Half Year Results

Watkin Jones plc

('Watkin Jones' or the 'Group')

Half year results for the six months to 31 March 2020

'Strong first half performance, supplemented by measures to protect people

and the business through the pandemic'

Watkin Jones plc (AIM:WJG), the UK's leading developer and manager of residential for rent, with a focus on the build to rent and student accommodation sectors, announces its results for the six months ended 31 March 2020 (the 'period' or 'H1 2020'). The Board is pleased to report a successful first six months of the current financial year, which was largely prior to the disruption caused by COVID-19.

Financial Highlights

Richard Simpson, Chief Executive Officer of Watkin Jones, said:

"The half year performance was strong and continued the momentum towards our multi-year growth strategy which we set out in November 2019. Our businesses have all performed well in the period and in-line with expectations.

We have responded carefully and cautiously to the challenges presented by the COVID-19 pandemic and subsequent lock-down. Primarily, we have focused on ensuring the health and safety of employees, tenants and other stakeholders, with development sites initially being closed to all non-essential work. Gradually, we have been able to reopen most of them, to the extent allowed under social distancing and government rules. I would like to thank all our employees, tenants and other partners who have responded so positively to this difficult situation.

Secondly, we have strengthened further our financial position by conserving cash; reducing costs, suspending the interim dividend and extending borrowing facilities. We believe that this ensures the long-term resilience of the business as well as its capability to respond quickly as markets recover. The Board believes that the Group is now well-positioned for future growth and to take advantage of economic opportunities that may arise from the current unprecedented situation."

Financial headlines

· 16.7% increase in revenue for the period versus the first half year of last year, underpinned by both student accommodation development and, increasingly, build to rent

· 6.4% increase in adjusted profit before tax2 to £26.6 million

· Robust gross margin for the half year of 22.6% (H1 2019: 24.4%)

· Strong liquidity position:

o £72.4 million gross cash at 31 March 2020 (31 March 2019: £57.9 million)

o £37.5 million net cash (after deducting site specific loans and HP creditors, but excluding IFRS 16 operating lease liabilities), up from £18.3 million at 31 March 2019

o £100.0 million RCF with HSBC renewed for five years to May 2025, of which £71.1 million was undrawn at 31 March 2020

· £390.0 million revenue to come from forward sold contractually committed pipeline FY 2020 & FY 2021

· As announced on 1 April 2020, the Group suspended the interim dividend and withdrew its financial guidance as a result of the current economic uncertainty and disruption caused by the COVID-19 pandemic. The Group will update the market on future guidance once there is more clarity on the impact of COVID-19 on the Group's activities and the markets in which it operates

· The Board recognise the importance of the dividend to our shareholders and are committed to resuming dividends as soon as conditions stabilise.

Notes

1. Since 1 October 2019, the Group has applied IFRS 16 "Leases". The Group has adopted the fully retrospective approach in applying the standard, recognising its material impact on the Group's results and statement of financial position. The comparative results for H1 2019 have therefore been restated according to the transition arrangements set out in the standard. Further details on the nature of the changes to the Group's accounting required by this standard, as well as its main impacts and the adjustments made to restate the comparative figures are detailed in note 3 to the interim financial statements.

2. For H1 2020 there is no difference between adjusted and statutory profit before tax and basic earnings per share. For H1 2019, adjusted profit before tax and adjusted basic earnings per share are calculated before the impact of an exceptional charge of £2.6 million.

3. EBITDA comprises operating profit from continuing operations plus the Group's profit from joint ventures, adding back charges for depreciation and amortisation. For H1 2019, adjusted EBITDA is stated before the exceptional charge of £2.6 million.

4. Net cash is stated after deducting site specific bank loans and hire purchase creditors, but before deducting IFRS 16 operating lease liabilities of £145.8 million at 31 March 2020 (31 March 2019: £152.1 million).

