Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

So a very warm welcome to the preliminary results for Watkin Jones for the financial year 2022. For those of you who don't know me, my name is Richard Simpson, I'm the Chief Executive and I will be joined in delivering our results by Sarah Sergeant, our Chief Financial Officer; and for the first time, Alex Pease, our Chief Investment Officer, who joined the Board late last year having spent 12 years with us, and he will cover the development and market sections. So if we turn to the agenda, I'll start by doing a summary of the key highlights from FY '22 and also the key themes that we are seeing currently for FY '23. I'll also pick up progress with future foundations, our ESG strategy and a section on how we might leverage our strengths going forward. Sarah will cover the financials, the outlook and the update on Fresh, which is our property management business. And as I've just mentioned, Alex will cover the development and market review sections. We'll then open up, as you'd expect, to Q&A. And I anticipate the presentation taking circa 40 minutes, a little bit longer than usual. There's a bit more detail, which I think is appropriate to sort of walk you through. And therefore, we'll have about 20 minutes for questions at the end. So if I turn to FY '22 and the outlook summary. I think overall, FY '22 presented a series of challenges at which the business performed well against for the majority of the year. This shows a number of things ranging from the strength and resilience of the resi for-rent living sector as well as the underlying operational capability of the business, too. It bodes well for any future further macro challenges, as well as reinforces the long-term opportunities for us in this sector as the forward sale market normalizes. In reviewing the year, we can break it down into three key areas. I think, firstly, Watkin Jones' end-to-end development capability. I think secondly, tenant demand in the residential for rent market. And then finally, investor demand for forward funds. So starting with the first under the end-to-end performance. Land acquisitions, securing planning permissions performed well all year, and this is a positive. Clearly, it's a special positive as we start turning to the lucrative land buying phase of the cycle and turning those into consented pipeline. Now development faced into supply chain availability and build cost inflation headwinds, but overall navigated them well in delivering eight projects in the year and securing build costs for the next wave of projects, which were forward sold in line with adjusted budgets. So turning to the second point, tenant demand. Tenant demand in the residential for rent sector is comfortably the strongest of all occupier demand across all sectors of U.K. real estate. This clearly, therefore, translated into high occupancy and strong rental growth throughout the year. This is widely forecast to be sustained into the next period. And these strong property returns generated are expected to support a normalization of the forward fund market. So the final theme then, investor demand -- investor demand for our forward funds was high for the majority of the year driven by the attractive fundamentals. Asset prices increased, offsetting the build cost inflation and protecting margins until deep into our Q4. Over this period, we sold a record number of forward sales, circa GBP 900 million, which accounted for 20% of all residential forward sales in the U.K. and actually 8% of all U.K. institutional residential transactions in the year. Through August and into September, increasing borrowing costs led to preferred bidders reducing their offers, thereby impacting margins and the mini budget in September materially disrupted the forward fund market, along with quite a few other things. Impacting our last two plan sales, where the preferred bidders withdrew at very advanced stages, which otherwise would have delivered our financial targets for FY '22. Overall, our adjusted operating profit for the year of circa GBP 55 million demonstrates our resilience. So just turning to the outlook and just bringing you up to date with where we are at the moment. Underlying robust operational performance continues, especially in securing planning permissions and managing our development pipeline. Tenant demand for residential for rent remains heightened and rental growth forecast remain at strong levels throughout the U.K. This generates attractive property returns even relative to increasing borrowing costs. Investors are alive to this, and we're seeing early signs of a normalization in the forward fund market, especially with the easing of borrowing costs recently, where investors are engaging with us on our consented pipeline. We have circa GBP 0.7 billion of contractually secured forward sales revenue to come, which we will deliver over the next few years, giving good visibility of revenue and profits. Alongside this, we have a consented pipeline of GBP 0.8 billion, and that is development value to sell. We expect forward sales this year to be financial year H2 weighted. The anticipated blended gross margin of both our forward sold pipeline and our consented pipeline is circa 12% to 14%. We expect build cost inflation to moderate this year and for supply chain availability to improve. We're also vigilant for any signs of distress with our construction partners and are able to take action to ensure our projects are delivered successfully. We started seeing attractive land buying opportunities, which restores margin to traditional levels. And we will be on the front foot to secure land in city and town center locations. For the moment, we will focus our attention on the higher-margin purpose-built student accommodation, PBSA, and build-to-rent, BtR, multifamily parts of our business, slowing our plans for expansion into single-family affordable housing. So overall, whilst we maintain our cautious approach in the short term, there are many reasons for optimism as we look forward. I'm now going to hand over to Sarah, who will cover FY '22 results and outlook.

