Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

So good morning, and welcome to the Watkin Jones preliminary results. For those of you who don't know me, my name is Richard Simpson, I'm the Chief Executive. And I'm really pleased to be standing in front of you this morning with this set of results to run you through. We're going to do it by -- I'm going to give you a quick overview as to some of the highlights of the year, then Phil is going to run you through a slightly deeper dive into some of the financials. I'm then going to pick back up and just update you on any developments or anything that's evolved across the markets and then I'll summarize. I think at that stage, we'll go to Q&A. So if possible, could you save up your question for the Q&A at the end. So in terms of the highlights, the overview then. I think it's characterized by another successful year in growth. The strategy is working. And I think that definitely sits in good contrast to the difficult wider U.K. market. It definitely shows that Watkin Jones is the U.K.'s market leader in developing and managing residential for rent. I think in-year performance, in particular, has been underpinned again by purpose-built student accommodation, but markedly seen build to rent make a meaningful contribution. And that is something we will see continue as we go forward and as we look to grow. We have continued to successfully deepen our pipeline with good quality development sites, both for purpose-built student accommodation, but equally for BtR around the U.K. within the year. And we've also undertaken a small restructure within the business just to redeploy some of the resource to better deliver on our value chain, which effectively is looking at strategy, and then it's looking at land and then it's looking at planning, and it's looking at divestment into the institutional market and, of course, critically then into the construction activity itself prior to handing over to Fresh, who will look to stabilize, through property management, the investment value of the asset. So all of those activities in-year firmly position the group within and towards our purpose, which is around creating the future of living. And I think it really has set the foundations appropriately for the next few years as we look to grow the annual run rate of our deliveries of student and build to rent in that coming period. So looking at some of the sort of key points from performance. I won't steal Phil's thunder but I think ultimately, trading has been in line, and it's been in line across the business, well supported, well underpinned through all group activities. I think pleasingly, the gross margin is at 20.5% and that shows a good conversion within the company itself. Dividend is up just under 10% to 8.35p per share. Now that is both fulfilling our guidance of coming down in line with 2x cover for the dividend. But at the same time, we've stepped up slightly above that, too, which is some of the management confidence about our performance and how we see the near-term outlook. So interestingly, the pipeline for this year has all been forward sold. Again, that was a good step forward from last year. So FY '20 is fully sold. That's across PBSA and BtR. BtR is more of a headline as we only have one asset, which is completing this year, but nonetheless, that is fully sold. And for FY '21 forward, we've been deepening our pipeline, which we'll turn to in a second, I think relatively strongly as I've just flagged across both PBSA and BtR. So just looking at the segments within the business. Turning to student. I think we should start with completions within the year. That should never be taken for granted. We completed 6 schemes -- just over 6 schemes, just over 2,700 bed spaces all in line with budget, quality and time within the year. We forward sold, as I flagged already, all of our 2020 completions, that's 7 schemes. And then in terms of deepening our pipeline, as I've just flagged, we've now secured 6,700 bed spaces for forward development from now until 2024. And we still see the opportunity to grow the annual run rate of deliveries up to 3,500 beds per annum from our current run rates by financial year '23, '24. Clearly, there's a gestation period for this. It will take 3 years' worth of development life cycle works of securing sites, securing planning to actually sort of be able to deliver those schemes for that period of time. So the work we're starting now and have started over the course of this financial year absolutely does deliver and drive the opportunity for growth looking forward. Within BtR, I think a real highlight was the forward sale of 2 schemes, one in London and one on the South Coast in Bournemouth to M&G in the autumn. Absolutely demonstrated and gave real evidence of liquidity of depth of demand of those global institutions for BtR within the U.K. And the broader pipeline is firmly on track. So we forward sold, as a fact, already the asset for 2020 completion, but we've also forward sold all of our 2021 completions, too. So again, deepening and giving more visibility of earnings over the next couple of years, which is pleasing. And our total secured pipeline is now up to 2,300 units for delivery between FY '20 and FY '23. So a meaningful step-up in pipeline, and I would expect that to continue to grow as we give reign to our growth ambitions over the coming period. And we're still looking at the opportunity for 1,000 units per annum being delivered from FY '23, '24. The same point that I've just made about PBSA, there's a gestation of 3 to 4 years to really get that pipeline moving. So the work we're doing now is absolutely fueling those deliveries in the coming years. Accommodation management, just touched on this briefly as we do have a slide coming up a little bit later. But good performance, good growth year-on-year. As I say, I will come back to