Good afternoon, ladies and gentlemen, and welcome to the Watkin Jones PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish their responses where it is appropriate to do so. Before we begin, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from Watkin Jones PLC. Alex, good afternoon, sir.
Good afternoon, everyone, and thanks so much for giving it your time to join us in presenting our FY24 financial results. So I'll be joined by Simon Jones, our CFO, and it is always tricky doing these presentations online to a larger group. We're not going to run through every slide with a script that we utilized on our initial presentation last week, but we will try to run through and really give you a feel of the key areas of business that we think people should be focusing on and that we are focusing on. Hopefully, that will engender good information for you guys, and likewise, we're very happy to pick up sort of anything that we haven't picked up under Q&A. So I shall look to kickstart that.
So just in terms of an agenda, I'm just going to give a short overview reflecting on, I guess, the key areas of business as I see it, and then going to sort of move and touch on the market overviews, sort of that really the transactional investment market as we see it, as well as the operational strengths of the sectors that we operate in. Simon will then clearly run through the financial results, cash balance sheet, etc., before having a little look at the outlook. We're then going to give a brief update in sort of the key divisional updates and take you through sort of, I guess, the progress we made in the year there before summarising and moving to Q&A. So hopefully, that will cover a good breadth of the business.
Turning first to the overview, I think as a management team, we have to be pleased with the overall operational performance of the business over the last 12 months. The market circumstances have remained challenging. I think you're all aware of the challenges of inflation, the resultant knock-on impacts on interest rates, and the slower-than-hoped-for reduction in those. I think people will be very aware of the gilt rates and the spike in those, and clearly just, I guess, the political uncertainty that we had caused by the general election. With that economic backdrop, I think our financial performance and our operational performance really has been quite strong. It's kind of continued the theme that I talked about last year. I think when I spoke last year, we recognized that we really had to focus on ourselves as a business.
We had to really make sure that we were driving efficiencies within the business. We were really maximizing any opportunities that did present because we couldn't rely on the external markets. And I think it's that real focus on the detail in the business, which has largely contributed to a much-improved Adjusted Operating Profit of GBP 10.6 million. I think also, very importantly, a really strong cash performance for the business. We've outperformed the cash from 2023. I think we've outperformed the cash from our own forecasts with a gross cash of GBP 97 million at year-end and a net position of GBP 83 million, which clearly means that we've also been able to pay down a significant amount of our debt over that 12-month period. I think those are two absolute key pillars in our sort of financial resilience as we see it.
The third of those is our HSBC facility, which we successfully renewed right at the close of the calendar year and gives us an extra two years now with which to look to give us firepower when we're operating in the land markets and looking to acquire new sites to build out our pipeline. Simon will take you through those sort of financial positions. I will say that he has made a material impact on the business since joining. I think his real pedigree and sort of financial elements of the real estate has really added something to the business, and he's too modest to say himself, so I will give him a shout-out because it's made a big difference. As I see it, those key financial pillars, profit, cash, and that debt position really give a good underpin and resilient underpin to the business.
I think if you then look at the operational side, clearly liquidity in the investment markets does remain constrained for all the reasons I just outlined. And what we've tried to focus on in the business is how do we innovate? How do we demonstrate transactional agility? How do we make deals work even when the external markets are challenging? And I think we've absolutely demonstrated that this year. We'd like to have done more transactions, but the transactions we've done have been high quality, and they've been profitable. And I think that's very much borne out by the deal we did in Stratford, which was a sort of joint venture with HGP, who are part of the Lloyds Banking Group, changing structure for us, but one which gave us a significant cash boost to the business.
It also provides us with a secure margin position, and then it also provides us with the opportunity to outperform that margin position when the scheme is delivered and stabilized, and that's something you don't normally get with a forward fund structure, so we believe that the market will correct. There's likely to be some yield shift over the next couple of years, and we're likely to see more rental growth coming through, and if those manifest, then we should be able to generate additional margins from this structure, which in the current market and the current timing, we think is sensible. I think another key facet of the business, which I talked about last year, was our revenue diversification, and we'll come back to sort of the detail of that.
But again, we've been very encouraged by the early starts that we've had on our refresh business and our development partnership business, and they will form a really core part of the business going forward as we look to diversify and create more resilient income streams for the business. But on the more traditional sense, in terms of pipeline growth, again, as a business, we really try to make sure that we're keeping to our viability sort of criteria. We're not there to buy sites which aren't profitable. And it's been challenging buying sites in the last two, two and a half years due to viability constraints. But nevertheless, we are seeing much more opportunity in the land markets at the moment, much more viable land opportunities. We were able to buy two new sites over the course of last year, and we're under offer on a further four.
So we think that's showing good progression, and we're pleased with that progress. And you'll see later when we come on to our overall pipeline, we now have a circa GBP 2 billion or just short of a GBP 2 billion pipeline, which again is part of the end game is to rebuild that pipeline to generate revenues and margins sort of long into the future. Moving to the next slide. Again, I won't dwell too long on this. What we're trying to do is really operate the business across two distinct time horizons. You have the short-term time horizon where undoubtedly market challenges still remain. And again, I won't repeat myself. That real suppression of liquidity has been challenging, but we have demonstrated that we're able to do development transactions, and they are deliverable when driven by the right quality and the right structuring.
