Watkin Jones Plc (WJG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Watkin Jones Plc Half Year Results Investor Presentation. [Operator Instructions] And before we begin, we would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from Watkin Jones plc. Alex, good afternoon, sir.

Good morning, and welcome to the 2025 Financial Half Year results for Watkin Jones. I'm Alex Pease, the Chief Executive, and I'm joined today by Simon Jones, our Chief Financial Officer. The agenda for this morning will begin with a short overview from myself, reflecting on the business and operational performance over the half year before looking at our key focus areas and our diversified strategies looking forward. We will update on the core occupational and investment markets we operate in before focusing on our financial and divisional highlights. The first half of FY '25 has seen a continuation of a number of similar key themes from FY '24. Whilst wider economic conditions have continued to generate significant headwinds for the property sector, we have focused on controlling the controllables within the business, targeting incremental gains and seeking to diversify our earnings through broadening our strategies. Our half year position highlights a resilient and positive operational performance from the group. Despite limited transactional activity and liquidity, we have delivered a small operating profit of GBP 0.4 million and have improved our gross profit margins year-on-year to 11.2%. We have maintained our prioritization of cash management and liquidity, demonstrating a strong cash position of gross GBP 87 million and net cash of GBP 73 million, a substantial increase year-on-year. In the period, we have also reduced our net debt position and extended our HSBC facility at GBP 50 million for an additional 2 years. Pleasingly, we have also shown positive operational progress, both within our delivery function and our fresh property management platform. We have practically completed 3 build-to-rent schemes in the year-to-date, all ahead of program and with some margin betterment. Fresh have added nearly 2,000 units under management year-on-year, winning new business from both new sites and takeovers. We have continued with good progress, our revenue diversification strategies, in particular, development partnerships and refresh, where we have closed 3 transactions in the period with a number of others in legals are under offer. We are also targeting potentially significant partnerships with capital to support these strategies and are having some exclusive discussions in this regard. We've worked hard to maintain a high-quality pipeline sitting at just under GBP 2 billion of gross development value. In May, we acquired a new development site in Brighton on a subject to planning basis, and we have 4 further sites under offer in strong city locations. From a planning perspective, we are targeting an additional 1,300 units to gain consent by the end of the financial year. The markets in which we operate remain structurally undersupplied with growing demand and severely constrained supply. We believe this continues to underpin a strong medium-term outlook for the business and the sectors we operate. U.K. real estate and development has been characterized in the last few years by a clear evolution of the market, a change in economic cycle and a number of other key factors shaping the development landscape. Continued economic volatility has slowed investment liquidity, reducing transactions and therefore, short-term visibility of outlook. Building safety legislation is now having material impacts on lead times to development starts, upfront design costs and sequencing and the overall cost and duration of construction. Similar can be said to the evolving trends and enhanced expectations in ESG. Alongside this, there is a greater-than-ever societal and political focus on the need to reuse, repurpose and refurbish real estate where possible. Whilst the backdrop has evolved, we believe there remains very strong medium-term fundamentals to the residential markets we operate in, fueled not only by a macro structural undersupply and growing demand, but also a near-term hiatus in development activity, creating a more immediate short-term supply issue. Strong political support remains for residential growth at a national level to include all tenures of housing. Continued positive investment sentiment, appetite and allocations for the sectors driven by high-performing operational markets provides further confidence to us. Within the business, we have sought to respond to this changing environment directly, looking to pivot the business to face into the evolving landscape. We are seeking to broaden our revenue and returns profile, looking to diversify our strategy and income generation to be less reliant on more lumpy traditional sales activity. With cost of capital still high, opportunistic investors prevalent and core capital waiting in the wings, a key learning for the business has been the need to have a broader range of transactional models and the flexibility and agility to engage with different pools of capital, optimizing various structures over time. We have addressed this by maintaining transactional flexibility and innovation in a proactive approach of investors and through our refresh and development partnership models, which both utilize and monetize existing knowledge and skill sets within the business, but also offer more recurring, granular and resilient revenue streams. Critically, they respond directly and beneficially to the changing market landscape as outlined, and they offer genuine market growth opportunity. They do this by matching current investor requirements and return and risk profiles, fast-tracking housing delivery, regenerating urban areas, delivering critical building safety and ESG requirements and upgrades and repositioning and revitalizing real estate. Our vertically integrated model of investment, development, delivery and management provides agility to the business, allowing us to flex our transaction structures and realize incremental margins across the business. Our strength in operations, sector knowledge, skill sets and people, coupled with our very significant track record in delivering both buildings and new pipeline makes us an ideal partner for capital. In summary, we believe that Watkin Jones are extremely well and perhaps uniquely placed to drive these strategies forward, which can create a broader, more resilient base, which can be a platform to augment our wider development and transactional activities. Our ambition is clear: firstly, to generate growth in the business over time; and secondly, to ensure that we have the most sustainable returns and cash generation that we can deliver in a market which will continue to evolve over time. Turning now to the market overview. I shall provide a brief synopsis of the main operational and investment market dynamics at play. The U.K. residential investment markets and transactional liquidity remain significantly impacted by wider global and national economic volatility and uncertainty. The key U.K. metrics of 10-year government gilts and the 5-year SONIA swap rates remain stubbornly high as markets continuously attempt to adjust to fast-moving macro events. Whilst clearly still creating some pricing and deployment challenges and delays for investors, sentiment and appetite for U.K. residential allocations remain strong. Highlighted in the graph to the right, across both build-to-rent and PBSA sales volumes appear to be gradually improving with Q1 numbers in PBSA slightly up on last year and in build-to-rent in line with the 10-year average. There are a number of potential trends to pull out of these numbers. The first clear trend is that operational transactions are leading the way in both sectors with standing stock presenting less risk and more immediate returns for investors ahead of development. This is absolutely as we would expect and will hopefully be a precursor of greater investment volumes coming through in development as rates and yield curves gradually come in. Secondly, where development fundings are happening, opportunistic investors remains the most active capital with JVs and structured transactions prevalent. Anecdotally, we are seeing more core and core plus mandates looking at their timings to reenter development markets, which will be a significant benefit to liquidity. On the build-to-rent side, single-family build-to-rent or individual houses is now a key contributor as its granularity and reduced risk profile differentiates from other asset classes. Structural undersupply in both PBSA and build-to-rent markets continue to underpin both operational performance and investor demand. Growth in student numbers continues with the U.K. population growth in 18-year-olds, UCAS applications up year-on-year and some positive initial data on international student visa applications. We continue to monitor international student numbers as U.K. immigration policy evolves with some policies potentially encouraging more international students and others placing additional barriers. This versus the prohibitive policy changes in the U.S., Canada and Australia, which has the potential to shift more demand to the U.K. markets. Likewise, residential rental demand continues unabated with rental listings still 24% below pre-pandemic levels as rising costs and regulatory pressures force landlords out. The most compelling dynamic, however, is on the supply side. The graph to the right highlight the very significant impacts of the last few years on developments of new stock, showing a material drop in units delivered in PBSA and a similar drop in new build-to-rent starts. This lack of delivery underpins the structural undersupply, but could also potentially fuel a more short-term acute demand from both tenants and investors alike. Across both PBSA and build-to-rent, there are similar occupational patterns emerging with demand remaining high, fueling positive rental growth, but trending to more normalized inflationary linked levels. Fresh's data in the first graph suggests lease-up rates appear to be reverting to pre-pandemic patterns with a more incremental rate of letting across the year as opposed to recent years where letup has been more aggressive earlier. This trend has echoed across other PBSA operators. Rental growth remains positive, but is absolutely expected to moderate to inflationary levels after a number of years of stronger-than-average growth. Build-to-rent rental growth is again expected to map broadly in line with CPI, but the sector continues to demonstrate very high occupancy rates and rent collection, both of which are expected to continue to be fueled by a lack of supply coming through. I will now hand over to Simon, who will take you through our financial results.

