Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

A very warm welcome to this afternoon's Watkin Jones Capital Markets Day. For those of you who don't know me, I'm Richard Simpson, the Chief Executive. By way of an introduction to our session, we're going to cover 5 main topics, and these are: firstly, the introduction of 2 new phases to the Watkin Jones team, Alan Giddins as Chair with effect from the 12th of October, who succeeded Grenville Turner who has now retired from the Board during his 6th year. I would like to thank Grenville for his strong chairmanship over this period. And we wish him well for the future. The second new face, we are introducing Sarah Sergeant, who is currently the Chief Financial Officer-Designate and joins us after 13 years with Compass Group. She will succeed Phil Byrom after a handover over the next few weeks. I'd also like to thank Phil for his invaluable contribution to WJ over the last 20 years and wish him well in his upcoming retirement. Secondly, I'm then going to remind you of our investment case and to confirm that all the drivers for growth are still firmly intact today and the business is on track to deliver its current growth plans for the next few years. Thirdly, Sarah and Phil will then summarize the key points from our pre-close trading update which was RNS-ed this morning, covering our performance for financial year 2021, of course, the financial year, which has just closed. This also confirms the business is on track with plan. Fourthly, I will then walk you through the key elements of our ESG strategy, which we are launching today with a focus on carbon initiatives. And finally, Alex Pease, our Chief Investment Officer, will set out the opportunity to grow revenue and profits in a new area of the business: affordable housing. This follows the successful pilot program over the course of this year into this sector. And this entails forward selling affordable housing developments to the institutional investor markets, thereby, widening further the residential for rent, forward sale, capital-light, institutional partner model, which is working so well in build-to-rent and purpose-built student accommodation. Following this, there will be a Q&A session with management, and you will have an opportunity to ask questions by using the question functionality at the bottom of the webcast.

Thank you, Richard. As Richard said, I joined the Board in July this year. I took over from Grenville Turner as Chair last month. What I was going to do is briefly share with you my initial perspectives on Watkin Jones. Having joined the Board, I went through a very detailed 3-month induction program, which allowed me to get around the business, visit a number of our sites and spend time with the senior management team. Be in no doubt that Watkin Jones is a very impressive business. We are playing into some very strong markets where we are a leading participant. We have an extremely compelling financial model and a very strong return on capital employed. Over the last 12 months, Richard and the Board have also put in place a strong executive team capable of allowing the business to deliver on its strategic ambitions. The other thing that has particularly struck me as I've gone around the business is the existence of a very strong entrepreneurial culture. And this is at every level within the organization. Watkin Jones is also a business with excellent investment processes, which I've seen firsthand in some of our most recent transactions. It also has a strong and well-organized delivery team. At every site I've visited, there has been a very clear focus on health and safety, something which is also very much at the forefront of the mind of the Board. For me, it is this combination of factors which has allowed Watkin Jones to deliver a very strong set of results over the last 12 months at a time when COVID has created significant operational challenges across so many organizations. Going forward, the Board sees continuing strong institutional interest in the BtR and PBSA markets and significant opportunity in the affordable housing space. We also recognize the importance of ensuring that sustainability is at the forefront of our thinking, and I've been impressed by the leadership that Richard has given in this area. Personally, I'm very excited to be Chair of the business, and I look forward to meeting many of you over the next 12 months. With that, I will now pass over to Sarah Sergeant.

Thank you, Alan, and good afternoon, everyone. In this introduction section, I will cover what attracted me to Watkin Jones when looking for my next role. I will then move on to my first key impressions having been in the business for just under 4 weeks. And then I will finish with a few thoughts on the future of Watkin Jones. I was attracted by a number of key attributes: firstly, the overall growth opportunity in the residential for rent sector; obviously, in student accommodation where Watkin Jones is a clear market leader; but also in build-to-rent, which is an exciting and growing sector in the U.K. with an opportunity to step change the private rental market; the sustainable competitive position, which Watkin Jones hold in this sector, which is substantiated by the quality of the product and the breadth of the institutional investors and clients; the capital-light unique forward sales business model, which allows Watkin Jones to minimize development risk by doing back-to-back contracts and give real security over earnings and cash flow and delivers very attractive financial returns. And here, I think it's really key to point out that while Watkin Jones is obviously in a completely different sector to Compass Group, they are both fundamentally service business models and the financial metrics are remarkably similar: high growth, low capital and highly cash-generative. And of course, at Compass, the key metric is margin and showing progression. And this has been delivered through constant focus on cost control and efficiencies. I want to ensure that this continues to be the focus of Watkin Jones as we grow. This is just in my DNA. And the similarities don't end there, both are B2B2C businesses where it is just as important to keep the clients happy as it is to deliver quality product that the end consumer wants, and balancing the tension between these 2 is key to the success of the business. And finally, on a more personal note, the tangibility of the product was very important to me. Coming from Compass, which provides food, one of life's essentials, it was imperative for me to enter a sector which I could relate. Housing is obviously one of these. And in addition, our home and our space come so much more valuable to us through the pandemic. I've spent the past few weeks visiting our sites and meeting our people, and I'm pleased to report that my initial thoughts have been proved right. And I have some additional observations. We have an incredibly dedicated and professional workforce at all levels and who are wholly committed to Watkin Jones and take great pride in the roles that they perform. With fresh accommodation management, we really have an end-to-end offering, which, in addition, gives us insight into what our residents want. The affordable homes expansion really does give us the opportunity to leverage our existing development and construction expertise to build out another segment and will further enhance the ESG contentuals of the business. So looking forward, I'm excited by the growth opportunity of the market, and I'm confident that business can continue to generate high margins across the portfolio. The business is, of course, highly cash-generative. And while this has enabled us to be agile and responsive to land purchases, I will explore how we can really get the best value for this. I'm delighted to be part of this journey, and I will now hand over to Richard.

