:
Financial
06. Liquidity
Cash flow constraints could mean
that the Group is unable to meet its
financial commitments or source
new land opportunities.
Link to business model:
At its most extreme the absence of sufficient
Likelihood
liquidity could lead to business failure.
Impact
Risk score
More moderate liquidity constraints could limit
the Group’s ability to secure the new sites
required to support its growth strategy, limiting
its capacity to grow earnings.
07. Financial crime
The Group may be unable to
prevent or detect financial crime.
Financial crime could lead to financial loss,
breach of regulations, regulatory censure/fines
and loss of reputation.
Likelihood
Impact
Risk score
Link to business model:
None
4
3
12
3
4
12
3
4
12
3
4
12
3
2
6
3
3
9
2
3
6
3
2
6
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
Yes
• The Group has developed the services it offers such that it provides an end-to-end service for its clients.
This provides a competitive advantage and is also a barrier to entry.
• Watkin Jones is recognised as a “tier 1” developer, which is typically a requirement for institutional funds to
engage on a forward sale basis.
• The Group has built up economies of scale and has established subcontractor supply chains and delivery
expertise, all of which makes it harder for new entrants to compete.
• Our target sectors continue to demonstrate significant imbalances between supply and demand which should
provide headroom for the Group to expand its activities.
• The Group’s management team monitors the competitive landscape in order to identify and respond
to changes.
Yes
• The Group has an established land sourcing capability and where possible targets off-market opportunities,
which helps mitigate against any increased competition for land.
• Through its strong track record of the successful delivery of schemes, the Group has a good reputation in the
market for being a reliable purchaser of land.
• Our site evaluation and approval process incorporates macro and micro market analysis and viability
assessments to ensure that the Group’s land sourcing is targeted in the right locations.
• The Group has the capital resources available to commit to opportunities as they become available,
which also provides vendors with increased confidence that it will complete an acquisition.
• We have an established national planning resource which appraises each BtR and PBSA site opportunity from
a risk and compliance perspective, with a view to securing planning consent. This appraisal process includes
high level consideration of emerging/developing policies at a local authority level and their risk to the Group.
• We cross-check our internal planning appraisals with local external consultants to further ensure local
planning policy and design considerations are considered.
Yes
• Our business model of forward selling developments helps to reduce the Group’s cash requirements
significantly.
• Through typically structuring site acquisitions such that they are conditional upon obtaining satisfactory
planning, the cost of site acquisitions is generally known several months in advance. This provides
management with good visibility of future commitments and enables the Group to manage its cash flow
requirements.
• Regular cash flow forecasts are prepared, which are reviewed by the Chief Financial Officer.
• The Group held cash of £134.5 million at 30 September 2020 and had available headroom in its banking
facilities of £75.0 million, comprising £65.0 million in its revolving credit facility and a £10 million overdraft
facility, providing significant liquidity.
Yes
• We operate layers of authorisation checks within the Group’s business processes, in accordance with a
delegated authorities matrix.
• We ensure segregation of duties within our ordering, approvals and payments processes.
• We determine development prices on a negotiated basis, providing little opportunity for price-fixing.
• Senior management takes an active role in reviewing transactions and ensuring that procedures are followed.
Watkin Jones plc // Annual report and financial statements 2020
73
Strategic reportGovernanceCompany informationFinancial statements
RISK MANAGEMENT AND PRINCIPAL RISKS continued
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
Risk
Financial
08. Cyber crime
The Group may be unable to
prevent, detect or respond to
a cyber attack.
Link to business model:
Operational
09. Project delivery
The Group could materially
fail to complete one or more
developments on time.
Link to business model:
A cyber attack could lead to financial loss, breach
of regulations, regulatory censure/fines and loss
of reputation.
Likelihood
Impact
Risk score
If a development is not completed on time, this
could result in significant financial penalties and
would damage the Group’s reputation for on-time
delivery, which could make it more difficult to sell
future developments.
Likelihood
Impact
Risk score
10. Build quality
The Group could deliver poor
build quality.
Link to business model:
Poor build quality or a failure to engage properly
with clients could result in costly legal claims
being brought against the Group and a loss of
reputation. This risk is particularly pertinent in
respect of cladding and fire protection works
since the Grenfell disaster.
Likelihood
Impact
Risk score
11. Disaster recovery
and business continuity
There is a risk that business
continuity is not maintained in
response to a disaster or other
business continuity event.
Link to business model:
Failing to maintain business continuity could
lead to financial loss, a delay to the delivery of
schemes or loss of personnel and reputation.
Likelihood
Impact
Risk score
5
4
20
4
4
16
4
4
16
4
4
16
2
4
8
3
3
9
3
2
6
3
4
12
Yes
• A Data Protection Management Group has been formed to monitor and develop the Group’s cyber security
measures.
• The Group has achieved the Cyber Essentials certification.
• We undertake data information security training annually.
• We undertake information security control monitoring over IT access permissions.
• We maintain daily incremental server backups.
• We undertake vulnerability scanning and external penetration testing.
Yes
• The Group’s specialism in, and extensive experience of, building multi-occupancy residential accommodation
means that our construction programming and techniques are well established to ensure on-time delivery.
• The senior construction management team has many years’ repeat experience with the Group in building
multi-occupancy residential accommodation, which gives us a good practical knowledge of the required build
times and project management requirements.
• As a complete developer of BtR and PBSA, the Group is in control of the overall timescale for delivery of a
scheme and we can therefore ensure that projects are started on site sufficiently early. The Group can take
the decision to defer a project for a year if there are planning delays.
• Project delivery is carefully monitored by operational senior management and through project status reporting
at operational and Executive Committee meetings.
• Projects identified as at risk are subject to review by senior operational management, who have the knowledge
to consider acceleration options.
Yes
• The Group utilises project delivery software to provide quality assurance over the standards of its construction
works. Reports and statistics on quality assurance are reviewed at monthly project review meetings with
senior management.
• The Group adopts a very risk-averse approach when specifying the cladding for its new developments,
utilising cladding materials with a fire retardant standard of A2 or better, and constructs its developments to
the highest fire safety standards.
• Where potential cladding remedial works have been identified, the Group is working closely with the property
owners concerned in order to ensure the safety of tenants.
Yes
• The Group’s activities are geographically dispersed and there is no dependence on a single location.
• A business disaster recovery plan is in place for the Group’s key information systems.
• A business continuity plan has been developed and successfully tested by the COVID-19 pandemic.
• There are system data backup routines in operation with most data hosted off-site using cloud-based
platforms.
Key
74
Identify potential
developments
Site procurement
and planning
Transaction
and funding
Construction
and delivery
Accommodation
management
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
Risk
Financial
08. Cyber crime
The Group may be unable to
prevent, detect or respond to
a cyber attack.
Link to business model:
Operational
09. Project delivery
The Group could materially
fail to complete one or more
developments on time.
Link to business model:
A cyber attack could lead to financial loss, breach
Likelihood
of regulations, regulatory censure/fines and loss
of reputation.
Impact
Risk score
If a development is not completed on time, this
Likelihood
could result in significant financial penalties and
would damage the Group’s reputation for on-time
delivery, which could make it more difficult to sell
Impact
Risk score
future developments.
10. Build quality
The Group could deliver poor
build quality.
Link to business model:
with clients could result in costly legal claims
being brought against the Group and a loss of
reputation. This risk is particularly pertinent in
respect of cladding and fire protection works
since the Grenfell disaster.
Impact
Risk score
11. Disaster recovery
and business continuity
There is a risk that business
continuity is not maintained in
response to a disaster or other
business continuity event.
Link to business model:
Failing to maintain business continuity could
Likelihood
lead to financial loss, a delay to the delivery of
schemes or loss of personnel and reputation.
Impact
Risk score
5
4
20
4
4
16
4
4
16
4
4
16
2
4
8
3
3
9
3
2
6
3
4
12
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
Yes
• A Data Protection Management Group has been formed to monitor and develop the Group’s cyber security
measures.
• The Group has achieved the Cyber Essentials certification.
• We undertake data information security training annually.
• We undertake information security control monitoring over IT access permissions.
• We maintain daily incremental server backups.
• We undertake vulnerability scanning and external penetration testing.
Yes
• The Group’s specialism in, and extensive experience of, building multi-occupancy residential accommodation
means that our construction programming and techniques are well established to ensure on-time delivery.
• The senior construction management team has many years’ repeat experience with the Group in building
multi-occupancy residential accommodation, which gives us a good practical knowledge of the required build
times and project management requirements.
• As a complete developer of BtR and PBSA, the Group is in control of the overall timescale for delivery of a
scheme and we can therefore ensure that projects are started on site sufficiently early. The Group can take
the decision to defer a project for a year if there are planning delays.
• Project delivery is carefully monitored by operational senior management and through project status reporting
at operational and Executive Committee meetings.
• Projects identified as at risk are subject to review by senior operational management, who have the knowledge
to consider acceleration options.
Poor build quality or a failure to engage properly
Likelihood
Yes
• The Group utilises project delivery software to provide quality assurance over the standards of its construction
works. Reports and statistics on quality assurance are reviewed at monthly project review meetings with
senior management.
• The Group adopts a very risk-averse approach when specifying the cladding for its new developments,
utilising cladding materials with a fire retardant standard of A2 or better, and constructs its developments to
the highest fire safety standards.
• Where potential cladding remedial works have been identified, the Group is working closely with the property
owners concerned in order to ensure the safety of tenants.
Yes
• The Group’s activities are geographically dispersed and there is no dependence on a single location.
• A business disaster recovery plan is in place for the Group’s key information systems.
• A business continuity plan has been developed and successfully tested by the COVID-19 pandemic.
• There are system data backup routines in operation with most data hosted off-site using cloud-based
platforms.
Watkin Jones plc // Annual report and financial statements 2020
75
Strategic reportGovernanceCompany informationFinancial statements
RISK MANAGEMENT AND PRINCIPAL RISKS continued
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
The Group’s employees are critical to its
performance. Cultural limitations and the failure
to identify, retain and motivate people will restrict
the Group’s growth plans and could result in
development margins being eroded.
Likelihood
Impact
Risk score
A failure to comply with the relevant legislation
may lead to fines or financial penalties and
reputational damage, which may impact the
Group’s earnings performance and may impact
investor/shareholder confidence. In the case
of health and safety, a failure to comply with
regulations could result in a serious incident
or fatality.
Likelihood
Impact
Risk score
4
3
12
4
4
16
3
3
9
3
3
9
Risk
People
12. Capacity, culture
and capability
The Group may find it difficult to
recruit and retain employees with
the right capabilities.
Link to business model:
Regulatory and compliance
13. Failure to comply
with legislation
The Group is subject to a broad
range of regulatory and compliance
requirements, which it may fail to
comply with. Health and safety,
GDPR, anti-bribery, anti-modern
slavery, AIM and MAR regulations
all provide obligations on the
Company, which need to be
complied with.
Link to business model:
Yes
• The Group has an established human resources function with frameworks in place for recruitment, training
and performance review.
• An agile working policy was introduced during FY20 to permanently embed the positive elements of flexible
working practices introduced in response to the COVID-19 pandemic.
• The Group has appointed a Head of Learning & Leadership Development who is charged with focusing on
talent management and associated training.
• The Group seeks to remain competitive in its remuneration levels and employment terms.
Yes
• The Board and Executive Committee take their governance obligations seriously and set the right tone and
• Policies and procedures are well embedded in the organisation to ensure compliance with, and monitor
culture for the organisation as a whole.
performance against, relevant legislation.
• We operate with an established and experienced health and safety department which fosters a proactive
approach to health and safety throughout the Group, monitors compliance through regular audits and
provides appropriate training.
• We take health and safety seriously at Board and Executive Committee level, with regular reporting of findings
and recommendations. The health and safety department reports directly to the CEO.
• The Group’s outsourced internal audit function undertakes a programme of reviews, which includes specific
areas of focus (including health and safety, GDPR and anti-bribery) and facilitates further enhancement
of controls.
• We engage with our insurers to help ensure we maintain best practice and insurance covers are reviewed
annually and maintained at appropriate levels.
• We administer induction and annual compliance training courses covering all relevant policies, along with
regular communications, which help to continually re-educate and ensure compliance.
• We monitor and report to the Executive Committee and Board on compliance-related matters.
• We have a Compliance Officer who is responsible for overseeing compliance. The contact details for the
Compliance Officer are published in the relevant policies.
• We maintain a whistleblowing line, which enables any compliance-related matters to be raised confidentially,
with whistleblowing reports, including nil reports, provided to each Audit Committee meeting.
Key
76
Identify potential
developments
Site procurement
and planning
Transaction
and funding
Construction
and delivery
Accommodation
management
Watkin Jones plc // Annual report and financial statements 2020
Strategic report
Risk
People
12. Capacity, culture
and capability
The Group may find it difficult to
recruit and retain employees with
the right capabilities.
Link to business model:
Regulatory and compliance
13. Failure to comply
with legislation
The Group is subject to a broad
range of regulatory and compliance
requirements, which it may fail to
comply with. Health and safety,
GDPR, anti-bribery, anti-modern
slavery, AIM and MAR regulations
all provide obligations on the
Company, which need to be
complied with.
Link to business model:
The Group’s employees are critical to its
performance. Cultural limitations and the failure
to identify, retain and motivate people will restrict
the Group’s growth plans and could result in
development margins being eroded.
Likelihood
Impact
Risk score
may lead to fines or financial penalties and
reputational damage, which may impact the
Group’s earnings performance and may impact
investor/shareholder confidence. In the case
of health and safety, a failure to comply with
regulations could result in a serious incident
or fatality.
Impact
Risk score
4
3
12
4
4
16
3
3
9
3
3
9
Impact
Risk
assessment
Gross
Net
Within risk
appetite?
Mitigation
Yes
• The Group has an established human resources function with frameworks in place for recruitment, training
and performance review.
• An agile working policy was introduced during FY20 to permanently embed the positive elements of flexible
working practices introduced in response to the COVID-19 pandemic.
• The Group has appointed a Head of Learning & Leadership Development who is charged with focusing on
talent management and associated training.
• The Group seeks to remain competitive in its remuneration levels and employment terms.
A failure to comply with the relevant legislation
Likelihood
Yes
• The Board and Executive Committee take their governance obligations seriously and set the right tone and
culture for the organisation as a whole.
• Policies and procedures are well embedded in the organisation to ensure compliance with, and monitor
performance against, relevant legislation.
• We operate with an established and experienced health and safety department which fosters a proactive
approach to health and safety throughout the Group, monitors compliance through regular audits and
provides appropriate training.
• We take health and safety seriously at Board and Executive Committee level, with regular reporting of findings
and recommendations. The health and safety department reports directly to the CEO.
• The Group’s outsourced internal audit function undertakes a programme of reviews, which includes specific
areas of focus (including health and safety, GDPR and anti-bribery) and facilitates further enhancement
of controls.
• We engage with our insurers to help ensure we maintain best practice and insurance covers are reviewed
annually and maintained at appropriate levels.
• We administer induction and annual compliance training courses covering all relevant policies, along with
regular communications, which help to continually re-educate and ensure compliance.
• We monitor and report to the Executive Committee and Board on compliance-related matters.
• We have a Compliance Officer who is responsible for overseeing compliance. The contact details for the
Compliance Officer are published in the relevant policies.
• We maintain a whistleblowing line, which enables any compliance-related matters to be raised confidentially,
with whistleblowing reports, including nil reports, provided to each Audit Committee meeting.
Watkin Jones plc // Annual report and financial statements 2020
77
Strategic reportGovernanceCompany informationFinancial statements
BOARD OF DIRECTORS
The Board has a wide range of appropriate skills and experience,
supporting robust debate and decision-making.
Grenville Turner
Non‑Executive Chairman
Appointed to the Board: 26 February 2016
Richard Simpson
Chief Executive Officer
Appointed to the Board: 2 January 2019
Philip Byrom
Chief Financial Officer and
Company Secretary
Appointed to the Board: 16 March 2016
Skills and experience
• Substantial business experience, with
more than 40 years in retail banking and
property.
• Prior knowledge of the student
accommodation sector, gained through the
chairmanship of ThreeSixty Developments.
• Experience of chairing several other
company boards.
• Qualified chartered banker, with an MBA
from Cranfield School of Management.
Other current appointments
Non-Executive Chairman of Oasis Document
Storage Limited, FSP Limited and Heylo
Housing Group Limited.
Past appointments
Chairman and Chief Executive of
Countrywide plc; Chief Executive of
Intelligent Finance; Chairman of ThreeSixty
Developments (formerly Knightsbridge
Student Housing) and the Titlestone Group;
Vice Chairman of the English National Ballet;
and Non-Executive Director of Rightmove plc,
St James’s Place plc, Sainsbury’s Bank plc,
Realogy, Zoopla Property Group plc
and the Department for Communities and
Local Government.
Skills and experience
• Extensive experience working in property
development and student accommodation,
including as Group Property Director at
The Unite Group plc immediately prior to
joining Watkin Jones.
Skills and experience
• Eighteen years’ experience as CFO of
Watkin Jones Group, including leading
complex financing arrangements
and material property and corporate
transactions.
• Substantial executive experience in setting
the strategic direction for all aspects of
property portfolio management.
• Broad range of prior experience in
industry, gained in group and divisional
finance roles.
• Significant experience at Board level,
including seven years serving on the Board
of The Unite Group plc, plus two years in
a non-executive capacity with CityWest
Homes.
• Qualified chartered surveyor and a
fellow of the Royal Institute of Chartered
Surveyors.
• Qualified chartered accountant, with
a degree in Civil Engineering from
Manchester University.
Other current appointments
N/A
Other current appointments
N/A
Past appointments
Group Property Director for The Unite
Group plc; Non-Executive Director,
CityWest Homes; Chair of the British
Property Federation’s cross-sector Student
Accommodation Committee from 2013-2015;
and served for six years in the British Army.
Past appointments
Divisional Finance Director for
Pharmaceutical Technologies at BWI plc;
Group Financial Controller at BWI plc and
Advance International Group Limited; and
Senior Manager at Price Waterhouse.
78
Watkin Jones plc // Annual report and financial statements 2020
Governance Simon Laffin
Independent Non‑Executive Director
Appointed to the Board: 26 February 2016
Liz Reilly
Independent Non‑Executive Director
Appointed to the Board: 21 January 2019
Skills and experience
• Experienced chairman, executive and
non-executive director in large and small,
public and private companies, including
acting as audit committee chair.
• Experienced in retail, property, FMCG,
financing, restructuring and private equity
in the UK, Europe, the USA and Australia.
• Overseen major turnarounds in both public
and private companies.
• Strong reputation and relationships with
institutional shareholders.
Skills and experience
• Around 20 years of executive experience
at large UK businesses, including
J Sainsbury plc and FCC Environment.
• Developed knowledge of the real estate
sector during eight years as Group
Human Resources Director of FTSE
100 listed Segro PLC, the owner, asset
manager and developer of modern
warehousing and light industrial property.
• Gained experience supporting the
Remuneration Committee Chair at
Segro PLC.
Other current appointments
Chairman of the Audit Committee of
Dentsu International; Non-Executive Director
and member of the Audit and Supervisory
Committee of Dentsu Group Inc.
Past appointments
Chairman of Assura plc, Flybe Group
plc and Hozelock Group Limited; Group
Finance & Property Director of Safeway plc;
Non-Executive Director of Quintain Estates
and Development plc, Mitchells & Butlers
plc and Northern Rock (as part of the rescue
team); and an adviser to CVC Capital Partners.
Other current appointments
Group Human Resources Director at
Segro PLC.
Past appointments
Retail Human Resources Director for
J Sainsbury plc; and Group Human
Resources Director for FCC Environment
(previously the Waste Recycling Group).
Watkin Jones plc // Annual report and financial statements 2020
79
Strategic reportGovernanceCompany informationFinancial statements CHAIRMAN’S INTRODUCTION
The Group’s governance
framework continued to
strengthen during the year.
Grenville Turner
Non-Executive Chairman
Board of Directors
Grenville Turner
Non‑Executive Chairman
Richard Simpson
Chief Executive Officer
Philip Byrom
Chief Financial Officer
Simon Laffin
Independent Non‑Executive Director
Liz Reilly
Independent Non‑Executive Director
Dear Shareholder
The Group’s business and strategy
continues to evolve, in particular as build
to rent development becomes increasingly
important to us. At the same time, there
were important changes in the year to the
way the business is structured, supporting
better decision-making and helping to
empower our teams (see page 24). It is
essential that our corporate governance
structures and processes also continue to
adapt, so they remain fit for purpose.
During the year, the Board therefore
continued to develop our approach to
key areas, such as our risk framework and
internal controls. We also refined delegated
authorities, to ensure an appropriate
balance between making efficient
decisions and appropriate oversight.
In addition, the Board has increased its
focus on ESG matters and looked at how
they should be embedded in our decision
frameworks. For example, the Group has
begun to include sustainability judgements
when considering potential new sites.
Not surprisingly, the Board met more
frequently during lockdown to consider
and support the Group’s response to
COVID-19. The Audit and Remuneration
Committees also stepped up their meeting
schedule and there have been more regular
informal conversations between me and
our CEO, Richard Simpson, and with the
Non-Executive Board members.
The Board has also received more
presentations from members of the senior
team, enhancing our insight into their
work and helping us to identify areas we
should consider. For example, during
the year we introduced new approval
processes for developments. We also
continued to challenge and stress test our
general governance environment and key
issues for the future of the business, such
as talent management and succession
planning. As a result of all of this work, the
Group’s governance framework continued
to strengthen during the year.
The corporate governance statement
and committee reports on the following
pages explain our approach to
governance and include the disclosures
required in the annual report. The Board
follows the principles set out in the Quoted
Companies Alliance Corporate Governance
Code (the “QCA Code”). There are no
significant areas where our governance
structures and practices differ from the
QCA Code’s expectations. A complete
index of the disclosures required by
the QCA Code, including those on the
Company’s website, can be found at
http://www.watkinjonesplc.com/
investors/corporate‑governance.
Grenville Turner
Non-Executive Chairman
19 January 2021
Alma Court,
Canterbury
80
Watkin Jones plc // Annual report and financial statements 2020
Governance CORPORATE GOVERNANCE
Watkin Jones has a robust corporate governance framework,
which supports its ability to successfully deliver its strategy.
The Board
The Board comprises the Non-Executive
Chairman, two Executive Directors and
two independent Non-Executive Directors.
Biographies of the Directors can be found
on pages 78 and 79.
Richard Simpson and Philip Byrom
were appointed Directors under service
agreements dated 2 January 2019
and 16 March 2016 respectively.
These contracts may be terminated
by twelve months’ notice by either party.
Grenville Turner and Simon Laffin
were appointed to the Board by letters
of appointment dated 26 February
2016 and Liz Reilly was appointed to
the Board by a letter of appointment
dated 4 January 2019. Non-Executive
appointments run for an initial term of
three years from the date of appointment
and continue thereafter, subject to three
months’ notice by either side.
The Chairman and CEO have separate,
clearly defined roles. The Chairman is
responsible for leading the Board, setting
the agenda for Board meetings (with the
assistance of the Company Secretary) and
for ensuring the Board operates effectively,
by promoting a culture of openness and
robust discussion. The CEO is responsible
for setting and implementing the Group’s
strategy, for leading and developing the
executive team and for managing the
Group’s day-to-day operations, taking
account of the objectives, policies and
risk appetite set by the Board.
Board meetings
The Board meets regularly to consider
strategy, performance and the framework
of internal controls. To enable the Board
to discharge its duties, all Directors
receive appropriate and timely information,
including briefing papers distributed
in advance of Board meetings. These
papers include reports from the CEO
and the Chief Financial Officer (“CFO”),
as well as reports on investor relations
and corporate governance.
The Company Secretary produces minutes
of each meeting, including actions to be
taken. The Chairman then follows up each
action at the next meeting.
Only the Non-Executive Directors are
members of the Board committees.
Richard Simpson and Philip Byrom are
invited to attend committee meetings to
assist with the matters discussed.