Business Highlights

· Two further significant BtR sites secured in Birmingham (565 apartments) and Bath (323 apartments) on a subject to planning basis

· 2,660 BtR apartments, across 10 sites, now secured with over 1,000 apartments across five sites forward sold for delivery over the period FY 2020 to FY 2022

· 348 bed PBSA scheme forward sold at Wilder Street, Bristol

· 100 additional PBSA beds agreed, with secured planning consent, at Kelaty House, Wembley

· 591 PBSA beds on two sites secured in Bristol (291 beds) and Bath (300 beds), both subject to planning

· 613 bed on-campus partnership agreement with Cranfield University concluded after 31 March 2020 for delivery in FY 2021 (415 beds) and FY 2022 (198 beds)

· 7,200 PBSA beds, across 19 sites, now secured with over 5,500 beds across 13 sites forward sold for delivery over the period FY 2020 to FY 2022

· 17,721 PBSA beds and BtR apartments now under management across 64 schemes (H1 2019: 15,421 beds and apartments across 56 schemes), underlining the continued development of the Fresh Property Group portfolio

· We have taken a proactive and responsible approach to the revised Government guidance on cladding systems. Despite not being legally liable, the Group may undertake certain remedial cladding works. The full cost to the Group, as previously announced, could be in the range of £12 million - £15 million over the next two years, but the final number will depend on the outcome of ongoing discussions with property owners. Accordingly, a non-underlying provision for these costs is likely to be made at this year-end.

COVID-19 operational and financial update

· We have remobilised construction activities where possible, with appropriate health & safety practices in place, following an initial closure of all sites

· Sites in England, Wales and Northern Ireland now operating at c.75% of pre COVID-19 resource levels

· Our two Scottish sites currently remain closed due to Scottish Government instructions

· Encouraging early progress to mitigate the impacts of the disruption to our student accommodation deliveries for FY 2020; six of the seven schemes are targeted for delivery by Q3 2020 and the seventh is targeted by Q4 2020. The outcome for the residual scheme is being discussed with the purchaser, with options including accelerated work and phased delivery being considered

· We anticipate a modest increase in costs to complete our committed development programme during COVID-19 disruption

· The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the Group decides to forward sell any of its development sites in the second half given the uncertain investment environment

· Activity in the institutional forward sale and land purchase markets has been subdued since the period end. Whilst we anticipate that activity in these markets will increase through the second half, the Group will use its strong financial position to progress forward sales and site acquisitions in the short term only if negotiated terms prove satisfactory

· We are offering support to students in the form of short-term rent relief and extended periods of occupation, where appropriate, to help them manage through this period at a voluntary cost of c.£1.0 million. Approximately 50% of students left term time residences in conjunction with the lock-down

· The Group implemented comprehensive cash conservation measures, including accessing the Government's Job Retention Scheme for furloughed employees. Our remobilisation programme is leading to a commensurate unwinding of use of the furlough scheme

· Board fees and senior executive base pay has been temporarily reduced by 20%.

Analyst meeting

A conference call for analysts will be held at 09.30am today, 19 May 2020. A copy of the Half Year Results presentation is available at the Group's website: http://www.watkinjonesplc.com

An audio webcast of the conference call with analysts will be available after 12pm today:

https://webcasting.buchanan.uk.com/broadcast/5eb2fc6931da814c9fc6e7d0

For further information:

Media enquiries:

Notes to Editors

Watkin Jones is the UK's leading developer and manager of residential for rent, with a focus on the Build to Rent and student accommodation sectors. The Group has strong relationships with institutional investors, and a reputation for successful, on-time-delivery of high quality developments. Since 1999, Watkin Jones has delivered 41,000 student beds across 123 sites, making it a key player and leader in the UK purpose-built student accommodation market. In addition, the Fresh Property Group, the Group's specialist accommodation management company, manages nearly 18,000 student beds and Build to Rent apartments on behalf of its institutional clients. Watkin Jones has also been responsible for over 80 residential developments, ranging from starter homes to executive housing and apartments. The Group is increasingly expanding its operations into the Build to Rent sector.

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.