that. Residential, already just note that a very strong performance actually through residential, very good profit growth. That performance is in line with management expectations. We sold 150 units. The northwest of England is and has been our core market. It is also one of the most robust markets for housing in the U.K. And we would expect that to continue certainly into the short term. Another string to our bow from having this build to sell capability is that increasingly, planning consents need to be mixed-use. And so we might anchor with student accommodation, we might anchor with build to rent. But increasingly, there could well be a need for build to sell being a small component part of the overall development and therefore, having a build to sell capability already in-house is extremely useful as we take that forward. So if we look at the pipeline as I've sort of been talking about already. We do have 3 to 4 years visibility of our pipeline. 3 years is absolutely for PBSA and then BtR because it takes slightly longer, is our sort of fourth year component of that. And I think a few of the highlights within the year, so forward sales. We forward sold PBSA assets, 3 BtR assets. In terms of site purchases, we absolutely deepened good quality land bank pipeline within those core cities. So in Bath, in Bristol, in Birmingham, in Edinburgh and also in Brighton & Hove, too. Planning has been moving forward. So securing planning in Bristol, a couple in Leicester and also in London, too, has helped move our pipeline forward. So overall, the outlook is positive, and we are still looking very much at the growth aspirations, which we set out at the Capital Markets Day just a few short weeks ago, although it feels a bit longer with the Christmas break now sitting in the way. We do expect at this stage any sort of input cost inflation, which might begin to come through into the market as some of the more positive sentiment around the U.K. potentially translates into those -- into inflationary activity at the moment, to be offset by keener prices, which we would expect to achieve as we sell at the end. It is worth noting, we haven't seen cost inflation inputs either through land or through build, it's the principal area where we'd see those. And in fact, we are well provided for cost inflation. So, for example, within build costs, we typically hold 3% to 4% annual build cost inflation allowance. I think actually, on average last year, we probably saw about 2.5% across the U.K. Clearly, a big regional variance within that, but blended about 2.5%. So I think we're well insulated anyhow. But nonetheless, my comment there about inflation matching, better resell or end sale prices, I think, holds for now. I will keep you posted as that evolves. So just looking at Fresh then. I think it is a real differentiator, and there's probably 3 points that I would draw out of Fresh. I think the first one is the consumer insight and, for me, it is the most important thing. We have 17,000 customers that live with us every day, living around the U.K. variously through PBSA and BtR. We're getting a lot of feedback, some good, some bad, some indifferent, some ideas, some suggestions all the time. And that absolutely drives the next iteration of how we think about product and proposition. And it's pretty unusual, if not unique, for a developer to have that level of access to that direct customer and consumer feedback. It is absolutely a big part of our competitive advantage, which institutional investors see and feel. And I think increasingly as we leverage forward and grow, that becomes an increasingly important aspect. Let me give you just a couple of very simple examples, neither of them are revolutionary, but there are hundreds of these happening all the time. The first one is mattresses. We've had a lot of feedback from customers about mattresses, some quite like hard mattresses, some quite like soft mattresses. And it's quite hard to split the difference. And so we've been working with a mattress manufacturer where one side is hard, the other side is soft, the customer can make their choice. It's just a really small initiative like that, and it does make a difference. Absolutely, it does. A second example is more on the student side of things. Chinese students over-index international students in the U.K. significantly. They make up a significant proportion of international students. And trying to make their home here in student accommodation for like a home-from-home is really important. And a small way of doing that is to put in vending machines, which just have Chinese treats within them. And we've done that in all of our accommodation around the U.K. where we have a decent proportion of Chinese students. Those vending machines at the moment are being filled up 4x a week. It is making a big difference. It's just helping people settle in and make the most of their time when they're living in our buildings. So just a few insights there. There are dozens like that all the time, which are just coming into our model, how we operate, and we'll continue to do so as we go forward. I think the other 2 points briefly on Fresh. One is actually very strong performance from Fresh, really good growth, very high margin. It's a very good business, highly regarded externally. You can see that by the increasing proportion of asset owners who want Fresh to come and manage their asset even where WJ hasn't developed it. And you can see that proportion is just coming up to roughly half of the portfolio. I expect that to continue. Now all of that feeds neatly into BtR. BtR is going to grow significantly in terms of property management. The whole story of BtR is going to be about consumer brand. I think Fresh is well positioned to really grow into that over the next few years. So on that note, I'm going to hand over to Phil to give us a deeper dive into the financials.