I think the medium term is very much where we should focus because we still believe there's very, very strong sector fundamentals and growth opportunities within the sectors we operate in. I still can't think of any other areas of real estate in the U.K. that I'd rather be operating as a business. We feel like there's strong political support. There's continued structural undersupply and suppressed delivery, very importantly. I think these positive fundamentals drive investor demand. And in some ways, it's unbelievable. But over the last two and a half years, which have been tough, investor sentiment has never waned. We still see huge investor sentiment wanting to deploy into residential rents in the U.K. And I think that is good reason for medium-term optimism. Moving to the next slide.
I guess in terms of how we look at the business, how are we trying to evolve the business? How are we trying to position ourselves for growth? Well, the first of those I've touched on already, just pure execution, really making sure that we've got cost controls and efficiencies. We're looking at every area of the business, looking to optimize performance. That's absolutely apparent in our delivery side where we're looking to drive margin across the whole area of that side of the business. And then also in our transactions, how we design them, how we plan them, constantly looking for that outperformance. I think a real key element that we'll be talking about is how do we broaden our revenue base? I think this business is very, very good at generating huge amounts of cash and profitability when markets are very, very liquid.
I think clearly we've hit a liquidity wall, and so what we're trying to do, what we want to create is a much firmer, more visible, granular income base, and we're trying to achieve that through our Refresh refurbishment business, through our development partnership businesses, and also through our existing Fresh operational platform, and we also believe there's opportunity to drive asset management fees, which will be more of a recurring nature in certain structures that we can do with investors, so the key aim here is to create a solid base which will augment the more traditional transactional subject to planning deals that we do, so overall, looking to grow the business. We're not looking to shrink our transactional business. We want to grow that as well, but if we can create a firmer base, we think that will drive resilience into that medium term.
So I think that's really all there is to say on that. I think the one area to pick up on, because we did do a market update in August where we talked about our funding opportunities, and I think that's still very much something that we're interested in looking at. We do believe there's huge opportunity available in the sectors that we operate. We want to find the right ways to access those. So we continue to explore whether there's more interesting development structures that we can do with our investors. Is there something more programmatic that we can look at which might fast-track pipeline coming through, both on our existing pipeline, but also on future pipeline?
So again, we feel like we're doing it from a position of strength of financial resilience, but if there is more innovative structures we can employ, then it makes sense to explore them. So I think that covers the broad headlines for what we're looking at in our business and what's important to us. If we just look at that sort of market review and backdrop, as I said, sort of from an operational basis, the sectors we operate in, which are predominantly the PBSA markets and build-to-rent markets, they still are continuing to perform. I think there's very good rental growth has still come through. We are expecting very much that rental growth to moderate to much more a sort of inflationary-led pattern, but lettings remain high. And we are seeing that growth in customer demand still coming through. I think on student numbers, they're still forecast to grow.
UK domestic students, we still are expecting 2% year-on-year growth in 18-year-olds in the U.K. over the next few years. So we expect that supply-demand balance to absolutely remain, and that will continue driving good occupancy levels and rental growth performance. I think turning then to the investment market, as I said, we all know it's been constrained. Perhaps some people don't realize how constrained it has been. I think if you look at the transaction volume in 2022, it was upwards of GBP 12 billion versus a sort of transaction volume in 2024 of about GBP 6.5 billion. That is a stark sort of drop-off, and transaction volumes in 2024 were significantly below the five-year average. I think importantly, from our point of view, is looking at how we're faring in the markets.
And I think for a good while, we've maintained that as a development business and a construction business and an operational business, we are absolutely holding our own, and we believe that we're outperforming the vast majority of our competitors. And some analysis that we've looked at just on the PBSA student side, we believe we were responsible for about 16% of the volume of PBSA development transactions last year. And that plays against a long-term average for us of about 13% of market share. So we feel that's a good demonstration of us maintaining and actually slightly enhancing our market share, which will bode well as markets recover. I think a question that we've been asked by a lot of our shareholders is on that market recovery, and it is on that investment sort of landscape.
I guess conveniently, Knight Frank did publish one of their investor sentiment surveys the day we announced our results. And that identified circa GBP 45 billion of capital looking to allocate in the U.K. residential sectors over the next five years, which is clearly a significant number. You can't hang your hat on it. It's an investor sentiment survey, but nevertheless, it is a good pointer. And something that is more tangible is when you see new entrants coming into the market. And we are certainly seeing that. And just to pick out a couple, Goldman Sachs, they've historically played quite heavily in U.K. PBSA and then exited. They've now come back in. They did a couple of transactions just before Christmas. And then you've got new funds like the Australian Super .
They've just announced a new U.K. PBSA mandate, and they've already started deploying in their first transaction. That's always a really good line in the sand for us just to look at is capital coming back into the market? We are seeing that alongside, I'd add, some more traditional players. M&G, a core institutional player in the residential for rent sectors, they've just announced a deal they did in December, back end of December, on a forward fund, PBSA in Stratford. There are some emerging signs of capital deploying again. I think the next slide is quite important to explain what's happened in the market. It really comes down to the different types of capital you want to deploy and the changes that we've seen within it. In effect, we group capital in four key buckets.
