Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

Good morning, all. Thank you very much for coming this morning, and welcome to the 2023 financial year-end results for Watkin Jones. For those that don't know me, I'm Alex Pease, I'm the Chief Executive for Watkin Jones. And I'll be joined in the presentation this morning by our CFO, Sarah Sergeant. The agenda for this morning will begin with a short overview for myself reflecting on the last year before looking at some of the key focus areas for the business as we move forward. Sarah will then take you through the FY '23 financial performance and the outlook for FY '24 and also touch on our progress with ESG and our Future Foundations program. I will provide an update on the market and the robust fundamentals supporting the sectors we operate. I will then take some time to review some of the areas and opportunities where we believe we can broaden our resilient, adaptability and earning potential as a business. The presentation should take about 40 minutes, and we'll then have time for Q&A of about 20 minutes. [Operator Instructions] Okay. So -- really start with the overview. 2023 represented an extremely challenging year for both the wider economy, U.K. real estate generally and the Watkin Jones business. Significant headwinds disrupted many areas of our operations with the impacts of inflation, still pertaining and disrupting build costs and supply chains and the higher interest rate environment, driving debt and gilt rates and causing dislocation of liquidity in investment markets. The business was able to marginally increase its revenues in the year to GBP 413 million. However, operating profit was severely curtailed at just over a breakeven position on an adjusted basis. In the year, we also took an additional provision of GBP 35 million associated with building safety, and Sarah will touch on this in more depth later on the presentation. However, FY '23 was also a year where the business has continued to demonstrate its resilience and agility. At the close of the year, we were able to report a positive gross cash position of GBP 72 million and net cash of GBP 44 million. Our capital-light business model continues to provide us with low debt and good visibility of earnings with over GBP 500 million of forward sold revenue secured over the next 3 years. GBP 3 million of which, which will come through in FY '24, covering overhead costs for the year. The business has continued to deliver operationally, practically completing 5 assets across 2023 and also achieving investment sales across all of our specialist sectors. With the wider macroeconomic disruption largely outside of our control, we have had an absolute focus on the business itself looking to make sure we are fit and well positioned to capitalize as market cycle conditions rebalance. We've been on the front foot, ensuring that our organizational structure and staffing are lean and efficient without inhibiting growth potential. On the flip side, we are also ensuring we have the right incentivization strategies in place to retain and motivate our staff. We have worked hard in actively managing our existing pipeline, looking to improve viability through design efficiencies, increasing the scale and massing of our developments and through the renegotiation of some of our existing contracts. We remain proactive in the land market and are beginning to see more value and opportunity emerging as our forecast lag from investment markets starts to filter through. We're also beginning to recognize benefits of a series of operational initiatives, including our centralized procurement strategy where we've agreed over 40 new partnership framework agreements in the last 12 months alone and also undertaken considerable rationalization of our supply chain. We have now launched and implemented a new design standardization across all of our product lines looking to enhance our build and material cost efficiency. Since my appointment, I've had the opportunity to take stock of the business, the markets we operate in and where we see the opportunities for Watkin Jones going forward. My first reflection really focuses on the strength of Watkin Jones as a business. A highly challenged market has not diluted our market-leading position, nor does it dilute our core strengths, expertise and differentiators as a business. Watkin Jones offers what our competitors cannot, a true vertically integrated business, which has deep expertise and knowledge, not just across the residential sectors but across the whole development cycle. The ability to originate and acquire sites, navigates and unpick planning potential, design and deliver buildings, operate and create communities and transact and partner with institutional capital. This enables us to unlock value at every single stage and pivot and adapt the business to react to changing market circumstances. Over the next 12 months, I believe some of the most important factors in the market will be, firstly, that ability to partner with capital to create deals in an evolving market where flexibility, creativity and track record are key. I don't think there's anyone operating in our space, which has got that sort of enviable track record of circa, GBP 3 billion of transactions since 2016 with institutional counterparties, nor the repeat business of circa 87%. I think that really does set us apart. Secondly, the ability to deliver and derisk construction for investors. I really think this is crucial in an environment where third-party contracting has been put under severe strain and appetite for direct development exposure for investors is absolutely on the decline. Lastly, an absolute knowledge of the customer and product, how to differentiate yourself in the market and how to maximize our assets performance. I think it's this alignment with our business' core strength which sets the platform for us for a positive look forward to the market. Of course, the wider operational market has a significant part to play in a positive and medium -- positive medium- and long-term outlook. The residential for rent markets of PBSA and build to rent have shown exceptional performance through the challenged economic environment of the last 18 months. In the market review, I will talk through how this performance fuels confidence in an investment recovery of which there are some early signs of liquidity returning to the market. We have confidence in the operational strength of the business, the continuing supply-demand imbalances and the positive sector performance will continue to fuel this investor demand and forward fund capital-light model going forward. However, we are also looking at potential opportunities to maximize our expertise and knowledge and broaden our potential income streams and further resilience and adaptability to the business. I will talk to you later, some of the near-term strategies of development partnerships and refresh redevelopments and also touch on some potential longer-term options to add incremental asset management benefits and fee income to the business. I'm now going to hand over to Sarah the financial summary.