Watkin Jones was admitted to trading on AIM in March 2016 with the ticker WJG.L. For additional information please visit www.watkinjonesplc.com

Review of Performance

Results for the six months to 31 March 2020

Revenues for the period were in line with expectations at £185.7 million, up 16.7% compared to £159.1 million for the first half of last year, with all business segments performing well. Good progress was made on all forward sold developments in build in the first half of the year, with COVID-19 associated disruption only starting to impact the Group's operations towards the end of March 2020.

The revenue growth drove an 8.0% (£3.1m) higher gross profit to £41.9 million (H1 2019: £38.8 million). The gross margin remained robust at 22.6%, though below the gross margin achieved for H1 2019 of 24.4%, reflecting the increased contribution from the Group's build to rent developments. Build to rent revenues generated a gross margin of 16.3%, compared to 24.1% for the student accommodation development revenues in the period.

The higher gross profit fed through into operating profit, which increased by £4.5 million (18.2%) to £29.2 million (H1 2019: £24.7 million). Excluding the exceptional charge of £2.6 million made in H1 2019, operating profit increased by £1.9 million (7.0%).

Finance costs for the period amounted to £2.8 million (H1 2019: £2.6 million), including £2.3 million (H1 2019: £2.3 million) in respect of the finance cost of capitalised operating leases under IFRS 16.

Profit before tax for the period was up 18.8% at £26.6 million (H1 2019: £22.4 million), but excluding the last year's exceptional charge, the growth was 6.4%. Basic earnings per share for the period increased 8.6% to 8.44 pence, compared to the adjusted basic earnings per share of 7.77 pence for H1 2019.

Segmental review

Build to Rent ('BtR')

BtR continues to grow in significance for the Group, with revenue for the period rising to £36.5 million (H1 2019: £8.8 million). Revenues reflected further construction progress at the already forward sold developments in Bournemouth for delivery in FY 2020 (159 apartments) and in Reading, Wembley and Sutton for delivery in FY 2021 (782 apartments).

Gross profit for the period from BtR was £6.0 million (H1 2019: £1.9 million) at a margin of 16.3%, consistent with the Group's previous margin guidance of 15%.

Whilst there were no new forward sales in the period, the Group has secured two new significant sites, both of which are subject to planning. The first site for 565 apartments is situated in Birmingham and the second site for 323 apartments is in Bath.

Following these additions, the forward sold and secured BtR pipeline now totals approximately 2,660 apartments across 10 sites, of which 1,012 apartments across five sites have been forward sold and a further site for 184 apartments has planning.

Student accommodation ('PBSA')

Revenues from PBSA were broadly in line with the prior period at £120.8 million (H1 2019: £128.8 million). The slight decrease is due to the lower number of beds in delivery for FY 2020 (2,609 beds), compared to FY 2019 (2,723 beds).

A strong gross margin of 24.1% was maintained on student accommodation developments, a small decrease on the 24.7% gross margin in H1 2019.

The Group strengthened its forward sold PBSA development pipeline, completing the forward sale of the 348 bed development at Wilder Street, Bristol, to a joint venture between KKR and Round Hill Capital, for delivery in FY 2021. This follows an option agreement announced in October 2018, which was conditional on full planning consent being achieved. The consideration payable to Watkin Jones for Wilder Street is circa £33.8 million, net of all client funding and acquisition costs, and is payable over the course of FY 2020 and FY 2021 as the development works are progressed. The Group also obtained planning for and completed an agreement with DWS to add a further 100 beds to the PBSA scheme at Kelaty House in Wembley, for delivery in FY 2021.

After the half year end, the Group signed an on-campus partnership agreement with Cranfield University to develop 613 beds for delivery in FY 2021 (415 beds) and FY 2022 (198 beds), with a development value to Watkin Jones of £48.0 million payable over the period FY 2020 to FY 2022. The agreement also contains an option arrangement for a potential second phase of the development, comprising a further 252 beds. This represents a significant addition to the Group's PBSA development pipeline and paves the way for future similar university partnership arrangements.

