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Watkin Jones swings to loss amid uncertain market

(Sharecast News) - Residential developer Watkin Jones reported full-year revenue of £413.2m on Tuesday, marking a 1.5% increase year-on-year. The AIM-traded firm said gross profit, however, saw a significant decline of 48.4% to £34.9m, while operating profit plummeted to £0.2m, representing a 99.6% decrease.

It recorded a loss before tax of £2.9m, swinging from the £48.8m profit achieved in 2022.

Basic losses per share amounted to 0.6p, compared to earnings of 14.8p in the prior year, while the dividend per share dropped 81.1% to 1.4p, and adjusted net cash decreased 46.9% to £43.9m.

Watkin Jones said the adjusted operating profit of £0.2m reflected lower margins in certain in-build schemes, additional site-specific costs related to accelerated completions on two schemes, and a third-party contractor insolvency.

Additionally, the company incurred a £4.6m book loss on the sale of three private rental sector (PRS) assets and an impairment charge of £5.5m on non-core land bank and certain pipeline assets no longer economically viable.

It also noted an exceptional charge of £38.1m in the year, which included a £35m provision for building safety remedial works, expected to be spread over a period of up to five years.

Additionally, there were one-off restructuring costs of £3.1m associated with the realignment of the group's cost base, delivering £4m in annualised run-rate savings.

Despite the challenges, Watkin Jones ended the year with around £500m of contractually secure forward-sold revenue.

In light of uncertain market conditions, the board said it had decided not to recommend a final dividend for 2023.

Looking ahead, Watkin Jones said it anticipated secured revenue from previously-sold developments of £300m in 2024, covering its cost base for the year.

The forward fund market was showing early signs of recovery as interest rates stabilised, and all current development schemes remained on track, supported by a moderation in build cost inflation.

It expected an adjusted operating profit for 2024 in the range of £15m to £20m, which was unchanged from previous guidance.

In the medium term, Watkin Jones said it was positioning itself as a market-leading business operating in the UK residential for-rent market, with strong tenant demand and rental growth.

The company had a secured development pipeline estimated at £1.5bn in future revenue, including £0.5bn forward sold, £0.3bn secured with planning, and £0.7bn in planning, with £0.1bn secured since the year-end.

Watkin Jones added that it was in exclusivity on an additional £0.4bn of land opportunities, subject to planning.

The company said its strategic focus revolved around extracting more value from its existing capabilities through development partnerships and refurbishment and repurposing development opportunities.

"Significant cost inflation and volatility in real estate funding markets meant that 2023 represented a period of unprecedented challenge for the business," said chief executive officer Alex Pease.

"However, I am pleased that against this backdrop the group demonstrated resilience and agility, taking a number of important actions operationally.

"Whilst funding conditions remain difficult, the outlook is gradually improving and the strong asset performance in PBSA and BTR sectors gives me confidence in the longer-term market recovery and return to growth."

Pease said that in the near term, the company remained focussed on driving improvements to the productivity and efficiency of the business, as well as looking at opportunities to extract more value from its sector expertise and end-to-end capabilities.

"Watkin Jones continues to have a market-leading team and offering to the residential for rent sectors and we are taking the right steps to ensure we are well placed to capitalise on this, as conditions improve."

At 0830 GMT, shares in Watkin Jones were down 3.89% at 50.65p.

Reporting by Josh White for Sharecast.com.

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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