Ryman Healthcare Limited
Q2 2022 Earnings Call Transcript

Published: 18 Nov 2021

David Kerr:

Good morning, everyone. It’s nice to be with you all again. And welcome to Ryman Healthcare’s Results Presentation for the Six Months to September 30, 2021. My name is David Kerr and I’m the Chair of Ryman Healthcare. And here with me in Christchurch, I have Richard Umbers, our newly appointed Group Chief Executive Officer, and David Bennett, our Group Chief Financial Officer, who many of you will know. On the line from Melbourne is Cameron Holland, the Chief Executive of our Australian Business. In a second, I’ll hand over to Richard to give an overview of the results. And he will then hand over to David Bennett for further commentary. Dave will pass you over then to Cameron for an update on our progress in Australia. We welcome questions at the end. You can ask questions either online or over the phone. And of course, you can connect with us afterwards. Many of you have appointments made where we can have good one-on-one discussions. For those of you on the phone, our operator will advise when you’re free to ask a question. I’d like to start the morning by offering a warm welcome to Richard. We were very pleased to secure his services. His start date was 21st of October. And we’ve just finished a full week of Board and subcommittee meetings. And he’s really made a flying start. The Board are delighted with his contribution. He’s had the opportunity to visit several of our villages, both in Australia and in New Zealand, meeting residents, and both operational and construction team members. He’s covered a lot of ground already. Richard will give you more detail in a minute. But from my perspective, it’s been a solid first half of the financial year for us, despite some major restrictions in our two biggest markets, caused by COVID lockdowns. All our teams have continued to work extremely hard to keep everyone safe. And we’re well-advanced planning for the months and years ahead in the expectation we will be living with COVID in the broader community. I’d observe that we’re now much more knowledgeable about how to manage this virus. And that while the risks of infection continue, we’re steadily making the transition from what might be described as a pandemic response to managing this as an endemic threat. There’s one particular part of this announcement that I wanted to draw your attention to. The Board has adjusted the dividend policy from a 50% of underlying profit payout to a 30% to 50% range. Clearly, this will enable the retention of capital within the business as we move ahead that in turn will assist in funding our future growth. We have strong growth plans to deliver the Ryman experience to more communities and remain committed to our investment in critical care infrastructure. As you’re aware, we’re a company that has and will continue to generate value over the longer term. There’s been a major gain in the intrinsic value of our portfolio over the last year, and the Company is in a very good position currently in terms of that embedded value that Richard and David will expand on. It’s now my pleasure to hand over to and introduce you to Richard.
Richard Umbers:

Thank you, David, and hello, everyone. I look forward to meeting you all in-person, hopefully sooner rather than later. We’ve had a solid first half with a lift in underlying profit, driven by continued strong demand for retirement living and aged care, despite the challenges of COVID-19. Our unaudited underlying profit rose 8.5% to $95.9 million. Reported IFRS profit increased 32.5% to $281.5 million. This of course includes investment property revaluations. Shareholders will receive an interim dividend of $0.088 per share, unchanged from last year. Total assets rose to $9.85 billion up 18.1% on September last year. Net assets increased to $3.03 billion, up $579.6 million from a year ago. We had strong cash receipts of $680.5 million, up 40.9% on the corresponding period in the prior year. Total sales transacted rose 48% to $510 million in the first half. Only 1.2% of the Group’s retirement village portfolio was available for resale as at 30 September. When you consider the extent of the restrictions in our biggest markets, that’s Auckland and Melbourne, our team has done an amazing job. Our potential residents are a particularly responsible group of citizens, which makes it challenging for our sales and marketing team to engage effectively and showcase our villages. The gradual easing of COVID-19 restrictions in Victoria, changes to migration settings in New Zealand and high vaccination rates in both countries is welcome news. We started work on three new sites during the half at Takapuna in Auckland and Highett and Ringwood East in Melbourne, and this brings the total villages under construction to 15. Another highlight is our recent consent at Park Terrace here in Christchurch. While all construction sites are progressing well, we are experiencing some disruption to supply chain and some upward pressure on construction costs. Fortunately, we have longstanding relationships with many of our contractors and suppliers. We invest for the long-term, and these sites will secure a recurring income long into the future. More importantly, they will provide critically needed health infrastructure, beautiful homes and security to thousands of people. A few words about COVID. We’re encouraged by the easing of restrictions in Victoria and in New Zealand. The New Zealand government’s decision to give many of our workers a pathway to residency was fantastic news. They’ve worked tirelessly with dedication and loyalty throughout the COVID crisis. We were also delighted with the decision made by the governments on both sides of the Tasman to mandate vaccinations for healthcare workers. Vaccines are critical to protecting our residents and team. Since April, in fact, we’ve delivered over 38,000 vaccine doses to the Ryman community, including residents, team members, their families, and our contractors. We’re delighted to have confirmation that we can now proceed with our booster program, here in New Zealand as well as in Australia. As David mentioned, I’ve spent my early weeks visiting villages and meeting with residents and team members. The first thing that struck me was the extraordinary commitment to care and the strong bond between our residents and our team members. They’re all part of the Ryman community and are strong advocates to what we do. I’ve been blown away by the professionalism of the teams and the extensive measures in place to keep everyone safe. I feel that we are well-prepared for whatever COVID brings next. So, in conclusion, we’ve had a solid half, and we’re cautiously optimistic about the months ahead. Before I hand over to our Group CFO, Dave Bennett, I’d like to say a quick thank you for the warm welcome that I received. I’m delighted to have the chance to lead this very special company and to build on the incredible legacy of the past 37 years. Thank you. And over to you, Dave.
David Bennett:

Thanks, Richard, and good morning, everyone. Our reported IFRS profit, which includes unrealized fair value movements on investment property, was $281.5 million, an increase of 32.5% from the same period last year. This includes unrealized valuation gains $178.7 million, an increase of 43.9% or $54.5 million on the same period last year. The lift in valuation affected the inclusion of 187 new units in the valuation and new pricing assumptions affecting sales in the strength of the wider housing market, particularly in New Zealand. Our underlying profit of $95.9 million was up 8.5% on a year ago. Growth in underlying profit was driven by a 53.5% lift in resale earnings, reflecting increased pricing and high volumes. Demand for our villages is strong with only 101 units or 1.2% of our retirement village portfolio available for resale at the end of the half. While our resale margins lifted to 25% in the half, rising construction costs and the fact that we presale units off hand has resulted in the lower development margin of 20.7%. Total book sales for the half of 703 units was up 21.8% from the same period last year. This was a great achievement given the restrictions in both Auckland and Victoria. COVID remains a challenge, and we’ve spent an additional $7.6 million on staffing, security, and resident welfare in the period. Our cash receipts from residents was $680.5 million for the half, an increase of 40.9%. Operating cash flows were $301.1 million, an increase of 212% on the same period last year, which was impacted by COVID. We’ve invested $406 million into our portfolio over the half. And this was investing in cash flow was spent follows
Cameron Holland:

Thanks, David, and hello from Melbourne. I’d like to start by saying how much I’ve enjoyed my first eight months with Ryman, getting to know the wider team, immersing myself in the culture, and continuing our growth story here in Australia. We’re enjoying our new freedom. We are about to reach 90% vaccination right over here. And the last remaining restrictions are about to ease. In fact, we spent over 80 days in lockdown in metropolitan Melbourne during the half. Fortunately, we were able to broadly maintain our construction program, albeit with restrictions and a two-week stoppage. Like our operations team in New Zealand, our team here has worked incredibly hard to keep everyone safe. We recently named our Aberfeldie village in honor of running GOAT, Raelene Boyle. The village is a stunner, it will fetch a solar power generation and special rain gardens, and the team has done a fantastic job. We have made good progress at John Flynn in Burwood East, and the village is on track to be complete mid next year. We are also on to building our next stage of independent apartments at Nellie Melba. We were delighted to announce recently, we bought additional land at Ocean Grove on the Bellarine Peninsula to cope with extra demand. The village has been named in honor of indigenous Australian later, and opera star Deborah Cheetham. Down the road at Highton, our Charles Brownlow village has also been progressing well and is nearing completion with our care and village centers now open. We have also completed the purchase of an existing apartment block adjacent to our new Essendon village, which will become our sixth operational village in Australia. This acquisition will improve the overall development plan for our Essendon village. Following extensive consultation, we have resubmitted our plans for our Mt Eliza, and Mt Martha villages. And construction has started at our Highett and Ringwood villages, and we are working on concept plans for our newly purchased Mulgrave site, which we expect to submit for a planning amendment by the end of the year. We continue to see further opportunities to buy suitable sites of land in Victoria that complement our current geographical spread of villages. Overall, the resilience of the team has been amazing over the recent months. I am proud of how the team has stood up and kept going. So, thank you. And back to you, David.
David Kerr:

Thanks, Cameron. As I mentioned, Richard made a flying start. You’ll also be aware that I’ve decided that this is an appropriate time for me to step down as Chair and hand over to my colleague, Greg Campbell. I’ve worked with Greg for a number of years, and he has had a long association with Ryman Healthcare. I have great respect for his skills and experience. I believe that the Chair is very well equipped to assist the Board and the management team. And I believe that Greg and Richard’s skills will be complementary. And the timing of my decision will assist them in developing a strong relationship. I will be continuing as a director, and I remain committed to serving the Company. So, I’d also like to thank all of you for supporting Ryman over so many years. I’d now like to open up to any questions. And look, I know you’re all busy, and that many of you have scheduled one-on-one catch-ups with us. So, we’re going to restrict this to something around a 20-minute slot. So, could we maybe have the first caller?
Operator:

Thank you. Your first question comes from Stephen Ridgewell with Craigs Investment Partners.
David Kerr:

Good morning, Stephen.
Stephen Ridgewell:

Hey, good morning. I just wanted to [Technical Difficulty] but just wondering if you could give us a sense of [Technical Difficulty] kind of match the second half result from last year, particularly in the context of [Technical Difficulty] New Zealand business in the second half, and any kind of comment you can give us around [Technical Difficulty].
David Kerr:

Stephen, it’s not a very good line. And it’s possibly heard -- so maybe, Richard, if you repeat the question back? But I think the first kind of the question was the ability to match the second half of last year.
Richard Umbers:

Yes. What I picked up here is, I think your question was, given how we’ve been tracking, obviously, we haven’t given guidance in our announcement today, and you’re asking how the second half is in fact just going to pan out. The first thing I would say in that before I just invite Dave, to give you some further details on that is that these are difficult times, and there is a certain unpredictability to the current COVID situation that we have to be mindful of. Clearly, it’s impacting the ability of our sales teams to showcase our villages and the premises that we have to sale. Having said that, the result that we delivered in the first half, I have to say, was quite extraordinary, in my view, given the COVID restrictions. So, Dave, if you’ve got anything you’d like to add?
David Bennett:

Yes. I think just add to that, Stephen is, we are in I guess slightly a changing world. And that’s why we haven’t done the guidance with changing in the COVID restrictions. But coming into the previous sort of restrictions in Auckland, things were going really well. And we gave that update at the AGM. Obviously, our build program is weighted to the second half. And we would expect that to deliver, and fine with what we achieved last year. But, we are, I guess, cautiously optimistic, just as we get used to these new settings and what they may mean to trading over the particularly the next month or two. But, I think longer term, we’re very optimistic about where things are tracking.
Richard Umbers:

I think I’d add to that that we’re quite encouraged by the recent changes to the regulations that allow us to emerge from lockdown in both New Zealand and Australia. I think that’s quite an encouraging signal. And our vaccination program and the -- in particular the booster shots, maybe gives some people more confidence perhaps to come out.
David Kerr:

And maybe if I could just make a comment that in discussion with our construction team, it’s evident that when you lift a lockdown, everything doesn’t return to 100% performance on a construction site. It takes quite a while to get it going again and to build momentum. And so, there are some challenges. It’s not a sort of an on and off experience for our construction teams. So, yes, settings have changed, and we have a bit more of an opportunity to complete our construction aspirations, but it’s not immediately occurring.
Stephen Ridgewell:

[Technical Difficulty]
Richard Umbers:

Well, obviously, I mean, we’re not giving guidance to restate that. But, Dave, did you want to add anything to that?
David Bennett:

