Full Year Results 2016

This announcement contains inside information

Watkin Jones plc

('Watkin Jones' or the 'Group')

Full year results for the year ended 30 September 2016

Watkin Jones plc (AIM:WJG), a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector, announces its maiden annual results for the year ended 30 September 2016. The Board is pleased to report a successful financial year with trading in line with its expectations.

Financial Highlights

Notes

1 Exceptional IPO costs of £26.6 million comprise £6.5 million costs associated with the Company's admission to AIM and £20.1 million relating to the settlement of senior management incentive plans

2 Adjusted EBITDA comprises operating profit from continuing operations before exceptional IPO costs, plus the Group's share of profit from joint ventures, adding back charges for depreciation and amortisation.

3 Adjusted basic EPS is calculated on a proforma basis using the profit for the period from continuing operations excluding exceptional IPO costs and based on the number of shares in issue at 30 September 2016.

· Strong revenue growth and record operating profit, before exceptional IPO costs, driven by student accommodation developments

· 2.67 pence per share proposed final dividend, giving total dividend of 4.0 pence per share, in line with IPO guidance

· Robust cash performance, with a net cash inflow from operating activities before exceptional IPO costs of £41.7 million (2015: £28.4 million)

· £32.2 million of net cash at the year end (30 September 2015: £39.1 million), after exceptional IPO cash costs of £26.6 million, £14.5 million cash cost of acquiring Fresh Student Living ("Fresh") and £10.0 million dividend to existing shareholders prior to IPO

· New £40.0 million five-year revolving credit facility and £10.0 million working capital facility with HSBC, to provide development funding flexibility and working capital headroom. All these facilities were unutilised at 30 September 2016

Business Highlights

AIM listing and corporate governance

· Successful admission to AIM listing on 23 March 2016, with business delivering strong operational performance throughout the process and since admission

· Watkin Jones plc Board formally established ahead of IPO, comprising Grenville Turner (Chairman), Simon Laffin (Non-Executive Director), Mark Watkin Jones (CEO) and Philip Byrom (CFO)

Student accommodation development - sales and planning

· £183.0 million of development value of eight student accommodation schemes (2,615 beds), forward sold during the year

· £164.0 million of development value of five student accommodation schemes (1,893 beds) forward sold since the year end

· In excess of £185.0 million of development value in legal negotiations, for forward sale of seven further student accommodation developments (2,166 beds)

· Planning permissions for ten student developments (3,500 beds) granted during the year and a further four (1,579 beds) granted between the year end and the date of this announcement

· Planning permission consented for 8,260 beds of the pipeline as at the date of this announcement.

Student accommodation development - pipeline

· 9,469 student beds in the pipeline across 27 sites, with 15 forward sold and seven more forward sales in legal negotiations

· 2017 deliveries - nine student developments (2,860 beds) sold, including one operational asset (590 beds). The remaining 2017 delivery (454 beds) in legal negotiations

· 2018 deliveries - eleven student developments (3,485 beds) scheduled for delivery, of which ten developments (3,370 beds) have planning and five developments (1,840 beds) are forward sold

· 2019/20 deliveries - six sites secured and a number of additional site acquisitions progressing satisfactorily. One development (511 beds) forward sold to date

Student accommodation asset management

· Fresh successfully integrated, with beds under management increased from 8,310 in FY 2016 to 12,337 in FY 2017, and currently contracted to increase to 18,636 by FY 2020

Private rented sector ("PRS")

· Five Nine Living Limited established to leverage Fresh's property management expertise in PRS and focus applied to sourcing suitable PRS development opportunities

Private residential

· 127 residential plot sales achieved from the ongoing development of legacy sites

Commenting on the results, Mark Watkin Jones, Chief Executive Officer of Watkin Jones plc, said:

"This has been a transformational year for the Group and we are delighted to report such a strong set of maiden full year results, which have seen positive movements across our key financial metrics. Our student accommodation development business is robust. It is positively underpinned by a buoyant market and our forward sale model provides us with excellent visibility as to future earnings and cash flow. We currently have a development pipeline of 9,469 beds across 27 sites, where we have planning permissions granted for 8,260 beds. Nine of the ten schemes scheduled for completion in FY 2017 have been successfully forward sold and the tenth scheme is in legal negotiations. All schemes are progressing well on site.