So thank you, Sarah. And now turning to the investment case. First and foremost, the drivers of revenue and profit growth that we set out at the 2019 Capital Markets Day are still firmly intact. If anything, the fundamentals have improved since then: the residential for rent market's structural growth and undersupply; and for us, this is build-to-rent, purpose-built student accommodation and affordable housing; the growing demand for this product from global institutional capital; our deepening position as the U.K.'s go-to forward sale developer for residential for rent stock, driven by our deepening track record of delivery with global institutional capital, our enhanced responsible business credentials and our unrivaled expertise and insight into residential for rent consumer requirements, which comes from our 22,000 tenants who live with Fresh, our fast-growing property management business. This is matched by our significant growth in our secured development pipeline for delivery over the next 1 to 4 years and our track record in restocking and extending our pipeline on a rolling basis. Our highly cash-generative model and resilient balance sheet all point to confidence around revenue and profit growth going forward. The residential for rent sector has significant structural tailwinds. From a consumer perspective, undersupply, quality and quantity compounded by absolute growing demand looks set to drive a positive re-rating and underpin financial performance into the long term. Clearly, institutional investors are increasingly attracted to this for the absolute returns, the relative outperformance by the living sector over the commercial real estate sectors, especially in light of the evolution of asset allocation doctrine over the last few decades, which generally looks at a higher weighting to real estate as part of a balanced portfolio. Furthermore, residential has historically acted as an effective hedge on inflation, and its current performance recently has continued to confirm this. So overall, these trends look well established and are firmly supportive of the WJ model. WJ has a strong track record built over 2 decades in developing residential for rent. During which time, over 50,000 bed spaces have been successfully developed and forward sold across the U.K. The team has evolved significantly over the last few years into a highly scalable and capable end-to-end development operation. There have been a number of key hires and structural changes to the business to ensure our fitness to manage growth. This capability has driven consistent financial outperformance of both the FTSE All Share and the AM100 index of 39% and 45% outperformance, respectively, since our initial public offering in 2016. Our 5-year ROCE is industry leading. In BtR, build-to-rent, we can see real growth in the percentage of households who went over the last 2 decades, and this is forecast to continue to grow as we go forward. There are increasing demands from consumers for high-quality service and proposition, which supports BtR specifically at the expense of the more traditional and commoditized private rented sector. Increasingly, tenant feedback is showing stronger awareness and demand for services, amenities and a sense of community and welfare. This, in turn, is driving rental growth, which is forecast to be sustained and positive for the sector. Investment volumes have grown markedly over the last few years and saw a record year last year during the depths of the COVID-19 pandemic. Looking forward, investment volumes into BtR are forecast to nearly double by 2025 and increase more than tenfold as the sector moves to maturity with a provision of circa 1.7 million units over the coming decades. Similarly, PBSA, purpose-built student accommodation, provides many material growth opportunities into the coming years with absolute growth of student numbers from domestic and international demand, combined with increasing obsolescence of existing stock, especially first-generation university halls, providing a strong opportunity for us. This growth in demand is forecast to be circa 600,000 additional students by 2035. And this growth alone is nearly the equivalent size to the current entire university and corporate student accommodation sector. This current accommodation has taken many decades to build out. As we have touched on already, WJ is very well placed to thrive here given our 20-year track record in the residential for rent space and 10 years-plus forward funding track record. We are the market leader here. Unparalleled consistent performance in delivering over 50,000 beds, creating strong partnerships with numerous global institutional investors during which WJ has generated some of the strongest ROCE and equity returns of any listed real estate company alongside a resilient balance sheet, which has maintained regular strong dividend payments in spite of the macro volatility of the last few years. The planned growth into the next few years, supported by a significant secured development pipeline, provides a highly attractive equity story. The affordable housing opportunity, which we will hear more about from Alex shortly, is an extension of the same model into another attractive segment of the residential for rent sector, leveraging our existing model and capabilities. On this note, I'm now going to hand over to Sarah Sergeant and Phil Byrom who will take us through the edited highlights of the financial year 2021 trading update.

Thank you, Richard. Sarah and I will now provide a summary of our financial year 2021 trading update released this morning. I will cover our performance for the year and then hand over to Sarah to talk about the revenue opportunity in our current pipeline. Operationally, we continue to perform strongly despite the ongoing disruption caused by the pandemic. Our delivery team successfully completed and handed over all 5 build-to-rent and 7 student accommodation developments scheduled for delivery in the year. Through effective management of our supply chain, we ensured that material and labor suppliers to our sites were maintained and cost-controlled, leading to good margins on expected revenues of approximately GBP 430 million. As a result, we anticipate that our operating profit for the year will be in line with market consensus. Fresh, our accommodation management business, also had a good year. It has continued to provide support to both students and its clients during the pandemic and has received positive customer satisfaction ratings, enhancing its brand and providing additional opportunities to win new mandates. At the start of the new academic year, Fresh has over 22,000 student beds and build-to-rent apartments under management. Turning to our homes business, it's achieved 79 completions in the year and made good progress for the affordable homes pilot. Planning consents were secured for 296 homes at the sites in Crewe and Llay, Wrexham and forward sales contracts agreed for 182 homes. We have also made excellent progress in enhancing our development pipeline. Our strong liquidity position enabled us to capitalize on opportunities in the land market during the pandemic, and we secured a total of 13 sites. We also secured 12 planning consents. Our development pipeline currently comprises approximately 4,000 build-to-rent apartments and 7,100 student beds with a combined future revenue value of GBP 1.75 billion. This is the strongest pipeline we have had and provides the basis for our future years' revenue and earnings. Through our operational delivery and new forward sales achieved, we delivered a strong cash performance, and we expect to report a net cash position at the end of the year of approximately GBP 125 million. Our cash and available facilities stood at approximately GBP 235 million, providing us with the headroom to continue to add to our development pipeline. Finally, our capital-light business model ensures that we continue to achieve an exceptionally high capital efficiency. And for the financial year 2021, we expect our return on capital employed to be approximately 70%. I will now hand over to Sarah to take a look at our development pipeline and prospects for future revenue growth. Sarah?

Thank you, Phil. This slide shows the illustrative multiyear revenue profile of the 4,000 apartments comprising 9,000 beds that we have in our secured pipeline for build-to-rent, which gives us a secured future revenue value of approximately GBP 0.95 billion. A key aspect of our forward sales model is that forward sold developments typically contribute revenues and earnings over a 3- to 4-year period, and this provides excellent visibility in our future years' revenue and earnings. The top-right chart shows the split of revenue between land sales and development works, and the second chart shows the contribution to revenue from the sites in the pipeline according to their current status. In financial year '22, there's a high proportion of revenue coming from land sales. This is a result of the catch-up from the COVID-19 period, which caused some delays in securing planning consents and forward sales and really sets the foundation for the development revenues to come in the years ahead. You can see that revenue growth to GBP 300 million in financial year '23 is supported by the secured pipeline. We've also included here for the first time some revenue assumptions for financial year '24. This is in excess of GBP 400 million, of which 69% is supported by the secured pipeline. We continue to target an overall margin of approximately 15% for build-to-rent with a lower margin of 10% on the initial land sale and a higher margin on the development works, which follow. Finally, it is key to note that we include assumption of 3% to 4% build cost inflation in our forecast, and that these costs are largely fixed at the start of a development when the orders are placed. Moving on now to student accommodation. This is the same slide for student accommodation, showing the 7,000 beds that we have in our secured pipeline, which gives us a secured future revenue of approximately GBP 0.8 billion. And again, you can see that revenue growth to GBP 300 million in financial year '23 is supported by the secured pipeline. We're continuing to target 3,000 beds per annum for student accommodation, although we will continue to appraise the opportunity to increase this as we emerge in this pandemic. And we continue to target an overall margin of approximately 20% for student accommodation. We are now going to take 5 minutes out from presentation to show you a case study of our recent development in Wembley, which showcases our end-to-end capabilities from site acquisition through planning and construction to Fresh, our accommodation management service. [Presentation]