Thank you, Alex, and good morning, everyone. I would like to take you through our financial highlights for FY '23. Review our market guidance for FY '24 and then consider what an illustrative recovery profile of the business could look like. I'm pleased to report that our overall results are in line with our October trading update. We've reported strong revenue of GBP 413 million, which includes the forward sale of our PBSA scheme in Bristol and our BTR scheme at Titanic Quarter in Belfast. Importantly, this was a small increase on FY '22. Our gross profit was GBP 40 million compared to GBP 68 in the prior year. The decline was predominantly due to low levels of forward sale activity. Additional build costs at our site in Exeter, where the main contractor went into liquidation and some acceleration costs for schemes, which we completed in the summer. Gross margin was at 10% compared to 17% in the prior year. We took decisive action during the year and reviewed the balance sheet with the overall aim of recycling cash back into the business. We disposed the 3 non-core PRS assets. This recycled GBP 11 million cash, but crystallized a book loss of GBP 4.6 million. We also exercised discipline of our land bank and pipeline. We reassessed the carrying value of certain non-core land bank assets and pipeline WIP balances resulting in an impairment of GBP 5.5 million. Subsequent to the year-end, we've realized cash available GBP 1.5 million from disposing of some of these non-core assets. And we continue to work for the further opportunities. Furthermore, as Alex has alluded to, we faced into the challenging market by carrying out two overhead efficiency exercises, which realized run rate savings of circa GBP 4 million. Adjusting operating profit for the year is at breakeven. Although importantly, you can see here that we achieved a non -- a core trading profit of GBP 10 million before the land impairment and book loss. This waterfall slide reconciles our previous full year guidance illustrated by the block on the left-hand side to the final position for FY '23. Overall, 7 interest rate increases over the year and the wider macroeconomic picture have effectively curtailed the forward fund market with only a smaller opening in the early summer when we managed to transact on 2 schemes. The most significant movement, therefore, has been a loss of gross margin development pipeline. Of the significant chunk of loss margin, 40% of it will potentially move into '24 with the schemes we have in the market and 30% will move into '25. The remaining 30% of it has been lost due to changes in pricing and some developments where we've not pursued due to lack of viability. The other block set out the key movements, which I've already discussed, and you can see the benefit the cost efficiencies that we have implemented. So overall, while this results in minimal profit for FY '23. The actions we've taken serve to set the business up well for the future. From a cash perspective we had an operating cash outflow of GBP 32 million, predominantly reflecting investment in new land sites and spend on our remedial works. Importantly, borrowings have remained flat year-on-year, with gross cash of GBP 72 million in the headroom we have on our RCF and our overdraft, we have cash and available facilities of GBP 104 million. We recently extended our RCF with HSBC to November 25 to allow the debt and forward sales markets to stabilize given the current volatility. Again, we've been financially prudent, taking the decision to reduce the facility to GBP 50 million from GBP 100 million. The GBP 100 million was taken out of security at the start of COVID, and we simply have not used it. Our average drawdown over the past 3 years has been GBP 28 million. We realized a significant saving on our non-utilization fee. From a dividend perspective, you can see here the dividends we paid in the year, the Board has made the decision to recommend a final dividend in respect of FY '23, given the uncertain market backdrop. But we remain committed to the progressive dividend policy as earnings recover. We've maintained a strong cash position since the half year despite the challenging market conditions and delays in our anticipated forward sales. This slide bridges from the half year to the full year gross cash position. And you can see the significant movements of investment in the land of GBP 11 million for 2 student schemes in the South, where we've received planning consent. We've carried out some enabling works on schemes we have in the market to ensure that build programs are maintained, including demolition on one site to reduce holding costs. And the cash proceeds of GBP 37 million from the 2 forward sales we completed during the year as well as PRS properties referred to previously. Now moving onto the balance sheet. Land and WIP has decreased as a result of the disposals and impairments that we have taken. While there's been some buildup in contract assets, evidenced in the increase in receivables. This is predominantly due to increased contributions from the 2 BTR schemes and one student scheme that were physically complete in H1 '24. These will unwind in H1 on completion and receipt of the associated bullet payments. However, the key movement in the balance sheet is the additional provision of GBP 35 million we've taken for building safety, offset by the spend on this during the year. Our net provision is now GBP 55 million. This is made up of a growth provision of GBP 66 million, offset by client contributions of GBP 11 million, which we have