Good day and thank you for standing by. Welcome to the Somerset Group First Half twenty twenty one Results Announcement Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr.
Scott Scala. Thank you. Please go ahead.
Welcome, everyone, to our 20 21 Half Year Results Call. My name is Scott Schoolron. For those of you who don't know me, I'm Somerset's CEO. Today, you'll be hearing from me, Will Wright, our new CFO, Antonio Smith, Head of Finance. Will started with us on the 7th July, Paul was previously a CFO for the building products division of Fletchers.
He was also spending time as CFO in the residential Housing division as well. So Will obviously brings a lot of good relevant development and construction knowledge in part of Fitch's. Will is an Associate Director of Bancorp. Tanya, you all know pretty well. She's been acting CFO for the last 6 months, in a new day job.
She is a Head of Finance as well. Look, before we talk about our half year results, I'd just like to talk about the current COVID situation. And you'll see this is the very first slide that we've got in the presentation. And really, it's the fact that we're keeping my key focus is really on keeping the results safe, so we've moved that right to the start. In terms of Look, Somerset was pretty well placed when we entered the lockdown like last week or earlier this last week, I should say.
Our care facility staff are actually already wearing face masks across New Zealand for the 2 weeks prior to that. We've got over 80% of our staff in our key results who are fully vaccinated. We have over another 5% who have had different dose as well. And So most that's probably a little bit out of date as they're moving daily. Our non vaccinated staff are wearing full PPE.
All of our Auckland Village Staff are wearing the high grade N95 masks. And in terms of PPE stocks, just in general, really well placed. I got over 100,000 wearing masks, over 60,000 in 95 masks and over 250,000 gloves in stock. We've had no cases in the care facilities and we haven't been taking any care admissions since government had a lockdown. A lot of other industry players still taking emissions.
Fairfax at the moment is on interesting resonance and not introducing new people into those sort of environments. We've got a range of normal protocols in place as well, so things like hand cleaning protocols, staff screening at shift changes, staff change, Protocols around the clothing, agency staff are restricted only to work for 1 provider as well, and we're doing roaming sort of Random COVID Testing Programs. It's also important at the same time just to touch on some of the cool things we've been doing. So things I hear about are things like virtual quiz nights, virtual concerts, recipe sharings, palm readings, Live line tastings and celebrity speakers. So those things are other things that we've done or got underway.
Our sales team are also taking the time to ring up and check on healthy people in our community. And look, the last thing I'd sort of touch on in relation to COVID would be Financial position to the company we feel is really strong. You'll obviously see an extension to our debt facilities, which give us circa $850,000,000 unutilized capacity Just under $700,000,000 worth of drawn debt. So I'd expect this to be the strongest position in the sector. Just move on to Slide 5, the first half summary.
So further the last 6 months, we've taken a real step up in terms of performance. A number of Key highlights for me are things like underlying profit. For that 6 month period, you'll see $75,000,000 up 67%. And We know that volume related and relates to people purchasing new homes and retail homes as well. In terms of net profit after tax, dollars 264,000,000 obviously significantly up on the first half of last year, but also ahead of our full year 2022 results.
So the Key contributor to that was the continued house price buoyancy, and we've lifted prices and averages over the last 12 months by just over 8% relative 29% across New Zealand for residential median house prices. Operating cash flows at $230,000,000 is more than double that achieved in the first half of twenty twenty. And pleasingly, our core operating business cash flows, which exclude new sales, A higher than for the whole of last year. Again, reflecting really the continued strength of the cooperation for the business, the gearing ratio is reduced to 28.5 From 35.8 percent a year ago, in the first half of the year, we saw record people purchasing and moving into Somerset Home with settlements of 5 45 Homes. And at the same time, we delivered 347 homes, which is pretty close to what we achieved for the whole of 2020.
In terms of Slide 7, looking back to the first half, I just wanted to touch on a couple of personal highlights for me. It was great The Ellerslie is a village being completed. I went there, watched over probably 6 weeks ago now, and You see that beautiful bowling green in the middle of the lake. Really what more can you ask for in a sense, no construction activity on-site anymore. And this is sort of reflected really in the fact that we've sold close to 60 homes this year there.
