A very warm welcome to the preliminary results for Watkin Jones for the FY2022. For those of you who don't know me, my name is Richard Simpson, I'm the Chief Executive, and I will be joined in delivering our results by Sarah Sergeant, our Chief Financial Officer, and for the first time, Alex Pease, our Chief Investment Officer, who joined the board late last year, having spent 12 years with us, and he will cover the development and market sections. If we turn to the agenda, I will start by doing a summary of the key highlights from FY2022, and also the key themes that we are seeing currently for FY2023. I'll also pick up progress with Future Foundations, our ESG strategy, and a section on how I might leverage our strengths going forward.
Sarah will cover the financials, the outlook, and the update on Fresh, which is our property management business. As I've just mentioned, Alex, will cover the development and market review sections. We'll then open up, as you'd expect, to Q&A, and I anticipate the presentation taking circa 40 minutes. A little bit longer than usual. There's a bit more detail, which I think is appropriate to sort of walk you through. Therefore, we'll have about 20 minutes for questions at the end. If I turn to FY2022 and the outlook summary. I think overall, FY2022 presented a series of challenges, which the business performed well against for the majority of the year.
This shows a number of things, ranging from the strength and resilience of the ready-for-rent living sector, as well as the underlying operational capability of the business too. It bodes well for any future further macro challenges, as well as reinforces the long-term opportunities for us in this sector as the forward sale market normalizes. In reviewing the year, we can break it down into three key areas. I think firstly, Watkin Jones' end-to-end development capability. I think secondly, tenant demand in the residential-for-rent market. Finally, investor demand for forward funds. Starting with the first, under the end-to-end performance. Land acquisitions, securing planning permissions performed well all year, and this is a positive. Clearly, it's a special positive as we start turning to the lucrative land buying phase of the cycle and turning those into consented pipeline.
Development faced into supply chain availability and build cost inflation headwinds, but overall navigated them well in delivering eight projects in year and securing build cost for the next wave of projects, which were forward sold in line with adjusted budgets. Turning to the second point, tenant demand. Tenant demand in the residential-for-rent sector is comfortably the strongest of all occupier demand across all sectors of U.K. real estate. This clearly, therefore, translated into high occupancy and strong rental growth throughout the year. This is widely forecast to be sustained into the next period, and these strong property returns generated are expected to support a normalization of the forward fund market. The final theme, investor demand. Investor demand for our forward funds was high for the majority of the year, driven by the attractive fundamentals.
Asset prices increased, offsetting the build cost inflation and protecting margins until deep into our Q4. Over this period, we sold a record number of forward sales, circa GBP 900 million, which accounted for 20% of all residential forward sales in the U.K. and actually 8% of all U.K. institutional residential transactions in the year. Through August and into September, increasing borrowing costs led to preferred bidders reducing their offers, thereby impacting margins. The mini budget in September materially disrupted the forward fund market along with quite a few other things, impacting our last two planned sales where the preferred bidders withdrew at very advanced stages, which otherwise would have delivered our financial targets for FY2022. Overall, our adjusted operating profit for the year of circa GBP 55 million demonstrates our resilience.
Just turning to the outlook and just bringing you up to date with where we are at the moment. Underlying robust operational performance continues, especially in securing planning permissions and managing our development pipeline. Tenant demand for residential-for-rent remains heightened, and rental growth forecasts remain at strong levels throughout the U.K. This generates attractive property returns even relative to increasing borrowing costs. Investors are alive to this, and we're seeing early signs of a normalization in the forward fund market, especially with the easing of borrowing costs recently, where investors are engaging with us on our consented pipeline. We have circa GBP 0.7 billion of contractually secured forward sales revenue to come, which we will deliver over the next few years, giving good visibility of revenue and profits. Alongside this, we have a consented pipeline of GBP 0.8 billion, and that is development value to sell.
We expect forward sales this year to be financial year H2 weighted. The anticipated blend, blended gross margin of both our forward sold pipeline and our consented pipeline is circa 12%-14%. We expect build cost inflation to moderate this year and for supply chain availability to improve. We're also vigilant for any signs of distress with our construction partners and are able to take action to ensure our projects are delivered successfully. We started seeing attractive land buying opportunities which restores margin to traditional levels. We will be on the front foot to secure land in city and town center locations. For the moment, we will focus our attention on the higher margin purpose-built student accommodation, PBSA, and build to rent, BTR, multi-family parts of our business, slowing our plans for expansion into single-family affordable housing.
Overall, whilst we maintain our cautious approach in the short term, there are many reasons for optimism as we look forward. I'm now gonna hand over to Sarah, who will cover FY2022 results and outlook.
I'm pleased to report that our overall results are in line with the October trading update. We've reported revenue of GBP 407 million, which reflects 11 forward sales in the year, as well as continued works across the portfolio. This does represent a small 5% decline from the prior year, mainly due to the two forward sales which were deferred from September. Our gross profit was GBP 67.6 million, which is at a gross margin of 16.6% compared to the 19.7% in the prior year. This is mainly due to the impact of land sales in the period from our new forward sales, where we take these to revenue at a lower margin than the following development works.
