Ryman Healthcare Ltd
NZX:RYM
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Ryman Healthcare Ltd
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[Foreign Language] Good morning, everyone. I'm Richard Umbers, Group Chief Executive Officer of Ryman Healthcare, and I'm delighted to be here to present our Full Year Results for the Year Ended 13st of March.
Here with me in Christchurch I have Dave Bennett, our Group CFO. As previously announced, Dave will be transitioning into the Chief Strategy Officer role and remains the CFO until a new appointment is made. We'll be happy to answer questions at the end of this presentation and we're hoping to wrap-up within 60 minutes.
Today, we're announcing a solid result. We delivered this while taking a number of steps to reposition the business for future growth and for improved financial performance. This result was achieved in a challenging economic environment compounded by significant weather events and the tail-end impacts from COVID.
Our result confirms healthy demand for what we offer. Our Australian business continues to go from strength-to-strength. Following our recent $902.4 million equity raise, we have reset our balance sheet. Importantly, our gearing has reduced to 31.1%, which is within our new medium term target of 30% to 35%.
In line with previous communications, the Board has confirmed that there will be no final dividend for FY 2023. The Board anticipates making an announcement on Board renewal, including the appointment of a new Chair in the near future.
During the presentation, we'll discuss the results in detail as well as changes we've made to the business. You'll notice some new metrics and improved disclosure in specific areas.
So, starting off with the headline numbers. Underlying profit of $301.9 million, increased by 18.4%, driven by strong resale margins and a growing contribution from the Australian business.
Our reported or IFRS profit decreased by 62.8% to $257.8 million due to lower revaluation gains and costs associated with early USPP repayment. To help our decision-making and tracking of progress this year, we've also highlighted two new metrics; free cash flow and operating EBITDA.
Free cash flow demonstrates the total cash generated or used by the business, including for development before any external financing from our debt or equity holders.
Ryman invested $1.04 billion in portfolio development in FY 2023 and finished the year with net operating cash flows of $650.8 million, resulting in a free cash outflow of $389 million. As we've previously indicated to the market, we're targeting positive free cash flow by FY 2025.
We've also introduced operating EBITDA as a key metric to track performance. This metric focuses on the performance of our existing operations, excluding the impacts of development earnings, interest, depreciation, and amortization.
Our operating EBITDA is up 29.4% year-on-year. Neither of the two new metrics are intended to replace underlying profit, but rather to give you a broader perspective on how the business is tracking.
Before I talk to strategy, I'd also like to reiterate that our core purpose remains unchanged. We'll continue to operate a vertically-integrated business model based around the best continuum of care in each market. We'll continue to offer unparalleled resident experiences and care that is truly good enough for mom and dad, but focused on doing so in a commercially viable way.
Our sustainable growth model strikes a balance between development and optimizing the existing operations. To improve cash recovery from development, we are focused on three core things. Firstly, rebalancing our portfolio to lower density townhouse-style developments; secondly, rightsizing our care offering; and thirdly, introducing care suites and other design innovations to meet growing market expectations for a premium care offering.
Turning now to our existing villages. We're optimizing our pricing strategy, including a trial of alternative DMF structures; secondly, we're maximizing resales via our refurbishment program; and thirdly, we're placing an increased focus on operational efficiencies. You can expect us to continue bringing new villages to market in carefully selected locations based on local demand and a strong commercial model.
We remain very positive about the age and wealth demographic in both New Zealand and in Australia. Our equity raise at the end of the financial year was a very significant event and was strongly supported. Thank you to all our shareholders who participated.
The completion of the raise enabled us to strengthen our balance sheet through the repayment of debt, leaving us better able to execute our growth framework. The total cost of repaying our USPP notes and associated swaps was $855.5 million, reducing net debt from $3 billion at September to $2.3 billion at the year-end.
In conjunction with the raise, we have been able to adjust key covenant ratios, which will give us additional flexibility in the current high interest rate environment. We have provided additional disclosure on these covenant ratios in the appendices.
During the year, we continued to invest strongly in portfolio development to meet the growing demand for our product, which is underpinned by positive age and wealth demographics.
Within our investment program this year, we have continued to meet our obligation to residents by progressing six high-capital intensity main buildings across the portfolio. Overall, we have reprioritized our development program to achieve two key outcomes. Firstly, remixing our land bank with lower density villages that have an improved cash flow profile; and secondly, rightsizing our care offering for future developments.
If we looked at these six projects today under our new investment criteria, we would not build care centers with this capital intensity. I'll talk to our development program just a little later.
Our portfolio of RV units and age care beds increased by 821 in FY 2023. This movement comprised of 519 units and beds, which were fully complete; and by that, I mean you could physically move in; 302 additional units and beds, which have been included on a near complete basis, and the criteria for near complete differs across different unit types.
Units and beds within main buildings are included on the same proportion of the percentage of cost incurred, but only where we've spent at least 60% of the projected total cost.
For units outside of the main buildings, we assess inclusion based on a number of factors, including the stage of the development, the percentage of cost incurred, and the resident move in date.
The net increase of 821 was lower than our prior FY 2023 guidance of approximately 1,000 units and beds, due to weather events and the related impacts that incurred after our guidance was given. A material driver of this was the cyclone in the Hawke's Bay, which has materially delayed construction time frames at James Wattie. This remains a longer term issue and will directly impact the delivery of future stages.
