Please go ahead.
Good morning, welcome to the presentation of the FY 2023. FY 2023 financial results, market conditions, our portfolio, and then comment on the outlook. We are a property development company with a strategy-driven team that has proved its success in acquiring and delivering projects, townhouses, apartments, and commercial developments. In our portfolio, 35 projects across Victoria, South Australia, Western Australia, and Queensland. This positions Cedar Woods well for an upswing in demand from increased migration and housing under supply. For design and sustainability excellence. We have an excellent track record for delivering and growing earnings for the benefit of our shareholders. We are a purpose-driven, values-based organization that is very focused on creating long-term value for our investors through the creation of new communities. Our focus on delivering attractive returns for our shareholders is achieved through the disciplined execution of our strategy.
Our vision is to be the best Australian property company, renowned for performance and quality. To support that aim, we have a number of core values, as shown on the slide. Our strategy is to grow and develop our national project portfolio that's diversified by geography, product type, and price point, so that it continues to hold broad customer appeal and performs well in a range of market conditions. The strategy is proving successful with a strong relative financial return. Cedar Woods creates value in three key ways: firstly, in acquisitions, we are tactical and research-based in our approach to identifying sites that we want to acquire. Once identified, we have a rigorous assessment process. At the moment, we are doing capital partnering on some new acquisitions, which enables us to improve project return metrics and access unique opportunities on land held by others.
In the development phase, we engage designers. A major initiative was the launch of the Community Energy Sharing Network, or microgrid, at the Eglinton estate in WA, which is expected to result in a 50%-65% of total energy demand being supplied by renewables through rooftop solar and community battery storage. Our flagship Community Grants program is something we are really proud of, and which sees a portion of the profits from each project given back to small community groups in the various regions that we operate. I'm now going to hand over to Leon, who's going to take you through the financial highlights.
Thanks, Nathan. In FY 2023, we delivered a Net Profit After Tax of AUD 31.6 million and revenue of AUD 391. Revenue was up 17% on the prior year, with profit lower as a result of softening in margin, resulted in Return on Equity of around 7.3% and Earnings Per Share of AUD 0.385. Gross margin, about 25%, was softer, primarily due to higher construction costs. We expect this to rectify over time by both the moderation in cost growth and improvement in revenues, although in the short term, expect a similar margin in FY 2024. The board has declared a final dividend of AUD 0.07, fully franked, taking full-year dividends to AUD 0.20. This reflects a Payout Ratio of approximately 53% of Net Profit After Tax and a favorable fully franked yield.
The dividend reinvestment plan and bonus share plan will remain suspended for the upcoming dividend. During financial year 2023, we contracted sales of 694 lots, homes, offices, and at 30 June, we held pre-sale contracts on hand with a value of AUD 448 million. This is somewhat down on the AUD 500 million in pre-sales for the same time last year, but still represents a strong outcome, especially when considered in the context of total revenues for the year. We expect the majority of these pre-sales will deliver revenue in financial year 2024, with the balance flowing into 2025. On the balance sheet, we continue to operate with a solid, moderately geared balance sheet. Total assets at 30 June of AUD 783 million, down slightly on the prior year as we completed a significant number of settlements in the second half.
Net assets and equity were up on the prior period, reflecting the full-year earnings, less cash dividends paid during the period. Net bank debt of AUD 195.8 million was down on the prior year, and gearing measured by net bank debt to equity at 45%, and net bank debt to total tangible assets less cash at 25%, remain comfortable around the midpoint of our target ranges. The company increased the limit and extended the tenure of its three year and five-year corporate finance facilities in the second half, with the increased limit giving the company AUD 360 million in combined finance facilities and ensuring continued secure long-term funding availability, with the average debt maturity of approximately [value]
at the end of the year, and while interest cover at 3.7x is lower than the prior year, it remains comfortable and is well above facility covenants of 2x.
