Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

Thank you very much, and good morning, and welcome to the WJ Full Year Results Presentation. As already introduced, my name is Richard Simpson, I'm the Chief Executive. And this is our first virtual prelim results presentation. And whilst I recognize the ease and convenience, some of which will stick even after the pandemic is behind us, I do nonetheless look forward to being able to catch up with you personally at some stage, hopefully soon. So turning to the second slide, the agenda. I'm just going to take you through the overview for our presentation just coming. So I'm going to start by looking at the overview of the year. I'm going to hand over to Phil, who is then going to lead on the financial review. He'll hand back to me, and I'll look at COVID-19 impact, sector review and the development pipeline sections. I'm going to hand them back to Phil, who will pick up delivering growth. And I'll then review ESG, which has got an interesting growth angle. I'm going to look at Fresh, our property management business, and then I'm going to summarize before opening up to Q&A. So if we turn to Slide 3, which is the investment case. So WJ, as you know, specialize in the residential for rent sector, which for us is principally across build to rent and purpose-built student accommodation, PBSA. This sector has long-term structural growth prospects as unmet consumer demand continues to grow at pace. Of course, in turn, institutional investors are increasingly following the consumer and investing in direct asset ownership in this sector for its strong returns and its defensive sort of typically noncyclical inflation hedge characteristics. The ESG benefits of investing in homes and communities and providing people sort of fabulous places to live are being appreciated, too. And I think this is a sort of consistent theme, which is increasing. So for WJ, being a responsible business is an important part of our DNA. Now all of these trends are long term, and they are good growth trends. And consequently, the addressable market for this sector is significant. WJ is the market leader in developing and managing residences in this sector, which we forward sell to the institutional market. Our insight from Fresh, who our, as I've mentioned already, our property manager ensures that our product is directly tailored for the needs of the consumer, which gives us a keen competitive advantage. For a variety of reasons, institutions are increasingly looking at new build stock, which positions our development model for forward funds well. We have a proven operating capability established over many, many years in a variety of different market backdrops. And I think last year's backdrop is a good example of that operating continuity and capability. Our forward sales give visibility of near-term revenue. And because of the capital-light nature, it derisks both our balance sheet as well as short-term disruption to our markets. Despite COVID, we are successfully building momentum with visibility of growth over the next few years. Now all of the areas I've just touched on as part of the investment case are explored further in this presentation. If we just turn to the next slide. And if we look at FY '20 at a glance, I don't think you can talk about 2020 without first considering a responsible approach to managing the pandemic. And this starts with our tenants. As you know, we took early proactive steps to work with building owners to ensure that the cladding was safe in high-rise buildings. We took steps to ensure that we refunded rents to students who were unable to occupy termed time residences just because of the first lockdown. And then with our employees, being COVID health and safety elements were always at the forefront of our mind, maintaining well-being as best we can to try and sort of really reassure and comfort our teams through these very difficult moments, has driven all of our decision making. Operationally, the business has managed the disruption of COVID well. Fresh have enhanced their reputation through this. Construction have delivered 7 of the 8 targeted deliveries within the year. And the eighth was completed after year-end, but in very close participation and consultation with the asset owner in question. And we've been very busy with deepening our development pipeline, and effectively from the stats we presented at the interims last summer, have effectively doubled our development pipeline, which gives real granular visibility to the growth ambitions, which we are looking at. So we delivered a solid operating performance in 2020. Revenue is GBP 354 million, which is down just over 5%, 5.5% from the previous year, and adjusted profit before tax just under GBP 46 million at GBP 45.8 million. All of our FY '20 deliveries were forward sold. And again, this underlines some of the resilience in our business model because we had a difficult market and the business was resilient and the financial performance supports that. We are -- after the year-end, there were a number of activities, which I think demonstrate liquidity and further resilience within our business model. I think some of the key ones have been about the return of the investor market to acquire our assets on a forward fund basis. We forward sold 3 assets -- 3 student assets, 2 of which we announced back in November. One is new and being announced today. And we have under offer 4 assets to sell on a forward fund basis, again, newly announced today, 3 in the build to rent space and 1 for the student accommodation asset. Now those 4 under offer gross up to GBP 270 million revenue, at least the levels at which the under offer gross up to that level. We have, with our contractually secured forward sold pipeline for this year and into next and actually just touched into the following year too, GBP 300 million worth of secured revenue to come. And I think all of those areas there, again underlying the resilience of the business model and the continuity, which is capable -- through the business to manage short-term disruption. All of our -- FY '21, all of our schemes for this year are either forward sold or -- and the last asset is under offer to be sold. So maintaining that sort of depth of visibility on a multiyear basis is part of our sort of FY '20 work. So at that stage, I'm going to hand over to Phil for his financial review.