been successful in agreeing to mitigate this cost. So we recognized a further exceptional provision of GBP 35 million for building safety and legacy properties. This has been recognized as result of the introduction of secondary legislation during the year and evolution of government initiatives. We've also experienced change in scope and cost estimates following intrusive surveys and fire safety reports on the properties which we were included in the provision last year. And finally, we've agreed to negotiate -- we've continued to negotiate with property owners and have agreed a level of settlement contributions in the number of properties. This provision contains an appropriate level of contingency. We are, however, continuing to explore additional recoveries from down the supply chain, but obviously, we can't recognize those at the moment. The net provision covers 23 properties, of which 4 have been added during the year. We estimate that this will be spent over the next 5 years. This next slide sets out our movement in our NAV since the prior year and the half year. You can see here the key reasons behind the decrease by this additional provision and the impairment and book loss we've realized. There have been no other fundamental movements. And we've set out a more detailed NAV breakdown in the appendix to the pack. So I'll now move on to our operating profit outlook for FY '24. And the key point here is there's no change to our previous guidance of operating profit between GBP 15 million and GBP 20 million. This slide demonstrates -- so we have positive potential operating profit without doing any forward sales. This made up as follows: our forward sold revenue, which is contractually secured of circa GBP 300 million and an approximately 10% gross margin. The gross margin contribution from our Fresh business and offset by our overheads. The operating profit to be secured, which is illustrated by the shaded red box can be made up from a combination of the 4 sites we have in planning, which are currently being marketed. One of these is well progressed in legals as well as further secured sites, which we're progressing with planning for potential forward sale in the second half. However, of course, we do need to be cautious and acknowledge further market pressures as we look forward. Looking forward, this slide gives guidance to our half year secured cash position. The key point here is we have a significant unwind of working capital in the form of final bullet payments for the schemes that we will have completed in Q1 and Q2. These amount to circa GBP 25 million to GBP 30 million. And this combined with minimal working capital outflow in the live schemes will give us a strong secured cash position for the end of March before any forward sales or land acquisitions. So how do we see the business recovering over the next 3 years? Well, we've got strong confidence in the rebuild to good levels of revenue and profitability. This slide shows an illustrative recovery profile for the business. If the market recovery meets our expectations, we have the building blocks for a circa GBP 500 million revenue business at 12% gross margin in FY '26. This is anchored on our level of forward sold revenue of GBP 500 million, which is shown here in the gray boxes to be recognized over the next 3 years and the GBP 300 million of schemes that we have in the market. We have a further GBP 700 million of revenue from schemes, which is secured, and we're working through planning. And we're currently looking to secure schemes worth GBP 400 million. These are currently under offer or in legals. There is still some drag on margin from the schemes we've sold in the last 18 months. And this will continue to impact through to FY '26. But the margin on new assets were blend back to a more normalized position, giving us a blended 12% in FY '26. This slide just represents our PBSA and built to rent and Affordable Homes pipeline. For modeling purposes, you'll need to include the additional gross margin from Fresh. However, of course, the shape of this recovery is predicated on the recovery of the market, which they are now early supportive and Alex will cover this in more detail later. So I will now turn to look at Fresh. We continue to refresh our accommodation management business as a key differentiator and part of our end-to-end proposition. The performance of Fresh in FY '23 was solid, although there was some impact as expected growth didn't materialize due to wider economic factors, the business experienced strong retention, and this resulted in units under management being relatively flat on the prior year. The operational performance was excellent with an occupation level above 97% and rental growth on average at 7%. I'll focus on resident experience remains paramount with our well-being program, a fundamental part of our offer. We achieved a student Net Promoter Score of plus 35, and the business has been voted best private housing provider for the third year in a row by the Global Student Living Index and rated as a Platinum provider. And looking ahead, we have a pipeline of 7,000 beds, a blend of takeovers and new builds. As with Watkin Jones, we're also looking at ways to enhance the revenue from Fresh. For example, how services can be extended around the management model. These include design advisory, life cycle services and then looking at a white label offer. And finally, we're also looking at innovation across the business. For example, dynamic pricing, which we've seen can lead to a 20% rental growth and the use of