I'm now going to give an overview of our ESG strategy, which we are calling Future Foundations. And this is split across 3 areas: people, places and planet. These foundations underpin our sustainability strategy and align with our vision of creating the future of living. So future people. Health and safety, a traditional area of strength for WJ. As we continue to report well below the national incident rate for the construction industry, we intend to maintain this excellent record with a target of 5% below the national average. In addition to health and safety, we've made a major investment in employee welfare over the last 18 months. This has included a well-attended Thrive program aimed at promoting well-being and mental health across our workforce and local activities such as time-to-talk sessions at our construction sites. We're encouraging openness in our construction sites. It's important, not just because of the challenges through COVID, but also the long-standing tradition of keeping feelings bottled up within the construction industry. Diversity. Bringing local apprentices into the business will help with building diverse talent across the business. We see this as a way of increasing the number of women and other minority groups into construction. However, across WJ, the representation is relatively even when Fresh is incorporated into this where the workforce is predominantly female. We've recently introduced your voice, our own survey methodology, enabling us to measure engagement against a series of drivers and a team-specific level and identify areas that need attention. We recently conducted our first survey. Overall, the results revealed a good level of engagement with some very good practices, but has also revealed a number of opportunities across the business for further improvement. We're also investing in our internal communications capability, training and development for everyone, a new employee volunteering program where we're targeting 10,000 volunteer days a year, our employee forum. We hope that over time, these interventions will help create not only a more engaged workforce but a more diverse one. By 2030, we want an organization whose profile matches that of society as a whole in the U.K. Future places and industry standards. Creating great places to live are at the heart of everything we do. In complying with the latest industry standards, planning requirements and legislation, we have established a reputation in delivering excellent products, listening to our customers and working closely with our clients, designers, suppliers and industry bodies. We are making sure we are using the most appropriate design, materials and technologies. Going forward, we have committed that all of our developments will be BREEAM excellent or equivalent homes quality mark for residential with 50% being outstanding by 2030. All of our developments will be Energy Performance A-certified by 2030. Innovation includes modern methods of construction. Prefabrication forms a major part of our product design and delivery strategy from bathroom pods, modular service docks and our first timber frame on our affordable home starts on-site later this year. Net Promoter Scores. In recent years, Fresh has made significant investments in customer experience. For example, our market-leading Be welfare program and our new Yardi operating platform. Amenity space. Listening to our clients and customers, we are adapting our product design models to accommodate their demands, rental price points, lifestyle and pandemic learnings. For example, working from home, open spaces, gyms, prayer rooms and gaming rooms. WiFi. Excellent connectivity is no longer a nice to have. The considerate contractor scheme. CSS captures several environmental, social and governance criteria, from our construction sites to parents, respect, engagement and courtesy to their neighbors and the community. So for example, noise and dust, protection to the environment, setting the highest levels of health and safety and looking after the welfare of the workforce. Our aim is to have all new projects in the considerate contractor scheme from next year with 50% achieving silver ratings by 2030. Community and charity. We are putting in place a new framework to ensure that all of our activities are genuinely aligned with the needs of the community. So turning to future planet. Making for a greener environment is where we have the biggest impact. Since 2016, WJ have reduced the amount of waste produced from 38,000 cubic meters to 25,500 cubic meters in 2020. Our target for 2025 is to reduce this to less than 1,400 cubic meters and less than 500 cubic meters by 2030. We divert from landfill 95% of the waste we produce. And our goal is to increase this to 97.5% by 2025. Short-term and long-term goals have been identified. For example, renewable energy sources for the site cabins, photovoltaic or rainwater harvesting and reducing reliance on diesel fuel as we are currently switching our plant and machinery from red to green diesel. Our pathway to net zero. 95% of our CO2 comes from the construction of our developments, the majority through Scope 3, which is supplies and materials. I've already mentioned our extensive use of modular build, whereby, factory construction contributes to improved quality, less waste, fewer health and safety risks, less time on sites and less embodied energy in production. In addition, our self-build model, whereby, 75% of our current workload is delivered internally, provides greater control of the supply chain. Our target is that through partnering and framework agreements, we are better able to align our sustainability targets with our suppliers. The plan is that all WJ suppliers will be ISO 14001 accredited by 2025. In addition, our self-build model promotes greater risk management in respect of material and labor shortages. Over the last year, using specific buildings, we've modeled the cost of improving the environmental performance of our developments by reference to BREEAM/HQM, et cetera. Whilst every building requires a bespoke solution, as our understanding improves, we hope to be able to identify a rule of thumb per unit cost of these improvements, for example, pound per square meter. Meanwhile, through dialogue with our supply chain and our clients, we will also develop a far better understanding of the cost of our wider journey to net zero. In the interim, we're assuming that our decarbonization strategy will add between 1% and 2% to the overall development cost of delivering our future pipeline. We are confident that these costs will be mitigated by advances in technology, cheaper materials, new building techniques and increased asset values. Our typical institutional purchases of our buildings who would look to hold the assets into the long term are already demanding more environmentally friendly buildings, which are future-proofed in design, have lower in-life running costs and help them meet their own carbon commitments. As the focus on environmental issues intensifies, we are starting to see signs that they are also willing to pay a premium for the assurance that comes with our developments. Other environmental initiatives include the introduction of agile working, which provides better work-life balance and cuts down on our carbon footprint. From 2021, WJ are already planning to have all new company cars as either hybrid or electric vehicles. I previously mentioned that all our developments will be BREEAM excellent or the equivalent for HQM residential. Introducing heat pumps into schemes will support this target. This year, we delivered a range of ecological projects across our portfolio: hotels for bats and bug houses, drainage wells to assist in flood prevention and wildflower meadows for insects and pollinators. To sum up, the WJ sustainability strategy is based around 3 future foundations: future people, future places and future planet. And we have a plan that sets out our objectives and measures of how we intend to deliver this strategy. I will now hand across to Alex to discuss affordable housing.