I got to experience my first main building opening as CEO in Richmond, and it's amazing to see what That means to residents, I think we would have had probably a completely full village turnout there and really stood demonstrating how those facilities are key drivers to why people Village, run the way with our Lower Hutt Village. And so as I said, well, I can't even ask a lot when we're getting started on that. And so We're underway with building in that, and we've got over 500 people in the database, which is twice the amount of people that that village issue will house. And just moving to Slide 10, bringing the best of life. I just want to take a moment here to acknowledge a few more successes we've had this year.
Our people and culture team won the Kellogg acquisition award at the HR New Zealand Awards. Last year at its peak, the team months took a 6 week campaign to hire an additional 100 and I think they went through something like 1100 applicants. Our internal design team also won Gold New Zealand Commercial Projects Award For a Duke house renovation at our Hobsonville site, and that's a colonial cottage we did up. And the amount of passion and pride our construction team put into that was pretty incredible. We've also done a lot of work recognizing and promoting diversity inclusion across the business.
So we formally see that interviewed staff about their views just recently. We're currently doing a lot of great work around medication optimization. Just looked at the huge volume of medication at Aliriz and Seron. Often they've built it up over a long period of time, 10 years plus, and make sure these communications remain fit for purpose. We've now got around 650 staff who have become owners of free Somerset shares following the 3 year vesting period that we have.
Staff who joined in 2016 who owned those shares now have about $5,700 in value, a nice little mistake broken. For our residents, one thing COVID has taught us is the importance of technology bringing people together And Kinepraerizans are trialing a new Residence portal on tablets and they believe this study is really just improved communication between staff Residence Between residents and their families and residents and their friends, enables real time communication, provides sort of basically a whole lot of information at their fingertips, including Any announcements within the village? Any activities or events on the book? Actually just last week, just last week, late last week, During COVID, I was watching the trial side, and we had a virtual piano player and singer doing a show. It's over since that was pretty cool to see everyone's watching that.
That's Slide 10. Look, Slide 11 continues to take really good steps to improve sustainability. Somerset is still New Zealand's 1st and only Carbon 0 certified retirement village operator, or at least that I'm aware of. We've seen our carbon emissions reduced by around 31 base year in 2017, so we're sort of essentially halfway towards that 62% reduction target that we've got for 2,032. In terms of sort of Practical things that we've been doing to sort of improve sustainability.
We're incorporating a pellet boiler into our New St. John's village to replace the gas systems that we're originally We're stopping future implementations of gas boilers into our villages. All our future villages, we're looking at Centralized electric vehicle charging stations. We're also just in the process of doing some work to retrofit some of our existing sites with vehicle charging stations. We've set waste division targets for our construction teams.
Yes, those are some of the highlights we've done. In terms of Slide 12, developments in Australia, look, despite the extensive lockdowns in Victoria, we feel like we're continuing to make some pretty good progress there. Actually, just last night, and it's too late to put in this presentation, but we received a confirmation from the Casey Council that have approved our Cranbourne North site planning permit or as So that's people in New Zealand know our resource consent for that site. So we'll be straight to Earthworks now. We'll welcome our first residents essentially in 2022.
Today, you'll see we announced our foresight in the northern suburb of Craigieburn. That's really well positioned site And actually, a state government approved growth corridor, so there's about 7,000 people in that catchment list to about 10,000 by 2026. Got one other operator within 5 ks radius for us and median house price over $600,000 And looking at some of the other Corridors and suburbs nearby, that median house prices lifting up quite drastically. One of the neighboring suburbs went from 6 $100,000 to about $100,000 median house price in the last 12 to 18 months. So look, if you like, we're delivering on the To build our Australian land bank quite well.
In Slide 14 to 19, the New Zealand development and consenting stuff. Look, a couple of things. You obviously talked about that record program of first half deliveries of 347 homes. And the completion of the main building in Richmond was great achievement. The final apartment block in Ellerslie was completed.
The first two of So the first of the 2 apartment blocks we're doing at Kentapuru is completed and then we're doing sort of homes at 10 other villages or 10 of Philadelphia villages in multiple regions. So there's a real good diversification across the country there. We also gained resource consent for our Pribilton Village, where it's actually already got underway. As I mentioned earlier, we started Lower Heart. And just last week, we got resource consent for our New York Village as well.
So it's another green light for another village. And look, In terms of how well we'll be placed for the future, in terms of consents, we think we're really well placed. We've got 100% of our resource consents in place for 'twenty one, 100% in place for 'twenty two and ninety percent for 'twenty three. So essentially, we've secured all 3 years' worth of consents. And the only two sites in 2023 that remain are Blenheim and Wackenai.