You've got core, which is the lowest risk, lowest cost of capital, all the way through to your opportunistic, which tends to be the higher risk, but higher return requirements. And typically, your core will be your core institutions, your Legal & General, etc., and your opportunistic is more likely to be private equity-led vehicles, but it does blend across different houses. So I guess the key thing to come out in the last sort of 18 months in the market is, whilst core strategies have stayed relatively level, the deal focus for core strategies has changed. So historically, core strategies would do development funding. They would fund you through a development period. They've retreated from that a little bit just because the economic risk, the wider economic risk was viewed as higher. So they sought more risk-averse deals.
And then the real big movement has been the 20% reduction in core plus strategies. Now, core plus strategies tend to have the right blend of risk approach and cost of capital to really be the engine room for development fundings. And with them exiting the market or reducing their profile, that's been replaced by more opportunistic money. So you can see in the graph beneath that has led to a massive reduction in the Forward Fund market over the last couple of years. It's about 50% off the sort of 10-year average. And that really explains very succinctly what's happened in the market. The reason why we're looking at more innovative structures has been to step towards the capital and create deals that can work and can be profitable still. Moving forward, though, we absolutely believe there will be a pathway back to more traditional forward funding.
We fundamentally believe core money will come back into the development funding arena, and core plus strategies will come back, and what gives us this optimism? Well, firstly, the constraints apply. We are continuing to see demand growing, but whatever metric you want to look at, if you want to look at planning consents or planning applications or starts on sites or units being delivered across both residential and students, they've been reducing, and that lag will take a decent amount of time to correct. It can't correct instantly, so that's going to continue driving that demand. I think investors like scale, and investors want a scale of opportunity, and they will be looking to deploy in scale, and historically, they've gained that scale through forward funds. That's given them the best opportunity to grow their pipelines and grow their models.
Forward funds still represent an attractive way in for investors. They like to buy the newest kit, the most up-to-date with building safety, ESG in the best locations with the most modern sort of soft furnishings, etc., to sort of drive that rental profile. Forward fund allows them to do that, and fundamentally, while people don't know the velocity of interest rate reductions, I think there is a relatively uniform view that interest rates will come down over the course of 2025 and 2026. Gilt rates will come down, and that will very much help drive stability and enable the sort of core and the core plus financial strategies to deploy again, so overall, we do have good positivity about that market recovery.
And if you look back to the GFC, which was probably the large, the biggest, most recent property downturn, if you look at the sectors which came out quickest on the rebound and most successfully, it was the PBSA market. It was the residential market. And if you look at the businesses that came out on top coming out of the GFC, Watkin Jones were absolutely one of those businesses. We mobilized quicker than others, and we were able to generate revenues and margins quicker than others. And that's absolutely the aspiration for Simon and myself and the wider management team is making sure that we are on the front foot as the cycle does correct. So I'm now going to hand over to Simon to give you a high-level overview on the sort of key financial highlights for the business.
Thanks very much, Alex. Just before going through the numbers, I'll just do one on this slide just for a moment. Obviously, as Alex mentioned, this is my first annual results presentation for Watkin Jones. You can see here our Cardiff scheme for Legal & General built right next to Cardiff Central Railway Station. I think it really does show to me the sheer capability of the Watkin Jones business in terms of managing all the implicit risks from site selection, planning, investment, and delivery. You really cannot tell us what impresses as you get off the train at the city station as to the scale and quality of this development. Now, moving on to our financial results, you can see here the trading profit and loss account for 2024 versus 2023.
While our revenue went backwards slightly, I think the key thing I'd like to draw out here is the improvement in our core trading gross profit of 12% to just over GBP 14 million. One of the key transactions that we delivered in the year was the disposal of our scheme in Stratford to a joint venture owned 75% by Housing Growth Partnership, that's a subsidiary of Lloyds Banking Group, and 25% by Watkin Jones. Under accounting standards, this is considered a sale of a subsidiary, and as such, we cannot show the divestment within our operating margin in the financial statements, so here, for comparability, I have shown that profit within core gross trading profit to aid comparability and understanding of what's going on in our numbers. And equally, as it was considered a sale of a subsidiary, the revenue is not shown within revenue.
That's one of the main reasons why revenue is down by that 12%. It accounts for approximately half of that decline in revenue. If it had been a traditional forward fund sale, that would have been shown within revenue. Despite the inflationary environment, we continue to work really hard, not only in terms of operational costs, but overhead costs. And you can see here that continues to bear fruit in terms of an inflationary environment where over the year, inflation was about 3.5%. We can constrain our overheads coming down by GBP 600,000 year- on- year. And this has driven a significant improvement in operating profit to GBP 10.6 million, as Alex mentioned, which is a great result and a true testament to the strength of the business and the resilience and hard work of all the people within Watkin Jones.