As reported at the interim results, we've also disposed of two of our lease student assets and have recognized a profit of GBP 18.3 million in relation to these, which has been included in underlying trading. Operating profit for the period at GBP 54.7 million, again, a small decline from the prior year, mainly due to the impact of the deferred sales. We've reported EPS at GBP 0.148, with a small impact from a prior year tax adjustment. This is in relation to prior year claims for Land Remediation Relief. In line with our policy of two times cover, we're pleased to declare a final dividend of GBP 0.045, making a four-year dividend of GBP 0.074.
It's key to note that these results exclude the exceptional charge of GBP 30.44 million in relation to remedial works under the Building Safety Act. This represents a small increase from the amount that we flagged at the half year, mainly due to the reassessment of the time over which the provision will be spent. Now moving on to the balance sheet. Key highlights here, very strong growth and net cash position at the year-end of GBP 111 million and GBP 83 million, respectively. A reduction in the lease assets and the corresponding lease liabilities position due to the disposal of the two properties. Inventory and work in progress has increased slightly from the prior year-end as we bought land onto our balance sheet sites in Stratford, Birmingham and Bristol, and have also started development works on our excellent student asset in Bedminster, Bristol.
The provision balance of GBP 33 million includes the new cladding provision of GBP 30 million, combined with GBP 3 million from the original provision that we took in FY2020. From a cash perspective, we've had an operating cash outflow this year compared to an inflow last year, predominantly due to the investment into land in our balance sheet. Borrowings have also increased as a result where we have drawn down on the RCF facility to finance these land acquisitions. With gross cash of GBP 111 million and the headroom we have on our RCF and our overdraft facility, we have available liquidity of just under GBP 200 million, and this is after the GBP 22 million we've paid out in dividends during the year. I will now look at the segmental breakdown of revenue, these two pie charts show the split of revenue.
You can really see the growing contribution from BTR with a 38% increase from the prior year. We forward sold five BTR sites in the year in Lewisham, Birmingham, Leatherhead, Bath and Cardiff. The latter site was a development wrap where we don't take any interest in the land and therefore come through at a lower margin. PBSA has contributed revenue of GBP 180 million, which is down on the prior year, predominantly due to the deferral of the significant scheme from September, which would have had a in the year impact of approximately GBP 40 million. We forward sold five PBSA schemes in the year, including three in a portfolio which we announced at the half year.
For our affordable-led homes business, we recognized revenue of GBP 14.5 million, which really reflects the transition of the business from the legacy house building business to affordable homes and some small build delays in the site at Preston, albeit a number of units have subsequently completed to the year-end. Fresh, our accommodation management business, recorded record revenues of GBP 9 million as occupancy continued to significantly increase following the pandemic. Finally in the year, we recognized GBP 11 million of commercial income in relation to a development at Stratford. This slide shows a split of gross profit. The BTR margin was 17.2%, impacted by the proportion of land sales. Looking forward, we continue to target in the long to medium term overall growth margin of 15%. For PBSA, this was 15%, again, reflecting the impact of the land sales.
Both sectors did experience some small margin erosion in the forward sales we completed in the second half of 2022 as increased purchasing costs, increased interest costs caused purchasers to look for price reductions. Given the trading update and the profit warning that we issued in early October, I thought it was important to show the movement from the position that we'd forecasted at the half year. You may remember the slide from the half year presentation, which set out the building blocks to delivery of our full-year profit in line with expectations. At the half year, we had confidence in achieving this full-year position, which is shown by the gray block in the middle of the slide. Our full-year outcome was impacted by the two forward sales which are delayed from September.
You can see the profit impact here from the student scheme in Bristol and also the BTR scheme in Belfast. We also experienced some small margin pressure on the last forward sales we did complete. This position was partially offset by the upside from the disposal of the two leased assets to bring us to the GBP 55 million operating profit we've reported today. I'm now gonna give some guidance on FY2023 outlook and some more color on our excellent consented pipeline that Richard has talked about. We're guiding to circa GBP 550 million revenue for FY2023. This slide sets out the building blocks to get to this position. It is important to note the key assumption underpinning this is that the forward sale market normalizes in Q2 of calendar year 2023.
This will obviously have an impact on our H1, H2 weighting for this financial year, and we expect H1 revenue and profit to be below the performance of H1 22. Looking at these blocks, we have circa GBP 300 million of revenue which is forward sold, contractually secured, and being built out at the moment, and I have included the Fresh revenue here. The next GBP 150 million revenue comes from our excellent consented pipeline. More of this in a moment. These schemes, which have planning and are being marketed, they are oven-ready. Finally, we have GBP 100 million from a small number of sites which are still working their way through the planning process. With the traction we have gained so far in this financial year, we're very confident in moving these forward.