At 30 September 2016, Fresh Student Living, our specialist student accommodation asset management business, was contracted to manage 12,337 beds across 44 schemes.

By utilising positive market conditions and choosing only the best opportunities, we expect to make further progress in our student accommodation businesses.

As we near completion of our first PRS development in Leeds, we are looking, while always being mindful of the need to expand in a sustainable way, to build on our expertise and our institutional relationships to develop real momentum in the PRS market and we are looking at a number of exciting opportunities.

In private residential development, our approach is to utilise our existing land bank and to acquire further sites when suitable opportunities arise.

Watkin Jones has made a strong start to life as a public company and has demonstrated its ability to grow with good visibility of earnings and significant cash generation. Our prospects are encouraging and our aspiration is to continue to expand in both student accommodation and PRS, while adding to earnings by managing the completed developments. We look forward to the next year with confidence."

CHAIRMAN'S STATEMENT

Performance and dividend

This is our first annual report since our admission to AIM in March 2016 and I am pleased with the progress the Group has made, both commercially and with organising ourselves as a public company. We had a very good first trading period and we met our expectations for the year. Any uncertainty in our markets in the immediate aftermath of the EU Referendum result dissipated quickly. University places remain oversubscribed and as only 7% of students in the UK come from the EU across the higher education sector, we do not believe that Brexit will be a significant issue for the Group.

One of the key attractions of the business is its strong cash generation, which results from the forward sale model. This cash generation underpins our ability to reward shareholders through dividends.

Having paid an interim dividend of 1.33 pence per share in June, the Board has recommended a final dividend of 2.67 pence per share, giving a total dividend of 4.0 pence per share. With admission having taken place towards the end of the first half of the financial year, this total dividend represents two thirds of the full year equivalent, giving an initial yield of 6% based on the placing price of £1 per ordinary share. This is in line with our stated intention at the time of the IPO. The dividend will be paid on 28 February 2017 to shareholders on the register at close of business on 27 January 2017. The shares will go ex-dividend on 26 January 2017.

Looking forward, our intention is to adopt a progressive dividend policy, which will allow shareholders to benefit from the Group's growth in earnings and cash flow.

Board and management

I joined the Board as Non-Executive Chairman ahead of the IPO, along with Simon Laffin, who was appointed as a Non-Executive Director and as chairman of the Audit Committee. The Board has four Directors in total, including Mark Watkin Jones (CEO) and Philip Byrom (CFO). Since the Board was formed, we have focused on defining our activities, agreeing roles and responsibilities, and setting out the processes and authorities that will govern our work.

Simon and I have also spent considerable time getting to know the business and the team. Watkin Jones has excellent people, with real depth of talent. One of the business's key strengths is the commitment of its employees, many of whom have worked for the Group for their entire careers. Retaining their experience and bringing them through the business has been an important factor in Watkin Jones' growth. Having the right culture is critical for sustainable success. The Board recognises its role in setting the Group's culture and for making sure that it is appropriate for the business and what it wants to achieve. That includes ensuring we challenge appropriately and encourage the business to look for opportunities to improve and do things differently.

Looking forward

Watkin Jones has made a positive start to life as a public company and has demonstrated its ability to grow. Our prospects are encouraging and our aspiration is to continue to expand in both student accommodation and PRS, while adding to earnings by managing the completed developments.

Grenville Turner

Independent Non-Executive Chairman

17 January 2017

CHIEF EXECUTIVE OFFICER'S REVIEW

Performance

We delivered a strong performance across the Group this year. Revenue from continuing operations rose from £244.2 million in FY 2015 to £267.0 million in FY 2016, an increase of 9.3%, whilst gross profit rose from £44.0 million in FY 2015 to £53.8 million in FY 2016, an increase of 22.2%. Operating profit before exceptional IPO costs was 16.7% higher at £37.9 million (FY 2015: £32.5 million), representing a margin of 14.2% (FY 2015: 13.3%). One of the key features of our model is its strong cash generation and we achieved an operating cash inflow, before exceptional IPO costs, of £41.7 million (FY 2015: £28.4 million).

Developing student accommodation is our largest business and we continued to perform well. We completed ten schemes with 3,819 beds during FY 2016 and maintained our 100% record of finishing ahead of the academic year. The Group acquired the student accommodation management business, Fresh Student Living, in February 2016. Fresh has continued to grow strongly and now has 12,337 beds under management for FY 2017, compared to 8,310 beds in FY 2016, and is currently contracted to manage 16,431 for FY 2018.