Thanks so much, Alex, and good morning, everyone. I would now like to take you through the financial highlights for the first half of 2025. Whilst our revenue and core trading gross profit fell with serious liens and build, our continuing strong operational cost control and effective delivery management contributed to a strengthening margins to 11.2%. This cost control across all areas of the business was equally evident in overheads, which were down around 3% despite the inflationary environment, where CPI was up almost 3% in the year to March 2025. We remain totally focused on cash management and control with gross cash up almost GBP 20 million year-on-year, which after our debt of GBP 13.4 million resulted in net cash of just over GBP 73 million, almost GBP 30 million ahead of last year. As a result, cash and available facility headroom amounted to some GBP 123 million, almost GBP 20 million ahead of last year. In addition, as Alex mentioned, we extended our facility earlier this year to November 2027 and agreed with HSBC, an additional GBP 10 million accordion to the facility. The Board is not proposing an interim dividend for the first half of 2025 to ensure that we maintain long-term financial flexibility and use our cash to fund the growth, the opportunities that we expect will arise. Moving on to the balance sheet. We've seen a small increase in net assets to GBP 132.6 million year-on-year or about 47p per share, excluding goodwill. Inventory and WIP and other current assets have reduced year-on-year, reflecting the completion of schemes in the period and consequential cash bullets received. That said, inventory and WIP are up on year-end as we invest in enabling works and planning for our pipeline. We continue to make good operational progress on the Building Safety Act remedial works with two schemes completed in the period, leading to a reduction in the net provision to just over GBP 45 million, and that being net of contributions secured from building owners. We continue to evaluate recovery of remedial costs from our supply chain and have a team of people actively engaged, giving us confidence that we will achieve some additional cash recoveries. So now moving on to the outlook for the business. As mentioned earlier, market conditions remain challenging. So we continue to focus on those factors within our direct control, costs, delivery management and cash flow. Success of this is evident with our overheads down some 3% year-on-year. against inflation, almost 3% up in the year. Encouragingly, the investment is showing signs of improving sentiment, though pace will be linked to further reductions in gilts and interest rates and more general economic stability. Our markets do have attractive fundamentals with a shortage of residential accommodation. And we've evolved our business model to be less reliant on pure forward-funded schemes through our refresh and development partnership revenue streams. During the second half of '25, our focus will remain on the delivery of around GBP 105 million of secured pipeline at our stated margins. Additionally, we have a good pipeline of sites either with planning or expected to secure planning in the year. These are in the market, and we've been pleased with the interest that the projects have been achieving. That said, the market does remain challenging. And therefore, transactions have taken longer to close. A number of further forward sales from this pipeline are targeted in the second half to enable delivery of full year performance in line with current market expectations. Our pipeline remains at just under GBP 2 billion worth of live opportunities and that represents over 11,500 beds. We've worked hard this year to replenish our pipeline as we complete projects. Importantly, over 1/4 of the pipeline has planning consent. So these are schemes ready to be divested to deliver revenue and profit now. This focus has been especially successful in development partnerships where we have increased our pipeline by almost 50% since year-end to GBP 350 million, giving us a great base to augment our existing forward-funded business. We've recently exchanged on a new site for 336 co-living units and are working on 4 more schemes amounting to just over a further 2,000 beds. So in summary, we're pleased with the performance in the first half of 2025 in difficult market conditions. Our focus on cost and cash has yielded results with our core trading gross margin up against both FY '24 and HY '24 and net cash, up almost GBP 30 million on FY '24. Finally, we are excited by the strength of our pipeline as we engage with the funding market. I will now hand back to Alex to start the divisional updates.