AI to support our booking and marketing. This will ensure we achieve high listings and high conversion rates and will make efficiencies for Fresh and for our clients alike. And finally, we've continued to make great progress across the 3 pillars of our ESG strategy, People, Places, Planet. Our health and safety performance has been excellent, with an incident rate at 4.9% of the national average. All of our sites submitted in the year for planning have been established as BREEAM Excellent, and we diverted over 97% of waste away from landfill which is ahead of our 2025 target. And looking forward to '24 working to review lower carbon products in conjunction with our supply chain. For example, window frames, which are made from 75% recycled materials and blended concrete. And if you look closely at the bottom right-hand corner, you'll see Alex and I leading a team of 30 Watkin Jones employees over a very muddy Tough Mudder course back in September. I will now hand back to Alex to cover the market opportunity in more detail.

Thank you, Sarah. Okay. So coming to the market. The occupational markets across both PBSA and build to rent have been exceptional performers, demonstrating the resilience and countercyclical characteristics of the sectors. There is a very clear logic and evidential pathway, which flows from existing supply-demand imbalances through to the end investment drivers. On the demand side, student numbers have continued to grow, both domestically and internationally, whilst build to rent demand is being fueled by growing populations, shrinking household sizes and changing lifestyle habits. Over recent years, supply chains have become increasingly constrained, and they have not kept up with demand. This is due to a range of market challenges, including the volatile economic backdrop, resulting in viability hurdles as well as the continued travails and inefficiencies of the U.K. planning system. These imbalances and shortfalls have driven very strong occupancy and rental growth levels across both sectors. The operational performance has helped support assets and sector returns relative to other real estate sectors, residential has performed very well on the sort of volatility quotient and it's showing much better total asset returns across the board. This performance, in turn, continues to attract investors in the sector, however the last 6 years, there's been a trending upwards in terms of allocations being put across the U.K. residential for rent. The combination, we believe, is strong support for forward fundings remaining the key conduit for investors into U.K. residential for the foreseeable future, driven by the lack of existing stock and the failure to keep up with demand, the ever-increasing focus on building quality, safety and ESG and by the challenging development backdrop, which has deterred some competitors, but in particular, has led to some investors growing back from their own development aspirations. The investment market in the U.K. has clearly been impacted by the volatility in the wider economic environment have increased interest in gilt rates. However, the market is not binary. And despite these headwinds, transaction activity has continued, albeit on a stop-start basis as economic windows have allowed. There was circa GBP 6 billion of sales across PBSA and build to rent in 2023 with quarter levels only moderately below the 5-year average. To put it into context, this compares 2022 transaction levels was just short of GBP 12 billion. So it's a significant impact in the year. Watkin Jones has been able to take advantage of the pockets of liquidity in the year, transacting in excess of GBP 250 million across all of our principal sectors. As inflation has moderated, there is growing confidence that volatility is subsiding and interest rates will trend downwards in 2024. And this is beginning to fuel an emerging confidence liquidity will return. Q4 recorded transactions in excess of GBP 1 billion, albeit GBP 700 million of these were operational assets. I think what's also positive, in recent weeks have been announced a number of new equity entrants to the market. This is always a good read through. You've seen Aviva entering the market, purchasing the Kirby portfolio. Long Harbour with Cadillac Fairview cash have announced aspiration for a 10,000-student bed platform. So we're in good quality capital is starting to announce. I think that is a good read through. Certainly, in our own experience with our investor chain, we are getting a good pickup in conversations going forward in January. In order to sort of help illustrate the operational model, the scale of projects we undertake, and the capabilities of Watkin Jones. I'll briefly run through 2 case studies of deals transacted in FY '23. The first is Loft Lines in Titanic Quarter, Belfast, a major urban regeneration project of 700-plus residential units and the first build to rent scheme in Northern Ireland. Needing to prove concepts of build to rent in Belfast, necessitated an innovative JV partnership approach. On a subject to planning and subject to funding basis to ensure alignment between the parties and to maximize the potential for the site. The planning for large-scale and mixed tenure regeneration creates additional challenges. However, the team were able to successfully navigate the multiple stakeholders and significant public and political interest to achieve a fantastic consent. I think the transaction really reflects the strength of Watkin Jones track record and partnership capabilities, attracting high-quality