A key event in the financial year was the progression of our first PRS scheme, a 322‑apartment development in Leeds, which we have forward sold to a leading institutional investor. Construction is proceeding to plan, with completion scheduled in the first half of FY 2017. We also launched Five Nine Living to manage PRS schemes, drawing on Fresh's expertise.

Private residential sales were strong during the year, with 127 sales completed against 69 in FY 2015. We made good progress with releasing cash from low-margin legacy sites.

Operating review

Student Accommodation development

The gross margin for the year on student accommodation developments was 20.5%, compared to 18.2% for FY 2015. The improvement reflects our move to solely developing our own projects and away from lower margin contracting work for other developers.

The student accommodation pipeline remains robust. Nine of the ten schemes scheduled for completion in FY 2017 have been forward sold with the remaining 2017 delivery in legal negotiation. We have secured all our development sites for FY 2018. Ten of these have planning consent and the remaining one is progressing satisfactorily through the planning process. We have secured six developments for FY 2019. Two of these have planning consent with the remainder progressing satisfactorily. A number of other sites are under offer, with a view to further building up the secured pipeline for FY 2019.

In total, we currently have 27 development sites under offer and in the pipeline, representing 9,469 beds and with an appraised development value of approximately £800.0 million. Of these, 3,314 are for delivery by FY 2017, 3,485 are for delivery by FY 2018 and 2,670 are for delivery in FY 2019 and beyond.

During the year, we forward sold eight development sites with 2,615 beds.

At the date of this announcement, seven developments were in legal negotiations (2,166 beds), with a total development value in excess of £185.0 million.

We remained successful in securing planning consents, achieving ten during FY 2016 (3,500 beds) and a further four (1,579 beds) between the year end and the date of this announcement.

Our development sites are spread across the UK and we organise the operating divisions responsible for building the schemes on this basis. Negotiating national procurement terms with key subcontractors and standardising development layouts is continuing to help us control build costs.

Fresh Student Living

We acquired Fresh on 25 February 2016 and have successfully integrated it into the Group. Fresh requires little working capital and the consideration of £15.0 million was largely attributable to the value of intangible assets.

Fresh provides student letting and operational management services for a variety of clients. Contracts typically run for between three and seven years and our expectation is for these contracts to be renewed. Fresh also provides consultancy and mobilisation services to clients for new schemes in development. This is a key part of the complete solution we offer to clients.

At 30 September 2016, Fresh was contracted to manage 12,337 beds across 44 schemes, with an annual management fee income of £3.6 million. By FY 2020, Fresh is currently contracted to manage 18,636 beds across 61 schemes. The majority of the increase to FY 2020 is through contracts with third parties. We do not include our own development schemes in Fresh's pipeline until the exit strategy for a particular site is determined and we are certain that Fresh will manage it.

For the period post‑acquisition, Fresh contributed revenue of £2.8 million and gross profit of £1.7 million. On a like‑for‑like basis, Fresh's revenues for the year to 30 September 2016 amounted to £5.1 million, compared to £2.6 million for FY 2015. The gross margin achieved is approximately 60%.

Private Residential

The residential development business achieved 127 sale completions during the year, compared to 69 for FY 2015. This resulted in a 65.3% increase in revenues to £26.3 million (FY 2015: £15.9 million).

The gross margin for the business was 11.5% (FY 2015: 16.6%) but was held back by sales at two legacy development sites at nil margin. Achieving these sales was a key objective for the business, as it released cash from brought-forward inventory. Sales at the two sites (Gorse Stacks in Chester and the canal marina development at Droylsden, Manchester) totalled £11.0 million in the year. We completed the sale of all but two of the apartments at Gorse Stacks by the year end, with sales at Droylsden ongoing. The gross margin for the residential business will continue to strengthen as more profitable developments come on stream.

At the year end, the private residential business had a land bank of 573 plots (FY 2015: 595 plots).

Private Rented Sector

PRS is a key part of our growth strategy. We are currently undertaking our first purpose‑built PRS development in Leeds. The 322-apartment scheme is scheduled for completion in FY 2017 and has been forward sold to a leading institutional investor.