Good afternoon. As mentioned, I'm going to provide an overview of our new affordable housing-led model. In summary, this model is a land-led model, playing to the group's significant existing development strengths and market advantages. Housing sites will be acquired with a target of increasing the level of affordable housing provision typically achievable on the site. This, in part, will be achieved through partnering with Homes England and accessing grant funding. The group will initially target gaining a Homes England investment partner status, and a strong relationship is already forming with Homes England. We will adopt a blended model, seeking balanced communities across the development, combining affordable housing alongside single-family build-to-rent and a balance of private sale units. This blend will ensure a capital-light and high-ROCE model is achieved, aligning it well with the other core group activities. The model will be a national coverage, though, in the early years, the predominant focus will be on the Northwest and Midlands where our existing knowledge base is strongest. So why affordable housing? First and foremost, the sector is underpinned by very significant and enduring supply-demand imbalances. It is well documented the significant decline of counsel provision of new housing less well-known is the obsolescence of stock dropping out of the supply chain, nearly 500,000 units. Aligned to this, we are simply not building enough affordable through traditional procurement methodology, section 106 obligations and registered providers. In 2020, 58,000 affordable homes were delivered in the U.K. against the target of 145,000, and this shortfall is a consistent pattern. So why now for Watkin Jones? What's changing? A key driver is the highly supportive government policy and rhetoric backdrop, which is now an enduring theme across all political parties. This has resulted in, firstly, direct financial support for a renewed GBP 12.2 billion allocations from Homes England to deploy over the next 5 years. Perhaps more importantly, a range of new policies encouraging and facilitating private investments in affordable through for-profit registered providers and strategic partnerships. Alongside this, in recent years, traditional providers have become more constrained through various funding, legacy portfolio and development expertise challenges, and they are increasingly looking to beneficial partnership with the private sector. This has led to new but very familiar to Watkin Jones capital sources looking to actively allocate capital into U.K. affordable. This new capital wants to enter in significant scale and has been our experience in PBSA and build-to-rent, a key driver is finding a delivery partner who has the development acumen, track record and ability to deliver consistent pipeline of scale. We believe Watkin Jones are extremely well placed to capitalize on this burgeoning market opportunity. This is a model which plays to our core group strengths and enables a variety of efficiencies and synergies to develop. It brings to bear our substantial development, planning, investment and construction expertise. It utilizes and pivots our existing homes business into a new, exciting and growing business stream. This enables us to employ our substantial IP and skill sets in constructing housing, the supply chains and the networks without materially increasing our overheads. It also maximizes and leverages our existing institutional relationships and partnership capabilities. This, in turn, helps drive a much more capital-light income stream, driving ROCE and aligning with other group activities whilst providing a distinct advantage over competitors more driven by pure return metrics. A key benefit of this model is its ESG and planning narrative and the benefits of increasing affordable provision, not seeking to reduce, which really differentiates from competition and appeals to a wide range of key stakeholders. Our key pilot scheme is Sydney Road in Crewe. We have secured a detailed consent for 245 residential units across a blend of tenures. We have managed to increase the affordable provision on this site by 115%, an increase from 74 units to 159, and this has received grant funding from Homes England. We have also successfully forward funded the opportunity with Plus Dane, an active registered provider. However, it was very pleasing to see the excellent liquidity with 11 bids received from a blend of private and traditional bidders. The return profile is tracking at the upper end of our target range, and the ROCE sits at 30%-plus. We are also using this opportunity, alongside Plus Dane, to enhance our sustainability credentials and are actively trialing a timber-framed build technology on 37 units alongside a more traditional methodology. There is an absolute ambition to scale up this model extensively, both geographically and in units and revenues. We believe there is the potential to reach 1,000 units-plus per annum by 2027, reflecting GBP 200 million-plus of additional revenues for the group. To date, we have either secured or are progressing detailed discussions on a pipeline in excess of 1,000 units. We would expect the scaling up of this to grow at pace as our experience and presence in the marketplace becomes more established. We believe this model will deliver a very strong capital-light performance with a target ROCE of plus-30%, and we'd anticipate gross margins of plus-10%. Overall, this represents a fairly exciting opportunity and new market for Watkin Jones, which will be accretive to revenue and margins and effectively pivot our existing homes business into new territories. I'm now going to pass over to Richard to conclude. Thank you.

So overall, we've heard how our business model and growth strategy is intact and, in many respects, flourishing in spite of the volatility from COVID over the last year or so. We strengthened the leadership team, deepened our secured development pipeline, expanded our network with institutional investors for our developments and are moving into a third leg growth opportunity in the affordable homes subsector of residential for rent. And all this is being delivered through a highly responsible ESG framework. On that note, we can turn now to the Q&A, and I'd like to invite my colleagues to join me on stage.

As you can see, I've now been joined by my executive team colleagues here on stage. And the one member who you've not heard from yet this afternoon is Richard Harris who's sitting in the middle here. He's the Managing Director for Delivery and will assist us in talking through construction costs, delivery and elements of the carbon part of ESG. First and foremost, I'd like to thank you all so much for the many questions you've already sent through. And just to remind you that this is live, so you do have the opportunity to send through more questions over the course of the next 20 to 30 minutes, and I will endeavor to get to them. But I've got plenty here to get going with. I know the exec team are excited to pick up your questions. So let's get started. So the first one is for Sarah. Profits in line but revenues are down. Can you talk us through what's going on here?

Yes, of course. Thank you, Richard. So from a revenue perspective, we were -- our revenue expectations are meant to be around GBP 430 million. That's slightly below consensus, and this is really due to 1 forward land sale, which was due to complete before the year-end and actually just slipped into a couple of days after the year-end. As you know, our land sales come at a relatively low margin, somewhere between 1% and 10%, hence, the very little impact on the profit number, which we expect to be in line with consensus. The other play here is, obviously, we completed 5 BtR developments in the year, our first kind of 4 years trading of BtR, and the margins here were slightly above where we expected them to be. We kind of built in some COVID considerations, which, when we did our final kind of cost models, didn't come to fruition. So higher margins, and we expected on that really bring in an inline profit figure with consensus.

Thank you, Sarah. And we've got another one here for Alex. There's been some great progress on forward sales recently. Can you comment on how you see the outlook for BtR and PBSA liquidity?