Taking a deeper look at our cash flow and capital management objectives. We continue to benefit from the long-term support of our financiers. As I've just noted, we increased our funding limits by AUD 30 million during the year, and at year-end, we had more than AUD 106 million in undrawn facility capacity. The business generated strong operating cash flow of AUD 23.7 million in financial year 2023. This was after the investment in new land, which is included in operating cash flow. We seek to recycle capital where appropriate. Over the next 12 months, we expect to realize the AUD 113 million excess of current assets over current liabilities on our balance sheet at 30 June. This includes the previously announced Victorian Shopping Center sale, and where completed, will add substantially to company cash flow.
Our acquisition strategy is measured, taking a long-term view of market cycles to the future. To this effect, AUD 81.9 million was invested in land acquisitions and previously announced acquisitions in the following year, FY 2024, which will be funded by a combination of operating cash flow and the company's corporate finance facilities. With the strong operating cash flow generated from the business and significant undrawn facility headroom, the company projects to continue to maintain strong . I'll now hand to Nathan to talk to market conditions.
Thanks, Leon. There are, of course, a range of factors that influence conditions for the new housing sector. Rising interest rates, inflationary pressures, and the resultant drop in sentiment did create some headwinds for the sector, and this was evident in sales results for most of FY 2023. This graph shows quarterly growth sales since FY 2019. You can see the sharp rise in sales that we experienced in the final quarter of FY 2023, where sales jumped 57% on the Q3 sales. Since then, over July and August, sales have moderated, and we continue to monitor conditions and employ tactics to optimize sales across projects, across jurisdictions. The construction sector continues to experience challenges with labor shortages, cost pressures, builder availability, and builder stability. We expect these challenges to moderate over FY 2024.
There are many positive fundamentals in that there is very low unemployment, the population is growing, vacancy rates are low, supply is constrained, and governments are pivoting policy towards construction of even more homes. Overall, we expect sales to continue to be impacted over FY 2024. I will talk later on what the catalysts will be for a sustained rebound. Demand for new housing is significantly influenced by population growth. The current migration surge will provide a tailwind for new housing. That has been occurring at record levels in Australia. Net overseas migration was at around 240,000 persons per annum pre-COVID. We expect migration levels to continue to be elevated in response to Australia-wide labor shortages. There are significant shortfalls in new dwelling supply across jurisdictions and dwelling types in Australia.
These charts show the number of dwellings that were launched each year since 2010. You can see across the four locations, the historically low levels of new supply that is currently coming online. Investor demand has been strong, and we expect that to continue, and this is driven by very low vacancy rates and rapidly rising rents, capacity limitations and costs that I referred to briefly before. Cedar Woods is ready with many approved projects and stages for when conditions improve. I now wanted to provide some insight into our portfolio and in particular, the pre-sale competition. These charts demonstrate the geographic and product diversification in our portfolio. The first chart shows the proportion of our portfolio in each state and the reflection of our geographic diversification.
The middle chart shows our pre-sales or contracts on hand by location, as you can see, we have good pre-sales in three of our states. Queensland is running a little behind because of the timing of various stage releases. We have acquired a number of new projects in Queensland in recent times, as these come to market, that will be reflected in future charts. The chart on the right shows the mix of product in the pre-sales, with residential land still being the largest sector, townhouses and apartments together accounting for 30% of our pre-sales, and offices being 9% of our pre-sales. We continue to boost this diversification with a joint venture at Robina in Queensland, which will add a large number of townhouses and apartments to the portfolio. Now let's take a look at a summary of each state portfolio, starting with WA.
We have 13 residential projects and more than 5,000 lots or dwellings in WA. The portfolio here is primarily comprised of residential lots, and we are in a good spread of locations North and South of the city. The first stages of a couple of new projects were successfully launched through the year, including Atwater in Rockingham and Eglinton up in Perth North. The Ariella project in Perth has been extended with the acquisition of nearby sites, and the launch of the next stage will occur later in the first half of this financial year. Sales really rebounded in the final quarter of FY 2023 in WA, but have come back somewhat in FY 2024 so far. The Eglinton project will be a major master-planned community with over 1,200 residential lots, a school, and a shopping center.