Thanks, Simon. As Simon has discussed, it is a core focus of the business to continue growing our high-quality pipeline. We are specifically targeting core Tier 1 and Russell Group cities to match off investor and occupational demand and, thereby, to quality. Our total secured and unsecured pipeline sits at almost GBP 2 billion, and we've recently exchanged on one new site with 4 further under offer. Land viability challenges remain, and we must be selective with our pipeline selection. However, we believe that the market dynamics are creating good land buy opportunities at present. The government continues its support for the residential sector and its significant growth targets. These actions are manifesting, particularly in planning policy, where we are seeing some early signs of improvement. One of the more pronounced recent challenges to the sector has been the introduction of the building safety design gateways ahead of construction start on sites and the occupation of buildings. Whilst well intentioned, the current system has a number of process and resource challenges, which have the scope to cause considerable delays to developers and operators alike. The government is aware of issues and is working with the industry to try and resolve the difficulties. Key emerging subsectors in U.K. residential includes suburban build-to-rent looking to utilize grey belt land, which is now very much being championed by the labor government. Our recent built rent scheme delivered in Leatherhead is a good example of this type of development delivering 200-plus homes in a commercial suburban location. The other subsector gaining momentum is co-living or micro build-to-rent. Seeking to target urban locations with more transient and affordable tenant profiles. Again, we have good experience in this sector having delivered schemes in Leeds and Exeter and having just exchanged on a new site in Brighton. We are continuing to actively progress our development sales in the market with encouraging investor interest in the pipeline opportunities. While transaction processes, due diligence, governance and execution remain frustratingly slow, driven largely by the well-understood wider economic volatility, the breadth and range of capital interest is a real positive. It is promising to hear anecdotally in our interactions with investors of increasing volumes of core and core plus money being raised and looking to start deploying later in the year. As we have discussed previously, the development market functions best when there are a range of capital types operating and deploying in markets as opposed to the prevalence of opportunistic capital, which has dominated the recent market. A range of risk and return requirements from capital ultimately drives more opportunity, innovation and choice in structuring transactions. Reviewing latest investor sentiment surveys. This is supportive for the broadening of capital behaviors. 80% of investors surveyed expect to see increases in exposure to U.K. living over the next 5 years and nearly 70% expect yields to decrease over the next 12 months, both real positives for our model. In the current market, we believe that there is a growing business case to grow our development partnership model. Development viability challenges have significantly curtailed supply across the U.K. It is estimated that over 2/3 of current PBSA permissions are yet to commence construction and build-to-rent starts have decreased by 14% year-on-year, creating site acquisition opportunities. These partnerships can mitigate a number of the development delays and higher early-stage capital requirements or traditional development projects, which can erode investor and develop returns and increase risk. For the developer, they can offer sensible risk-adjusted returns. And from an investor, it supports more opportunistic capital, we're targeting more value-add returns but looking to offset development risk. Watkin Jones are extremely well placed to capitalize on the market. It is rare for a developer to have the vertically integrated investment, development, construction and operational capabilities required to unlock the values in these partnerships. Our progress to date has seen us build our exclusive pipeline to circa GBP 350 million across multiple residential sectors. We have committed revenue of circa GBP 145 million, having exchanged on two projects in H1, with 1/3 of projects well advanced in legals. We are also exploring some interesting strategic partnership with capital, which could potentially capitalize growth. While still relatively early in its evolution, our Refresh strategy has the potential to become an important component of the business. We believe there is a growing market opportunity and the ability to augment our existing models. We have previously talked about the scale of the potential market with over 500,000 PBSA beds identified as having potential for refresh. And we are now starting to see the repurposing and repositioning of assets as a key investor capital target with growing mandates. In 2025, nearly 60% of the transactions have been of assets over 5 years old with refresh potential. Return profiles are attractive on a risk-adjusted basis with potential to generate swifter returns due to shorter planning, BSA lead-ins and construction programs. The strategies also offer good ESG credentials and the opportunity to deliver potentially more affordable product to the customer. Our potential track pipeline has grown to circa GBP 300 million of revenue and we are in negotiations on circa GBP 57 million of new revenue opportunities. In particular, in the period, we have commenced on site Phase 1 of a new project for circa GBP 5 million whose later phases should realize in excess of GBP 50 million, if completed. We are finding that whilst the pipeline growth has exceeded our expectations again. The conversion of this pipeline is necessarily slower than other transactions due to the levels of due diligence required in underwriting existing build assets. As the new market landscape evolves, our delivery and construction capabilities offer Watkin Jones as a developer, an increasingly important USP in our engagements with the investment market. The combined counterparty capabilities of developer contractor provide greater certainty and reduced risk exposure for investors. Cost control, design expertise and value engineering help to unlock value and viability and development and the skill sets to both navigate and deliver the new BSA and ESG legislative environments. A delivery capability allows us to diversify our model into refresh and development partnerships and to partner with investor capital. The delivery teams are performing well, having PC'd 3 build-to-rent schemes this year and are on site with 8 live current projects. A core focus is placed on health and safety and quality assurance within the business, and we are very proud to have achieved our considerate contractors and ISO audit benchmarks. Over the last few years, we've engaged in a continuous improvement process to drive delivery excellence. We consolidated five silo build divisions in a single joined-up delivery function. We have rationalized our supply chain from nearly 2,000 suppliers to 270, and we have significantly enhanced our PQQ and approved product procurement processes. Importantly, we've maintained a highly skilled and experienced teams with an efficient, capable resourcing model, which is absolutely scalable for growth. I'm now going to pass over to Simon to talk about our Fresh operational platform.