If I now break down the gross margin a little bit further, I've illustrated here the forward sold margin, gross margin at the start of the year. That amounts to GBP 24 million and 60% of our outstanding GBP 40 million. The biggest element of our growth during the year was the forward fund of our Gas Lane scheme in Bristol and the divestment of our Stratford site I just mentioned. And these two in total added about another GBP 10 million to our gross margin. Our new business area Refresh, which is effectively refurbishing PBSA and BTR schemes across the U.K., from a standing start had a truly successful first year, delivering a margin of almost GBP 2 million in the year, substantially in excess of budget. And Fresh, our accommodation management business delivered a further contribution of GBP 4 million, bringing the total to the GBP 40 million.
Moving on to our cash flow, we delivered a truly impressive performance in terms of trading cash flow, showing substantial growth to GBP 55 million and an outflow of GBP 31.5 million in the prior year. Now, again, just to aid comparability, I've shown Stratford within the trading cash flow, whereas in the financial statements, it's presented further down the cash flow in investing activities. This, together with our debt more than halving due to the sales of Gas Lane in Stratford, resulted in a year-end cash balance that Alex has already mentioned of GBP 97 million gross or GBP 83 million net. One of the things we also achieved during the year was the extension of our GBP 50 million RCF facility with HSBC, which for a further two years, which is really testament to the strength and the quality of our business with HSBC supporting it for a further two-year period.
And that gives us the flexibility in terms of financing to use to fund growth opportunities over the medium term. If we move on to the balance sheet, we can see net assets have increased to GBP 132.6 million in a year or GBP 0.47 per share, reflecting the profit. And that GBP 0.47 excludes the goodwill elements on the balance sheet. So it's just tangible net assets. Inventory and WIP have reduced, reflecting the sale of the two schemes in the year. And the practical completion of six further schemes and the consequential cash flows that we received have reduced the contract assets again in the year further. Overall, the provision for building safety has fallen by just under GBP 7 million- GBP 48 million as we've completed on time and on budget three schemes and further schemes on plan during the year.
However, we have taken a small incremental provision of GBP 7 million, and this is driven by the completion of investigations on some further properties, including that remedial work is needed, so necessitating provision, together with some additional scope changes to properties already under refurbishment or undergoing works. However, we have been very successful in securing contributions from building owners to these works, and we retained GBP 7.6 million on the balance sheet, which will be recovered as works are undertaken. And further, we're continuing to evaluate recovery of costs from our supply chain, and we've got a team actively engaged in this, giving us confidence we will achieve some cash recovery. So if we move on to the outlook for the future, as Alex has said, market conditions have been challenging, but we are seeing signs of improvement.
And the pace of this is almost certainly going to be continued, driven by the further reduction or the pace of further reduction in interest rates and especially gilt rates. So, that said, there remains a range of outcomes for market conditions over the remainder of the year. During 2024, we've focused on controlling our costs and efficiently managing cash flow to deliver the truly exceptional operational performance I've just mentioned. We've got a good pipeline of size, either in planning or expected to secure planning in the year. These are in the market and will shortly to be marketed. And we've been pleased with the interest so far that these projects have been achieving. That said, investors do remain cautious, with transactions taking longer while the market backdrop remains volatile.
So it's really difficult at this stage to be more definitive on how many transactions we can complete by year-end. What we do expect, though, is our focus on refresh and development partnerships will augment the traditional forward fund business, such that the total transaction pipeline is likely to increase in number, but with a smaller average size. As all these business areas have progressed over the next few months, we'll provide a further update at the half year. I mentioned the good momentum we're getting with refresh, and that's true as well as new business area development partnerships, and that's giving us a medium-term aspiration to grow these areas of the business from their current 20% of revenue to 40%, depending on how and when the traditional market recovers. We see clear positives in this diversification.
It will allow much more predictable business performance over time by counteracting the uneven profile created by the large upfront land profit associated with traditional forward funds. For each of these business areas, we expect margins to be largely in line with the guidance that we've given. And as the existing pipeline is fulfilled and new schemes transacted, we expect these margins will turn to these levels. If we do see a significant shift towards refresh and growing partnerships, that would flow through to the group margin overall. But we believe that visibility and predictability benefits will more than justify that. So in summary, we're looking to create a much more resilient and so visible revenue base. Moving on to the pipeline, you can see from this slide we've got a significant replenishment of the pipeline to a total of just under GBP 2 billion of live opportunities.
We've worked incredibly hard over the year to grow the pipeline. It's especially encouraging to see a number of new assets have entered into the pipeline in the last year. Importantly, just over a quarter of this pipeline has a planning consent, and in the year, we have achieved consent on four sites amounting to about GBP 257 million. These schemes are ready to be divested to deliver revenue and profit. Equally, to have built a GBP 240 million pipeline with development partnerships of sites and legals or forward sold gives us a great basis for our strategy of augmenting our existing business with development partnerships and Refresh.
So in summary, as I said, this is my first presentation of Watkin Jones results, and I'm really pleased to have been able to present to you such a strong set of results with an operating profit of GBP 10.6 million and an outstanding gross year-end cash figure of GBP 97 million. Finally, I've just outlined some of the exciting powers to evolve our business model with Refresh and development partnerships supported by a growing pipeline of traditional opportunities. So I'll just hand back over now to Alex to go through the divisional updates. Thank you.