Attendance at meetings
The table below sets out the number of Board and committee meetings attended by each Director during the year:
Board
Audit Committee
Remuneration
Committee
Nomination
Committee
Grenville Turner
Richard Simpson
Philip Byrom
Simon Laffin
Liz Reilly
11/11
11/11
11/11
11/11
11/11
7/7
—/—
—/—
7/7
7/7
8/8
—/—
—/—
8/8
8/8
Watkin Jones plc // Annual report and financial statements 2020
4/4
—/—
—/—
4/4
4/4
81
Strategic reportGovernanceCompany informationFinancial statements CORPORATE GOVERNANCE continued
Matters reserved for the Board
Matters reserved for the Board for its
decision include:
• approving the Group’s strategic aims
and objectives;
• reviewing performance against the
Group’s strategic aims, objectives and
business plans;
• overseeing the Group’s operations;
• approving changes to the Group’s
capital, corporate, management or
control structures;
• approving results announcements
and the annual report and financial
statements;
• approving the dividend policy;
• declaring the interim dividend and
recommending the final dividend and
any special dividend;
• approving any significant changes in
accounting policies;
• approving the treasury policy;
• approving the Group’s risk appetite
and principal risk statements;
• reviewing the effectiveness of the
Group’s risk and control processes;
• approving major capital projects and
material contracts or arrangements;
• approving all circulars, prospectuses
and admission documents;
• ensuring a satisfactory dialogue with
shareholders;
• establishing Board committees and
approving their terms of reference;
• approving delegated levels of authority;
• approving changes to the Board and its
committees;
• determining the remuneration policy
for the Directors and other senior
executives;
• providing a robust review of the Group’s
corporate governance arrangements;
and
• approving all Board mandated policies.
Advice for Directors
All Directors have access to the advice
and services of the Company Secretary,
who ensures that the Board’s procedures
are followed and that applicable rules and
regulations are complied with, and to the
professional company secretarial services
of Prism Cosec. In addition, the Company
has procedures to enable the Directors to
obtain independent professional advice at
the Company’s expense, if necessary to
further the Directors’ duties.
Re-election of Directors
The Board’s policy is for all Directors to
seek re-election each year and as a result,
all of the Directors will be standing for
re-election at the forthcoming AGM.
Directors’ time commitments
All the Non-Executive Directors are
required to devote sufficient time to Watkin
Jones to enable the Board to discharge its
duties effectively. This includes preparation
for and attendance at scheduled Board
and committee meetings, as well as ad hoc
meetings or calls as required. The Board
confirms that each of the Non-Executive
Directors can commit the necessary time
to fulfil their roles.
Board committees
The Board has established Audit,
Nomination and Remuneration
Committees, which operate under written
terms of reference. The reports of these
committees can be found on pages 84
to 95.
Terms of reference
The terms of reference for the Board
and the committees can be found at
http://www.watkinjonesplc.com/
investors/corporate‑governance.
Board effectiveness
Towards the end of the previous financial
year, the Board underwent an external
evaluation, conducted by Campbell Tickell.
The findings were presented to the Board
at its meeting in October 2019 and the
conclusions were outlined in the annual
report for FY19.
The evaluation identified a number of areas for the Board to address in FY20.
Progress in each of these areas is shown below:
Area to address
Progress in FY20
Consider longer-term arrangements for
company secretarial support.
Continue to improve risk management
and audit processes.
Keep the Board’s diversity and mix of
skills under review.
The Company has appointed a
Company Secretary who will join the
Company in 2021.
We have continued to evolve our
processes in these areas. See the
Audit Committee report on pages
84 to 87 for more information.
The Nomination Committee has continued
to review the Board’s composition during
the year. See pages 88 and 89 for more
information.
The Board considered the need for an evaluation exercise during FY20 and concluded
that the priority should be to continue to focus on the Group’s response to COVID-19.
The Board therefore intends to undertake its next evaluation during FY22.
82
Watkin Jones plc // Annual report and financial statements 2020
Governance In addition to the events described above,
the Group looks to keep investors informed
through regulatory announcements of
important newsflow, including forward
sales of developments, planning
permissions received and sites acquired.
Annual General Meeting (“AGM”)
The Company’s AGM will be held
virtually at 10.30am on 19 February 2021.
The Notice of Meeting, setting out the
resolutions proposed, is contained in a
separate document and is available on the
Group’s website, www.watkinjonesplc.com.
Internal controls
The Board is responsible for the Group’s
system of internal control and for reviewing
its effectiveness. Any system of internal
control can only provide reasonable,
but not absolute, assurance against
material misstatement or loss. The Board
considers that the internal controls in
place are appropriate for the Group’s size,
complexity and risk profile.
The key features of the Group’s internal
control system include:
• the preparation of monthly management
accounts and comparison to budget;
• clearly defined roles and responsibilities,
with appropriate segregation of duties;
• clear authorisation and approval
processes;
• regular preparation and review of cash
forecasts;
• senior management review of material
contracts and agreements; and
• approval by senior management of all
land purchases and development sales
agreements.
KPMG provides internal audit services
to the Group. More information can be
found in the Audit Committee report on
pages 84 to 87.
Relations with shareholders
The Board recognises the importance
of maintaining an open dialogue with
shareholders and keeping them informed
of the Group’s strategy, progress and
prospects. As part of this, the Board
is committed to a high standard of
corporate reporting.
During the year, the Executive Directors
continued their programme of meetings
with existing and potential shareholders.
Regular virtual meetings have been held
during the COVID-19 pandemic. The Board
was kept informed about shareholders’
views after these meetings by follow up
from the Company’s corporate brokers.
In November 2019, the Executive Directors
and other members of the Executive
Committee hosted a well-attended Capital
Markets Day for shareholders and analysts
at the Group’s mixed-use development at
Duncan House, Stratford. The presentations
included a review of the Group’s markets,
strategy and opportunity for growth, as well
as providing further insight into the Group’s
operations and business model.
Capital Markets Day held in November 2019
Watkin Jones plc // Annual report and financial statements 2020
83
Employee conference held in November 2019
Strategic reportGovernanceCompany informationFinancial statements AUDIT COMMITTEE REPORT
The Committee considered a wide
range of matters during the year,
including the continued effectiveness
of the Company’s key controls
following the move to remote
working as a result of COVID-19.
Simon Laffin
Chairman of the Audit Committee
Dear Shareholder
During the year, the work of the Committee
covered the following matters:
Strategic risk management
The Company has a strategic risk
register and has identified its risk appetite.
This was reviewed again at a special
joint meeting of the Board and Audit
Committee in December 2020. The Board
recognises that the Company has made
great strides in improving its corporate
risk management, but there is still much
work to do. In particular, the risks are
now being focused more on events rather
than causes. For example, this means
that we will look at a reduction in investor
demand for our developments and forced
remote working from whatever cause,
rather than looking at a pandemic risk on
its own. The risk management will then
identify multiple barriers that are aimed at
preventing such a risk and reducing the
harmful impact if such an event happens,
as well as monitoring the success of
such barriers.
The Company has a Risk Committee of
senior executives, that works with internal
audit. The minutes of the Risk Committee
and reports of the internal auditor are
tabled at Audit Committee meetings.
The Company’s risk register is summarised
on pages 70 to 77.
Interim results review
The accounting treatment of cladding
remedial works was reviewed, with
particular focus on when and if a
constructive obligation had been
created, which would need providing for
in the interim results. Following discussion,
it was agreed that no constructive
obligation had as yet been incurred,
as the outcome of discussions with the
property owners concerned was not
known, although the pre-close update
had indicated that the potential cost to
the Group could be significant. A provision
was then subsequently made at the
full year, once the outcome of negotiations
with property owners was clearer and a
constructive obligation had arisen.
Committee members
Simon Laffin (Chairman)
Independent Non‑Executive Director
Grenville Turner
Non‑Executive Chairman
Liz Reilly
Independent Non‑Executive Director
Additional attendees, as invited:
Ernst & Young, KPMG,
Richard Simpson,
Philip Byrom,
Oliver Worrall (Deputy CFO)
and other executives as required
Committee responsibilities
The Audit Committee is primarily
responsible for:
• monitoring corporate risk and the
quality of internal controls;
• ensuring that the Group’s financial
performance is properly measured
and reported; and
• liaising with and reviewing the work
of the Group’s internal and external
auditors.
The Committee meets at least once
a year. In FY20 it met seven times.
84
Watkin Jones plc // Annual report and financial statements 2020
Governance • significant accounting estimates and
• cladding provision. A charge of
£14.8 million was made in the year
for rectification works that will be
needed on cladding, with a remaining
provision of £9.9 million carried
forward at the year end. This was
calculated for each affected building;
• quality of earnings. The non-underlying
items were reviewed to ensure that the
quality of earnings is maintained;
• a number of immaterial corrected and
uncorrected audit differences;
• the independence of the external
auditor. EY has been the auditor for
over 20 years, but the Committee was
comfortable that the auditor has retained
its independence from management. EY
did no chargeable work for the Company
other than the audit and half-year review;
and
• the Committee noted that all reporting
requirements for an AIM-listed business
are being complied with.
judgements:
• IFRS 16 was applied this year for the
first time with the full retrospective
method being used. The incremental
borrowing rate, used to value
the assets, was agreed with the
auditor and applied to the individual
properties;
• impairment testing for leased
investment properties. This refers to
six legacy student accommodation
assets that were sold and leased
back. In previous years, before
the application of IFRS 16, any
impairment would have been classified
as an onerous lease provision. An
impairment charge was made in the
year in respect of one of the leased
assets, primarily as a result of the
lower student occupancy in the
2020/21 academic year as a result
of COVID-19 and taking into account
students not being able to return to
their accommodation in January 2021.
No further impairment was required;
• intangible assets relating to Fresh of
£3.3 million in customer relationships
and £9.7 million in goodwill. There was
significant headroom; and
The Audit Committee’s
risk assessment
Revenue recognition: This is
always presumed as a significant risk.
The specific issue on this for Watkin Jones
is recognition of long-term contract
revenue. The auditor explained the
work that they undertake to verify revenue
and they noted no significant issues with
the recognition.
Management override: This is another
presumed risk. The Audit Committee
looked to the Company’s internal controls
and the external audit for assurance
that this risk is controlled. The auditor
concluded that ‘the control environment is
effective and helps to reduce the likelihood
of a material misstatement affecting the
financial statements’.
Land and work in progress valuation:
This is an important part of long-term
contract accounting. The Company
has clear accounting policies for these
valuations, with the forward sale model
reducing the risk around the selling
price, and this is audited by EY, with
no significant issues.
Final year-end audit report
The Committee met with EY and reviewed
their report on the year-end results (see
pages 99 to 103). Careful consideration
was given to:
• reporting materiality, which was set by
the auditor at 5% of underlying profit
before tax and one-off items, which
equates to £2.3 million. In practice, they
apply a lower ‘performance materiality’
of £1.7 million as a basis for their detailed
work, and report to the Committee
all audit differences that they find
over £110,000;
Watkin Jones plc // Annual report and financial statements 2020
85
Arundel House,
Coventry
Strategic reportGovernanceCompany informationFinancial statements AUDIT COMMITTEE REPORT continued
Effectiveness of the external auditor
After last year’s audit, the Committee and
the finance team reviewed the performance
of the auditor, looking at the audit scope,
the cost effectiveness and the general
performance and concluded that EY
continued to provide an effective service.
Other matters considered
by the Committee
Health and safety: A review of the
Company’s health and safety procedures
and controls was presented to the
Committee, with no significant changes to
either required.
Annual report and financial statements:
The Committee reviewed the annual report
and other financial statements during the
year to ensure that they were fair, accurate
and balanced. It then recommended those
reports to the Board for approval.
Going concern statements:
The Committee reviewed this statement
and several different scenarios of cash
flow over the next year. The Company
limits cash outflows on development
projects before forward selling them.
This tends to give positive cash flow
from fairly early on in a development.
These characteristics and the ability of
the Company to stop work on any new
developments underlines the relatively low
cash risk. The Committee debated possible
downside scenarios and how the Board
would react to various circumstances.
It noted how the Board had reacted
to the COVID-19 lockdown in 2020 in
deferring land purchases and stopping
the interim dividend. The Committee
recommended the Board accept the
going concern statement.
Dividends: The Committee reviewed
whether the interim dividend should be
paid given the pandemic uncertainty and
the use by the Company of government
furlough payments. It recommended to the
Board that the interim dividend should be
deferred until the economic position was
more certain. In November, following the
repayment to the government of all money
received as pandemic support, the Board
indicated to shareholders that it intended
to pay a final dividend in line with the stated
policy of a 2.0x dividend cover, provided
that the economic situation does not
worsen significantly. In January 2021, the
Audit Committee reviewed the proposed
final dividend, the capacity of the Company
to pay such a dividend from distributable
reserves and its appropriateness, and
recommended it to the Board.
The Committee and the Board remain
satisfied with the performance of EY
and have concluded that the firm is
independent and has the necessary level of
objectivity. This was Jamie Dixon’s second
year as the Audit Partner and, in the
opinion of the Committee, he and his team
are very effective and diligent in that role.
The Committee discussed the situation
with the Wirecard audit in Germany and
asked whether EY’s audit of Watkin Jones
could be impacted by any fallout from this.
We received assurances from Mr Dixon
that this was not a risk. The Committee
also noted the FRC annual Audit Quality
Inspection Report on EY.
The Committee approved an 8% increase
in audit fees, reflecting the general
market-wide restoration of margins
being driven by UK audit firms, following
the Competition and Markets Authority
review into the audit market and increased
pressure on audit firms from regulators
and government.
EY has been the external auditor for the
Company for over 20 years, including the
last five years in which we have been listed
on the AIM market. Our policy is that the
external audit should be tendered at least
once every ten years. The Committee had
planned to hold a tender for the external
audit in 2020. However, with the disruption
caused by the COVID-19 pandemic, the
Committee decided that it would be
prudent to delay by a year, particularly
noting the difficulty that an incoming
auditor would have with travel and work
restrictions in place.
The Committee will not invite the
incumbent auditor to bid, as it feels that,
notwithstanding the excellent service
received, the spirit of the new audit rotation
rules dictates a change after such a long
period. KPMG would be ineligible as it
currently provides internal audit services.
At least one non-Big Four firm will be
invited to tender, and will be considered
on a level playing field with any of the
Big Four that also participate. Shareholders
will be updated following the conclusion
of the tender process, once the outcome
has been approved by the Board.
Weighted Average Cost of Capital
(“WACC”): The rate and its calculation
was reviewed with both EY and our
sponsor, Peel Hunt, and approved.
Treasury policy and hedging: The treasury
policy was updated, reviewed and
approved. In particular, hedging was
discussed. The Committee agreed that
the Company should identify its interest
risk appetite (effectively the value at risk
from a foreseeable change in interest
rates), and use hedging only to keep its risk
within these parameters. At present, the
Company has no financial hedges in place.
Business continuity planning (“BCP”):
Consultants were employed to assist the
Company in preparing business continuity
plans. The lockdown and subsequent
working from home fully tested the BCP,
which proved its worth as the business was
able to migrate to remote working with very
few problems. An external consultancy
was brought in to review the resilience
and reliability of outsourced IT providers.
The result was encouraging, and no
significant issues arose.
COVID‑19: The Committee requested that
management and internal audit review any
further risks arising from remote working
and other consequences of the pandemic.
The business has continued to operate
satisfactorily through the pandemic
and various lockdowns, as previously
prepared contingency plans broadly
worked as intended.
UK Bribery Act: Compliance with this
legislation was reviewed by the Committee
and no instances of any breaches were
found. The Committee reviewed the gifts
and hospitality policy as well as specific
instances. It noted that such activity was
much reduced in this pandemic year.
It concluded that there are sufficient
mitigations in place to make a risk of
inappropriate acts to be low.
86
Watkin Jones plc // Annual report and financial statements 2020
Governance Staff annual bonus: The Committee
approved the payment of the staff annual
bonus, which is based on forecast Group
profit for the year, in December before
the accounts were signed off. This is a
legacy scheme, which is widely regarded
as a Christmas bonus, and management
believes that it is important to pay it in
December rather than wait until January
when the accounts are approved. The
Committee received an interim update from
the external auditor and from management
indicating that the audit was advanced and
progressing well. With one change, the
Committee approved the profit estimate for
use in this bonus. The impact of any likely
error in the profit forecast on the bonus
is unlikely to be material, given the size of
the bonus scheme and that this scheme is
not open to senior executives or Directors
(whose bonus scheme is approved only
after the accounts have been finalised).
Financial experience on
the Committee
The Committee believes that it works
well. It noted that the Company Chairman
was a member of the Audit Committee.
Although this may not be considered best
practice, the Committee, noting that there
are only two independent Non-Executive
Directors and that Mr Turner demonstrates
the highest standards of integrity and
independence, believes that it is in the best
interests of shareholders for him to play a
full role on the Committee.
The Board remains satisfied that I have the
necessary recent and relevant financial
experience to chair the Audit Committee.
A copy of the Committee’s terms of
reference is available on the Company’s
website www.watkinjonesplc.com/
investors/corporate‑governance.
Simon Laffin
Chairman of the Audit Committee
19 January 2021
Performance metrics: These were once
again assessed for their relevance,
appropriateness and completeness
for assessing performance against
our strategy. No change was deemed
necessary.
Whistleblowing: The Committee noted
that the third-party whistleblowing service
from Expolink has moved to Navex Global,
as the latter has now acquired the former.
There was no reason for this to impact the
service received by the Company. There
were a small number of whistleblowing
reports during the year, which were fully
and impartially investigated.
Internal audit: Our internal audit is
provided by KPMG. The Committee
reviewed their performance and concluded
that they served the Company well.
Management felt that some of the reports
gave an overly critical impression of
processes, but the Committee felt that it
was appropriate for internal audit reports
to focus on weaknesses and risk, rather
than attempt a balanced overall appraisal.
Some internal audit reviews were delayed
due to the pandemic, and new timings were
agreed with the Committee. One report into
IT security highlighted insufficient controls
on access rights and this was addressed.
Another looked at accounts payable and
concluded that controls were effective,
but that there were too many manual
interventions required. This will be reduced
as the Company is now implementing a
new accounts payable system.
Watkin Jones plc // Annual report and financial statements 2020
87
Arundel House,
Coventry
Strategic reportGovernanceCompany informationFinancial statements NOMINATION COMMITTEE REPORT
The Committee met its objectives
for the year, as it reviewed talent
and succession planning for the
Group’s leadership and considered
the composition of the Board.
Grenville Turner
Chairman of the Nomination Committee
Committee members
Grenville Turner (Chairman)
Non‑Executive Chairman
Simon Laffin
Independent Non‑Executive Director
Liz Reilly
Independent Non‑Executive Director
Additional attendees, as invited:
Richard Simpson,
Jackie Kelly (HRD)
and other executives as required
Committee responsibilities
The Committee identifies and nominates,
for the approval of the Board, candidates
to fill Board vacancies as and when
they arise.
The Committee meets as required.
In FY20, the Committee met four times.
Dear Shareholder
This report explains the work of the
Nomination Committee during the financial
year. Committee membership was
unchanged in the period.
The Nomination Committee set itself two
priorities for FY20, as outlined in last year’s
report. These were to:
• ensure we have sufficient senior
leadership resource to effectively
implement our growth strategy; and
• continue to review Board succession
planning and ensure it remains up
to date.
Senior leadership resource
The Group has a clear growth strategy
and it is essential that we have the right
leadership in place to manage that planned
growth. At its March 2020 meeting, the
Board received a presentation from the
Human Resources Director on talent and
succession planning. This enabled us to
consider the depth of leadership across
the business, to ensure we have suitable
successors and understand where we may
need to look externally for candidates.
The exercise demonstrated our
considerable progress over the last twelve
months with strengthening and deepening
the Group’s leadership and gave the
Board comfort that the business has the
management resources it needs. This
reflects the work done by Richard Simpson
and the team, as they considered the
necessary leadership and management
structures when developing the Group’s
strategy last year.
Board succession planning
Following the external evaluation of
the Board at the end of FY19, the
Nomination Committee has continued to
consider the Board’s composition and the
need to identify potential Non-Executive
appointments. The Committee recognises
that the Board is relatively small, with
only three Non-Executive Directors. This
limits the opportunity to increase diversity
on the Board and also means all of the
Non-Executive Directors are members of
each of the Board’s committees.
We therefore believe it may be beneficial
to increase the size of the Board over time.
However, the Board members continue
to work well together and we have not
identified any specific additional skills or
experience that the Board requires in the
short term. As a result, we have no current
plans to recruit additional Non-Executive
Directors but we will continue to keep this
under review.
88
Watkin Jones plc // Annual report and financial statements 2020
Governance Directors’ training
All the Directors look to keep their skills
and experience up to date. We benefit
from briefings, presentations and papers
provided by our advisers and other
professional services firms, covering topics
such as new regulations, developments in
corporate governance and emerging best
practice. The Non-Executive Directors also
benefit from our interaction with the other
boards we sit on, providing us with a range
of different perspectives we can apply to
Watkin Jones.
During the year, the Board increased its
use of external speakers at its meetings,
particularly in support of strategy
discussions. The Board also benefited from
more frequent presentations from within
the business. In addition, the Directors
received formal update training on the
Market Abuse Regulations and attended
unconscious bias training, which is being
rolled out across the business.
Diversity
We recognise the business benefits of
diversity. Our aim is to go beyond the legal
requirement to treat everyone fairly, so we
ensure that Watkin Jones is an attractive
employer to the widest possible workforce.
As discussed in the people section on
page 44 of the strategic report, women
remain under-represented at senior levels
of the Group. In part, this is due to the
nature of the industry in which we operate
as well as to the relative stability of the
senior team, which means we have had
fewer opportunities to increase diversity.
We continue to look for ways to enhance
all aspects of diversity across the Group.
Priorities for FY21
In the coming financial year, the
Committee’s priorities will be to consider:
• the management structure and resource
requirements for the residential division,
to support its proposed transition
into being an affordable housing-led
developer;
• the effective induction into the business
of our new Company Secretary; and
• succession planning for the CEO of
Fresh, following Rebecca Hopewell’s
notice that she will retire at the end of
May 2021.
Grenville Turner
Chairman of the Nomination Committee
19 January 2021
Diversity of the Board
Tenure
Experience
Independence
3+ years
3
Less than
3 years
2
Retail
2
Property
5
Finance
3
Strategy
5
HR
1
Independent
Directors
2
Non-
independent
Directors
3
Barnard Point,
Wembley
Watkin Jones plc // Annual report and financial statements 2020
89
Strategic reportGovernanceCompany informationFinancial statements DIRECTORS’ REMUNERATION REPORT
The Group operates a
straightforward remuneration
policy, which appropriately balances
short and long-term incentives to
encourage effective and sustainable
delivery of our strategy.
Liz Reilly
Chair of the Remuneration Committee
Advisers to the Committee
FIT Remuneration Consultants LLP
provide advice to the Committee
as and when required in respect of
remuneration quantum and structure
and developments in governance and
best practice more generally. FIT is a
member and signatory of the Remuneration
Consultants Group and voluntarily operates
under the Code of Conduct in relation to
executive remuneration consulting in the
UK, details of which can be found at
www.remunerationconsultantsgroup.com.
The Remuneration
Committee
Activities during the year
• Reviewed fees for the Chairman and
remuneration for the Executive Directors
and Executive Committee in light of
COVID-19, with appropriate reductions/
freezes applied;
• Reviewed the FY19 Directors’
remuneration report prior to its approval
by the Board and subsequent approval
by shareholders at the 2020 AGM;
• Reviewed performance against the FY19
annual bonus plan targets and resulting
awards and agreed the metrics and
targets for the FY20 bonus plan;
• Reviewed LTIP award levels and
performance metrics/targets for
the 2020 LTIP awards; and
• Agreed the vesting in respect of
Richard Simpson’s Buyout Awards
which vested during FY20.
Committee members
Liz Reilly (Chair)
Independent Non‑Executive Director
Simon Laffin
Independent Non‑Executive Director
Grenville Turner
Non‑Executive Chairman
Additional attendees, as invited:
FIT Remuneration Consultants LLP,
Richard Simpson,
Philip Byrom,
Jackie Kelly (HRD)
Committee responsibilities
The Remuneration Committee is
primarily responsible for reviewing the
performance of the Executive Directors
and determining their terms and
conditions of service, including their
remuneration.
The Committee also determines the
remuneration of the Chairman and the
members of the Executive Committee.
The Committee meets at least once a
year. In FY20, it met eight times.
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Watkin Jones plc // Annual report and financial statements 2020
Governance Implementing the remuneration
policy for FY21
Other than a workforce-aligned base salary
increase for the Executive Directors from
1 October 2020, there will be no changes
to the implementation of the remuneration
policy for FY21. Annual bonus potential will
continue to be capped at 100% of salary
based on profit and personal targets and
LTIP awards are expected to be granted
at normal award levels subject to EPS
growth and absolute TSR targets. That
said, the Committee will continue to keep
the remuneration policy and the way it is
operated under review to ensure it delivers
the desired outcomes.