We aim to grow our PRS business sustainably and are reviewing further opportunities. During the year, we also established Five Nine Living, our management platform for PRS schemes. Five Nine Living will manage the Leeds scheme on completion and we expect to start taking market share going forwards.

Strategy

We have set clear strategic objectives for each part of our business. By exploiting positive market conditions and choosing only the best opportunities, we will grow our student accommodation business and take further market share with Fresh Student Living.

Our student accommodation expertise is directly transferable to the PRS market. We are looking to build on our experience and our institutional relationships to develop real momentum in this area, while always being mindful of the need to expand in a sustainable way. In private residential development, our approach is to utilise our existing land bank and to acquire further sites if suitable opportunities arise.

People

I want to thank everyone in the Group for their contributions this year, in particular in stepping up to ensure we continued to deliver for clients during the IPO process. We are fortunate to have an extremely loyal and hardworking group of colleagues, and it is important to me that we look after them and maximise their potential. A key benefit of the IPO is the greater sense of ownership it has given to our people, who all received shares through an employee Share Incentive Plan ("SIP") on flotation. Coupled with our culture of empowering people to take decisions, this means our people truly want to see the business develop and succeed.

Sustainability

Watkin Jones is naturally focused on the long term. Economic, social and environmental sustainability is therefore integral to the way we work. The Group has robust policies embedded in every area of our activities, which offer support and guidance on how we expect our team to conduct themselves. We look to understand and address the needs of all our stakeholders, which include our people, clients, supply chain, communities and our shareholders. We also work hard to minimise our impact on both the local and global environment.

Outlook

The outlook for FY 2017 is positive and we expect to make further progress. Nine of the ten schemes scheduled to complete in the year have been forward sold and are progressing well on site, with the tenth scheme in legal negotiations.

Our forward sale model means that FY 2017 will also benefit from our progress on schemes delivering in later years. We are looking to complete eleven schemes in FY 2018. Ten have planning consents and planning has been submitted on the remaining scheme. Some of our larger 2019 schemes will also contribute to FY 2017 performance, in particular the 511-bed scheme in Stratford for the University of London, which in terms of its development value is our largest ever project.

Mark Watkin Jones

Chief Executive Officer

17 January 2017

CHIEF FINANCIAL OFFICER'S REVIEW

The Group delivered a strong financial performance in FY 2016, with growth in revenue, gross margin and earnings, as well as a robust cash inflow.

The adjusted basic earnings per share figures are shown for comparative purposes on a proforma basis using the number of shares in issue at 30 September 2016.

Revenue

Revenue from continuing operations increased by 9.3% to £267.0 million, as a result of good growth in our student accommodation development business, an initial contribution from Fresh Student Living and an increase in the number of sales completions in our private residential business. More information on revenue growth in each business can be found in the Chief Executive Officer's Review.

Gross profit

Gross profit rose from £44.0 million in FY 2015 to £53.8 million this year, resulting in a gross margin of 20.1% (FY 2015: 18.0%). The higher gross margin reflects the increasing outturns from our student accommodation projects, driven in part by the quality of sites selected, the cessation of lower margin student accommodation contracting work and the high gross margin on the initial revenues contributed by Fresh. However, the gross margin for the year was held back by the sale of legacy private residential developments at nil margin.

Overheads

Overheads comprise administrative expenses and distribution costs, and include key functions such as our in-house procurement, quantity surveyors and commercial teams. Overheads increased by 37.4% to £15.9 million. This reflects expansion of the Group's operations, the overheads attributable to Fresh and some additional costs related to our new status as a public company.

Operating profit before exceptional IPO costs

Operating profit before the impact of exceptional IPO costs increased by 16.7% to £37.9 million, representing a margin of 14.2% (FY 2015: 13.3%).

Exceptional IPO costs

The Group incurred a number of exceptional costs in relation to the IPO in March 2016. These totalled £26.6 million and comprised £6.5 million of transaction-related fees and commissions, and £20.1 million for settling share‑based management incentive arrangements that triggered on completion of the IPO.

Share of profit in joint ventures

We have a number of project-specific joint ventures with Lacuna Developments Limited, based in Northern Ireland, enabling us to develop student accommodation schemes in Belfast. We completed one such scheme in FY 2016 and forward sold a second. We also have a joint venture interest in a student accommodation asset which we had previously developed in Ipswich (Athena Hall). Our share of profit in joint ventures for the year totalled £3.0 million, up from £1.2 million in FY 2015.