investors such as legal in general, to a new city and a new market, but also managing -- our management strength, balancing those multiple parties, ambitions in what was a tough economic backdrop. Metal Works represents another regeneration scheme. This time, an 800-bed PBSA scheme in Bristol, Again, this case study really underlines the adaptability and partnership credentials of Watkin Jones. The development was impacted by the rapid deterioration in liquidity and pricing sentiment as markets changed in late 2022. Watkin Jones were in part, able to mitigate these viability challenges in 3 clear steps. Firstly, strong interactions with the Bristol planners. This enabled us to effectively achieve design efficiencies and savings across the scheme. The second was our university relationship and track record. This helped us successfully renegotiate a regear of the existing 15-year lease we had in place and enabled us to enhance the viability of the scheme. And third, again, investor partnership. An established investment partner in KKR contributed to an exceptional transaction executed in extremely tight time frames of only 10 working days in a very brief period of relative economic stability. Moving to the land and planning side of the business. We're now seeing more pronounced land value impacts from the squeeze on investment transaction activity and pricing. Both land transaction volumes and urban land values were down across the U.K. over the last 12 months and we are now seeing increased opportunity and viability options for us in our approach to land. Planning continues to be a political football with plenty of rhetoric on ways to simplify and make the system more efficient, but today, it's very little action. The barriers to planning remain high, but Watkin Jones model continues to align well with brownfield and urban regeneration policies. Our specialist team have an extremely strong planning track record, I mean we see this as a continued opportunity to outperform. We have remained very proactive and innovative in the land market. And since the year-end, we've exchanged the one new PBSA sites and are now under offer on 3 further opportunities with a net development value in excess of GBP 500 million. The dynamics and business attributes we have reviewed provide continued confidence of the ongoing attractiveness of the sectors we operate and the demand and need for forward fund transaction structures through the medium and long term. Nevertheless, it's a logical juncture for the business to take stock, review and assess whether there are areas where we can enhance the business from both a resilience perspective, but also the potential to broaden our earnings base. With comprehensive knowledge and expertise existing within Watkin Jones across all facets of that development cycle. We believe there's the opportunity to expand the range of income sources we have and help provide a smoother underpin of revenue and profits going forward. We have spoken previously of our investment and partnership credentials. However, to me, it is the depth of our other skill sets across the business, which offer us that differentiation and adaptability. Our in-house delivery gives us a competitive advantage as the group, providing us with speed of mobilization, buying power and additional margin contribution as well as the control and consistency of offering and product. Importantly, it also allows us to flex strategy and entertain development partnerships, prospects and other initiatives with our investor clients. The centralized preconstruction and procurement functions within the business again provide the ability to move efficiently from development through to delivery but also give us the tools to manage third-party contracts and subcontracts as well as enhancing our outturn cost performance through supply chain management and product design evolution. Our building improvement teams have proved -- have performed an incredibly important role for the business, navigating the evolving building safety landscape. We now believe we have the chance to create an opportunity out of a challenge and utilize our specialist and scarce skill sets as a key component of a refresh redevelopment program. And finally, with Fresh, we're able to provide the business and our clients with in-depth customer and product insight and analytics, allowing us to offer advice and services on repositioning, branding and operations and completing our end-to-end offering. What this diagram is really attempting to show, to our mind, Watkin Jones currently creates the vast majority of our revenues for our typical planning, development and forward fund business and also through the property management fees generated through Fresh. The model has clear strength and has proved highly successful. However, we believe there are additional options available. And what we'll do is we'll work around the wheel to really highlight some of those near-term diversifications and then perhaps look at some of the longer-term options. In the near term, we believe there is potential to provide some diversification of earnings whilst extracting more value from our existing in-house functions, branching into some tangential areas providing greater spectrum and granularity of revenues, but also improving the speed of revenue recognition through leveraging of our existing skill sets into adjacent and complementary strategies. So these include strategic development partnerships and Refresh. Development partnerships are something the group has undertaken before on an ad-hoc