Thanks very much, Alex. Fresh remains a key part of our end-to-end offer. Not only did Fresh provide vital market insights when we're looking at new sites, but also encourages funders to partner with this given our integrated model. Furthermore, with almost 20,000 beds under management, there are significant opportunities for refresh projects as part of an asset repositioning strategy. I'll now hand back to Alex for his closing remarks.

Thank you, Simon. So in summary, it has been a resilient operational performance in H1 '25. The economic backdrop and volatility has continued to compound and delay market recoveries. However, the medium-term outlook remains positive with structurally undersupplied markets driving strong operational fundamentals and performance. We've continued to make encouraging progress on our diversification strategies alongside strengthening our wider development pipeline. We are pivoting the business to face into the evolving market landscape and believe we are well placed to create a broader, more resilient business which can augment our wider development and transactional activities. Our ambition is clear, to drive long-term business growth while ensuring sustainable returns and strong cash generation in a market that will continue to evolve. Thank you very much for your time this morning.

[Operator Instructions] But Alex, at this point, if I may just hand back to you just to read out those questions and give you is where it's appropriate to do so. And if I pick up from you at the end, that would be great.

Great. Thank you very much, and thank you all for joining today. Your time is much appreciated. Hopefully, the presentation gave you sort of decent backdrop in terms of sort of what's been going on in the business over the last 6 months. And hopefully, we'll have a good Q&A session and answer the questions. So what I'll do is I'll flip through, we have a decent number of questions already, but please, I don't think if you need further explanation. I'm just going to start with one, I think it's possibly a new investor or a non holder, who just asked to briefly explain what the actual traditional business is and how we actually do it and how the financing is structured with customers? And what the secured and unsecured work and pipeline mean? So I think it's just a sort of a general backdrop on our business model, and I'll do that now because then I'll help understanding for others on the more detailed questions. So fundamentally, the business model that we've operated very successfully really since 2010, is what we consider a capital-light business model predominantly. So what we do as a business, we source new sites to acquire, and these are principally in our core markets of student accommodation and built around various sort of offshoots of those, which form part of the sort of wider U.K. residential for rent to backdrop. So in the pure model, we will look to secure those sites typically on a subject to planning basis. We will then look to progress design and plans and engage with the planning authorities to achieve a planning consent for the site. And at that point, we will normally either buy the site and put on the balance sheet and look to find a purchaser or in an ideal world would have back to back an investor ready to buy the side day 1, so we can be as capital efficient as possible. These buyers are typically institutional funders. So we've done multiple deals with U.K. institutions such as Legal & General, M&G, but then we've also had a myriad of transactions with private equity capital, so KKR, Brookfield, CBRE Global. So large-scale institutions, and they will typically by the site of us day 1 and we will look to make a profit on that land proportion of the transaction. And we will simultaneously enter into a development agreement with the investor, which says we will deliver this building to the specification within these time frames and at these fixed costs. And then we will look to build out our scheme, and they will fund us on a monthly valuation of works achieved on site. So effectively, it's very cash flow neutral from our point of view because typically, we are getting funded all the way to the development. And then at the end of the scheme, we'll normally have retained what we call a bullet payment, 10% is fairly typical, which they pay on crystallization and practical completion of the building. So that is a very typical model, which we've operated successfully, I think we're the largest proponents of that sort of deal structure in U.K. residential for rent. I can't think of anyone else who's done a greater volume or business than we have in this space. So -- but that is the traditional model. And when we talk about the sort of the liquidity challenges, it's that, that's been a bit squeezed in terms of sort of the willingness or the ability of investors to deploy and the scale that they were deploying over the sort of financial instability than we've had in the past few years. In terms of sort of what do we mean by our secured and unsecured pipeline, that's really just the sort of the degree that we've contractually secured it. So when we say a secure pipeline, it will mean that we've got contractual security over it. So it might be on a subject to planning contract. It might be on a subject to planning subject to funding contracts we talk about unsecured pipeline, it's typically pipeline, which we've had one-on-one negotiations, had some term negotiations or legal negotiations. So we're looking to convert that in the coming months to our secure pipeline. So hopefully, that answers sort of high-level sort of the usual business model, but I'll see if there's any follow-up questions on that. I think turning to the next question, Simon, do you just want to pick up what was your average monthly net debt cash over the period and...