Thank you, Richard. Good morning, ladies and gentlemen. And having listened to the introduction from Richard and then the overview of the highlights, I really wanted to now just go into the financials in some more detail and really have a look at our segmental performance as well, and pickup on 1 or 2 salient areas as we go through this. So first thing, group income statement. Again, full year highlights for FY '19. As Richard commented on, it's been another year of profitable growth for the group, which is highly encouraging. Revenues overall up relatively modestly 3.2% to GBP 375 million. But there's a shift in mix in the business there, which we'll look on -- look at on the segment analysis shortly. I think very positively, really because we're focusing on the right quality of sites, we've been able to see further improvement in the gross margin for the business, which increased to 20.5%, and that led then to an overall increase in group gross profit of 6% to GBP 76.8 million. I think also positive to report the operating margin. So the costs remaining under good control. We've seen a pickup in the operating margin there to 14% for the year as well. Overall then, in terms of profit performance, positive movement forward, as I said, it's a 4.5% increase in our adjusted PBT to GBP 52.3 million. And that's really then given us the confidence and in line with our stated policy to move to a formal dividend 2x covered by adjusted earnings to increase the dividend per share to 8.35p, a 9.9% increase on the prior year. For the income statement, it's worth just as well covering it off, but the figures as reported in our interims, an exceptional charge in the period of GBP 2.6 million, which related to the compensation payable to Richard in connection with the forfeiture of incentive arrangements that he had in place with his former employer, Unite. So moving on to look at our segmental performance and a couple of things in here really. I think from the pie chart, you can see, to some degree, the shift in the contribution from different segments within the business during the year. And particularly striking is that sort of now quite pronounced blue slice there, which is in respect of build to rent making a very significant contribution to the group's results for the first time in FY '19. For student accommodation, we did indeed see a reduction in revenues of 21.3% in FY '19, which is very much as we expected and as per guidance that we've given previously, really reflects the lower number of beds that we delivered to the market in FY '19. And that in itself is a consequence of having decided to really focus on a smaller number of high-quality, high-margin sites. I think bear in mind the sort of lead time to acquiring sites and that's coming through to delivery. That decision was really taken post that initial sort of Brexit poll result. And obviously, we just wanted to be a little bit cautious after that in terms of what that might mean in terms of market uncertainty. So really focusing on quality and driving the margins through where we were confident that we could do that. Overall, PBSA then, representing about 66% of group revenues, are still driving part of our business but down from the 86% that we had last year. Build to rent, clearly, the story here is very much the growth opportunity within build to rent, and we can see that now starting to come through in the results that we're reporting. So revenues from build to rent, GBP 73.6 million, up from just GBP 3.8 million in FY '18. And that really reflects good progress in our 2 developments in build in Reading and Wembley as well as the forward sales of new developments that we had just before the financial year-end. Now representing them for FY '19, 20% of group revenues overall. Accommodation management, clearly, a very important part of the Watkin Jones story overall. In terms of the revenues contributed from that business, GBP 7.5 million, slightly up on FY '18. But a very, very positive growth in the underlying business within Fresh in the year. In the prior year, we have reported that Fresh had lost about 4,600 beds under management associated with the sale of a portfolio of assets by the Curlew Student Trust. And but Fresh has been successful in replacing those with new wins and opportunities over the last couple of years, enabling it to still grow its revenues in FY '19. Residential, also strong contribution from our residential division during the year. So a 27% increase in revenues from our residential business up to GBP 38.1 million. It sold about 150 homes, predominantly in our sort of Northwest heartland for the Northwest residential business. But we also had apartment sales in our developments in Stratford and Bath as well contributing to revenues there. And I think importantly, the revenue growth also coming through in part from a development agreement that we've entered into to develop 75 residential apartments in Stratford at Marshgate. And that development will contribute to revenues also through FY '20 and '21. And I'll just to top it off, the other revenues are in relation to the commercial element of the build to rent scheme in Bournemouth that we're developing, which is forward sold before the year-end, contributed revenues of about GBP 9.5 million associated with that. In terms of segmental growth profit, a similar story here really. So again, we can see the shifting contribution here as the build to rent opportunity really comes through. But in terms of student accommodation, that focus on high-quality, high-margin sites is really then reflected in the margin that we can see for PBSA. So very robust gross margin for PBSA for the year, 21%, up from 19.4% in FY '18. Build to rent, interestingly, strong growth profit contribution here. Gross margin, actually 18% for that business for the year. I think it's worth reflecting that the revenue and gross margin here is really being contributed by the 2 schemes that are really currently in build in the year, which was, say, Reading and Wembley. And Reading particularly was a major contributor to the profit performance, really a function of the kind of pricing and terms around that particular agreement. But it's still the case looking forward into our future pipeline and our evaluation of those that we would see 15% as a kind of target margin for build to rent in the medium term with some potential, hopefully, with time that, that will show improvement above that. Accommodation management, very pleasing to report. Again, consistently good margin performance within the accommodation management business, remaining robust there at 61.5% in the year. And residential, likewise, strong margin performance from our residential business. When we exclude about GBP 3.5 million of sales at 0 margin from a legacy site in Droylsden in Manchester, the underlying margin for the residential business at 22.3%, very much in line with what we were achieving last year. In terms of cash flow and balance sheet, I think, again here, that the position is a positive one for the year. Overall, we achieved an increase in our gross cash balance of GBP 9 million to GBP 115.6 million. I think within the mix of activity here, the cash flow coming in from our operating activities, positive at GBP 52 million overall. But we did have a negative working capital outflow of about GBP 25 million, really associated with amounts receivable and paid in advance on contracts in build. So it's very much a function of the timing of when cash flows through on developments and build, bearing in mind that we're typically talking about a sort of 2-year period of activity here. So within that GBP 25 million increase there, there's about GBP 12 million of that really relates to amounts receivable on contracts, particularly final payments that are due on completion of development. So those will be paid on completion of the schemes in FY '20. And now for those in build, that we'll be completing in FY '21. That's