Building safety and restructuring costs send Watkin Jones into the red

Profit has dropped 331% at Watkin Jones as building safety remedial works and restructuring costs sent the firm into the red. 

The build-to-rent and student housing specialist’s accounts for the year to 30 September 2023 showed a pre-tax loss £42.5m, compared with the £18.4m the year prior. 

Watkin Jones said that without exceptional charges relating to building safety remedial works (£35m) and restructuring costs (£3.1m), its pre-tax loss would have been £2.9m, with a roughly break-even operating profit.  

Turnover was up marginally by 1.5% to £413.2m. 

Alex Pease, chief executive of the business, said it had been a “tough year” due to build cost inflation and interest rate rises, but that he was “really pleased” with the firm’s response. 

“A huge amount of work has been done to get to a break-even operating profit,” he said. 

The firm’s purpose-built student accommodation development business was impacted by incremental costs at a scheme in Exeter due to the main contractor going into liquidation, which resulted in £3-4m of additional build cost, as well as additional subcontractor labour costs needed to get schemes in Scotland and the South-West over the line. 

The firm’s chief financial officer, Sarah Sergeant, said that actions taken during the year that had impacted its profit – including an impairment charge of £5.5m on its non-core land bank and pipeline assets which were no longer economically viable – had put the business on a better footing heading into the new year. 

“While it’s a relatively small profit number, the actions we have taken very much serve to set the business up for the future,” she said. 

The group took a number of actions during the year to improve its balance sheet, including the sale of a portfolio of non-core private rental sector assets ahead of the completion of remedial works, which resulted in cash receipts of £17.2m, but a book loss of £4.6m. 

“[The sale] was really just to give us options, to give us firepower for looking at potential new land acquisitions,” Sergeant told Housing Today.  

The assets had been on the balance sheets for years, [were] non-core, and not really part of what we do anymore”. 

Watkin Jones also undertook another round of redundancies last September, with between 10 and 15 staff laid off. 

At 30 September, Watkin Jones’ development pipeline comprised 4,400 BTR apartments and 6,500 PBSA beds – worth a total of around £2bn - and the business ended the year with roughly £500m of contractually secure forward sold revenue. 

Its guidance for FY24 operating profit of £15-20m was unchanged. 

Pease said there were some “near term diversification strategies” the business would pursue this year, including a greater focus on development partnerships and a strand of work it calls ‘refresh’, which comprises refurbishment of PBSA and private rental properties for ESG and building safety purposes. 

Speaking about its partnership plans, Pease said: “We are seeing more opportunities with land consent at the moment, for obvious reasons, and if the consents are there we have great partnership credentials with institutional capital […] so instead of us buying it we can partner with investors, they buy the assets we are planning, we enter a development agreement with them and deliver the building for them.  

“It makes a lot of sense from our point of view because it doesn’t touch our balance sheet, it means we are incredibly capital light, but also it generates revenues a bit quicker for the business because we are not going through a full 18-month planning process or six-month sale process before we can recognise that revenue and margin”.