I'm pleased to report that our overall results are in line with the October trading update. We've reported revenue of GBP 407 million, which reflects 11 forward sales in the year as well as continued works across the portfolio. This does represent a small 5% decline from the prior year, mainly due to the two forward sales which were deferred in September. Our gross profit was GBP 67.6 million, which is at a gross margin of 16.6% compared to the 19.7% in the prior year. This is mainly due to the impact of land sales in the period from our new forward sales, where we take these to revenue at a lower margin than the following development works. As reported at the interim results, we've also disposed of two of our lease student assets and have recognized a profit of GBP 18.3 million in relation to these, which has been included in underlying trading. Operating profit for the period at GBP 54.7 million, again, a small decline from the prior year mainly due to the impact of the deferred sales. We've reported EPS at 14.8p, with a small impact from a prior year tax adjustment. This is in relation to prior year claims for land remediation relief. And in line with our policy of 2x cover, we're pleased to declare a final dividend of 4.5p, making a full year dividend of 7.4p. It's key to note that these results exclude the exceptional charge of GBP 30.4 million in relation to remedial work under the Building Safety Act. This represents a small increase from the amount that we have flagged at the half year, mainly due to the reassessment of the time over which the provision will be spent. So now moving on to the balance sheet. Key highlights here, very strong gross and net cash position at the year-end of GBP 111 million and GBP 83 million, respectively; a reduction in the leased assets and the corresponding lease liabilities position due to the disposal of the two properties; inventory and work-in progress has increased slightly from the prior year-end as we brought land onto our balance sheet, sites in Stratford, Birmingham and Bristol; and have also started development work on our excellent student asset in Bedminster, Bristol. The provision balance of GBP 33 million includes the new cladding provision of GBP 30 million, combined with GBP 3 million from the original provision that we took in FY '20. From a cash perspective, we've had an operating cash outflow this year compared to an inflow last year, predominantly due to the investments into land in our balance sheet. Borrowings have also increased as a result, where we have drawn down on the RCF facility to finance these land acquisitions. With gross cash of GBP 111 million and the headroom we have on our RCF and our EBITDA facility, we have available liquidity of just under GBP 200 million, and this is after the GBP 22 million we've paid out in dividends during the year. I will now look at the segmental breakdown of revenue, and these two pie charts show the split of revenue. You can really see the growing contribution of from BtR with a 38% increase in the prior year. We forward sold five BtR sites in the year in Lewisham, Birmingham, Leatherhead, Bath and Cardiff. The latter site is a development wrap where we don't take any interest in the land and therefore come through at a lower margin. PBSA has contributed revenue of GBP 180 million, which is down on the prior year, predominantly due to the deferral of the significant scheme from September, which would have had an in-the-year impact of approximately GBP 40 million. We forward sold five PBSA schemes in the year, including three in a portfolio, which we announced at the half year. For our affordable-led homes business, we recognized revenue of GBP 14.5 million, which really reflects the transition of the business from the legacy housebuilding business to affordable homes and some small build delays in the site at Preston, albeit a number of units have subsequently completed to the year-end. Fresh, our accommodation management business recorded record revenues of GBP 9 million as occupancy continue to significantly increase following the pandemic. And finally, we recognize GBP 11 million of commercial income in relation to a development at Stratford. This slide shows the split of gross profit. For BtR, margin was 17.2%, impacted by the proportion of land sales. And looking forward, we continue to target in the long to medium term overall gross margin of 15%. For PBSA, this was 15%, again, reflecting the impact of the land sales. However, both sectors did experience some small margin erosion in forward sales we completed in the second half of '22 as increased purchasing costs -- increased interest costs caused purchases to look for price reductions. So given the trading update and the profit warning that we issued in early October, I thought it was important to show the movements on the position that we forecasted at the half year. You may remember the slide from the half-year presentation, which set out the building blocks to delivery of our full year profit in line with expectations. At the half year, we had confidence in achieving this full year position, which is shown by the gray block in the middle of the slide. However, our full year outturn was impacted by the two forward sales which are delayed from September. You can see the profit impact here from the student scheme in Bristol and also the BtR scheme in Belfast. We also experienced some small margin pressure on the last forward sales we did complete. But this position was partially offset by the upside from the disposal of the two leased assets to bring us to the GBP 55 million operating profit we've reported today. I'm now going to give some guidance on FY '23 outlook and some more color on our excellent consented pipeline that Richard has talked about. We're guiding to circa GBP 550 million revenue for FY '23. And this slide sets out the building blocks to get to this position. But it is important to note the key assumptions underpinning