Sure, so we've sort of summarized all the cash flows on Slide 12. And you can see that for the half year '25, our average daily cash was GBP 75 million, pretty well double what it was in half year '24. Just above there, you can see borrowings of GBP 13.4 million and net cash average daily cash in half year '25 was the GBP 75 million plus GBP 13 million, so that's GBP 62 million. And the year both before it was GBP 38.7 million, less the , so roughly GBP 25 million to GBP 26 million. So demonstrating that theme I mentioned in the presentation, strong focus on cash. And you can see that significantly in the net cash, the net average daily cash go from GBP 25 million, GBP 26 million to about GBP 70 million -- GBP 62 million over that year.

Okay. Great. Thank you. Quite a specific question next, but actually use for one to sort of talk about generally how we're approach things. Have you considered a JV with Soho housing REITs, the social housing REIT. I'm aware of the business. We haven't specifically considered a JV with them at this stage, but there's absolutely no reason why we couldn't. I think what we pride ourselves on is our ability to be a very good partner to institutional capital and delivery conduit to end operators and owners of residential assets in the U.K. And I think the whole housing association sector is very interesting from a Refresh point of view that there's significant amount of stock, which needs sort of heavy investment in terms of the refurbishment angles, but also the potential to partner with a bespoke landlords such as the Soho REIT. Of course that'd be interesting. For those who don't know, they specialize in providing more assisted sort of level of care to residents in and around the country. So hopefully, not specifically -- it's probably [indiscernible] pick up then in need of a delivery partner, then it would suit very well our development partnership ambitions. Moving on to the next question. Are there specific regions outside London Southeast where you're seeing stronger rental growth or student demand? How does this influence your site selection? So yes, for sure. The market is not blanket. There's not one cap fits all. It's pretty idiosyncratic how different markets perform at any particular time. So as a general trend, I would say that there's been a flight to quality led by investors, they're typically targeting the primary cities, the stronger universities for all the obvious reasons is that flight to quality. So that says how we select our sites. What we actually do every single year in a very granular fashion, we've got what we call our target cities model and that this is a model that we have built, which we feed in a significant amount of quantitative data, and we do one of these, both build-to-rent and for student accommodation. And you see in the quantitative data, which fires out some results on where could be attractive areas to invest in and they are driven principally by what are supply-demand dynamics in the area, what's the rental growth potential? How many students are living there, all the things you'd expect. And then we also overlay a sort of qualitative assessment, which is based on investor upside and demand for that sort of location, chances of planning success and any political considerations that we need to focus on. So that then all fits out a sort of hierarchy of cities that we want to specifically target with our acquisition teams. It doesn't mean that we wouldn't invest in the city not on that list. We don't want to be that prescriptive, but it certainly helps narrow that search. And what I'd say, particularly on the student accommodation side, markets sort of coming in and out of those on relatively regular cycles. So you might have a market such as Newcastle where historically, there was lots of growth. There was lots of development came through. It's a very good market, 2 good universities. Quite a lot of accommodation about 2, 3 years ago was delivered. That sort of then took a while for the market to digest. So what happens? The universities continue to grow. Some of the older stock falls out of the supply chain. And suddenly, you're looking at the supply-demand dynamics, and they're looking more positive again. And that's then generating sort of better than average rental growth and the investment case, therefore in group. So there's no sort of particularly one region that we're actually targeting at any one stage, it's more individual cities and their sort of precise data. Moving on to the next question, how are you managing delivery time lines and risk across the remaining in-build portfolio, especially in light of construction labor, material challenges? Yes, good question. I've got to admit, this is an area where I think we've really formed incredibly well in the past for 12, 18 months or so. I think the advantages of us being a developer contractor, really our prevalence in the current market. It gives us additional strings to our bow. It enables us to add additional margin to our developments by keeping the construction in-house. But also most importantly, it gives us control of that sort of construction process. It means that we can really look to manage our supply chain, really manage our design. We look at any sort of value-add opportunities as we deliver those schemes. And at the moment, we've delivered three schemes in the financial year-to-date and all of them have finished on the program and actually all of them delivered some betterments in margins, which means that we either has sufficient contingency or inflation contingency or that we've made investments in our sort of procurement which has enabled us to drive more profit out of those schemes. So that is a massive positive. This has clearly been a challenged time for construction. But really, really pleased with that performance, and we're on site with 8 live projects at the moment. And again, that they are materially performing to our budgets and programs, which is a real positive. We're not quite seeing deflation in construction costs. It would be lovely if we did, it would be highly impactful if we did because clearly, the construction costs make up a big part of your development costs. But we are seeing sort of fairly normalized inflation at the moment. We have a bimonthly inflation meeting to assess what our forward-looking inflation is, we're typically seeing at about 3%, but there are some regional variations. And yes, Hopefully, we'll continue to perform to those budgets. Simon, do you want to pick up the next one?