The table on the bottom shows the operating profit contribution from each of these blocks. It's key to note that this forecast assumes prudent investment valuations, where we've assumed price reductions of circa 5% across the portfolio, in line with where we're seeing the market currently. Our cash flow will follow the normal annual profile, which is a peak at year-end position, and then a continued net use of cash for tax, land, overheads, and dividends before recovering to a strong position at the following year-end. We think we'll have a low point slightly later than usual. Finally, as Richard's talked about, we made a decision to slow down our affordable homes business while we focus on the higher margin PBSA and BTR sectors.
As I promised, just a bit more color on some of the quality assets that we have in our consented pipeline, which is GBP 0.8 billion in total in revenue. I'm not gonna go through in detail. You can see the CGIs there, and you obviously have the info in your pack, but we'll focus on a couple. In Stratford, East London, we've got a fantastic student scheme of just under 400 beds. This area has evolved significantly since the Olympics and is now very well established as a university quarter. Scheme is close to transport links and all the other amenities that the area has to offer. It's rare to get a consent for such a development in this location. We're in talks with the university about a lease agreement.
In Selly Oak, Birmingham, again, we have a very attractive PBSA scheme of 500 beds. There's lots of student accommodation in the center of Birmingham, but very little in Selly Oak, where the University of Birmingham is actually located. This scheme is directly opposite the university. Of course, we are addressing all aspects of our business. In September and October, with an eye on where the market was going to go, we carried out a review of our overhead cost base to make sure we were right-sized going into this particular cycle and to ensure we were operating as efficiently as possible. We commenced and quickly completed a redundancy consultation process, which removed about 40 roles from the business. That's about 10% of the Watkin Jones headcount, excluding Fresh.
This cost us approximately GBP 1 million and will give us annualized savings of GBP 3 million-GBP 4 million. That's a very efficient payback of 3-4 months. Looking forward, we've also looked at our growth margin forecast for the next five years. We're guiding our growth margin over the next three years to be between 12% and 14%, with a slightly higher 14% in FY2023, and then dropping as the sites which were forward sold in FY2021 and the first half of last year are built and drop out, i.e., the sites that we sold before the current pricing correction. There are a number of factors behind the overall 12% to 14%. The first is the impact of price reduction on sites that we forward sold in the second half of last year, where we saw price drips of circa 5%.
The second is the prudent valuations that we're looking at on the portfolio I've just taken you through, and also the schemes that are working through planning. Also the impact of having land at historical prices, i.e., either on the balance sheet or under option with these. As we're working through that land, we will obviously recover the margin. Finally, the impact of development wrap projects, e.g., Cardiff, which I referred to earlier. However, as we look forward to FY2026, we're confident in the recovery of our blended target margin to over 15% as we bring our unsecured pipeline through. Alex will give some more color as to how the different elements of our development journey will enable this. In summary, we'll take advantage of softness in land prices and build cost deflation to achieve this.
Indeed, we may see opportunity to exceed our target margin with these inputs. Finally, just a reminder of the overall business, overall resilience of this business. We have great visibility of secured revenue, an overall secured pipeline of GBP 2 billion, GBP 700 million of that is forward sold, contractually secure, and will come through over the next 2-3 years. The pipeline is a prudent assessment value. We have removed some unprofitable elements, predominantly in BTR. We're a capital-light business and do not carry any significant devaluation risk on our balance sheet. The land that I was referring to earlier is all stacked at 25% margin, so there's significant headroom for any downside. Just as a reminder, it is not our policy to start development on site until we have a forward sale funding agreement in place.
We do currently have one exception to this. This is the Bedminster site in Bristol, really where due to the quality of the asset and the agreement we have with the university, we made the exceptional decision to start works at the end of the year. Finally, strong liquidity position with the net and gross cash position that you've seen, more than GBP 70 million on our RCF headroom. With that, I'm now going to hand over to Alex.
Thank you, Sarah. Good morning all. As Sarah alluded to, we have good confidence on rebuilding margin performance over the next two years through our asset management and business capabilities and the wider market dynamics that we are seeing. One of the key characteristics of this business is its ability to drive incremental growth at each stage of the development cycle. I'm going to briefly run through the key components and market factors behind this and the active asset management and utilize to drive these returns. Key elements will include land, planning, the rental and operational elements of our business, build costs, and also other value adds, negotiating key leases and nomination agreements to support our underlying valuations. Inevitably, the conversation does start with land.
Land in the U.K. for both greenfield and brownfield urban sites has been characterized by continuous growth since the losses experienced in the GFC. Currently, however, we are seeing increased pressure on landowners and consequently pricing as increased debt costs, build costs, and protracted planning environment are impacting timing and values. We're also seeing increased availability of land as struggling commercial property sectors remain less active in the urban areas where Watkin Jones are focused. This availability of land was also echoed during the COVID pandemic, where competition was much reduced, and as a result, Watkin Jones were able to achieve a material uptick in the volume of sites that we secured.