this is that the forward sale market normalizes in Q2 of calendar year '23. This will obviously have an impact on our H1, H2 weighting for this financial year, and we expect H1 revenue and profit to be below the performance of H1 '22. Looking at these blocks, we have circa GBP 300 million of revenue, which is forward sold, contractually secured and being built out at the moment, and they have included the Fresh revenue here. The next GBP 150 million revenue comes from our excellent consented pipeline; more of this in a moment. And these schemes which have planning and are being marketed, they are oven ready. Finally, we have GBP 100 million from a small number of sites, which are still working their way through the planning process. But with the traction we have gained so far in this financial year, we're very confident in moving these forward. The table on the bottom shows the operating profit contribution from each of these blocks. It's key to note that this forecast assumes prudent investment valuations where we have seen price reductions of circa 5% across the portfolio, in line with where we're seeing in the market currently. Our cash flow will follow the normal annual profile, which is a peak at year-end position and then a continued net use of cash for tax, land, overheads and dividends before recovering to a strong position at the following year-end, but we think we'll have a low point slightly later than usual. And finally, as Richard talked about, we made a decision to slow down our affordable homes business while we focus on the higher-margin PBSA and BtR sectors. And then, as I promised, just a bit more color on some of the quality assets that we have in our consented pipeline, which is GBP 0.8 billion in total in revenue. I'm not going to go through in detail. You can see the CGIs there, and you obviously have the info in your packs, but we'll focus on a couple. In Stratford, East London, we've got a fantastic student scheme of just under 400 beds. This area has evolved significantly since the Olympics and is now very well established as a university quarter. Scheme is close to transport links and all the other amenities that the area has to offer. It's rare to get a consent for such a development in this location, and we're in talks with the university about our lease agreement. And in Selly Oak, Birmingham, again, we have a very attractive PBSA scheme of 500 beds. There's lots of student accommodation in the center of Birmingham, but very little in Selly Oak where the University of Birmingham is actually located. And this scheme is directly opposite the university. Of course, we're addressing all aspects of our business. In September and October, with an eye on where the market was going to go, we carried out a review of our overhead cost base to make sure we were rightsized going into this particular cycle and to ensure we were operating as efficiently as possible. We commenced and quickly completed a redundancy consultation process, which removed about 40 roles from the business. That's about 10% of the Watkin Jones headcount, excluding Fresh. This cost us approximately GBP 1 million and we got annualized savings of GBP 3 million to GBP 4 million. That's a very efficient payback of 3 to 4 months. So looking forward, we've also looked at our gross margin forecast for the next 5 years. We're guiding our growth margin over the next 3 years to be between 12% and 14% with a slightly higher 14% in FY '23 and then dropping as the sites which were forward sold in FY '21 and the first half of last year are built and drop out by the sites that we sold before the current pricing correction. There are a number of factors between the high and the overall 12% to 14%. The first is the impact of price reduction on sites that we forward sold in the second half of last year, where we saw price dips of circa 5%. The second is the prudent valuations that we're looking at on the portfolio I've just taken you through, and also the schemes that are working through planning, and also the impact of having land at historical prices, i.e., either on the balance sheet or under option with these. And as we're working through that land, we will obviously recover the margin. And finally, the impact of Development Wrap project, eg Cardiff, which I referred to earlier. However, as we look forward to FY '26, we're confident in the recovery of our blended target margin to over 15% as we bring our unsecured pipeline through. Alex will give some more color as to how the different elements of our development journey will enable this. But in summary, we'll take advantage of softness in land prices and build cost deflation to achieve this. And indeed, we may see opportunity to exceed our target margin with these inputs. And finally, just a reminder of the overall business -- overall resilience of this business. We have great visibility of secured revenue, an overall secured pipeline of GBP 2 billion, GBP 700 million of that is forward sold, contractually secure, and will come through over the next 2 to 3 years. The pipeline is a prudent assessment about you. We have removed some unprofitable elements predominantly in BtR. We're a capital-light business and do not carry any significant devaluation risk on our balance sheet. The land that I was referring to you earlier was -- is of that to 25% margin. So there's significant headroom for any downside. And just as a reminder, it is not our policy to start development on site until we have a forward sale funding agreement in place. We do currently have one exception to this. This is the Bedminster site in Bristol, really were due to the quality of the asset and the agreement we have with the university, we made the exceptional decision to start work at the end of the year. And finally, strong liquidity position with the net and gross cash position that you've seen and then more than GBP 70 million on our RCF headroom. With that, now I'll go to hand over to Alex.

