I would now like to hand the conference over to Mr. Nathan Blackburne, Managing Director. Please go ahead, sir.
Good morning, and welcome to the presentation of the full year financial results for Cedar Woods. In terms of today's agenda, firstly, I will give an overview of the business, including our strategy and progress with ESG. I'll hand over to Leon to give you a snapshot of the financial results. I'll then talk through the market conditions, portfolio highlights, and the outlook. Here are a few slides about our company. Cedar Woods is a property development company that was established in 1987 and listed on the ASX in 1994. Our products include land estates, townhouses, apartments, and commercial developments. In our portfolio, we have 10,300 lots or dwellings in the pipeline, which is made up by 34 projects across Vic, SA, WA, and Queensland.
Cedar Woods is known for the quality and sustainability of its developments, with many awards for design and sustainability excellence. We have an excellent long-term track record in growing earnings, now outperforming our peers. In fact, over our 30-odd years, we have always made a profit and always paid a dividend. We are a purpose-driven, values-based organization that is very focused on creating long-term value for our investors through the creation of vibrant new communities. Our focus is on delivering attractive returns for our shareholders, which is achieved through exceptional management and the disciplined execution of our strategy. Our strategy is to grow and develop our national project portfolio, 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 the strong relative financial returns that we've been able to deliver. Cedar Woods has multiple product types in four states and different price points that appeal to varying buyer profiles. In terms of our business model, we create value in three key ways. Firstly, in acquisitions, we are tactical and research-based in our approach to identifying sites for acquisition. Once identified, we have a rigorous assessment process. The quality of our portfolio is testament to this component of value creation, and I think is unparalleled in our sector. In the development phase, we engage designers and create product that we think will meet a demand sweet spot. We then engage builders and oversee construction. The third value-add area is marketing and sales, where we create quality brands and pre-sell projects before starting construction.
We have four strategic priorities listed here, and good progress has been made with each of them. We've maintained a strong balance sheet and financier relationships while being disciplined in pursuing earnings growth. We acquired a number of new projects in FY 2022, which help underwrite future earnings. In fact, we don't need to acquire any new projects to support earnings growth in FY 2023 and FY 2024. Our third priority, operational excellence, is quite a broad priority area. We have pursued leading and integrated systems that help serve as a form of advantage for the business. We pursue excellence in our projects with innovative and award-winning designs. We value a strong safety record with due diligence in our work health and safety practices. Finally, there is high-performance culture, which is viewing our culture as another source of advantage, especially in the attraction and retention of talent.
Staff surveys demonstrate these advantages in the strong satisfaction scores and feedback that we get. ESG ties in with one of our key values, which is, we think about tomorrow. This year, we achieved good progress in delivering on the refreshed strategy, rolling out some new initiatives and the continuation of long-standing ones. We have been working to further reduce the impact of our projects through development of minimum sustainability standards, as well as knowledge sharing of initiatives across our business. Cedar Woods continues its national partnership with The Smith Family, which is Australia's leading children's education charity. I'm now going to hand over to Leon, who will take you through the financial highlights.
Thanks, Nathan. I'll first provide a summary of our results, then make some comments on the balance sheet and the cash flow. In financial year 2022, we delivered a net profit after tax of AUD 37.4 million and revenue of AUD 330 million from 955 settlements. Both revenue and profits being up strongly on the prior year. This results in return on equity of around 9% and earnings per share of AUD 0.457, which was up 12% on financial year 2021.
Gross margin remained solid at 29%, although down on 31% achieved in the prior year as a result of changes in product mix and high costs at some projects. Reflecting on the full year result and the company's sound capital position, the board has declared a final dividend of AUD 0.145, fully franked, taking full year dividends to AUD 0.275. This reflects a payout ratio of approximately 60% of net profit after tax and a favorable fully franked yield, currently approximately 6%. Dividend reinvestment plan and bonus share plan will remain suspended for the upcoming dividend. Over the year, we were pleased to have contracted sales of more than 1,100 lots, homes or offices, well ahead of the 955 settlements. At 30 June, we held pre-sale contracts with a value of AUD 500 million.