Given that we didn't achieve the 60% threshold at James Wattie for its main building, we did not include 109 care beds and service departments in our portfolio movement. In addition, severe weather events impacted all projects in Auckland where a significant proportion of our development is located. I would also like to highlight that a large proportion of the build rate shortfall in FY 2023 relates to the main buildings and to care beds.
Care is paramount to what we do. It's in our name. We're a market leader in this space and we have been for some time. In Australia, our continuum of care model is widely talked about as a game-changer.
At the opening of the new $30 million apartment block, at our [Indiscernible] retirement village, Victorian Premier, Daniel Andrews, praised the quality of staff and the vibrant community at our village.
Throughout the year, Ryman has maintained the highest standards of care and resident experience remains a key priority. 82% of our New Zealand villages have four-year certification. In Australia, all four of our operational care centers received a 4 Star rating following the launch of a new rating system for age care.
Age care occupancy for mature villages has improved steadily throughout the second half to over 96% at March 2023. This again demonstrates the quality of our care operations and the strength of our brand.
Sadly, we continue to see a decline in the overall availability of care beds in the broader market because of funding pressures, and of course, skill shortages. There have been some recent welcome developments including the recent Australian budget and additional funding for nursing pay parity in New Zealand, but the overall situation is far from resolved.
I want to assure you that we are actively campaigning both for a rewrite of the age care residential or the ARC contract as it's called in New Zealand and for a co-contribution model in care in Australia.
The launch of the company's sustainability strategy during the year was a major milestone in our journey to a sustainable future. In consultation with stakeholders, the company identified a number of key projects that will be undertaken in coming years.
As a step towards addressing our environmental impact, Ryman secured an exclusive agreement with renewable energy developer Solar Bay, a first for the retirement sector. The solar farm is expected to generate 30 gigawatt-hours of renewable energy and save an estimated 3,294 tonnes of carbon a year.
With that, I'd like to pause and perhaps hand over to Dave to run you through the financials in a bit more detail.
Thanks Richard. Good morning, everyone. I hope you are keeping well. It's fair to say, it's been another unique and challenging year for the business. Before we dive into the financials, I want to take a moment to look at some of the key performance indicators for the business over the last 12 months.
Booked sales of occupation rights have been stable year-on-year despite softer housing market conditions. Pleasingly, our margins for both new sales and resales have been strong. We finished the year with just 2.1% of resale stock available. This is up slightly on the prior year, but is still at very manageable levels.
Our average opportunity at mature age care centers was robust at 95% throughout the year, notwithstanding COVID challenges through the winter months of 2022 and has actually rebounded to over 96% at year end.
Now, moving into a deeper dive of the numbers. Our FS profit decreased 62.8% to $257.8 million. The four was driven by two main factors; first, a smaller unrealized revaluation uplift on investment property due to a softer valuation assumptions and also costs relating to the repayment of our USPP and associated swaps.
I would also like to note that our age care centers received evaluation uplift in FY 2023, in line with our two yearly valuation cycle. This uplift has taken through reserves and is therefore only visible on the balance sheet and isn't affected in the profit.
Underlying profit of $301.9 million is up 18.4% year-on-year and ahead of guidance we provided in February of $280 million to $290 million. This difference was largely due to resale volumes through February and March.
Our Australian business has had a strong year with underlying profit lifting 36.1% to $69.7 million and has now gone to nearly a quarter of our group underlying profit.
As mentioned earlier, we have introduced some new disclosures. This breakdown of our profit and loss movement starts with a non-GAAP presentation of underlying profit and then bridges this back to our reported profit.
I would like to draw your attention to our operating EBITDA. This metric focused on performance of our existing operations, excluding the impacts of development earnings, interest, depreciation, and amortization.
Up until FY 2022, operating EBITDA has been relatively flat, as you can see on this chart. This reflects cost pressures that have been matched by additional funding, specifically in our care centers during those years.
While these funding challenges remain, these pressures have historically been offset by growing contribution from resale margins and management fees. In FY 2023, operating EBITDA has lifted 29.4% to $274.6 million. This growth has primarily been driven by resale margins as a result of villages that were built in high value locations in recent years having now started to mature. This has resulted in higher resale margins on increasing volumes and therefore, increasing our management fees as well.
As you can see on this chart here, our resale pricing, which is shown by the orange line, has lifted materially in FY 2022 and FY 2023 and now sits at $714,000, that's 42% higher than it was just five years ago. Our average new sale pricing has also lifted. It now sits at $905,000, up 35% on five years ago.
This slide here provides a snapshot of the key sales metrics for our time [ph] village units. As mentioned earlier, our book sales of RV units has been stable with 1,519 sales in FY 2023, broadly flat on FY 2022. Booked resales lifted 7.5% to 1,057 units. Booked new sales fell 17.5% to 462 units and this predominantly reflects the challenging market conditions in the second half in New Zealand.
Resale margins during the year lifted to 31.1% in FY 2023. Our implied resale margin for our resale bank sits at 24.9%. However, this will be on high value units and volumes are expected to continue to grow in the future years.