Is the bulk of our net holding the building provision expected to be completed in the next couple of years or more evenly spread? So the way we look at the build and safety provision, we've got a net provision of just a little bit over GBP 45 million. We expect that to be expended in cash terms fairly evenly, probably slightly more in '26 than the following years, but generally fairly evenly over the period to September '29 or September 2030. And that's very much in line with guidance from central government that the period over which all the build and safety remedial should be done is over the next 4 to 5 years. So we're very much tracking in line with guidance as to where we should be at in terms of remediation or completing the remediation of these buildings.

Okay. Good. Next question. Would you be willing to sacrifice gross margin to get a deal over the line in this financial year? . Look, I mean, the reality is you're constantly looking to assess relative benefits of bids on the table, are they going to bring cash into the business? Are they going to bring P&L into the business? Yes, I think -- we're always trying to strike the right balance. We'll always look at a deal on its merits. And I think to answer the question simply, no, we never draw a line on the sand and say right. It's got to be over this level otherwise, we're not doing it. You've got to remain more fluid than that and assess it on its merits. I think the one thing we always need to be sort of mindful of is a deal we do now will generate revenues and margins across the next 3 years because that's the typical build-out period of a development. So again, we've got a sizable overhead to cover as a business because we've got so many specialist areas of the business which materially add to our capabilities and add to our diversification strategies, but it does come at a cost. And so we've got to make sure that we are generating enough P&L from the deals to be able to cover those overheads and then move us into profit. So yes, simply, yes, we will sacrifice some gross margin, but equally, we don't want to do deals which aren't beneficial to the P&L unless there's just such an overwhelming cash flow advantage doing so that you might consider it. Okay. Next question. Is it only the traditional areas that build out in PBSA that need JV and additional funding by partnerships, i.e., not the Refresh segment? Can you expand on these JV partnerships? Are there many types of arrangements and structures, indeed discussed directly with the various partner institutions? Yes. So when there's a myriad of deal structures available to -- and I'd like to think that Watkin Jones sit on the more innovative side of deal structuring capabilities. I think we've -- whilst we have a typical model, which is a forward fund, which is the one I outlined right at the outset, we are able to flex the model and do a myriad of transactions. And as I said, they are all principally done with institutions, pension funds, life insurers. We talk to all of these guys daily assessing their app site, assessing what markets they want to be in and assessing what that cost of capital and return requirements are and how you might structure a deal to suit and to be able to sort of keep developing and progressing construction on these assets. I think in terms of sort of the difference between Refresh and more traditional deals. I mean, look, the reality is there's not that much difference in the sense that we're not looking to put our capital to buy assets to refurbish. What we're looking to do is partner with investors day 1 to either refurbish their assets for them or to buy existing assets as part of a sort of a mandate to add value to them by repositioning them and refurbishing them. So it's still discussions with the same parties at the same types of capital looking to structure deals, whereby we're the delivery conduit and we get paid for doing so. So hopefully, that covers that one. But if any further clarity, then just let me know. Student rent inflation is expected to slow, where will that leave the differential to build cost inflation? Yes, good question. I think, look, fundamentally, as I said in the presentation, what we're seeing here is that we've had last 2 years of really quite aggressive student rental indexation, and that's been driven by a number of factors. But fundamentally, is being driven by supply demand imbalances, and that does sort of help drive that rental growth. I think why we see it normalizing it is you begin to reach sort of a rental ceiling whereby the affordability question comes in, it needs to sit in line with other residential tenures within markets, and that sort of keeps a lid on it. And that's why the more historic patterns have been inflationary linked. So it's not all abnormal to see rental indexation and inflation performing just above inflation. You normally get inflation plus a little bit, and therefore, it normally sits just slightly above where build cost inflation is, but relatively close. So I guess we'd expect that trend to continue. But I think I'm not going to get out to sort of crystal ball in terms of exactly where build cost inflation could go due to because it has been volatile. And I guess the volatility of tariffs, et cetera, could play a part. But from what we see at the moment, we don't expect that to have -- we still expect there to be a sort of slight net gain in rental growth to build cost inflation. Please provide a more detailed outlook on the upgoing projects being marketed with targeted sales in H2, what are the top projects, closer to sale and any visibility towards timing. Simon, do you have to cover outlook?

Yes. So as I mentioned in the presentation, we've got a very good pipeline with planning and some sites that we expect to get planning very imminently, those sites that are out in the market. And as Alex mentioned in his update from a transactional perspective, the market is still slow. It's very, very hard to predict exactly how quickly we can get those transacted. The positive news is that those assets are attracting interest from all the sorts of capital that Alex was alluding to. We're hopeful about getting some of those transacted by year-end, as I mentioned in the outlook and to get to the consensus forecast, we will require some of those transactions to occur, but it is very, very hard to predict exactly time lines at this point given the sort of challenging nature and the slow nature that transactions are taking at this point in the cycle.

Okay. There have been reports that legislation may be enacted that penalizes developers owning sites for planning that do not develop these sites in a timely manner. If it is enacted, would it have an impact on your business? So look again, a really good question. I guess the nature of student accommodation build to rent and where it massively differs from your traditional house builder stock is the whole ethos of our model is to build out the assets as quickly as possible and all in one go because the whole point is to generate economies of scale, generate communities on sites, which help drive people rebooking, helps drive rental profile, helps support local infrastructure, et cetera. So you just will very rarely find a build-to-rent concern that you only deliver a number of units at a time, that's the typical housebuild model, and that's what they're trying to protect is schemes where they drip feed on supply rather than delivering the whole lot because they're trying to protect a bottom line on those sites coming forward. So I don't think we are the principal target of this in any way, shape or fall. I think it's very much more towards the traditional housebuilding model, that's the target. It's too early to -- we haven't seen enough detail on the legislation to understand how it would impact us in a real detailed sense, I think that's just saying we would have to wait and see. But I honestly don't believe that this policy if it does come through is targeted at us because our model is about delivering as quickly as possible. Simon, do you want to take the next one?