Thank you, Sarah, and good morning all. As Sarah alluded to, we have good confidence on rebuilding margin performance over the next couple of years for our asset management and business capabilities and the wider market dynamics that we are seeing. One of the key characteristics of this business is its ability to drive incremental growth at each stage of the development cycle. I'm going to briefly run through the key components and market factors behind this and the active asset management and utilize to drive these returns. Key elements will include land, planning, rental and operational elements of our business, build costs and also other value-add negotiating key leases and nomination agreements to support our underlying valuations. Inevitably, the conversation does start with land. Land in the U.K. for both greenfield and brownfield urban sites has been characterized by continuous growth since the losses experienced in the GFC. Currently, however, we are seeing increased pressure on landowners and consequently pricing, as increased debt costs, build costs and protracted planning environment are impacting timing and values. We've also seen increased availability of land as struggling commercial property sectors remain less active in the urban areas where Watkin Jones are focused. This availability of land was also echoed during the COVID pandemic where competition was much reduced, and as a result Watkin Jones were able to achieve a material uptick in the volume of site that we secured. We see that there are opportunities to have proactive discussions with our existing transactional counterparts, but more importantly, we see the next phase of the cycle as a significant buying opportunity and a potential to meaningfully grow the pipeline, but also enhance our development margins. Our acquisition teams are already identifying a good volume of new projects coming through the cycle. Illustratively, a reduction in land price by circa 10% on a typical project could potentially improve margins by 1% to 2% on an overall basis. We then move through to the planning stage of development. The planning backdrop in the U.K. has remained highly challenged with less consents being achieved and time frames being highly protracted. Local authority planning teams remain vastly underfunded. And inertia at national government level is creating a lack of clarity and focus. This is resulting in a number of local plans not coming through, which is again stalling the system. As such, planning remains a key barrier to entry in U.K. residential for rent. Pleasingly, Watkin Jones has been able to an extent, to book this trend, and we've utilized our considerable track record for delivery to outperform the market in recent months, delivering a series of significant planning consents, which you can see below. As mentioned previously, this has created an unprecedented and highly attractive GBP 800 million consented pipeline, which we do believe can significantly capitalize business performance going forward. Key asset management strategies revolving around planning orientated out achieving higher densities on our schemes. This outperformance has been demonstrated recently on two of our schemes in Guildford and Bristol where an achievement of a circa increase 10% of density has resulted in a potential increase in margin by 1% to 2% across both assets. Build costs. Clearly, build cost inflation has been very well trailed through 2022, and that's across all property sectors. This is being driven by strong construction demand versus significant supply challenges associated with Brexit and Ukraine, amongst other things. However, lead indicators are beginning to suggest that we are through the worst with most forecasts projecting pronounced drops in inflation over the coming year. And importantly, we are beginning to see deflation in some material costs. We're also seeing a material slowdown in new construction starts, which again is taking some of the heat out of this market. We believe there may be opportunities for outperformance in build costs over the next couple of years and have now launched specialist teams in both central procurement and also product design and specification and standardization to ensure that we are maximizing this opportunity. Again, indicatively, on a standard scheme, a 3% reduction in material build costs would result in a positive margin impact of plus 1%. I think from -- we've obviously -- this is well trailed again. From an investment perspective, we've clearly seen a squeeze on investment market liquidity from the end of Q3 2022. We thought this graph would be useful to illustrate just why the liquidity was hit so acutely and suddenly off the back of the mini budget by Liz Truss. What the graph shows is the consistent spread between Gilts and residential property yields from 2011 onwards, offering a 3% to 4% delta in returns between the property yield and the perceived risk free rate or Gilt rates. The mini budgets and events leading up to it essentially caused a sudden and abrupt increase in 10-year gilts