New sale margins on developments also remained strong at 29.4%, underpinned by strong performance in Australia, which delivered margins of 32.7%. our resale bank reflects the gross resale uplift, which will be realized if all of our retirement village units were resold today. This currently sits at $1.78 billion. While this is down on March 2022, this is due to the realization of resale margin through FY 2023.
Accrued management fees and resident loans reflect the timing difference between when contracted management fees are accrued and when they are realized. This is a key component of our embedded value.
FY 2023 free cash outflow of $389 million was driven by $650.8 million of net operating cash flows and $1.04 billion of net investing cash flows. As Richard mentioned earlier, we have reprioritized our development program to achieve positive free cash flow by FY 2025. This includes remixing our land bank with lower-density villages that have an improved cash profile. And rightsizing our care offering for future developments.
Total RADs increased to $300 million, resulting in a net cash inflow of $100 million during the year. While New Zealand contributed half of this increase, the opportunity for RADs remains substantial with only 9% of our occupied beds in New Zealand having a RAD at year end.
Following the completion of our capital raise and repayment of USPP notes, our balance sheet has been reset. Alongside our shareholders, our banking syndicate, institutional term loan holders, and retail bond holders have been incredibly supportive of the business.
In conjunction with the equity raise, our interest coverage covenant has been amended from 2.25 times to 1.75 times through to March 2025. In line with our focus on improved disclosure, we have set out our covenant calculations in the appendices. We are compliant with all covenants at 31 March, 2023. We had $577 million of funding headroom across our undrawn bank facilities and cash on hand at year end.
As Richard mentioned at the start of the presentation, I will be transitioning into the Chief Strategy Officer role when a new CFO is appointed. I would like to assure you that I remain committed to playing my part in delivering on our plans.
And at this point, I'd like to hand back to Richard.
Thanks Dave. Turning to development activity, as you will see on the next two slides, there has been significant progress made over the past year. We've recently completed our Linda Jones village and have commenced construction at Cambridge in New Zealand. This means we now have nine sites under construction in New Zealand.
Our land bank is in good shape and two sites, that's Karori and Rolleston, achieved resource consent. During the year, we added Taupō to the land bank and Newtown is currently being held for sale.
While in some ways, it's disappointing to be selling sites, this also demonstrates our focus on capital discipline. If we don't think a site will achieve a viable return, then we won't build it.
Looking to Victoria, we are now building across five sites, a reduction of two sites compared to FY 2022, having completed Charles Brownlow and Railing Boil during the year.
Consenting activity has also been a highlight in Australia with both our Mulgrave and Mount Eliza sites receiving planning approval. As announced at the half year, we have divested our Mount Martha site.
Guidance for the year remains in line with that given in our equity raise outlook statement. FY 2024 underlying profit is expected to be in the range $310 million to $330 million. Our portfolio is expected to grow by 750 to 800 age care beds and units. And as I said earlier, we expect to invest between $800 million and $1 billion through FY 2024.
The Board will consider the resumption of paying dividends in FY 2024 taking into account trading performance, cash flow, and market conditions. Our medium term outlook remains unchanged.
During this year, we've not only delivered a solid result, but have also taken important steps to reposition the business to capitalize on the significant growth opportunities which lie ahead in both New Zealand and Australia.
The strength of the Ryman team gives me every confidence that we will deliver on our care promise, reposition the business to capitalize on future opportunities, and improve financial performance.
The team continues to impress with their dedication and commitment and I wish to thank everyone for their efforts. I'd also like to thank all of our shareholders for your continued support through this journey.
And with that, I'll now open up to questions and please note that we plan to wrap-up at 11:30. Operator?
Thank you. [Operator Instructions]
Your first question comes from Nick Mar from Macquarie. Please go ahead.
Good morning. Just on the [Indiscernible] question, could you just talk through bit of what's caused, I guess, the [Indiscernible] to slip out the back end of FY 2024? Meaning that those that were disrupted by the weather events weren't additive to the 2024 growth -- 2024 delivery and target?
Yes. Obviously, when we gave that guidance, that was pre the storms that took place and well, obviously, we had the cyclone in the Hawke's Bay, but actually severe weather throughout the North Island and that significantly slowed down the developments.
Importantly though, those were the village centers and heavily made up of care beds, which of course, are part of our PPE and therefore don't go into the profit result. So, although the build number was down by the traditional way it's looked at, of course, that didn't affect the profit. And indeed, it was because of the storms, there is a flow on impact from that.
However, if you take a location like James Wattie, for example, the issue now post-storm is that it's very difficult to get the raw materials and the labor because it's largely involved with the cleanup of the broader area and it is cost-prohibitive for us to accelerate in order to bring it on stream more quickly. So, I believe we've got the optimal result even if there has been some step back in the delivery of units.
Right. And then just on the resale stock, can you just look through what you're seeing out there in the sort of markets and the drivers of that lifting, is it people not wanting to contract as soon as settlement as it refit times, I'm sure it's probably all of the above, but any of the above will be appreciated?
Yes, I think there's quite a broad range of factors in that dynamic. I mean the encouraging thing from our point of view is that we still continue to enjoy strong demand and we've got strong databases of people looking to move in, which supports demand and it supports pricing.