We see that there are opportunities to have proactive discussions with our existing transactional counterparts, but more importantly, we see the next phase of the cycle as a significant buying opportunity and the potential to meaningfully grow the pipeline, but also enhance our development margins. Our acquisition teams are already identifying a good volume of new projects coming through the cycle. Illustratively, a reduction in land price by circa 10% on a typical project could potentially improve margins by 1%-2% on an overall basis. We move through to the planning stage of development. The planning backdrop in the U.K. has remained highly challenged, with less consents being achieved and time frames being highly protracted. Local authority planning teams remain vastly underfunded, and inertia at national government level is creating a lack of clarity and focus.
This is resulting in a number of local plans not coming through, which is again stalling the system. As such, planning remains a key barrier to entry in U.K. residential for rent. Pleasingly, Watkin Jones has been able to to an extent, to buck this trend. We've utilized our considerable track record for delivery to outperform the market in recent months, delivering a series of significant planning consents, which you can see below. As mentioned previously, this has created an unprecedented and highly attractive GBP 800 million consented pipeline, which we do believe can significantly catalyze business performance going forward. Key asset management strategies revolving around planning orientate around achieving higher densities on our schemes.
This outperformance has been demonstrated recently on two of our schemes in Guildford and Bristol. Where an achievement of a circuit increase 10% of density has resulted in a potential increase in margin by 1%-2% across both assets. Build cost. Clearly, build cost inflation has been very well trailed through 2022, and that's across all property sectors. This has been driven by strong construction demand versus significant supply challenges associated with Brexit and Ukraine, amongst other things. However, lead indicators are beginning to suggest that we are through the worst, with most forecasts projecting pronounced drops in inflation over the coming year. Importantly, we are beginning to see deflation in some material costs. We are also seeing a material slowdown in new construction starts, which again, is taking some of the heat out of this market.
We believe there may be opportunities for outperformance in build costs over the next couple of years, and have now launched specialist teams in both central procurement and also product design and specification and standardization to ensure that we are maximizing this opportunity. Again, indicatively, on a standard scheme, a 3% reduction in material build costs would result in a positive margin impact of +1%. This is well trailed again, but from an investment perspective, we've clearly seen a squeeze on investment market liquidity from the end of Q3 2022. We thought this graph would be useful to illustrate just why the liquidity was hit so acutely and suddenly off the back of the mini budget by Liz Truss.
What the graph shows is the consistent spread between gilt and residential property yields from 2011 onwards, offering a 3%-4% delta in returns between the property yield and the perceived risk-free rate or gilt rate. The mini budget and events leading up to it essentially caused a sudden and abrupt increase in 10-year gilts and five year swap debt rates. This effectively eroding the delta in returns and causing an immediate impact on liquidity. Referring back to Sarah's slides earlier, this echoes the impact and timings on our FY2022 performance as two deals failed to convert right in the turmoil of the mini budget. However, you know, there is some real positivity coming out of this, and we do have real confidence that investor demand will return in force, and the early signs of this are already apparent.
What this graph looks to highlight is why investor interest in residential for rent remains high, driven by the sector's operational performance. Effectively, what we're looking at here is the net yields across build to rent and PBSA, which is the red line that you can see. And then adding to that is the forecasted blended rental growth forecast for both the sectors, and that's the light blue line. That then shows the likely total property returns for the asset class, and that's the dark blue line. This highlights that a highly favorable delta on returns remains between gilt rates and total property returns.
As an example, in 2023, of a forecast net yield of 5% and average rental growth of 7%, this equates to a total property return of 12%, and this is in comparison to a stable gilt rate of 3.55%. This trait is particularly pronounced in U.K. residential for rent, which has some relatively unique ability to capture granular income and rental returns on an annualized basis, and is a strong driver of the investment case for resi for rent. Moving to the market review. You know, what is driving this operational and rental performance? The PBSA sector remains underpinned by robust supply and demand imbalances. Increasing applications and acceptances to university demonstrated by an 8% year-on-year increase, with continued strong international demand.
Very positively, we are also seeing an expanding domestic market with very substantial growth in the 18-year-olds going from 2020- 2030, as illustrated in the graph above. This is coupled with a more constrained supply chain coming through as planning and viability has impacted new developments coming to the market. This is driving rental growth and occupational demand and leaving material bed space shortfalls in key cities. I think what's really pleasing to us is the synchronicity in the supply shortfalls with the Watkin Jones pipeline. That really, we believe, underpins our approach to our acquisition and site selection. Build to rent shows a similarly very robust operational performance. We've seen exceptional rental growth coming through and occupancy in 2022. Positively, these are forecast to continue into future years.
What is particularly noticeable is the emerging differential between build to rent and other residential rental classes. This is something we've been talking about for a while, and as more stock is coming online, I think the amenity, service, quality, and the approach identified with build to rent is beginning to differentiate, and you're seeing that coming through in rental growth performance. From an investment perspective, the investment case remains highly compelling, and this is being borne out in the continued migration of investor capital allocations into U.K. residential for rent from other residential asset classes. FY2022 marked very substantial investment volumes across PBSA and build to rent, and positively, Watkin Jones were major contributors with circa 8% of all UK residential transactions, investment transactions, and 20% of the forward funding market.