It will contribute to earnings for over a decade and has gotten off to a good start with sales that will contribute to profits this year. The estate is located 500 m from the proposed Eglinton train station, which is currently under construction. The estate also includes the aforementioned Community Energy Sharing Network, or microgrid. The future neighborhood center provides a focal point for the project, and we have received strong inquiry from anchor tenants and specialty tenants for leases at the project. Now turning to our Victorian portfolio. In Victoria, we currently have nine projects, which offer a wide range of products, including land lots, townhouses, apartments, and offices. Our office projects continue to do well, with Boston Commons experiencing continued high demand for strata offices in Melbourne's West, a product type that our company pioneered in Melbourne's West.
Our residential projects experienced a softer market during the year, mainly as a result of the increase in interest rates. Mason Quarter is a good example of one of the company's residential projects. It comprises 800 dwellings, two schools, community facilities, and open space. The estate is located close to the future Wollert Town Center and train station and has been positioned as a premium estate in Melbourne's north, attracting mainly first-time buyers and second-home buyers. A number of stages are currently under construction, with some settlements having already occurred in FY 2023 and further stages due for completion in FY 2024. Now let's turn to Queensland. We have six projects in Queensland and a total of 1,400 lots and dwellings to deliver there. There's a mixture of land estate, townhouses, and apartments in this portfolio.
The construction sector has seen significant cost increases in Queensland, which has impacted the timing of some stages, which we expect to restart once more capacity comes back into the construction sector. Given Southeast Queensland's relative affordability and strong inbound migration, we expect this market to perform well over the medium term. We've also added to our portfolio there with the joint venture with the Queensland Investment Corporation at Robina on the Gold Coast. The newest of our estates in Queensland is Flourish at South Maclean, I have a slide on that to follow. Flourish is a master-planned community located 35 km South of Brisbane in the suburb of South Maclean. This area is a major growth corridor of Brisbane, the estate is close to existing housing and amenities and offers affordable price points.
The project has just received planning approval for the first 500 lots, and the first sales release will occur in coming months. Lastly, the South Australian portfolio. In Adelaide, we have seven projects, including four within the Glenside estate. In total, we have around 1,100 townhouses and apartments yet to deliver, a pipeline which will keep us busy for a further seven years, approximately. Our South Australian projects are well established with strong reputations for quality and sustainability and will continue to make meaningful contributions in coming years. Glenside is a major multi-year infill project for the company in South Australia that is contributing strongly to earnings. It has 1,000 townhouses and apartments planned on a 17-hectare site, which is just 3 km from the Adelaide CBD.
Several apartments and townhouse stages are in train, with new releases of both planned in coming months. The Bloom project is a new concept developed by Cedar Woods and is focused on delivering over 55 apartments with traditional strata title ownership model. We intend to roll this Bloom concept out at other locations around the country. Pleasingly, Glenside recently took out the 2023 UDIA SA Award for Excellence for Medium Density Development. Now to the outlook for our business. In our portfolio, we have a number of new projects that will start to deliver first earnings over the short and medium term, with seven in FY 2024. This is as a result of successful acquisitions activity over the last few years, which has significantly added to our portfolio.
There is a mix of apartments, townhouses, and land estates, and the new projects are spread well geographically. These new projects, along with the existing ones already contributing in the portfolio, support the company's growth outlook. Rising interest rates and broad-based inflation are currently impacting buyer sentiment and demand. However, there are sound underlying fundamentals of low unemployment, record immigration, and a significant undersupply of all types of dwellings. Cedar Woods is well placed to roll out new projects in stages as conditions allow, to capitalize on the demand that is expected. We have a significant presence in the more affordable markets, which means the impact of interest rates on buyer demand is less pronounced. We start the new financial year with a good level of pre-sales at AUD 448 million, partially de-risking future earnings.