This is up AUD 22 million on the same time last year, which helps to de-risk earnings for financial year 2023. We expect about 70% of these pre-sales will deliver revenue in 2023, guiding us to target earnings growth for the year ahead, with the balance of pre-sales to deliver revenue in future years. We continue to operate with a solid, moderately geared balance sheet. Total assets at 30 June of AUD 779.8 million was up strongly on the prior year as we invested in new projects that have grown our project pipeline by more than 1,450 lots and will deliver earnings in future years. Net assets and equity are up reflecting the strong 2022 result, less the cash dividends paid during the period.
Net bank debt of AUD 198.7 million was up on the prior year, and correspondingly, gearing measured by net bank debt to total tangible assets less cash or net bank debt to equity were also up, but remain comfortable sitting around the middle of the company's target range. The company increased the limit and extended the tenure of its three and five year corporate finance facility during the year, with the AUD 95 million increased limit giving the company AUD 330 million in combined finance facilities and ensuring continued secure long-term funding availability. At year-end, we maintained sizable facility headroom of AUD 87.8 million and interest cover of 9.1x . Taking a look at the FY 2022 operating cash flow, the company continued to maintain a strong liquidity position.
During the year, the company generated strong operating cash flow of AUD 87.7 million before funding investments in new land acquisitions. Investment in new land acquisitions to grow the project pipeline totaled AUD 153 million, were funded by a combination of operating cash flow and the company's corporate finance facility. With the strong operating cash flow generated from the business and the undrawn facility headroom of approximately AUD 87.8 million, the company projects to continue to maintain strong liquidity after funding committed acquisition payments in the upcoming year. I'll now hand back to Nathan to talk to market conditions.
Thanks, Leon. The key factors that determine property market conditions include broader economic conditions, employment levels, population growth, interest rates, sentiment, and supply. Noting that the decision to buy a property is commonly the biggest financial decision people make in their lives. Rising interest rates, inflationary pressures, and the resultant drop in sentiment have created some headwinds for the sector, and this was evident with our Q4 FY 2022 sales, which were lower. At the same time, we have many positive fundamentals in that there is record low unemployment, our population is growing, vacancy rates are very low, and supply is constrained. Overall, we expect sales to continue to be lower over FY 2023, with recovery expected in FY 2024. In fact, there's a good case to say that the downturn will be fairly short, and there are a few reasons for that.
More affordable markets of WA, SA, and Queensland are still relatively cheap and are therefore likely to outperform. We expect investor demand to remain strong, driven by attractive yields with the low supply of rental stock and rapidly rising rents. There is limited supply of new housing across most product types and jurisdictions, and this is likely to put a floor on values and volumes. New dwelling commencements are already dropping, and for apartments have been particularly low. FY 2022 saw the construction sector deliver much of the sales generated from the stimulus, paving the way for improved conditions for the construction sector in 2023. Strong population growth is expected as the government responds to nationwide skills shortages. Immigration numbers are expected to be increased and brought forward in response. Demand for new housing is, of course, significantly influenced by population growth.
60% of Australia's population growth comes from Net Overseas Migration, providing a tailwind for new housing as it returns. Net Overseas Migration pre-COVID was around 240,000, and we expect migration settings to be significantly improved in response to the labor shortages. There are significant shortfalls in new dwelling supply across most jurisdictions and dwelling types. This chart shows the number of dwellings that commenced construction from 2017 until now, with houses in the blue line and units in the orange line. Dwelling commencements in the first quarter of 2022 reflected an 11% drop in standalone detached houses. Many approved projects aren't being delivered due to the construction sector capacity limitations and cost increases that have been experienced. Development finance availability is also restricting supply, with the major banks restricting lending over the past two years.
As population growth returns and investor demand remains high, supply shortfalls across most product types and geographies are considered likely. Those with supply that are ready in 2023 and 2024 are expected to benefit, with apartments and townhouses especially expected to perform, as commencements for these product types are well down on requirements. I now want to provide some insight into our portfolio and in particular, the presales composition. These three charts demonstrate the geographic and product diversification in our portfolio. First chart shows the proportion of our portfolio in each state, with WA and Victoria playing the dominant roles, but with an increasing representation from Queensland and South Australia, consistent with our geographic diversification strategy. The chart in the middle shows our presales or contracts on hand by location.