Sure. Yes, overall, I think we've characterized liquidity as being very strong at the moment. I think it's been fueled, as you mentioned in the presentation, by a sort of global trend in allocations upwards to residential for rent in the living space. And I think that's really sort of manifesting in the interest in U.K. residential. So for PBSA, I think people are looking beyond the pandemic. They are seeing the sort of rise in student numbers, both sort of domestically and internationally, and they're seeing that U.K. still represents sort of a powerhouse of higher education. Therefore, investment levels are high. And I think what's really pleasing is we are seeing both new parties wanting to come into the sector. I think we can evidence that with the deal we've just recently closed with Singapore Press Holdings in Edinburgh, but there's also very established players, people like Brookfield, who we've transacted with this year. So again, good depth of liquidity and a good range of equity coming through. I think build-to-rent is a very similar story. And it's, to some extent, it's earned it spurs during the COVID pandemic. It's really been able to differentiate itself from more traditional residential product. Its community aspects, its pastoral care, its managed living, that's really come to the fore. And as a result, we're seeing huge interest, both sort of institutionally and for more private equity sort of fields. And again, I think if ever there's a barometer of the market, in recent months, we've closed 2 deals with LNGs, annuity funds totaling over GBP 200 million of investment. And I think that's a great sort of barometer for build-to-rent in the U.K. and Watkin Jones as a counterparty.

I think it's fair just to probably characterize the market at the moment as being -- I think liquidity has recovered back to a pre-COVID level across the residential-for-rent space. We've had quite a few questions, as you probably would have imagined on build costs and supply chain and volatility there. So rather than try and set all of those questions out, Richard, can I just ask you to sort of download your thoughts as to how we're looking to manage that aspect of our delivery.

Sure. Thank you, Richard. Build costs obviously have a big risk to us in terms of the impact that they have on our project delivery. I think it was mentioned in one of the clips in the presentation about our relationships with our supply chain. This is key. And I think what we've had within Watkin Jones over a number of years is a strong supply chain base with a good relationship working with those suppliers for a long time now, and that's put us in good stead. I think also the majority of our projects are self-built. It means we're a lot closer to the supply chain than potentially others because we're in control of the supply chain. As I mentioned, we've got good relationships with them. We share with them our pipeline and our activity well in advance so they can plan ahead. And I think that's important, particularly when you have the threats of -- or the risk of inflation, which is obviously a hot topic at the moment. In terms of other areas that really enable us to control or manage the risk in cost is the way we procure and design our buildings and our construction. You mentioned in the presentation, modular build in terms of bathrooms. We've also got service stock prefabrication all done in factories. So that takes -- again, that sort of de-risks that exposure to the market because you can do this well in advance of market conditions. I think there will be a risk going forward as the market is a bit volatile in terms of inflation. The advantage we have in our product line is that there are other sectors of a similar supply chain base like hotels and offices that are pretty quiet at the moment, and they're lagging behind in terms of coming out of the pandemic. So I think we have an advantage there to exploit that opportunity with our supply chain. So it is a risk and we're fully aware of that, but I think we have some good robust strategies in place and a sound supply chain that we've worked with for a very long time that we continue to work with. We're talking to them about framework agreements, partnering arrangements. So I think this has put us in good stead. It might not take it out completely, but it will certainly help us manage that risk going forward.

We certainly heard quite a bit on the case study on Kolati as a team. We're talking about the buying gains, the procurement, the partnering, which has certainly put us in some very good stead through all of the sort of trials and tribulations of COVID so far and that continued volatility.

Yes, and I think technology as well. I think we need to work with our supply chain with our design teams in terms of looking at different ways of procuring and designing our buildings to de-risk that and take -- the more we do it out offsite, the easier it is on the site.

Yes, sure, that makes sense. We've had a few questions in on cladding. And I'm just going to read out one from Mark Bentley at ShareSoc. How are you progressing with cladding inspection, remediation at historic developments? And what related liabilities are you exposed to? And I think, Phil, it's probably best if you look to answer Mark and other's questions on that.

Yes. Okay. Thank you, Richard. So I think in relation to the cladding position, you recall that we made a provision in our 2020 accounts of GBP 15 million to cover the potential cost to the group of cladding remedial works. That, at the time, followed a very thorough review of our historic developments to understand where remedial work may be required and also quite involved discussions with the property owners concerned as well. So there's no legal liability on WJ in respect of that. But really again, in terms of doing the right actions to ensure the safety of tenants, we agreed to establish a position in the way we could undertake the necessary works. In essence, in relation to that, those works are all progressing in line with our expectation and we don't see any change at this point from the position that we set in 2020.

Great. Thank you very much, Phil. We had one in from Dr. [ Bijan Roohi ] over at funding partners. And I think this is probably for Alex. What rate of return on average do institutional investors expect for BtR investment?

Okay. I guess I'd describe this, institutional investors for build-to-rent are typically targeting between a 4% to 4.5% net initial yield. So I think if you then factor on inflationary rental indexation, 3% is probably a good proxy across the U.K. at the moment. That's providing maybe a 7% to 7.5% ungeared return. And that is typically the range that they'll be looking for, which is sort of well in advance of the risk-free rate and that's a very attractive return from their point of view. I think with a little extra rental growth, which we're seeing in quite a few markets as build-to-rent managers to differentiate itself and perhaps a little bit of gearing, low double-digit returns are very much possible. And what we're seeing is that's actually attracting in more opportunistic capital into the market to sit alongside the institutional capital that's already there. So again, another exciting element to the market.

And that's always the point we were saying earlier about residential being historically a very good hedge on inflation that we're seeing quite strong rental growth coming through the residential sector, which, of course, is a real cash growth return element to an institutional investor's holdings with PBSA, BtR even for affordable housing, although clearly, the rental growth element is viewed very differently. But it's a real return, it's a real cash return, which is quite accretive. Had a question come in from Kieran Lee at Berenberg. And I think this is just -- whilst we're with you, Alex, we'll just hold the attention with yourself, if that's okay. It's a bit to read through, but it's a good question. The model of back-to-back land purchases, development contracts and forward sales were mentioned. However, the timing between the 2 has become elongated. Is this a conscious decision to prove the product, take some market risk or a limitation of market maturity? To what extent has the timing gap with fixed costs and inflating market contributed towards super normal development margins?