So yeah, I think quite a lot of this has been covered already as we've gone through the slides and the divisional updates. So I'm not going to labor these slides too long. Clearly, we've talked about the development pipeline growing. That's a key aim for us to provide that sort of longevity of revenues and margins. We've done very well in planning, and we think our land buying, the opportunity is getting better and better there. So that gives us good reason for positivity. I think also, looking at that sort of the more macro, the government policy support for future residential development is very good. We've clearly got a target of 1.5 million additional homes.
I don't think there's anyone in the market who doesn't think that's a challenging figure, but I do prefer to look at that figure optimistically. That is a statement of intent. That is ambition. That is drive, and that's what the sector needs, and for the last 10, 15 years, everyone in the market has complained about the planning situation. Labour are coming in, and the rest of it is good so far. We need to see more detail, but they've made some big landmark decisions, which bode well. They're clearly making a statement of intent to say, "We want to get Britain building again." The M&S on Oxford Street is a prime example of that, where they've ultimately chosen growth and prosperity over heritage and ESG.
They're making a number of clear signals that they want to see an evolution in planning, and they want to see more growth, and we've got to applaud that. I think also, people tend to forget sometimes that actually probably 90% plus of what Watkin Jones do is urban brownfield regeneration, and that sits very, very comfortably alongside Labour's policies wanting to increase that density in cities. If you look at the new planning sort of guidance that's come out, there's some very supportive new wording gone in about the presumption to grant planning consent in urban brownfield locations. We need to see that manifest in detail, but again, highly supportive of what we're trying to do sort of going forward. I think, obviously, the sort of divestment side we've covered and the market and our progress.
Simon's touched on our development partnership strategy, which has so far given us a visible pipeline of nearly GBP 250 million, which is a very promising sort of start. I will come on in more detail. We signed up recently to a development partnership in St Helens, so a great regeneration opportunity delivering 295 affordable homes on a very, very capital-like basis to Watkin Jones. So I'll cover that in the case study in the slide also. So just looking at the case studies, so we have talked about the Stratford JV a little bit, but what I think it really demonstrates is, firstly, our adaptive approach, ability to be agile, look at what capital requires, look at what the market's doing, and then profitably structure a deal.
It gives us a secured level of profit, which was in line with our budget margins, but then it also delivers that upside potential, the ability to lock into a market recovery later driven by rental growth or yield shift, whilst not actually having a material cash flow impact. The cash flow impact on this structure has been very, very similar to our normal forward fund structures. And it also gives the opportunity for operational alignment with a developer, with a contractor, and will also be the end operator. So our own ability to control our own destiny is really important on this deal. And so I think it's a very good structure for us considering the markets.
The next case study is, again, a good illustration of what development partnerships mean. So in this instance, we were able to partner with the Harworth Group, who owned a site up in St Helens, and they'd achieved an outline consent for residential. We stepped in, and we provided all of the detailed planning guidance, detailed design to make sure that the scheme was viable and appropriately structured. So we unlocked that value through achieving that detailed planning consent. And then we were able to deliver the value by being that developer and delivery conduit for Torus Housing Association.
So we will be that deliverer of that scheme. All of that's been achieved without us putting any capital inflows into the deal. I think the maximum we've been out of pocket is probably GBP 30,000 on legal costs, but we've been cash flow positive all the way through the rest of the development. So from a ROCE perspective, it's great for us. And to us, it's delivering a very sensible risk-adjusted margin sort of right back to the 10% mark. But we haven't had to take any exit risk in terms of the investment market. So to us, it's a great risk-adjusted reward for this project. I think I won't touch too much on delivery, but I have seen a couple of questions come through on inflation. So I will pick up on a couple of bits.
To me, our delivery capability is one of our key differentiators in the market. It's one of our key differences to other developers, and it's a real enabler for us to pivot our model. The ability for us to do our refresh, refurbishment model, the ability to do development partnerships, all of those are brought about by us having that in-house construction expertise. I think the other bit that having your in-house construction, it gives you much greater cost control, design control, making sure you're doing the right value engineering, make sure you're maximizing the scheme. You're not reliant on a third-party contractor to do that, and then we've been doing this a long, long time. We've got very, very established supply chains and buying power in the sectors, and we do think that gives us the opportunity to outperform other developers and other contractors.
How does that manifest on an inflation basis? Look, to us, inflation is absolutely moderated. It's down at the sort of 2.5%-3% sort of level. We have become much, much better as a business at analyzing inflation and checking its direction and adjusting our underwrites accordingly. We have a bi-monthly inflation committee, which sits, looks at the forecast, and then adjusts our models to reflect our current thoughts on where inflation is. While I'd say at the moment, we have inflation contingency on all of our projects that are in build, and we are well within those. We feel like we're performing well in the current inflation environment. Turning to Refresh, we've spoken quite a lot about it already. Just to remind people, this in effect is our ability to refurbish, repurpose, reposition existing residential assets.