Liz Reilly
Chair of the Remuneration Committee
19 January 2021
In respect of remuneration against the
backdrop of the challenges faced and
performance delivered:
• the normal 1 April 2020 pay review for
Executive Directors was postponed and
the salaries of the Executive Directors
and the fees of the Non-Executive
Directors were reduced by 20% during
the period April to June 2020;
• no adjustments were made to the annual
bonus targets, notwithstanding that
COVID-19 has had a significant impact
on the financial performance for the
year. As such, annual bonus awards for
Richard Simpson and Philip Byrom were
approved at 23.0% of salary, payable
in respect of the personal performance
element of their awards only; and
• the impact of COVID-19 on the
Company’s earnings per share (“EPS”)
and total shareholder return (“TSR”)
will mean that the share awards granted
to Richard Simpson in February 2019
and to Philip Byrom in May 2018 will
lapse in full.
Further details of the remuneration
decisions in respect of FY20 are set out in
the annual report on remuneration overleaf.
Annual Statement
Dear Shareholder
This report sets out the Group’s
remuneration policy for the Directors and
explains how this policy was applied during
the year. There were no changes during
FY20 to our remuneration policy, which is
designed to incentivise and fairly reward
our Executive Directors and the other
members of the Executive Committee.
In view of the exceptional circumstances
brought about by COVID-19 and to
ensure that its consequences for the
implementation of our remuneration policy
were properly considered, the Committee
met eight times in FY20.
Performance and reward for FY20
Despite the challenges faced as a result
of COVID-19, the Company delivered
a strong second half to the year,
successfully completing seven schemes,
making excellent progress in growing our
development pipeline and starting to see
evidence that institutional investors are
beginning to recover their appetite for
forward funding developments in both BtR
and PBSA. However, the Board remains
mindful of the continued disruption and
hardship from the COVID-19 pandemic,
and so, along with ensuring the wellbeing
of our employees, customers and partners,
we have repaid all government financial
assistance that we received this year and
intend to pay a full-year dividend for FY20
in line with our policy of 2.0x cover.
Watkin Jones plc // Annual report and financial statements 2020
91
St Davids,
Swansea
Strategic reportGovernanceCompany informationFinancial statements DIRECTORS’ REMUNERATION REPORT continued
Remuneration policy report
This section sets out the current Directors’ remuneration policy. The Remuneration Committee considers the remuneration policy annually
to ensure that it continues to underpin the Group’s strategy. The main aim of the Group’s policy for Executive Directors is to align their
interests with the Group’s growth strategy and long-term creation of sustainable shareholder value.
Summary of Directors’ remuneration policy
Component
Purpose and link to strategy
Operation
Maximum
Performance
Base salary
To provide a competitive
base salary to attract,
motivate and retain Directors
with the experience and
capabilities to achieve the
strategic aims.
Benefits
To provide a
market-competitive
benefits package.
Pension
To provide an appropriate
level of retirement benefit.
Annual bonus
LTIP
To reward performance
against annual targets
which support the strategic
direction of the Group.
To drive and reward the
achievement of longer-term
objectives, support
retention and promote
share ownership for
Executive Directors.
Shareholding
guidelines
To promote share ownership
for Executive Directors.
Non‑Executive
Directors
The Committee determines
the Chairman’s fee and
fees for the Non-Executive
Directors are agreed
by the Chairman and
Chief Executive.
Reviewed annually after considering
pay levels at comparably sized
listed companies and sector
peers; the performance, role and
responsibility of each Director;
the economic climate, market
conditions and the Company’s
performance; and the level of pay
across the Group as a whole.
Offered in line with market practice,
and may include a car allowance,
private medical, income protection
and death in service insurance.
Executive Directors are eligible to
participate in the Group’s personal
pension plan and may elect to
receive all or part of the pension
contribution in cash, provided
there is no difference in cost to
the Company.
Awards are based on annual
performance and are normally
payable in cash.
Conditional shares and/or nil cost
or nominal cost share options.
Vesting is normally subject to
the achievement of challenging
performance conditions, normally
over a period of three years.
Dividend equivalents may be
awarded to the extent awards
vest. Awards may be subject to
malus/clawback provisions at the
discretion of the Committee.
Executive Directors are expected
to build a shareholding in the
Group over time by retaining at
least 50% of the net-of-tax LTIP
awards which vest.
Fees are reviewed annually
taking into account the level
of responsibility and relevant
experience. Fees may include a
basic fee and additional fees for
further responsibilities. Fees are
paid in cash. Travel and other
reasonable expenses incurred in the
course of performing their duties
are reimbursed.
n/a
n/a
n/a
n/a
20% of base salary
n/a
100% of salary
200% of salary
Sliding scale financial
and/or personal/
strategic targets.
Performance metrics
will be linked to
financial and/or share
price and/or strategic
performance.
200% of salary
n/a
n/a
n/a
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Watkin Jones plc // Annual report and financial statements 2020
Governance • annual bonus will continue to be
• shareholding guidelines of 200%
capped at 100% of basic salary with
three-quarters of the annual bonus
relating to adjusted profit before tax
targets and one quarter to achieving
personal targets;
• LTIP awards are expected to be
granted during FY21 to Richard Simpson
and Philip Byrom over shares equal to
200% and 100% of salary respectively.
Performance targets will continue to be
based on sliding scale EPS growth and
absolute TSR;
of salary will continue to apply; and
• the fees for the Non-Executive
Directors were increased by 2.0% from
1 October 2020. As such, current fees
for Grenville Turner, Simon Laffin and
Liz Reilly are £131,325, £54,631 and
£54,631 respectively.
Annual report
on remuneration
Implementation of the remuneration
policy for FY21
In respect of the implementation of the
remuneration policy for FY21:
• Executive Director base salary levels
were increased by 2.0% in line with
the general workforce increase from
1 October 2020 (with 1 October now
replacing 1 April as the normal salary
review date). No salary increases were
awarded as at 1 April 2020 in light of the
uncertainty surrounding COVID-19 at
that time. As such, current salary levels
for Richard Simpson and Philip Byrom
are £382,500 and £262,650 respectively.
No changes will be made to benefit
or pension provision;
Implementation of the remuneration policy for FY20
During the year, the Directors received the following emoluments:
Basic salary/fee
Annual bonus
Pension contribution
Benefits in kind
Total
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
Richard Simpson1
359,375
281,250
86,250
219,883
75,000
56,250
16,419
11,457
537,044
568,840
Philip Byrom
246,771
253,750
59,225
195,846
25,750
25,375
23,279
25,008
355,025
499,979
Grenville Turner
122,313
126,875
Simon Laffin
50,882
52,780
Liz Reilly2
50,882
37,247
Former Director3
—
87,500
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,750
—
—
—
—
—
—
—
122,313
126,875
50,882
52,780
50,882
37,247
4,822
—
101,072
1. Appointed to the Board on 2 January 2019.
2. Appointed to the Board on 21 January 2019.
3. Mark Watkin Jones stepped down from the Board on 15 January 2019.
Annual bonus for FY20
The Executive Directors’ annual
bonuses for FY20 were based on sliding
scale EBITDA and personal/strategic
targets. These measures were selected to
incentivise delivery of the plan for the year,
as well as ensuring future performance
through measures related, for example, to
the development pipeline.
While the COVID-19 pandemic has had a
significant impact on the Group’s financial
performance in FY20, no changes were
made to bonus performance targets
to ensure that the management team
remained appropriately aligned to
shareholders throughout the year.
While the threshold EBITDA target for
FY20 was not met as a result of COVID-19,
after consideration of the performance
of the Executive Directors (and noting
the repayment of government support
and intention to pay a full year dividend),
bonuses of 23.0% of salary were awarded
to Richard Simpson and Philip Byrom
based on their performance against
personal targets.
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93
Strategic reportGovernanceCompany informationFinancial statements DIRECTORS’ REMUNERATION REPORT continued
Annual report on remuneration continued
LTIP awards vesting in the year
Richard Simpson’s 2017 Buyout Award granted on 8 February 2019 vested on 10 April 2020 at 97.1% of the maximum and was
exercised in August 2020. As previously announced, the award was granted in respect of Richard Simpson’s 2017 Unite LTIP awards
which lapsed on cessation of his employment with Unite and vesting was based on the vesting percentage of the original award as
published in the Unite Annual Report. Details of the vesting are as follows:
Shares granted subject
to 2017 Buyout Award
Performance vested shares1
Dividend equivalent shares
Vested shares2
(including dividend equivalents)
438,765
426,041
15,319
441,360
1. The 2017 Buyout Award was subject to the outcome of the performance conditions applicable to the Unite 2017 LTIP which vested as to 97.1%, as per
the Unite Annual Report.
2. The pre-tax gain made on the vested shares amounted to £638,206, based on the Company’s share price on the exercise date.
In respect of the share awards granted to Richard Simpson (2018 Buyout Award) and Philip Byrom (LTIP) on 8 February 2019 and
31 May 2018 respectively, threshold levels of EPS and TSR performance measured over the three years to 30 September 2020 have
not been met. As such, these awards will lapse in full. Richard Simpson’s 2018 Buyout Award was the last of the buyout awards issued
to him in respect of his forfeit Unite LTIP awards.
LTIP awards granted in the year
The following LTIP awards were granted to the Executive Directors on 22 June 2020:
Basis of award
Number of shares under award
Richard Simpson
200% of salary
Philip Byrom
100% of salary
460,009
157,936
The awards have an exercise price of one penny per share and become exercisable after three years from the date of grant, subject to
continued employment and the Company’s earnings per share and share price performance as follows:
EPS
(50% of awards)
• 0% of this part of an award vesting for FY22 EPS of 17.42p, increasing pro-rata to
• 30% of this part of an award vesting for FY22 EPS of 18.06p, increasing pro-rata to
• 60% of this part of an award vesting for FY22 EPS of 19.01p, increasing pro-rata to
• 100% of this part of an award vesting for FY22 EPS of 22.17p or more
TSR
(50% of awards)
• 0% of this part of an award vesting for a share price of 200p, increasing pro-rata to
• 60% of this part of an award vesting for a share price of 250p, increasing pro-rata to
• 100% of this part of an award vesting for a share price of 300p
• based on the average share price in the final month of the performance period, as adjusted for dividends
In addition to assessing the performance conditions, the Remuneration Committee has the discretion to reduce the 2020 LTIP awards
at vesting to ensure that all relevant factors are taken into account, including any windfall gains.
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Watkin Jones plc // Annual report and financial statements 2020
Governance Dividend
equivalents
Lapsed
Exercised
in the year1
Interest at
30 September 2020
Performance period
for TSR and EPS
targets
Outstanding share awards
The share awards outstanding for the Executive Directors at 30 September 2020 and as at the date of this report were as follows:
Richard Simpson
Philip Byrom
Award type
2017 Buyout
Award
2018 Buyout
Award
Exercise price
1p
1p
Date of grant
8 February
2019
8 February
2019
LTIP
1p
LTIP
1p
LTIP
1p
LTIP
1p
LTIP
1p
31 May 2019
22 June 2020
31 May 2018
31 May 2019
22 June 2020
Date of vesting
10 April 2020
10 April 2021
31 May 2022
22 June 2023
31 May 2021
31 May 2022
22 June 2023
Interest at
1 October 2019
438,765
344,201
342,309
—
115,955
117,526
—
Granted in the year
—
15,319
(12,724)
(441,360)
—
—
—
—
—
—
—
—
460,009
—
—
—
—
—
—
—
—
—
—
—
157,936
—
—
—
—
344,201
342,309
460,009
115,955
117,526
157,936
—
1 October
2017 to
30 September
2020
1 October
2018 to
30 September
2021
EPS:
1 October
2019 to
30 September
2022, TSR:
three years
from grant
date
1 October
2017 to
30 September
2020
1 October
2018 to
30 September
2021
EPS:
1 October
2019 to
30 September
2022, TSR:
three years
from grant
date
1. See details of vesting in section above.
Directors’ interests in the Company’s shares
At 30 September 2020 and as at the date of this report, the Directors had the following interests in the Company’s shares:
Richard Simpson
Philip Byrom
Grenville Turner
Simon Laffin
Liz Reilly
Total
Liz Reilly
Chair of the Remuneration Committee
19 January 2021
Number of shares
516,987
2,600,000
340,900
152,749
20,000
3,630,636
Watkin Jones plc // Annual report and financial statements 2020
95
Strategic reportGovernanceCompany informationFinancial statements DIRECTORS’ REPORT
The corporate governance disclosures on
pages 81 to 83 form part of this report.
Principal activity
The Company is incorporated and
registered in England and Wales, with
registered number 9791105. Its shares
are traded on the Alternative Investment
Market of the London Stock Exchange.
The Company is the ultimate holding
company of the Group. The Group’s
principal activities are described in the
strategic report on pages 1 to 77.
Review of business
The strategic report on pages 1 to 77
provides a review of the business, the
Group’s trading for the year ended
30 September 2020, key performance
indicators and an indication of future
developments and risks.
Result and dividend
The Group’s profit for the year was
£21.1 million (FY19: £38.8 million). More
information about the Group’s financial
performance can be found in the financial
review on pages 60 to 67 and in the
financial statements on pages 104 to 151.
The Board has recommended a final
dividend for the year of 7.35 pence per
share. More information about dividends
can be found in the Chairman’s statement
on pages 10 and 11 and in the financial
review on pages 60 to 67.
Directors
The Company’s Directors during
the year were:
• Grenville Turner;
• Richard Simpson;
• Philip Byrom;
• Simon Laffin; and
• Liz Reilly.
The Directors’ biographies can be found
on pages 78 and 79. Details of the
Executive Directors’ service contracts,
the Non-Executive Directors’ letters of
appointment and the Directors’ dates of
appointment can be found in the corporate
governance report on pages 81 to 83.
Substantial shareholdings
Based on the share register analysis as at 15 December 2020, and as far as the Company is aware, the following represents interests in
excess of 3% of its ordinary share capital:
Holder
G&J Watkin Jones 1992 Settlement Trust
Octopus Investments
M&G Investments
JP Morgan Asset Management
Polar Capital
Franklin Templeton Investments
Close Brothers
Number of
shares held
38,901,422
25,607,179
25,116,984
14,405,511
13,641,972
8,000,000
7,676,424
Percentage
15.19
10.00
9.81
5.62
5.33
3.12
3.00
96
Watkin Jones plc // Annual report and financial statements 2020
Governance Directors’ interests
The Directors’ interests in the Company’s
shares are set out in the Directors’
remuneration report on page 95.
Directors’ indemnity provisions
The Company has purchased and
maintained throughout the period Directors’
and officers’ liability insurance in respect of
the Directors.
Share capital structure
At 30 September 2020, the Company’s
issued share capital was £2,561,634,
divided into 256,163,459 ordinary shares
of one pence each.
The holders of ordinary shares are entitled
to one vote per share at the Company’s
general meetings.
Political donations
The Company made no political donations
during the year.
Engagement with employees,
suppliers, customers and
other stakeholders
Information on the Group’s engagement
with its key stakeholders, which are its
employees, clients, customers, supply
chain, shareholders and communities,
can be found on pages 56 and 57 in the
strategic report.
Auditor
Ernst & Young LLP (“EY”) has expressed its
willingness to continue in office as auditor
and a resolution to re-appoint EY will be
proposed at the forthcoming AGM.
In view of the fact that EY has been the
auditor for over 20 years and in line with
our policy that the external audit should be
tendered at least once every ten years, it is
the Directors’ intention to hold a tender for
the external audit in 2021 and to appoint
a new auditor for the FY22 audit. EY will
not be invited to participate in the tender
process in line with the intention of the
audit rotation rules.
Going concern
After making enquiries and as more fully
explained in the going concern review
on page 65 and 66, the Directors have
a reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. For this reason, they continue to
adopt the going concern basis in preparing
the financial statements.
Approval
This Directors’ report was approved on
behalf of the Board on 19 January 2021.
Philip Byrom
Chief Financial Officer
19 January 2021
Watkin Jones plc // Annual report and financial statements 2020
97
Strategic reportGovernanceCompany informationFinancial statements DIRECTORS’ RESPONSIBILITIES
in relation to the annual report and financial statements
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the parent company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of the
Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Legislation in
the UK governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors are responsible for
preparing the annual report and the Group
and parent company financial statements
in accordance with applicable law and
regulations.
Company law requires the Directors to
prepare Group and parent company
financial statements for each financial
year. As required by the AIM Rules of the
London Stock Exchange they are required
to prepare the Group financial statements
in accordance with IFRS as adopted by the
EU and applicable law and have elected
to prepare the parent company financial
statements in accordance with IFRS as
adopted by the EU and applicable law.
Under company law, the Directors must
not approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the Group
and parent company and of their profit or
loss for that period. In preparing each of
the Group and parent company financial
statements, the Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
• for the Group financial statements,
state whether they have been prepared
in accordance with IFRS as adopted by
the EU;
• for the parent company financial
statements, state whether they have
been prepared in accordance with
IFRS as adopted by the EU; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and the parent company will continue
in business.
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Watkin Jones plc // Annual report and financial statements 2020
Financial statements INDEPENDENT AUDITOR’S REPORT
to the members of Watkin Jones plc
Opinion
In our opinion:
• Watkin Jones plc’s Group financial statements and parent company financial statements (the “financial statements”) give a true and
fair view of the state of the Group’s and of the parent company’s affairs as at 30 September 2020 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Watkin Jones plc, which comprise:
Group
Parent company
Consolidated statement of financial position as at
30 September 2020
Consolidated statement of comprehensive income for the
year then ended
Statement of financial position as at 30 September 2020
Statement of changes in equity for the year then ended
Consolidated statement of changes in equity for the year
then ended
Related notes 38 to 44 to the financial statements, including
a summary of significant accounting policies
Consolidated statement of cash flows for the year then ended
Related notes 1 to 37 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union and, as regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report
below. We are independent of the Group and parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the Group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Overview of our audit approach
Key audit matters
• Revenue recognition
• Carrying value of land and work in progress
• Going concern
Audit scope
Materiality
• The Group operates solely in the United Kingdom. We performed an audit of the complete financial
information of all the Group companies.
• Overall Group materiality of £2.3 million which represents 5% of pre-tax income (before separately
disclosed items).
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99
Strategic reportGovernanceCompany informationFinancial statements INDEPENDENT AUDITOR’S REPORT continued
to the members of Watkin Jones plc
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
1) Revenue recognition (Revenue – 2020: £354 million,
2019: £375 million)
Refer to the Audit Committee report (page 85); Accounting
policies (page 110); and notes 6 and 7 of the consolidated financial
statements (pages 123 to 125)
The Group’s main revenue stream comes from long-term contracts
(2020: £303 million, 2019: £315 million). In line with IFRS 15, revenue
and margin are recognised in line with the five-step model to
account for revenue.
There are various assumptions within the development appraisals
regarding the estimated costs to complete which impact whether
revenue and margin are recognised in the appropriate period.
There is therefore a risk that the incorrect amount of revenue and
costs is recorded in the income statement if the estimated costs to
complete are incorrect, either due to error or management bias.
Revenue from residential sales of £26 million (2019: £34 million) is
recognised on legal completion. There is a risk that the revenue is
not recorded in the appropriate period due to cut-off errors.
Accommodation management revenue of £8 million (2019:
£7 million) and rental income of £17 million (2019: £19 million) are
recognised in line with management services provided or rental
agreements in place. There is a risk that revenue is not recorded
in the appropriate period due to cut-off errors.
Our response to the risk
Our audit procedures included the following:
• we evaluated the design and implementation of controls over
revenue recognition and costs to complete and tested these
controls as part of our audit strategy; and
• we performed audit procedures designed to address the risk of
management override of controls, including journal entry testing
to confirm that the processing and timing of journals to record
revenue are consistent with expectations.
In relation to long-term contract revenue:
• we considered and checked the revenue recognised was
consistent with the calculated stage of completion, focusing
on those developments not fully constructed pre-year end;
• for all developments where revenue in excess of £167,000 was
recognised in the year, we agreed the total forecast value to
signed development agreements; we then tested the costs to
complete and checked that revenue was correctly calculated
on that basis;
• to test costs to complete we critically challenged the forecast
cost to complete by way of review of budgets and hindsight
reviews on historical budgeting accuracy, corroborating any
variances to budgets back to source documentation;
• for a sample of costs incurred during the year, we verified that
they had been allocated to the appropriate development;
• for all developments not fully constructed pre-year end,
we challenged management over the forecast costs to
complete, stage of completion, the total budgeted costs and
confirmed the percentage used to assess stage of completion
through our discussions with management specialists; and
• we reconciled management’s internal cost valuation reports
back to revenue recorded to ensure all cumulative movements
in revenue and costs have been appropriately recorded in the
statement of comprehensive income.
In relation to residential sales:
• we selected a sample of residential sales made in September
2020 and October 2020 and corroborated the date of sale and
value to the legal completion documentation and cash receipt.
In relation to accommodation management revenue/rental income:
• we selected a sample of sales invoices raised in September
2020 and October 2020 and recalculated the revenue
recognised and deferred at year end by reference to the service
contract; and
• we performed substantive analytical review procedures using
known occupancy rate movements, rental income per room
and known management price movements to corroborate the
occurrence and measurement of revenue throughout the period.
The whole Group was subject to full scope audit procedures
over revenue.
Key observations communicated to the Audit Committee
We have audited the timing of revenue recognition and assessed the risk of management override.
Based upon the audit procedures performed, we conclude that revenue (and associated gross profit on long-term contracts) has been
recognised on an appropriate basis in the year.
100
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Risk
2) Carrying value of inventory and work in progress 2020:
£125 million (2019: £135 million) split between land of
£53 million (2019: £56 million) and work in progress of
£72 million (2019: £79 million).
Refer to the Audit Committee report (page 85); Accounting policies
(page 111); and note 21 of the consolidated financial statements
(page 137)
The valuation of inventories at the lower of cost and net realisable
value requires significant judgements by management over the
anticipated revenues and forecast development costs.
There is therefore a risk that the carrying values of the land
and work in progress balances reported within inventories are
overstated.
Our response to the risk
Our audit procedures included the following:
• we evaluated the design and implementation of controls and tested
controls over the carrying value of land and work in progress;
• for land and work in progress developments held at
30 September 2020 with a carrying value in excess of
£167,000, we:
• compared the assumptions made regarding selling prices
to market data and corroborated the explanations for any
differences;
• compared the actual estimated costs and margin over the
development lifecycle and validated key drivers for change in
margin to assess management’s forecasting accuracy; and
• verified a sample of costs incurred in the year to
purchase invoice.
For those sites determined to be most at risk of overstatement,
being large sites that are in the process of development but
are yet to be forward sold, we involved our internal real estate
specialists to validate the value of land and work in progress held,
who reviewed the methodology used to develop the estimate and
evaluated management’s estimate against their own assessment.
The whole Group was subject to full scope audit procedures over
the carrying value of land and work in progress.
Key observations communicated to the Audit Committee
We audited the inputs and assumptions used by management to assess the carrying value of land and work in progress.
We conclude that the inputs and assumptions applied are reasonable and that the carrying value of land and work in progress at
30 September 2020 is appropriate.
3) Going concern
Refer to the financial review (page 66) and Accounting policies
(page 108)
Given the unprecedented impact of COVID-19 on businesses
and the macro-economic environment, accurate forecasting of
prospective financial information and the development of future
scenarios is challenging. Key assumptions include future sales,
the risk of default of counterparties and the operational impact
of COVID-19. Going concern is key area of audit focus for which
COVID-19 has heightened the risk.
Management have prepared their forecasts to reflect the
impact of COVID-19, which serves as the base case for the going
concern assessment. A further downside scenario has been run
by management based on the principal risks and uncertainties
facing the Group and their potential impact on forward sales.
We have documented and evaluated the process followed by
management to prepare the forecasts.
We checked the arithmetical accuracy of management’s model
and assessed the reasonableness of the key assumptions used
within the scenarios and validated to supporting documentation
where appropriate.
We verified the cash starting position and confirmed the
availability of the RCF and overdraft facilities by comparing
to the underlying agreements.
We reperformed management’s forecast covenant compliance
calculations to check for breaches of each covenant throughout
the going concern period under the base case and various
scenarios presented. We checked the terms of the covenants
to underlying loan documentation.
We also considered the results of the scenarios presented
by management, and their downside case, to determine the
impact of fluctuations in key assumptions on the available
liquidity and covenant calculations. The audit engagement
partner and senior members of the team increased their time
directing and supervising the audit procedures on going concern
and understanding the forecasted scenarios presented by
management. We also considered the mitigating actions identified
by management that had not been factored into the model such as
suspension of discretionary land spend on future sites.
We reviewed the appropriateness of management’s going concern
disclosure in describing the risks associated with its ability to
continue to operate as a going concern until 31 January 2022.