a purely timing aspect there. We've referred to before, most of our developments typically have a final payment associated with them equal to about 10% of the development value, and it's the buildup of those final payments that is just driving that increase there of GBP 12 million. So nothing concerning in that, it's just purely a timing matter. Similarly, on the liability side of things, effectively, we're showing a reduction in contract liabilities of GBP 13 million. That, purely again, is just a function of timing of cash flows on developments rather than us paying creditors any earlier or anything of that nature. And also just worth referencing, the borrowing increased by GBP 12 million in the year to GBP 58.8 million. That's very much project-specific and site-specific loans that we've taken down there. And probably the key addition to that in the period was in respect of the build to rent side that we acquired in Brighton & Hove, where the cash cost of that was about GBP 15 million, and we partly debt funded the acquisition of that particular opportunity there. In terms of the balance sheet then. As we progress, we've seen further increase in shareholders' equity increased now to GBP 176 million at the 30th September 2019. And really reflecting the very capital-light nature of the Watkin Jones business model, we're seeing a return on shareholders' equity for the year of 30%. It's a very healthy return continuing to come through the business. And I think it also just reflects inventory and work in progress, largely unchanged from the prior year position, GBP 134 million. And that does include that acquisition in the Brighton & Hove site that I referred to before. I think just again to look at the cash requirements for the business. This is a slide that we've very much presented before. But I think just worth revisiting to again, understand really just the cash flows and dynamics within the sort of current business cycle that we have. So we have this very typical hockey stick cash profile, utilization of cash during the year. From a development point of view, we trade positively in terms of development cash flow. So development incomes typically covering our expenditure on developments. But when you take into account the other cash cost of the business in terms of dividends, tax, overheads and some investments in the new site opportunities in order to sort of obviously build the future pipeline, it does give a cash call during the year. And that swing at the moment is in the order of sort of GBP 80 million to GBP 100 million of cash during the course of the year. So with our current 3-year end cash position of around GBP 100 million, that is a level that is appropriate for the business in its current state to manage that working capital requirement, invest in those future site opportunities and continue to evolve the business. I think it is likely as we look to build the business going forward and to realize that growth opportunity that Richard referred to in student accommodation and build to rent, that we could see a further step-up in that cash requirement perhaps to GBP 150 million or so, really to facilitate the acquisition of those site opportunities as they're coming through. So it's really investing for that future growth opportunity there. Last slide to talk about is the impact of new accounting standards. And there are a couple of really sort of relevant points to bring out from this. The first one is just in relation to IFRS 15, which we implemented for the first time for the financial year just reported. I think the main impact of this from a sort of interpretation point of view in terms of how that affects our performance reporting is that historically, we used to look at an entire development agreement, the land sale and the development element of that on an aggregated sort of basis and recognize revenue margin across the kind of spectrum of combined position. Under IFRS 15, there is a technical requirement there for us to separate the land sale element from the development agreement element. So we recognize the land sale and any margin on that in isolation from then the development works that follow. In practical terms, it has a little impact on our reporting. It's more a kind of technical interpretation. However, for FY '19, the full year of implementation there, it did reduce revenues and profit before tax by about GBP 613,000. In reporting that, we've not restated our prior year comparatives. For IFRS 16, the first year of adoption of this will be FY '20. So it's effective from the 1st of October 2019. And this does have a more significant effect on the figures that we will be reporting going forward. The impact really primarily relates to several historic leaseback arrangements that we entered into in relation to a small number of student accommodation schemes. Agreements really sort of negotiated around about the periods of 2019 to 2014. And these are lease arrangements, which have varying length of life through to about 35 years are the 2 longest ones there. IFRS 16 now means that we need to bring those lease arrangements effectively onto our balance sheet and report them accordingly there. The implications of it and the impacts will be there on the statement of financial position. It means that we will now record a right-of-use asset associated with those leases of GBP 132 million. There's an associated deferred tax asset of about GBP 3 million to bring on balance sheet. And importantly, there will be a lease liability to report of GBP 150 million associated with those obligations. The difference in those numbers, which is a net difference of our liability effectively of GBP 15 million there is reflected and will be reflected in a reduction in opening shareholders' equity as of the 1st of October 2019. In terms of earnings, there's much less of an impact on our earnings number and there's no cash implication to the accounting change here. From an earnings point of view, the change will be that rather than as we had done previously through our numbers, recorded operating lease costs of about GBP 11.2 million per annum. We will now record a depreciation charge and a finance cost associated with that as well, totaling there altogether about GBP 13 million going through our earnings statement. The difference then of about GBP 1.8 million will result in a reduction now of reported profit before tax for FY '20 by that amount. But interestingly, because of the different way that it is allocated on the earnings statement now, it will actually result in an increase in our EBITDA number by about GBP 11.2 million from a reporting point of view. I think because of the relative significance on our financial position numbers, particularly, it is our intention at the moment that we would restate our comparatives on implementing this. So we have a proper like-for-like comparison of numbers sort of going forward. I think just a couple of other sort of comments around this particular point. This is very much sort of counting for historic position within the business. It's certainly not the intention of the business at all that we'll be entering into any similar operating leaseback arrangements in terms of future developments and therefore, it's really dealing with the sort of legacy position that will progressively unwind as we go forward from here. In terms of the sort of profit before tax impact, so GBP 1.8 million in FY '20. And that we will see a sort of profit before tax reduction over the following 4 years, which reduces year-on-year. So by FY '24, that prior period charge, plus the charge for the next 4 years, all begins to reverse through the income statement. So we'll actually see an increase in profit before tax from FY '24 onwards for the remaining life of the leases. I have included a further slide in the appendix on this, which gives some more granular detail on the numbers and the way that those will appear. Richard, I think, [ over ] with that.