In addition, the Group secured two further PBSA sites in the period, both of which are subject to planning; a 291 bed scheme in Bristol and a 300 bed scheme in Bath.

As previously reported, the Group has forward sold all seven of its PBSA developments (2,609 beds) scheduled for delivery in FY 2020 and has now forward sold 2,730 beds across six schemes for delivery in FY 2021. The Group's current pipeline of forward sold and secured PBSA development sites totals circa 7,200 beds across 19 sites, of which 5,598 beds are forward sold and 6,060 beds have planning.

Accommodation management

For the six months ended 31 March 2020, Fresh Property Group ('FPG') increased its revenues to £4.1 million (H1 2019: £3.9 million) and increased its gross profit to £2.6 million (H1 2019: £2.4 million). This was another strong performance and continues to reflect FPG's success in winning mandates to manage new schemes, with a net increase of 2,300 student beds and build to rent apartments under management at the start of FY 2020 (17,721 units across 64 schemes) compared to a year earlier (15,421 units across 56 schemes).

The gross margin of 61.9% was broadly maintained in line with the prior half year performance of 62.6%.

By FY 2023, FPG is currently appointed to manage approximately 20,500 student beds and build to rent apartments, including expected renewals.

Residential

In H1 2020, the residential development business achieved 38 sales completions in line with its targets (H1 2019: 53 sales). Prior to the half year end, the division also completed the forward sold development of 35 apartments at Trafford Street, Chester.

In addition, during the period, works progressed under the development agreement for the delivery of 75 apartments at Marshgate, Stratford.

As a result, revenues for the residential development business increased to £24.3 million for the half year, compared to £17.4 million for the equivalent prior period. The gross margin achieved was 18.2% (H1 2019: 16.7%).

Cladding Update

In response to the revised Government guidance, issued in January 2020, on the suitability of certain cladding solutions used on high-rise residential buildings, the Group is working with the owners of eight of its previously developed PBSA schemes to remediate/replace cladding. The majority of the cladding is high pressure laminate (HPL), which has been under more recent scrutiny and is covered by the revised guidance. The Group is taking proactive and responsible steps to ensure the safety of tenants, working with building owners, even though the buildings concerned were developed in accordance with all building regulations at the time of construction and no liability is accepted for the works.

Discussions with the property owners remain ongoing, but the Board currently expects that this may result in a sharing of the costs of certain remedial works with them. The gross cost to the Group could be in the range of £12 million to £15 million, over the next two years. A one-off non-underlying provision for this cost is likely to be made at the year end, once the outcome of those discussions has been established. The Group will look to recover some of this cost from the sub-contractors and consultants engaged on implementing the particular cladding systems at the time. This is likely to take an extended period of time to achieve and the extent of any recovery is currently uncertain.

Working with the COVID-19 risk

The Group's response to COVID-19 was first built on securing the health and safety of our employees, tenants and partners. Secondly, we moved to conserve cash and secure our liquidity.

We adopted all relevant guidance from the UK Government, Public Health England and the World Health Organisation, implementing remote working and enhanced health and safety protocols for employees, tenants and stakeholders. The Group has now remobilised construction activities, after having made comprehensive risk assessments. We are currently operational in England, Wales and Northern Ireland at circa 75% of pre COVID-19 disruption resourcing levels, with significant site progress being maintained. The Group has worked closely with our construction supply chain and partners during this period to ensure they are paid as normal and to manage continuity for remobilising activities. We are currently unable to reinstate construction activity in Scotland due to the Scottish Government's ban on non-essential construction work.

Activity in the institutional forward sale and land purchase markets has been subdued since the period end. Whilst we anticipate that activity in these markets will increase through the second half, the Group will be able to use its strong financial position to decide whether to progress forward sales and site acquisitions in the short term if negotiated terms prove satisfactory.

