The full year picture may look rather different however, with costs associated with Covid-19 and replacing flammable cladding.
For the six months to 31st March 2020, pre-tax profit at Watkin Jones was up 19% to £26.6m (2019 H1: £22.4m) on revenue up 17% to £185.7m (2019 H1: £159.1m).
Revenue from purpose built student accommodation (PBSA) was similar to last year at £120.8m (2019 H1: £128.8m). A gross margin of 24.1% was maintained on student accommodation developments, a small decrease on the 24.7% gross margin in H1 2019.
Revenue from build-to-rent, a newer market for Watkin Jones, rose to £36.5m for the period (2019 H1: £8.8m) with a gross profit of £6.0m (2019 H1: £1.9) at a margin of 16.3%.
After the half-year end, Watkin Jones signed an on-campus partnership agreement with Cranfield University to develop 613 beds for delivery in fiscal 2021 (415 beds) and fiscal 2022 (198 beds), with a development value to Watkin Jones of £48m.
The agreement also contains an option arrangement for a potential second phase of the development, comprising a further 252 beds. The company said that this “paves the way for future similar university partnership arrangements”.
Watkin Jones has also secured two further PBSA sites, both of which are subject to planning: a 291-bed scheme in Bristol and a 300-bed scheme in Bath.
That’s the good news.
Numbers for the second half of the year will bear the brunt of the Covid-19 lockdown and the economic decline that is expected to accompany it.
Watkin Jones' sites in England, Wales and Northern Ireland now operating at 75% of pre Covid-19 resource levels. Its two Scottish sites remain closed due to Scottish government instructions.
“The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the group decides to forward sell any of its development sites in the second half given the uncertain investment environment,” the company said.
However it boasts a strong liquidity position, with £72.4m gross cash at 31st March 2020 (compared to £57.9m a year before) and £37.5m net cash (up from £18.3m a year before.) It also has a £100m revolving credit facility with HSBC renewed for five years to May 2025, of which £71.1m was undrawn at 31st March 2020.
And there is £390m in revenue due from forward sold contractually committed pipeline this year and next.
The full year numbers will also be hit by provisions for remedial cladding works, replacing flammable cladding systems. The full cost to Watkins Jones, as previously announced, could be in the range of £12m to £15m over the next two years. “A non-underlying provision for these costs is likely to be made at this year-end,” the company said, although it denies any liability.
Chief executive Richard Simpson said: "The half year performance was strong and continued the momentum towards our multi-year growth strategy which we set out in November 2019. Our businesses have all performed well in the period and in-line with expectations.
“We have responded carefully and cautiously to the challenges presented by the Covid-19 pandemic and subsequent lock-down. Primarily, we have focused on ensuring the health and safety of employees, tenants and other stakeholders, with development sites initially being closed to all non-essential work. Gradually, we have been able to reopen most of them, to the extent allowed under social distancing and government rules. I would like to thank all our employees, tenants and other partners who have responded so positively to this difficult situation.
“Secondly, we have strengthened further our financial position by conserving cash; reducing costs, suspending the interim dividend and extending borrowing facilities. We believe that this ensures the long-term resilience of the business as well as its capability to respond quickly as markets recover. The board believes that the group is now well-positioned for future growth and to take advantage of economic opportunities that may arise from the current unprecedented situation."