Thank you. Thank you, Phil.

Okay. Okay.

Great. So we'll have a -- we'll spend a few minutes having a look at the markets within which we operate. Clearly, student accommodation and BtR within that residential for rent umbrella. I guess first point to remind ourself is, where is the demand coming from? Clearly, it is unmet structural shortage, both within student and also within BtR. It's also growth in demand for various reasons, which we'll come back to. And it's also obsolescence and increasing obsolescence of existing stock, not really for BtR because it's too young a sector, but certainly for student accommodation. And it's through those 3 points that we can see that WJ can labor very successfully within its niche of being the market leader in developing and managing residential for rent going forward. So in terms of quantifying what that demand looks like, we've got some very simple analysis, which is, today, we have 140,000 BtR units. Most of those are in construction, but some are completed -- about 30,000 are completed stock. Quite a few forecasts are showing that it could well be demand for 1.7 million BtR units at maturity. Clearly, a huge amount of headroom. Turning to PBSA, which is a more mature market. You can see that by -- into 2030, there's scope to grow from the current provision of 620,000 beds, probably by another 50%, up to just under 1 million beds within that sector. And then at this point, our obsolescence absolutely comes into play. Principally, university-owned beds, but actually increasing to see some of the operators, some of their stock, corporate-provided PBSA is beginning to fall into this bracket, too. And you can see that over the next period, potentially as much as 75,000 bed spaces would need or would be ripe for redevelopment based on an assessment of obsolescence. And I would increasingly expect to see WJ beginning to partner with universities in that regard. But nonetheless, what it does do is it paints a very clear picture of net headroom for further development response well inside our sort of opportunity for growth in run rates going forward, which is very well covered by future and growing demand. I think the final point here is just around institutional capital force for goods. Kind of a really strong ESG point, both in investing directly into residential for rental by investing through Watkin Jones. This point around driving off and improving standards within the private rented sector, which we'll recognize, are not strong enough as it currently is. And that's why BtR is such a draw. But it's also doing it small part to help fix the housing crisis, too, as well as just really stimulating and providing for urban regeneration, all the way across up and down the land. So it's a slightly deeper dive into PBSA to try and identify what those demand drivers are. The growth in demand is really coming from 2 areas. One is population growth in the U.K., which will drive increased U.K. students participating with our education. That's been assessed by 2030 to be an extra 110,000 students. And then we have international student numbers growing within the U.K., and that comes directly from the government's white paper last summer on immigration. We're looking to target an extra 130,000 international students or 30% of the current population. So together, 240,000 by 2030, that's 15% growth on today's student numbers at 1.8 million. So significant in-built growth drivers within that. And that's before overlaying obsolescence on top of that. And of course, why is that? Well, of course, U.K., our education, is ranked #2 in the world. So very, very strong demand drivers for students in this country, but also overseas to come and get the best education here in the U.K. It's a great place to study. It's a great place to live as well. Good evidence of that is the number of U.K. universities in the global top 250 rankings, it's still very strong indeed. So turning to BtR. We have seen a big change over the last 20 years in number of renters. So in the last 10 years, we've seen the number of renters in England double since 2000, 2.5 million more households created in renting. And I think what is quite interesting is we're seeing that over 1/3 of all renters are now sort of happily declaring that this is by choice rather than necessity or some other circumstance. So what's going on here? And we all know the sort of push-pull factors. There's the push, which is around housing crisis, not enough houses, population growth. For example, 7.5 million more people forecast to be in this country by 2035 than are here today. It really does sort of drive requirement in city centers and cities and towns for that accommodation. You also know about declining household sizes. They've been shrinking since 1990. So fewer people living in more houses, et cetera, et cetera. That pushes people, of course, therefore, into the private rental sector, but that's not the end of the story because BtR disrupts the PRS. And it is pulling people out of the PRS. What's the problem with the PRS? Well, it's 95% retail-owned. That, in its own right, is clearly not a problem. But what it does do is it shows that the quality of it is highly variable and it's generally quite low. There is very little amenity. There is almost no service. Now if you overlay on top of that consumerism, which has been rife within our society for the last decade at least, where people want choice, they want flexibility, they want