On the other hand, people who are very committed to us and looking to move in, certainly the broader economic conditions make it difficult in some circumstances, for example, to sell their own property and that delays then being able to move in and come to us. And with that, we see some of the cash that we would get in normally from settlements being pushed out.
But I think it's more that -- the demand is still there. It's a matter of timing when we get that money in, but certainly we're like any other developer at the moment, we're, I guess, subject to the poor housing market in New Zealand.
I would contrast that, however, with what's going on in Australia, where actually the results have been very encouraging, the sale of service departments has been particularly strong and there's an appendix that breaks all of that down. And equally, the sales of -- the new sales have been much stronger over there.
So, we do see a different market dynamic operating in the two markets and to some extent, the Australian business for us has been a hedge against the deteriorating conditions in New Zealand. Dave, do you want to add anything to that?
No, I think that's largely covered, but your points, Nick, are valid. It's a bit of an all of the above just with days to settle, but there's also been a slight increase in the number of people transitioning through or vacating units as well sort of closer to year end, which -- well it's taking a little bit longer to sell, that's more noticeable in a short period, but the underlying demand is still very strong.
Yes, that's great. And just one more for me, punch on top. The contract's notebook number, is there any sort of change in the way that you're selling or accounting for stuff given how much that sort of come off business to start?
No, the biggest change is probably just that early when relating things for sale ahead of construction, just with where the construction market is and cost associated with that, we are just making sure that we are keeping those a little bit closer aligned than what we probably have for Starkeley [ph]. So, that's been one of the key drivers for that.
Great. Thanks.
Thank you. Your next question comes from Stephen Ridgewell from Craig Investment Partners. Please go ahead.
Yes. Good morning. And look first of all, guys, thanks for the additional disclosure provided in the appendix as it is appreciated and noted. I just want to follow-up on Nick's question, sorry, on the -- I think it was the -- lower new sales volumes in the second half. And you have kind of called out the pool with a delaying some construction?
But also note in appendix 23, it looks like you've kind of had an increase potentially in unsold new stock of about 130 units, if you had completed and near completed units together and presumably they are available for sale of the residents.
Can you just perhaps comment a little bit more about whether you're seeing resident demand for new units holding up and perhaps is there a difference between New Zealand and Australia?
Yes. A couple of parts to that, probably Steve, that we will cover off, but New Zealand is more challenging than Australia at the moment. And it's probably having the two markets that we're currently participating in is very beneficial and that we're seeing very, very strong demand for what we do in New Zealand, but the new sale market in New Zealand is pretty more challenging.
A lot of that unsold new sale stock too relates to service departments as well as the main buildings are coming online. So, what typically happens with your service department as you might sell 10% to 15% of those when the units complete and built and the remaining service departments will sell down over the next 12 to 24 months because they are a needs based portfolio. So, that's another contributing factor, but we are probably opened in particular as well.
Some of the apartments up there are taking slightly longer to sell, which is why you are seeing us sort of be a bit more cautious with the build program going into next year and in the following year as well just as we wait for that market to pick back up.
Long-term demand is still very confident about all of that, but there's just a little bit of short-term noise as we're seeing with a lot of things in the property market at the moment.
Perhaps I could just add to that by saying that perhaps what skews this slightly is that the large proportion of main centers that are currently in construction. We have a strong obligation to our residents to complete those and so we do continue to spend money on completing them.
I think we wouldn't be doing that again in the same way to have this number coming on stream and indeed the capital recycling of those main centers is not as strong as we would ordinarily want it to be.
And what it means is that as those main blocks come to fruition, large amounts of stock are released at one particular time onto the market specifically. And it's much harder to sell large volumes of stock, but hit the market all at one-time.
Selling the more traditional mix of care beds or main center orientated property to independent living. The independent living is normally a more efficient vehicle for recycling capital than the main centers and that's just a legacy issue that we're dealing with, we're working through it, coming out the other side. And the mix shift that you're seeing will become stronger as time progresses and we get out of those more capital-intensive sites.
That's helpful. Thanks, guys. And then just on Richard on your comments in the prepared remarks about trialing DMF structures, could you elaborate a little bit on what you mean by that?
So, I think you mentioned at the Investor Day, you had done some work -- or the team had done some work on that and then something was a freelance there. So, just can you just give us more information about what you're drawing?
Probably the way I would sort of talk about this in a broader context is towards the end of the last year as the interest rates went up and the property market stagnated, we knew we had to face into that challenge and address go-to-market proposition with a different mix of tools and we started experimenting I guess with other team structures.
Rolling out, for example, salesforce infrastructure to get much better handle on our databases, then new systems for triaging, who was out there and who would be good prospects for us, and who were the right kind of people to move in.
And I think we sort of invented a new model through that that has been highly effective when we saw some of the gains from that in the last couple of months of the year.
One of those components was experimenting with DMF structures because quite clearly there's a toggle between the ticket price on a village and also the proportion of DMF people play.
And there is a cohort out there that particularly in a declining property market, the money that people are getting from the home they're selling isn't perhaps where they wanted it to be. And would they be interested in a higher DMF structure and a lower ticket price requiring less capital outlay? What it turned out is there was an appetite for that in some sectors of the market.