Key observations communicated to the Audit Committee
As a result of procedures performed, we concur with management that a material uncertainty does not exist and that the going concern
assumption adopted in the 2020 financial statements is appropriate. We also consider that management has appropriately reflected the
going concern assumption within the financial statement disclosures.
Watkin Jones plc // Annual report and financial statements 2020
101
Strategic reportGovernanceCompany informationFinancial statements
INDEPENDENT AUDITOR’S REPORT continued
to the members of Watkin Jones plc
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for
each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into
account size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment
and other factors such as recent internal audit results when assessing the level of work to be performed at each entity. We performed an
audit of the complete financial information of all the Group companies.
Changes from the prior year
There have been no changes in our scope compared to the prior year.
Impact of COVID-19 pandemic
As a result of the COVID-19 outbreak and resulting lockdown restrictions, we have modified our audit strategy to allow for the year-end
audit to be performed remotely. This approach was supported through the use of EY software collaboration platforms for the secure and
timely delivery of requested evidence.
We have also revisited our procedures in respect of the Directors’ going concern assessment, taking into account the nature of the Group,
its business model and related risks. We evaluated the Directors’ assessment of the Group’s ability to continue as a going concern,
including the consistency of cash flow forecasts, the key assumptions with the scenarios modelled and the available sources of liquidity.
Involvement with component teams
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be £2.3 million (2019: £2.6 million), which is 5% (2019: 5%) of pre-tax income (before
separately disclosed items). We believe that pre-tax income before separately disclosed items provides us with a key performance
measure of management and is what the users of financial statements are most interested in. We consider the exclusion of exceptional
items appropriate given their non-recurring nature and given that these items are also excluded from management’s financial KPIs. We
determined materiality for the parent company to be £7.6 million (2019: £8.2 million) which is 4% (2019: 4%) of equity using a capital-based
performance measure.
Starting basis
• Profit before tax
• £25.3 million
Adjustments
• Separately disclosed items
• £20.5 million
Materiality
• Totals £45.8 million pre-tax income (before separately disclosed items)
• Materiality of £2.3 million (5% of materiality basis)
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 75% (2019: 75%) of our planning materiality, namely £1.7 million (2019: £1.9 million). We have set performance
materiality at this percentage due to our past experience on the audit indicating a lower risk of misstatements, both corrected and
uncorrected. Performance materiality for the parent company was set at 75% (2019: 75%) of our planning materiality which was
£5.7 million (2019: £6.1 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.11 million
(2019: £0.13 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. For the parent company this was set at £0.38 million (5%) of planning materiality (2019: £0.41 million,
5% of planning materiality).
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
102
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Other information
The other information comprises the information included in the annual report set out on pages 1 to 97, other than the financial statements
and our auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the strategic report and Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 98, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and parent company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Jamie Dixon
Senior statutory auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
Manchester
19 January 2021
Watkin Jones plc // Annual report and financial statements 2020
103
Strategic reportGovernanceCompany informationFinancial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2020
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit before exceptional items
Exceptional costs
Operating profit
Share of profit in joint ventures
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year attributable to ordinary equity holders of the parent
Other comprehensive income
Other comprehensive income that will not be reclassified
to profit or loss in subsequent periods:
Net loss on equity instruments designated at fair value
through other comprehensive income
Total comprehensive income for the year attributable
to ordinary equity holders of the parent
Earnings per share for the year attributable to ordinary
equity holders of the parent
Basic earnings per share
Diluted earnings per share
Adjusted proforma basic earnings per share (excluding exceptional costs)
Adjusted proforma diluted earnings per share (excluding exceptional costs)
The notes on pages 108 to 147 are an integral part of these consolidated financial statements.
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
354,121
(278,205)
75,916
(24,249)
51,667
(20,437)
31,230
199
251
(6,366)
25,314
(4,222)
21,092
374,785
(294,752)
80,033
(24,433)
55,600
(2,576)
53,024
286
428
(5,874)
47,864
(9,041)
38,823
(6)
(2)
21,086
38,821
Pence
Pence
8.246
8.234
14.717
14.696
15.202
15.175
16.111
16.082
Notes
6
8
9
20
12
13
14
14
14
14
104
Watkin Jones plc // Annual report and financial statements 2020
Financial statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 September 2020
Non-current assets
Intangible assets
Investment property (leased)
Right-of-use assets
Property, plant and equipment
Investment in joint ventures
Deferred tax asset
Other financial assets
Current assets
Inventory and work in progress
Contract assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Interest-bearing loans and borrowings
Lease liabilities
Current tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Fair value reserve of financial assets at FVOCI
Share-based payment reserve
Retained earnings
Total equity
30 September
2020
£’000
Notes
30 September
2019
Restated
(note 5)
£’000
30 September
2018
Restated
(note 5)
£’000
16
17
17
18
20
28
29
21
22
23
24
25
22
27
26
17
26
17
28
27
31
32
13,284
104,623
4,763
4,376
3,243
3,313
1,133
13,844
110,224
5,930
4,966
2,794
3,836
1,139
14,403
117,483
7,013
4,809
2,558
3,155
1,350
134,735
142,733
150,771
125,660
41,522
23,518
134,513
325,213
459,948
(97,300)
(8,967)
(6,277)
(711)
(6,310)
(819)
134,226
25,578
13,850
115,652
289,306
432,039
(81,368)
(5,164)
—
(1,324)
(6,192)
(7,043)
132,778
8,758
17,499
106,640
265,675
416,446
(84,014)
(14,314)
—
(1,605)
(5,770)
(7,204)
(120,384)
(101,091)
(112,907)
(38,956)
(128,143)
(1,040)
(3,587)
(171,726)
(292,110)
167,838
2,562
84,612
(75,383)
428
2,348
153,271
167,838
(37,481)
(131,330)
(1,042)
—
(169,853)
(270,944)
161,095
2,553
84,612
(75,383)
434
2,311
146,568
161,095
(24,877)
(137,522)
(1,050)
—
(163,449)
(276,356)
140,090
2,553
84,612
(75,383)
436
84
127,788
140,090
The notes on pages 108 to 147 are an integral part of these consolidated financial statements.
Approved by the Board of Directors on 19 January 2021 and signed on its behalf by:
Richard Simpson
Director
Watkin Jones plc // Annual report and financial statements 2020
105
Strategic reportGovernanceCompany informationFinancial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2020
Share
capital
£’000
2,553
—
2,553
—
—
—
—
—
—
Share
premium
£’000
84,612
Merger
reserve
£’000
(75,383)
—
—
84,612
(75,383)
—
—
—
—
—
—
—
—
—
—
—
—
Fair value
reserve of
financial
assets at
FVOCI
£’000
Share-based
payment
reserve
£’000
436
—
436
—
(2)
(2)
—
—
—
84
—
84
—
—
—
2,208
19
—
Retained
earnings
£’000
Total
£’000
141,217
153,519
(13,429)
(13,429)
127,788
38,823
—
38,823
—
70
140,090
38,823
(2)
38,821
2,208
89
(20,113)
(20,113)
2,553
84,612
(75,383)
434
2,311
146,568
—
—
—
—
—
9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
(6)
—
—
—
—
—
—
—
37
—
—
—
21,092
—
161,095
21,092
(6)
21,092
21,086
—
(70)
—
37
(70)
9
(14,319)
(14,319)
As at 30 September 2018
Effect of initial application of
IFRS 16 (note 5)
As at 30 September 2018 (restated)
Profit for the year (restated)
Other comprehensive income
Total comprehensive income
(restated)
Share-based payments
Deferred tax credited directly
to equity (note 28)
Dividend paid (note 15)
Balance at
30 September 2019 (restated)
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments
Deferred tax debited directly to equity
(note 28)
Issue of shares
Dividend paid (note 15)
Balance at
30 September 2020
2,562
84,612
(75,383)
428
2,348
153,271
167,838
The notes on pages 108 to 147 are an integral part of these consolidated financial statements.
106
Watkin Jones plc // Annual report and financial statements 2020
Financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2020
Cash flows from operating activities
Cash inflow from operations
Interest received
Interest paid
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Cash flow from joint venture interests
Cash distribution received from other financial assets
Net cash inflow from investing activities
Cash flows from financing activities
Dividends paid
Proceeds from exercise of share options
Payment of principal portion of lease liabilities
Payment of capital element of other interest-bearing loans
Drawdown of RCF
Repayment of bank loans
Bank loan arrangement fees
Net cash outflow from financing activities
Net increase in cash
Cash and cash equivalents at 1 October 2019 and 1 October 2018
Cash and cash equivalents at 30 September 2020 and 30 September 2019
The notes on pages 108 to 147 are an integral part of these consolidated financial statements.
Notes
33
29
15
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
54,868
245
(6,792)
(10,035)
38,286
(317)
69
812
—
564
(14,319)
9
(6,089)
(1,034)
20,843
(18,499)
(900)
(19,989)
18,861
115,652
134,513
38,943
428
(6,090)
(9,769)
23,512
(361)
87
—
209
(65)
(20,113)
—
(5,953)
(1,307)
46,244
(33,306)
—
(14,435)
9,012
106,640
115,652
Watkin Jones plc // Annual report and financial statements 2020
107
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 September 2020
1. General information
Watkin Jones plc (the “Company”) is a
public limited company incorporated in
the United Kingdom under the Companies
Act 2006 (registration number 9791105).
The Company is domiciled in the United
Kingdom and its registered address is
7-9 Swallow Street, London, England,
W1B 4DE.
The principal activities of the Company and
its subsidiaries (collectively the “Group”)
are those of property development and
the management of properties for multiple
residential occupation.
The consolidated financial statements
for the Group for the year ended
30 September 2020 comprise the
Company and its subsidiaries. The basis
of preparation of the consolidated financial
statements is set out in note 2 below.
2. Basis of preparation
The financial statements of the Group
have been prepared and approved by the
Directors in accordance with International
Financial Reporting Standards (“IFRS”)
as adopted by the European Union.
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 accounting policies set out below have,
unless otherwise stated, been applied
consistently to all periods presented in
these financial statements. The financial
statements are prepared on the historical
cost basis except as disclosed in these
accounting policies.
The financial statements are presented in
pounds sterling and all values are rounded
to the nearest thousand (£’000), except
when otherwise indicated.
3. Accounting policies
3.1 Basis of consolidation
Subsidiaries are fully consolidated from the
date of acquisition, being the date on which
the Group obtains control, and continue to
be consolidated until the date when such
control ceases. Control is achieved when
the Group is exposed, or has rights, to
variable returns from its involvement with
the investee and has the ability to affect
those returns through its power over the
investee. The financial statements of the
subsidiaries are prepared for the same
reporting period as the parent company,
using consistent accounting policies.
All intra-group balances, transactions,
unrealised gains and losses resulting from
intra-group transactions and dividends are
eliminated in full.
The terms of the acquisition of the shares
in Watkin Jones Group Limited by the
Company on its IPO in March 2016 in
the year ending 30 September 2016
were such that the Group reconstruction
should be accounted for as a continuation
of the existing Group rather than as an
acquisition, and as such merger accounting
was applied. Accordingly, the difference
between the cash consideration paid
and the nominal value of the share
capital acquired as part of the Group
reconstruction was reflected against
a merger reserve.
3.2 Going concern
The Directors have undertaken a thorough
review of the Group’s ability to continue to
trade as a going concern for the period to
31 January 2022 (the “forecast period”).
This review has been undertaken taking
into consideration the following matters.
Liquidity
At 30 September 2020, the Group had a
robust liquidity position, with cash and
available headroom in its banking facilities
totalling £209.5 million, as set out below.
Cash balances
RCF headroom
Overdraft facility
Total cash and
available facilities
£m
134.5
65.0
10.0
209.5
Strong liquidity has been maintained
through the first quarter of the year ending
30 September 2021, providing the Group
with a good level of cash and available
banking facilities for the year ahead.
The Group’s revolving credit facility
(“RCF”) is committed and has a five-year
term to May 2025.
All financial covenants under the
facility were comfortably met at
30 September 2020 and will continue
to be met through the forecast period.
Business model
Our forward sale business model is by
definition, capital-light. By forward selling
the majority of our build to rent (“BtR”) and
purpose built student accommodation
(“PBSA”) developments, we receive
payment for the land either at the same
time as or shortly after we complete the
purchase, and before we commit to any
significant development expenditure. Once
forward sold, we receive payment for the
development works as they progress.
By being in control of our development
pipeline we are able to ensure that we
only commit construction expenditure to
developments that are either forward sold
or to undertake a modest level of enabling
works. In certain circumstances we may
decide to continue construction activities
beyond the initial enabling phase, without
a forward sale agreement in place, but we
take this decision based on our available
liquidity and can suspend the works should
it prove necessary. This greatly limits our
exposure to development expenditure
which is not covered by cash income.
Sites are normally secured on a subject
to satisfactory planning basis, which
gives us time to manage the cash
requirements and to market them for
forward sale. We also take a cautious
approach to managing our land acquisition
programme to ensure that we have
sufficient liquidity available to complete
the acquisition of the sites without any
new forward sales being secured.
The Fresh business receives a regular
contractual monthly fixed fee income
from its multiple clients and the short to
medium-term risk to its revenue stream
is low.
For our residential business, which is
currently relatively small and only has
a few sites in build, we manage our
development expenditure so that, other
than for infrastructure works, we only
commit expenditure where it is supported
by a forward sales position.
We also receive rental income from tenants
on our leased PBSA assets and operational
BtR assets. The level of rental income
received, whilst reduced in the short
term for the PBSA assets as a result of
COVID-19, is relatively small in the context
of the Group’s revenues as a whole.
Our business model and approach to
cash management therefore provides a
high degree of resilience.
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Financial statements Counterparty risk
The Group’s clients are predominantly
blue-chip institutional funds and the risk
of default is low. The funds for a forward
sold development are normally specifically
allocated by the client or backed by
committed debt funding.
For forward sold developments our cash
income remains ahead of our development
expenditure through the life of the
development, such that if we were exposed
to a client payment default, we could
suspend the works, thereby limiting any
cash exposure.
Fresh has many clients and these are
mostly institutional funds with low
default risk.
Base case cash forecast
We have prepared a base case cash
forecast for the forecast period, based
on our current business plan and trading
assumptions for the year, including a lower
level of revenue from the leased PBSA
assets as a result of COVID-19. This is
strongly supported by our forward sold
pipeline of six PBSA developments and
four BtR developments for delivery in FY21,
as well as Fresh’s contracted income and
the reserved/exchanged sales for our
residential business. Our currently secured
cash flow, derived from our forward sold
developments and other contracted
income, net of overheads and tax, results in
a modest cash utilisation over the forecast
period, with the result that our liquidity
position is strongly maintained.
In addition to the secured cash flow, the
base case forecast assumes a number
of new forward sales and further house
sales, which if achieved will result in
a further strengthening of our liquidity
position, after allowing for dividend
payments. We currently have under offer
and are progressing sales of three BtR
schemes and one PBSA scheme, which
will underpin the additional forward sales
assumptions in the forecast.
Risk analysis
In addition to the base-case forecast
and though considered unlikely,
we have considered the following
possible significant downside risks
as a consequence of the pandemic:
• counterparty risk – whilst the majority
of our clients are not considered to
present a default risk, we have identified
two which we consider could be
more vulnerable in the event of further
sustained disruption;
• suspension of the forward sale markets,
resulting from a significant economic
downturn or market uncertainty – this
is our most significant risk as it would
greatly limit our ability to achieve
any further forward sales and would
potentially mean that we have to complete
on secured site acquisitions without a
subsequent forward sale in place; and
• collapse of the housing market –
in this scenario we have considered
the possibility of a significant reduction
in future house sales.
We have run various model scenarios to
assess the possible impact of the above
risks, including a worst case downside
scenario assuming the following:
• default by the two identified
counterparty risks;
• no further forward sales are achieved
other than those currently under offer, as
a result of a freeze in the sales markets;
• only 50% of further house sales are
achieved beyond those currently
reserved/exchanged; and
• we continue to complete the acquisition
of our secured sites in line with the
current target programmes, with limited
mitigating actions being taken.
In the worst case downside scenario, we
have included for the payment of our FY20
full-year proposed dividend in line with our
policy. The cash forecast prepared under
the above worst case scenario illustrates
that adequate liquidity is maintained
through the forecast period.
Conclusion
Based on the thorough review and
robust downside forecasting undertaken,
and having not identified any material
uncertainties that may cast any significant
doubt, the Board is satisfied that the
Group will be able to continue to trade for
the period to 31 January 2022 and has
therefore adopted the going concern basis
in preparing the financial statements.
3.3 Business combinations
Business combinations are accounted
for using the acquisition method. The cost
of any acquisition is measured as the
aggregate of the consideration transferred,
measured at acquisition date fair value.
There have been no non-controlling
interests recognised in the business
combinations to date. Acquisition costs
incurred are expensed and included in
administrative expenses.
When the Group acquires a business,
it assesses the assets and liabilities
assumed for appropriate classification
and designation in accordance with
the contractual terms, economic
circumstances and pertinent conditions
as at the acquisition date.
Goodwill is initially measured at cost,
being the excess of the aggregate of the
consideration transferred over the net
identifiable assets acquired and liabilities
assumed. If the fair value of the net assets
acquired is in excess of the aggregate
consideration transferred, the Group
re-assesses whether it has correctly
identified all of the assets acquired and all
of the liabilities assumed and reviews the
procedures used to measure the amounts to
be recognised at the acquisition date. If the
re-assessment still results in an excess of
the fair value of net assets acquired over the
aggregate consideration transferred, then
the gain is recognised immediately in the
statement of comprehensive income.
After initial recognition, goodwill is
measured at cost less any accumulated
impairment losses. Goodwill is carried
in the statement of financial position
at deemed cost as at 1 October 2012,
the date of transition to IFRS for the
Group, less accumulated impairment
losses. For the purpose of impairment
testing, goodwill acquired in a business
combination is, from the acquisition
date, allocated to each of the Group’s
cash-generating units that are expected to
benefit from the combination, irrespective
of whether other assets or liabilities of the
acquiree are assigned to those units.
Where goodwill has been allocated to
a cash-generating unit (“CGU”) and
part of the operation within that unit is
disposed of, the goodwill associated with
the disposed operation is included in the
carrying amount of the operation when
determining the gain or loss on disposal.
Goodwill disposed in these circumstances
is measured based on the relative values of
the disposed operation and the portion of
the CGU retained (note 16).
3.4 Investments in joint ventures
A joint venture is a type of joint
arrangement whereby the parties that have
joint control of the arrangement have rights
to the net assets of the arrangement.
Joint control is the contractually agreed
sharing of control of an arrangement,
which exists only when decisions about the
relevant activities require the unanimous
consent of the parties sharing control.
The Group’s investments in joint ventures
are accounted for using the equity method.
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3. Accounting policies continued
3.4 Investments in joint ventures
continued
Under the equity method, the investment in
a joint venture is initially recognised at cost.
The carrying amount of the investment
is adjusted to recognise changes in the
Group’s share of net assets of the joint
venture since the acquisition date. Goodwill
relating to the joint venture is included in
the carrying amount of the investment and
is not tested for impairment separately.
The statement of comprehensive income
reflects the Group’s share of the results of
operations of the joint venture. Any change
in other comprehensive income (“OCI”)
of those investees is presented as part of
the Group’s OCI. In addition, when there
has been a change recognised directly in
the equity of the joint venture, the Group
recognises its share of any changes,
when applicable, in the statement of
changes in equity. Unrealised gains and
losses resulting from transactions between
the Group and the joint venture are
eliminated to the extent of the interest in
the joint venture.
The aggregate of the Group’s share of
profit or loss of a joint venture is shown on
the face of the statement of comprehensive
income outside operating profit and
represents profit or loss after tax and
OCI of the joint venture.
When necessary, adjustments are made
to bring the accounting policies of joint
ventures in line with those of the Group.
After application of the equity method, the
Group determines whether it is necessary
to recognise an impairment loss on its
investment in joint ventures. At each
reporting date, the Group determines
whether there is objective evidence
that the investment in joint ventures is
impaired. If there is such evidence, the
Group undertakes an impairment test and
calculates the amount of any impairment
as the difference between the recoverable
amount of the joint venture and its carrying
value, and then recognises the loss as
“share of profit of joint ventures” in the
statement of comprehensive income.
Upon loss of joint control over a joint
venture, the Group measures and
recognises any retained investment at
its fair value. Any difference between the
carrying amount of the joint venture upon
loss of joint control and the fair value of the
retained investment and proceeds from
disposal is recognised in the statement of
comprehensive income.
3.5 Revenue from contracts with
customers
The Group’s primary sources of
revenue from contracts with customers
are from developing residential and
commercial properties. It also provides
accommodation management services
to third parties. When developing purpose
built student accommodation (“PBSA”),
build to rent (“BtR”) and commercial
properties, the Group often acquires
the land on which the development
will be constructed before it is sold to
a customer alongside a construction
contract or development agreement for
the delivery of the relevant scheme.
Sale of land or completed property
The Group derives a significant portion
of its revenue from the sale of land,
and the development and sale of
completed residential and commercial
properties. Most of the Group’s land sale
agreements relate to sites for PBSA and
BtR developments where the Group has
obtained planning permission and they
are sold to customers in conjunction with
a construction contract for the Group to
deliver the property.
Contracts for the sale of land and
completed residential and commercial
developments are typically satisfied at a
point in time. This is usually deemed to be
the legal completion as this is the point at
which the Group has an enforceable right
to payment. Revenue from the sale of land,
residential and commercial properties is
measured at the transaction price agreed
in the contract with the customer.
Construction contracts and
development agreements
Construction contracts and
development agreements mainly relate
to the development of PBSA and BtR
properties along with any commercial
elements of these projects. The duration
of the contracts vary but are typically
18 to 30 months in duration. Most
contracts are considered to contain
only one performance obligation for the
purposes of recognising revenue, being
the development of the scheme to the
agreed specification.
While the scope of works may include a
number of different components, in the
context of construction service activities
these are usually highly interrelated
and produce a combined output for
the customer.
Contracts are typically recognised
over time as the development works
are undertaken on land owned and
therefore controlled by the customer,
with the services being provided by the
Group enhancing that land through the
construction of a building and associated
landscaping and enabling works.
In addition, the construction contracts
or development agreements provide
an enforceable right to payment for the
value of construction works performed.
Progress is typically measured through
valuation of the works undertaken by a
professional quantity surveyor, including
an assessment of any elements for which
a price has not yet been agreed, such as
changes in scope.
In order to recognise the profit over time it
is necessary to estimate the total contract
revenue and costs. Once the outcome of a
performance obligation of a construction
contract or development agreement can be
reasonably measured, margin is recognised
in the income statement in line with the
corresponding stage of completion.
Total contract revenue
Contract revenue corresponds to the
initial amount of revenue agreed in the
contract and any variations in contract
work, claims and incentive payments to
the extent that it is probable that they will
result in revenue, and they are capable of
being reliably measured.
Total contract costs
The estimates for total contract costs
take account of any uncertainties in the
cost of work packages which have not yet
been let and materials which have not yet
been procured, the expected cost of any
changes in the scope of works and the
expected cost of any rectification works
during the defects liability period.
Contract costs include costs that relate
directly to the specific contract and costs
that are attributable to contract activity
in general and can be allocated to the
contract. Costs that relate directly to a
specific contract comprise: site labour
costs (including site supervision); costs of
materials used in construction; depreciation
of equipment used on the contract; costs
of design; and technical assistance that is
directly related to the contract.
Significant financing component
The Group often enters into construction
contracts or development agreements
which entail a final payment upon the
practical completion of the property,
typically linked to its timely completion.
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Financial statements These amounts are included in the
estimates for total contract revenue for
a scheme such that the period between
the recognition of revenue by the Group
and when the customer pays can be
greater than one year. This difference
arises for reasons other than the provision
of finance to the customer as it intended
to provide protection to the customer that
the Group fulfils its obligations under the
contract. Accordingly, these contracts
are not deemed to contain a significant
financing component.
Accommodation management
Management fees relate to contracted
charges for the provision of management
services as an agent to landlords of
student accommodation and build to
rent properties. Management fees are
recognised in line with the management
contracts in the period to which they relate.
Rental income
Rents receivable are credited to the
statement of comprehensive income
on a straight-line basis.
3.6 Foreign currency
The Group’s presentational currency,
which is pounds sterling, is also the
functional currency of the parent and its
subsidiaries. Foreign currency transactions
are translated into the functional currency
using the exchange rates prevailing at the
dates of those transactions.
Monetary assets and liabilities
denominated in foreign currencies at each
reporting date are retranslated at the
foreign exchange rate ruling at the date.
Foreign exchange differences arising on
translation are recognised in the statement
of comprehensive income.