I think that's really underpinned by our track record and reputation working with institutions, and we are able to unlock these deals ahead of a lot of our competitors.
More importantly, for FY23, there clearly remains strong investor capital demand. We are seeing some lead indicators already of green shoots emerging for a more normalized liquidity in the market. You'll see below, we have identified a range of deals which do close in sort of late 2022, mainly in December, across both build-to-rent and PBSA, also across both funding deals and existing assets. I think that's a real positive sign. In Q4, we had a series of discussions with a whole range of our institutional investment partners, who are all indicating continued support for the sector and an appetite to expand into it, and are keen is to reactivate investment plans and allocations in Q1 2023. Positively, our early interactions with them in January has sort of borne this out. There's been a consistent with this messaging.
The institutions are being proactive to review and access details of our pipeline. Currently we have circa 25 parties under NDAs reviewing parts of our pipeline. I think in summary, we believe there are clear proactive asset management steps and strategies that we can employ to incrementally support and rebuild margin performance, reinforced by the highly supportive market metrics and performance being demonstrated across PBSA and build-to-rent. Now I'm gonna hand over to Sarah to talk about Fresh.
I'm just going to share some highlights of Fresh, our accommodation management business. Fresh manages over 23,000 beds, about over 60 properties for a significant number of clients. These are both schemes which have been built by WJ in the past and also by third parties. It has continued to grow in all asset backs of its business. It recorded record revenue of GBP 9 million and retention value of 98%, so very, very high. Also to win awards across the board from clients and residents alike, and there's just some few of the examples of those on the slide. We made incremental investment in the business with a new leadership team, and then completed the implementation of Yardi, which is the back office front-of-house system for both clients and for residents alike.
Looking forward, we see great growth opportunities for Fresh, both in PBSA with new schemes coming online and the opportunity to take over from other providers. Also with BTR, where they have the first BTR scheme in Sheffield, and it'll be the first co-living scheme in Exeter. In summary, Fresh continues to be a very strong part of our portfolio and gives us the end-to-end capability that we really value as a business. Thank you. Adam.
Thank you, Sarah. Just turning to Future Foundations, our ESG program. I think overall I'd characterize it as good progress made in the year. It certainly keeps us on track for our multi-year goals, but with the caveat that it's still quite early days with us in terms of getting to grips with our sort of ESG strategy, et cetera. I think a key area of progress for us to make in our current financial year is approval of Science-Based Targets and the adoption of TCFD reporting, which amongst many things, will help us progress our Scope 3 carbon emissions program and targets.
I think otherwise in FY2022, under planet, Scope 1 and 2 emissions showed good progress, as did waste diverted to landfill, and the use of air source heat pumps really well established into our development program, which is great progress. Under places, our Net Promoter Score from both our tenants as well as institutional clients was strong. Under people, health and safety stats relative to the industry average were good, as was employee engagement throughout the year. Gender diversity is tracking well too, but again, a caveat is we recognize there's more that we need to do within the construction sector specifically, and certainly within the construction part of our business. Leveraging our strengths, you'll have seen a note on this in the RNS this morning.
As a board, we've started to evaluate ways in which we could smooth our financial performance from the impacts of the real estate capital market volatility for our forward fund disposals, which we've experienced recently and also saw during the first part of the COVID pandemic. We believe our operational capability and sector exposure are highly attractive long-term assets. However, this volatility has impacted short-term performance. Forward fund development will remain core, and within this, we believe there is an opportunity to diversify our revenue base and reduce exposure to the funding market volatility in a number of possible ways. I think firstly, alternative development funding structures, including development wraps, partnerships and specialist vehicles. I think secondly, minority co-investment into completed schemes which could generate long-term asset income and value growth.
Thirdly, enhanced land acquisition strategy, which would enable the group to capitalize on periods of strong market demand. We believe that this could improve Watkin Jones' investment proposition in the following ways. Namely, wider revenue base supporting organic earnings growth with reduced volatility, greater asset backing to the business whilst maintaining high ROCE. Finally, a strong balance sheet and cash generation, which will clearly support both dividends and ongoing investment. As already mentioned, we're giving early consideration to this, and we will update further in due course. Summary. Clearly, we were impacted by the deteriorating economic outlook and the visibility of higher interest rates from Q4, especially so as a result of the mini budget.
The underlying sector of residential for rent is performing well, and our operational performance is both making very good progress and equally resilient into some of these headwinds. The forward fund market is expected to recover and normalize over the course of this year, and there are already early signs of this beginning to happen. With our consented pipeline, the GBP 0.8 billion, which we've been talking about, we're very well placed to capitalize on this and be on the front foot as the forward sale market normalizes, and we very much expect that to be H2-weighted activity. We will also look to capitalize on the attractive land buying opportunities, which are already beginning to present themselves.