Thank you, Richard, and good morning, everyone. So on the next few slides, I will just give an overview of our financial performance for the financial year '20. First of all, looking at Slide 6, which covers the earnings highlights for the year. Just as a reference, it was a solid financial performance for FY '20 and revenues of just over GBP 354 million, reflecting a modest reduction of about 5.5% on the prior year. But nonetheless, I think a strong performance given the COVID disruption that we were dealing with and that slight reduction in revenue is primarily a reflection of delays in new forward sales as a result, really, of the interrupt to the investor market in the latter part of FY '20. I think encouragingly, the group's gross margin overall remained robust at 21.4%, and that was actually unchanged from the gross margin that we achieved in FY '19. In response to the pandemic, we obviously took appropriate steps to conserve cash and expenditures as appropriate. And as a consequence of that, our overheads for the year were unchanged from the prior year level at GBP 24 million, so no increase in overhead spend. And the reduction in revenues has obviously resulted then with the gross profits maintained and overhead held with a slight reduction of our earnings per share compared to prior year earnings per share, reducing by 8.7% to 14.7p. Noting on this slide as well, as we have trailed before, exceptional costs incurred in the year of GBP 20.5 million, a little bit less than we had previously guided to and that comprised GBP 14.8 million for planning replacements and GBP 5.7 million of COVID-related costs, and there are effectually 3 constituents element to that, which is potentially GBP 2.7 million of direct costs associated with working on site and delivery handover costs, GBP 1.1 million associated with the waiver of final term rents in the 2019-'20 academic year for those students who couldn't return for the final term, and GBP 1.9 million in respect of the impairments of one of the student leased assets that we own. Just noting on the slide there as well, our return on equity, which remained strong at 22.9%. Turning to the next slide, Slide 7, which is our financial position, just to draw a few points on this slide. I think most positively, a good cash performance and cash increasing GBP 18.8 million in the year to GBP 134.5 million and working capital essentially unchanged on the prior year. Within that, we actually saw a reduction in our inventory and work in process of about GBP 8.5 million. That really came to from sales within our residential business, our stock that was already complete essentially at the end of the previous year. And I think what's encouraging about that is that, that inventory and WIP reduction had been achieved there despite that growth in the pipeline that we have recorded in the second half of the year and reflects the fact that much of that is investments in sites which are subject to planning deals that was in line with our forward sale model. Noting here in the same financial position that we have provisions carried forward there of GBP 9.9 million, and that is in relation to the future planning costs. So the investments in the exceptional charge of GBP 14.8 million, we spent GBP 4.9 million of that during FY '20, and we have a GBP 9.9 million provision carried forward which we expect to be spent over the FY '21 and FY '22 years. Important to note, clearly that our FY '19 numbers are restated for the adoption of IFRS 16, which was applicable to the group for the first time in FY '20. The primary impact of it, as we've referenced before, is in relation to the 6 historic student accommodation leases that we have. And the adoption of that has resulted at September '20, an addition of GBP 109 million of leased assets and recognition of lease liabilities associated with those of GBP 134 million and an adjustment to opening reserves of about GBP 15 million in the period. On Slide 8, we'll look at a bit more at our cash and liquidity. Again, here, really resilient cash performance before taking into account the cash cost of the exceptional items, finance charges and tax. We actually generated about GBP 63.5 million from our trading operations in the year. And that really meant that we closed the year with a strong liquidity position. Gross cash, as I mentioned, is GBP 134.5 million and available banking facilities of GBP 75 million as of year-end as that gave us a total liquidity position of GBP 209.5 million at 30th of September. So a really robust liquidity situation going forward. And that, together with the good operational performance that we're seeing and a resumption in forward sales activity, puts in a position where we've taken the decision to repay government furlough assistance that we had received during the early stages of the pandemic. That amounted to GBP 0.8 million to really [ start ] to deploy that, and capital strength and to continue to deepening our development pipeline going forward. And fundamentally, with that strong position, having suspended the interim dividend, a proportionate measure to be able to reinstate the full year -- a full year dividend of 7.35p per share. Moving on to Slide 10. We look at the segmental breakdown of performance. Slide 10 shows the breakdown of revenues by our operating segments. And again, from the 2 pie charts here, which show our comparison of FY '20 to FY '19, you can see here that student accommodation continues to be the weight of our revenue performance, but with a growing contribution from BtR. Our build to rent revenues increased 21.4% to GBP 94 million, and we have good progress in the year in delivering. We're progressing with the schemes, 4 schemes which [ offer ] delivery in FY '21, and we completed in the year our developments in Bournemouth. Our PBSA, I actually saw a bit of a reduction in revenues, 8.2% to GBP 226 million, and that simply reflects the delay in the new forward sale of schemes that we referenced earlier. For Fresh, the revenues of Fresh essentially unchanged at GBP 7.6 million for the year, although the number of units under management did actually increase for the start of the year, 2,300 higher than at the start of FY '19. And I think it's important to note here that the revenue stream for Fresh is largely fixed management fee income. And although there is a small amount of income, which is variable, that depends upon the level of student occupancy and the disruption in the final summer term did result in a little bit of a reduction in that variable income. But fundamentally, Fresh's revenue, largely fixed and maintained. In the Residential division, I would just say a reduction in revenues for the Residential division, a decrease of 23% compared to FY '19 with 95 sales achieved. I think here, the sales for residential division are very much impacted by the initial COVID-19 lockdown which -- in what was really the critical spring selling period for our residential business. But I think importantly, we did see a really strong pickup in sales during the summer month after the lifting of the initial lockdown and with the introduction of staff duty relief that was implemented. So we entered the start of the FY '21 year with 25 sales reserved or exchanged since the start of the year, and the momentum there has continued to be the further 21 sales at the start of the year. On Slide 11, you now see sort of gross profit by segment. And no major surprises here I think. I referenced earlier that the overall gross margin for the business was unchanged from last year at 21.4%. And within that, build to rent has a growing contribution, contributed a margin of 15.8%, really very much in line with previous guidance that we've given for a margin for BtR of about 15% in the medium term. Within student accommodation, a really very strong margin here at 24% for the year and over 22.3% that we achieved in FY '19. The higher margin interestingly reflects that delay in the new forward sales of land. [ Fixed sales on sales ] are at a much lower -- potentially no margin with that margin really generally coming through on the development works when they're subsequently carried out. So the absence of new forward sales of land in the period actually benefits the margin that we've reported there. Accommodation management, Fresh, gross margin essentially maintained in line with target of 59.8%. Just a little bit down on the prior year, really is a consequence of that disruption at a slightly lower level of variable income in the summer term. Residential business, we achieved a gross margin of 15%, down on the 20% for FY '19, very much just a mix issue. Last year's margin performance reflecting higher sales, good margin from our apartment development that we completed in Stratford last year. With that, I'll hand back to Richard.