3.7 Segment reporting
Operating segments are identified in
a manner consistent with the internal
reporting provided to the chief operating
decision-maker. The Group determines
its reportable segments having regard to
permitted aggregation criteria with the
principal condition being that the operating
segments should have similar economic
characteristics. For the purposes of
determining its operating segments, the
chief operating decision-maker has been
identified as the Executive Committee.
This committee approves investment
decisions, allocates the Group’s resources
and reviews the internal reporting in order
to assess performance.
3.8 Other intangible assets
The cost of intangibles acquired as part of
a business combination is the fair value at
the date of acquisition.
Intangible assets other than goodwill
are stated at cost less accumulated
amortisation and impairment losses.
Amortisation is charged to the consolidated
statement of comprehensive income within
administrative expenses on a straight-line
basis over the estimated useful lives of the
intangible assets as follows:
Customer relationships:
eleven years
Brand:
ten years
3.9 Property, plant and equipment
Property, plant and equipment is stated
at cost less accumulated depreciation
and impairment losses. Cost represents
expenditure that is directly attributable to
the purchase of the asset.
Depreciation is charged so as to write
off the costs of assets less their residual
values over their estimated useful lives, on
the following basis:
Plant and machinery:
cranes:
other:
6.7% reducing balance
20% reducing balance
Motor vehicles:
25% reducing balance
The assets’ estimated useful lives,
depreciation rates and residual values are
reviewed, and adjusted if appropriate, at
the end of each reporting period.
The gain or loss arising on disposal
of an asset is determined as the
difference between the sales proceeds
and the carrying amount of the asset
and is recognised in the statement of
comprehensive income.
3.10 Impairment of
non-financial assets
At each reporting period, the Group
reviews the carrying amounts of its
non-financial assets to determine whether
there is any indication that those assets
have suffered an impairment loss. If any
such indication exists, the recoverable
amount of the asset is estimated in order
to determine the extent of the impairment
loss (if any). Where it is not possible to
estimate the recoverable amount of an
individual asset, the Group estimates the
recoverable amount of the cash-generating
unit (“CGU”) to which the asset belongs.
The recoverable amount is the higher of fair
value less costs to sell and value in use.
In assessing value in use, the estimated
future cash flows are discounted to their
present value using a pre-tax discount rate
that reflects current market assessments
of the time value of money and the risks
specific to the asset.
When the carrying amount of an asset or
CGU exceeds its recoverable amount, the
asset is considered impaired and is written
down to its recoverable amount, with any
impairment recognised immediately through
the statement of comprehensive income.
Intangible assets with indefinite useful
lives are not amortised, but are tested for
impairment annually, either individually
or at the CGU level. The assessment
of indefinite life is reviewed annually
to determine whether the indefinite life
continues to be supportable. If not, the
change in useful life from indefinite to finite
is made on a prospective basis.
If indication exists that previously
recognised impairment losses no longer
exist or have decreased, the Group
estimates the asset’s or CGU’s recoverable
amount. A previously recognised
impairment loss is reversed only if there
has been a change in the assumptions
used to determine the asset’s recoverable
amount since the last impairment loss
was recognised. The reversal is limited so
that the carrying amount of the asset does
not exceed its recoverable amount, nor
exceed the carrying amount that would
have been determined, net of depreciation,
had no impairment loss been recognised
for the asset in prior years. Such reversal
is recognised in the statement of
comprehensive income unless the asset
is carried at a revalued amount, in which
case the reversal is treated as a revaluation
reserve. No impairment loss in respect of
goodwill is permitted to be reversed.
3.11 Inventory
Inventory is stated at the lower of cost and
net realisable value. Cost comprises all
costs directly attributable to the purchasing
and development of the property, including
the acquisition of land and buildings, legal
costs, attributable overheads, attributable
finance costs and the cost of bringing
developments to their present condition at
the balance sheet date. Net realisable value
is based on estimated selling price less
the estimated cost of disposal. Provision
is made for any obsolete or slow-moving
inventory where appropriate.
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3. Accounting policies continued
3.12 Financial assets
Financial assets are classified, at initial
recognition, and subsequently measured
at amortised cost or fair value through
other comprehensive income (“OCI”).
The classification of financial assets
at initial recognition depends on the
financial asset’s contractual cash flow
characteristics and the Group’s business
model for managing them. With the
exception of trade receivables, the
Group initially measures a financial asset
at its fair value plus transaction costs.
Trade receivables are initially recognised at
fair value and are subsequently measured
at amortised cost using the effective
interest rate method with an appropriate
allowance for estimated irrecoverable
amounts recognised in the income
statement when there is objective evidence
that the asset is impaired.
The Group’s investments in unit trusts
and equity interests held under shared
ownership schemes are classified as equity
instruments designated at fair value through
OCI. Gains and losses on these assets are
never recycled to profit or loss. Dividends
are recognised as other income in the
statement of comprehensive income when
the right to payment has been established.
Equity instruments designated at fair value
through OCI are not subject to impairment
assessment.
Impairment of financial assets
The Group recognises lifetime expected
credit losses for trade receivables, contract
assets and loans to joint ventures. The
expected credit losses on these financial
assets are estimated based on the Group’s
historical credit loss experience, adjusted
for factors that are specific to the debtors,
general economic conditions and an
assessment of both the current as well as
forecast direction of economic conditions
at the reporting date, including the time
value of money where appropriate.
3.14 Fair value measurement
Fair value is the price that would be
received to sell an asset or paid to transfer
a liability in an orderly transaction between
market participants at the measurement
date. The fair value measurement is based
on the presumption that the transaction to
sell the asset or transfer the liability takes
place either:
• in the principal market for the asset or
liability; or
• in the absence of a principal market, in
the most advantageous market for the
asset or liability.
The principal or the most advantageous
market must be accessible by the Group.
The fair value of an asset or a liability is
measured using the assumptions that
market participants would use when
pricing the asset or liability, assuming
that market participants act in their
economic best interest.
All assets and liabilities for which fair value
is measured or disclosed in the financial
statements are categorised within the
fair value hierarchy, described as follows,
based on the lowest level input that is
significant to the fair value measurement
as a whole:
• Level 1 – quoted (unadjusted) market
prices in active markets for identical
assets or liabilities;
• Level 2 – valuation techniques for which
the lowest level input that is significant to
the fair value measurement is directly or
indirectly observable; and
• Level 3 – valuation techniques for which
the lowest level input that is significant
to the fair value measurement is
unobservable.
3.15 Cash and cash equivalents
Cash and cash equivalents in the statement
of financial position comprises cash at
bank and in hand.
3.16 Employee benefits
The Group operates a defined contribution
plan, for which it pays contributions to
privately administered pension plans on
a contractual basis. The contributions
are recognised as an employee benefit
expense as they fall due.
3.13 Financial liabilities
Financial liabilities are classified, at initial
recognition, as loans and borrowings or
payables. They are initially recognised
at fair value net of directly attributable
transaction costs. The Group’s financial
liabilities include trade and other payables
and loans and borrowings, including bank
overdrafts. The subsequent measurement
of financial liabilities depends on their
classification as follows:
Loans and borrowings
After initial recognition, interest-bearing
loans and borrowings are subsequently
measured at amortised cost using the
effective interest rate (“EIR”) method.
Gains and losses are recognised in the
statement of comprehensive income when
the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking
into account any discount or premium
on acquisition and fees or costs that
are an integral part of the EIR. The EIR
amortisation is included in finance costs in
the statement of comprehensive income.
Borrowing costs
All borrowing costs are recognised in the
Group’s profit for the year on an EIR basis
except for interest costs that are directly
attributable to the construction of qualifying
assets, being the Group’s inventory.
These are capitalised and included within
the cost of the asset. Capitalisation
commences when both expenditure on
the asset and borrowing costs are being
incurred, and necessary activities to
prepare the asset for use are in progress.
In the case of new developments, this is
generally once planning permission has
been obtained. Capitalisation ceases when
the asset is ready for use or sale. Interest
capitalised relates to borrowings specific
to a development.
Derecognition
A financial liability is derecognised
when the obligation under the liability
is discharged or cancelled or expires.
When an existing financial liability is
replaced by another from the same
lender on substantially different terms,
or the terms of an existing liability
are substantially modified, such an
exchange or modification is treated as a
derecognition of the original liability and
the recognition of a new liability, and the
difference in the respective carrying
amounts is recognised in the statement
of comprehensive income.
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Financial statements 3.17 Employee benefits –
long-term incentive plans
The Group operates a long-term incentive
plan for certain members of the senior
management team under which those
employees receive remuneration in
the form of share-based payments,
whereby employees render services
as consideration for equity instruments
(“equity-settled transactions”). The cost
of the equity-settled transactions is
determined by the fair value at the date
the grant is made using an appropriate
valuation model, further details of which
are given in note 32.
That cost is recognised in staff costs,
note 10, together with a corresponding
increase in equity over the period to which
the service and performance conditions
are fulfilled (“the vesting period”).
The cumulative expense recognised
for equity-settled transactions at each
reporting date until the vesting date reflects
the extent to which the vesting period has
expired and the Group’s best estimate of
the number of equity instruments which
will ultimately vest. The expense or credit
in the statement of comprehensive income
for a period represents the movement in
cumulative expenses recognised as at the
beginning and end of that period.
Service and non-market performance
conditions are not taken into account
when determining the grant date fair
value of awards, but the likelihood of the
conditions being met is assessed as part
of the Group’s best estimate of the number
of equity instruments which will ultimately
vest. Market performance conditions are
reflected within the grant date fair value.
Where awards are linked to non-market
performance conditions, no expense is
recognised if the performance conditions
are not met and/or service conditions are
not met. Where awards include a market
condition the transactions are treated as
vested irrespective of whether the market
or non-vesting condition is satisfied,
provided that all other performance and/or
service conditions are satisfied.
3.18 Leases
The Group assesses at contract inception
whether a contract is, or contains, a lease.
Group as a lessee
Investment property (leased)
The Group has entered into a number
of student accommodation sale and
leaseback arrangements for which
the associated right-of-use assets are
classified as investment property (leased).
Investment property (leased) is measured
at cost, less any accumulated depreciation
and impairment losses and adjusted for
any remeasurement of lease liabilities.
The cost of the investment property
(leased) includes the amount of lease
liabilities recognised, initial direct costs
incurred, and lease payments made at
or before the commencement date less
any lease incentives received. Investment
property (leased) is depreciated on a
straight-line basis over the shorter of the
lease term and the estimated useful lives
of the assets as follows:
• Investment property (leased):
15 to 35 years
Investment property (leased) is also
subject to impairment in accordance with
accounting policy 3.10.
Right-of-use assets
The Group recognises right-of-use assets
at the commencement date of the lease.
Right-of-use assets are measured at cost,
less any accumulated depreciation and
impairment losses, and adjusted for any
remeasurement of lease liabilities. The
cost of the right-of-use assets includes the
amount of lease liabilities recognised, initial
direct costs incurred, and lease payments
made at or before the commencement
date less any lease incentives received.
Right-of-use assets are depreciated on a
straight-line basis over the shorter of the
lease term and the estimated useful lives
of the assets, as follows:
• Office properties: 5 to 25 years
• Motor vehicles: 3 years
The right-of-use assets are also subject to
impairment in accordance with accounting
policy 3.10.
Lease liabilities
At the commencement date of the lease,
the Group recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
less any lease incentive receivable, variable
lease payments that depend on an index
or rate, and amounts expected to be paid
under residual value guarantees.
In calculating the present value of lease
payments, the Group uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease
payments made. In addition, the carrying
amount of lease liabilities is remeasured if
there is a modification, a change in lease
term, a change in lease payments resulting
from a change in an index or rate used
to determine such lease payments, or a
change in the assessment of an option to
purchase the underlying asset.
Short-term leases and leases
of low-value assets
The Group applies the short-term lease
recognition exemption to its short-term
leases of machinery and equipment for
a term of twelve months or less. It also
applies the lease of low-value assets
recognition exemption to leases of office
equipment that are considered to be
low value.
Group as a lessor
Leases in which the Group does not
transfer substantially all the risks and
rewards of ownership of an asset are
classified as operating leases. Initial
direct costs incurred in negotiating and
arranging an operating lease are added to
the carrying amount of the leased asset
and recognised over the lease term on the
same basis as rental income. Contingent
rents are recognised as revenue in the
period in which they are earned.
Watkin Jones plc // Annual report and financial statements 2020
113
Strategic reportGovernanceCompany informationFinancial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
3. Accounting policies continued
3.19 Taxation
Tax on the profit or loss for the year
comprises current and deferred tax.
Tax is recognised in the statement of
comprehensive income except to the
extent that it relates to items recognised
in OCI or those recognised directly in
equity, in which case it is recognised in
accordance with the underlying item.
Current tax is the expected tax payable
or receivable on the taxable income or
loss for the year, using tax rates enacted
or substantively enacted at the reporting
date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided on temporary
differences arising between the tax bases
of assets and liabilities and their carrying
amounts in the financial statements.
Deferred tax is determined using tax
rates and laws that have been enacted
or substantively enacted by the year
end and are expected to apply when the
related deferred tax asset is realised or the
deferred tax liability is settled. A deferred
tax asset is recognised only to the extent
that it is probable that future taxable
profits will be available against which the
temporary difference can be utilised.
3.20 Exceptional items
Exceptional items are disclosed separately
in the financial statements where it is
necessary to do so to provide further
understanding of the financial performance
of the Group. They are material items of
income or expense that have been shown
separately due to the significance of their
nature or amount and it is considered
unlikely that they are to be repeated.
4. Key sources of estimation
uncertainty
In the application of the Group’s
accounting policies, which are described
in note 3, management is required to make
judgements, estimates and assumptions
about the carrying amounts of assets and
liabilities that are not readily apparent from
other sources.
Estimates and assumptions
Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in
the period in which the estimate is revised
if the revision affects only that period, or
in the period of the revision and future
periods if the revision affects both current
and future periods.
Revenue recognition
When the Group recognises revenue under
a construction contract or development
agreement, revenue is recognised using
the percentage of completion method as
construction progresses with the estimated
total revenue and cost to complete forming
key estimates in determining the amount
of revenue recognised. The estimates for
total contract costs take account of any
uncertainties in the cost of work packages
which have not yet been let and materials
which have not yet been procured, the
expected cost of any changes in the
scope of works and the expected cost of
any rectification works during the defects
liability period.
Impairment of investment property
(leased)
As described in note 3.10, the Group
assesses at each reporting date whether
there is an indication that an asset may
be impaired. If any indication exists, the
Group estimates the asset’s recoverable
amount. The recoverable amount is
the higher of an asset’s fair value less
costs of disposal and its value in use.
The Group treats each of its student
accommodation leaseback arrangements
as a separate cash-generating unit
for impairment testing. Where there is
evidence of impairment, the value in use
for its student accommodation investment
property (leased) assets is calculated
using estimates of the future economic
benefits that will be derived from the
operations of each property which is
discounted using an estimated discount
rate reflecting the market assessment
of risk that would be applied to each
asset. This estimate of value in use is
then compared to the net book value
of the investment property (leased) to
determine whether an impairment provision
is required. Further details are included
in note 17.
Incremental borrowing rate
As described in note 3.18, when initially
recognising the lease liability and asset
values in relation to investment property
(leased) assets, an incremental borrowing
rate (“IBR”) must be determined and used
to discount the expected lease payments.
Due to the long length of the sale and
leaseback arrangements the Group has
entered for six student accommodation
properties, the IBR has a significant
financial impact. The IBRs for these six
leaseback arrangements have been
estimated using yield curve data published
by Standard and Poor’s for bonds with a
term that matches the lease length and for
a credit rating which is deemed appropriate
for the Group.
Cladding provision
The Group has made a provision for
fire safety recladding works the Group
has committed to undertake on its
past developments. This provision was
calculated based on the estimated cost
for each affected building after deducting
customer contributions. Further details are
set out in note 27.
114
Watkin Jones plc // Annual report and financial statements 2020
Financial statements The application of IFRS 16 has generated
a different profile for the recognition of
lease expenditure in the Group statement
of comprehensive income when compared
to IAS 17. The calculation of lease liabilities
under IFRS 16 requires the discounting of
future minimum lease payments with the
unwind of the discount then recognised in
the statement of comprehensive income.
When estimating future minimum lease
payments, the minimum rent increases
applicable under each lease are factored
into the calculation and for the six student
accommodation sale and leaseback
properties these minimum annual rent
increases range from 1.5% to 2.5%.
This results in the timing of the recognition
of lease costs under IFRS 16 having a
greater weighting in the early life of the
leases than under IAS 17 and lower costs
in the later years. In addition, EBITDA for
the Group has increased significantly as
the costs associated with these leases will
now be recognised as depreciation and
interest. The following tables set out the
adjustments recognised as at the date of
initial application of IFRS 16.
5. New standards and
interpretations
New standards and interpretations
adopted for the first time during
the financial year ended
30 September 2020
IFRS 16 ‘Leases’
In the current year, the Group has applied
IFRS 16 ‘Leases’ for the first time. The date
of the initial application of IFRS 16 for the
Group is 1 October 2019. IFRS 16 replaces
IAS 17 ‘Leases’ and IFRIC 4 ‘Determining
whether an Arrangement contains a lease’.
IFRS 16 introduces new or amended
requirements in respect of lease accounting.
It introduces significant changes to lessee
accounting by removing the distinction
between operating and finance leases,
requiring the recognition of an investment
property (leased) asset or a right-of-use
asset and a lease liability at commencement
of all leases, except for short-term leases
and leases of low-value assets when such
recognition exemptions are adopted.
In contrast to lessee accounting, the
requirements for lessor accounting have
remained largely unchanged.
Details of the Group’s approach to the
transition to IFRS 16 are set out below,
followed by a description of the impact
of adopting IFRS 16.
Approach to the transition
to IFRS 16
The Group has chosen to apply
IFRS 16 retrospectively at the date of
initial application, as if it had already
been effective at the commencement
date of the existing lease contracts.
The two capitalisation exemptions
proposed by the standard – lease
contracts with a duration of less than
twelve months and lease contracts for
which the underlying asset has a low
value – have been used. The Group has
elected to only apply IFRS 16 to contracts
previously identified as a lease under
IAS 17. In contrast to lessee accounting,
IFRS 16 substantially carries forward the
lessor accounting requirements from
IAS 17. Under IFRS 16, a lessor continues
to classify leases as either finance leases
or operating leases and account for those
two types of leases differently.
Impact of lessee accounting
IFRS 16 has changed how the Group
accounts for leases previously classified
as operating leases under IAS 17, which
were off-balance sheet. The accounting for
these leases upon the initial adoption of the
standard is as follows:
• recognise investment property (leased)
or right-of-use assets in the consolidated
statement of financial position, initially
measured at the present value of the
future minimum lease payments from
the inception of each lease discounted
at the lease’s incremental borrowing
rate. Depreciation has been recognised
in relation to these assets with the initial
asset valuation calculated on the basis
that depreciation has been applied from
the inception of the underlying lease;
• recognise lease liabilities in the
consolidated statement of financial
position, initially measured at the present
value of the future minimum lease
payment from the inception of each lease
discounted at the lease’s incremental
borrowing rate. The discount has been
unwound each year with the initial liability
valuation calculated on the basis that the
unwind of the discount has been applied
from the inception of the lease; and
• the difference between the right-of-use
assets, lease liabilities and prepaid
or accrued lease payments has
resulted in an adjustment to equity
at 1 October 2018 relative to that
previously reported.
Subsequent treatment is as follows:
• to recognise depreciation of investment
property (leased) and right-of-use
assets in the consolidated statement
of comprehensive income;
• the lease liability is unwound each year,
with the discount unwind recognised
as an interest expense; and
• to separate the total amount of
cash paid into a portion repaying
the principal of the lease liability
(presented within financing activities)
and interest (presented within operating
activities) in the consolidated statement
of cash flows.
Watkin Jones plc // Annual report and financial statements 2020
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Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
5. New standards and interpretations continued
Statement of comprehensive income for the year ended 30 September 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit before exceptional items
Exceptional costs
Operating profit
Share of profit in joint ventures
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year attributable to ordinary equity holders of the parent
Earnings per share for the year attributable to ordinary equity holders of the parent
Basic earnings per share
Diluted earnings per share
Adjusted proforma basic earnings per share (excluding exceptional costs)
Adjusted proforma diluted earnings per share (excluding exceptional costs)
As reported
£’000
374,785
(298,020)
76,765
(24,472)
52,293
(2,576)
49,717
286
428
(695)
49,736
(9,436)
40,300
15.780
15.740
16.689
16.646
IFRS 16
adjustment
£’000
As restated
£’000
—
3,268
3,268
39
3,307
—
3,307
—
—
(5,179)
(1,872)
395
(1,477)
(0.578)
(0.565)
(0.578)
(0.564)
374,785
(294,752)
80,033
(24,433)
55,600
(2,576)
53,024
286
428
(5,874)
47,864
(9,041)
38,823
15.202
15.175
16.111
16.082
The application of IFRS 16 resulted in an increase in operating profit of £3.3 million due to lease payments no longer being recognised in
the statement of comprehensive income and replaced by depreciation and interest costs. This has led to a net reduction in cost of sales
and administrative expenses. An increased interest expense, in comparison to IAS 17, was recognised in respect of interest on lease
liabilities of £5.2 million with overall profit for the year attributable to ordinary equity holders of the parent reduced by £1.5 million.
116
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Statement of comprehensive income for the year ended 30 September 2020
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit before exceptional items
Exceptional costs
Operating profit
Share of profit in joint ventures
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year attributable to ordinary equity holders of the parent
Earnings per share for the year attributable to ordinary equity holders of the parent
Basic earnings per share
Diluted earnings per share
Adjusted proforma basic earnings per share (excluding exceptional costs)
Adjusted proforma diluted earnings per share (excluding exceptional costs)
Pre
IFRS 16
£’000
IFRS 16
adjustment
£’000
As reported
£’000
354,121
(281,669)
72,452
(24,306)
48,146
(20,437)
27,709
199
251
(1,263)
26,896
(4,523)
22,373
8.746
8.734
15.218
15.196
—
3,464
3,464
57
3,521
—
3,521
—
—
(5,103)
(1,582)
301
(1,281)
(0.500)
(0.500)
(0.501)
(0.500)
354,121
(278,205)
75,916
(24,249)
51,667
(20,437)
31,230
199
251
(6,366)
25,314
(4,222)
21,092
8.246
8.234
14.717
14.696
The application of IFRS 16 resulted in an increase in operating profit of £3.5 million due to lease payments no longer being recognised in
the statement of comprehensive income and replaced by depreciation and interest costs. This has led to a net reduction in cost of sales
and administrative expenses. An increased interest expense, in comparison to IAS 17, was recognised in respect of interest on lease
liabilities of £5.1 million with overall profit for the year attributable to ordinary equity holders of the parent reduced by £1.3 million.
Watkin Jones plc // Annual report and financial statements 2020
117
Strategic reportGovernanceCompany informationFinancial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
5. New standards and interpretations continued
Statement of financial position at 30 September 2018
As reported
£’000
IFRS 16
adjustment
£’000
As restated
£’000
Non-current assets
Intangible assets
Investment property (leased)
Right-of-use assets
Property, plant and equipment
Investment in joint ventures
Deferred tax asset
Other financial assets
Current assets
Inventory and work in progress
Contract assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Interest-bearing loans and borrowings
Lease liabilities
Current tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Fair value reserve of financial assets at FVOCI
Share-based payment reserve
Retained earnings
Total equity
14,403
—
—
4,809
2,558
42
1,350
23,162
132,778
8,758
18,209
106,640
266,385
289,547
(84,308)
(14,314)
(1,068)
(1,605)
—
(7,204)
(108,499)
(24,877)
—
(1,050)
(1,602)
(27,529)
(136,028)
153,519
2,553
84,612
(75,383)
436
84
141,217
153,519
—
117,483
7,013
—
—
3,113
—
14,403
117,483
7,013
4,809
2,558
3,155
1,350
127,609
150,771
—
—
(710)
—
(710)
126,899
294
—
1,068
—
(5,770)
—
(4,408)
—
(137,522)
—
1,602
(135,920)
(140,328)
(13,429)
—
—
—
—
—
(13,429)
(13,429)
132,778
8,758
17,499
106,640
265,675
416,446
(84,014)
(14,314)
—
(1,605)
(5,770)
(7,204)
(112,907)
(24,877)
(137,522)
(1,050)
—
(163,449)
(276,356)
140,090
2,553
84,612
(75,383)
436
84
127,788
140,090
On 1 October 2018, £117.5 million was recognised in the statement of financial position as investment property (leased) assets in respect
of student leaseback arrangements and £7.0 million as right-of-use assets in respect of office properties and motor vehicles. In addition,
a lease liability of £143.3 million was recognised in respect of these assets. Trade and other receivables reduced by £0.7 million due to the
reclassification of prepayments from receivables to lease liabilities. Provisions reduced by £2.7 million due to the reclassification of these
provisions to investment property (leased) assets as impairment provisions. Deferred tax assets totalling £3.1 million were recognised in
relation to the future tax benefit from these adjustments.