a lifestyle, they want service. That cannot be provided for or covered within PRS, so hence, BtR. Hence, this big growth in BtR. And hence, continued growth as we go forward. So you'd expect with the backdrop on both the institutional investor appetite would have been strong and robust. And indeed, this helps us understand that. We can see that in 2019, for student, GBP 5.1 billion -- GBP 5.2 billion, I should say, for transactions into PBSA. That is second highest on record. I think, again, that's interesting given the relative backdrop of 2019 in terms of the U.K. position. But then interestingly, BtR is showing -- it's very linear in terms of appetite. So GBP 2.4 billion, that's the second highest on record. What I think is quite interesting, we won't have time to go through it today, is if you actually look at the transactions that make up these 2 bars, BtR is almost all development and forward fund and forward sold. PBSA is almost all investment. So actually, if you did a like-for-like comparison of that, it shows you the intense appetite for BtR, but there just simply isn't the stock to transact. So we should see that re-rating to -- which will continue to come through as more and more developments, which PC as people build their portfolios, as people build those consumer-facing brands and then that real transaction activity can get going earnestly. I think we will see that take over student volumes into the near term. So then the competitive landscape. And the point for me is that the supply response, doesn't matter if you're looking at student or BtR, it's not keeping pace with consumer demand. It's not keeping pace with institutional demand. And my example is that for the last 5 years, within student, we've had a very steady constant supply response of 30,000 beds per annum, even though we've had unprecedented re-rating of that sector over that time period. And you say, well, why is that? And of course, it's because the barriers to entry into residential rent are actually quite high. There's lots of reasons for it. I did cover them in some detail at the Capital Markets Day. But it is around access to land, it's certainly around your planning viability and so on and so forth. There's also something about being able to construct relatively complex city center, high-rise, high-density, residential developments, too. And that clearly creates a very good opportunity for a business such as Watkin Jones, that is the U.K.'s market leader for residential for rent, and has been laboring in this space for at least a couple of decades. And when you look at student accommodation, we are, by volume, the #1 provider of new stock. We're in a great position to be able to cement and leverage to take a better and bigger market share going forward. And then when you look at BtR, we're currently ranked #11, but our pipeline is growing quickly. I'd expect us to move pretty smartly to the left of that. And not regarding that, actually, if you look at some of the parties who are to the left of us at the moment, they're generally sort of brownfield regeneration specialists, they're not national developers of BtR. It just happens that they have a particular interest in a certain area, which might be anchored or might have a key constituent part, which is BtR. Therefore, not directly competition, even though it is volume into the market. And then secondly, a lot of family housing, which BtR for us is not at the moment. So again, not directly competition either. So just coming to the last couple of slides then. So what did we say at the Capital Markets Day back on the 5th of November? Well, we said we'd keep the existing business model because it works really well. We really like the sector exposure and we're going to leverage our capability to grow. And that growth looks like the 3,500 student beds by '23, '24 recurring. And it looks like 1,000 BtR units from FY '23, '24. And again, that's being sustained on a recurring basis for the principal demand drivers, which I've already set out. So this is point about resilience, flexibility, cash generative and come back almost where we started, which is around another successful year of growth. The strategy is working. The relative backdrop was a difficult macro-economic environment, which I think really does put the best performance, even though it's in line very much in context. And it's all about sowing the seeds of growth over the next few years. Those foundations are firmly in place. In terms of some of those activities then for this year, clearly, we need to finish our buildings, which are due to PC, student ones for the summer, BtR ones for later. We want to be forward selling the rest of the FY '21s that haven't already been forward sold. It's principally PBSA because I said BtR is already forward sold. We've already started making good progress on forward selling within PBSA. We want to be securing our planning consents for the FY '22 year of delivery and beyond. And then at the same time, deepening our pipeline for '22 plus. So there is plenty for us to be getting on with. But all of it is moving forward within our annual cycle, which is well established now. So I think on that note, I'm going to turn to Q&A. We do have a roving mic. And if you would like to ask a question, please do so. Please wait for the mic. Please say who you are for the benefit of the video recording that's being done. And then please raise -- please feel free to raise your question.