So, we've started trialing different structures in order to accommodate different cohorts of population out there with some success I might add and I see that expanding over a period of time as we get to see and analyze the results of that trial.
And would the expectation at this point be Richard, do that's kind of neutral to the business overall, but perhaps improve appetite from residents as opposed to kind of changing the cash flow profile, how do you--?
So, if you if you analyze it on a unique sale basis, I think that would be right that we see it as neutral. However, of course, the go-to-market proposition, if that strengthens because we have a broader range of tools to appeal to residents in different cohorts, then you'd expect the demand to respond positively.
And therefore, we do get a benefit, but I guess spread over the portfolio effect of having a broader customer base or higher demand, which then plays through into the overall result. But on a unit basis, that would be correct, yes.
Got it. Okay, great. Thanks. And then just on the comments on RADs, you've called out New Zealand at 9% and it has been a project if you like underway for a couple of years now to increase the number of New Zealand care bit with bond attached.
Can you give us an idea based on what you're feeling advancing it now, but what proportion of beds could have RADs attached in the New Zealand business and how much cash that might release?
Perhaps a starting point is to say that it isn't a commonly understood or known model in New Zealand, so some of this is about communicating what it's all about in order to get traction on it. I think what's very encouraging though is just the sheer lift that we've had in RADs showing that there is a market for it and obviously, it's something that we're seeking to encourage.
Yes. And I think it's something that is going to so play out in the next couple of years with how the funding piece works, Stephen, because obviously, at the moment, we have our traditional care rooms, which we are offering a pay for your room premium either through a weekly room premium charge or through a RAD. As we've touched on, we're also looking to do care suites in the future. So, it's going to be part of the wider value proposition for us and how that works.
The best indicator, in Australia, you often hear operators talking 50% to 70%, I think it's quite some time before we get to that level in New Zealand because at the moment, we are the only operator doing that.
But as the sector works through the funding challenges that are facing us at the moment, one of the key aspects of that is not just the operating cost or the funding lift, but also how do we start to make a bit of a turn on capital and do we follow the Australian model where we split out the care fee from the accommodation component? And that would then likely drive to the RAD model and the care suite model or care department model with -- or is endemic on that becoming a lot more prevalent as well.
So, I think there's plenty of upside, but I probably wouldn't want to put a number on right now, but plenty of upside.
Okay, that's useful. And just one more from me. So, just in terms of the guidance for $310 million to $330 million, which is reiterated from what you said in February, but the well ahead of consensus as of yesterday. Can you just give us a bit of an indication around some of the key assumptions for new sales volumes and margins and resales volume and margins that booking the top and bottom end?
And then I'm particularly interested as to whether that range assume -- what that range assumes for unit prices? Are you sort of assuming flat unit prices or have you got allowed for some decline or can you just give us some sense of the assumptions here, please?
Yes. The assumptions aren't drastically different to this year in terms of pricing. I think we're issuing stable pricing as part of that. One of the key drivers though of that obviously is the -- we would expect increased resale volumes in particular as our villages continue to mature and as our resale earnings obviously lift with that.
So, more volumes -- I'd still think similar higher margins in terms of resale margins is what we've experienced this year because even though our implied resale margin resale bank is at 25%, majority of the units that we would be expecting to come up are units that transacted last three, four, seven, even 10 years ago. So, there's significant sort of pent-up gains in that pricing. So, still expecting really strong unit pricing gains or margin gains in the resale part of the business in particular. So, I think you'll see a lot of that growth coming through from that part of the business still.
And those are the internal factors, of course. So, I think we're also watching the OCR quite carefully because I think the link between the housing market and the OCR is proven now. And I think things like settlement times and so on are things that will improve as the market improves.
And people are starting to talk about a slowing down of the rate of increase of the OCR. We would be obviously pleased with that. And seeing a bit more liquidity in the property market is something that we would want to see. And I would view those with some optimism if those things would have come to pass.
Can I just last one follow-up then? You didn't allude to kind of assumptions on the new sales that you book, you've talked about kind of build rates. But and then also margins, are you allowing for a decline in new sale margin in that guidance range?
Yes. So, the margin that we're expecting on the new sales would be tracking back more or closer to our normal 20% to 25% in terms of what we've assumed for that, but always hopeful on that front, particularly with the strength of how things are going in Australia at the moment.
In terms of volumes, we'd expect a bit of a lift on this year, sort of around that 500, 600 mark, I think would be where our new sales, we would be looking for that to be. Obviously, mix on that will be important too with independent dollar margin being higher than the service department margin. So, I guess, the focus for the team though is selling that built new sale stock that you also has been called out earlier on the call. That's a big opportunity for us to sell that down in the next 12 months.
That's really helpful. Thanks guys.
Thanks Ridgey.
Thank you. Your next question comes from Arie Dekker from Jarden. Please go ahead.
Good morning, Arie.
Good morning. Morning. Just first one, just on your investing cash flow guidance for FY 2024, which is really helpful. Thank you. Just want to understand at the bottom end of that range $800 million, is that assume any settlement on land over and above what you have in payables, which I think is just $75 million at the moment, so lower?
Yes.
We can only model what we know about. So, certainly, we've built in the plans that we already have slated, but we're not oblivious to new opportunities coming along certainly.