Thank you. Thank you, Phil. So if we now turn to Slide 13, we'll have a review of the impact of COVID-19. As mentioned earlier, our principal concern has been for our tenants, employees and business partners throughout. And I do want to thank them for their hard work and dedication. The business rightly took a very cautious initial view in the face of the pandemic, looking to be defensive and protect WJ. At the same time, the investment market was similarly disrupted for the same reason. This temporarily impacted on the momentum of the development pipeline. With the onset of the pandemic, we temporarily paused activities on site, whilst we assess COVID-secure requirements and we mobilize after this. Productivity steadily increase back to 100% over the summer. And as we've already touched on, 7 of the 8 schemes due to be delivered in FY '20 were delivered successfully. Modest increased costs were incurred in doing this, all have been previously reported. And Fresh properties, the entire portfolio across the U.K. remained open throughout. There's been a real focus on mental health and well-being and the businesses have evolved to adopt formal Agile working practices, which will certainly endure post-COVID. The entire business was assessed COVID Secure by the British Safety Council in the early autumn. As we reach year-end to close, the business has established good continuity of operations and there was increasing evidence of investor appetite for assets. Whilst the new lockdown in January '21 requires us to continue supporting our employees and customers, we do have safe operating procedures in place to continue our on-site development and we are closely monitoring the situation. Just a quick comment on the sale and leasebacks and potential rent forbearance. We have budgeted GBP 5 million shortfall in revenue on our leased assets for FY '21, which today feels prudent. But the worst case, just to give you a sense, would be an additional GBP 5 million for the year. Whilst it will take time for the COVID disruption to unwind, WJ is well placed. I think on that note, if we turn to the sectors. So Slide 15, we'll just quickly look at the cover slide, the residential for rent before having a look at the individual sectors themselves. Some of this I've already covered, but it's almost a very important sort of strategic approach from institutional investors, which is really crystallizing here. The residential for rent sector has been growing in popularity with investors for a number of years. It's been well trailed for a while. This, of course, is driven by the rising consumerism in the private rented sector and the associated demands from tenants for a higher quality experience from their homes, from the community facilities if they exist and the increasingly professional property managers who service them. The residential for rent sector is forecast to continue to evolve and grow, and WJ is at the forefront of this. Investors historically have been underweight in U.K. residential. Actuaries globally are increasingly looking to correct this, especially as residential has been a very strong performer over a number of years. It's defensive. Occupier demand is noncyclical and residential has historically proved a hedge on inflation. We're speaking to more and more institutions who are looking to diversify out of commercial and into residential for rent. For us, of course, it's the build to rent, BtR, and the PBSA, purpose built student accommodation, sectors. So let's now, as I mentioned earlier, review these in turn. So if you turn to Slide 16, we'll start with the consumer demand for build to rent. For consumers, the pandemic has highlighted the benefit of build to rent over and above the more traditional private rented sector. For starts, there's a responsible landlord who is supportive on a number of areas, but one might be a rent payment plan. As we know, in the PRS, there was no support at all. And in fact, landlords were not generally being remotely sympathetic to such an extent that the government has to step in right at the start of the lockdowns, ban evictions and so on and so forth. There's a managed environment within build to rent in a safe, secure, clean environment that has really sort of grown in currency recently. The working-from-home environment, that's here to stay. That's not just a pandemic thing. That is now permanent. And the working-from-home environment is infinitely better in a build to rent building. More immunity space, often better Internet, better productivity comes from the kind of office type spaces, which are provided throughout the buildings, which can be reserved. And then you have terraces and secure outside space as well. Surveys. Quality surveys have been commissioned over the last few months, and they, all of them, show a very similar consensus, which is the overall experience in BtR is predictably better than the PRS, where, of course, there's no management, and it's not really designed for renters. But I think interestingly now, that also includes value for money stat, that people get the value for money aspect of the BtR side of things, where consumers clearly are really seeing the benefits that come through. If we turn to Slide 17, we can then have a look at what the investors, institutional investors have been doing off the back of those consumer trends and I think this is really interesting. [indiscernible] is strong experiences in build to rent. And consequently, there's low bad debt. There's generally very high occupancy and rent collection is strong. So unsurprisingly, this translates into a strong investment year for BtR with record levels of circa GBP 4 billion. I appreciate there's a few market commentators who have got slightly different numbers, but it ranges between GBP 3.5 billion and GBP 4 billion. And that's year-on-year sort of 50% growth. And of course, that to me is interesting, given the backdrop of the pandemic. So investment stock is limited in this space. So the principal mechanism for institutional investors to deploy capital is through forward funds. Clearly, this is our model, and higher counterparty requirements from institutions as they consider suitable partners for forward funds has frozen out many of the SME competitors who would ordinarily expect in the market. So if we turn to Slide 18 and just do the same exercise for student accommodation. Multiple recent surveys of student globally have consistently shown that students want an on-campus experience and not an online learning experience potentially at their parent's home. This is an overwhelming theme that the rite of passage of a university degree is so much more than the academic studies, and of course, picks up sport, lifelong friendships, coming of age aspects to the independence of resident on-campus life. The U.K. is ranking of second in the world for the provision and quality of university education will ensure strong demand in the long term. So it's widely viewed that once COVID is under control, the very robust and growing student demand for U.K. universities and PBSA will reassert themselves once more. And the forecast is for 300,000 more students to be studying in the U.K. by 2030 than were here at the start of the '29 academic year. And this growth, of course, comes from both the U.K. population growth, which will just have more eligible age university goers, plus growth -- continued growth in international students. But even before this forecast growth, there are still many more core students. And when I mean core, those who would naturally want to live in purpose-built student accommodation. That's typically U.K. first year and all year international students than there are beds available. And the stats are 650,000 PBSA beds available, that's corporate and university owned. 800,000 students within that sort of core course of the cohort. But then, of course, the backdrop is 1.8 million full-time students. So a pretty robust consumer demand picture, certainly to reassert post-COVID. So if we turn to Slide 19, we can then look at the institutional investment market. And I think it's absolutely right to say that the PBSA institutional appetite has been disrupted more than with BtR. In fact, BtR was definitely showing the sort of characteristics of a bull market enduring through the pandemic. I think with PBSA, it's not quite the same story. But we're certainly seeing GBP 6 billion of forecast transactions for the full year for 2020. I do -- it's important to flag that, obviously, of that GBP 6 billion, GBP 4.6 billion was linked to the Blackstone investment in iQ, which was prepandemic. But nonetheless, there have been significant volumes or significant enough to get a draw some guidance from the investments during the pandemic themselves. And investor appetite has started to recover in 2020 post the onset of the pandemic. And I'll come back to that in a second. And then from the transactions, which are printed, it's clear the values are stable and they're well underpinned -- and they're underpinned by the confidence of investors that the sector of the market will recover strongly post-COVID once the vaccine is here. And therefore, yields -- [ these initial ] yields are well supported. If we then turn to Slide 21, we'll then pick up on the development pipeline. So real progress with deepening the pipeline. It's effectively doubled from the interims last summer, as I mentioned earlier. Back at the interims, we set out a BtR pipeline of 2,450 units. Here, we have 4,700. Back at the interims, we set out 4,600 beds per student. And here, we're setting out 9,900. And by built out value, BtR accounts for just under 2/3 of pipeline. We made good progress equally in the period in our sort of planning commissions progressing well. And we've really used the opportunity, as you can see in the land market, and we will look to continue to do this in the coming period. So in the year, we made good progress with our BtR strategy. We are making good progress on site with our developments in Reading, Wembley, Sutton and Stratford, which are on track for completion in FY '21. We secured 4 significant new sites in Birmingham Path, Glasgow and Lewisham, London and then subsequent to the year-end, a scheme in Belfast. We obtained planning for 538 BtR apartments and schemes in Brighton, Hove, Lewisham, London. And overall, 928 apartments across 5 sites be forward sold for delivery over the period to FY '22. And then a further 3 sites, which is about 720 apartments currently in negotiation for sale for delivery over the period FY '22 to FY '23. So we then turn to PBSA. In the year, we added sites to the pipeline in Bristol, Bath, Edinburgh, Guildford and Manchester. We obtained planning for just under 1,220 PBSA that's across 5 sites, which included an additional 100 beds at our Kelaty scheme at Wembley. We signed an on-campus partnership agreement with Cranfield University for delivery in 2 years in FY '21 this year and FY '22 next year. So overall, with PBSA, we have just over 2,700 beds across 6 sites, forward sold for delivery in FY '21 with a further development, the 462 bed scheme and less to a negotiation for forward sale. We have 1,168 beds across 4 sites forward sold for delivery in FY '22. And these are a Bristol, York and Leicester, forward sold subsequent to the year-end. And we're currently seeing an attractive land buying market. The overall sort of commentary on this would be the land prices are down by about 5% year-on-year. Valuations are stable as I've already covered. Build costs are sort of trending up about 3%, which is typically how we look to underwrite annual build cost inflation in our appraisals, so it's very much in line with how we would underwrite. And that's broadly broken down to labor, not really showing any inflation at all, but that's offset by some materials and, of course, ongoing sort of COVID costs, which was student fee through into build cost inflation but are essential to maintain sort of safe building practices. So if we turn to Slide 22 then, I'm just going to make a few sort of broad comments on the growth opportunity. So I think, first and foremost, the growth opportunity is still firmly there despite COVID's sort of temporary disruption. As previously set out, the disruption has pushed back our pipeline growth by about a year. And this most notably impacts on FY '22. This is largely a timing impact, and therefore, consequences that subsequent years have benefited from that delay. There's good liquidity in build to rent. And of course, today, we're announcing that we've got 3 BtR forward funds currently under offer and in legal hands. And we see actually the BtR sector evolving well, probably ahead of our expectations. I think there is an opportunity to deliver a higher annual run rate of units, certainly from FY '25 and onwards. PBSA appetite exists today as evidenced by the 3 forward funds, which have been executed post year-end. Two, we previously announced, 1 is being announced today and the fact that we also have another forward fund PBSA, which is part of the 4, which are currently offer our in line with underwrites. And we do expect this to continue to recover this appetite for investors as COVID ceases to be a drag on student attendance. So I think, I think on that note, I'm going to hand back to Phil to have a look at how we measure delivery of our pipeline.