Glynis Johnson, Jefferies. Two, if I may. First one in terms of your cash requirement. Your chart on Page 14 showed us your working capital of around GBP 65 million per year. You finished the year with a GBP 25 million outflow. One, does that imply the working capital change or swing in this year we're going into will be less? And then if I can throw into that mix, how that compares to your GBP 100 million requirement? And then add in further, that normally your cash is -- your cash comes in from the student towards the end of the year, hence the swing, but the build to rent actually tends to be much more in the spring time. Does that mean the swing in working capital in the future years may actually be less? And then hopefully, a slightly less convoluted question. The ability to fill the pipeline. You talked about a 24-month build time for PBSA, 36 months for the build-to-rent. What is the scope to still infill full year '22 in student, full year '22, '23 in terms of BtR?

Phil, do you want to do the first one?

Okay. So yes, I'll try and do with the first one on cash profiling requirements. So I think the hockey stick cash profile that we tabled on the slide, the data of that actually -- was actually our sort of FY '18 sort of financial year, but it was very typical of what we have seen in the business for several years now and really reflecting the weighting of student development deliveries to the final quarter of the year and the final payments that come through on completion there. So having seen that same sort of profile sort of repeating and it's very understandable in terms of the working capital cycle within the business. For the current sort of model that we have for the current sort of structure of deliveries, I would expect that to continue to repeat as we go forward at a similar level of business to where we are now. But as we increase that, then I think -- and particularly as we invest in those new site opportunities, there will be that requirement for some further internal cash to be able to secure those opportunities going forward. I think with the working capital swing that you were referring to, yes, indeed, it is very much about timing and it just depends upon the particular dynamics of the individual developments in build and just where we are with those at a point in time. So whilst we saw an outflow there as of the end of FY '19, it is indeed possible that in FY '20, we might see a kind of reversal of that situation. But it will just depend upon the mix of developments in build at the end of FY '20 again, and where we are with those. So a little difficult to predict that bit precisely. I think it's right in what you say, Glynis, with the build to rent opportunity starting to really come on board and with target delivery dates of those for the end, perhaps about a half year, so around the sort of spring of a period, that should lead to some smoothing of our sort of cash profile within the business. And therefore, one would hope that, that working capital cycle that we see in a moment will be quite as dramatic in terms of its impact. So -- which indeed could lead to overall a lower cash requirement in the business in the medium term. But I'd really like to see that sort of evolve fully and be clear that, that is the way that the numbers will flow through on that.

And then on your question on pipeline, I think it's unlikely we'll add on BtR for FY '21 or FY '22. Although if there was a site out there with the planning consent that could be implemented, then FY '22 is still feasible. But I think that window is closing over the next few months. But never say never, I guess. And then with PBSA, because it's a shorter development life cycle, FY '21 is very unlikely. But FY '22, there is a possibility to add new schemes into that. They won't be where we've secured the land and we've gone through the planning process. It will be where we have picked up a scheme, which a developer has taken a certain way probably through planning. And then that is eminently possible to bring that on for FY '21. But I think the real focus for development growth, I'm not trying to flag a likelihood of sort of growth for '21 or '22, but the real focus of pipeline growth is clearly from '23 onwards. So I think we can make some meaningful inroads over the course of this year.

And just the bottleneck in terms of getting those new opportunities into the pipeline? Is it still the land market?

Yes. So to get most of our sites, we buy off market. So from that perspective, it's a very different mechanism for us. Nonetheless, clearly, an off-market vendor is still very savvy. And it's still well aware of what's happening on market, so the two are not mutually exclusive. We have a good tail of schemes under offer at the moment, which are not yet ready to be publicly shared. But as you would expect, the team are working extremely hard in the background with a number of interesting opportunities for both student and BtR for the FY '23 years onwards, which are looking really interesting. There was no doubt following the election result towards the end of last year, you can see some more positive sentiment coming back into the U.K. land market. We're probably not seeing that translate today. But no doubt, it will come at some stage in due course. As I say, I think that's where I then look back towards off-market transactions. It's people contracting with us rather than necessarily looking just to get best price in the market because they're looking for certainty of completion of that land. So I think we do have some real competitive advantage on that. A point I mentioned in the briefing is that at the moment, if there was any inflation creeping back into development costs, I would see that being more than reflected in the onward sale prices, which we could achieve because of this growing positive sentiment works both ways.

Eoghan Reid from Berenberg. Just 2 quick questions on the pipeline. Firstly, on the PBSA pipeline, you have sort of just over 800 beds that are secured with planning or unsecured in legals. Just wondering about the risk around that slipping into FY '22, given that there's a 2-year development cycle, and it's about 21 months now until the end of '20?

Yes, that's a good question. So that particular site, we are -- we further progressed than we are showing it here. The reason being is that we haven't secured it yet. But behind the scenes, there's been an awful lot of activity. So on the basis that it is secured and clearly, there is risk that it's not secured, it then immediately becomes ready to implement and build.

And are you developing the other one, the one that's secured with planning?

Correct.

Okay. And then on the build to rent, similar question with the FY '22 pipeline. Is it the same story that you may be slightly more further along with those that you're saying and then you're ready to go once you get [ converted ]?

That's right, yes. There's always the thing about undertaking an awful lot of concurrent activity when you can see the critical path beginning to sort of close up. So you can run planning concurrently with securing a site. I mean clearly, you can't get too far ahead of yourself, but nonetheless, you can and you would. At the same time, you can undertake detailed construction due diligence and begin to sort of procure and pull together the construction solution. Again, all of that compresses the critical path, and you can line them up concurrently rather than just doing it purely sequentially. And I guess the point, therefore, to make is where we've given that guide of a typical life cycle 3 years for PBSA, 4 years plus for BtR, that's assuming it's all sequential and there is no concurrent activity being undertaken. So you can compress the time frames if you want to.

Yes. And sorry, one last quick question. On the rental guarantees, the legacy sort of portfolio that you've provided. Is there any renegotiation around those that you might carry out over the next couple of years given the maturity of the PBSA market? Or are you going to just run those to the end of their lifetime?

I think as a base case, we just assume we're going to run them down to 0. But you're right, there is asset management opportunities. And especially where we generate surplus out of some of those leasebacks, that potentially there is a market to purchase that income.

Alastair Stewart from Progressive Equity Research. A couple of questions. First, on the election situation. It's clearly -- you clearly had a lot of investor demand throughout the whole process since the referendum. But did you see any sort of anecdotal difference in your conversations with institutional investors post the result? That's the first question.