And Blenheim It's been communication recently. We're quite confident that, that will go well for us and we have a positive outcome pretty quickly. Why can I I'm going through the fast track process, the Minister of Environment, and that Parker referred that to Environment Protection Agency and has judged That project does meet the requirements for the fast track process? So I think that's still in a pretty positive light as well. And you'll note that we also have announced Today, we purchased another site in Palmerston North.
So that's at the northern part of the city where all the new housing developments going. The median house price for Palmerston North now is actually at $670,000 and that part of the town is actually up at $750,000 Our Billaging Palmerston has always got a big, big waitlist, so we think that Billaging will go really well for us. In terms of Slide 20, the residential Mark, just two points I'd make there really. I'd just reinforce that 8% uplift in pricing over 12 months versus the Market uplift to 29% places in a really good position in case when you come up to downturns. And obviously, we'll benefit from having a lot of regional New Zealand locations.
So moving into a future regionalized lockdown, it will support continuing selling from the vast majority of our sites and Small weighting up portfolio. So we're currently in Auckland, really just the remaining apartments in Allesley. And we will later this year release Some of the first of the sort of last units to be built in Hobsonville. Slide 21, Retirement unit deliveries, look, I just touch on opened our first site in Fungurray, and that site's gone stunningly well. We've got 75 So look, that's my update.
I'll now look to hand over to Will Wright.
Thank you, Scott, and good morning, everyone. Turning to Slide 22. Development margin for the first half of twenty twenty one was 22%, up from the 18% achieved across the second half of twenty twenty and within our target range of approximately 20% to 25%. The gross realized development margin for the half was 40.7%, which was up from 17.4% in our first half twenty twenty, a great result in which we achieved a total of 302 new sales, a record number of new sales in the 6 month period. The margins were influenced by similar factors as in Second half of FY 2020, strong early sales meant that almost 60% of units settled in first half twenty twenty one were sold in FY 2020.
Therefore, they Only actually a portion of the residential market uplift seen in the last 12 months. And the mix of units Our delivery program has ramped up and the number of main buildings we are now delivering with 2 delivered in FY 2020 and another one in Richmond delivered in the first half of twenty twenty one. This brings with it the settlement of a high number of service departments, memory care apartments and care suites, Up 81% on first half 'twenty. These generally attract lower upfront margins, but strong hold of life returns for the business. The locations of settlements was only 15% of all settlements in our Auckland villages compared to 31% and first half twenty twenty.
And finally, continued strong villa margins where we had continued to have good margins across all villa stages across All sites achieving above 25%. Turning to Slide 23, our new sale of occupation rights. We settled 302 units in first half twenty twenty one, which is a 6 month record and a substantial increase on previous years, 136% from first half twenty twenty and 122% from first half twenty nineteen. We also reached a milestone in the period With the 12 months to 30 June being the first time we had sold over 1,000 homes in the calendar year, 7 regions secured more than 20 settlements each and almost 60% of the settlements came from villages outside of Auckland and Christchurch, We're enforcing the strategy to diversify across the regions. This also highlights the benefit of having a broad number of sites.
Therefore, we only require a relatively small number of sales per site. Across first half twenty twenty one, our top selling villages were Caysbrook, The age of stock continues to improve with 90% of uncontracted stock available Just quickly want to touch on presales. We are seeing strong presales across our developing villages We have a good pipeline for new sales looking ahead to second half twenty twenty one. Total presale contracts are in line with FY 2020 And still around 2.5 times higher than previous periods. As an example, we have only 30 pre sale builders available for the rest of the year across 14 sites.
This is less than 3 per village. Our waitlist numbers continue to climb, up almost 43% on first half 'twenty. Our waitlist now average over 40 contracts per village. And lastly, whilst early in The period we have seen similar trading conditions in July August for the last quarter and have maintained the level of contracted stock that we saw at FY 2020 With around 220 new units available to settle in FY 'twenty one either contracted or pre sold. We have another 30 units due for delivery early next year, which are also presold.
And now turn to Slide 24, new sales stock. New sales stock as of 30 June totaled 3 15 units with 2 22 units uncontracted. This is up from total stock of $296,000,000 in December 'twenty, but down from $3.55 at June 'twenty. Overall, the 222 uncontracted stock, 73 were delivered as part of Richmond's main building that opened in May. With these units excluded from our uncontracted stock, uncontracted stock as a percentage of total portfolio will be at the lowest level in 4 years at 3.1 percent of total stock.