Thank you, Richard. So turning to Slide 24. Turning to Slide 24. We look at the future growth for build to rent. And here, this is new information. And I think really quite helpful to start to understand how our pipeline might translate through into revenues. Richard has talked through the pipeline numbers in terms of delivery years. What's important in this slide is whether the revenue for our developments some say have been forward sold, translate into revenue contribution across different years. So it's a multiyear sort of development and revenue recognition. Typically, for student accommodation revenues are recognized over a 2- or 3-year period and for build to rent, essentially, it's over a 3- or 4-year period. In the appendices to the presentation, we have included 2 slides there which show how that revenue is recognized over the life of development for both build to rent and PBSA and also in the appendices, we have a full breakdown of the pipeline that we should refer to, which details it by individual assets and scheme size. The slide here, 24 there, is looking to look at that revenue growth over the period based on that multiyear recognition. And for the build to rent numbers here, this is actually models on the basis of GBP 210,000 per apartment sort of capital value. So taking the pipeline that we've got, what you can see very clearly for build to rent, s really quite a progressive growth in our revenues over the 3 years coming through to FY '23. And on the basis of that pipeline, that would indicatively be leading to revenues of about GBP 300 million for BtR by FY '23. The second chart on the slide, seeks to then look at how that revenue is contributed at the moment from the different sites and depending on their status. So obviously, at one end, we have revenues that have actually been delivered, which is wholly the case for FY '19 and FY '20. And then we work through the various stages of the pipeline. So the dark green is revenue that will come from sites, which are already forward sold, the pink from those which are sales and negotiations. So the 4, and in this case, the 3 build to rent schemes that we currently have under offer. So that, as you can see here, contributing to revenues in FY '21, '22 and '23, that the light blue is then a site secure, requiring planning. And it works at the stages on that basis. But what you can see from that slide quite clearly is that in terms of our next 3 years, revenue contribution from BtR, the revenue is really already secured in terms of the sites that we've secured to date, and it's only the little gray part of the bar on FY '23, which relates to the sites yet to acquire. When we look at that pipeline, which you've got since early on in the presentation that the total future value of our secured pipeline is about GBP 1.5 billion, and GBP 900 million of that is embedded in the BtR pipeline that we currently have. The table at the bottom of the chart, I think, is really helpful, and it sort of sets the key metrics that we will start to report to going forward, which effectively show our progress in delivering that year-on-year revenue growth. I think when you sort of take the stages -- key stages through the process, so securing sites on the one half, securing the planning, forward selling them and then delivering the revenue as concerned, give status effectively for each year, for where we are on that. So that when we look out, for example, FY '23 on that slide, we already have 94% of our sites secured, out to deliver those revenues. But at this point in time, just 15% of -- that has secured planning with the balance to come through planning. And then clearly, we need to forward sell them and deliver them. So year-on-year, we'll be able to report progress against that. And you will see the way that then that, that is building up over the period. In terms of the next slide, 25, shows the same position for student accommodation. Here then, the embedded future revenue value for student accommodation is GBP 600 million. And effectively works on the basis here of a delivery rate of about 3,000 student beds per annum, at about GBP 100,000 per bed revenue value, gives again about GBP 300 million a year in terms of revenue. And that's shown by the top slide on the chart there. Similarly, the second chart shows the progress to date with the pipeline that we have and delivering against that. And you can see from that, again, really solid progress really in terms of building pipeline. But the gray box is there, represents the sites sort of secure to deliver fully on the FY '22 and '23 revenues that are above. But nonetheless, a very good progress. And again, when you look at that for FY '22 and '23, you can see that already we have 85% of the type that we need to deliver '22 revenue and 71% to deliver '23. So really, I think the pipeline that we've got, some of these slides show is a strong underpin to the revenue growth in the business going forward. And with that, what I can do, I'll hand back to Richard.