The Group is supporting its student tenants through this difficult time. Watkin Jones has operating leases across several student accommodation assets. Approximately 50% of students left their term time residences prior to the lockdown being implemented. The Group has taken the decision to waive the 2019/20 final rent instalments for students who left their accommodation prior to the 23 March. We are also providing accommodation after the end of term for those who need to stay longer as a result of the disruption. The cost to the Group for these measures is circa £1.0 million.

We have implemented comprehensive cash conservation measures, including accessing the Government's Job Retention Scheme for furloughed employees, which at its recent peak saw 43% of the Group's employees (circa 185 employees) furloughed. Since early May 2020, the Group has begun to reemploy staff across most of its construction sites, as work has recommenced. For furloughed employees, the Group is topping up salaries to 80% of their base, where their basic salary is above the Government's cap. The annual pay increase, which was due on 1 April 2020, has not been made, and the Board has temporarily reduced director fees and senior executive base pay by 20%.

Dividend

As announced on 1 April 2020, the dividend has been temporarily suspended as a pre-emptive response to the as yet unquantifiable impact arising from COVID-19. The Board recognise the importance of the dividend to our shareholders and are committed to resuming dividends as soon as conditions stabilise.

Balance sheet and liquidity

The Group had gross cash at 31 March 2020 of £72.4 million (31 March 2019: £57.9 million). Net cash stood at £37.5 million (31 March 2019: £18.3 million), after deducting site specific loans and hire purchase creditors totalling £34.9 million (H1 2019: £39.6 million). This net cash balance is stated before deducting operating lease liabilities of £145.8 million arising as a result of the application of IFRS 16. The net cash balance stated before deducting the operating lease liabilities is considered a more relevant measure for the Group, as the lease liabilities relate primarily to several historic student accommodation sale and leaseback properties for which the lease rental liabilities are covered by the student rental incomes received.

At 31 March 2020 the Group had drawn £28.9 million against its revolving credit facility ('RCF') with HSBC. Subsequent to the period end, the Group renewed the RCF for a further five year term to May 2025, with an increase in the facility level from £60.0 million to £100.0 million on existing terms. The increased facility level therefore gives unutilised headroom of £71.1 million. The overdraft facility of £10.0 million has also been maintained.

With the gross cash balance and headroom in its banking facilities, together with cash conservation measures and the future cash inflow from the forward sold development pipeline, the Group has a resilient liquidity position.

The reduction in gross cash for the half year period of £43.3 million (H1 2019: £48.7 million) reflects the Group's normal seasonal cashflow profile which sees a cash utilisation in the first half of the year, including tax and dividend payments of £19.5 million for H1 2020. The Group is cash generative in the second half of the year, as the final payments due on completion of the current year's developments are received. The final payments accrue as the development works progress and this is reflected in the contract assets and trade receivables balances at 31 March 2020, which stood at £100.2 million (30 September 2019: £40.0 million).

Inventory and work in progress reduced by £25.6 million in the period to £108.6 million, reflecting the realisation of work in progress.

ESG

In the period, the Group continued to make good progress against its Environmental, Social and Governance (ESG) initiatives. The Group adheres to the strictest environmental standards and recorded zero reportable environmental incidents in the year. More than 90% of skip waste was diverted from landfill.

Commensurate with targeting higher BREEAM accreditations for our developments, we are integrating the use of greener, more sustainable materials into our builds. Low energy use initiatives, such as Combined Heating and Power (CHP), photovoltaic cells and air source heat pumps are also being looked at.

Safety is a key performance metric by which we judge operational success and we are pleased to report a 24% reduction in our combined reportable and non-reportable (minor) annual accident and incident rate to 2,855 per 100,000 employees. Training was given to our mental health first aiders and the Group continues to support mental health awareness initiatives. The Group continues to uphold strict compliance principles and procedures and maintained zero ethical or compliance breaches during H1 2020.

Fire safety remains of paramount importance to Watkin Jones and we construct our developments to high fire management specifications.

Watkin Jones is committed to acting and behaving responsibly and is in the process of scoping a coherent sustainability programme that builds upon all of its efforts to date.

