Retirement village operator Summerset Group Holdings Ltd said yesterday strong margins on both sales & resales lifted its underlying profit for the June half by 27% to $45.2 million, in line with the profit guidance provided in early July.
Under IFRS (international financial reporting standards), net profit fell 9.2% to $82 million. Underlying profit includes realised resale gains, development margin & deferred tax expense, minus the fair value movement of investment property. Under IFRS, fair value is included.
Financial & operational highlights (2017 first half in brackets):
Net profit after tax under NZ IFRS, down 9.2% to $81.97 million ($90.25 million)
Investment property fair value movement, down 10.1% to $78.3 million ($87.1 million)
Underlying profit, up 26.8% to $45.2 million ($35.7 million)
Total revenue, up 29.5% to $65.7 million ($50.7 million)
Net operating cashflow, up 7.4% to $92.8 million ($86.4 million)
Total assets, up 25.2% to $2.42 billion ($1.9 billion)
Net tangible assets, up 32.2% to 377.85c/share (285.72c/share)
Basic earnings/share, down 10% to 37.22c (41.37c)
Diluted earnings/share, down 10.2% to 36.53c (40.67c)
Interim dividend, up 54% to 6c/share (3.9c/share)
Total occupation right sales, down 7.4% to 299 (323)
New sales, down 19% to 145 (179)
Resales, up 6.9% to 154 (144)
New units delivered, down 3.5% to 165 (171), but on track for delivery of 450 for the full financial year
Development margin, 17.9% higher at 33% (28%)
Realised development margin, up 21.3% to $25.8 million ($21.3 million)
Gross new sale proceeds, up 3.2% to $78.3 million ($75.9 million)
Resale realised gains, up 38.3% to $14.9 million ($10.8 million)
Sales margins lift returns, fair value fall reflects flatter property market
Chief executive Julian Cook said the underlying profit increase was driven primarily by strong margins on both new & resales: “While sales volumes were lower than the same period of 2017, we are seeing good levels of contracts on homes – both on resales & homes to be completed before the end of 2018 – many of which will settle in the second half of the year.”
He said the lower fair value movement reflected smaller price increases in response to the flattening property market being seen in some areas of the country.
As for the sharp increase in development margin, up from 28% to 33%, Mr Cook said the result was “pleasing, but reflects the particular mix of retirement units settled in this period, and our long-run expectations for development margin are less than this”.
Summerset grew total assets by 25% from a year ago to $2.4 billion.
“We delivered 165 new homes this half year and we are on target to meet our build rate of 450 homes for the year. This is despite continuing pressure from the Auckland construction market. Our key construction activity in Auckland is to complete our Hobsonville village, main apartment buildings at Ellerslie, and new villa builds at Karaka & Warkworth.”
Residents moved into the first homes at Casebrook (Christchurch) & Rototuna (Hamilton) villages in the June half.
Summerset recently received resource consent for its proposed Avonhead village in Christchurch, and is awaiting the outcome of consent applications for proposed villages in Boulcott (Lower Hutt) & Kenepuru (Wellington). Resource consent for its proposed village in St Johns (Auckland) has recently been declined.
“We are currently working through this decision, but remain confident we will be able to progress a successful village on this site,” Mr Cook said. “There is strong demand for all of these villages and we are keen to progress them as soon as possible.”
Company sees gains from staff benefits
In May, Summerset announced additional staff benefits, including a day of leave for staff birthdays, travel voucher prizes every quarter and paid sick leave from the first day of employment. These complement the staff benefits announced in 2017.
“Pleasingly we’ve seen the staff attrition rate at our villages drop by 8% in the last 12 months, and the company-wide attrition rate has reduced almost 7% over the same period. We believe this is a result of both the investment we are making in our staff and the Government’s equal pay settlement.
“However we are seeing the shortages in care staff increase due to the changes introduced to immigration last year by the previous government. We believe it is important the current government recognises the importance of immigration alongside local training & development to ensure there are sufficient qualified & competent people in the aged-care sector.”
Mr Cook said Summerset continued to investigate the feasibility of an Australian expansion. It has opened an office in Melbourne with a dedicated team who are working through the appropriate diligence process. The company said it was making good progress.
Attribution: Company release.