That's great. Thanks, Phil. If we turn to Slide 27, this is a slide on ESG. Clearly off the back of the pandemic, when I spoke about sort of being COVID secure and sort of COVID guidance for health and safety never far from the forefront of our mind, it is worth the money itself that health and safety is always our absolute #1 priority in terms of protecting the people and subcontractors and equally, ensuring that residents have a safe place to live and work from home. And this ethos underpins our careful response to COVID-19 and our decision to remediate cladding on properties we've previously developed despite having no legal liability to do so. I'm also pleased to say that we've continued to improve our day-to-day health and safety performance within the business this year. Other examples of our commitment to ESG include our decision to ensure that everybody who was furloughed during the early stages of the pandemic will continue to receive 80% of their pay rather than just the amount covered by government assistance. And in addition, we took the decision that the executive team and directors will take a 20% pay cut. During the period, we received furlough money from the government. As Phil has mentioned, we did subsequently repay all the financial assistance when we can see that the business was in sound shape. I'm a firm believer in the importance of culture to long-term business success. The reorganization 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 people can better see where they can take their careers with us. The introduction of agile working, as I flagged earlier, also supports our culture by allowing our people to make their own decisions about how and where they work most effectively whilst we do have hub offices for collaboration. This will help us to attract and retain people who would thrive in such an environment, whilst also allowing to reap the benefits clearly of a more diverse workforce. So just moving on to Slide 29. This is a opportunity which we're flagging at this stage because it is just a pilot. But nonetheless, I thought I'd share a little bit of color around the sort of principles behind the pilot. We are exploring the opportunity to leverage our Northwest-focused residential housebuilding business into a national low-cost affordable housing developer. The principle is to align this business unit with the same model as BtR and PBSA under our sort of residential for rent umbrella and operate a capital-light model by forward funding into the institutional market in exactly the same way. So if you turn to the next slide, Slide 30, give you a little bit of color about the approach and the pilot itself. The market is very attractive for us because of our existing expertise, our core competencies. And we do have a good quality housebuilding arm already. The affordable market is heavily undersupplied, as you know, broadly 145,000 units per annum are needed, and that compares to 46,000 units delivered on average per annum since 2013. The government is clearly looking to support a very strong supply response. Institutional capital, both public and private have increasingly entered the sector in large volumes, which unlocks the forward fund capital-light model, which is core to the WJ existing expertise. It is early days, and I sort of hasten to remind on that. And we are just piloting out our first scheming crew where we have secured the land, and we're working through the planning process for 159 affordable units, 86 single-family BtR units and some elements are build to sell. Currently, we're exploring accreditation with Homes England, which will enable us to access grant funding, and we have entered into discussions with forward funders to understand the market appetite and liquidity for those units. We're also building up a detailed specification to refine our understanding of development costs of the product as well. And I think once we're a little bit further through on that, we can update further in due course. So Slide 31, very, very quick look at this. It's Fresh. Fresh performed extremely well through COVID. I firmly believe their reputation has been enhanced for the very responsible and professional way that they have managed circa 20,000 students across the U.K. and BtR tenants. The key one for us, as you know, it's Fresh's consumer insight. It really drives our product development innovation and gives us a real competitive advantage. I think the other point from here, which is important, is that Fresh continues to grow. They grew through the pandemic. They are contractually secured to grow into the near term, too. So if we then just go to the summary slide, and I won't dwell on this. But the residential for rent sector is attractive. There's good long-term growth. WJ has performed well through a difficult year. It's a robust and capable platform operation and this bodes well for the future. Forward sold contractually secure revenue to come, position is strong. We've got GBP 300 million that's set out already, completed 3 forward funds in PBSA post year-end. We've got another 4 in [ lawyer's ] hands, 3 BtR, 1 PBSA for a consideration of GBP 270 million, again demonstrates that, that recovery within the institutional market is definitely underway. As Phil has mentioned, it's come up a couple of times, we've got a secure development pipeline, which has a potential revenue value of GBP 1.5 billion. And I think that does get visibility of earnings. We've also now set out some KPIs from where we can measure the progress of those developments through the development life cycle, too. And I just touched on Fresh's reputation and contracted growth is strong. And then finally then, just flag, we have an opportunity to potentially to evolve our housebuilding business, subject to the progress of our piloting crew. And equally, we've been evolving the company architecture with internal capability, the structure, our customer-led approach and certainly sort of continue to build on our responsible business credentials under ESG. So on that note, that concludes the formal part of the presentation. I'm now going to hand back to our operator who will coordinate Q&A.