As you can see, there is a greater proportion from the East Coast markets, and we expect good contributions from all states in FY 2023. The chart on the right shows the mix of product in the presales, with residential land still being the largest sector for us, but townhouses and apartments together accounting for 40% of our presales. We continue to maintain this diversification with the ongoing acquisition of both medium density sites, infill locations and master planned communities. I'll now provide an overview of our state portfolios as well as some selected projects. Starting with WA, we have 13 residential projects and more than 5,500 lots or dwellings. Our WA portfolio is primarily residential lots, and we are in a good spread of locations both north and south of the CBD.
Three new projects were acquired over the year in Rockingham, Eglinton, and Henley Brook. Ariella is an 1,150 lot estate in Perth's northeast growth corridor. The estate was expanded in 2019 and again in 2022 with the purchase of neighboring properties. It's trading at about 100 settlements per annum. It achieved 15% price growth in the last twelve months and is predominantly a first home buyer estate. Eglinton is an 86 hectare site in Perth's northwest growth corridor that we acquired in FY 2022. This new community will be conveniently located 500 meters from the new Eglinton train station, which is due to open in 2023. The estate will have around 1,200 lots over several neighborhoods and is expected to contribute to earnings over an 11-year period from FY 2024.
The first stage of approvals have already been secured and we are gearing up at the moment for launch of the project. Now turning to our Victorian portfolio. In Victoria, we have 11 projects which offer a wide range of products including land lots, townhouses, apartments and offices. One important factor that underpins our Victorian projects is that they are in high-performing locations with little competition and have strong appeal to owner/occupiers. Our land, townhouse, and commercial projects have been selling strongly with excellent price growth. Our apartment projects have been slower. We recently added to our Victorian portfolio with new projects at Southbank, close to the city, and Fraser Rise in the northwestern corridor of Melbourne. With these adding 470 dwellings to our project pipeline. Williams Landing is a major master-planned community with a mixed-use town center and around 3,000 homes across several neighborhoods.
To date, it has an eight-nine year project life remaining, mainly in the town center, where we have over 15 sites with planning approval, ready to be developed for apartments, townhouses, offices, education or retail. Cedar Woods is currently actively bidding for single tenant office opportunities. When these are secured, they can significantly boost earnings. We successfully pioneered strata office development in Melbourne's west at the project. Our third strata office building, Boston Commons, is almost 70% pre-sold, and the fourth strata office building is currently in the design phase. The shopping center at the project is performing well. It is 98% leased, and the market value shows significant premium over book value of about AUD 45 million.
There are considerable residential pre-sales at the project, which are settling in FY 2023, and we also have strata office project pre-sales that will settle in FY 2024. Also in Victoria, we have Mason Quarter, which is an 800 lot estate in the high-performing suburb of Wollert. It's 26 km north of the Melbourne CBD, and there are 200+ pre-sales which we have achieved since launch in 2021. Significant price growth has been achieved since launch, though we expect this price growth to moderate now. Construction is underway for the first three stages, and the first settlements from Mason Quarter are expected in H2 FY 2023. Now let's turn to Queensland. We have five projects in Queensland and a total of 1,500 lots and dwellings to deliver. There's a mix of land estates, apartments and townhouses in this portfolio.
This market has seen significant cost increases, which is impacting the timing of some stages, but which we expect to restart once more capacity comes back into the construction sector. Given Southeast Queensland's relative affordability and the population growth expected, we anticipate this market to perform well over the medium term and will be a strong contributor to Cedar Woods in FY 2023. Avondale is a master-planned community with 900 residential lots. It's located 12 km northwest of the Brisbane CBD and is adjacent to a national park. The estate is around 50% complete, has significant pre-sales and has strong profit margins due to the extraordinary price growth that was experienced in Queensland. Sage is a new master-planned community with over 300 residential lots, which is located 40 km north of the Brisbane CBD.
Planning approval is in place for the project and we are gearing up for the launch of sales in coming months. There is a significant database of inquiries and we note that Southeast Queensland is currently undersupplied with new land projects. Buyers at this estate are expected to be a mix of first and second homebuyers, with lot prices pitched at around the AUD 350,000 mark. Lastly, the South Australian portfolio. In Adelaide, we have five projects, including three within the Glenside estate. In total, we have around 1,200 townhouses and apartments yet to deliver, a pipeline which will keep us busy for a further eight or so years. Our South Australian projects are set to make meaningful contributions in coming years, which is testament to the company's strategy and execution of it.