The net difference of £13.4 million has been recognised as a reduction in retained earnings.
118
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Statement of financial position at 30 September 2019
Non-current assets
Intangible assets
Investment property (leased)
Right-of-use assets
Property, plant and equipment
Investment in joint ventures
Deferred tax asset
Other financial assets
Current assets
Inventory and work in progress
Contract assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Interest-bearing loans and borrowings
Lease liabilities
Current tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Fair value reserve of financial assets at FVOCI
Share-based payment reserve
Retained earnings
Total equity
As reported
£’000
IFRS 16
adjustment
£’000
As restated
£’000
13,844
—
—
4,966
2,794
290
1,139
—
110,224
5,930
—
—
3,546
—
13,844
110,224
5,930
4,966
2,794
3,836
1,139
23,033
119,700
142,733
134,226
25,578
14,443
115,652
289,899
312,932
(81,407)
(5,164)
(863)
(1,324)
—
(7,056)
(95,814)
—
—
(593)
—
(593)
119,107
39
—
863
—
(6,192)
13
(5,277)
(37,481)
—
—
(131,330)
(1,042)
(2,594)
(41,117)
(136,931)
176,001
2,553
84,612
(75,383)
434
2,311
161,474
176,001
—
2,594
(128,736)
(134,013)
(14,906)
—
—
—
—
—
(14,906)
(14,906)
134,226
25,578
13,850
115,652
289,306
432,039
(81,368)
(5,164)
—
(1,324)
(6,192)
(7,043)
(101,091)
(37,481)
(131,330)
(1,042)
—
(169,853)
(270,944)
161,095
2,553
84,612
(75,383)
434
2,311
146,568
161,095
On 1 October 2019, £110.2 million was recognised in the statement of financial position as investment property (leased) assets in respect
of student leaseback arrangements and £5.9 million as right-of-use assets in respect of office properties and motor vehicles. In addition,
a lease liability of £137.5 million was recognised in respect of these assets. Trade and other receivables reduced by £0.6 million due to
the reclassification of prepayments from receivables to lease liabilities. Provisions reduced by £3.5 million due to the reclassification
of these provisions to investment property (leased) assets as impairment provisions. Deferred tax assets totalling £3.5 million were
recognised in relation to the future tax benefit from these adjustments.
The net difference of £14.9 million has been recognised as a reduction in retained earnings.
Watkin Jones plc // Annual report and financial statements 2020
119
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
5. New standards and interpretations continued
Statement of financial position at 30 September 2020
Non-current assets
Intangible assets
Investment property (leased)
Right-of-use assets
Property, plant and equipment
Investment in joint ventures
Deferred tax asset
Other financial assets
Current assets
Inventory and work in progress
Contract assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Provisions
Interest-bearing loans and borrowings
Lease liabilities
Current tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Deferred tax liabilities
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Fair value reserve of financial assets at FVOCI
Share-based payment reserve
Retained earnings
Total equity
Pre
IFRS 16
£’000
IFRS 16
adjustment
£’000
As reported
£’000
13,284
—
—
4,376
3,243
251
1,133
—
104,623
4,763
—
—
3,062
—
13,284
104,623
4,763
4,376
3,243
3,313
1,133
22,287
112,448
134,735
125,660
41,522
24,250
134,513
325,945
348,232
(97,761)
(8,967)
(9,208)
(711)
—
(819)
(117,466)
(38,956)
—
(1,040)
(6,691)
(46,687)
(164,153)
184,079
2,562
84,612
(75,383)
428
2,348
169,512
184,079
—
—
(732)
—
(732)
111,716
461
—
2,931
—
(6,310)
—
(2,918)
—
(128,143)
—
3,104
(125,039)
(127,957)
(16,241)
—
—
—
—
—
(16,241)
(16,241)
125,660
41,522
23,518
134,513
325,213
459,948
(97,300)
(8,967)
(6,277)
(711)
(6,310)
(819)
(120,384)
(38,956)
(128,143)
(1,040)
(3,587)
(171,726)
(292,110)
167,838
2,562
84,612
(75,383)
428
2,348
153,271
167,838
On 30 September 2020, £104.6 million was recognised in the statement of financial position as investment property (leased) assets in
respect of student leaseback arrangements and £4.8 million as right-of-use assets in respect of office properties and motor vehicles.
In addition, a lease liability of £134.4 million was recognised in respect of these assets. Trade and other receivables reduced by
£0.7 million due to the reclassification of prepayments from receivables to lease liabilities. Provisions reduced by £6.0 million due to
the reclassification of these provisions to investment property (leased) assets as impairment provisions. Deferred tax assets totalling
£3.1 million were recognised in relation to the future tax benefit from these adjustments.
The net difference of £16.2 million has been recognised as a reduction in retained earnings.
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Watkin Jones plc // Annual report and financial statements 2020
Financial statements
Statement of cash flows for the year ended 30 September 2019
Cash flows from operating activities
Cash inflow from operations
Interest received
Interest paid
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Cash distribution received from other financial assets
Net cash inflow from investing activities
Cash flows from financing activities
Dividends paid
Payment of principal portion of lease liabilities
Payment of capital element of other interest-bearing loans
Drawdown of RCF
Repayment of bank loans
Net cash outflow from financing activities
Net increase in cash
Cash and cash equivalents at 1 October 2019 and 1 October 2018
Cash and cash equivalents at 30 September 2020 and 30 September 2019
As reported
£’000
IFRS 16
adjustment
£’000
As restated
£’000
27,811
428
(911)
(9,769)
17,559
(361)
87
209
(65)
(20,113)
—
(1,307)
46,244
(33,306)
(8,482)
9,012
106,640
115,652
11,132
—
(5,179)
—
5,953
—
—
—
—
—
(5,953)
—
—
—
(5,953)
—
—
—
38,943
428
(6,090)
(9,769)
23,512
(361)
87
209
(65)
(20,113)
(5,953)
(1,307)
46,244
(33,306)
(14,435)
9,012
106,640
115,652
The application of IFRS 16 resulted in an increase in the cash inflow from operations of £11.1 million due to the reclassification of operating
lease payments as interest paid and payment of lease liabilities. Interest paid has increased by £5.2 million and the payment of lease
liabilities by £5.9 million.
Watkin Jones plc // Annual report and financial statements 2020
121
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
5. New standards and interpretations continued
Statement of cash flows for the year ended 30 September 2020
Cash flows from operating activities
Cash inflow from operations
Interest received
Interest paid
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Cash flow from joint venture interests
Cash distribution received from other financial assets
Net cash inflow from investing activities
Cash flows from financing activities
Dividends paid
Proceeds from exercise of share options
Payment of principal portion of lease liabilities
Payment of capital element of other interest-bearing loans
Drawdown of RCF
Repayment of bank loans
Bank loan arrangement fees
Net cash outflow from financing activities
Net increase in cash
Cash and cash equivalents at 1 October 2019
Cash and cash equivalents at 30 September 2020
Pre
IFRS 16
£’000
43,676
245
(1,689)
(10,035)
32,197
(317)
69
812
—
564
(14,319)
9
—
(1,034)
20,843
(18,499)
(900)
(13,900)
18,861
115,652
134,513
IFRS 16
adjustment
£’000
As reported
£’000
11,192
—
(5,103)
—
6,089
—
—
—
—
—
—
—
(6,089)
—
—
—
—
(6,089)
—
—
—
54,868
245
(6,792)
(10,035)
38,286
(317)
69
812
—
564
(14,319)
9
(6,089)
(1,034)
20,843
(18,499)
(900)
(19,989)
18,861
115,652
134,513
The application of IFRS 16 resulted in an increase in the cash inflow from operations of £11.2 million due to the reclassification of operating
lease payments as interest paid and payment of lease liabilities. Interest paid has increased by £5.1 million and the payment of lease
liabilities by £6.1 million.
New standards and interpretations that have not yet been adopted
The following standards and interpretations that are anticipated to be relevant to the Group have an effective date after the date of
these financial statements. The Group has not early adopted them and plans to adopt them from the effective dates once endorsed for
application in the EU. These standards are not expected to have a significant impact on the Group’s consolidated financial statements.
Standard or interpretation
Amendments to IFRS 3 ‘Business Combinations’
Amendments to IAS 1 and IAS 8: Definition of Material
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
IFRS 17 ‘Insurance contracts’
Effective for accounting
periods beginning on or after
1 January 2020
1 January 2020
1 January 2020
1 January 2023
122
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 6. Disaggregated revenue information
Year ended 30 September 2020
Type of goods or service
Construction contracts or
development agreements
Sale of land
Sale of completed property
Rental income
Accommodation management
Total revenue from contracts
with customers
Timing of revenue recognition
Goods transferred at a
point in time
Services transferred over time
Total revenue from contracts
with customers
Year ended 30 September 2019
Type of goods or service
Construction contracts or
development agreements
Sale of land
Sale of completed property
Rental income
Accommodation management
Total revenue from contracts
with customers
Timing of revenue recognition
Goods transferred at a
point in time
Services transferred over time
Total revenue from contracts
with customers
Student
accommodation
£’000
Build
to rent
£’000
Residential
£’000
Accommodation
management
£’000
Corporate
£’000
Total
£’000
181,248
5,558
23,502
15,718
—
92,618
—
—
1,373
—
—
—
26,268
—
—
226,026
93,991
26,268
29,060
196,966
—
93,991
20,961
5,307
226,026
93,991
26,268
—
—
—
—
7,586
7,586
—
7,586
7,586
250
—
—
—
—
274,116
5,558
49,770
17,091
7,586
250
354,121
—
250
250
50,021
304,100
354,121
Residential
(Restated)
£’000
Accommodation
management
£’000
Corporate
£’000
Total
£’000
Student
accommodation
£’000
183,779
38,437
6,250
17,650
—
Build
to rent
(Restated)
£’000
29,894
46,312
—
1,223
—
—
—
34,278
—
—
246,116
77,429
34,278
44,687
201,429
46,312
31,117
34,278
—
246,116
77,429
34,278
—
—
—
—
7,460
7,460
—
7,460
7,460
694
8,808
—
—
—
214,367
93,557
40,528
18,873
7,460
9,502
374,785
8,808
694
134,085
240,700
9,502
374,785
The prior year comparative information has been restated so that it is consistent with the internal reporting provided to the chief operating
decision-maker. Revenue of £3,786,000 relating to construction contracts or development agreements has been transferred from the
residential to the build to rent segment.
Sales to three individual customers accounted for greater than 10% of the total revenue, representing revenue of £166,581,000,
with £114,887,000 reported under the student accommodation segment and £51,694,000 reported under the build to rent segment
(2019: Sales to three individual customers accounted for greater than 10% of the total revenue, representing revenue of £174,731,000
with £105,042,000 reported under the student accommodation segment and £69,689,000 reported under the build to rent segment).
Sales to the Group’s largest customer totalled £69,860,000, to the second largest customer these totalled £59,759,000 and to the third
largest customer £36,962,000 (2019: £69,689,000 to the largest customer, £67,079,000 to the second largest customer and £37,963,000
to the third largest customer).
Watkin Jones plc // Annual report and financial statements 2020
123
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for the year ended 30 September 2020
7. Segmental reporting
The Group has identified four segments for which it reports under IFRS 8 ‘Operating Segments’. The following represents the segments
that the Group operates in:
a. Student accommodation – the development of purpose built student accommodation;
b. Build to rent – the development of build to rent accommodation;
c. Residential – the development of traditional residential property; and
d. Accommodation management – the management of student accommodation and build to rent property.
Corporate – revenue from the development of commercial property forming part of mixed-use schemes and other revenue and costs not
solely attributable to any one operating segment.
All revenues arise in the UK.
Performance is measured by the Board based on gross profit as reported in the management accounts.
Apart from inventory and work in progress, no other assets or liabilities are analysed into the operating segments.
Year ended 30 September 2020
Segmental revenue
Segmental gross profit
Administration expenses
Exceptional costs
Share of operating profit in joint
ventures
Finance income
Finance costs
Profit/(loss) before tax
Taxation
Continuing profit/(loss)
for the year
Profit for the year attributable to
ordinary equity shareholders of
the parent
Inventory and work in progress
(note 21)
Student
accommodation
£’000
226,026
54,285
—
—
199
—
—
Build
to rent
£’000
93,991
14,884
—
—
—
—
—
54,484
—
14,884
—
54,484
14,884
Residential
£’000
26,268
4,042
—
—
—
—
—
4,042
—
4,042
Accommodation
management
£’000
7,586
4,540
(3,432)
—
—
—
—
1,108
—
Corporate
£’000
250
(1,835)
(20,817)
(20,437)
—
251
(6,366)
(49,204)
(4,222)
Total
£’000
354,121
75,916
(24,249)
(20,437)
199
251
(6,366)
25,314
(4,222)
1,108
(53,426)
21,092
21,092
30,706
53,964
30,656
—
10,334
125,660
124
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Year ended 30 September 2019
Segmental revenue
Segmental gross profit
Administration expenses
Exceptional costs
Share of operating profit
in joint ventures
Finance income
Finance costs
Profit/(loss) before tax
Taxation
Continuing profit/(loss)
for the year
Profit for the year attributable
to ordinary equity shareholders
of the parent
Inventory and work in progress
(note 21)
Student
accommodation
£’000
246,116
54,850
—
—
286
—
—
Build
to rent
(Restated)
£’000
77,429
13,783
—
—
—
—
—
55,136
—
13,783
—
55,136
13,783
Residential
(Restated)
£’000
Accommodation
management
£’000
34,278
7,158
—
—
—
—
—
7,158
—
7,158
7,460
4,586
(3,167)
—
—
—
—
1,419
—
1,419
Corporate
£’000
9,502
(344)
(21,266)
(2,576)
—
428
(5,874)
(29,632)
(9,041)
Total
Restated
(note 5)
£’000
374,785
80,033
(24,433)
(2,576)
286
428
(5,874)
47,864
(9,041)
(38,673)
38,823
38,823
40,268
38,608
45,153
—
10,197
134,226
As stated in note 6, the prior year comparative information has been restated so that it is presented in a way which is consistent with
the internal reporting provided to the chief operating decision-maker. Revenue of £3,786,000 and gross profit of £555,000 has been
transferred from the residential to the build to rent segment.
8. Exceptional costs
COVID-19 costs
COVID-19 additional costs of on-site working and in completing developments
Waiver of academic year 2019/20 final term rents due on leased student accommodation
assets due to lockdown measures
Impairment of the right-of-use carrying value of leased student accommodation assets
due to reduced 2020/21 student occupancy
Total COVID-19 costs
Fire safety recladding works
Cost of compensating the Group’s new CEO, Richard Simpson, for his forfeit Unite Group plc
(“Unite”) 2018 bonus
Cost of Watkin Jones plc share awards issued on compensating Richard Simpson for his forfeit
Unite 2015-2017 share awards
Total exceptional costs
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
(2,659)
(1,086)
(1,892)
(5,637)
(14,800)
—
—
(20,437)
—
—
—
—
—
(411)
(2,165)
(2,576)
During the year a total impairment charge of £2,241,000 was recognised in relation to the carrying value of leased student accommodation
assets (note 17). £1,892,000 of this impairment charge has been treated as an exceptional item due to the impact of reduced student
occupancy during the 2020/21 academic year as a result of the COVID-19 pandemic. This element of the total charge has been estimated
by comparing the final impairment calculations to a calculation of the impairment charge using the income forecasts for 2020/21 prepared
prior to the pandemic.
All of the exceptional costs in the year have been treated as allowable deductions for corporation tax purposes (2019: £1,341,000 of the
£2,576,000 exceptional costs were treated as allowable deductions).
Watkin Jones plc // Annual report and financial statements 2020
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for the year ended 30 September 2020
9. Total operating profit
This is stated after charging/(crediting):
Audit services to the parent company
Audit services to the subsidiaries
Loss on foreign exchange
Amortisation of intangible assets
Depreciation:
Property, plant and equipment
Investment property (leased)
Right-of-use assets
Profit on disposal of property, plant and equipment
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
126
124
—
560
998
6,522
1,343
(24)
9,649
77
124
18
559
835
6,473
1,287
(43)
9,330
10. Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Construction
Accommodation management
Management and administration
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Employee incentive – long-term incentive plans (note 32)
Social security costs
Defined contribution pension costs
Number of employees
Year ended
30 September
2020
Year ended
30 September
2019
260
329
116
705
243
474
109
826
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
23,529
37
3,060
805
27,431
21,566
2,227
2,814
690
27,297
Pensions
The Group operates a defined contribution Group personal pension plan scheme for the benefit of the employees and certain Directors.
The assets of the scheme are administered in a fund independent from those of the Group. Contributions during the year amounted to
£805,000 (2019: £690,000). There are £49,000 unpaid contributions at the end of the year (2019: £51,000).
The Group also operates a small defined contribution scheme for the benefit of certain former employees. This scheme is closed to new
entrants. The assets of the scheme are administered by trustees in a fund independent from those of the Group. Contributions during the
year amounted to £Nil (2019: £Nil).
126
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Key management personnel
The Group considers that its Directors and other senior managers who are either members of the Executive Committee or Directors of
Watkin Jones & Son Limited are key management personnel for the purposes of IAS 24 ‘Related Parties’.
The aggregate payroll costs of key management personnel were as follows:
Wages and salaries
Compensation for loss of office
Employee incentive – long-term incentive plans (note 32)
Social security costs
Pension costs
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
2,446
380
25
573
209
3,633
3,910
—
2,215
865
213
7,203
The above amounts for the year ended 30 September 2019 include the exceptional costs of £2,576,000 in compensating Richard Simpson
for the forfeiture of his incentive awards on leaving his former employer (note 8). These include an amount of £362,000 included in “Wages
and salaries” in respect of his forfeit 2018 bonus and an amount of £1,902,000 included in “Employee incentive – long-term incentive
plans” in respect of his forfeit 2015-2017 share awards. The employer’s national insurance charge on those amounts of £312,000 has been
included in “Social security costs”.
11. Directors’ emoluments
Wages and salaries
Employee incentive – long-term incentive plans (note 32)
Social security costs
Pension costs
Highest paid Director:
Emoluments
Employee incentive – long-term incentive plans
Pension costs
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
1,015
53
270
101
1,439
462
52
75
1,566
2,083
475
82
4,206
874
2,040
56
The above amounts for the year ended 30 September 2019 for the highest paid Director, Richard Simpson, include the costs of
compensating him for the forfeiture of his incentive awards on leaving his former employer, as referred to in note 8.
During the year ended 30 September 2020, Richard Simpson exercised 441,360 share options at a gain of £638,206 (2019: 453,224 share
options at a gain of £933,641), based on the Company’s share price on the exercise date.
12. Finance costs
Finance charges
Interest on lease liabilities (note 17)
Other interest payable
Year ended
30 September
2020
£’000
1,263
5,103
—
6,366
Year ended
30 September
2019
Restated
(note 5)
£’000
665
5,179
30
5,874
During the year the Group has capitalised interest payable on bank loans of £465,000 (2019: £216,000) in development land and work
in progress.
Watkin Jones plc // Annual report and financial statements 2020
127
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
13. Income taxes
Current income tax
UK corporation tax on profits for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior year
Effect of tax rate change on opening balance
Total deferred tax
Total tax expense
Reconciliation of total tax expense
Profit before tax
Profit multiplied by standard rate of corporation tax in the UK of 19% (2019: 19%)
Expenses not deductible
Income not taxable
Other differences
Prior period adjustment
At the effective rate of tax of 16.7% (2019: 18.9%)
Income tax expense reported in the statement of profit or loss
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
4,076
(305)
3,771
455
(10)
6
451
4,222
9,426
183
9,609
(644)
76
—
(568)
9,041
Year ended
30 September
2020
£’000
25,314
4,810
288
(53)
(508)
(315)
4,222
4,222
Year ended
30 September
2019
Restated
(note 5)
£’000
47,864
9,094
282
(79)
(513)
257
9,041
9,041
128
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 14. Earnings per share
Basic and diluted earnings per share (“EPS”) amounts are calculated by dividing the net profit or loss for the year attributable to ordinary
equity holders of the parent by the weighted average number of shares in issue during the year.
The following table reflects the income and share data used in the basic and diluted EPS computations:
Profit for the year attributable to ordinary equity holders of the parent
Add back exceptional costs for the year (note 8)
Less corporation tax benefit from exceptional costs for the year
Adjusted profit for the year attributable to ordinary equity holders of the parent
(excluding exceptional costs after tax)
Weighted average number of ordinary shares for basic earnings per share
Adjustment for the effects of dilutive potential ordinary shares
Weighted average number for diluted earnings per share
Year ended
30 September
2020
£’000
21,092
20,437
(3,883)
Year ended
30 September
2019
Restated
(note 5)
£’000
38,823
2,576
(255)
37,646
41,144
Number of
shares
Number of
shares
255,795,659
255,382,181
367,800
658,650
256,163,459
256,040,831
Pence
Pence
Basic earnings per share
Basic profit for the year attributable to ordinary equity holders of the parent
8.246
15.202
Adjusted proforma basic earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to ordinary equity holders of the parent
14.717
16.111
Diluted earnings per share
Basic profit for the year attributable to diluted equity holders of the parent
8.234
15.175
Adjusted proforma diluted earnings per share (excluding exceptional costs after tax)
Adjusted profit for the year attributable to diluted equity holders of the parent
14.696
16.082
15. Dividends
Interim dividend paid in June 2020 of nil pence (June 2019: 2.75 pence)
Final dividend paid in February 2020 of 5.6 pence (February 2019: 5.13 pence)
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
—
14,319
14,319
7,018
13,095
20,113
The interim dividend that would have been paid in June 2020 was suspended as a precautionary measure whilst the impact of COVID-19
on the business was assessed.
The final dividend proposed for the year ended 30 September 2020 is 7.35 pence per ordinary share. This dividend was declared after
30 September 2020 and as such the liability of £18,828,000 has not been recognised at that date. At 30 September 2020, the Company
had distributable reserves available of £100,816,000 (30 September 2019: £115,135,000).
Watkin Jones plc // Annual report and financial statements 2020
129
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
16. Intangible assets
Cost
At 1 October 2018, 30 September 2019 and 30 September 2020
Amortisation
At 1 October 2018
Amortisation for the year
At 30 September 2019
Amortisation for the year
At 30 September 2020
Net book value
As at 30 September 2020
As at 30 September 2019
Customer
relationships
£’000
Brand
£’000
Goodwill
£’000
Total
£’000
5,604
1,315
509
1,824
510
2,334
3,270
3,780
499
129
50
179
50
229
270
320
9,744
15,847
—
—
—
—
—
9,744
9,744
1,444
559
2,003
560
2,563
13,284
13,844
Intangible assets relate to the acquisition of Fresh Property Group Ltd (formerly Fresh Student Living Limited), which was acquired by the
Group in the year ending 30 September 2016. The Directors have reviewed the carrying value of the investment in Fresh Property Group
Ltd, which is a single CGU, at 30 September 2020, compared to its recoverable amount and are satisfied that no impairment is required.
The recoverable amount has been based on value in use, by reference to the budgets and projected cash flows for the CGU over a
five-year period, with future cash flows discounted at a rate of 5.05% (2019: 7.00%) to reflect the time value of money. Cash flows beyond
the five-year period are extrapolated using a 3% growth rate, which is seen as the long-term average growth rate for the business.
The following are the key assumptions used in projecting the cash flows as at 30 September 2020:
• contracted management agreements in place are renewed in line with past experience;
• new management agreements are secured to deliver the budgeted units under management for the CGU for the five-year period
ending 30 September 2025. Units under management are forecast to remain at 20,000 in FY21 and FY22 to reflect the disruption
caused by COVID-19 before increasing to 22,500 in FY23, 26,500 in FY24 and 31,000 in FY25. This reflects the CGU’s past success
in securing new management agreements in the student accommodation sector along with assumed growth in apartments under
management in the build to rent market;
• management fees charged will increase at 3% per annum;
• the achieved gross margin is maintained in line with past experience; and
• indirect costs are incurred in line with the budgets for the CGU for the period ending 30 September 2022 and thereafter increase
at 2.5% per annum.