[Operator Instructions] Our first question comes from Kieran Lee from Berenberg.

Just a couple of questions from me. Firstly, in today's announcement, you mentioned a growth opportunity for both PRS and build to rent. What is the end game here? If we include potential for residential affordable business, what's the long-term target split of activity going forward? And how many completions a year can the platform practically sustain? And how easy can it be expanded if it needs to be? And then a second one as well, you mentioned continued strong investment demand for build to rent, especially but some land market weakness. I know you do disclose margin targets, but does land value weakness and continued demand for investments have margin implications as these schemes work through it?

Thanks, Kieran. In terms of the first question, it's a really good question, and we spent quite a long time internally working it through. I think if it's okay, just to keep powder dry until perhaps maybe another catch-up, perhaps the interims, perhaps later in the year. What I'm keen to do is really prove the route with a successful pilot, perhaps a couple of pilots underway. And then we can really kick the tires and interrogate potentially where this business can go. I just don't want to jump first base to the second or third. But I think as soon as we're ready, and we have proven the concept through our pilot, then I'm very keen to share quite a bit more about how low-cost affordable housing could be leveraged alongside single-family BtR units, too, if that's okay. In terms of your second point. And you're right, if investment values or asset values are stable but land prices reduced and bill cost has only gone up in line with our appraisals, that should better the margins. In principle, that's right. I think what we are doing there at the moment is we're just being cautious with build cost inflation because of some potential disruption with material supply and availability because some teething issues from Brexit as well as, still at the moment, slightly feeling our way in terms of making sure that our outbuilding sites are still at the forward edge of being COVID compliant. There is potential for some friction or extra costs. And I think at the moment, I'd rather see that stay as a line of contingency rather than necessarily being released into margin improvement.

Our next question comes from Colin Sheridan from Davy.

Just a few from myself, if I may. I mean the first couple just in relation to the support on model and the relative attractiveness of that at a moment. I wouldn't mind just your own comments, I mean it feels like with some of your announcements today and over the last couple of months that the market has been getting back to some kind of normal there following COVID. I just wonder what at this stage is holding it back to fully getting back to normality, whether it's a lack of players, maybe some problems on the funding side, et cetera, your own view on what might be driving that. And then I suppose related to that, to what extent there may have been any dislocation in the relative attractiveness, say, from a gross margin and return perspective between a forward fund model and maybe a build-to-sell model and maybe driven by any risk aversion from the buyers of those units and to what extent there may have been any of that? And then finally, maybe just quickly on your financial position. I mean clearly very strong at year-end. The onus is clearly on growth and the focus on growth for the next -- for the medium term at least. But I just wonder if there's anything in that, that would constitute, I mean, [ excess ] capital in your mind, and from that perspective, if you could potentially give us some detail on what the average and peak net debt was in the business rather than [ in the business ] at the financial year-end?