We are pleased with the rates that our service department stock is selling down. Case Brook, the first of our new main buildings opened during the nationwide COVID-nineteen lockdown last year and sold down within 12 months. Both Richmond and Rortatuna are demonstrating similar sell down rates, Richmond slightly faster having sold 35% of its service departments in 2 months. We continue to see very high demand for our village with only 24 delivered units uncontracted across all villages at that 30 turn. Turning now to Slide 25, new sales performance.
A couple of things to point out on this slide. The two charts on the right Maintain the step up in sales momentum that we saw in the second half of twenty twenty. Bottom right chart highlights contracts on stock available to And financial year 2021, slightly less than overall contracts at 30 June, reflecting higher weighting of stock being serviced in memory care apartments and care suites. Overall, we remain well positioned as we move into the second half of the year. Moving to slide 26, retail and occupation rights.
Resale volumes were 243, up 79% on first half twenty twenty and 71% on first half twenty nineteen. In context, this is the same amount of total settlements we achieved across FY 'fifteen and 'sixteen combined. We see this sort of volume as more of a new normal for us, with the number of residents vacating units in first half twenty twenty one, the same as we saw in both half of twenty twenty. The business achieved record gross proceeds for the 6 months of 127,000,000 10% up on the previous high of $115,000,000 in second half twenty twenty. Settlements in first half 21 were also in line with the second half of twenty twenty, which had 2.45 resales, a record for the most resale settlements in a 6 month period.
Realized resale gain was $29,400,000 or 23% realized margin. This compares to 25% in first half 'twenty and 26% achieved across FY 2020. The slight drop results from a couple of key drivers, the mix of villages With a higher proportion of resales in developing villages and overall shorter tenures on resales, particularly for villas and service departments. In absolute terms, while realized margin percent decreased slightly, realized margin per unit increased from 115,000 In first half 2020 to $121,000 in first half twenty twenty one. At Slide 27, embedded value.
The embedded value within the portfolio now exceeds $1,100,000,000 having increased 765,000,000 from June 2020. This is a 49% uplift that will positively impact Realized gain and recurring earnings into second half 'twenty one and beyond. Embedded value per unit It's now $240,000 This includes $164,000 of unrealized retail gain, which is almost $45,000 about the resale settlement in the first half of this year. Moving to Slide 28, retail We saw stock of 149 units compared to 178 at December 20. This equates to less than 4 months stock at our current settlement rate.
Uncontracted stock has decreased from 73 units at December 'twenty to 62 at June 21. This is the lowest level of uncontracted stock in 2 years and there was only 20 vacant resale As a proportion of our total portfolio, available resale stock is 1.3%, which is at the low end of what it has consistently been over the last 5 years. Slide 29, resale performance. I won't talk too much about this slide. The trends are consistent with the new sales trends on the previous earlier slide.
And moving to Slide 31, our first profit. We've reported a net profit after tax of $263,800,000 for the first half twenty twenty one, up from $1,000,000 in first half twenty twenty or a loss of $7,600,000 when normalized to the government wage subsidy. The key driver of the movement in revenue between first half twenty twenty and first half twenty twenty one was care and village service fees and DMF related to the opening Three new villages in the second half of twenty twenty in Napier, New Plymouth and Pacemile Beach, along with the continued sell down of our developing sites. If you back out the repayment of the government wage subsidy and the additional COVID spend from second half twenty twenty And expenses have remained broadly flat over the past 6 months. Turning to Slide 32, fair value movement.
Fair value moved $260,200,000 for the half, which is a record across all prior half and full year reporting periods. Importantly, this is a result of the growth in our portfolio rather than any reversal in value assumptions. Here, we've benefited from delivering new units, strong sales rates and positive house price inflation. The four main drivers of this were unit pricing at $168,000,000 Our values have lifted Our normal ore prices by around 8% across the portfolio in the last 12 months. This compares to national median Residential house prices that were up by 28.7% year on year and 25% when you exclude Auckland.
The value of new retirement units built increased roughly 69,000,000 The uplift in value in first half twenty twenty one is driven by deliveries across team sites. The reversal of unsold stock discounts Accounts for $25,600,000 This is a reversal of previous discounts applied to stocks delivered in previous periods that settled in the first half 'twenty one. The level of discounting applied was around 18% to 23% in previous year, meaning this reversal resulted in quite a large fair value movement for the period. And finally, discount rate assumptions of 6.9%. This just represents a softening of the discount rate within the discounted cash flows of our villages.