Glenside is a major multi-year infill project for the company and that is contributing strongly to earnings. It has 1,000 townhouses and apartments planned on a 17-hectare site just 3 km from the Adelaide CBD. Several apartment projects and townhouse stages are in train at the moment, with new releases of both these product types planned in coming months. In FY 2022 recorded significant settlements from Glenside. Fletcher's Slip is in Port Adelaide and is 14 km northwest of the CBD. There are 500-odd townhouses and apartments at the project, and the first stage of townhouses recently settled. The inquiry and sales at the estate have been strong, and we expect that to continue, though moderated somewhat in FY 2023. Now for our outlook.
In our portfolio, we have a growing number of new projects that will start to deliver first earnings over the short and medium terms. This is as a result of the 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 geographically. These new projects, along with the existing ones already contributing in the portfolio, support our growth outlook. Factors supporting the new housing sector are low unemployment, job security, rising wages, and supply limitations. Low but rising interest rates are impacting sentiment. A short and sharp interest rate cycle is expected, with peak rates around the end of 2022 widely expected. Our presence is mainly in relatively affordable markets, which are expected to perform well.
Supply constraints at the same time that migration is returning and investor demand is strong will put a floor on pricing and sales volumes. Our outlook is underpinned by record pre-sales of AUD 500 million, partially de-risking future earnings, and growth in earnings is expected in FY 2023, subject of course, to market and construction sector conditions. The company has a portfolio of 10,300 lots or dwellings in quality locations to support future earnings. This brings us to the end of our presentation. Thank you for your interest in Cedar Woods.
Thank you. If you wish to ask a question, please press Star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press Star then two. If you're on a speakerphone, please pick up your handset to ask your question. We'll pause momentarily to assemble our roster. The first question will come from Sky Walker with Alder and Partners. Please go ahead.
Morning, Nathan and Leon. Hope you're well. Just got a few questions, if I may. Just firstly, if we can go to slide 37, and you laid out the projects that are contributing to growth in coming years. I just look at that and I just don't have a sense of, you know, what the value is in potential sales growth that could come through. It just, whilst it, you know, it looks exciting, I just need an anchor so that I can, you know, feel, so that we can get some sense of where we're actually going. I'm just wondering if you could just unpack that for us a bit.
Yeah. Thanks for the question, Sky. Firstly, to look at 2023 there, we've got in Central Park townhouses, Lincoln, [Nasda Apartments] in Vic, Fletcher's Slip, Mason Quarter, as well as Monarch Apartments in South Australia and some further Gary Land in Queensland. This year we did AUD 333 million in total revenue. We've got pre-sales of AUD 500 million in total, which we've guided about 70% of that, the land in financial year 2023. Already AUD 350 million+ , already exceeding prior year revenues in contracted pre-sales. As in any normal year, we'll have a few projects cycling out that we had in the prior year, and we'll have a few cycling in.
As this slide is indicating, we're starting to have more projects cycling in than we have cycling out. As a result, we'll have a step-up in revenue. I won't put dollars on that at this point in time. You can see from what we've indicated as far as the portion of pre-sale settling in 2023, that we'll have a step-up in revenue. If things go to plan, that will continue into 2024. We do note that this is our sort of current look at when we think these things will settle. You know, some might be earlier, some might be later.
Okay. What's the potential for, you know, further pre-sales that you do in FY 2023 to settle in FY 2023?
As Leon said, we have 70% of the pre-sales for FY 2023 secured already, particularly the land projects where the delivery timeframe is shorter. Therefore, our WA portfolio is where we'll be generating the majority of that 30% extra pre-sales required. At the moment, the sales rates that are ticking over, we're confident that we can get there to deliver an outcome that sees earnings growing.
Okay. All right. Just the slowing inquiry that you've seen in the recent weeks and months, what's your assessment of what's supply side driven versus demand side driven, as in building constraints versus sentiment changes on the demand side?
There's a couple of things there, Sky. Our sales results, yeah, we're down in July- and August- to- date and June to a lesser degree. That was as a result of two things. One, over that period, we had less new stages being released around the country. That's probably the smaller portion. The larger explanation is really the current sentiment. You know, buyers are increasingly cautious. That's held back sales really across jurisdictions and projects. Construction constraints.
