Watkin Jones defers some pipeline assets in changing market

Watkin Jones reported a first-half performance in line with expectations on Tuesday, although it warned that the benefit of some of its pipeline assets would be deferred from the second half as it maintained a cautious outlook.

The AIM-traded firm reported revenue of £153.9m for the six months ended 31 March - down 20.3% - from forward sold developments that were currently under construction.

However, there were no new forward sales recorded in the period, the board noted.

Its adjusted operating profit tumbled 87.7% to £1.8m , reflecting reduced gross margins as it previously guided.

Additionally, the company said it incurred additional costs on its Exeter scheme due to the liquidation of the third-party main contractor, which prompted Watkin Jones to step in and take over the project.

Despite the challenges, Watkin Jones reported a net cash balance of £45.3m at period end, which was 69% higher than the same time last year.

Watkin Jones declared an interim dividend of 1.4p, which was 51.7% lower than its first-half distribution last year.

Looking ahead to the second half, Watkin Jones said it expected a significant improvement compared to the first, with performance set to be boosted by the completion of forward sales and the progress made on its ongoing development projects.

In the current market, the company said it had noticed purchasers seeking structures that aligned more favourably with their own funding requirements.

That meant they were looking for profit distributions to be weighted more significantly towards the latter stages of the development.

Despite pricing on assets being in line with expectations, Watkin Jones said it recognised the need to adapt to such market demands.

In light of its cautious short-term approach, Watkin Jones said it had decided not to accelerate pipeline assets onto its balance sheet for immediate sale.

That decision would result in an expected profit contribution of around £15m from the current fiscal year moving into the 2024 financial period.

“We are pleased to have delivered a half year result in line with expectations, managing build costs and our supply chain well,” said chief executive officer Richard Simpson.

“We are also encouraged by the early signs of build inflation reducing which should lead to future buying gains.

“We look to the second half of the year with confidence and are particularly pleased to have secured the forward sale transaction in Bristol and expect to complete further forward sales before the year end.”

Simpson said the overall recovery in the forward-fund market was encouraging, but he added that the group would maintain a cautious approach to managing its pipeline.

“In addition to growing confidence in the sector, we are seeing attractive land acquisition opportunities and these coupled with our excellent operational performance leave us confident for the future.”

At 1445 BST, shares in Watkin Jones were down 18.36% at 78.7p.

Reporting by Josh White for Sharecast.com.