And that could be work streams, including remedial works, fire safety works. It could be ESG works looking to boost the credentials of a building. Or it could be more on a cosmetic nature, a refurbishment designed to reposition an asset or increase its net operating income. And the reason we like it so much is because it does create a hedge for us in effect. It's much less market liquidity transactionally linked. It's much more granular in its nature. You have projects which might be only GBP 500,000s worth of revenue. We've done a couple of GBP 5 million, and we're in exclusivity on one, which is closer to the GBP 50 million mark, just depending on the scope of work. So we like that granularity, and we like the fact that it's going to be recurring income.
There's going to be assets up and down the country consistently needing some form of repositioning or refurbishing. We are really happy with our progress. We doubled our revenue budgets for 2024, and also we doubled our margin budgets. And we got good validation on the margins that we were assuming. So again, we've looked at achieving 10%-12% margins on these schemes, and that's what we've been able to deliver, which is really encouraging. I think the opportunity, the scale of the opportunity is larger than we thought when we launched this last year. We've identified over 500,000 PBSA beds alone, which we think could have the potential for some form of refresh strategy.
We also think it could spread into more PRS, more private rented sector residential, less build-to-rent because build-to-rent is more modern, but certainly in the block management of PRS, we think there's a real possibility there, and also the university markets. Universities still hold a large number of student accommodation. It tends to be older, and they tend to like to partner with the private sector, and I think that is a real opportunity for us, and that's really sort of resulted in a quite substantial tracked pipeline for us of over GBP 100 million, of which GBP 50 million's worth of revenue we are in exclusive negotiations, so again, really good progress and something we're looking to build on and equip the business to build on. The case study here is just a refresh project, which is very much more on the cosmetic refurbishment side.
This was an asset which was completed in 2016. Fresh operated the building, and they were able to originate a Refresh deal by liaising with their client, who was a private equity investor. They wanted to increase their NOI. They are likely to look for a sale on this asset. They wanted to maximize the potential of the scheme. In doing so, we agreed an accelerated 11-week program to effectively refurbish all of the communal areas, bedrooms, kitchens within the scheme to help them change its position within the market. This generated revenue just short of GBP 5 million over that short time period. Again, was very much in line with that sort of margins that we've been targeting. I think it's a great exemplifying sort of case study of what we can do. This is very capital light.
There's no particular lead in time with planning or site enabling. So again, just a real benefit to the business, I think. Just passing on to Simon, just give a couple of words on Fresh. I've seen a couple of questions on Fresh. So Simon will cover that and then the ESG side. And then we will sort of look to close and go to Q&A.
Thanks, Alex. So last year, Fresh had the same market challenges that we faced in Watkin Jones, less developments coming through the market due to the current economic climate. Despite an overall fall in units because a client had sourced a number of units as part of their strategic plans, we did successfully onboard 2,335 units. And that makes Fresh now the third largest third-party management agent for PBSA in the U.K., holding about 11% market share.
Operationally, we continue to make great improvement in terms of clients and residents' experience. In 2024, our client NPS score rose to + 62, and the residents score up to + 36, which is significantly above the industry average. Although student demand does remain strong, overall occupancy did take a step back, mainly due to one city where we mobilized two new assets. However, many cities continue to perform incredibly well, achieving over 98% occupancy. In our development pipeline, there are over 90,000 beds in six cities with planning, applications, consents, and under construction. Combined with the 6,000 beds we're tracking in 2025 and an additional 9,000 beds until 2028, we're confident that growth is achievable. Indeed, we've already secured about 400 beds this year and we're the preferred bidder on about another 700, progressing towards legal agreement. Just now moving on to ESG.
This year, we've seen excellent progress with our Future Foundations strategy. One of the key ways we can ensure we have a positive impact on the areas in which we develop is through the design of our buildings. As I mentioned on the slide here, all our schemes are designed to BREEAM excellence or HQM four-star, ensuring we continue to provide sustainable homes that improve the local communities. We also continue to make progress in reducing the overall carbon footprint of our operations. This is achieved by, for example, specifying green products, advancements in construction, so kitchen pods, for example. We trialed alternative green fuel for our site machining and proving our recycling targets way beyond our internal metrics. As part of our commitment to having a positive impact on the local environment is our commitment to being a considerate contractor.
We achieved an average score of 42 this year, again, well above target. Our teams continue to work hard to raise significant amounts of money for good causes, totaling over GBP 38,000 for each charitable event. Fresh has deepened their partnership with the British Heart Foundation, who benefited during GBP 116,000 and prevented 44,000 kilos of waste going to landfill. So just handing back over to Alex for some concluding remarks.
Thanks. I think I'll take the concluding remarks right at the end because I'm just conscious that there's been a lot of questions come through and keen that we can answer some of them. So just what I'm going to try and do, there's lots of variations on themes. So I think we've had some on margin and overall margins.
I guess where the business has been historically has been the target was for student accommodation; it was a 20% gross margin, and for built-to-rent, it was a 15% gross margin. Up until sort of the real economic challenges, we were traditionally hitting those numbers. I think it's very important to stress that those figures were outperforming the market by quite a considerable amount. They were outperforming the market by the fact that we're quite a unique business. We can add value at the site buying stage, the planning stage, the design stage, the construction stage, and the operational stage. We look at our returns holistically. Those combined together are enabling us to achieve those sort of high margins. Rival competitors might be down more at the sort of 10%-12% margin level sort of typically.