basis. In effect, it is a partnership arrangement between Watkin Jones and our investor clients utilizing the investors' capital and Watkin Jones development and delivery capabilities to acquire and deliver existing, consented PBSA and build to rent sites. In the current market environment, we are seeing more scope to secure good quality consented land and a good pool of demand from investors wanting to partner with us. As such, we believe we can approach development partnerships on a more strategic basis as opposed to an ad-hoc one. The model is enabled because of the ability to lever Watkin Jones development and self-build skill sets and generate value where others can't. As highlighted in the graphic, the clear advantage of this strategy is that generating a revenue and margin recognition significantly quicker than our typical model. This is due to the removal of the sort of 12- to 18-month planning and sort of 4- to 6-month divestment process, which we would usually undertake. The model has the capability to deliver strong revenue and margins whilst having limited balance sheet impact for Watkin Jones. And importantly, it utilizes all of our existing skill sets. We don't need to buy anything else in to achieve this. The second opportunity, Refresh, is in effect a redevelopment, refurbishment and repositioning initiative of existing PBSA and private rented stock. It will often be ESG or building safety led with key upgrade works needed to be completed, but it can also include full refurbishment and repositioning of the asset. Watkin Jones can utilize existing teams and skill sets from Fresh market insights and analytics, our delivery team, scale, track record and buying power and our building improvement teams, specialist expertise to provide a full holistic development service offering to our clients. We think the scale of demand is potentially significant with a considerable proportion of the existing U.K. PBSA offering being of older and poor-quality stock. We also believe there is scope within existing private rented sector assets, trying to bridge the gap to the more modern build to rent offerings. We believe there's limited competition on a like-for-like basis for Watkin Jones and the wider spectrum of project types can allow scalability and more granularity to the business earnings. Alongside this, a Refresh model would also enable swifter revenue recognition as typically, again, these projects wouldn't go through a lengthy planning and sales process. Whilst that's an early stage, we have existing teams in place and are already in discussions with a number of our key investor client base and universities about potential projects. I think just to try and bring it to life and illustrate the concept, what we've done is we've provided a live case study on a project, we're in the midst of negotiating at the moment. So here, this is an asset, 700 units PBSA University halls of residents and Watkin Jones represent the development and delivery partner. The project brief includes a full building safety overhaul, including recladding, fire-stopping and other -- and correction of other inherent building defects. It also encompasses an ESG target to bring the asset up to a BREEAM Excellent rating. By refurbishment of the bedrooms, kitchens and communal areas, the asset will be comprehensively repositioned in the market with the strategy to enhance values to, therefore, cover the cost of the remedial works required. Whilst the acquisition period or negotiation period is necessarily protracted to ensure the correct scope and structure agreed, the revenue generation is far swifter than our usual projects. Estimated revenues for this project sits at about GBP 35 million. We also have in mind in terms of what a longer-term outlook could look like. The final turn of the diagram highlights where the longer term, we could explore wider asset management roles for Watkin Jones in partnership with our investors and their capital. In a strong investment market, we believe there is significant potential to generate incremental fee income through partnership vehicles and asset management services. Alongside this, these structures could offer Watkin Jones alternative funding solutions, fee income and property management opportunities for Fresh, as well as the ability to share in potential future outperformance of these assets. We see this, importantly, as an extension and maximization of our existing in-house specialisms. We really view it as a chance to catalyze our existing development and operational models without cannibalizing them. And without importantly, moving away at all from our core capital-light structure. This is really predicated on a stronger investment market and it's something that we'd look to bring back to shareholders at the right juncture. So in summary, despite the market challenges, Watkin Jones remains an absolute market-leading business. We operate in some of the strongest performing real estate sectors with supported fundamentals and really continuing to drive investor demand. We have an absolute focus on our business with proactive steps taken to drive performance and efficiency whilst providing a platform for growth as markets rebase. We believe there are further revenues available to the business to broaden our earning basis and to enhance resilience and results. And we have that real specialist knowledge and depth of talent within our people in order to give us this resilience and agility to meet 2024 and beyond with confidence. Thank you very much. And we're now going to move to Q&A.