and 5-year swap debt rates. This effectively eroding the delta returns and causing an immediate impact on liquidity. Referring back to Sarah's slides earlier, this echoes the impact and timings on our FY '22 performance as two deals fail to convert right in the turmoil of the mini budgets. However, there is some real positivity coming out of this, and we do have real confidence that investor demand will return in force and the early signs of this are already apparent. What this graph looks to highlight is why investor interest in residential for rent remains high, driven by the sector's operational performance. Effectively, what we're looking at here is the net yields across build to rent and PBSA, which is the red line that you can see. And then adding to that is the forecasted blended rental growth forecast for both the sectors, and that's the light blue line. And that then shows the likely total property returns for the asset class, and that's a dark blue line. This highlights that a highly favorable delta on returns remains between Gilt rates and total property returns. As an example, in 2023, off a forecast net yield of 5% and average rental growth of 7%, this equates to a total property return of 12%, and this is in comparison to a stable Gilt rates of 3.55%. This trait is particularly pronounced in U.K. residential for rent, which has some relatively unique ability to capture granular income and rental returns on an annualized basis and is a strong driver of the investment case for resi for rent. Moving to the market review. So what is driving this operational and rental performance. The PBSA sector remains underpinned by robust supply and demand imbalances, increasing applications and acceptances to university demonstrated by an 8% year-on-year increase with continued strong international demand. Very positively, we are also seeing an expanding domestic market with very substantial growth in the 18-year old going from 2020 to 2030 as illustrated in the graph above. This is coupled with a more constrained supply chain coming through as planning and viability has impacted new developments coming to the market. This is driving rental growth and occupational demand and leading material bed space shortfalls in key cities. I think what's really pleasing to us is the synchronicity in the supply shortfalls with the Watkin Jones pipeline and that really, we believe, underpins our approach to our acquisition and site selection. Build-to-rent shows a similarly very robust operational performance. We've seen exceptional rental growth coming through and occupancy in 2022. And positively, these are forecast that continue into future years. What is particularly noticeable is the emerging differential between build to rent and other residential rental classes. This is something we've been talking about for a while. And as more stock is coming online, I think the community, service, quality and the approach identified where we've built to rent is beginning to differentiate, and you're seeing that coming through in rental growth performance. From an investment perspective, the investment case remains highly compelling, and this is being borne out in the continued migration of investor capital allocations into U.K. residential for rent from other residential asset classes. FY '22 marked very substantial investment volumes across PBSA and build-to-rent. And positively, Watkin Jones were major contributors with circa 8% of all U.K. residential transactions -- investment transactions and 20% of the forward funding market. I think that's really underpinned by our track record and reputation, work of institutions, and we are able to unlock these deals ahead of a lot of our competitors. More importantly, for FY '23, there clearly remains strong investor capital demand, and we are seeing some lead indicators already of green shoots emerging for a more normalized liquidity in the market. You'll see below, we have identified a range of deals, which do close in sort of late 2022, mainly in December, across both built to rent and PBSA and also across both funding deals and existing assets, and I think that's a real positive sign. In Q4, we had a series of discussions with a whole range of our institutional investment partners who are all indicating continued support for the sector and our appetite to expand into it and the keen is to reactivate investment plans and allocations in Q1 2023. Positively, our early interactions with them in January has sort of borne this out and has been consistent with this messaging. The institutions are being proactive to review and access details of our pipeline and currently, we have circa 25 parties under NDAs reviewing parts of our pipeline. I think in summary, we believe there are clear proactive asset management steps and strategies that we can employ to incrementally support and rebuild margin performance and reinforced by the highly supportive market metrics and performance being demonstrated across PBSA and built to rent. And then I'm going to hand over to Sarah to talk about Fresh.