Yes. So the question here, the market has assumed that the statement that you will hit market expectations if H2 sales match expectations is a warning that the full year profit will actually miss expectations. Can you give any sense of the amount of H2 profit that is risk of not happening or slipping into next year? Well, I mean this is a very, very similar question to the one I just answered in the sense that, that statement was there to give some clarity around the challenge we have in forecast at this point, given that transactions are taking time to close. As I mentioned, there are a number of transactions out in the market, and we would need a different combination. Some of them have higher margin than others, a different combination to get to that consensus figure. What I would say is, though, that if you look at the numbers that we've reported, half 1 revenues are up just under GBP 130 million, contracted revenue of GBP 105 million for the balance of the year. So that's one site in build. So that's our expectations of revenue that we'll achieve for the first half -- sorry, second half. Our overheads are largely sort of slightly second half weighted, but largely flat year-on-year. So actually, you can work out from those numbers, assuming our margins are broadly flat around 11%, what the outcome would be if we didn't make any further sales. Obviously, our expectation and hope is that we make those and get to consensus.

Okay. Our overhead is likely to remain at the current levels or is there further scope for continued efficiency drives? Also, where do you see gross margins moving over the next few years? Are there further pressures on this? Okay. Simon, if you take the first half of that question on the overheads. And then I'll cover the sort of the overall margin question.

So just really going back to the previous question about our overheads are year-on-year, they're down about 3.5% with inflation up around some 3%. So we've got a very sharp focus on cost, delivery costs or overhead. Our expectation is to try and keep those as broadly flat and neutral certainly into next year as we possibly can, I think to forecast much further ahead than that depends really on what happens to inflation and the nature of the market. But certainly in the near term, for '26, we would like to try and keep that as flat as we can.