Yes. So, we are speaking to be a second half weighted result, on the back of our development program, and the second half weighting of the build program. And you can see the level of pre-sales we have. So, assuming no further big delays in our construction program and everything else, then we expect a weighting towards the second half. But, we are just mindful of -- we are going through a bit of a change. So, we just need to be cautious about this.
Richard Umbers:

And of course, the second half historically has also been -- the weighting has been towards the second half in recent years anyway. Any other questions?
Stephen Ridgewell:

[Technical Difficulty]
Richard Umbers:

Yes. Perhaps, Cam might be the best person to answer that in a second. But, what I would say is that there are opportunities certainly to increase prices, as indeed we’ve done so over the course of the past year. But this cost inflation environment that we’re experiencing at the moment is something that is industry-wide. It’s affecting the input costs, not just in terms of raw materials, but also in terms of labor. And it has an unpredictability to it that at the moment is causing a problem right across the industry. Cam?
Cameron Holland:

Yes. Thanks, Richard. Look, obviously, cost pressures in construction are quite evident across the whole industry. We are somewhat insulated through long-term supply contracts and existing relationships. I will say, however, that as you mentioned, there are cost pressures on input side, but we do have some mitigants around the ability to increase our prices on the front end as well. So, it’s one of those things we’ll have to continue to monitor and make sure we adjust our approach as we go.
Operator:

Your next question comes from Bianca Fledderus with UBS.
Bianca Fledderus:

So, first of all, just basically follow-up on cost pressures. Are you seeing similar sort of pressure in Melbourne compared to New Zealand, or is it more -- sort of more New Zealand? And then, I guess, your net funding position in Australia as well, post standard development, is that similar as well, is it slightly better due to…
Richard Umbers:

So, in terms of cost pressure, I think New Zealand probably has got slightly steeper increase initially, but I think Australia is following. I think it’s a lot of global pressure on supply chain, which is driving a lot of this cost pressure. So, I do think both markets are going through that. But, I think it’s important to remember, both markets have been through house price inflation as well. Obviously, New Zealand, I think sort of in 30% mark over the last sort of 12, 18 months, Australia, and particularly Melbourne hasn’t been through quite the same level yet. But, as the restrictions ease there, we will be watching their property market closer. So, we are mindful of construction, and one of the challenges is also just maintaining that supply, because there are shortages in products at current. So we are looking at looking at further what their sort of ordering process to make sure that we manage that process. And Cam touched on the long-term relationships we have with supplier being a huge advantage to us in that space. In terms of the capital recycling model, we are obviously doing great in New Zealand as well now. So, that sort of funding model in both New Zealand and Australia is very consistent.
Bianca Fledderus:

So, I guess, just for the reds. [Ph] So, you could just please give an update on the number of reds you have in New Zealand and Australia at the moment, the average price?
Richard Umbers:

So, in New Zealand, we’re sort of probably averaging around the 400,000 mark, and I think to about $60 million sort of with the reds that we’ve collected from it. So, it’s been a good steady start, given it was something we introduced this time last year. We are really pleased with how that rollout is going and see it as a really exciting product and point of difference for us in the market going forward. In Australia, the reds, probably average around the 500 to 550 mark, and they will continue to lift because, as we go down in new villages, the price is sort of at higher end of the range. I think our reds in Melbourne are $550,000, $650,000 and $750,000. When we first go down, they were 350,000 450000 and 545000. So, as those reds come up in Australia and re-priced and resold, we would expect that average to increase there as well.
Bianca Fledderus:

Just last question for me. Could you just talk about the dividend payout cuts and also the main reasons behind it? Is it for growth? And if so, how much more growth should we expect?
David Kerr:

Bianca, we’ve given over a number of years an aspiration to grow the underlying profit at 15% per annum. And so, there is a still desire to achieve that on a continuing basis. But, the Board are very mindful about gearing and noting that we are well within our bank covenants. We see our present capital management as being something that we review regularly. And in addition to that, we’re quite aware of the different views of some of our shareholders, when we have one-on-one discussions with them. So, we believe that this change in the dividend policy will really support our growth plans and will reinforce to many of our shareholders that in fact, we are a growth company. And the view of many shareholders is that we are able to manage that money than they are, and that reinvesting it with us is a positive thing. So, it is a change in policy. But, you’ll note that we continued with our dividend today, $0.088. So, that is a fairly reduction in the actual dividend payout.
Operator:

Your next question comes from Andrew Steele with Jarden.
Andrew Steele:

Good morning, everyone. The first question is just on the expectation for development of [Technical Difficulty] COVID impacted year. So, what’s your expectation of where the [Technical Difficulty] up for the full year? And how does that impact the potential step change, and the growth into FY23, what sort of step change might be reasonable considering the [Technical Difficulty]
Richard Umbers:

Well, the good news is that we are managing to maintain construction. As you know, in Victoria, although there was a shutdown, the actual closing of the industry actually is not something that took place particularly. So, although, we had significant delays in the build program, we were able to continue building. And indeed, that’s also being true in New Zealand, albeit with some delays. In terms of the actual build rate, we believe that we can therefore maintain the rate that we’ve been tracking to in the past 12 months or so into the future. But obviously, there are certain uncertainties at the moment in the market. David, would you like to add something to that?
David Bennett:

Yes. So, I think, Andrew, in terms of the build for this year, as it was previously given, the guidance, 900 that you were alluding to, that is going to be a stage, I think as we’re going to be in and around some of last year’s, Richard sort of touched on. But, we are -- and that’s just some of the projects didn’t go underway quite as quickly as we would have liked, due to the restrictions in place with COVID. So, that’s led them to next year. It does mean we need to reevaluate next year’s build. But, I think that slippage will just sort of replace the other things that may slide out of that year. But, we’ll give that sort of view maybe at the full year result when we have a bit more certainty around what this new COVID sort of environment looks like. But yes, we are still focused on delivering the bids and units. But, I don’t think, -- it’s also worth reminding that bids and units is just one metric. Actually, the value creation is really important. So, what we’ve seen over the last few years is a shift to building in higher value locations. And so, they are generating higher value returns for us in terms of the sale proceeds that we get from those units. So, as much as we always sort of talk to bids on units, I do think it would be good to start thinking more when that value creation is a long-term play for us. That represents what we’re actually doing as a company.
Richard Umbers:

I think, we should add as well, just the impressive performance in terms of the resales in the first half as well and that, it is just interesting that I think there’s a shift going on in the market between perhaps the units being sold off plan versus the resales that we’re getting through the business at the moment and how that is adding to value and building intrinsic value in the overall balance sheet, so.
Andrew Steele:

Just a follow-up on your comment on more focus on the value of what we’re building. Does this mean you are deemphasizing or pushing back the 1,600 medium term build rate target?
David Bennett:

No, we’re not looking to push that. I just think what we’re saying is that 1,600 bids and units came up very different depending on where they’re built. So, the long-term view on us will be to start to move towards the value creation of that. Because building villages in Oakland, you don’t need to build as many as you do in some other parts of the country to deliver the same value creation for the Company longer term. So, that’s where I guess we kind of set all of the move towards.
Andrew Steele:

So, in terms of the impact of difficult operating environment on your operating costs, is there anything in the OpEx for the periods that you would highlight as being unusual? And how do you think about OpEx seasonality from 1H and 2H, this year?
David Bennett:

I’m not sure I heard all of that question.
David Kerr:

I think that was 1H and 2H was part of the question?
Andrew Steele:

Yes.
David Bennett:

So, in terms of the OpEx, Andrew there, we talked about the additional $7.6 million of COVID costs. Obviously, at some point, we would like to think we won’t be incurring those. But I think it’s pretty optimistic, assuming that we won’t have additional costs in the second half, but longer term, I would expect some of those to come out of the business that we are occurring additional OpEx as a result of our response to COVID.
Andrew Steele:

Just on the 1H and 2H seasonality OpEx, anything about, around that?
David Bennett:

Seasonality?
Andrew Steele:

Yes.
David Bennett:

Yes. Now, there’s not a huge amount of seasonality in our OpEx between -- yes, levels remain the same throughout. So, COVID has the biggest impact on this.
David Kerr:

But it’s difficult to imagine that the COVID OpEx will increase in H2. It’s more likely to decrease than increase.
Andrew Steele:

Just last one for me. In terms of the reduction in dividend payout, you noted, David, that Board is mindful of [Technical Difficulty]. What do you think about the future growth run rate here and the actions you’ve announced today? Where do you see a comfortable level of gearing or target gearing that allows you to execute on the medium [Technical Difficulty]?
David Kerr:

Right. Well, I believe that the change in dividend policy that we’ve announced today actually will enable us to continue our current planned growth with let’s suggest something 9% or 10% increase in build rate each year, and 15% underlying profit increase. But, the adjustment we have made at the present looks to be sufficient. Does that answer your question, Andrew?
Andrew Steele:

Yes, it does largely. Just to be clear, though, you [Technical Difficulty]?
David Kerr:

Yes. We do have a target. And we have a capital management plan that it’s not appropriate for me to share with you. But, we are conscious that our gearing is higher than other parties in the sector. And we’re also conscious that we see a very large growth opportunity ahead of us. And so, that’s really driven us to make this change in the dividend policy.
David Bennett:

Yes. I think, Andrew, just look into -- it’s really important to remember this is a function of our growth plans. It is productive working capital deal. And so, when you’re doing a straight gearing, like our land banking example, there’s no representation of that in our NTA and it is the future growth. So, we do sort of monitor our gearing ratio. We more particularly look at the composition of our deal. And I think when you at the deal, and the land bank we have, the sites currently construction, the proceeds that we’re expecting to generate. And then, you put that on top of our current retail bank and embedded value with $2.2 billion, we’re in a very strong position from a cash generation perspective right now. So, that’s how we also look at our deal as forward-looking, how are we going to -- what cash are we going to generate as a business.
Operator:

Your next question comes from Jason Familton with ACC.
Jason Familton:

Good morning, guys. Just for David, [Technical Difficulty] I’m just little bit surprised with the timing of the investment, can you [Technical Difficulty] last month. Could you talk to the timing of why now those [Technical Difficulty]
David Kerr:

Yes. I appreciate that, Jason. So, I guess that succession planning is a constant debate at the Board table for the directors. And with the appointment of Greg and his pre-existing knowledge of the Company and relationship with the Company and his very quickly coming up to speed, that was sort of a factor. We then -- obviously we’ve welcomed Richard on board. And there’s no doubt that the relationship between the Group Chief Executive and the Chair of the Board is very important. And it just doesn’t seem particularly useful for me to develop a strong ongoing relationship with Richard when I had already advised the Board that I felt that I had nearly done my dash. And I think that no one would dispute I have done my dash. So, as far as the combination of a desire to assist a good relationship developing between Richard, and Greg as our new Chair, and there is nothing lost and that I will continue in the role as a director. So, I acknowledge it’s a little unusual to have so much transition at such a short time, but the transition is not as great as it might seem, and that I am continuing to fulfill my role as a director. And I have a deep emotional relationship with this company. So, you can be confident that I’ll be displaying my interest on a continuing basis as a director. Does that answer your question, Jason?
Jason Familton:

Yes. Can I ask [Technical Difficulty] can you talk about what [Technical Difficulty] is going to be in the second half, is it going to be pretty similar to what you’ve invested in the first half, $200 million or so, [Technical Difficulty]?
Richard Umbers:

Is it question about capital investments or -- and bill program? So, we have 15…
Jason Familton:

[Technical Difficulty]
Richard Umbers:

We have 15 projects in flight at the moment, and we started on site on a further 3 during the half just gone. So, there’s a very strong emphasis on building for the long-term future of the business. And building the instruments, if you like that will allow us to generate the embedded value in the business in the years to come. And we are absolutely focused on maintaining a build program to deliver on that for the long-term. The challenge that we’ve got is the short-term one of managing through the COVID crisis and the very real impact that has both on our ability to sell, but also the construction program as well. So, we’re not flagging that we are in any way not committed to what we’re delivering. We’re just simply flagging that with some uncertainty over the course of the coming six months or in the coming year.
David Bennett:

So, in terms of the capital expenditures. So, with the number of sites we’re working on, Jason, I think it’s a safe assumption to say that our business will be similar as to what they have been over the last few halves. Obviously, assuming we…
Jason Familton:

[Technical Difficulty] Can you just talk to what [Technical Difficulty].
Richard Umbers:

I think that’s probably one of the most encouraging things that through COVID and through the first half, we were very encouraged by the level of resales that we were able to achieve for the business. And while our building program is impacted, it was a real strength in the business that we were able to generate a return out of the resales. And maybe there is some shift in the balance emerging and the way that we’re creating value for the long term. But, I just seek to emphasize that ultimately, we want to build the embedded value in the business and therefore, it’s a combination of our ability to deliver not just the individual units, but the right kind of buildings in the right place. And also to keep the flywheel turning, if you like, as we also are then able to on-sell and resell those units many times over there for lifespan. Dave, do you want to add anything?
David Bennett:

Yes. So, I think in terms of price increases, Jason, we have -- we sort of signaled at the AGM, we did one in April, we did another one in June. We have just recently completed another review in October. Overall, there are probably sort of 15% to 17% range in New Zealand. We’ve been more cautious, I guess, in Melbourne, just with the additional restrictions and just waiting to see the property market hold. But if you look at slide -- the appendix in our results pack, it still shows that we’re very affordable in all markets that we are selling in. So, we have followed the market, albeit slowly and a bit of a lag, but we still say there’s a buffer there. And for me, I guess, one of the really key indicators for us is that we’re still selling incredibly strongly and it’s just showing through the level of resale stock we have available.
Operator:

Your next question comes from Aaron Ibbotson with Forsyth Barr.
Aaron Ibbotson:

Hi, there. Good morning, team. So, I just would like to -- one clarification, if I may and then two questions. So firstly just on the build rate guidance that I think you mentioned, David, on sort of 9% to 10% build rate growth. Is that sort of from a reset date that you’re guiding or indicating towards first year-on-year or is this on the previous sort of 91,000 variability guided for the full year, just have a clarification and how we should broadly think about sort of FY23, FY24 or how are you thinking about it?
David Bennett:

The question is really off what base, is that -- yes. So, I think the key to that is that the 9% to 10% is our sort of medium to long term view. Obviously, we are mindful of lifting our build rate over the last -- in particular the next couple of years, but we would just do that on -- I guess, we’ll be constantly reviewing that in light of the restrictions and how sales are going. But, we are still committed to lifting that. But 9% to 10% is more medium to long-term view. That’s what we think we need to continue to do, long-term, to continue to deliver a 15% growth in underlying profit. So, short term, we’ll just assess the market. I guess, the benefit we have at the moment is particularly strong resales I think we have in the expected lift, and resales volumes will we anticipate getting as well as villages mature. Over half of our units are at least seven years old. So, they haven’t even had maturity. So, that will underpin a lot of our growth as well in the next few years.
Aaron Ibbotson:

Okay. Thank you. And then, if any thought you can give, some sort of indication, in particular, I guess the like of what I assume as being slightly higher construction cost driven by COVID as you build sales in Australia? Where are you seeing new sales margins coming in, in Australia or expectations around that, relatively your experience in New Zealand, any chance you give some early indications and expectations on that?
Richard Umbers:

Yes. I’ll perhaps hand that to Cam to comment on the expansion in Australia. Cam?
Cameron Holland:

Yes. So, I think, overall, I’ve been really pleased with the progress over the last six months. The lockdowns have been quite severe in Australia. Obviously, that’s definitely impacted ability to sell, particularly with the high emotional purchase of real estate, getting people in to see the product to actually affect the style can be challenged when they can’t get out of their homes. So, the fact that we’ve had sales in the last six months has been remarkable, frankly. I think looking forward, I’m cautiously optimistic that once the restrictions are starting to ease, this week that sales process will be somewhat improved and that we’ll see some interest regained in that area and that overall, those margins will continue to reflect both, the increasing property market overall and our ability to actually transact. So, look, I’m cautiously optimistic that the next few months will definitely put us in a better position than we’ve been in the last six for sure.
Richard Umbers:

I think, we have to see this in the context of a lockdown, which has been in place in Victoria for an awfully long time. And in fact, there’s a large proportion over the last half as well. And so, some of this is all about the unpredictable human reaction to those restrictions being eased. Are people going to reengage with normal life? Are they still going to be cautious? What is their spending going to be like? Is this a time when they’re going to make life-changing decisions in terms of where are they going to live in the lifestyle that they’re going to take on? We’re optimistic based on the pattern that we’re seeing cautiously. But, I have to say, it’s an uncertain time and we haven’t seen a situation like this before, of course.
David Bennett:

And just for you to touch on that, and I remember the new sale pricing has been a bit of dip and the pricing we’ve achieved at a group level, but that’s a more of a representation of the mix of -- geographical mix of our units. So obviously with the restrictions that have been in place in Auckland and Melbourne, we’re seeing a large proportion of our sales in the wider New Zealand market. So, we [indiscernible] pricing as opposed to anything else that we’ve been able to achieve.
Aaron Ibbotson:

And final question to I believe you, David Bennett, is just on sort of $350 million of CapEx that’s been allocated to new village CapEx excluding land. And I was just wondering, if I look at your work in progress investment properties of $45 million or so, and your new sales cash flow, which I believe was to [Technical Difficulty] margin. So, I wanted to know if there’s any challenge you can -- you have a number around how much of that has been allocated to the independent living units with [Technical Difficulty] I guess, around [Technical Difficulty] is that about right?
David Bennett:

I think that’d be about right, but it’d be useful just so quickly check your account, because it’s just a little bit hard to follow that on phone.
Richard Umbers:

[Technical Difficulty] particularly got the audio. So, you’ll forgive us if we are looking at each other, trying to get to the nub of the questions that are being asked. But look, maybe if we take one more question and then we wrap up. And I’ll do that acknowledging that we will be over the next five or seven days having lots of one-on-one discussions with you individually. So, maybe one more question?
Operator:

Your next question comes from Alex Prineas with Morningstar.
Alex Prineas:

Good morning. Thanks. Most of my questions have been answered. Just one question on the dividend, should we -- you stated a new range around the dividends? Should we be assuming for second half, the dividend would be the same in terms of the percentage of underlying profit as it was in the first half or more along the lines of the same in terms of absolute amount, can you give us some indication?
David Kerr:

Not really. Yes. I understand the question, but no, we can’t really give you an indication, and that we don’t give a forecast on dividend. But I think that the dividend will be determined by what the Board feels the Company’s shapers and how our debt and gearing is at 31 March. So, no, I think what we’re just signaling today is that the Board seeks flexibility and that’s what we’re keen to have the change interpreted as.
Alex Prineas:

Yes. I guess, [Technical Difficulty] in terms of how you aim to be [Technical Difficulty] proportion that you decided on for the first half [Technical Difficulty]?
David Kerr:

Yes. I do understand the question, but no, I’m not in a position to determine what the payout ratio will be in the second half. I don’t think that would be helpful.
Alex Prineas:

[Technical Difficulty]
David Kerr:

No trouble. Look, there are a number of questions online, but we’d happily take those subsequent to this meeting. So, look, it’s -- like to thank you for your attention. When I look back on the six months, it’s been another tough six months, isn’t it? We’ve got continued demand for what we do, right? That’s quite evident. We’re seeing continued growth, although it’s been stymied to some extent by the lockdowns. We’ve got residents for whom we’ve been able to absolutely demonstrate that being in a Ryman community is actually a safe haven, and that they’ll be well-supported and the quality of life will be attended too. And sort of during that time period of such turbulence, we’ve continued to see an increase in the intrinsic value of the portfolio and a continued strong culture that Richard has evidenced by coming in with refresh eyes and going to villages. So, I feel very positive about the six months, and it’s just that we do have a level of caution. We, a couple of years ago, would never have imagined this particular pandemic would have come upon us. So, I feel very positive about how the Company has done in these challenging six months, and I’m optimistic about the next. So, with those sort of closing comments, I’d like to thank you very much for joining us. And we’ll look forward to catching up with you one-on-one over the next week. Thank you very much.

Ryman Healthcare Limited Q2 2022 Earnings Call Transcript

Other Ryman Healthcare Limited earnings call transcripts:

Ryman Healthcare Limited
Q2 2022 Earnings Call Transcript