Finance costs

Our net finance costs totalled £1.0 million, as compared to the £0.7 million incurred in FY 2015. During the year, we put in place new debt and working capital facilities (see statement of financial position and cash flows below). Net finance costs includes the costs of arranging these facilities, as well as non-utilisation fees.

Taxation

The tax charge for the year was £8.2 million, representing an effective tax rate of 65.6%. This is significantly higher than the statutory rate of corporation tax of 20%, as a result of most of the exceptional IPO costs incurred not being deductible for tax. The underlying rate of tax for the year was approximately 20%.

Earnings per share

Basic earnings per share from continuing operations were 3.8 pence, after the impact of exceptional items. On a proforma basis, using the number of shares in issue in Watkins Jones plc at 30 September 2016, adjusted earnings per share from continuing operations, which is calculated before exceptional items, increased by 18.9% to 12.4 pence (FY 2015: 10.4 pence).

Dividends

As discussed in the Chairman's Statement, the Board has recommended a final dividend of 2.67 pence per share, giving a total dividend for the year of 4.0 pence per share. This is in line with our guidance at the time of the IPO.

The cash cost of the total dividend will be £10.2 million, of which £3.4 million was paid in the year.

Adjusted EBITDA

Adjusted EBITDA is an important measure of underlying performance for the Group. It is calculated as operating profit plus profit from joint ventures, before interest, tax, depreciation, amortisation and exceptional items.

Adjusted EBITDA increased by 22.1% to £41.6 million (FY 2015: £34.1 million), representing an adjusted EBITDA margin of 15.6% (FY 2015: 14.0%).

Statement of financial position and cash flows

The Group had net cash at the year end of £32.2 million, comprising cash of £47.2 million less borrowings of £15.0 million. In comparison, net cash at 30 September 2015 stood at £39.1 million, made up of £59.3 million of cash less borrowings of £20.2 million. Excluding the impact of the exceptional IPO costs of £26.6 million, the Group generated a net cash inflow from operating activities of £41.7 million (FY 2015: £28.4 million).

During the year the Group acquired Fresh for a price of £15.0 million, the net cash cost of which was £14.5 million after taking into account cash of £0.5 million in the balance sheet of Fresh. The Group also paid £13.4 million in dividends, comprising a pre-IPO dividend of £10.0 million and the interim dividend of £3.4 million.

Our strong cash generation results from our forward sale model and our progress in releasing cash from inventory and work in progress, particularly associated with legacy residential and commercial developments.

Inventory and work in progress stood at £128.2 million at 30 September 2016, compared to £119.7 million at the end of the previous year. This balance will reduce as a result of the forward sales announced between the year end and the date of this announcement.

Prior to the IPO, we agreed a new £40.0 million, five-year revolving credit facility ("RCF") and a £10.0 million working capital facility, both with HSBC. The RCF is available to support our land procurement and development opportunities and will be used for strategic land acquisitions or to fund discrete development activities where required, alongside the forward sale model. At the year end, both the RCF and working capital facility were unutilised.

Philip Byrom

Chief Financial Officer

17 January 2017

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Notes to Editors

Watkin Jones is a leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector. The Group has strong relationships with institutional investors, and a good reputation for successful, on-time-delivery of high quality developments. Since 1999, Watkin Jones has delivered over 31,800 student beds across 98 sites, making it a key player and leader in the UK purpose built student accommodation market. In addition, Watkin Jones has been responsible for over 50 residential developments, ranging from starter homes to executive housing and apartments.

The Group's competitive advantage lies in its experienced management team and business model, which enables it to offer an end to end solution for investors, delivered entirely in-house with minimal reliance on third parties, across the entire life cycle of an asset. Key components of the business model are:

· Site identification - extensive experience of site identification and acquisition facilitates high quality sites being acquired;

· Planning consents - in depth knowledge and experience of the planning consent process specific to this type of asset facilitates high success rates on planning applications;

· In-house construction and delivery - in-house construction expertise, management and delivery limits reliance on third parties and, together with favourable contractual relationships with key suppliers, enhances control of cost;

· Funding structure - forward sale model reduces risk for Watkin Jones and provides security and visibility of the asset pipeline for investors. The Group has strong relationships with blue chip investors, including a number that are repeat investors in Watkin Jones developments; and

· Asset management - dedicated property management division provides a continued service solution to investors post development completion and completes the 'end to end' business model.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 30 September 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONas at 30 September 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2016

CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 30 September 2016

NOTES TO THE CONSOLIDATED FINANCIAL INFORMATIONfor the year ended 30 September 2016

1. General information

Watkin Jones plc (the "Company") is a public limited company incorporated in the United Kingdom under the Companies Act 2006 (Registration number 09791105). The Company is domiciled in the United Kingdom and its registered address is Units 21-22, Llandygai Industrial Estate, Bangor, Gwynedd, LL57 4YH.