Two parts to this, a general improvement in market conditions across the country and main building deliveries, notably in Richmond. The value is normally at just discount rates when the main building is delivered to a site to reflect the increased amenity and service offered at the site. Turning to Slide 33, underlying profit. Our first half twenty twenty one underlying profit was $25,500,000 A 6 month record and up 68% on first half twenty twenty. Reoccurring earnings from our core business functions continue to be a standout and highlights the sustained interest and growth in our business.
Recurring income increased by $26,600,000 to $124,300,000 in the first half. Recurring earnings were underpinned by double digit growth across care fees and village Services up 12%, deferred management fees up 23% and realized gain on resales up 87%. If you can please turn now to Slide 34, cash flows. Net operating business cash flows have increased to 16,500,000 In first half 'twenty sorry, it increased from $16,500,000 in first half 'twenty to $42,500,000 in first 21. This is also a jump from FY 2020 of 29.8, but remembering this included COVID-nineteen costs, So normalized would have been closer to $40,000,000 Individend cash flows of 192.4 We're up both on first half twenty twenty and first half twenty nineteen, but in line with construction progress on a number of key projects, Mainly civil expenditure on our new sites, including Tongari, St.
John's and Lalor Hut, main building spend in Aden Head, Kenekuru, Richmond And Tiara, both Richmond and Hazen Heath delivering across FY 'twenty one and various solar stages across team sites. Refill costs for first half twenty twenty one are in line with the increase in terminations. Net financing cash flows increased 252 percent from our first half 'twenty, largely due to the net repayment of bank borrowings in line with increased new service. Moving on to the balance sheet. Our balance sheet continues to grow with total assets now $4,400,000,000 as at 30 June.
Since listing in 2011, our balance sheet has grown more than 7 times. We've added $3,800,000,000 to assets over 10 years. Retained earnings are now $1,300,000,000 up 66% from first half 'twenty. The retained earnings continues to help It's encouraging that there has been a continued strengthening of the property market beyond what CBRE And JLL has factored in at this point and another strong year of fair value gains would continue to benefit our gearing ratios. Slide 36, net tangible assets.
Our NTA per share is now $7.07 Compared to listing in 2011 when it was $1.09 NTA growth in first half twenty twenty was 484%. If we move to Slide 37, gearing ratio, net debt has decreased from 56.8 percent in December to 643.3 as at 30 June, with the primary driver for this being the Increased level of new sales and settlements. At June 30, we had $455,000,000 of funding available to draw on. Post the refinance announced today, headwind has increased to $850,000,000 Moving to Slide 38, funding. Post the half year, we have successfully increased our bank facility to approximately $1,200,000,000 to complement our existing 3.30 The refinance was approximately $700,000,000 $315,000,000 of the rollover of debt Due to mature in March 22, in addition, we've added $50,000,000 in New Zealand dollars, an additional $315,000,000 in new lending in Australia.
The facility has a mix of 4 5 year tenures with an average tenure of 4.2 years. This provides us with sufficient headroom to fund growth In Australia, in light of our previously signaled plans to build a strong land bank over there, we continue to target the buying of additional sites in Australia this year, Having already announced the purchase of Choonside Park in March and Craigie Bullen today. As part of our new facility, We are also proud to be New Zealand's 3rd retirement village operator to link sustainability to its funding arrangements. This commits us to see sustainability targets over the tenure of our refinance banking facility. These targets are construction waste diversion from landfill, The rollout of Memory Care Suite and the continuation of dementia friendly accreditation and an emissions reduction target that will align with and encompass other initiatives across the business, including the update of our TOE-two target in 2022 and our wider science aligned targeting process.
These targets are externally audited and linked to our underlying sustainability objectives. And finally, moving to Slide 40, interim dividend. We will be paying an interim dividend of $0.09 per share unimputed. This compares to an interim dividend of $0.06 per share in 2020. This Represent the first half payout of approximately $22,700,000 The dividend policy remains 30% to 50% of underlying Profits for the full year period.
As previously indicated, given the growth opportunities in front of the business, At this time, dividend payments are likely to remain at the bottom end of this range. The DRP scheme will be available for shareholders With a 2% discount to be applied. The interim dividend will be paid on Monday, 20th September. Moving to questions.