To answer your question sort of quickly, to be at the bottom end of the range, we wouldn't be spending a significant amount on additional land, there would also be some anticipated land sales on that number.
But there's a lot of moving parts that will sort of drive through that CapEx spending and why we've given ourselves a bit of a range because the wider property market and when we commit to new stages and new villages will have a big determination on that as well.
And for each new stage that we embark on, we're looking at the external factors of demand in that local area. I guess common sense is telling us not to build more units in a place where we've still got stock hungover from previously in which case, we divert that capital to elsewhere. So, there needs to be some flexibility in that.
What we're trying to share with you is enough for you to get a feel of how we're thinking about the business, recognizing that market conditions sales rates. How the market is unfolding will determine ultimately where we put the dollar in that location or in another location. But in ballpark, I think that guidance is about right.
Sure. And then -- I mean, I guess what you've sort of indicated is that your, I guess, pushing out the phasing with the 150 under this year and no change to the 2024 guidance for delivery. But can you just sort of confirm FY 2025 delivery is sort of in line with what you indicated at the capital raise? And from there, your intention is still to build up to 1,300?
Yes, we haven't changed anything in the medium term to what we published at the time of the raise correct.
Sure. Okay. Just the EBITDA disclosure and I think it's useful. I mean, I guess just one point perhaps, it would be potentially worth sort of disclosing that on a settled resales basis as well because clearly what we're seeing particularly in this market, but I think we've seen it over time as the resales level of unsettled resales receivable has been sort of growing.
But my question on this one, I guess, is more in terms of that breakdown sort of highlight the earnings on the rest of the business and when you take into account DMF, clearly, care and overheads sort of quite a drag.
Is there some visibility you can give on just where care earnings sort of sit at the moment in FY 2022 over FY 2023 in terms of -- is it getting a bit better now that you're getting out of the worst of COVID? But yes, I'm specifically sort of asking, are we at breakeven on care or is care losing money on an EBITDA basis?
Yes. On an EBITDA basis, our care is really breakeven. There's been a little bit of COVID cost come out, but there's continued sort of CPI challenges that the whole sector is facing on that front.
So, look that is a key focus of ours around looking at levers to pull within the care business. It's part of the care suite offering that we are looking to develop that's sort of become more widely accepted in the market to try and improve their care earnings piece. But there's also a significant amount of work going on at the sector level around addressing that funding.
So, there's been a -- as Richard touchstone in the presentation a few sort of good announcements around pay parity. But there's also pay equity, sort of discussions happening at the moment, but also the wider funding and how we also get a return on capital that's being put into that sector as well. So, there's a journey to go on care, it's still very close to breakeven.
Yes, sure. And just on the care suites, and you've been sort of clear on your forward intentions. There been any sort of further work done on the opportunity to convert to care suites and what is I guess a 3,500 odd embed embedded care beds in the existing portfolio in New Zealand?
Yes, it's a piece of -- yes, it's something we are exploring. One of the, I guess, key things within our existing portfolio too is the service department offering that we have. So, we can already provide rest home level care into our service departments.
So what we want to make sure is that we're not going in and creating even sort of more competition for yourself within those existing villages, particularly when there is a large service department offering.
One of the key sort of things that we have seen in Australia though with that service department offering is the ability to get home care funding into that product as well. So, our residents can get some of the weekly fee funded, which means that they can add additional services into their service department.
So, I might just think that may come through in New Zealand as well in the future years, but converting existing care is something we will consider, but it's still very early stages.
Yes. I mean, realistically, I'm just adding to that. It is a significant, but slower burn strategy that plays out through the execution of new villages. There is some opportunity in existing villages, but -- and we have in fact joined the course of this year, actually knocked some units together to create larger, more compelling accommodation for people.
But realistically, to do it on any meaningful scale with the existing portfolio is difficult due to the configurations of existing buildings. So, that does play out over a period of time. I'm going exactly where Dave is going to say one of the interesting aspects to this results.
And if you look at again the appendices that you can see the shift of service departments that have been selling in Australia. The trick to that has actually been that growth is not just a service apartment. It's a service apartment quite often with a care package bolted into it, which of course, creates -- and practice it it's like a new product that we're able to bring to market.
And to some extent, the implementation of that is a quicker realization of benefit than a longer term project to redesign our villages for a care suites operation. So, they're both relevant; one has short-term impacts, one has longer impacts, but they're both playing to this point about an enhanced package for people in higher levels of acuity.
Yes. And then just sort of I guess it's reluctant to the care and the value of care on the balance sheet, I think there's some useful additional color on the revaluation. There of the care assets, which against sort of EBITDA breakeven, obviously, again very substantial value in your books.
Can you just comment a little bit on -- there's reference here I think for the first time to the value we're taking into account a portion of the DMF and coming up with -- so the retirement village DMF and coming up with the valuation supporting the care assets. How material is that -- a portion of your DMF through to the care asset valuation?
Yes. You're right. So, it is -- in terms of the uplift in this year, it's probably about half the uplift related to that apportionment, which we capture every two years. So, what we're doing is taking some of the deferred management fees sort of forward cash flow valuation from the investment property valuation and apportioning that over.
So, it is reducing the investment property valuation, but obviously underpinning the valuation for the care, it's something we have been doing for a long, long time, but have added that additional disclosure to make that clear in the financial statements.