IFRS 16

The Group has applied IFRS 16 "Leases" for the first time in FY 2020. This standard impacts the Group's six historic student accommodation sale and leaseback properties and leases for the rental of office space and motor vehicles. The new standard creates a right-of-use asset for these leases and a liability for future lease payment. The Group has adopted the fully retrospective approach in applying the standard, recognising its material impact on the Group's results and statement of financial position. The comparative results for H1 2019 and the statement of financial position at 31 March 2019 and 30 September 2019 have therefore been restated according to the transition arrangements set out in the standard.

The right of use assets recognised at 31 March 2020 amount to £127.2 million (30 September 2019: £131.4 million). These primarily relate to the student accommodation sale and leaseback properties, which accounted for £121.8 million of the balance. Corresponding lease liabilities of £145.8 million have been recognised (30 September 2019: £149.0 million), reflecting the long term nature of the student accommodation leases, which have remaining lease terms of between six and 32 years. The two leases with the longest remaining terms, Dunaskin Mill, Glasgow and New Bridewell, Bristol, which are strongly profitable, account for £83.3 million of this balance.

The difference between the right of use assets and lease liabilities at 30 September 2019 of £17.6 million, net of a deferred tax asset of £3.3 million, is reflected in a reduction in retained earnings of £14.3 million at that date.

The Group's income statements for the six months to 31 March 2020 and for the six months to 31 March 2019 have been impacted as follows:

Further details on the nature of the changes to the Group's accounting required by this standard, as well as its main impacts and the adjustments made to restate the comparative figures, are provided in Note 3 to the interim financial statements.

Outlook

As previously announced, given the current economic uncertainty and level of disruption to the Group's operations caused by the COVID-19 pandemic, the Board has temporarily withdrawn any financial guidance until the impact on the Group's performance and sectors in which it operates can be more clearly understood. The outturn for FY 2020 will be largely dependent on the completion of the seven student accommodation developments due this year, the level of progress made with the construction of the forward sold FY 2021 pipeline and whether the Group decides to forward sell any of its development sites in the second half given the uncertain investment environment. However, the Group's capital light business model and robust liquidity enables such decisions to be made from a position of strength and in the long term interest of shareholders. Looking beyond this period of uncertainty, the fundamentals supporting both our core sectors remain strong, and the Group continues to be in an enviable position to progress as a market leading developer.

Richard Simpson

Chief Executive Officer

19 May 2020

Consolidated Statement of Comprehensive Income

for the six month period ended 31 March 2020 (unaudited)

Consolidated Statement of Financial Position

as at 31 March 2020 (unaudited)

Consolidated Statement of Changes in Equity

for the six month period ended 31 March 2020 (unaudited)

Consolidated Statement of Cash Flows

for the six month period ended 31 March 2020 (unaudited)

Notes to the consolidated financial information

1. General information

Watkin Jones plc (the 'Company') is a 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 principal activities of the Company and its subsidiaries (collectively the 'Group') are the development and management of multi-occupancy residential rental properties.

The consolidated interim financial statements of the Group for the six month period ended 31 March 2020 comprises the Company and its subsidiaries. The basis of preparation of the consolidated interim financial statements is set out in note 2 below.

The financial information for the six months ended 31 March 2020 is unaudited. It does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The consolidated interim financial statements should be read in conjunction with the financial information for the year ended 30 September 2019, which has been prepared in accordance with IFRSs as adopted by the European Union. The report of the auditors on those financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 434 of the Companies Act 2006.

This report was approved by the directors on 18 May 2020.

2. Basis of preparation

The interim financial statements have been prepared based on IFRS that are expected to exist at the date on which the Group prepares its financial statements for the year ended 30 September 2020. To the extent that IFRS at 30 September 2020 do not reflect the assumptions made in preparing the interim financial statements, those financial statements may be subject to change.

The interim financial statements have been prepared on a going concern basis and under the historical cost convention.