The following are the key assumptions used in projecting the cash flows as at 30 September 2019:
• contracted management agreements in place are renewed in line with past experience;
• new management agreements are secured to deliver the budgeted beds under management for the CGU for the three-year period
ending 30 September 2022. In the following two years, the number of beds under management increase by 2,500 per annum each
year before increasing by 2,000 beds per annum in the year ending 30 September 2025 and 1,500 beds per annum in the year ending
30 September 2026. Thereafter, management agreements are secured to manage an additional 1,000 student beds per annum. This
reflects the CGU’s past success in securing new management agreements in the student accommodation sector along with assumed
growth in apartments under management in the build to rent market;
• management fees charged will increase at 3% per annum, in line with assumed RPI inflation;
• the achieved gross margin is maintained in line with past experience; and
• indirect costs are incurred in line with the budgets for the CGU for the period ending 30 September 2022 and thereafter increase at
4% per annum. This reflects underlying assumed RPI inflation of 3% plus an allowance for additional indirect costs as a result of the
increase in beds under management.
130
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 17. Leases
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year:
Investment
property
(leased)
£’000
Plant and
machinery
£’000
Motor
vehicles
£’000
Cost
At 30 September 2018
Additions
Disposals
At 30 September 2019
Additions/adjustment
Disposals
At 30 September 2020
Depreciation
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Charge for the year
Disposals
At 30 September 2020
Impairment
At 30 September 2018
Charge for the year
At 30 September 2019
Charge for the year
At 30 September 2020
Net book value
At 30 September 2020
At 30 September 2019
At 30 September 2018
158,231
—
—
158,231
3,162
—
161,393
38,077
6,473
—
44,550
6,522
—
51,072
2,671
786
3,457
2,241
5,698
104,623
110,224
117,483
9,411
—
—
9,411
—
—
9,411
3,412
791
—
4,203
791
—
4,994
—
—
—
—
—
4,417
5,208
5,999
1,577
372
(352)
1,597
313
(478)
1,432
563
496
(184)
875
552
(341)
1,086
—
—
—
—
—
346
722
1,014
Total
£’000
169,219
372
(352)
169,239
3,475
(478)
172,236
42,052
7,760
(184)
49,628
7,865
(341)
57,152
2,671
786
3,457
2,241
5,698
109,386
116,154
124,496
Investment property (leased) assets relate to the Group’s six student leaseback arrangements. Each of the six leaseback arrangements
are considered to be a separate CGU. The Directors consider an impairment indication to exist if there is a shortfall between the annual
net rental income generated by each property and the annual headlease payment due under each lease. The Directors have reviewed
the carrying value of four of these leases where there is an indication of impairment and compared them to their respective recoverable
amounts. An impairment charge totalling £2,241,000 (2019: £786,000) has been recognised in respect of one of the Group’s sale and
leaseback arrangements – Europa, Liverpool, because the recoverable amount was less than the depreciated carrying value of the
asset. £1,892,000 (2019: £Nil) of this impairment charge has been recognised as an exceptional item in the consolidated statement
of comprehensive income and £349,000 (2019: £786,000) has been recognised within student accommodation cost of sales.
The recoverable amount for each CGU has been calculated as its value in use. The valuation technique used is a discounted cash
flow. Due to the bespoke nature of these arrangements these valuations are also considered to represent the fair value of each of the
investment property (leased) assets. The key inputs into the valuation are gross rental income, operating costs, lease term and an
estimated discount rate reflecting the market assessment of risk that would be applied to each asset. The estimated discount rates for
each property are included in the next table. A key assumption in the valuation calculation as at 30 September 2020 is that occupancy
levels will return to those at the start of the 2019/20 academic year by the 2021/22 academic year.
Watkin Jones plc // Annual report and financial statements 2020
131
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
17. Leases continued
Collegelands, Glasgow
Europa, Liverpool
Optima, Loughborough
Glassyard Building, London
Dunaskin Mill, Glasgow
New Bridewell, Bristol
Total
Impairment charge/(reversal)
£’000
Fair value in use
£’000
Year ended
30 September
2020
Year ended
30 September
2019
Discount
rate (yields)
Lease
termination
date
Year ended
30 September
2020
Year ended
30 September
2019
—
2,241
—
—
—
—
2,241
(229)
993
153
(131)
—
—
786
5.5% 6 September 2026
6.5%
6.0%
18 March 2030
18 March 2030
5.0% 10 September 2034
5.5% 5 September 2051
5.5%
12 March 2052
14,244
12,462
2,182
11,177
53,059
56,964
17,220
18,172
2,375
11,551
53,084
56,913
150,088
159,315
Set out below are the carrying amounts of lease liabilities and movements during the period:
At the start of the period
Additions
Disposals
Accretion of interest
Payments
At the end of the period
Current
Non-current
Lease liability maturity analysis
Year one
Year two
Year three
Year four
Year five
Onwards
Total commitments – Group as lessor
Non-cancellable operating lease rentals are receivable as follows:
Within one year
Later than one year and less than five years
After five years
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
137,522
143,292
3,475
(455)
5,103
(11,192)
134,453
6,310
128,143
372
(189)
5,179
(11,132)
137,522
6,192
131,330
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
11,041
10,880
10,781
10,707
10,909
150,554
204,872
11,302
10,638
10,758
10,948
11,117
159,372
214,135
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
12,436
573
780
13,789
14,846
3,586
917
19,349
The Group acts as lessor in respect of certain commercial property and for the student accommodation properties operated under the
sale and leaseback arrangements detailed above.
132
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 18. Property, plant and equipment
Cost
At 30 September 2018
Additions
Disposals
At 30 September 2019
Additions
Disposals
At 30 September 2020
Depreciation
At 30 September 2018
Charge for the year
Disposals
At 30 September 2019
Charge for the year
Disposals
At 30 September 2020
Net book value
At 30 September 2020
At 30 September 2019
At 30 September 2018
Plant and
machinery
£’000
Motor
vehicles
£’000
7,939
1,037
(193)
8,783
452
(387)
8,848
3,132
835
(148)
3,819
998
(343)
4,474
4,374
4,964
4,807
157
—
—
157
—
—
157
155
—
—
155
—
—
155
2
2
2
Total
£’000
8,096
1,037
(193)
8,940
452
(387)
9,005
3,287
835
(148)
3,974
998
(343)
4,629
4,376
4,966
4,809
Plant and machinery
The carrying value of plant and machinery subject to security under other interest-bearing loan agreements at 30 September 2020 was
£835,000 (2019: £3,037,000). Additions during the year include £273,000 (2019: £709,000) of plant and machinery financed using other
interest-bearing loan agreements.
Watkin Jones plc // Annual report and financial statements 2020
133
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
19. Subsidiaries
The Group holds 100% of the share capital of the following unless otherwise stated:
Name
Anderson Wharf (Student) Limited5
Bailey Lane Student Limited5
Blackhorse Lane Student Limited5
Bridge Road Bath Limited1, 5
Bridge Street Student Limited5
Christchurch Road Bournemouth Limited5
Conington Road Lewisham Limited1, 5
Crown Place Woking Limited5
Customhouse Student Limited5
Duncan House Developments Limited5
Ellen Street Hove Limited5
Elliot Road Selly Oak Limited5
Fairleague Limited5
Forest Road Student Limited5
Gas Lane Bristol Limited1, 5
Gladstone Road Exeter Limited5
Goldcharm Residential Limited5
Gorgie Road Edinburgh Limited1, 5
Gorse Stacks Development Limited6
Harefield Road Uxbridge Limited5
Heol Santes Helen Limited5
Holdenhurst Road Bournemouth Limited5
Hunter Street Chester Limited5
India Street Edinburgh Limited1, 5
Iona Street Glasgow Limited5
Kelaty House Wembley Limited5
Kyle Street Student Limited5
Liverpool Road Chester Limited5
Logie Green Development Limited5
Lower Bristol Road Bath Limited5
Military Road Canterbury Limited5
New Mart Road Limited1, 5
Onega Centre Bath Limited5
Olympic Way Belfast Limited1, 5
Oxford House Bournemouth Limited5
Pirrie Belfast Limited1, 5
Pittodrie Street Aberdeen Limited5
Quarter House Studios Limited5
Rockingham Street Student Limited5
Sherlock Street Birmingham Limited5
Spiritbond Stockwell Green Limited5
St Mungo Avenue Glasgow Limited5
Stylegood Limited5
Superscheme Limited5
Sutton Court Road Limited5
Trafford Street Chester Limited5
Victoria Park Bath Limited5
Class of shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Nature of business
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
Property developer
134
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Name
Walnut Tree Close Guildford Limited1, 5
Watkin Jones & Son Limited4
Westfield Avenue Edinburgh Limited1, 5
Wilmslow Road Manchester Limited1, 5
Wisedeed Limited5
Fresh Property Group Ltd9
Fresh Property Group Ireland Limited10
Five Nine Living Limited9
DR (Student) Limited5
Fresh Property Group Holdings Ltd5
Watkin Jones Group Limited2
Watkin Jones Holdings Limited3
Newmark Developments Limited5
Watkin Jones AM Limited5
Saxonhenge Limited5
Darley Student Accommodation Limited7
Dunaskin Student Limited5
Finefashion Limited5
Goldcharm Student Lettings Limited5
Lucas Student Lettings Limited5
New Bridewell Limited5
New Bridewell 1 Limited8
New Bridewell 2 Limited8
Nicelook Limited5
Polarpeak Limited5
Qualityoffer Limited5
Scarlet P Limited5
Swiftmatch Limited5
Extralap Limited6
Extraneat Limited5
Between Towns Road Oxford Limited5
Garthdee Road Aberdeen Limited5
Market Street Newcastle Limited5
Quarterhouse Studios Limited5
WJ Developments (Residential) Limited5
Incorporated during the year.
1.
2. Wholly owned by Watkin Jones plc.
3. Wholly owned by Watkin Jones Group Limited.
4. Wholly owned by Watkin Jones Holdings Limited.
5. Wholly owned by Watkin Jones & Son Limited.
6. Wholly owned by Newmark Developments Limited.
7. Wholly owned by DR (Student) Limited.
8. Wholly owned by New Bridewell Limited.
9. Wholly owned by Fresh Property Group Holdings Ltd.
10. Wholly owned by Fresh Property Group Ltd.
Class of shares
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Nature of business
Property developer
Property developer
Property developer
Property developer
Property developer
Ordinary
Accommodation management
Ordinary
Accommodation management
Ordinary
Accommodation management
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Holding company
Holding company
Holding company
Holding company
Holding company and
property development services
Property fund asset manager
Leasing of aeroplane
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Property letting
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
All of the Group’s subsidiaries have the same registered office address of 21-22 Llandygai Industrial Estate, Llandygai, Bangor, Gwynedd,
LL57 4YH; with the exception of Fresh Property Group Holdings Ltd, Fresh Property Group Ltd and Five Nine Living Limited, whose
registered office address is 7-9 Swallow Street, London W18 4DE, and Fresh Property Group Ireland Limited, whose registered office is
One Spencer Dock, North Wall Quay, Dublin 1, Ireland.
Watkin Jones plc // Annual report and financial statements 2020
135
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
20. Joint ventures
At 30 September 2020, the Group had the following joint ventures, whose principal place of business is the UK:
Name
Deiniol Developments Limited1
Lacuna Academy Street Limited1
Lacuna Belfast Limited1
Lacuna Dublin Road Limited1
Lacuna WJ Limited1
Spiritbond Finsbury Park Limited1
Spiritbond Elephant & Castle Limited1
Freshers PBSH Chester (General Partner) Limited1
1. Held by Watkin Jones & Son Limited.
Class of shares
Percentage share
capital held
Financial
year end
Activity
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50% 30 September
Property development
50%
50%
50%
50%
31 March
31 March
31 March
31 March
50% 30 September
50% 30 September
Property development
Property development
Property development
Property development
Dormant
Dormant
50% 30 September
Property fund general partner
The Group’s interests in joint ventures are accounted for using the equity method.
Summarised financial information of the joint ventures and reconciliation with the carrying amount of the investment in the consolidated
statement of financial position are set out below:
Year ended
30 September 2020
Revenue
Operating profit/(loss)
Finance income/(expense)
Profit/(loss) before tax
Income tax gain/(expense)
Profit/(loss) for the year
Total comprehensive
income/(loss) for the year
Group share of
profit/(loss) for the year
Current assets, including cash
and cash equivalents
Non-current assets
Current liabilities, including
financial liabilities
Non-current liabilities, including
financial liabilities
Equity
Remove joint venture partners’
share of net assets
Group’s carrying amount
of the investment
Lacuna
Academy Street
Limited
£’000
2,900
476
—
476
(83)
393
393
196
437
—
(85)
—
352
(176)
176
Lacuna
Belfast
Limited
£’000
Lacuna
Dublin Road
Limited
£’000
Lacuna WJ
Limited
£’000
All other
joint
ventures
£’000
263
(72)
—
(72)
14
(58)
(58)
(29)
3,464
—
714
199
—
199
(38)
161
161
70
746
—
Total
£’000
4,012
551
—
551
(131)
420
420
199
7,890
—
(89)
(1,031)
(1,386)
—
3,375
(1,404)
(1,688)
1,380
1,687
—
(285)
146
(139)
—
6,504
(3,261)
3,243
135
126
—
126
(24)
102
102
51
2,786
—
(2)
—
2,784
—
(178)
—
(178)
—
(178)
(178)
(89)
457
—
(179)
—
278
(139)
139
136
Watkin Jones plc // Annual report and financial statements 2020
Financial statements Year ended
30 September 2019
Revenue
Operating profit/(loss)
Finance income/(expense)
Profit/(loss) before tax
Income tax gain/(expense)
Profit/(loss) for the year
Total comprehensive
income/(loss) for the year
Group share of
profit/(loss) for the year
Current assets, including cash
and cash equivalents
Non-current assets
Current liabilities, including
financial liabilities
Non-current liabilities, including
financial liabilities
Equity
Remove joint venture partners’
share of net assets
Group’s carrying amount
of the investment
Lacuna
Academy Street
Limited
£’000
Lacuna
Belfast
Limited
£’000
Lacuna
Dublin Road
Limited
£’000
Lacuna WJ
Limited
£’000
All other
joint
ventures
£’000
—
(18)
—
(18)
(4)
(22)
(22)
(11)
1,821
—
(1,862)
—
(41)
21
(20)
—
(2)
—
(2)
—
(2)
(2)
(2)
509
—
(52)
—
457
(228)
229
—
566
1
567
(112)
455
455
228
—
29
1
30
18
48
48
74
2,698
—
3,951
—
—
(6)
—
(6)
—
(6)
(6)
(3)
566
—
Total
£’000
—
569
2
571
(98)
473
473
286
9,545
—
(40)
(519)
(1,490)
(3,963)
—
2,658
—
3,432
(1,329)
(1,716)
1,329
1,716
—
(924)
464
(460)
—
5,582
(2,788)
2,794
21. Inventory and work in progress
Development land
Stock and work in progress
Total inventories at the lower of cost and net realisable value
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
53,326
72,334
125,660
55,605
78,621
134,226
Total costs incurred during the year were £251,361,000 (2019: £295,146,000), of which £38,991,000 are included in inventory and work in
progress (2019: £55,209,000).
Watkin Jones plc // Annual report and financial statements 2020
137
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
22. Contract assets and liabilities
(a) Current contract assets
At 1 October
Transferred to receivables
Balance remaining in relation to contract assets at the start of the year
Increase relating to services provided in the year
At 30 September
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
25,578
(8,683)
16,895
24,627
41,522
8,758
(4,238)
4,520
21,058
25,578
The contract assets primarily relate to the Group’s right to consideration for construction work completed but not invoiced at the balance
sheet date. The contract assets are transferred to trade receivables when the amounts are certified by the customer. Most of the Group’s
contracts for student accommodation and build to rent developments are structured such that there is a significant final payment which
only becomes due upon the practical completion of the relevant property. Most of the Group’s developments span at least two financial
years, which results in the recognition of a contract asset up until the practical completion of the property, at which point it is transferred
to trade receivables. None of the contract assets at the end of the year are past due, and taking into account the historical default
experience and the future prospects in the industry, the Directors consider that no contract assets are impaired.
(b) Current contract liabilities
At 1 October
Revenue recognised in the year that was included in contract liabilities at the beginning of the year
Contract liabilities repaid
Balance remaining in relation to contract liabilities at the start of the year
Increase due to cash received or invoices raised in the year for performance obligations
not recognised in revenue
At 30 September
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
5,164
(965)
(4,199)
—
8,967
8,967
14,314
(11,529)
(2,785)
—
5,164
5,164
The contract liabilities primarily relate to the advance consideration received from customers in respect of performance obligations
which have not yet been fully satisfied and for which revenue has not been recognised.
The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied or
partially satisfied at the balance sheet date in relation to the development of student accommodation, build to rent and commercial projects:
Construction contracts
233,267
12,775
—
246,022
The following table includes revenue expected to be recognised in the future related to performance obligations that were unsatisfied or
partially satisfied at 30 September 2019 in relation to the development of student accommodation, build to rent and commercial projects:
Year ending
30 September
2021
£’000
Year ending
30 September
2022
£’000
Year ending
30 September
2023
£’000
Total
£’000
Construction contracts
270,800
131,025
—
401,825
Year ending
30 September
2020
£’000
Year ending
30 September
2021
£’000
Year ending
30 September
2022
£’000
Total
£’000
138
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 23. Trade and other receivables
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments and other receivables
Equity instruments designated at fair value through OCI
Receivable from related parties (note 37)
Receivable from joint ventures (note 37)
Refundable land deposits paid
Total trade and other receivables
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
16,243
—
16,243
2,146
366
1
471
4,291
23,518
7,902
—
7,902
1,843
521
1
1,588
1,995
13,850
The fair value of the Group’s equity interest in shared ownership schemes, included within equity instruments designated at fair value
through OCI, is materially equal to historic cost.
The ageing analysis of trade receivables is as follows:
Neither past due nor impaired
Past due but not impaired:
Not more than three months
Greater than three months
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
16,129
7,858
—
114
16,243
28
16
7,902
The Group estimates expected credit losses on trade receivables by reference to past default experience of the debtor and an analysis
of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry
in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
As at 30 September 2020 and 2019, trade receivables that were neither past due nor impaired related to a number of debtors for whom
there is no recent history of default. The other classes of trade and other receivables do not contain impaired assets.
24. Cash and cash equivalents
Cash at bank and in hand as at 30 September 2020 includes £814,225 of cash deposited by the Group in an escrow account in connection
with a development in progress, access to which is contingent upon the completion of certain development works (30 September 2019:
£1,853,000). For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at bank and in hand. The Group
has not drawn on any overdraft facilities.
Watkin Jones plc // Annual report and financial statements 2020
139
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
25. Trade and other payables: current
Trade payables
Deferred income
Taxes and social security costs
Payable to related parties (note 37)
Payable to joint ventures (note 37)
Accruals
Other payables
Total trade and other payables
26. Interest-bearing loans and borrowings
Current
Svenska Handelsbanken AB five-year term loan
HSBC Bank plc RCF arrangement fees
Other interest-bearing loans
Non-current
Svenska Handelsbanken AB five-year term loan
HSBC Bank plc RCF
HSBC Bank plc RCF arrangement fees
Other interest-bearing loans
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
72,354
3,790
1,963
27
3,304
12,137
3,725
97,300
50,894
10,566
6,147
22
3,359
8,519
1,861
81,368
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
499
(200)
412
711
457
(116)
983
1,324
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
4,484
34,978
(725)
219
5,025
32,135
(88)
409
38,956
37,481
There is no material difference between the fair value of the Group’s borrowings and their book values.
During the year, the Group agreed an increase in the amounts available under its five-year revolving credit facility (“RCF”) from
£60.0 million to £100.0 million. The maturity date of the facility is 15 May 2025. At 30 September 2020, the Group had undrawn
borrowing facilities of £75.0 million (2019: £37.9 million) with HSBC Bank plc, comprising its RCF and a £10 million on-demand
and undrawn overdraft facility.
The RCF is secured by a debenture over Watkin Jones Group Limited, Watkin Jones Holdings Limited, Watkin Jones & Son Limited,
Duncan House Developments Limited, Onega Centre Bath Limited, Ellen Street Hove Limited and Goldcharm Residential Limited.
The applicable interest rate is 2.25% over LIBOR.
The loan with Svenska Handelsbanken AB is a five-year term loan secured by a legal charge over certain operating property stock assets.
The maturity date is 15 March 2022 and the applicable interest rate is 2.65% over three-month LIBOR.
140
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 27. Provisions
Current
At 30 September 2019 – restated (note 5)
Arising during the year
Utilised
At 30 September 2020
Non-current
At 30 September 2019 – restated (note 5)
Arising during the year
At 30 September 2020
Cladding
provision
£’000
—
11,213
(4,936)
6,277
Cladding
provision
£’000
—
3,587
3,587
In response to the revised government guidance, issued in January 2020, on the suitability of certain cladding solutions used on high-rise
residential buildings, the Group has agreed to work with the owners of 14 of its previously developed PBSA schemes to remediate or
replace cladding and to share the costs. A provision has been made for the Group’s anticipated contribution toward these fire safety
recladding works. The cost of the works relating to the non-current amount of the provision is expected to be incurred in the year ending
30 September 2022.
28. Deferred tax
The movement on the deferred tax account is shown below:
At the start of the period
Included directly in equity
Statement of comprehensive income (debit)/credit
At the end of the period
Comprising:
Deferred tax asset
Deferred tax liability
At the end of the period
The movements in deferred tax assets and liabilities are shown below:
At 1 October 2019
Statement of comprehensive income debit
Included directly in equity
At 30 September 2020
At 1 October 2018 (restated)
Statement of comprehensive income credit (restated)
Included directly in equity (restated)
At 30 September 2019 (restated)
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
2,794
(70)
(451)
2,273
3,313
(1,040)
2,273
Short-term
timing differences
£’000
Accelerated
capital allowances
£’000
2,862
(451)
(70)
2,341
(68)
—
—
(68)
Short-term
timing differences
£’000
Accelerated
capital allowances
£’000
2,385
407
70
2,862
(229)
161
—
(68)
2,156
70
568
2,794
3,836
(1,042)
2,794
Total
£’000
2,794
(451)
(70)
2,273
Total
£’000
2,156
568
70
2,794
141
Deferred tax debited directly to equity of £70,000 (2019: credited to equity of £70,000) relates to the share scheme movement in
Watkin Jones & Son Limited.
Watkin Jones plc // Annual report and financial statements 2020
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
29. Other financial assets and liabilities
Other financial assets
Financial instruments at fair value
Equity instruments designated at fair value through other comprehensive income
Other financial assets
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
1,133
1,133
1,139
1,139
Equity instruments designated at fair value through other comprehensive income comprise the value of units held by Watkin Jones
& Son Limited in the Curlew Student Trust (“CST”), together with the value of the carried interest held by Fresh Property Group Ltd
in CST and Curlew Student Trust 2 (“CST2”). CST and CST2 are Guernsey-registered unitised funds established to invest in student
accommodation. Watkin Jones & Son Limited originally made an investment in CST, as part of an agreement to develop three student
accommodation properties for the fund, and Fresh Property Group Ltd made a carried interest investment aligned to its role as preferred
property manager for the fund.
Fresh Property Group Ltd subsequently made a carried interest investment of £350,000 in CST2 on its establishment, aligned to its role
as preferred property manager for CST2.
The Group received no distributions against the carrying value of its investments in CST or CST2 in the year ending September 2020
(2019: £209,000).
The Group’s investment in CST and CST2 comprises the following:
30 September 2020
Curlew Student Trust
Units
Price
£
Units held by Watkin Jones & Son Limited
1,689,991
0.4267
Carried interest investment held by Fresh Property Group Ltd
Curlew Student Trust 2
Carried interest investment held by Fresh Property Group Ltd
Group’s carrying amount of the investment
30 September 2019
Curlew Student Trust
Units
Price
£
Units held by Watkin Jones & Son Limited
1,689,991
0.4251
Carried interest investment held by Fresh Property Group Ltd
Curlew Student Trust 2
Carried interest investment held by Fresh Property Group Ltd
Group’s carrying amount of the investment
Value
£’000
721
62
350
1,133
Value
£’000
718
71
789
350
350
1,139
The fair value of the units held by Watkin Jones & Son Limited in the Curlew Student Trust, included within equity instruments designated
at fair value through other comprehensive income, is based on a quoted fund unit price (Level 2 in the fair value hierarchy). This is an
investment and is not related to any individual property. The carried interest investments held by Fresh Property Group Ltd are stated at
fair value (Level 2 in the fair value hierarchy).