Yes. I think what we don't want to do is cut into our capabilities to bounce back as the market recovers. We've got huge amount of time to people. We've got huge track record and experience. And yes, we don't want to cut to the bone is the honest answer on that one. That said, we continually look at nonpeople costs to see where there might be efficiencies. And that's just a sort of BAU sort of venture for us. I think we've demonstrated over the last couple of years, we've got a real attention to detail in terms of how we can drive small marginal gains. I think in terms of sort of the overall gross margins, the way I'd look at this is sort of, I guess, when we floated, we floated off the back drop of a sort of target 20% gross margin on student accommodation and 15% gross margin on build to rent. And we almost metronomically hit those sorts of numbers over the earlier -- early number of years until we started running into the fairly significant market challenges that we've all been experiencing. Now we probably didn't talk about that enough at a time, but actually, those sort of margin levels were significantly outperforming our competitors in the market. So a much more typical margin would have been sort of 10%, 12% max from developers of our ilk and the reason why we were able to achieve those margins is because of our vertically integrated platform. We're able to add incremental value at acquisition stage, planning stage, design stage, construction stage is a good one because that's 4%, 5%, that immediately you are in-housing rather than paying away to a third-party contractor and then our end operation. So all of those facets still remain in the business. We haven't lost any of those sort of USPs or those real advantages. And so technically, you could argue, we should be able to build margins right back up to those levels. I think being pragmatic that the one factor that is materially different is those were achieved in a 0% interest rate environment. And I don't think anyone is predicting that we're going to go back to a 0% rate environment. And I think on that basis, what we look to do is sort of just lower the expectations on those margin returns. So it's a sort of blended 14-ish percent, if you said 12.5% for build-to-rent, around 15% for student, it feels about right. It feels sort of fairly representative of what we're seeing as achievable essentially in the new land that we're looking to acquire. So that's kind of where we've sort of set that sort of margin bounce back to. Now clearly, we'd like to outperform that. So we feel we've got the capability to outperform it. But at this stage, it hasn't really fed in -- we haven't seen the deflation in construction costs. We haven't seen material discounts on land values so I think that's the sort of right pragmatic sort of point of view. So what that will do is if we're sort of 11% now we're still trading through some legacy sort of assets which are lower margin. But you'd like to see that sort of graduate up over the next few years more towards that sort of 14%. So hopefully, that gives explanation on the -- on the margin. Next question, is the 10-year gilt still prove to be a barrier to doing business? Yes. Look, it's a really interesting one. The 10-year gilt is quite a classic benchmark for institutional investors, particularly the sort of more pension fund type investor because they're really looking at relative returns, the supposed risk-free rate from doing a 10-year gilt. So look, it remains stubbornly high and that is a barrier for some. I think one of the sort of green shoots that we are seeing and it's anecdotal at this stage, but we are talking to some of that sort of core pension fund money, people like LNG, the people like Heinz, people like , who are all talking about readying themselves to sort of start utilizing core money and core plus money in development fundings possibly as soon as the end of this year. That's their aspiration. And they're not necessarily caveating it by, say, but gilt have to be at 4%, not 4.7%. They're just sort of saying that they're long-term investors, they see genuine value in U.K. real estate and U.K. resi in particular, and they wanted to be deploying into it. So look, it undoubtedly is a figure and essentially a barrier, but I think that -- we'd like to think that investors will be able to look past to an extent because the behavior of any gilt is difficult to call at the moment just based on the sort of the geopolitical environment. I think we're running a little bit short on time, but I'll answer as now as we can. Any plans for student market in Scotland? But yes, we've still got schemes in Scotland, which were in various stages of sales process. So it remains a good market. I think government rhetoric or conversations are particularly helpful there at times, they've sort of impacted the build-to-rent market in particular by putting sort of rent cuts in which they're now sort of growing back from quite rapidly, hopefully. But look, lots of good universities there. So yes, we've still got ambitions in Scotland. The fashionable question, what are the opportunities to play AI in the business? And what might the financial returns look like? Okay. I'm not going to answer the financial returns because the honest answer is I don't know, but the one area of AI, which we are using AI in some of our marketing side of things from the fresh point of view. They're really looking to help target where -- when we spend our marketing spend in what this is and what time frame because as I said before, each city has a different sort of letup trends. The area I think AI to be really interesting is on the design stage. So again, anecdotally, I was talking to the Chairman of an architectural firm quite recently, who was talking about the threat of AI to the design. Typically, on a scheme for M&A, it might take us 6 to 9 months and multiple hundreds of thousands of pounds to do the detailed design for the M&A to be able to live the scheme. What's evolving at the moment is programs of Gen AI, which could do that design in under a week, that would be a material impact on to the benefit on time frames, on costs of design. I think it's still very, very early stage. And you'd still have to employ a lot of architects to check and double check to make sure it all works and the reality of what you can design on a computer, we're using AI and actually what you find on site. All of these things need to be sort of worked through. But I think AI intervention on design is a significant potential for us, and it's one that we're just starting to review and understand. So I mean there's quite a few areas that we are starting to look at AI, let's say, again, we're making sure that we put the right guide rails on it to think it's dangerous to just launch into it without really understanding it. Do you have enough people at the moment for a much higher level of business in Refresh? And if not, is it hard to have necessary labor skills? Are these subcontracted? Who could we contact with further IR inquiries and will they actually respond? Okay. So I think in terms of our delivery capability now we can utilize our mainstream constructing teams to do Refresh projects or depending on the scale or we can use a separate division, which we set up, which effectively manages the subcontractors that we had employed. What I'd say at the moment is we're on site with 8 schemes and we've got enabling works going on another 2. We've got the capacity easily within our current business to sort of move up to sort of between 16 and 20 sites on-site at any one time, that's very much within the sort of existing resource capability of the business. So I think in terms of that sort of expansion is -- I'm comfortable that we can achieve that. The way it works on each individual project, we will have project costed people, which don't sit within the overheads because they are allocated to that project. And if you don't have any more projects, then you lose those people. So it doesn't impact your overhead. So I think we've got the structure fine-tuned and there's definitely room for expansion. I think the one area where we are looking at putting some more overhead into the business, bearing in mind what Simon said about looking to control our costs very carefully. But in order for us to underwrite more deals and process more due diligence in the refresh and development partnership areas of the business, we have recognized that we should put some more resource into the costing, programming and underwriting capabilities for those areas. So that is an area of the business where again, we're just being pragmatic in saying there's a big market opportunity, we don't want to let that slide by not giving it the resources it needs. So that's the one real area. I think in terms of sort of IR, yes, further IR inquiries should be directed through MHP, and they will -- who are our IR consultant and they will filter them through to management. And so hopefully, that's the best conduit to answer the questions. Yes, okay. And then this is actually, I think our final question that we've got. So yes, Simon?

So this is a very similar theme just about overheads. What we've done in terms of rightsizing the business? And I think just picking up from some of the themes we've already discussed that. We have had a real focus on overheads over the last number of years. Overheads have come down substantially. That said, we want to maintain the capabilities that we have as a business in terms of site collection, design, planning, delivery and a combination management. We see that as vital to our success going forward and the ability to interact with investors. Are we holding on to unnecessary overhead? No, I don't think so. But as Alex said, if we want to grow, we can grow relatively swiftly by bringing in more project-based results rather than needing additional overhead. But that said, as Alex said, there are certain areas where we probably do need to flex the model particularly to allow the refresh and development partnership side of business to prosper. The second bit of the question talks about transparency in segment reporting, and we do that. So if you look on the overview of performance in the RNS, we split out segmental performance to be build to rent, student accommodation, refresh accommodation management and affordable at homes, and you can see the similar split of that in our annual report for the year to September 2024. So yes, if you look back in those docs, you can see the various revenues and margin spreads that we make in terms of segment reporting.

Okay. Well, I think that's all the questions. And so I think that just leaves me to sort of say thank you very much for your time. Thanks for listening. Hopefully, it's been informative. And again, if there's follow-up questions, please feed them through this platform and how do they do get passed through or as I said through MHP, who's details are all on our website. And thank you very much for your time.

Alex and Simon, that's great. If I may just jump back in. Thank you very much indeed for updating investors today. [Operator Instructions] On behalf of the management team of Watkin Jones Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.