If you look at the WA market, the demand is certainly down, but we would be generating significantly more sales if the builders had more capacity to deliver homes for our customers. Our customers put a block of land on hold. They then talk to the builder, and the builder advises them that the lead times to start construction on a home might be six or nine months' time. The purchasers are often coming back to us and saying, "I might as well wait for that timeframe to abridge somewhat and I'll come back and contract with you on a block of land in six months' time.
Mm-hmm. It sounds like you're increasingly confident that constraint will start to subside from, you know, next year, as we move into next year.
Yeah, that's right. I mean, you know, this is a global situation, not just a domestic one. Globally, nationally as well, there's been really good progress in working through the stimulus generated construction activity. The builders that we talk to are telling us that they're, you know, making good progress with that, and that over the next six months in particular, they'll see a lot of that done. It's going to take that, you know, 6-12 months really to get through that stimulus activity. After that is when we expect there to be much more capacity as well as a moderation in costs.
The builders are also starting to call us asking about what projects we've got coming up in first and second quarters of 2023 calendar year. They're obviously a bit anxious about those 2023 work volumes, and that is echoed in the subcontractor market with the key subcontractors of our major builders starting to contact them and looking at their forward orders. All of that would indicate more capacity and moderation of costs.
Okay. Great. Just one last question from me. Just the shopping center, you've stated again that you think the market value is well above book that you've got in your accounts. I'm just wondering if you can provide us some clarity there on, you know, what is the book cap rate you're carrying it out? What is the market cap rate you think it is? Because it's a substantial part of your market cap, that asset, as your share price trades today.
The book value is not based on a cap rate being carried at depreciated cost. It's basically the cost of building it with a very low land value. We've held it for a number of years now, so the sort of depreciation brought that cost down. I think it's on the book now for in below AUD 40 million. Just to sort of break it up, there's the center itself, which is worth about AUD 63 million, and then there's surrounding development land worth about AUD 20 million.
That development land is based on a sort of land cost basis, again, not cap rates. It's just sort of AUD 63 million in the shopping center, which is sort of it's been calculated value based on those cap rates. I don't have the number in front of me to quote. You'll be able to work that backwards off its income in the accounts.
Okay. Your assessment of market value, can you give us more color around that part?
Yes. The shopping center's I think about 99% leased. We're routinely sort of having assets valued. Our sort of internal guys who look at the valuations have a good handle on what those cap rates are relative to the income and fairly confident on that valuation.
It's recently been valued at AUD 63 million+ the AUD 20 million for the expansion land. As Leon said, the vacancy rate is very low there. We are seeing rent reviews coming through in a staggered fashion that sees the net operating income improve. We're also seeing it, you know, across the industry, intense competition for these types of assets.
Okay. All right. It was worth trying. Thanks for answering my questions, guys.
Thank you.
Thanks, Sky.
The next question will come from Gavin Allen with Euroz Hartleys. Please go ahead.
Oh, hi guys. Yeah, just a quick one for me. The WA Land Bank, we sort of discussed this before, but just for clarity, the WA Land Bank is 54% of your total land bank, but 22% of the pre-sale. Just sort of thinking about when that equation starts to true up, do you think? You sort of answered this, but is it more a consequence of supply versus demand or in fact simply just reflect new projects yet to commence? I wonder if you've got any flavor on that for me.
Yeah. Because the WA Land Bank is heavily weighted to land subdivision rather than built form, from a dollar point of view, it's sort of a much smaller part of the pre-sales because land lots don't sell as far out in advance as built form do, and they have a smaller dollar value. If you can imagine sort of the projects with built form stages with townhouses and apartments, they tend to be four, five year projects. But some of the bigger land estates can be eight, 10+ year projects. It's a slower release of that land bank over time.
Gavin, we think that the WA portfolio is positioned to perform strongly over the medium term, driven by that relative affordability as well as the relative unemployment situation here being even better than the national numbers. Those two things coupled together, and as well as some supply limitations, we see upside for our business, given our weighting to WA.