The Company was incorporated as HDCO3 Limited on 23 September 2015.

The Company acquired all the issued shares in Watkin Jones Group Limited on 15 March 2016. This was achieved through a combination of a share for share exchange over 319,247 shares in Watkin Jones Group Limited, involving the issue of 81,407,985 ordinary shares in the Company at an issue price of £1 per share, and the completion of an agreement to purchase the remaining 680,753 shares for an amount of £173,592,015 in cash. This was settled on 23 March 2016. On 15 March 2016 the Company was re-registered as Watkin Jones plc.

On 23 March 2016 the Company completed an Initial Public Offering by way of a placing of 85,440,493 ordinary shares at 100 pence per share and a vendor placing of 45,900,100 ordinary shares at 100 pence per share. The Company's shares were admitted to trade on the Alternative Investment Market ("AIM") of the London Stock Exchange on 23 March 2016.

The principal activities of the Company and its subsidiaries (collectively "the Group") are those of property development and the management of properties for multiple residential occupation.

The consolidated financial statements for the Group for the year ended 30 September 2016 comprises the Company and the subsidiaries that were acquired by the Company before the listing of the Company's shares on AIM. The basis of preparation of the consolidated financial statements is set out in note 2 below.

This report was approved by the Directors on 17 January 2017.

2. Basis of preparation

The financial information set out above does not constitute statutory accounts for the year ended 30 September 2016 or 2015 but is derived from those accounts. Statutory accounts for the year ended 30 September 2015 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 30 September 2016 will be delivered to the Registrar of Companies and sent to all shareholders shortly. The auditors have reported on those accounts; their reports were unqualified, did not draw any attention to any matters by way of emphasis without qualifying their report and did not contain statements under S498 (2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

The consolidated financial statements of the Group for the year ended 30 September 2016 and the comparatives for the year ended 30 September 2015 have been prepared on the basis that Watkin Jones plc was in existence throughout these periods. The terms of the acquisition of the shares in Watkin Jones Group Limited were such that the Group reconstruction should be accounted for as a continuation of the existing Group rather than as an acquisition, and as such merger accounting has been applied. The cash consideration paid as part of the Group reconstruction has been reflected against retained earnings as a distribution. Accordingly, the financial statements and the comparatives have been prepared on this basis.

The financial statements of the Group have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU. As a result of the IPO, the Group prepared an admission document to AIM which incorporated the first time adoption of IFRS adopted by the EU and all transition adjustments.

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events may ultimately differ from those estimates.

The financial statements have been prepared on a going concern basis. The Directors consider that it is appropriate for the financial statements to be prepared on this basis having considered all relevant information, including the Group's trading and cash flow forecasts, the trading opportunities available to the Group and the ongoing support of its banks.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the financial statements. The financial statements are prepared on the historical cost basis except as disclosed in these accounting policies.

The financial statements are presented in pounds sterling and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

3. Accounting policies

With the exception of the accounting policy for intangible assets, which has been adopted for the first time in the preparation of these financial statements and is set out below, the accounting policies used in preparing these financial statements are the same as those set out and used in preparing the financial information that is presented in the Company's Admission Document to AIM dated 16 March 2016. The accounting policies will be disclosed in full within the Group's forthcoming financial statements.

3.1 Other intangible assets

The cost of intangibles acquired as part of a business combination is the fair value at the date of acquisition.

Intangible assets other than goodwill are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of the intangible assets as follows:

Customer relationships: - 11 yearsBrand: - 10 years

4. Segmental reporting

The Group has identified three segments for which it reports under IFRS 8 'Operating Segments'. The following represents the segments that the Group operates in:

a. Student Accommodation Development - purpose built student accommodation developments;

b. Residential Development - the development of traditional residential property; and

c. Student Accommodation Management - the management of student accommodation property. This segment was established following the acquisition of Fresh Student Living Limited on 25 February 2016.