The rationale for that obviously is people coming in to villages are coming in knowing that they're coming into a village that offers residential aged care in the future as well.
So, that that offering of the aged care is a is a big driver for people coming to our villages.
I would add the economics. Sorry. Go on.
Just on the materiality of it. So, if you're realizing, say on average 15%, 16% DMF in total, how much of that 15%, 16% is being a portioned to the care asset valuation?
Probably about quarter of that.
Okay. Thank you.
I'd also just add the care business is -- I mean, I guess I'd use the phrase quasi-regulated in the sense that in New Zealand, we have the ARC Agreement. In Australia, obviously, there's the Anak funding settings. But essentially, the amount of money that comes in is fixed and to some extent the level of service provided is regulated, in Australia, for example, was a number of minutes per day.
What I think is encouraging in the Australian market, I do think we see them as different markets here in this question, is the recent budget and other funding announcements over in Australia have had some encouraging signs built into them that there is funding here available.
If you see our proposition as part of the ecosystem of healthcare, I believe that we offer actually a very cost effective option for governments to be able to look after people in old age, particularly compared with the alternative of the hospital.
And with that therefore, there is a way forward, I guess, that is starting to be mapped out in Australia. To some extent, those same influences are also playing out through the New Zealand market. And I think there is a logical journey that will also play out in Australia -- in New Zealand as demand builds and as the economics, I guess, are evaluated by government about how cost-effective what we provide versus the DHP or former DHP type alternatives.
So, in the medium to longer term, we're encouraged that there is a way through this, but in the short-term, certainly we're saying that we've got a breakeven business when it comes to care.
Thank you. And then final question, just in relation to dividend resumption in FY 2024. And I can appreciate with forward renewal sort of occurring that you're going to wait for that, but could you just sort of give an indication, has there been a lot of work done on it and you'll be able to come out with something recently shortly after the Board refresh has done? Or is this something that we're going to be waiting till first half 2024 on in terms of dividend?
Yes, I'm not really in a position to comment on behalf of the Board, unfortunately, but certainly what we've put in this statement I think is an accurate reflection that there's certainly work going on.
Yes. So, you can sort of comment -- so, I mean, you can't comment on like win guidance for approach and dividend will be given at this stage?
No.
Okay. Thank you. That's all. Thanks guys.
Thanks Arie.
Thank you. Your next question comes from Aaron Ibbotson from Forsyth Barr. Please go ahead.
Hi Aaron.
Hi there. Good morning, everyone. And also appreciate the new metrics and the increased transparency around unit delivery, I think that's encouraging. I got three hopefully slightly quicker questions. So, first one, just on cost, you called out that cost growth would have been 12% and change versus 14.4% if it hadn't been for a few 1 offs. So, I was just curious if you could let us know if that's related to sort of first half or second half? I can't recall anything from the first half being called out? So, $10 million or so I guess?
Yes, they were second half adjustments. So, yes, occurred on the second half.
Fantastic. Second question, Richard or anyone else, but you mentioned main buildings I think is at 6% in 2024% and that contributed to capital intensity. I appreciate early days, but is there any chance you can give us some sort of rough idea where you think that number is going to land 2025? How many main buildings are you already aware of that's going to come up in 2025?
Certainly, the number will come down as these ones deliver. And the context would be that the future villages we do, of course, have smaller proportional care centers anyway And therefore, what is currently perhaps two to two and a half year build timeframe for a main building of quite significant complexity. The burden that that places on us has reduced significantly in future builds.
The other factor is that care or village centers do affect demand. And what we find is if we haven't built the care center, it makes it much more difficult to sell apartments, and individual units -- independent living units. So, there is not only an obligation for us to finish those, there's a commercial logic to us doing so.
But at the moment, as a result of several years of COVID, delayed stoppages and so on, on those main buildings, we happen to have a disproportionate large amount happening at the moment.
So, during the course of the year, we'll complete some of those. In fact, Deborah Cheetham is actually about to complete very soon and we'll bring that down and the proportions will shift over time.
I think what we've suggested in our guidance this time around in the outlook statement is the proportion of care beds to independent living will be broadly similar to this current year and the year ahead. But after that, we see that reducing.
Fantastic. Thank you. Third little tiny one, just I think you called out that Mount Martha had been sold or agreed sale. So, I just wanted to know is this significant amounts of dollar value? And has it been included in your investing cash flow $800 million to $1 billion guidance? i.e. has the positive from Mount Martha been included in that guidance? Can we get some idea of how--?
That is a number, but it's not hugely significant. You can -- there's a couple of assets that we've got for sale that out on the balance sheet is assets available for sale, that pretty gives you a rough idea for the scale of the numbers combined.
Yes, okay. But it's been included in the $800 million to $1 billion guidance?
Yes.
Okay, fantastic. Final question. Just any chance, I can invite you to comment on the very recent trends? Have you anything to say about sort of May? Does it look similar to what it has done? Do you see any further deterioration or a small pickup or steady as she goes? Anything you want to say about May?
I mean, there's certainly no large scale shocks in the market. I would probably say, but I wouldn't want to comment more than that.
No, I think back a lot of people, we're looking for positive property market will be good.