Okay. Yes. No, look, absolutely, the model still is very much looking to back-to-back where appropriate and where we're able to -- it might not be on the same day, but very much we're trying to align our sort of land contracts with our forward sales, and that makes a lot of sense. There are opportunities, however, and I guess it's not a one-cup-fits-all policy. We look constantly to assess the markets that we're operating in. And if we can see some significant upside coming, then it may be that we decide to hold off a sale just to allow us to capture that additional upside. And again, I think the 2 deals that we've done in Edinburgh recently were very much examples of that. We could have sold it earlier, but actually we felt there was inherent value still to come on those assets and therefore, we held back the sale a little bit. And we've done that in Chester. We've done that in Leicester. And every time, we've outperformed the underwriting that we had initiated.

Yes. Perfect. We've had a good question about cash, Sarah, come in from George Nicola from Gravis Advisory. And the question is, will you be looking to return cash to shareholders via special dividends if the cash position remains relatively high going forward?

Thanks, Richard. I mean, I think I might take this moment just to explain the position for the year-end for cash in a little more detail. So we will report a strong cash position of approximately GBP 125 million. And this is really a result of a good year-end close to cash. We had a number of land sales that came in and obviously the kind of final payments that came in on the completions also happened. That balance obviously really gives us the opportunity to redeploy it into our pipeline, but as is our model, that will recycle and therefore, we expect the level of approximately GBP 125 million to be sustainable going forward. As I said in my intro, I appreciate this, and I will really look at the best ways that we can get value for this cash balance in the coming years. So I guess to answer the question, no plans at the moment, but we'll definitely keep that under consideration.

Thanks, Sarah. Have one coming from Glynis Johnson at Jefferies. Can you elaborate on your offsite manufacturing ambitions? I think that's probably one for you, Richard.

Okay. We see -- well, I've mentioned the advantage of offsite construction in terms of it de-risks the project. Not only does it de-risk it in terms of exposure to cost, but also in terms of quality. Obviously, something procured in a factory environment is a lot better quality than potentially the exposure that you have in terms of building something in a wet rainy environment on-site. So it's clear we want to grow that. We've already, as I mentioned, moved not just from modular bathrooms, but our service ducts, that means it speeds up program as well as the advantages of cost and quality. Our aspiration is to do this in more areas. You mentioned in your presentation, Richard, that we're trialing our first timber frame affordable homes this year. So that is a trial and we're closely going to monitor that and see the benefits that, that gives us on all fronts from an environmental point of view, but also speed and cost in terms of delivery of the project. There are other areas that we're working with our supply chain in terms of initiatives where we're looking to see if we can expand on the service example that I gave. Can we do other things? Just anecdotally, from my background and experience with Whitbread, we actually procured the first full bathroom and bedroom part. And so they're ideas that we're looking at. We're not sure whether they're going to be appropriate for us, but we're certainly investigating those as potential opportunities. So other systems. Certainly, our external cladding systems, a lot of that this year, both Sutton, our BTL was a slip-brick system, which is manufactured offsite. Similarly with the balcony attachments, they were all done offsite and brought to site as one piece and erected far quicker than we would have done had we had to do those in situ. So there's a lot of initiatives going around. There's probably a lot more that we can think of. But having our supply chain relationships, working with our suppliers over a long-term period enables us to work with them to look at new initiatives. So it's certainly on our agenda and something that we feel will really add value to our construction and our delivery projects going forward.

Yes. Perfect. I mean from my perspective, offsite manufacturing is a really important part of our future construction capability for all the reasons you highlight. We've had one in from Clyde Lewis at Peel Hunt, which I think is probably for you, Alex. How much overlap do you see from investors looking at BtR as well as affordable units?

Yes. It's a good question. And it's one of the drivers behind us getting involved with affordable housing is that sort of synergy in investor who have actually moved with us probably through purpose-built student into build-to-rent and are now looking to access the affordable housing market in the U.K. as well. So we could point to examples. I spoke earlier about LNG. They've been with us all the way through PBSA, build-to-rent. They've got large allocations to affordable. M&G are the same, AIG, PGIM. So there's huge sort of synergy across investor type looking to spread across the residential centers.

Perfect. So we've had a few questions in about ROCE. Got some raised eyebrows at the strength of the ROCE consistently throughout the presentation. Phil, can you -- rather than sort of turn to each question in turn, could you just give a little bit of a flavor as to the sort of basis of preparation in arriving at some of these very strong ROCEs and how we think about that when we consider at a sort of group or corporate level and how that might look when we turn to affordable housing with the ROCE, which we're guiding on that?

Yes. Yes, sure, Richard. So I think when we consider the sort of capital efficiency of the group and therefore, the return on capital employed metrics that we sort of obviously included in our presentation earlier, fundamentally, Watkin Jones is an exceptionally capital-light business. By forward selling our build-to-rent and student accommodation developments, the capital required relating to those is very negligible. And so with that very, very sort of high and rapid sort of turn of sites and the payment for development works as they progress really leads to a very, very strong return on capital employed. So we referenced for the year just closed that we anticipate reporting a return on capital employed of about 70%. And we've maintained that level actually over -- about the last 5 years. Now we're calculating that. We're calculating it -- that on net asset position, excluding our net cash balance, which Sarah referred to earlier is a strong cash position in itself. But on that consistent metric, we are seeing that very high sort of capital return. I'm really looking forward with the forward selling of developments. In the way that we do, we would expect that to sort of be maintained and potentially be accretive as the business continues to grow. We think then about how affordable homes might play a part in that, and we referenced that in the presentation, a target return on capital employed of about 30%. It's potentially a little bit less than the overall sort of group performance, which I think is understandable. It's still very much a forward sales model, so very, very capital efficient again and highly attractive in terms of that sort of ROCE position. But nonetheless, with some elements of open market in there and some degree of capital associated with that, we would expect that to probably be a little bit less than the ROCE that we will get on build-to-rent and student accommodation. But overall, on a blended position, that highly efficient sort of 70% level we're at, we see as sustainable into the medium term.

Great. That's pretty clear. Just to say we've had lots of questions in, so thank you very much for those. Please do keep them coming. I'll endeavor to get through as many of those as we can. We do have about 20 minutes left. So there is -- there should be time for more questions. If you have them on your mind, just get them submitted in to me. So we've got one from Joris Jansen at JLP Asset Management. And he's raising a question about the residential property developers tax, which has recently been confirmed by the Chancellor during his autumn statement just a few days ago in his budget. And I guess this is for Alex. Could you please elaborate on how the recently announced cladding tax will impact on Watkin Jones?

As in the residential developers tax?

Yes.