We know that that for us is our principle, sort of lead indicator in terms of future revenue and profit growth, as well as quite specifically here in terms of margin recovery over the next few years. That is the that brings us the end of the formal part of this morning's presentation. We'll now turn to Q&A. We are recording this through an audio cast, if you have a question, please raise your hand. A roving mic will find its way to you. Could you please state your name and your company before raising your question? That'd be great. Thank you.
Thank you. Good morning. Kieran Lee from Berenberg. Just a couple from me, if you don't mind. You mentioned some signs that the forward funding market is beginning to normalize. Are you seeing sort of that return in demand coming from some of your more traditional counterparties, or is it completely new investors? How are they sort of thinking about things there? Secondly, you talked about the GBP 0.8 billion of secured pipeline and assets you can keep going with. If we think that we could have a normalization in the near future with the reduction in sort of central cost and headcount, what's your capacity to actually capitalize and grow into that demand?
Brilliant. I think in terms of, new partners for forward funding, I think I'd characterize it as, all of our existing partners that we've worked with over the last few years are still firmly, very interested in the space. As we all know, and we've spoken about a little bit here, just the underlying performance in terms of tenant demand is so strong, it's almost impossible for investors to, sort of turn away from the living sector at this stage. Therefore, we are talking to all of those in terms of, our consented pipeline and trying to understand what their investment horizons are looking like, what sort of assets and what asset mix they're after.
At the same time, kinda end of cycle type events do bring in new capital, new sources of capital, who were almost waiting for a correction event such as this. Yes, there are absolutely new sources of capital that we've been aware of, that we have been talking to, but just wanted to sit on the sidelines until there was a correction event. We are now talking to a sort of broader and deeper range of investors than perhaps we've had access to previously. In terms of capacity into secured partner, Alex Pease, do you want to comment on that one?
I mean, I think we've clearly seen the horizon coming before us when we were going through the process and, you know, we've kept, in particular, the divestment teams, the guys involved in those key transactions almost entirely whole. You know, recognizing the fact that we need that resource in order to capitalize in sort of the latter half of this financial year. We remain confident we've got the resource there to underwrite these deals.
Yeah. As I say, in terms of the build-out of those teams, once we've completed a forward sale, in our restructuring process, it had very little impact actually on the delivery team. That's remained whole and obviously the capacity to build out. Second is that opportunity, which we do look at on a time-to-time basis, is to use a main contractor rather than our in-house team.
Morning. Glynis Johnson, Jefferies. I was hoping to go a bit later 'cause I have lots of questions. I was hoping others might ask them, I'm just gonna roll with it. The first one, when does new land benefit? Will you continue to buy land that doesn't have planning? Will you change and look at sites that might already have planning that you could build out? You know, is it a 25 or is it a 26 sort of benefit that really does come through? Second of all, in terms of the pipeline in your appendix, the revenue, what kind of cushion have you built into that? What kind of buffers in terms of pricing, margin, also pricing or timing of delivery? You talked about signs of distress in construction partners that you're looking for. Have you experienced that?
Have you had a main contractor effectively disappear? What's sort of, you know, driving that? Just in terms of your working capital, there's obviously a lot of moving parts. Your build out isn't gonna be quite as, same sort of timetable it was before. Affordable won't need quite as much capital. Are you gonna start building on risk while you wait for your buyers to come back into the market? Land obviously looks like it's giving you lots of opportunities. I'm particularly thinking working capital versus capital allocation, but there's a whole number of moving parts in that. Lastly, first half versus second half, how skewed are we talking here? Are we talking a 35, 65? Are we talking a 20, 80? Just some sort of indication.
Brilliant. Thanks, Operator. I think I've captured those questions. In terms of new land benefit, I think the core part of our model is to buy options, secure options and subject to planning, so off balance sheet. Very much sort of virgin opportunities, which will then take maybe 18 months to progress through the sort of planning system, secure planning permission. We are alive to potential opportunities to purchase land, which already has the benefit of the planning permission, which clearly would then come into our revenue and profitability much earlier.
I think principally we're looking at the rebuild over the next two or three years rather than an instant recovery of margin, from being able to buy land at these higher margins straightaway and sort of put it through the system, which is why we sort of guided the 12% to 14% margin over the next few years. In terms of margin comfort, Sarah, do you want to comment on that?
Was it?
The question was.
It was contingency.
Yeah.
It's actually about the revenue. The bits in the appendix are revenue, Yeah. No, exactly. In terms of the revenue or the pipeline charts that we've set out in the appendix, we've really, I guess, built in the normal level of contingency into those that we do carry from year to year, and that's effectively to mitigate against any planning delays. You also see on those slides that we have included for the first time the unsecured pipeline, so the land opportunities that we're looking at at the moment, to bring up into the secured.