Yep. Makes sense. Then just a quick confirmation really just sort of your outlook has plenty of moving parts, and we understand the nature of your core constraints and opportunities, but just confirming that that land bank as it now is positioned can support all things otherwise equal growth into 2023, 2024 into 2025 as well, maybe, or some flavor on just sort of what you've got in front of you.
Yeah. We don't need to buy any further projects to achieve earnings growth in 2023, 2024 or even 2025. We've been busy with acquisitions over the last few years and set the portfolio up well in that regard. It's really just around market conditions. Certainly in forming an outlook statement like this, we forecast forward current market conditions and any changes to them. We've washed through expected cost increases where we think projects will land in terms of timing, and revenue movements as well. It's our current picture and you know, the potential is certainly there to achieve earnings growth in those years. 2024 and 2025 are obviously a distance away from now and we're just, you know, not in a position to say what those numbers will be other than the fact that there is the capacity within the portfolio to achieve earnings growth.
Very good. Thank you, guys. That's it from me.
Again, if you have a question, please press star then one. Our next question will come from Liam Schofield with Morgans. Please go ahead.
Morning, guys. Just two quick questions. Can you briefly touch on cost inflation over the last half and then going into the first half of FY 2023? You know, obviously the building material companies are reporting significant cost inflation. Have you seen that through the half and is it starting to deteriorate? Also can you just touch on the role of rising interest rates and how that's gonna flow through the capitalized interest? Thank you.
Thank you, Liam. The real inflation in costs occurred in the period before the half that we've just seen. There has been further inflation in costs over that last six months, but at much lower rates than we saw in, say, the previous 12 months. That's because of the progress that's been made in working through that stimulus generated construction activity. We expect continued moderation in the growth rates of costs going forward. You know, some commentators are even saying that costs have peaked. That's on the costs. On the interest rates side, yeah, this has caused a bit of a jolt to sentiments.
The buyers, as they digest the fact that interest rates go up sometimes. We think that once they become accustomed to the fact that the interest rates are going up and in the main households have the ability to weather those increases, that psychological impact will moderate somewhat. That this will be quite a short, sharp cycle with commentators and the economists saying that the peak is going to be around the end of this calendar year, with the potential for interest rate reductions in the 2023 calendar year. We support that view. With that, it's one of the factors that's giving us underlying confidence around the future of our business.
Probably just to add to that in relation to sort of the cost inflation and it sort of translating into the P&L. The sort of cost inflation that Nathan talked about six months ago and even longer, we'll be seeing some of that hit the P&L and through cost of sales in financial year 2023. We've factored that into our outlook that we'll have while revenue we're anticipating to grow, and you can see that from sort of the pre-sales numbers I've quoted earlier.
We'll have a little bit of a softening of margin we're factoring in for some of that cost inflation, through pricing that's been locked in six months or so ago, go through the P&L in 2023, and then that softening outlook that Nathan talked to if costs moderate over 2023 and back half of 2023, we'll see the benefit of that in the P&L more likely in 2024.
Okay. For your corporate interest rates, obviously you will have capitalized this sort of lower interest rate regime. We're going into a higher interest rate regime. Is it safe to say that, you know, that yes, there'll be a lag because of that capitalizing and expensing, but interest costs will be rising?
We've got about a bit over half of our debt hedged, so we won't be impacted for rate rises for that portion. That's hedged at rates between about 1% and 3%, with all bar AUD 10 million at rates of 2% and less. We're in good shape as far as managing that impact. For the sort of the other portion that we do have some exposure to, like you say, an element of that will get capitalized into inventory.
Gotcha. Perfect. Thanks, guys.
There are no further questions at this time. I would now like to hand the call over to Mr. Blackburne for closing remarks. Please go ahead, sir.
We're content with the outcomes achieved in FY 2022, particularly in the strong uplift in profit, the several acquisitions that we made setting the business up for the future, and the healthy pre-sales. We go into FY 2023 in a relatively strong position, with the pre-sales somewhat de-risking the earnings for that year. We go into future financial years with AUD 150 million in pre-sales, the majority of which will go into FY 2024, being a great start for that year as well. Whilst current sales volumes have moderated, we do see a turnaround in 2023. This view is supported by the quality of the portfolio, the supply constraints, the population growth that is coming back and the sound fundamentals more generally.
That was all we had to say. Thank you very much for listening to our webcast.