So nothing can change within the business, which should prevent us from growing the margins back to that level. But I think the one thing that has changed is obviously the interest rate environment. And whilst we absolutely expect interest rates to moderate, we don't expect them to go down to zero again. Now, if we operated in a very pure market, that interest rate impact would then progress into the pricing, which would then progress into build costs and land prices, and you should still be able to sustain the same margin. But I think we're sort of trying to be a bit more cautious than that.
We've taken down that margin expectation on our sort of core deals to that 14%-15% sort of level, which again, on a risk-adjusted basis, we think is absolutely appropriate, is still in excess of the majority of our competitors in the market. We still feel it's achievable due to those key USPs, in particular having that in-house construction where margins tend to be sort of 4%-5%. You can see how we build our margins. That hopefully addresses where we're seeing margins and how they'll manifest sort of going forward. That's certainly what we're seeing on the new assets that we're looking to acquire at the moment. The next question I'll call out is, again, just on the building provision. So perhaps, Simon, if you take this.
Yeah, fine. There's a couple on the sort of building provisions. I'll try and cover more of them in more detail. There's one here talking about a specific building in Wales and the Welsh Safety Pact. A couple of questions about, do we think the provision is adequate in the sort of cash profile? First, we're dealing with the building in Wales. We have signed up to the Welsh Safety Pact in Wales. The building referred to, Victoria Dock, is under investigation from a remediation perspective. Our initial thinking is there's very limited work that needs to be done. But as with all the remediation, we're doing an FRAEW, which is basically an intrusive survey of the external walls to be sure that there's no additional work or further works that will be needed.
That will be done in the next coming months, and any work will then be phased accordingly. In terms of the size of the provision, we have a provision of GBP 48 million, as I mentioned. Guidance from the government has recently been issued suggesting that those works, a reasonable period, which is what it says in the Building Safety Act, would be over the next five years. So we're expecting that GBP 48 million to be spent in cash terms over that period. So sort of GBP 10-ish million per year, GBP 10 million per year. In terms of is the provision adequate, we believe at this point, based on all the information we have, absolutely that provision is adequate for the works that we've identified that need doing.
Seeing many companies in the development sector have increased their provisions substantially, as it's not gone up substantially at this year's end. I don't think anybody can say that there won't be any further provisions. But I think what we can take comfort from is the fact that it's gone up by GBP 7 million, which is significantly an order of magnitude different from where it was the year before, GBP 35 million. I think that covers all the questions on building safety.
Yeah, I think so. I think the next one, which has received a couple of questions, is regarding we obviously made a trading statement update on the 31st of August, which covered a number of factors. But I think one area was wording regarding sort of longer-term funding. And there's a couple of questions here sort of asking about the uncertainty of the wording and arising from that statement and whether we are considering to do some form of rights issue. And firstly, I can say it's not in our mind at all doing a rights issue.
I think what we were intending to do, if you look at the environment that we were in in August last year, you would say the market just has continued to move right in terms of its recovery driven by the stubborn inflation, interest rates, etc., etc. And what we were saying is, look, we think there is significant opportunity in the markets that we operate. We want to be able to take advantage of them quicker and grow revenues and margins back quicker. And we want to explore whether there's sort of development funding options available to us, which might be a bit more innovative than we've done before, might be more programmatic, might involve doing sort of something programmatic with one particular investor just to explore whether there's something which will be accretive and catalyze the business's recovery. That was very much the intent behind that statement.
If you look at where we sit now, not a lot's changed from a market perspective. It's still moved right. There's still challenges there. We still think the medium outlook is very, very good. I guess what you'd say has changed within Watkin Jones. We're probably more financially resilient in the sense that we've done well on our cash management, as Simon said. We've renewed our facility, which was running down back in August. We've now got an additional two years. So I think that financial resilience is very much there. But equally, we still think there is a massive opportunity in the market, and we want to make sure that we're getting the right balance between being risk-off in terms of our cash and making sure that we protect the business and keep that financial resilience, but also take advantage of what we see ahead of us.
And so we'll continue to have conversations with investors. We did make huge steps in Q4 last year. It wasn't the right environment. But we are having interesting conversations with key clients that we weren't with previously or other investors in real estate where we are looking at whether there's something interesting. And I do think we do this from a position where if it's accretive, great, we'll look at it more. If it's not, then we won't because we fundamentally believe that we can make transactions work, being more innovative on a single transaction basis. And we've got a lot of optimism about our diversification strategies going forward and a market recovery. So hopefully that covers all of those questions relating to that.
There's a question about transaction structures. Do you want to pick that up, or I'll just talk a little bit about structure? How is this a change?
Okay. So the question says, why was there such a significant change in the transaction structures in the market? Does this change the economics of the business model, or is it pretty much the same as for funding? Yeah, look, I mean, hopefully I've answered that to a large extent, sort of say, look, the changes in transaction structures have been driven by the interest rate environment and the change in capital strategies. And it's more about trying to flex the model to protect an investor's downside position, but also make sure that there's enough margin for us to be able to trade profitably on a sort of base case scenario. And that's what we've done with Stratford. And Simon, if there's any other sort of key areas?