I'm just going to share some highlights of Fresh, our accommodation management business. So Fresh manages over 23,000 beds, about over 60 properties for a significant number of clients. And these are both schemes, which have been built by WJ in the past and also by third parties. As it continue to grow in all aspects of its business, it recorded record revenue of GBP 9 million and retention value of 98%, so very, very high, and also to win awards across the board from clients and residents alike. And there's just some few examples of those on the slide. We've made incremental investment in the business with a new leadership team and then completed the implementation of Yardi, which is the back office, front of our system for both clients and for residents alike. And looking forward, we see great growth opportunities for Fresh, both in PBSA with new schemes coming online and the opportunity to take over from other providers and also with BtR, where they have the first BtR scheme in Sheffield and it'll be the first co-living scheme in Exeter. So in summary, Fresh continues to be a very strong part of our portfolio and gives us the end-to-end capability that we really value as a business.

Thank you, Sarah. Returning to future foundations, our ESG program. I think overall, I'd characterize it as good progress made in the year. It certainly keeps us on track for our multiyear goals, but with the caveat that it's still quite early days with us in terms of getting to grips with our sort of ESG strategy, et cetera. I think a key area of progress for us to make in our current financial year is approval of science-based targets and the adoption of TCFD reporting, which amongst many things, will help us progress our Scope 3 carbon emissions program and targets. I think otherwise, in FY '22, under Planet, Scope 1 and 2 emissions showed good progress, as did waste diverted to landfill and the use of air source heat pumps really well established into our development program, which is great progress. Under Places, our Net Promoter Score from both our tenants, as well as institutional clients were strong. And then under People, health and safety stats relative to the industry average were good as was employee engagement throughout the year. Gender diversity is tracking well, too. But again, caveat is we recognize there's more that we need to do within the construction sector specifically and certainly within the construction part of our business. So leveraging our strengths, and you'd have seen a note on this in the RNS this morning. So as a Board, we've started to evaluate ways in which we could smooth our financial performance from the impacts of the real estate capital market volatility for our forward fund disposals, which we've experienced recently and also saw during the first part of the COVID pandemic. We believe our operational capability and sector exposure are highly attractive long-term assets. However, this volatility has impacted short-term performance. Forward fund development will remain core. And within this, we believe there is an opportunity to diversify our revenue base and reduce exposure to the funding market volatility in a number of possible ways. I think firstly, alternative development funding structures, including development wraps, partnerships and specialist vehicles. I think secondly, minority co-investment into completed schemes, which could generate long-term asset income and value growth. And then thirdly, enhance land acquisition strategy, which will enable the group to capitalize on periods of strong market demand. So we believe that this could improve Watkin Jones' investment proposition in the following ways namely: Wider revenue base supporting organic earnings growth with reduced volatility; credit asset back into the business whilst maintaining high ROCE; and then finally, a strong balance sheet and cash generation, which will clearly support both dividends and ongoing investment. As already mentioned, we're giving early consideration to this, and we will update further in due course. So in summary, clearly, we were impacted by the deteriorating economic outlook and the visibility of higher interest rates from Q4, especially so as a result of the mini budget. However, the underlying sector of residential for rent is performing well, and our operational performance is both making very good progress and equally resilient into some of these headwinds. The forward fund market is expected to recover and normalize over the course of this year, and there are already early signs of this beginning to happen. With our consented pipeline, the GBP 0.8 billion, which we've been talking about, we're very well placed to capitalize on this and be on the front foot as these forward sale market normalizes, and we very much expect that to be H2-weighted activity. We will also look to capitalize on the attractive land buying opportunities, which are already beginning to present themselves. And we know that, that for us is our principle to a lead indicator in terms of future revenue and profit growth as well as quite specifically here in terms of margin recovery over the next few years. So that is the -- that brings to the end of the formal part of this morning's presentation. We'll now turn to Q&A because we are recording this through an audio cast. If you have a question, please raise your hand, a roving mic will find its way to you. Could you please state your name and your company before raising your question, that would be great. Thank you.

