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 forwards. 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 2025 has seen a continuation of a number of similar key themes from FY 2024. Whilst wider economic conditions have continued to generate significant headwinds for the property sector, we have focused on controlling the controllable 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 two years. Pleasingly, we have also shown positive operational progress both within our delivery function and our Fresh property management platform. We have practically completed three 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 on our revenue diversification strategies, in particular development partnerships and Fresh, where we have closed three transactions in the period, with a number of others in legals or 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 have 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 four 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 for 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 with 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 market and transactional liquidity remain significantly impacted by wider global and national economic volatility and uncertainty. The key U.K. metrics of 10-year government gilt and the 5-year SONIA swap rate 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 graphs 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 remain 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 re-enter 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 continues 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 graphs to the right highlight the very significant impacts of the last few years on development 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 link 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 let-up has been more aggressive earlier. This trend is 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 very 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 trade and gross profit fell with fewer SLIMs in 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 growth, the opportunities that we expect will arise. Moving on to the balance sheet, we have seen a small increase in net assets to GBP 132.6 million year-on-year, or about GBP 0.47 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 the 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. 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: cost, 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 gilt 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 2025, our focus will remain on the delivery of our 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 are taking 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 a quarter 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 have recently exchanged on a new site for 336 co-living units and are working on four more schemes amounting to just over a further 2,000 beds. In summary, we are 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 trade and gross margin up against both FY 2024 and HY 2024, and net cash up almost GBP 30 million on FY 2024. Finally, we are excited by the strength of our pipeline as we engage with the funding market.
I'll 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 a high-quality pipeline. We are specifically targeting core, tier one, and Russell Group cities to match off investor and occupational demand and their flight to quality. Our total secured and unsecured pipeline sits at almost GBP 2 billion, and we've recently exchanged on one new site with four 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 buying 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 the issues and is working with the industry to try and resolve the difficulties. Key emerging subsectors in U.K. residential include suburban build to rent, looking to utilize grey belt land, which is now very much being championed by the Labour government. Our recent build to rent scheme delivered in Leatherhead is a good example of this type of development, delivering 200+ 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. Whilst 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 of the broadening of capital behaviors. 80% of investors surveyed expect to see increases in exposure to U.K. living over the next five 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 partnerships model. Development viability challenges have significantly curtailed supply across the U.K. It is estimated that over two-thirds 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 of traditional development projects, which can erode investor and developer returns and increase risk. For the developer, they can offer sensible risk-adjusted returns, and from an investor, it supports more opportunistic capital who are 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 these 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 a further project well advanced in legals.
We are also exploring some interesting strategic partnerships with capital, which could potentially catalyze 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. 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 five years old with refresh potential. Return profiles are attractive on a risk-adjusted basis, with potential to generate swifter returns due to shorter planning, Building Safety Act 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 one of a new project for circa GBP 5 million, whose later phases should realize in excess of GBP 50 million if concluded. 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 built 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 in development, and the skill sets to both navigate and deliver the new Building Safety Act 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 three build-to-rent schemes this year and are on site with eight 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've consolidated five siloed 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 peak EQ and approved product procurement processes. Importantly, we've maintained 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 does Fresh provide vital market insights when we're looking at new sites, but also encourages funders to partner with us 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. In summary, it has been a resilient operational performance in H1 2025.
The economic backdrop and volatility has continued to confound and delay market recoveries. However, the medium-term outlook remains positive, with structurally undersupplied markets driving strong operational fundamentals and performance. We have 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.