There was another question about Stratford and how it's accountable. I mentioned the difference there from a traditional forward fund. So we do reflect the revenue for Stratford as we build it out within our P&L. So that's coming through the P&L from the date of transaction in July until PC in 2026. We do hold back, given it's a 75/25 JV, we do hold back 25% of the build margin. So that will be reflected as a profit once the scheme PC's is sold in 2026. Just in terms of a little bit of a comparison for a forward fund and joint venture, with a forward fund, typically you get a bullet payment on PC. With the JV structure in Stratford, we don't as such have a bullet.
But at that point that we exit the JV, and we can recognize that 25% build margin that's been deferred, we would get an unsecured cash flow, which we would recognize at that point in time. So the cash flow profiles aren't dissimilar, but they're just slightly different structures. So we think of the joint venture model as an evolution and an ability for us to share upside compared to the forward fund model.
Yeah. Okay.
There's also just a couple of questions about cash, which I'll just quickly cover. And dividend policy as well. Yeah. So just covering cash, obviously, I mentioned the reasons for strong cash. We are looking with HSBC to ensure that we get the maximum return on that cash. Our Treasury policy does not allow us to invest as suggested in this question, money markets or short-term yields. It's just entirely in cash deposits. But we're getting the best rate we can from HSBC on that to ensure that we maximize our return. In terms of dividends, our view on dividends is that we would expect to return to dividends in the future, but we need first to see some visibility of the market recovering and some certainty of income and profitability going forward.
As to quite the timeline of that, I think that's going to depend on market recovery, which Alex has touched on.
Just trying to clarify, I've had a couple of questions from David. We're not looking at any rights issues. We're not looking to sell equity down the front. The funding strategies we are looking at are real estate funding strategies with real estate investors. So hopefully that clarifies your question. We're not looking at a rights issue position. That's not the intention behind when we're talking about funding options. So hopefully that clarifies it because you've put a couple of questions just seeking to clarify. So hopefully that does. We've got a couple of minutes left. I'm just trying to see. Impact of employees, national insurance.
So, I mean, obviously, every business in the U.K. is very much afraid of the news at the moment. Every business is affected by national insurance. Given the nature of our business, it's probably not material for us. As material for us is other businesses. Our expectation is it's in the low hundreds of thousands of pounds in this financial year. So we will look, as other businesses are, to try and absorb that through efficiencies and obviously try to mitigate the impact as far as we can.
Okay. What is the maximum capacity for the Refresh business, and how much is this construction capacity coming from the build-to-rent PBSA? So, look, I think the way we look at this at the moment, we've got an existing sort of resource within our business, which is focused on refurbishment and remedial works of our own pipeline and the provision we've talked about. And at the moment, that is comfortably absorbing the Refresh works we have on. Where we have boosted overhead is in the business origination side of the Refresh business, where we may add a couple more heads because we really want to capture this market. But structurally, and from a sort of core overhead point of view, we don't feel like we need to bolt on many more heads.
What we would bolt on is, as the work increases, there'll be project-costed roles which we can bolt on. So we don't see it cannibalizing our existing PBSA or build-to-rent new build function. We see this as something separate, but one that we can leverage the expertise from the new build and also the buying power from the new build.
There's also one here about the massive unsold PBSA inventories that could possibly. So, I mean, I mentioned one of the sites we've got is under offer. So those sites are out in the market. So depending on market conditions, we're optimistic that those units will get funded over the next coming months.
Okay. I think we're pretty much out of time. Just a chance for one more. What are the yields on institutional investors looking for from PBSA build-to-rent? Surely, with risk-free bond prices higher, this will affect the interest in your proposition. Yeah, look, I mean, that's exactly what we've been saying. That has had an impact. Now, look, investors, it's not binary.
They don't just look at, "I've got a 10-year gilt at whatever % versus my net initial yield on a build-to-rent product," because clearly, on a build-to-rent product, on top of that, you'll get rental growth. And investors do look beyond the sort of short-term. They do look at what those values might be in the future. And they'll also look at where yield compression might come in and what their exit yield is. So I don't think it's binary. Clearly, it'd be helpful if gilt rates come down. That's no doubt. But people have been transacting in these sectors across the last two and a half years. It's not as though people aren't deploying. It's just been slower. So we do believe it will equalize, and momentum will pick up, and that will drive competitive bidding. The question is when, not if, to us.
Okay. I think we're pretty much out of time. So hopefully, look, hopefully, we've given you a good encapsulation of the business. We're very proud of this business. We've got a huge drive to get it back to where we believe it should be and grow it further. I think we've got the right attention to detail. I think we've got the right strategies. I think we've got the right sectors. And I think the market will come back to us. And we are doing everything we can to position ourselves so we can be the beneficiaries of that market upturn. And yeah, I'll hand over to the moderators of the session and say thank you very much to all of you for your time.
Perfect. Alex, Simon, thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session? You'll now be automatically redirected for the opportunity to provide your feedback in order the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Watkin Jones PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.