Thank you. I think what we'll do here is I'll pick up your first comment on institutional investor appetite for ready for rent. And then I'll probably ask Phil just to comment on the margin on our housing sales and also just your last question there on balance sheet, if that's okay. So in terms of institutional investor appetite, look, it's pretty clear, it's recovering. I don't think it's right to kind of say it's now fully recovered to what it was prepandemic, but it is certainly recovering. We're absolutely seeing institutional investors taking long-term investment decisions, looking through COVID, undoubtedly, to the fundamental sort of growth characteristics and strength and attractiveness of residential for rent and are buying at values which are entirely in line with our underwrites, which were kind of pre-COVID levels. So we're certainly seeing that recovery go. What's the impediment seeing that fully recovered? I think it's just macro caution, [ too unsure ]. I don't think there is -- certainly in BtR, we're seeing that sector go from strength to strength as we covered already. There's record volumes in BtR. So it's difficult to call anything other than a bull market in BtR. I think as soon as COVID is gone and we're clear about the road map for the next few years, I'm sure we will see significantly more liquidity come into BtR. Don't forget one of the biggest impediments for liquidity and BtR is availability of stock. And of course, that's firmly where we come in. I think with PBSA, it's a slightly different story. Undoubtedly, the lockdowns, which immediately disrupt students being able to get back to campuses. And therefore, there's void and there is rent discussions to be had with a lot of operators. That is weighing very slightly on investors' minds. So as I said, I think it's mostly macro, and it is mostly looking at just seeing sort of COVID move behind us before we see the investment markets really recover, especially within PBSA. But I think what we'll do, just hand over to Phil for the other 2 points.

Thanks, Richard. I think when we're looking at the residential margins for the business, I think -- so with that in mind, that [ it's relatively ] small part of our business and the margin to a degree is very much subject to the particular mix of developments that we have in build. So those that are typically in our sort of Northwest, North Wales location offering it to a lower margin really than for example, in FY '19, when we completed the apartments as our development sites in Stratford are attractive particularly for the good margins on those. So certainly for the FY '20 year, whilst we've seen that reduction in margin to 15%, it's just really a reflection of that, that makes a contribution there. I think on a normal sort of running basis for our residential business, for the private for sale element, a margin between 15% and 20% would be normal, and sort of trending towards the sort of sub-20% line. I think when we look at the affordable housing opportunity that Richard has referenced, what I think we're looking towards there is a sort of target margin of about 15% profit on cost as a sort of an indicative level, reflecting the different mix of tenures involved in that model, with affordable housing generally at a lower margin, but then supplemented by the build to rent and open market housing involved in that as well. Looking at the liquidity position, yes, I think particularly pleasing to be able to call that strong liquidity position at the end of the year. In terms of the sort of working capital dynamics for the business, it is quite normally the case that we see a utilization of cash through the course of our financial year because of the importance of the final payments that we receive on completion of our student development which does give that sort of coffee stick cash profile that the business had, sort of being as characterized for several years now. So that sort of peak to trough cash utilization is typically around GBP 60 million. So from our open position, we'll expect that sort of level of utilization and recovered then for the year-end when we received the final payments through. We have guided it previously. I think the sort of cash requirement of about GBP 100 million at the start of the year is appropriate for the business to manage that working capital requirements, provides some opportunity for investments in the pipeline. I think clearly at the moment, with the opportunity to really push on with that pipeline, with the opportunity in the land market that we've referred to, I think the cash really will be hopefully deployed to really help facilitate that. And in addition, clearly, of course, for the FY '21 year with the reinstatement of the full year dividend for FY '20, the expectation, to your point, of course that we would resume our normal dividends from here with an interim dividend for FY '21, will give a total cash cost for the business in FY '21 of about GBP 25 million associated with those dividend payments. So our year-end cash position is very strong and really enables that growth in the pipeline. But also we just covered that the working capital requirements on our dividend commitments in the year ahead.

Our next question comes from Glynis Johnson from Jefferies.

Two, if I may. The first one is on build costs. The movements that you're talking about in terms of materials up slightly, low to flat I think slightly contradicted to what we've heard of [indiscernible]. I know structural steel has a new docking planned [indiscernible]. Can you maybe just talk about the 2 different dynamics, material costs and load cost inflation? And then also, just given the development pipeline that's coming through in BtR, I wonder if you can remind us what you think is the capacity in the BtR business. Where do you think you could move the annual delivery numbers to in the medium term?

Perfect. Thanks, Glynis. I think our view on build cost inflation is probably slightly dislocated from a real mark-to-market because most of our costs were fixed as part of our Brexit contingency planning, which we've done consistently over the last couple of years. So we actually sort of entered in through our supply chain, a lot of sort of forward commitments over the course of last year and actually quite often would bring the materials into the U.K. and warehouse them. And so that's directly where we are sort of seeing our, sort of, fixed cost base inflated at the levels which I've mentioned. I completely agree, though, there is elements of disruption around, which is seeing a bit of volatility in other material pricing at the moment, but we're not -- for our pipeline, certainly for this year, we're not directly exposed to that. And then in terms of ambition for BtR, look, we -- even 2 years ago, at the Capital Markets Day, we acknowledge that the addressable market is significant, isn't it? I mean I think there's about 170,000 units either built or under development or going through planning at the moment in the U.K. and potentially the market, if you compare it to where the U.S. is, if you do that comparison, would suggest that the U.K. is going to accommodate 1.7 million. So there is significant growth, our sort of target of around 1,000 units potentially pushing that up. Even here, we're sort of flagging potentially up to 1,500. And actually, our pipeline does sustain in excess of 1,500, doesn't it, by sort of FY '25. I think there is scope to grow further. But I think as ever, it's one step at a time, isn't it? And I think we're making good progress at BtR. We definitely see growth into the medium and long term. And we'll keep you updated.

Our next question comes from Clyde Lewis from Peel Hunt.

I've got 3, if I may, please. Richard, one for you, I think, in terms of sort of the, I suppose, the evolving demand profile for build to rent properties in terms of sort of what are the investors coming to you and saying they want, i.e., are they changing the shape and mix of schemes and developments that they're interested in? The second one was on the sort of sale and leaseback properties you've got, the GBP 5 million provision that you've taken for this year. Can you just sort of, I suppose, just explain what assumptions you've made for that? And the last one was probably one for Phil on overheads, just in terms of how you'd expect overheads to develop over the next, I suppose, 2, 3, 4 years as you ramp up the scheme development, all of you already sort of got some of that overhead in the business. I'm sure there will be, I suppose, better overhead recovery ratio going forward.