Due to the current uncertainties, earning guidance will be provided when there is greater clarity on sales volumes, the delivery program, and the sale of the Victorian shopping center. The catalyst for a sustained improvement in sales volumes is expected to be a combination of the peaking of interest rates and improvement in builder capacity, both of which will help to restore buyer confidence. Finally, our portfolio of over 10,000 lots and dwellings in quality locations supports the company's medium-term outlook. This brings us to the end of our presentation. Thank you for your interest in Cedar Woods.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Liam Schofield from Morgans Financial. Please go ahead.
Morning, gents. Can you hear me there?
Sure can. Good day, Liam.
Perfect. Just two quick questions. Williams Landing, how's that sort of progressing, and how have cap rate expectations changed through time? Just also, can you just comment sort of on the average selling price, and where that sort of mix shift has occurred in the past year and what that might look like going forward?
Thanks, Liam. Regarding the Williams Landing Shopping Centre, that sale process remains underway. We've got agents working with a number of buyers, and working to get, you know, the best possible price and the cleanest possible offers. I can't comment on, on sort of likely cap rate. That's sensitive, obviously, because we've got a process underway that we're negotiating with, with various people. You know, it's, it's, it's. That's really all I can say on that particular point, Liam.
That's fine.
In, in relation to average-
Just on, yeah, average selling price, yeah.
Yeah, I can actually talk to that. Around the 350 mark in FY 2022 and in the low, low 400s for FY 2023. It's, it's reflects a little bit of growth, but largely change in mix. Built form as far as apartments, townhouses, offices, around 45% of settlements in both years, albeit a little less in 2022, a little more in 2023. The change in mix is more, more expensive land projects. A bit of a shift away from lower value WA land projects to higher value, Victorian and Queensland land projects is, is explaining that average price movement across the group.
Liam, that particular metric for our business is not as informative as it is for some others in the peer group, given the diversity of our portfolio. We've got, townhouses, apartments, blocks of land, and variations, within land, from high-priced land estates to lower-priced land estates, and so on for the other product types.
Thank you. Your next question comes from Edward Deng, from Barrenjoey Australia . Please go ahead.
Good morning, team. Thanks for the presentation. Firstly, just sort of keen to understand the balance between demand and supply here, and perhaps you can sort of pick out one of your two projects. But if you were able to bring more product to market, is there demand sitting there behind it, ready to, ready to go?
That, Ed, that does vary from state to state and project to project. As a general rule, if you were to strike one, demand is subdued now. Buyer confidence has been, has been hit by the rising interest rate environment and the broader inflationary pressures. We did see a, a jump, quite a significant jump in that demand in the last quarter. That has come back a bit in the, the, the first quarter to date. Time will tell as to where, where that, where that will trend, and we'll talk more about that in the, in the first quarter result. We have lots of stages across built form, across land, across the country that are ready to go, but the demand right now is still quite subdued, so we're not fast-tracking releases.
We are fast-tracking approvals in anticipation of that demand jumping, in quite a broad-based way. Being ready with all of our approvals, to, to capitalize on that.
Thank you. Is your anticipation that demand jumps, is that sort of come back to your point on population, or is it a shift in sentiment?
It's all of the above and other factors. It's really that peaking of interest rates, the, you know, the moderation of inflation, it's really the availability, capacity of the construction sector freeing up a bit, reducing lead times to start the construction of a, of a home on a lot, and the improvement of builder availability for medium density and high density product as well, as they work through the, the, the peak workloads that they've got on at the moment, which should relate to moderated prices or costs and certainly greater builder appetite and availability.
Thanks. Okay, and then just finally on your ICR, I was sort of keen to understand how that plays out in the context of your, I think it's AUD 68 million commitments and, you know, I guess the risk that Williams Landing continues to take a bit longer than expected. How do you see your ICR playing out through the next six months?
We're expecting improvement in the ICR over the next six months-12 months. We ran the facilities fairly hard in FY23, but we'll pay, pay down debt a, a bit in the final quarter, and as you can sort of see at year-end, in a reasonable position. The acquisitions we need to make, we can comfortably absorb those in the facilities, and even, even, you know, without transacting on the shopping center, we would still expect to be in a midpoint of our gearing range, and still see interest cover come down. Sorry, interest cover go up rather.