Yes. Look, I mean, obviously this has been talked about for quite a while now. So we've been preparing for it and trying to understand the potential impacts. And I guess from the positive side of it, what we have heard in the autumn statement is that purpose-built student accommodation is currently out of scope and will not be part of that tax, which is clearly a positive from a market point of view and our point of view. And build-to-rent is still under debate as to whether that will fall fully in scope or not. There's elements that have been declared that will be out of scope. And so we are still monitoring that, but yes, overall, we see it as a positive sort of position from where we were a few months back.

Yes. As you say, very, very pleasing to see that PBSA is out of scope. PBSA is broadly 50% of our revenues over the next few years. And as you say, BtR is still under review, so that is a positive movement, certainly from what was sort of trailed a few months ago. We've had one in from Glynis Johnson from Jefferies, which I think is for you, Richard. Build cost inflation of 3% to 4% is baked into our assumptions. Can you tell us how that sits relative to current levels of build inflation?

Yes. It's a very good question and it's a difficult one to answer because it depends which day of the month you asked that question out into the industry experts out there. The latest article I saw with a number of the RCS practices is reporting that the build inflation may be around 5%, 5.5% for the next 5 years up to 2025. As I say, we're saying 3% to 4%. And I think that's because of our relationship with our supply chain for all the reasons I've mentioned previously. It will be interesting to see how it pans out. I think some of the shortage of materials and labor shortages as well are slowly sort of filtering through from the pandemic and from Brexit in terms of labor shortages. I think they're short term and certainly, that will come back. And so I think we're pretty protected for the reasons I've mentioned before, but I think we're sitting in sort of -- I think our 3% to 4% maybe is about right based on our relationships with our supply chain. But I think as you -- we need to closely monitor the market, what the market is saying. As I say, some of the ultimate statements have sort of pushed that up a percentage point, but I think we're still okay in our assumptions currently. It may change going forward because it's a very sort of watch-this-space position to be in, but I think we're in a good place.

Good. And so just thinking more sort of broadly about inflation, what's your sense corporately?

Yes. I mean, I think as we said, I guess the kind of key point is we do lock in the subcontractor, the slot supply back at the beginning. That's the 3% to 4%, and that's obviously what we're seeing, kind of where very much we are within those kind of tolerances at the moment. I mean if we're thinking kind of more broadly about margin and prices and where we think that's going to go, I mean I think we still stand at our margin guidance of 20% for PBSA and 15% for build-to-rent is still appropriate. There are obviously some factors to think about there, the build costs, the ESG costs. Again, we think that's around between 1% and 1.5% of development costs. But obviously, you'd like to think that we will get an increase in asset values to kind of compensate and mitigate against those costs. I mean I think the other kind of key play in the margin point or the overall operating profit point is the overhead. And I think I'll make it very much part of bottom line remit to make sure we kind of keep those under control. We obviously have to make sure we are investing to grow, that we have a real, real focus on it and therefore, we can really start to get an overhead leverage as the business grows in future years.

Perfect. Thanks for that, Sarah. But on a slightly different subject, we've had a question in Poonam Lodhia from Numis, which I think is probably for Alex. And the question is around further diversification into the residential for rent sector. And the example here was later living. Now I suspect that's probably come up from the speculation that was printed in -- was it Property Week last week on exactly that point. Alex, do you want to give a bit more color to that?

Yes, sure, absolutely. I mean, look, I think from our perspective, retirement living, co-living, these are all subsets of the wider build-to-rent family and we do view them as very much part of the build-to-rent. So whilst on retirement living, we don't have any immediate plans to enter that market, we're certainly looking at it and we can understand that there's synergies there. These are both sort of products which are driven by, operationally for us, creating communities in buildings, creating income streams from those communities. And so I think it'd probably be remiss of us not to be considering widening our portfolio of products that we can develop and invest in, and we do very much see retirement living as part of that. So whilst we don't have any immediate plans to dive in there, it's certainly something that we find intriguing. And the supply-demand dynamics, again, characterized in retirement living very much reflect PBSA and build-to-rent. There's growing supply-demand shortages.

Yes. Perfect. We've had a question in from Clyde Lewis, another question from Clyde Lewis at Peel Hunt. Sticking with you though, Alex. How are you evolving the management structure to cope with your growth in affordable housing?

Sure. Okay. Well, I think the first thing to say is that we're in a really fortuitous position that we've got a huge amount of in-house skill already sort of building, developing single-family housing. So I think it's a real luxury to be able to pivot that to the existing business and redirect it towards the affordable side. That said, we completely understand there are nuances. Affordable housing is a specialist market. And we've created effectively a development hub, acquisition hub, very similar to our PBSA and build-to-rent team models in order to go out and capitalize and acquire new sites, and that's headed by someone with very specialist knowledge on the affordable housing sector and the investment players within it.

Perfect. Now just turning back to BtR. Had a question in from Colin over at Davy. Regarding the growth flagged specifically in BtR revenue for FY '24, to what extent are there residual risks related to planning on the sites that will deliver that revenue, particularly in light of the planning delays, which we described in our statement today?

Okay. Well, I think there's always residual planning risk in all developments, but I think what I'd say, planning in the U.K. can be challenging. You really need to know what you're doing when you go into it and you really need to be prepared as a group with the facilities to take on the planning system. I think actually, this barrier to entry is a real sort of opportunity for Watkin Jones. We've really invested very heavily in our planning infrastructure. We boosted our strategic planning teams. And we're really using planning as a vanguard for our business to go out to the local authorities that we want to develop in, meet with them, understand their requirements, what they're really trying to drive from development within their city. And we're really beginning to see that sort of come to bear. So we've had real success in Sherlock Street in Birmingham with our largest-ever build-to-rent consent coming through; a huge consent in Bath, traditionally quite a challenging planning environment, where we've been able to secure a mixed use residential tenure consent for build-to-rent and PBSA. So absolutely, planning can be tough in the U.K. You need to know what you're doing. But actually, I think it's one of our real USPs and a real strength of our business.

Brilliant. We've had a question in from Alastair Stewart from Progressive, which is asking to provide some color on the various city rental markets where we're operating. And just to give you a short break, Alex. I think I'll pick that one up. I mean, essentially what we've seen is that the major provincial cities throughout the U.K. have been performing very strongly over the last 12 months in terms of underlying occupier demand, which is translating into rental growth. There clearly is a large exception over in the Southeast, specifically around London. Although, really from the sort of lead indication at the moment, we are seeing that, that is probably plateaued and beginning to come back. We've recently relaunched and refreshed the booking for the next academic year. There's no rest refresh. They get straight into the next academic year as soon as the current one has started. And there's actually been quite a good traction in London, and we are seeing that sort of rental tension coming back into that market. But I think overall tenor for both PBSA and for BtR has been for really good, robust rental growth performance across the U.K. So going to move on to a capital structure question for Sarah and Phil. This is from Gavin Laidlaw over at Stockwatch. Looking at the news on cash generation, back-to-back build model and the year-end cash part estimate, what is an efficient balance sheet?