Perfect. Thanks for this Clyde. And I think in terms of that first one on BtR, as you say, what are the investors looking for. Well, I think what we hear time and time again is they want mid-market rental products. Quite often, the default setting is of a developer when you're thinking about new development is potentially to be at the upper end of the pricing point for the segment, which you're providing the product into. And we actually hold the line at WJ. It's been part of our core philosophy. We do it with student, but equally with BtR, that it's always mid-market price point. And the way we look at that is 50% of household income and no more being spent on rent. And that's something we see as a really important screen from institutional investors. They want to have, and their words not mine, but they want to own assets, which will -- people can live in. And so that absolutely does drive our philosophy in terms of how we underwrite. And it does mean that sadly, sometimes there's some great sites, but we're just not able to secure them because of how we look at building and the investment appraisal to support the residual. And that's just the way it is, but definitely mid-market, really important. Slightly larger schemes, investors want to deploy relatively material amounts of capital into their BtR holdings. They want to get scale relatively quickly. Clearly, with scarcity of products, one way of doing is to secure larger schemes. Work from home amenities are here to stay as we know. It is not just a blip for COVID, it is here permanently. And therefore, really high-quality, well-thought-through working from home amenity provisions is really important. And I think that's where Fresh comes in because Fresh can talk to our institutions who are thinking about buying BtR product and can actually share the operational reality of running and managing these sorts of accommodation products and how you actually keep the communal space really relevant and used because there's always a danger the communal space if not used. It's just a good marketing tool at the front end. So I think I could go on for a long time on this, but I think that's probably enough for now. And Phil, do you want to pick up the points on sale and leasebacks and overhead?

Yes, [ that's for me ]. So in terms of the assets, the sale and leaseback situation related to the historic student leases that we have. So at the start of the year, really based upon the level of occupancy for the 2021 academic year that we're now in, we were able to assess what the impact of that occupancy level was going to be on our revenue from those assets for the year ahead. And we were looking at that point today [ a cost ] of business lower revenue of about GBP 5 million, which is really what we allowed for. Coming back at the start of the spring term, clearly with the now some new national lockdown and the building requirement for students not to return to their accommodation, clearly, we are expecting some further disruption or potential reduction in demand from those properties associated with the fact that students can't return. It's still too early to say at this point in time really just quite what the impact of that would be. But what we've looked at there is in a worst-case scenario that indeed, students really couldn't return for the spring term and indeed chose not to come back to the summer term. And then there was some requirements glued to waived rents for those terms -- for those students as well, that it could give [ of certain ] a further maximum GBP 5 million sort of reduction there. So that's very much a sort of top end view of what that worst case would be, but it's just really to give a sense of reassurance there that the overall sort of impact to the business is really very modest.

And the overhead evolution?

Yes, on the overheads side. As to overhead for, say, FY '20 was about GBP 24 million. And when you look forward and look at the sort of grade for the business, clearly, our overheads aren't entirely fixed. But indeed, the overhead structure and capacity within the business is there to already support that sort of revenue growth that we're looking at here. There will be some further level of modest investment, particularly at the front end of the process where we may look to add to our sort of site procurements and sort of planning capabilities, for example. But that's again, we were really looking for the sort of medium-term ongoing sort of growth opportunity. So really, I think fair to say, overheads largely supporting the growth of what set out in the paper and with a modest level of increase sort of going forward. And so you're right, I think the sort of its contribution will be -- will certainly be ahead of the overhead increase during that period.

[Operator Instructions] Our next question comes from Alastair Stewart from Progressive Equity Research.

A couple of questions. First on the affordable housing plans. It comes to the mind of all that you're keeping your -- kind of tight. I won't press you on volume ambitions. But could you give us a bit of a feel for where -- what benefit the new positioning might offer the rest of the group, which is rental provision in terms of, I think, land opportunities but planning -- cost planning relationships and possible synergies? And could Fresh get involved in these mixed tenure schemes? So that's first broad question. And then just briefly, Richard, you mentioned you've been speaking more and more to commercial companies about converting into resi. Could you put a bit of color on those discussions?

Certainly. And thanks, Alastair. And I think just to note, sadly, I think those 2 will have to be the last questions as I'm sure all of you have got other commitments to move onto, and similarly myself and Phil do, too. But very, very happy to pick up any sort of further questions off-line to anybody just to get in touch, that would be great. So in terms of the pilots, agreed and thanks for not pressing on ambition at the moment. But yes, you're right. Look, there's 2 obvious benefits. The first is that by working more closely on affordable housing with local authorities, it absolutely creates a partnership approach to looking at unlocking land. It absolutely create partnership approach in terms to looking at planning, sensitivities and potentially a little bit more sympathy, if you can use that term, when you are progressing planning on other matters because of the general sort of brand benefits associated with it. So I think general partnerships with local authorities are very useful off the back of a successful affordable housing partnership. But of course, that's all rhetoric. There's a long way to go to establish that as part of the operating rhythm within WJ. And I think the second part is certainly on the national -- as a national business potentially the scale for growth within the repurposed homes would clearly be very significant compared to potentially how we think about it today. And finally, could Fresh start managing affordable housing? I guess there's very close synergies, but there's very important differences. We need to be very mindful before launching any form of sort of residential support and management into adjacent sectors. So look, it's on our minds. There's lots to think about and we can update at the appropriate time.

Thank you. If there's other remarks and comment from the speakers, I'll [indiscernible]. Okay. Thank you for joining this event. This now concludes our conference call. You may now disconnect your lines.