Corporate - central revenue and costs not solely attributable to any one division.

All revenues arise in the UK.

Performance is measured by the Board based on gross profit as reported in the management accounts.

5. Exceptional IPO costs

The charge for management incentive payments comprises amounts payable to certain senior management of Watkin Jones Group Limited in connection with various long term incentive plans which fell due on the admission to AIM of Watkin Jones plc. The amount comprises a total charge of £21,735,400, plus stamp duty costs of £98,440, less an amount previously provided of £1,773,200. Of the total incentive payments made, management invested £13,942,984 in shares in Watkin Jones plc as part of the IPO.

6. Income taxes

Reconciliation of total tax expense

7. Earnings per share

Basic earnings per share ("EPS") amounts are calculated by dividing the net profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of shares in issue during the year.

There is no difference between basic earnings per share and diluted earnings per share as there are no dilutive share option arrangements in place at 30 September 2016.

The following table reflects the income and share data used in the basic and diluted EPS computations:

Using the number of shares in issue at 30 September 2016, the adjusted proforma basic earnings per share from continuing operations for the year ending 30 September 2016 would have been 12.397 pence (2015: 10.424 pence).

8. Dividends

The final dividend proposed for the year ended 30 September 2016 is 2.67 pence per ordinary share. This dividend was declared after 30 September 2016 and as such the liability of £6,816,000 has not been recognised at that date.

9. Intangible assets

The Directors have reviewed the carrying value of the investment in Fresh Student Living Limited, which is a single CGU, at 30 September 2016, compared to its recoverable amount and are satisfied that no impairment is required. The recoverable amount has been based on value in use, by reference to the budgets and projected cash flows for the CGU over a 20 year period, with future cash flows discounted at a rate of 10% to reflect the time value of money.

10. Acquisitions

Acquisition of Fresh Student Living Limited

On 25 February 2016 Founded Living Limited, a subsidiary of Watkin Jones Group Limited, acquired the 750 ordinary shares in Fresh Student Living Limited ("Fresh") held by Mark and Glyn Watkin Jones, who were both Directors of and shareholders in Watkin Jones Group Limited, for a cash consideration of £11,835,512. The shares acquired represented 77.48% of the issued shares of the company.

On 23 March 2016, on satisfaction of the condition of admission to AIM of Watkin Jones plc, Founded Living Limited acquired the 218 A ordinary shares held by various directors and senior managers of Fresh, for a cash consideration of £3,164,488. The shares acquired represented the remaining issued shares of the company. As a condition of the acquisition of these shares, the vendor shareholders were required to invest £1,397,609, being 50% of the net of tax proceeds received, in shares in Watkin Jones plc as part of the IPO.

The total consideration paid for the shares in Fresh was therefore £15,000,000, plus stamp duty of £75,010.

Fresh is engaged in the management of purpose built student accommodation. Its services include the letting and operational management of properties, for which the company is engaged under a management agreement and receives a management fee, as well as consultancy and mobilisation services provided during the development phase of a student property.

The resulting goodwill of £9,744,000 arising on the acquisition has been capitalised and is subject to an annual impairment review by management. Goodwill is attributed to Fresh's knowledge and expertise in the letting and management of purpose built student accommodation and in the synergy with the Group's student accommodation development business.

The book and fair value of the net assets acquired in respect of Fresh were as follows:

In the period since acquisition, Fresh contributed revenue of £2,828,000 and an operating profit of £291,000. Had Fresh been acquired on 1 October 2015, it would have contributed a full-year revenue of £5,148,000 and an operating profit of £623,000. The Group's total revenue from continuing operations would have been £269,300,000 and the Group's operating profit would have been £11,654,000.

11. Reconciliation of operating profit to net cash flows from operating activities

Major non-cash transactions

There were no major non-cash transactions during the period.

12. Analysis of net cash/(debt)

13. Annual report

Copies of this announcement are available from the Company at Units 21-22 Llandygai Industrial Estate, Llandygai, Bangor, Gwynedd, LL57 4YH. The Group's annual report for the year ended 30 September 2016 will be posted to shareholders shortly and will be available on our website at www.watkinjones.com.

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