142
Watkin Jones plc // Annual report and financial statements 2020
Financial statements
30. Financial risk management
The Group is exposed to a variety of risks, such as market risk, credit risk and liquidity risk. The Group’s principal financial instruments are:
• loans and borrowings; and
• trade and other receivables, trade and other payables, and cash arising directly from operations.
This note provides further detail on financial risk management and includes quantitative information on the specific risks.
The Group recognises that movements in certain risk variables might affect the value of its loans and also the amounts recorded in
its equity and its profit and loss for the period. Therefore, the Group has assessed the following risks:
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises three types of risk: interest rate risk; currency risk; and other prices risk, such as equity price risk.
The Group’s exposure is primarily to the financial risks of changes in interest rates in relation to loans and borrowings.
Interest rate risk
Due to the levels of interest-bearing loans and borrowings at 30 September 2020, the Group had no material exposure to interest rate
movements. The Group renewed its RCF facility with HSBC for a further five years on 15 May 2020. The amount available under this facility
was increased to £100.0 million which means that the Group could potentially be exposed to increased interest rate risk in the future.
The Group has a treasury and hedging policy under which it determines the value at risk that it is willing to accept from a foreseeable
movement in interest rates. Interest rate hedging contracts will only be used to keep its interest rate risk exposure within these parameters
and there were no hedging contracts utilised during the year ending 30 September 2020 (2019: none).
A 0.5% movement in the interest rate applied to the interest-bearing loans and borrowings would have an impact on the Group’s profit
before taxation as below:
0.5% change in interest rate
Impact on profit before tax
Effect on profit before tax
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
195
120
Foreign currency risk
Capital items that are non-sterling priced are monitored to review the requirement for appropriate hedging.
Liquidity risk
Cash flow is regularly monitored and the relevant subsidiaries are aware of their working capital commitments. The Group reviews
its long-term funding requirements in parallel with its long-term strategy, with an objective of aligning both in a timely manner.
The table below summarises the maturity profile of the Group’s gross, undiscounted financial liabilities at 30 September 2020 and
30 September 2019:
Liquidity risk – 30 September 2020
Interest-bearing loans and borrowings
Trade and other payables
Liquidity risk – 30 September 2019
Interest-bearing loans and borrowings
Trade and other payables
On demand
£’000
—
—
—
On demand
£’000
—
—
—
Less than
one year
£’000
911
97,300
98,211
Less than
one year
(Restated)
£’000
1,440
81,368
82,808
Between one
and five years
£’000
More than
five years
£’000
39,681
—
39,681
—
—
—
Between one
and five years
£’000
More than
five years
£’000
37,569
—
37,569
—
—
—
Total
£’000
40,592
97,300
137,892
Total
£’000
39,009
81,368
120,377
Watkin Jones plc // Annual report and financial statements 2020
143
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
30. Financial risk management continued
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument leading to a financial loss. The Group
is exposed to credit risk from its cash and cash equivalents and trade receivables.
Credit risk from balances with banks and financial institutions is managed by depositing with reputable financial institutions, from which
management believes the risk of loss to be remote. The Group’s maximum exposure to credit risk for the components of the statement
of financial position is the carrying amounts of cash at bank and in hand.
Our customers are predominantly blue-chip institutional funds and the risk of default on the trade receivables they owe the Group is
low. In many cases, the funds for a forward sold development are ring-fenced, placed in escrow, or backed by committed debt funding
which reduces the risk of default. Credit evaluations are performed for all customers. Management has policies and procedures in place
to monitor the Group’s exposure to credit risk and the payment performance of the Group’s customers. At the year end there were no
significant concentrations of risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in
the statement of financial position.
Capital management policy
The primary objective of the Group’s capital management is to ensure that it has the capital required to operate and grow the business at
a reasonable cost of capital without incurring undue financial risks. The Board periodically reviews its capital structure to ensure it meets
changing business needs. The Group defines its capital as equity plus loans and borrowings. The Directors consider the management
of debt to be an important element in controlling the capital structure of the Group. The Group may carry moderate levels of long-term
borrowings to fund operations and working capital requirements. The net cash of the Group is analysed in note 34.
31. Share capital
Allotted, called up and fully paid
Ordinary shares of one pence each
Year ended
30 September
2020
£’000
Year ended
30 September
2019
£’000
2,562
2,553
The number of ordinary shares in issue at 30 September 2020 was 256,163,459 (30 September 2019: 255,722,099).
32. Employee benefits – long-term incentive plans
The Watkin Jones plc Long-Term Incentive Plan (the “Plan”) was approved by shareholders at the AGM held on 13 February 2018.
Details of the Plan, the vesting requirements and the performance targets applicable to the awards are set out in the Directors’
remuneration report on pages 90 to 95. The aggregate total awards granted under the Plan are as follows:
Share awards granted
At 1 October
Granted in the year
Exercised in the year (exercise price one pence per share)
Lapsed in the year
At 30 September
Year ended
30 September
2020
Number
Year ended
30 September
2019
Number
2,185,940
1,372,003
(441,360)
(125,300)
494,058
2,219,126
(453,224)
(74,020)
2,991,283
2,185,940
The weighted average share price at the date of exercise for the awards exercised during the year was: 145.6 pence (2019: 207.0 pence).
144
Watkin Jones plc // Annual report and financial statements 2020
Financial statements The fair value of the share awards granted subject to earnings per share (“EPS”) performance conditions is the market price of an ordinary
share of the Company at the date the award is granted. The fair value of the share awards granted subject to total shareholder return
(“TSR”) performance conditions has been estimated at the grant date using a Monte Carlo valuation model. The following table lists the
inputs to the model used for the share awards granted in 2020 and 2019:
Share price at grant
Exercise price
Expected term (years)
Expected volatility (%)
Risk-free interest rate (%)
Are dividend equivalents receivable for the award holder?
2020 LTIP
2019 LTIP
R Simpson
2018 buyout
2018 LTIP
160.4 pence
215.5 pence
230.0 pence
218.5 pence
One pence
One pence
One pence
One pence
Three
32.9
-0.06
Yes
Three
26.4
0.56
Yes
Three
27.0
0.71
Yes
Three
27.0
0.65
Yes
The total number of shares granted subject to the 2019 buyout awards of Richard Simpson’s Unite LTIPs for 2015 were fixed as the
Unite Group plc performance targets to which they were linked had already been achieved. The fair value of these awards was calculated
using a Black-Scholes valuation model. The following table lists the inputs to the model:
Share price at grant
Exercise price
Expected term (years)
Expected volatility (%)
Risk-free interest rate (%)
Are dividend equivalents receivable for the award holder?
R Simpson
2015 buyout
230.0 pence
One pence
0.15
27.0
0.71
Yes
The 2019 buyout awards of Richard Simpson’s Unite Group plc LTIPs for 2016 and 2017 vested based on Unite Group plc’s, rather than
Watkin Jones plc’s, performance. These conditions constitute “non-vesting” conditions under IFRS 2. As such, the fair value of the
grant includes a discount for the Unite Group plc performance conditions based on the extent to which Unite was expected to meet the
performance targets at the grant date. The Unite Group plc LTIPs for 2016 and 2017 are based on three performance conditions, being
adjusted EPS, Total Accounting Return (“TAR”) and Relative TSR. The following table lists the estimated performance against those
targets and notes on how these were estimated:
Adjusted EPS
TAR
Relative TSR
R Simpson 2016
buyout expected
vesting
R Simpson 2017
buyout expected
vesting
62.5%
58.8%
88.0%
95.5%
100.0%
100.0%
Source
February 2019 Eikon
earnings consensus
Published NAV and
February 2019 Eikon consensus
Return Index data from
Thomson Reuters DataStream
with growth measured
to February 2019
Total expected vesting
83.5%
84.76%
The fair value of the share awards granted under the Plan is charged to the statement of comprehensive income over the vesting period
of the awards, provided that the service conditions attaching to the awards continue to be met. The cumulative charge to the statement
of comprehensive income is recognised in the statement of financial position as a “share-based payment reserve”. For the year ending
30 September 2020, the amount charged to the statement of comprehensive income and credited to share-based payment reserve was
£37,000 (30 September 2019: £2,227,000).
Watkin Jones plc // Annual report and financial statements 2020
145
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
for the year ended 30 September 2020
33. Reconciliation of profit before tax to net cash flows from operating activities
Profit before tax
Depreciation of leased investment properties and right-of-use assets
Depreciation of plant and equipment
Impairment of leased investment properties
Amortisation of intangible assets
(Profit) on sale of plant and equipment
Finance income
Finance costs
Share of profit in joint ventures
Decrease/(increase) in inventory and work in progress
Interest capitalised in development land, inventory and work in progress
(Increase)/decrease in contract assets
(Increase)/decrease in trade and other receivables
Increase/(decrease) in contract liabilities
Increase/(decrease) in trade and other payables
Provision for fire safety cladding works
Increase in share-based payment reserve
Net cash inflow from operating activities
Major non-cash transactions
There were no major non-cash transactions during the period.
Year ended
30 September
2020
£’000
Year ended
30 September
2019
Restated
(note 5)
£’000
25,314
7,865
998
2,241
560
(24)
(245)
6,366
(199)
8,566
465
(15,944)
(10,786)
3,803
15,987
9,864
37
54,868
47,864
7,760
835
786
559
(42)
(428)
5,874
(286)
(1,948)
216
(16,820)
4,089
(9,150)
(2,593)
—
2,227
38,943
34. Analysis of net cash/(debt)
30 September 2020
Cash at bank and in hand
Other interest-bearing loans
Bank loans
Net cash before deducting lease liabilities
Lease liabilities (note 17)
Net debt
30 September 2019 – restated (note 5)
Cash at bank and in hand
Other interest-bearing loans
Bank loans
Net cash before deducting lease liabilities
Lease liabilities (note 17)
Net debt
At beginning
of year
£’000
115,652
(1,392)
(37,413)
76,847
(137,522)
(60,675)
At beginning
of year
£’000
106,640
(2,023)
(24,459)
80,158
(143,292)
(63,134)
Cash flow
£’000
18,861
1,034
(1,444)
18,451
6,089
24,540
Cash flow
£’000
9,012
1,307
(12,938)
(2,619)
5,953
3,334
Other
movements
£’000
At end of year
£’000
—
(273)
(179)
(452)
(3,020)
(3,472)
134,513
(631)
(39,036)
94,846
(134,453)
(39,607)
Other
movements
£’000
At end of year
£’000
—
(676)
(16)
(692)
(183)
(875)
115,652
(1,392)
(37,413)
76,847
(137,522)
(60,675)
Cash at bank and in hand as at 30 September 2020 includes £814,225 of cash deposited by the Group in an escrow account in connection
with a development in progress, access to which is contingent upon the completion of certain development works (30 September 2019:
£1,853,000). Non-cash movements relate to the acquisition of property, plant and equipment under other interest-bearing loans,
the amortisation of bank loan arrangement fees and changes to the calculation of the value of lease liabilities as a result of movements
in the rent inflation rates assumed.
146
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 35. Capital and other financial commitments
The Group had no material capital commitments at 30 September 2020 or 30 September 2019.
36. Contingent liabilities
The Group has contingent liabilities of £537,000 (2019: £605,000) in respect of performance bonds entered into with HCC
International Insurance Company PLC, Euler Hermes Europe S.A. (N.V.), Aviva Insurance UK Limited and the Electrical Contractors’
Insurance Company Limited.
Watkin Jones Group Limited, Watkin Jones Holdings Limited, Watkin Jones & Son Limited and certain subsidiaries thereof have given
debentures containing fixed and floating charges and have entered into a corporate guarantee of the Group’s bank borrowings from
HSBC Bank plc, which at the balance sheet date amounted to £34,978,000 (2019: £32,135,000).
No material liabilities are expected to arise as a result of the above arrangements.
37. Related party transactions
The Group processed payroll costs on behalf of Carlton (North Wales) Limited and its subsidiary companies of £Nil (2019: £199,000).
No amount was owed to or from Carlton (North Wales) Limited and its subsidiary companies at the balance sheet date.
The Group paid rent and service charges to Planehouse Limited and its subsidiary companies amounting to £316,000 (2019: £316,000)
and processed payroll costs on behalf of the Company of £Nil (2019: £101,000). No amount was owed to or from Planehouse Limited and
its subsidiary companies at the balance sheet date.
Carlton (North Wales) Limited and Planehouse Limited are owned by Watkin Jones family trusts. Certain of the trusts controlled by the
Watkin Jones family are shareholders in the Company. Mark Watkin Jones has a potential beneficial interest in the family trusts and was
a Director of the Company until 15 January 2019.
The Group provided services to the Watkin Jones & Son Limited Directors’ Pension Scheme, in which Mark Watkin Jones and other
members of the Watkin Jones family have an interest, amounting to £Nil (2019: £36,000).
During the year the Group paid an amount of £16,800 to Richard Simpson (2019: £Nil) to cover the costs of a corporate hospitality event
which he hosted.
As referred to in note 29, Watkin Jones & Son Limited invested £2,000,000 in units in the Curlew Student Trust (“CST”) and Fresh Property
Group Ltd invested £500,000 by way of a carried interest investment in CST. During the year, the Group received a distribution against the
carrying value of its investment in CST amounting to £Nil (2019: £209,000). The fair value of the units held in CST by Watkin Jones & Son
Limited at 30 September 2020 amounted to £721,000 (2019: £718,000) and the fair values of the carried interest investments in CST and
CST2 held by Fresh Property Group Ltd amounted to £62,000 (2019: £71,000) and £350,000 (2019: £350,000) respectively.
Under a joint venture agreement the Group was owed £466,000 at 30 September 2020 by Deiniol Developments Limited (2019: £716,000).
The Group owns 50% of the share capital in Deiniol Developments Limited.
The Group has a 50% interest in Lacuna Belfast Limited. The Group made payments of £5,000 to Lacuna Belfast Limited during the year
(2019: received payments of £230,000 from Lacuna Belfast Limited). At the balance sheet date, £194,000 was owed to Lacuna Belfast
Limited (2019: £199,000).
The Group has a 50% interest in Lacuna Dublin Road Limited. The Group received payments of £62,000 from Lacuna Dublin Road Limited
during the year (2019: £180,000). At the balance sheet date, £1,308,000 was owed to Lacuna Dublin Road Limited (2019: £1,246,000).
The Group has a 50% interest in Lacuna WJ Limited. During the year, the Group charged development fees to Lacuna WJ Limited
amounting to £Nil (2019: £60,000). The Group made payments of £280,000 to Lacuna WJ Limited during the year (2019: received
payments of £280,000). At the balance sheet date, £1,695,000 (2019: £1,975,000) was owed to Lacuna WJ Limited.
The Group has a 50% interest in Lacuna Academy Street Limited. During the year, the Group charged development fees to Lacuna
Academy Street of £250,000 (2019: £Nil). The Company has made payments during the year to Lacuna Academy Street Limited of £44,000
and received payments of £1,379,000 (2019: made payments of £116,000), following a sale of the land held by the company. At the balance
sheet date, £168,000 was owed to Lacuna Academy Street Limited (2019: £868,000 owed by Lacuna Academy Street Limited).
All transactions with related parties have been carried out on an arm’s length basis.
Watkin Jones plc // Annual report and financial statements 2020
147
Strategic reportGovernanceCompany informationFinancial statements COMPANY STATEMENT OF FINANCIAL POSITION
as at 30 September 2020
Fixed assets
Investments
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Share-based payment reserve
Retained earnings
Total equity
30 September
2020
£’000
30 September
2019
£’000
Notes
41
42
43
258,123
258,086
(67,785)
(67,785)
190,338
2,562
84,612
2,348
100,816
190,338
(53,475)
(53,475)
204,611
2,553
84,612
2,311
115,135
204,611
The notes on pages 150 to 151 are an integral part of these Company financial statements.
No income statement has been presented as permitted by Section 408 of the Companies Act 2006. The profit for the Company after
taxation was £Nil.
Approved by the Board of Directors on 19 January 2021 and signed on its behalf by:
Richard Simpson
Director
148
Watkin Jones plc // Annual report and financial statements 2020
Financial statements COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2020
At 1 October 2019
Dividend paid (note 40)
Issue of shares
Share-based payments
Share
capital
£’000
2,553
—
9
—
Share
premium
£’000
84,612
—
—
—
Share-based
payment
reserve
£’000
2,311
—
—
37
Retained
earnings
£’000
115,135
(14,319)
—
—
Total
£’000
204,611
(14,319)
9
37
Balance as at 30 September 2020
2,562
84,612
2,348
100,816
190,338
At 1 October 2018
Dividend paid (note 40)
Share-based payments
Share
capital
£’000
2,553
—
—
Share
premium
£’000
84,612
—
—
Balance as at 30 September 2019
2,553
84,612
Share-based
payment
reserve
£’000
84
—
2,227
2,311
Retained
earnings
£’000
135,248
(20,113)
—
115,135
Total
£’000
222,497
(20,113)
2,227
204,611
Watkin Jones plc // Annual report and financial statements 2020
149
Strategic reportGovernanceCompany informationFinancial statements NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 30 September 2020
38. Accounting policies
General information
Watkin Jones plc (the “Company”) is a public limited company incorporated in the United Kingdom under the Companies Act 2006
(registration number 9791105). The Company is domiciled in the United Kingdom and its registered address is 7-9 Swallow Street,
London W1B 4DE.
Basis of preparation
No income statement has been presented as permitted by Section 408 of the Companies Act 2006. The profit for the Company after
taxation was £Nil.
No cash flow has been presented for the Company as it has no cash in its own right.
The statement of financial position has been prepared and approved by the Directors in accordance with International Financial Reporting
Standards as adopted by the EU.
Investment in subsidiaries
The Company’s investments in subsidiaries are accounted for at cost less accumulated impairment losses.
Dividends
Revenue is recognised when the Company’s right to receive payment is established.
Share-based payments
The Company issues equity-settled share-based payments to certain Executive Directors of the Company and to certain employees
of its subsidiaries. Equity-settled share-based payments are measured at fair value at the grant date. The fair value is expensed
on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. The cost of equity-setted
share-based payments granted to employees of subsidiary companies is borne by the employing company, without recharge. The cost
of equity-settled share-based payments granted to Executive Directors of the Company is recharged to its principal trading subsidiary as
it receives the benefit of their services. In the Company’s financial statements, the Company’s investment in subsidiaries is increased by
an amount equal to the charge for the period, with a corresponding increase to share-based payment reserve.
39. Employee costs
The only employees of Watkin Jones plc are the Executive and Non-Executive Directors. Details of the employee costs associated with
the Directors are included in the Directors’ remuneration report and summarised below. All employee costs incurred by the Company are
recharged to Watkin Jones & Son Limited, the Company’s principal trading subsidiary.
Wages and salaries
Employee incentive – long-term incentive plans
Social security costs
Pension costs
2020
£’000
1,015
53
270
101
1,439
2019
£’000
1,566
2,083
475
82
4,206
The above amounts for the year ended 30 September 2019 include the exceptional costs of £2,576,000 in compensating Richard Simpson
for the forfeiture of his incentive awards on leaving his former employer (note 8). These include an amount of £362,000 included in “Wages
and salaries” in respect of his forfeit 2018 bonus and an amount of £1,902,000 included in “Employee incentive – long-term incentive
plans” in respect of his forfeit 2015-2017 share awards. The employer’s national insurance charge on those amounts of £312,000 has been
included in “Social security costs”.
150
Watkin Jones plc // Annual report and financial statements 2020
Financial statements 40. Dividends
Amounts recognised as distributions to equity holders in the year
Interim dividend paid in June 2020 of nil pence (June 2019: 2.75 pence)
Final dividend paid in February 2020 of 5.6 pence (February 2019: 5.13 pence)
2020
£’000
—
14,319
14,319
2019
£’000
7,018
13,095
20,113
The interim dividend that would have been paid in June 2020 was suspended, due to the impact of COVID-19 on the business.
The final dividend proposed for the year ended 30 September 2020 is 7.35 pence per ordinary share. This dividend was declared after
30 September 2020 and as such the liability of £18,828,000 has not been recognised at that date. At 30 September 2020, the Company
had distributable reserves available of £100,816,000 (30 September 2019: £115,135,000).
41. Investments in subsidiaries
Cost
1 October 2019
Capital contribution relating to share-based payments
30 September 2020
Subsidiary
undertakings
£’000
258,086
37
258,123
The Company owns 100% of the issued shares in Watkin Jones Group Limited, a company incorporated in England and Wales (note 19).
The principal activity of Watkin Jones Group Limited is that of property development.
42. Trade and other payables: current
Financial liabilities
Group undertakings
43. Allotted and issued share capital
Allotted, called up and fully paid
Ordinary shares of one pence each
2020
£’000
2019
£’000
67,785
53,475
2020
£’000
2019
£’000
2,562
2,553
44. Share-based payments
Details of share awards granted by the Company to Executive Directors and to employees of its subsidiaries, and that remain outstanding
at the year end over the Company’s shares, are set out in note 32 to the Group financial statements. The Company did not recognise
any expense related to equity-settled share-based payment transactions in the current or preceding year. The cost for the year ending
30 September 2020 of the awards granted has been recharged to Watkin Jones & Son Limited.
Watkin Jones plc // Annual report and financial statements 2020
151
Strategic reportGovernanceCompany informationFinancial statements ADVISERS
Nominated adviser and broker
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Joint broker
Jefferies Hoare Govett
Vintners Place
68 Upper Thames Street
London EC4V 3BJ
Auditor and reporting accountants
Ernst & Young LLP
2 St Peter’s Square
Manchester M2 3EY
Solicitors to the Company
DLA Piper UK LLP
Victoria Square House
Victoria Square
Birmingham B2 4DL
Company registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham BR3 4TU
Financial PR
Buchanan
107 Cheapside
London EC2V 6DN
Company secretarial services
Prism Cosec
42-50 Hersham Road
Walton-on-Thames
Surrey KT12 1RZ
SHAREHOLDER INFORMATION
Country of incorporation and main
country of operation
Watkin Jones plc is incorporated in England
and Wales. The Company operates in the UK.
Number of securities in issue
As of 19 January 2021, the Company’s issued share capital
consists of 256,163,459 ordinary shares with a nominal value
of one pence each. The Company has no treasury shares.
Details of any restrictions on the transfer
of securities
There are no restrictions on any of the Company’s
AIM securities.
Securities not in public hands
As of 19 January 2021, the percentage of the Company’s
issued share capital that is not in public hands is 22.4%.
Details of other exchanges or trading platforms
The Company’s shares will only be traded on the London
Stock Exchange’s AIM market at present.
Company registration
Registered office: 7-9 Swallow Street, London W1B 4DE.
Registered in England and Wales (company number 9791105).
152
Watkin Jones plc // Annual report and financial statements 2020
Company information GLOSSARY
AGM
APM
AIM
BTR
CGU
CST
CST2
EBITDA
EIR
EPS
EY
Annual General Meeting
Fresh or FPG Fresh Property Group
alternative performance measures
Alternative Investment Market
build to rent
cash-generating unit
Curlew Student Trust
Curlew Student Trust 2
earnings before income tax, depreciation
and amortisation
effective interest rate
earnings per share
Ernst & Young LLP
FVOCI
GDPR
HSE
IFRS
IPO
OCI
PBSA
RCF
SDGs
TSR
fair value through other comprehensive income
General Data Protection Regulation
health, safety and environment
International Financial Reporting Standards
initial public offering
other comprehensive income
purpose built student accommodation
revolving credit facility
UN’s Sustainable Development Goals
total shareholder return
FINANCIAL CALENDAR
Annual General Meeting (“AGM”)
The Company’s AGM will be held virtually at 10.30am
on 19 February 2021. The Notice of meeting is available on
the Group’s website www.watkinjonesplc.com.
Final dividend
The final dividend will be paid on 26 February 2021
to shareholders on the register at the close of business
on 29 January 2021. The shares will go ex-dividend on
28 January 2021.
The paper used in this report is produced using virgin wood fibre from well-managed
forests with FSC® certification. All pulps used are elemental chlorine free and
manufactured at a mill that has been awarded the ISO 14001 and EMAS certificates
for environmental management. The use of the FSC® logo identifies products which
contain wood from well-managed forests certified in accordance with the rules of the
Forest Stewardship Council.
Printed by L&S Printing Company Ltd., an FSC® and ISO 14001 accredited company,
who is committed to all round excellence and improving environmental performance
as an important part of this strategy.
Designed by
www.lyonsbennett.com
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CREATING THE
FUTURE OF
LIVING
Watkin Jones plc
7-9 Swallow Street
London
W1B 4DE
+44 (0)1248 362 516
info@watkinjones.com
www.watkinjonesplc.com
Watkin Jones Group
@Watkin_Jones
Watkin Jones Group