Let's start on that one, Sarah. That's a good question. I think with the closing sort of net cash position at GBP 125 million clearly demonstrates an excellent liquidity position as we look forward. We are clearly going to be going through a sort of growth period ahead. I think that was quite clear from the revenue charts that we sort of saw in the presentation. And aligned to that, we'll be looking to very much continue to commit to growing the development pipeline adding to that. And that will deploy some element of capital whilst we do that. So as we go through that sort of growth period, my view there, and I think really referenced this actually sort of historically that a net cash position for the group of about GBP 150 million we will see as a sort of balanced position to help to sort of fuel that sort of growth as we go forward. It gives us a lot of strength and indeed, when we saw the Kolati presentation, when we're talking to both vendors at sites and also to clients, that strength of liquidity and cash position that we have is a key part of our ability to transact effectively. So it's important both from that perspective, but also managing our working capital requirements during the year as well. And so I think looking forward, I would certainly see about GBP 150 million as a sort of balanced position as we go through that growth. Sarah, you might want to add to that.

Yes, I mean I think the only other point is probably what Alex was referencing earlier in terms of, obviously, we are trying to make sure that we keep to the model and back-to-back for land purchase and the forward sale of the land, but times [ will agree ] -- the cash balance gives us the opportunity to not to do that to such kind of precise terms to be able to hold on and in the end, maybe seek a higher value by holding on to that land for a certain period of time. It gives us flexibility to do so.

Yes. Perfect. We've got time probably for another 3 or 4 questions. I've got plenty here, but if you do want to send some through, as I say, I will endeavor to get to them. We've got one from Kieran Lee from Berenberg. To what extent are land usage between BtR and PBSA interchangeable? Alex?

Yes. I mean, again, it's one of the reasons that drove us to build-to-rent in the first place was that synergy between sort of the geographies. And I guess the simple way we look at it, obviously PBSA is driven by universities and students. They, in turn, tend to drive employment, which then in turn drives build-to-rent. So quite typically, we could be targeting a site in Bristol, in Manchester, in Leeds where we could look at multiple different uses for that site. And indeed, what we're seeing, particularly coming through the planning system, is a desire to have more balanced communities. And actually, that's where our strengths really come to bear because we can put forward mixed communities with students alongside build-to-rent or build-to-rent alongside co-living or a blend of all 3 as we've done in Leeds. So yes, absolutely, there's a huge range of interchangeability between them.

It's interesting isn't it where you have the ONS who've often said that graduate retention rates in cities are often lead indicators for economic strength for that market itself. And as you say, that's PBSA straight into BtR. Another one from Alastair Stewart at Progressive about affordable homes. He's saying the affordable homes pilot seems, if anything, to have been more successful than initially envisaged. Are your major BtR or PBSA institutional investors talking about getting involved in funding these projects? Alex?

Yes. I think this does pick up a little bit on a question earlier that in terms of that sort of synergy between investor types. But yes, look, we are in active discussions with all of our big institutional investors about how they can access affordable housing market. And I think it's a very similar tale to what we've sort of experienced on PBSA and build-to-rent. It's how do you access it at scale? How do you have a counterparty that you can trust that will deliver? And it just doesn't really exist in big enough scale at the moment for the investors. So really, that's a real USP for us. I think we'll be able to translate that into real good liquidity and transaction speed because there's huge pent-up demand. There there's just not enough stock coming through the market.

Perfect. We've got another one in from Kieran Lee who raises an interesting point. The last Capital Markets Day saw targets on annual BtR, PBSA completions. What can the current platform support? And what is your aspiration for each division? Sarah, would you like to lead on that one?

Yes. I'll make a start. I mean I think from a BtR perspective, we're obviously kind of looking to grow that business. And from FY '22, FY '23 perspective, you will get to see that more to be towards 50%, beyond 50% of the overall revenue of the business. I think from a PBSA perspective, we're still very much looking to target that kind of overall 3,000 beds per annum. But equally, we'll kind of continue to kind of reassess the market as we come out of this -- out of the kind of COVID era.

It's interesting that we've seen -- at the last Capital Markets Day, we were talking about 1,000 BtR units per annum probably by year 5, which is still a few years away. And you can see from the updates we've given that we're already sort of looking to sort of go significantly in excess of that. We're now sort of pushing up closer to 1,500 sort of BtR, probably closer to 2,000 BtR units. And it feels like there is a significant addressable market there for us to penetrate. And I do think my reflection from the last couple of years, what's changed from the last CMD to now has been how quickly BtR has rerated positively. So it's probably further ahead in terms of a maturing asset class than we thought it was going to be back in 2019 when we set this out. I think with student, what's interesting, as you say, we set out 3,000 bed spaces per annum. We've come off that very slightly just because of the COVID disruption and just having a look at the potential impact from higher education, but what's really pleasing is that it does look like, looking through COVID, there's no long-term scarring in terms of the proposition for higher education in the U.K. We saw earlier just in one of those slides about a significant growth of student numbers forecast by 2035. And really, that should give us confidence to sort of really rebuild our pipelines back up to at least that level over the short term.

Do I need -- just on that same question, whether I should add in terms of how do we deliver in terms of the growth of our...

In terms of how we support the platform, its success? It's a great one. Go ahead.

Yes. So just to add to that then. I talked a lot about the benefits of our self-build and the majority of our projects to-date have been self-build. We don't see that as staying like that. We certainly already this year, 4 of our projects that we've got on site this year through third-party contracting. So we see a mixed model in terms of our procurement of our construction projects. That mixed model allows us to turn the tap on and off. When all the red buses turn up at once, we can respond. And we're doing that with third-party contractors that we're developing into framework agreements and partnerships. So we sort of try and take the best of both worlds. We've got the advantages of our self-build team with the expertise, and you've heard about the supply chain benefits that I've mentioned before, but we've also got the ability to facilitate the growth through a mixed model and go to third-party contracting.

Perfect. And on that note, we have hit our 90 minutes. And I think we've taken enough time from your busy schedules already. I'm just going to bring it to a close now and do it in the shortest possible way, just to thank you very much for your time this afternoon. And we all very much look forward to catching up with you again soon.