Yes. That would indeed be good. Thank you very much. That's all for me.
Thanks, Aaron.
Thank you. Your next question comes from Jason Familton from ACC. Please go ahead.
Good morning Jason.
Morning guys. Good result, well done. Just back to the first question, Nick asked, just to understand what the guidance for build rate in the impact from James Wattie. So, is James Wattie going to deliver any units in FY 2024 or is it more cautious around the build rate?
Just trying to understand a little bit more in detail around what's happening between I guess the under deliveries in 2023, which you would have thought would turn up in 2024?
Yes, I think the key with it, Jason, is that James Wattie will start to deliver through 2024, assuming supply chain challenges and everything ease there. But what it means is we're just probably, I guess, a little bit more cautious about the next pieces that you start so that you're not stacking everything on top of each other. So, the disruption just means we're not so dumping down and trying to do too much, just taking a better measured approach to it all.
And don't underestimate that while obviously in the Hawke's Bay, the storm has been obviously the key input factor. But supply chain issues, which is what I loosely talk about the sort of tail end COVID effects, supply chain is still an issue and supply of certain building materials goes in and out. Labor is complex and we're going through a shortage at the moment of brick for example.
And it just holds up the process and we don't get the normal sort of build sequencing that we would expect. So, things have slowed down particularly across the upper half of the North Island.
Okay. So, can you just sort of follow-up a little bit on Arie's question, but I'm a little bit surprised of continued revaluations of age care given trends around profitability? How important is the profitability that beats themselves and the valuation assumptions for the valuer?
So, they do look at sort of earnings as part of that, but they are also looking at transaction prices and market evidence informing that view. So, it is one of the drivers, but it's not the sole drivers part of doing that.
And they're formally valued every two years, of course, aren't they?
Yes.
Okay. And then sort of the other one, just Newtown, good to see that come out finally. I'm guessing that's in the net numbers as well, but wouldn't be material anyway?
Yes, that's great.
Okay, cool. That's all I had. Thank you.
Thanks Jason.
Thank you. Your next question comes from Bianca Fledderus from UBS. Please go ahead.
Hi, Bianca.
Hi, good morning. Sorry, I submitted some questions online as well because my star 1 wasn't working. But first of all, just on your Australian development margins at 32%, so that's obviously quite high. And I'm just going -- is that was what you were expecting for Australia because it's -- I don't think many analysts were expecting that? So, just wondering what drove that? Was at mainly price-driven and also what can you expect there going forward please?
Yes, price has been a factor. The team on the ground over there has done a great job in terms of managing the build program, obviously, supported by the wider group design and construction teams to look at those opportunities. So, -- but as we're getting some scale over there too, we are starting to see some pricing opportunities.
But the teams are also looking at as we've built a name starting to lift our prices that we're achieving relative to the wider property market as well.
I'd say also there's a mix effect going on there as well because the more recent units that have been coming on board are of a type that has enhanced that margin number. And so you're seeing an average obviously, but within that there are mixed movements as well.
Yes, I do think over time, it will naturally track down a little bit, but yes, there's some good.
When you have there at the moment first?
Okay. Thank you. And then just on the Newtown side being for sale, I believe that's a low density side. So, just wondering how that fits in with your move to board acre -- move back to board acre and any sort of other sites that you'd like to sell in your current land bank assuming high density sites?
And ideally, how many more broad acre sites would you aim to buy in FY 2024 for this move to -- from sort of back to broad acre strategy?
Yes. So, the Newtown site is quite a sort of boutique-type site. So, it would have been a not a large scale development for us, but the cash flow sort of profile on that would have been quite intense because you have to build most of the site before you could move anyone in. That was sort of one of the drivers for that change.
So, -- and then in terms of the sites we're looking to acquire in a typical year, we might be looking two, three, four, five sites, but we'll do that on merits of the sites as they come up. But we are always looking to replenish our land bank, but your question is right and that we are focusing that on lower density sites. It's not to say we won't do the high density sites, but our focus is on sort of adding those to rebalance the land bank further.
Okay. Thanks. And so are there any high density sites in your current land banks that you would consider selling? Would like to tell?
We haven't announced any of that. What we're really doing is evaluating every site now before we commence any future stages and rerunning the financials on it and making sure that we prioritize according to what the results are going to be. So, -- but certainly the remaining sites in our portfolio are in all our portfolio until at some subsequent point, we decide they're not, in which case we'll announce that in due course. But at the moment, the disposal of Mount Martha and Newtown was a very logical step for us given the way the numbers were looking.
We have developed some very good stage getting processes in the last few years as well to just go through those sites at different points of the journey to challenge as this where we want to be putting our money.
Okay. Thank you. And then just lastly, you mentioned the Chairman to the appointment in the near-term. Any sort of progress on the CFO appointments or if that's too early still?
Nothing to announce, of course, but certainly it's a process that's underway, yes.
Stuck with me for a bit longer.
Okay. Thank you very much.
Thank you, Bianca. Is that your final question?
Okay. Thank you very much for your time and attention today. I'm afraid that's all we've got time for, but we look forward to staying in touch and of course, keeping you up-to-date with our progress and many of you, of course, will see as we come around and meet with you as part of our roadshow. So, thank you, again.