Definitely. Alastair, as you rightly say, residential for rent is actually being quite well sheltered from many of the fallout from the referendum in terms of creating anxiety about long-term investing in -- within the U.K. It's a very defensive asset class and therefore, has been resilient and performed very well. But nonetheless, from those investors who've been cautiously investing over the last 3 years and those investors who've been looking from the sidelines, we're now hearing much more positivity about the next few years. I'd expect this sector to be a net beneficiary of that, and I'd expect WJ to benefit, too.

And the second question is on the competitive situation. On Slide 21, you showed your main competitors in PBSA and build to rent. As PBSA matures, you see some of the companies on the right side beginning to dwindle. And then on the other slide, the build to rent, you suggested the ones on the left side were one-offs in many cases. But do you see any new guys coming in from the right as it were? Or is it still the case that the entry barriers are really high?

I think I can make a general point, which is that I think the market is increasingly seeing that residential for rent is a very, very attractive sector with some long-term fundamentals, which will support growth for quite a long period of time. Now any business that believes they have capability in that regard would want to find a way to properly participate within that. So my sense will be competition will increase over time. and we just need to be ready for that. And how are we ready for it? Well, we've been active within residential for rent for more than 2 decades. We've got a very successful track record. We have all of the sort of foundations in place to grow and that's entirely what we are doing. I think as we know, competition isn't in itself a difficult thing. And we were looking at the BtR headroom for growth. There is plenty of scope for lots of other parties to be involved within it.

Clyde Lewis at Peel Hunt. Three, if I may, guys. Probably following on a little bit from Alastair's there, but just talking about the institutional demand for build to rent and how that's evolving? I mean in terms of their thought process, the sort of assets that they're looking to buy, scale and areas and I suppose sort of whether co-living sort of is starting to appeal. That was the first one. The second one, Fresh in BtR. Where are they in terms of that process? Are they starting to chase those sorts of assets? And the third one was on build costs, I mean, you referred to what you factored in. What are you also trying to do in terms of sort of mitigating costs? What else can you do off-site or modular sort of stuff to try and ease the pressures that may well come down the track?

Yes. Perfect. So on the first one, institutional interest in BtR. I think generally, we're seeing -- I mean, clearly, every institution will have their own strategy, and every strategy, therefore, will be different. But nonetheless, we are -- the kind of sum of the parts is that it's very much a national thing, BtR. It is not a London or a southeast focus area. It is an area around the strength of towns and cities throughout the land, throughout the U.K. and is very much geographically diverse for that. It is all being driven by the long, long-term structural demand drivers, which could result in a significant supply response being needed. Everybody is looking at operating efficiencies and economies of scale. So very few have a strategy, which doesn't involve many, many hundreds of millions or pounds being deployed over a period of time to build up those portfolios. I think an awful lot of people have looked at the student accommodation side of things and seen it as a pilot project for BtR. And absolutely looking at all the lessons learned through those, which is now a very successful sector to be sort of drawn directly into BtR. There is definitely something about long-term investment strategy, smoothing through volatility, smoothing through cycles. So we're hearing people very confident just to continue to buy if it's the right sort of asset for them. In terms of pricing, it's worth noting that we underwrite all of our BtR assets as a sort of mid-market approach. And what does that mean? Well, we look at 1/3 of household income being spent on rent. So we're taking a slightly lower rental price point than some of our competitors, and we're finding and feeling from institutional clients. So that is well received at the moment. So I think there is good regard for value for money within that proposition. But that's how it's sort of broadly shaping up at the moment. Second point is -- second point was around Fresh. So Fresh do manage BtR projects already and Fresh is getting ready to really sort of take a really sort of market-leading proposition into the market to start picking up management contracts as we go forward. Fresh absolutely has not missed the boat by ensuring that its operating capability is where it needs to be prior to really launching. And that's the process, which the business is in the process of just finalizing. And then your final point was around build costs and build control. Well, I guess the first point is that it's really the history of Watkin Jones is a contractor. So it's very much core in the DNA in terms of managing the risk of contracting, that's been borne out of decades of kind of collective experience. Secondly, we do have established trade packages and partners, supply chain and manufacturers who we tend to use for all of our items, be it PBSA or BtR. At end of the day, it's a residential community which is being developed so there's a huge amount of similarity. And then we ask those sort of trusted partners that we work with as part of our supply chain often to forward buy and forward price. That takes some of the heat out of volatility on pricing over a particular development cycle.

Paul Hill, Equity Development. Just a quick one question. The business model for Watkin Jones, would it continue to be a sort of a successful organic growth strategy? Or are there any other extra capabilities, may that be in the lettings business or any acquisitions in those areas that you may consider as well?

I mean there's certainly strong capability within the business, which could be leveraged. I think for the moment, we are focusing on the growth of PBSA and BtR in line with what we set out at the Capital Markets Day. I think that is plenty for the business to be looking at. And there's some really exciting challenges and really good opportunities wrapped up within it. But nonetheless, I think it's a good point. There is a lot of capability in the company. We touched on Fresh briefly today. Fresh is a very good quality business, of which there certainly is more that could be done in time. But for now, it's focused on the growth of PBSA and BtR. Okay. Well then, in which case, thank you very much indeed, and look forward to catching up soon.