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

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 interim financial statements do not include all financial risk information and disclosures required in the annual financial statements and they should be read in conjunction with the financial information that is presented in the Company's audited financial statements for the year ended 30 September 2019. There has been no significant change in any risk management policies since the date of the last audited financial statements.

3. Accounting policies

The accounting policies used in preparing these interim financial statements are the same as those set out and used in preparing the Company's audited financial statements for the year ended 30 September 2019 with the exception of IFRS 16 "Leases".

IFRS 16 supersedes IAS 17 "Leases" and IFRIC 4 "Determining whether an Arrangement contains a Lease". The standard introduces new or amended requirements with respect to lease accounting under a single on-balance sheet model. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases, requiring the recognition of a right of use asset and a lease liability at commencement of all leases, except for leases for a term of less than twelve months and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting are largely unchanged.

The Group adopted IFRS 16 "Leases" from 1 October 2019. The Group has chosen to apply the full retrospective approach under which the retrospective restatement of each prior reporting period is presented. The Group has elected to only apply IFRS 16 to contracts previously identified as a lease under IAS 17 "Leases".

Nature of the effect of adoption of IFRS 16

The Group has six historic student accommodation sale and leaseback properties and leases for the rental of offices and motor vehicles. Before the adoption of IFRS 16, the Group classified these leases as operating leases as they did not transfer substantially all of the risks and rewards incidental to the ownership of the respective leased assets. As such, the leased assets were not capitalised and the lease payments were recognised as rent expense in the statement of comprehensive income on a straight-line basis over the lease term.

Upon adoption of IFRS 16, the Group has applied the following approach:

· to recognise right-of-use assets in the consolidated statement of financial position. These were initially measured at the present value of the future minimum lease payments from the inception of each lease discounted at the Group's incremental borrowing rate at the lease commencement date. Depreciation is recognised in relation to this right-of-use asset with the initial asset valuation calculated on the basis that depreciation has been applied from the inception of the lease;

· to recognise lease liabilities in the consolidated statement of financial position. These were initially measured at the present value of the future minimum lease payment from the inception of each lease discounted at the Group's incremental borrowing rate at the lease commencement date. After the commencement date, the amount of lease liabilities has been increased to reflect the accretion of interest and reduced for the lease payments made up until the earliest reporting period presented; and

· the difference between the right-of-use assets and lease liabilities have been recognised as an adjustment to equity at the beginning of the earliest comparative period presented. This difference has been partially offset by the recognition of a deferred tax asset due to the changes in assets and liabilities resulting from IFRS 16.

The consolidated interim financial statements as of 31st March 2019 have been restated and the restated consolidated statement of financial position as of 30th September 2019 is also presented. The impacts of IFRS 16 are summarised hereafter and note 9 summarises the right-of-use assets which have been recognised upon the standard's adoption:

Impact on the consolidated income statement

Period for the six months ended 31 March 2019:

Impact on the consolidated statement of financial position

Position as at 31 March 2019:

Position as at 30 September 2019:

Impact on the consolidated statement of cash flows

Period for the six months ended 31 March 2019:

4. Segmental reporting

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

a. Student accommodation - the development of purpose-built student accommodation;

b. Build to rent - the development of build to rent accommodation;

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

c. Accommodation management - the management of student accommodation and build to rent property.

Corporate - revenue from the development of commercial property forming part of mixed use schemes and other revenue and costs not solely attributable to any one operating segment.

All revenues arise in the UK.

Performance is measured by the Board based on gross profit as reported in the management accounts. Apart from inventory and work in progress, no other assets or liabilities are analysed into the operating segments.

5. Exceptional costs

6. Income taxes

The tax expense for the period has been calculated by applying the estimated tax rate for the financial year ending 30 September 2020 of 19.0 % to the profit for the period.

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 ordinary shares in issue during the year.

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

8. Dividends

The interim dividend that would have been paid in June this year has been suspended, due to the impact of Covid-19 on the business.

9. Right of use assets

10. Reconciliation of profit before tax to net cash flows from operating activities

11. Analysis of net (debt)/cash

- Ends -