That's great. Thank you.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Sky Walker, from Alder & Partners, PWM. Please go ahead.
Hi, Nathan and Leon. Hope you're well. Just two of macro questions from me. Just on slide 16, your charts of apartment supply, other than what you've mentioned or made mention of around building availability, what do you see as the catalyst for a new wave of apartments more broadly, which we need to support population growth? Obviously, there's an interplay with your product, which is more land and townhouses.
Sky, just firstly there, we've got hundreds of apartments across the portfolio. Let's, let's say at Glenside in South Australia, Fletcher's Slip, South Australia, Williams Landing, Greville up in Queensland, Incontro, in Perth, in Subiaco, in Perth, and significantly, Southbank in Melbourne. We've got lots of those projects that can, that will feed earnings for the next few years if we can get those projects going with builder appetite. It is quite meaningful for us. This is probably to the earlier question that was asked about demand and supply, this demand and supply shortfall is most exacerbated or pronounced for apartments around the country. Hence the inclusion of those graphs in the presentation.
Compared to long-term averages, there are just not enough apartment projects getting off the ground. In fact, it's well off where they need to be, well off the peaks and well off average volumes of new releases. Migrants and students in particular are what are coming into the country, and inevitably, they tend to go into apartment-type product. We do expect particularly in the more affordable states, for there to be a structural shift in the pricing achievable for apartments. If you look at Sydney and Melbourne prices for apartments, it would suggest that there's quite a bit of room to move.
Mm. I suppose-
Medium prices of units-
Yeah
over the last three years just hasn't, hasn't made the gains that house and land has. Post-COVID, there was a bit of a pivot, there were incentives towards house and land product. That gap between medium unit prices versus medium house and land prices widened, and it's about as wide at the moment as it's ever been. That will naturally shrink over time, and there'll be gains in unit prices as affordability becomes more important.
Yeah.
I suppose the, the last cycle was characterized by a big wave of large high-rise product, and that's probably what we don't have now. I just-- maybe that's what I'm asking is, w-w-what, what's the catalyst do you see, catalyst do you see for, for that part to come back?
Just to be clear, the catalyst for high-rise construction nationally and, and for the industry.
Yeah.
Is that the question?
Yeah. Yeah, it is. Yeah.
Um-
Yeah.
Yeah. Look, the, the, the challenges are there for low, medium, and high density apartment delivery. The demand is there for low, medium, and high density product. Yes, it's the high density that really kicks goals in terms of meeting, you know, providing supply. I, I think they'll generally move in sync because they're all experiencing similar issues.
Mm. Yep. Yep. Okay, makes sense. Okay, just one more from me. Just, in terms of the, the builders and, the offerings that they're providing to the market, has there been any sort of change you would call out over recent months?
Just to clarify again, Sky, when you say builders, builders of traditional houses on, on detached lots?
Yes.
on the urban fringe?
Yes, yes.
What the big shift that we've seen, for example, in Perth, is builders offering a completion date of the home within 12 months of signing the contract. We haven't seen that for approximately three years. The lead times, not long ago, were 12 months to start the construction of a home. Now, the builders are guaranteeing that if you sign up today, you will have your house complete in 12 months. That means a lot because their need is short term, not long term. It just, it just provides a lot more confidence. This is not all builders offering this, but a couple of the major builders in Perth.
It's not quite, that way in, say, Queensland, but in, in Victoria, there's quite a big pool of builders there, and we don't have the lead times and availability issues that there are in WA.
Okay, that's very helpful. Thank you. Nothing further from me.
Thank you.
Thank you. There are there are no further questions at this time. I'll now hand back to Mr. Blackburne for any closing remarks.
Thank you for listening in to Cedar Woods' FY 2023 financial results. We look forward to delivering on the undertakings that we've we've set out there. Thank you very much.