[Operator Instructions]

Glynis Johnson, Jefferies. Two, and then I'll come back for more. First one, just in terms of the partnership vehicles. I wonder if you can just help us understand how long that commitment is going to be? Is it that you are going to look to do partnerships where you'll continue to use those going forward? I'm just worried, is there some sort of trade-off between those partnership vehicles and your mobile underlying business, can it restrict your ability to leverage back into growth?

No, look, for me, they sit absolutely side by side. When we see this as it's not going to disrupt our usual forward fund model where there's opportunity to secure sites in the market, we will be doing so. But equally, it does offer that opportunity to generate revenues quicker and without risking the balance sheet. So we see it as incremental as opposed to instead of...

And the second question is probably a slightly more tricky question. You've done some overhead restructuring. You're looking to save GBP 3 million, but your overheads is still quite a big number relative to your profit generation. Is there a more fundamental change that needs to happen within those overheads. Is there a need that you have to get those revenues up quicker so that you don't have to take cost out?

Yes. I'll take that one. I mean I think in terms of the overhead position we've taken roughly GBP 4 million out. There's obviously some impact of inflationary increases in there. I think for overhead, it is very much a leverage piece. I think when we did the overhead reduction, we were very conscious that we didn't do too much to inhibit the growth of the business. So it didn't effectively touch the divestment and the planning team and the acquisition team. That's what we need to be able to grow. That was more opportunity in some of the support areas. So I think it's very much -- and this all about leverage. It's all about getting the growth that you say to cover the overhead. And I think that's where we come back to the new initiatives that we are doing that will enable us to bring revenue in sooner to the business.

Colin Sheridan at Davy. Just a couple for me as well, if that's okay. Just starting on the near-term opportunities that you described that as strategic developments, Refresh and redevelopment as well. I wonder if you could talk a little bit about you're thinking about or how we should think about things like hurdle rates, whether that be on margin or return on capital with respect to the different risk profile that you pointed to in those 2 sections of the business going forward. And just on the OpEx side. I mean, to some extent, it is a repeat of Glynis's question, but on those newer parts of the business, I think you explained how a lot of the existing skill sets within the business overlap with these new opportunities. I wonder if you could confirm whether or not there will have to be some investments in terms of OpEx in advance of being able to mobilize any of that? Or will existing the OpEx base being able to handle that as well?

So I'll pick that up. In terms of both development partnerships and the Refresh model, we've been quite careful here not sort of overpromise and under deliver. But we believe these really have could be quite positive contributors to Watkin Jones sort of revenues and earnings, but we want to sort of prove that concept. We think it's a strong concept. I think in terms of -- you're right, if you look at the risk profile of a development partnership, it is a reduced risk profile because we are not taking planning risk, and we are not taking exit risk. Therefore, it goes hand in hand that there will be a slightly reduced margin. But it's important to stress this is still a very healthy development margin would anticipate sort of low middle to the double figures in sort of -- into that 12% to 15% sort of range is where we'd be targeting from a development wrap point of view or development partnership point of view. I think it's also important to note, on the Refresh model, this is not a contracting exercise. This is a full development sort of offering and as such again, those development returns will be in that sort of 10% to 12% sort of target range, potentially, you could outperform that. I think this is quite a specialist area. And there's not many people doing it, and I think there's going to be quite high demand. But I think we want to sort of set the right tone at the moment and so that 10% to 12% is a sensible range. And then in terms of sort of the overhead piece, look again, that is one of the attractions of these, at this point, we don't believe we need to sort of bolt-on additional resource to feel this. Clearly, if they're successful as we hope that they may be, then you bolt on incremental to service that, but I think it would be sort of in that order.

Sorry, so I think for the other point, just from a return on capital perspective of those 2 new streams, very, very, very limited, if anything, needed compared to normal model where there would obviously be an element of land that we set on our balance sheet even for a relatively short period of time.