I guess embedded within our margin, we've assumed a reasonably cautious outlook for the value of assets. I mean, if you took the mathematics from the spread between the total property return to the cost of debt, in principle, it implies that the asset value could be higher. Which clearly would flatter the margin. I think what we're assuming is just a slightly more cautious outlook at this stage, which I think is appropriate. In terms of distress in our supply chain, I guess the principle here is that supply chain and construction have been buying into work over the last year or two. Some projects will be longer dated than that, but not many. Of course, we've seen unprecedented build cost inflation over the last 15 months.
Yes, it's moderating now. Nonetheless, there are trade packages out there in the UK that have locked into, lower, lower sort of contracted prices and are then finding when they're buying the resources themselves that prices have gone up. We are aware that there could be elevated distress within UK construction, per se. I think in terms of. I think that it's important now that construction volumes are slowing down, the ability for those trade packages just to sort of continue to buy work into a very busy, buoyant market is probably not as strong as they were hoping it might be, which could lead to some unprofitable contracts becoming more of a problem for them.
Now, clearly, I can't comment specifically, but in terms of what Watkin Jones I can, we've had a couple of examples where parts of our trade packages or supply chain have gone into administration. What we've done there is because we also have this asset that we're a main contractor as well, we're able to step in with other parts of our framework to bring in, replacement trade packages, subcontractors, other contractors to come in to ensure the works are still being, delivered successfully. I think it's definitely we're moving into a phase where we need to monitor, construction in the UK quite carefully. Working capital. Sarah, are you happy to-
Yeah. Yeah, of course. I mean, it's, you know, we've seen the numbers. There's been a little bit of build-up of land and work in progress. You know, a couple of points behind that. One, obviously the land purchases that I've talked to. The second is in the, again, kind of quite technical accounting, but in that contract assets, that's effectively the bullet payment that we receive when we get to the end of the contract. Usually, whether it's in relation to student contracts, that obviously comes in in September just before our year end. We've obviously got a high proportion of BTR revenue, and therefore those come at a, you know, a more equal point throughout the year. I think if we see next year, we'll probably have a very small working capital outflow.
When we get to 2024, that would really then start to unwind as those sites are sold through. I guess in terms of that risk point, we don't have any plans to build out anything else on our balance sheet over and above the Bedminster site that we're doing at the moment. I think the final was H1, H2 weighting. I would probably guide to a 25, 75 split on that, given the assumption on the forward sales. I think the kind of probably the other key point on H2 is, I think we talked about this last night. In terms of the forward sales that we've assumed, it's predominantly the land revenue that would come through from those, i.e., if there's any slippage from a timing perspective.
We're not assuming much from a development work perspective.
Thanks. Colin Sheridan from Davy. Morning, guys, and thanks for the presentation. Just a couple from me, if I can, although the second has a few parts to it. First, just on the non-consented land and the stuff that isn't, that hasn't come onto the balance sheet at this point in time. It looks from your guidance as if you've assumed that that just comes on at the price that has already been agreed under option. I wonder to what extent there's an ability to maybe renegotiate those before they do come onto the, ultimately onto the balance sheet. The second one then is just around the forward sales. The, I think, 9 sites that you laid out, that are potentially forward sales for the rest of the year in the pipeline.
You may have said it, but if you could just confirm how many of those would have to happen or what proportion of them would have to happen to make up that GBP 250 million remaining in the guidance for the rest of the year. If that was to happen, what kind of forward sales position do you think that would leave you at the end of the year? I.e., how much development revenue would you be booking into future years off the back of those land sales in 2023? Thanks.
Perfect. Thank you for that. Alex, do you want to talk about our ability to renegotiate the land options?
Yeah. Look, I mean, that's exactly what we've been doing over the course of the last 6 months, is having sort of very active, sensible conversations with our vendors. You know, clearly there are some contracts where the pricing is fixed, but there are some where we have been having some success in renegotiating the terms to allow sort of a certainty of the delivery. It's a moving feast, but yeah, it's absolutely one of our focuses, and we have had some success on that.
Sarah, do you want to...
Oh, yeah, no sorry. I was pointing at Alistair. Colin, in terms of the, that consented pipeline, we talked about GBP 0.8 billion. We're probably looking 9 schemes, it's probably 6, so kind of 60%-75% of those that we'll look to more forward sale. As to my earlier point, we've assumed very little development revenue in FY23 for those, but that would obviously then come subsequently in 2024 and 2025. That's what kind of GBP 500 million-GBP 600 million.
Alistair.
Alastair Stewart from Progressive Equity Research. A couple of actually quite interrelated questions on land and planning. First, could we have a bit more color on why you seem to be having more planning success recently when the house builders are always complaining about it? Is it the nature of the sites you're buying or your approach or both? Then, in terms of land opportunities, you've not got as many competitors for sites as far as I can see. It's the areas in towns that are possibly most blighted, and, you know, the success in planning could actually make your proposition more attractive to vendors.
The long and the short of it is, could you get more opportunities earlier and possibly at more attractive rates than is built into your, you know, longer term margin recovery?