Thanks, Will. Operator, we're happy to take questions now.
Your first question comes from Andrew Steele. Your line is open.
Good morning, guys. The first one for me is just on your OpEx profile in lockdown. Could you give us a steer as to what you think the Level of incremental cost will be on a weekly basis while we remain in current level 4 restrictions.
Yes. Look, I could pass a couple of comments to Andrew, and then I'll maybe pass to Will if he wants to add anything. Look, essentially, I don't think you'll see a great difference in terms of OpEx cost. I mean, essentially, what you're seeing at the moment is mainly use of PPE stock, We already have in stock. There's a little bit of retention cost attached to that, but I wouldn't sort of say it's materially going to impact anything from an operational sort of cost
Yes. Thanks, Scott. Thanks, Andrew. Look, I'd agree with that. I think there may be a small impact from some additional staffing levels, but remember, we were already in sort of
Great. Thanks, guys. Just the next one for me is on your new development build rate guidance. Can you just highlight the project, which is pulling forward into this year? And I guess as well, given the, I guess, uncertainty Related to the length of potential lockdowns and the disruption that might have on development, are there any projects which is sort of In the late part of the financial year, which could slip out into the FY 'twenty two year, is that worth highlighting?
Yes. Sure, Andrew. Look, a couple of things here. The first one is in terms of sort of main infrastructure projects that we're going to deliver this year. You've sort of already got the 2nd main building that we intended to deliver, which is Avon Head.
That's actually sort of complete now and actually ready to be handed over into To start filling the occupancy, no risk around that. And then the remainder of the villages in terms of build rate profile are really Predominantly, Philip delivery, we do have the 2nd block of Kenapuru, which is pretty well advanced. So I don't think you Carry any risk that that wouldn't deliver this year, obviously, extreme circumstances sort of aside. And so in terms of like what that lift up in build rate was to go from that 500 to 5 50 build rate to the 550 to 600. It's not one particular project that we're pulling forward.
Essentially, what we're doing is lifting our build rate across all of those sites. So Obviously, Regional Broadacre Village is quite short lead times to be able to, in fact and sort of Basically, lift that delivery program sort of right across all those villages. So again, not a lot of risk attached Because ultimately, you're delivering a small number of extra volume across a large number of sites, if that makes sense.
Yes, that's very clear. Thanks, Scott. And just related to that, I just noticed the Comment on expectations for development margin. You've removed the comment that you could be at the lower end of the range. Could you Elaborate on that, where you think development margin might land on a full year basis.
Yes. Look, I don't think any changed expectation from the initial Given, obviously, the first half of the year, you've seen quite a stable development margin for us. So no reason to expect that Carryout in the second half of the year. Obviously, you're not just talking about any sort of down impacts attached to COVID aside, but That's sort of our view. Will, I don't know if you had anything else you would like to add to that.
No. Look, I think, obviously, there'll be some change in mix as we move into The second half, Andrew, so that will obviously flow into development margin with a higher mix of apartments and assets to apartment delivery.
Yes. Essentially, Andrew, you see a little bit of a lower product profitability from that product, but we're pretty confident equally And what we're seeing coming through on those 2nd half, that is where essentially they're benefiting from the pre filling on those obviously being So you're actually capturing a bit more of that gain that we've actually put in play in the last sort of 6 months. So most of those price increases have been in the last
Great. Thanks, guys. Just one on earnings seasonality. You typically have a more of a second half weighting to earnings. Looking at your mix of stock and development plans for the second half of the year, is it reasonable to expect that actually This first half period will have a modestly greater weighting to earnings than the second half?
Yes, exactly. And really reflective of
the fact
that traditionally, we've actually delivered quite high volumes of deliveries sort of late in the years. And so therefore, You've kind of seen that sort of second half skewed this year instead of almost completely opposite.
That's great. And just one last one from me. Can you just give an update on the pricing increases that you put through On a like for like basis in this financial year and any more that are planned at this stage for the remainder of the year?
Yes. Look, I'll just maybe comment on that, and then I'll hand over to Bolotanya to sort of comment on that. I think, look, just obviously second half of the year, really for watch and environment. So there will be pretty response Just the situation we're in at the moment. So I think no predetermined outcome in terms of where we will price in the second half of the year at this point in time.
Nothing from the first half of the year, Andrew. Sorry. I was just going to add, Andrew. I think from the first half of the year, we've been pretty conservative on price increases. So By no means have we increased as much as the market.