Kieran Lee from Berenberg. Just a couple from me, if you don't mind. You mentioned some signs of forward funding market is beginning to normalize. Are you seeing sort of that return in demand coming from some of your more traditional counterparties? Or is it completely new investors? And how are they sort of thinking about things there? And then secondly, you talked about the GBP 0.8 billion of secured pipeline and assets you can keep going with. If we think that we could have a normalization in the near future, with the reduction in sort of central cost and headcount, what's your capacity to actually capitalize and grow into that demand?

So I think in terms of new partners for forward funding, I think I'd characterize it as all of our existing partners that we've worked with over the last few years are still firmly very interested in the space, as we all know and we've spoken about a little bit here. Just the underlying performance in terms of tenant demand is so strong, it's almost impossible for investors to sort of turn away from the living sector at this stage. And therefore, we are talking to all of those in terms of our consented pipeline and trying to understand what their investment horizons are looking like, what sort of assets and what asset mix they're after. But at the same time, kind of end of cycle type events do bring in new capital, new sources of capital, we were almost waiting for a correction event such as this. And so yes, there are absolutely new sources of capital that we are -- that we've been aware of that we have been talking to, but just wanted to sit on the sidelines until there was a correction event. So we are now talking to a sort of broader and deeper range of investors than perhaps we've had access to previously. In terms of capacity into secured pipeline. Alex, do you want to comment on that one?

Yes, I mean, I think we've clearly seen the horizon coming before us when we were going through the process, and we've kept in particular, the divestment teams, the guys involved in those key transactions almost entirely whole, recognizing the fact that we need that resource in order to capitalize in sort of the latter half of this financial year. So yes, we remain confident we've got the resource there to underwrite these deals.

And I think -- sorry, I just have to say, in terms of the build-out of the team [Indiscernible] in our restructuring process, we had very little impact actually on the delivery team. So that's remained whole and obviously, the capacity to put out. And then second is that opportunity, which we do lack or look on a time-to-time basis is to use the main contractor rather than our in-house team.

Glynis Johnson from Jefferies. I was hoping a bit late because I have lots of questions. I am hoping some other guys might ask them though, I'm just going to roll with it. The first one, when does new land benefit? Will you continue to buy plan that doesn't have planning? Will you change and look at sites that might already have planning that you could build out? Is it '25 or is there a '26 sort of benefit that really does come through? Second of all, in terms of the pipeline in your appendix, the revenue, what kind of cushion have you built into that? So what kind of buffers in terms of pricing, margin -- pricing or timing of delivery? You talked about signs of distress in construction partners that you're looking for. Have you experienced that? Have you had a main contractor effectively disappear? What's sort of driving that? And then just in terms of your working capital, there's obviously a lot of moving parts. Your build-out isn't going to be quite as the same sort of time table it was before, affordable where it needs, quite as much capital. But then are you going to start building on risk while you wait for your buyers to come back into the market? And then land obviously looks like it's giving lots of opportunities, so I'm particularly thinking of working capital versus capital allocation, but there's a whole number of moving parts in that. And then lastly, first half versus second half, how skewed are we talking here? Are we talking at 35%, 65%? Are we talking of 20-80? Just some sort of indication?

Thanks, Glynis. So I think I've captured those questions. So in terms of new land benefit, I think the core part of our model is to buy options, secure options and subject to planning, so off balance sheet, very much sort of virgin opportunities, which will then take maybe 18 months to progress through the sort of planning systems to secure planning permission. But we are alive to potential opportunities to purchase land, which already has the benefit of the planning commission, which clearly will then come into our revenue and profitability much, much earlier. But I think, principally, we're looking at the rebuild over the next 2 or 3 years rather than an instant recovery of margin from being able to buy land at these higher margin straight away and sort of put it through the system, which is why we sort of guided the 12% to 14% margin over the next few years. In terms of margin comfort, Sarah, do you want to comment on that?

What was it?

So the question was...

Contingency.

It's actually about the revenue [Indiscernible].

Yes. No, no, it's actually -- so in terms of the revenue or the pipeline charts that we've set out in the appendix, we've really, I guess, built in the normal level of contingency into those that we do carry from year-to-year, and that's effectively to mitigate against any planning delays. But you also see on those slides that we have included for the first time that the unsecured pipeline, so the land opportunities that we're looking at the moment to bring up into the secured.