Perhaps I'll just comment quickly on land and planning and then ask Alex to comment on volume of land opportunities or the nature of those land opportunities and as you say, how that might support margin recovery. I think with land and planning, we just need to be careful not to wax lyrical. I mean, we certainly we've had a very good a good couple of years in terms of planning performance, but I'm conscious that I wouldn't want to set the bar too high in case that unwinds slightly. It does feel like we've outperformed other sort of large house builders in terms of those planning commissions, which is positive. I think there's probably a number of reasons for it.
I think the first one is, yes, I think where we're doing town and city center redevelopments, there is a lot more planning sympathy and support from the local authorities. I think that absolutely helps. That will continue to help us, and it should give confidence that as we secure a deeper pipeline in the next phase of the business, that we will be able to deliver those with planning permissions and get those sold into the market. I think the second thing is the WJ track record. There is a 20-year-plus track record of successfully delivering student and more recently, BTR schemes in town and city centers all over the U.K. Local councils and local planning authority offices are fully aware, and they can see these successful schemes being operated well, being managed responsibly, an important part of the local community.
Therefore, when we come back in, there is an element of being welcomed, that we're gonna move on to another regeneration site in the town and city center. I think equally, your point is right that those central locations are very quiet at the moment. There is almost no commercial activity whatsoever in terms of development. Hoteliers are very quiet as well too. It presents a very strong opportunity to come forward with a good quality proposal, which the local planning authority respond generally very positively to. I think it's a combination of all of those. I think it's brand, I think it's opportunity, and also, not wanting to overly wax lyrical about it. Alex, you want to talk about opportunities in terms of the land market?
Yeah, no, absolutely. I think what you always see when you have a sort of market movement or a downturn, land does tend to lag. The investment values come first, and then the land sort of filters through. You can understand that sort of, that series of pressures building up on the landowners, as we talked about. What I'd say, at the moment, we're probably getting some of the best visibility on new opportunities that we've had since COVID, when effectively the vast majority of anyone who is constrained by debt stopped playing in the land market. We saw more opportunities and better quality opportunities than we'd ever seen before, and we were able to capitalize on them. That's starting to come through now.
If you look at the sort of weekly acquisition team meetings they have, the volume of sites coming through are very high. I'd say what we are starting to see, and it's early days, but we've got sort of 3 or 4 where we're, you know, in one-on-one negotiations where we are seeing that pricing. We believe that pricing shift has occurred. We are seeing some, you know, better than anticipated, you know, potential return profiles. There's a long way to go on these, but it is sort of an optimistic sign.
I think looking forward, we do see more buying opportunities coming through 2023. I think it's still quite early. The lag still hasn't kind of bottomed out yet. Yeah, I think there'll be better opportunities in the second half of this year. Okay. Think we've got time for perhaps a couple more questions if there are.
Yeah. Thank you. Sam Cullen from Peel Hunt. I've got kind of 3, 2 of which are fairly straightforward. The first one is on a follow on from the land opportunities. With the kind of interest rate backdrop kind of stabilizing and probably improving relatively where we were 6, 8 weeks ago, is there a risk that land ex-vendor expectations begin to rise again and that puts a further kind of lagged impact on the negotiations you have with potential vendors to get sites over the line when you look forward? The second one is just on build costs and the deflation that you kind of alluded to. What areas are you seeing that in? Are you seeing it in labor as well as materials? Then the last one is just on the cost base.
You talked about, I think, a couple of areas where you didn't take cost out. Just where did you take cost out?
Yeah. Perfect. I think on land, I think as you're intimating in the question, look, land's a mathematic residual calculation. If asset values hold up stronger, then that implies that the land value is held up. There's no doubt the direction of travel is negative, and therefore, land price from a mathematical point of view has and should adjust significantly more than it currently is in the market. That picks up Alex's point. There's a lag, and we'll see that lag effect roll through over the next six months where we'll see land prices drop to catch up with the reality on the ground. That's an opportunity for us.
The other part of the land market is it's not math, it's emotion, and it will depend on individual landowners as to whether or not they're prepared to deal at this sort of time, and not they believe if they hold for longer, it might recover. Indeed, there are certainly some landowners who are really quite emotional about where we are at the moment and probably looking to exit, and potentially there's an opportunity to purchase at an even greater discount than the residual calculation would imply. I think at the moment, I think the risk is to the upside in terms of land price, not to the downside. In terms of build costs, I think we're squarely expecting to see material deflation.
I think labor is probably more resilient, is probably the bottom line. Overall, as Alex mentioned in his presentation, I think there are opportunities for us to outperform our budget assumptions on build cost. I think we've been relatively prudent coming into this year, and I think appropriately so. The cost base, I'll probably hand over to Sarah.
Yeah. No, sure. I mean, Dave, really across the majority of the support functions. The second area was in the development teams where we probably had a little bit of overlap between sitting within the kind of IDP team, which Alex heads up, and then within the delivery team. Really, I guess a kind of efficiency and streamlining within that.
Unless there's a final question, I think we'll probably knock it on the head at that stage. We're done. Excellent. Thank you very much indeed. Very, very good to see all of you and catch up soon.