So I think I spoke to sort of circa the 8% half on half Please
Great. That's all from me. Thanks guys.
Your next question comes from Stephen Reichrow. Your line is open.
Good morning. Great results, guys. I just wanted to follow-up on Andy's question, kind of price increases in 21% debt that sustained some high production in the last 12 months. And it's the thing that obviously there's some challenges in the second half I guess over time, should we be expecting that we'd be able to close that gap? Yes.
So I guess, could I help you with what kind of time period would be reasonable for it to close? And then we sort of think it
Yes, Stephen. Look, fair question, I think. Look, my take on it is you probably won't see us look to close that gap in the immediate future, but there'd be sort of a progressive We've sort of viewed that over a couple of years where we sort of watch that. I mean, obviously, it's that gap is good and that Maintaining the ability for our people to be able to afford to continue to come into a village. And at the moment, like in the environment we've lived in the last 12 or 18 months, We have obviously taken a bias towards making sure that we've gotten good enough progress stock levels and don't have aged stock.
So Look, you won't see us sort of pushing up radical price movements, and that's reflective of, I guess, And that analogy we gave for about 8% versus the 29% of the market. I think the other thing I'll just sort of call out a little bit is There is a ways that lag between, which I sort of mentioned before in the conversation with Andrew, that there's always that lag between when we pre sell products And so probably people might have had a higher expectation of margins in the first half because but remembering that often the product we sold in the first half of the year was actually purchased by So you sort of see that that's a lag dynamic. But in terms of pricing, we'll be pretty consistent and steady and probably Certainly in the short to medium term upon low stock levels as opposed to pushing prices up towards the median.
That makes sense. And just following on the profit of price rises, some development margin and then it's in plenty of news about the rising Your material prices and labor costs. Yes, it sounds like you're pretty confident that you can recoup those costs through price increases.
Yes, that's right. Look, and what we're seeing at the moment A lot of the literature things such as announcement last week and we're talking 3% to 5%, RLB, who's one of the sort of market competitors we talked most And provide the most guidance around that sort of talking 5%. We are sort of seeing probably more close to that 5%. We're seeing some erratic pricing in things like steel Some are at the moment, but like it bounces over the place, you'll see an old tender come in and it'll catch 10%, but then you'll see other tenders coming through at 1% or 2%. And so Watching that, I mean, that's always a balancing game.
So as you sort of rightfully mentioned, we're still looking at the development margin, and we are pretty We can stay at those levels that guidance still stands, and we can balance off that balance between construction cost increases And residential house price and pricing that we sort of choose to do to sort of keep that margin at an appropriate level.
That's great. And then just one more for me. Just on Melbourne. So I think the only indication was that You might be in a pre stock acquired, and it looks like the company is on track. Just interested with the increased debt capacity out today, Is the potential here to see an acceleration in the rate of banded position now, but not all perhaps?
Is there more appetite To call those sites to better than more in a city, better than with a little bit more CapEx associated with them, it's been more of a broad
Yes, yes. Look, it does I see ability, I guess, to buy the odd mid ring side if we wanted to choose to buy that. I'm not so saying we rush out and buy truckload of mid ring sites. But really what it does is sort of Position now to manage any sort of untoward impacts attached to the current outbreak. But look, one step at a time for us really, like we sort of said back 6 months ago, let's start with building up our land bank and getting a real strength to the land bank and then getting consented.
So we're sort of not looking ahead of that at this point in
That's helpful. Thank you very much. That's all from me.
Your next question comes from Ewan. Your line is open.
Was that Aaron? Let's assume it was me. So good morning and congratulations on being the first agency company for a long time to report reduced net debt, very impressive And encouraging. I've got a few questions, if I may. So first of all, just I guess, on general interest, but you mentioned 80% fully vaccinated of staff and residents.
So I'm actually quite curious to know You know why that isn't higher? Is that because of vaccine hesitancy, lack of access? Or is it just Your rollout plan was targeting this sort of level by now. Secondly, just on your So the delivery outlook, I noticed that you had 50 care beds or 52 to be precise that wasn't On Aura, that mix was slightly higher than I had in my mind. So I just wanted to know Going forward over the next few years, is that a level you expect to continue to have with the sort of 50 or plus Care beds that are not going under AURA.
And then I have a couple of more, but maybe I'll start with that.
Hi, Aaron. Hey. Look, yes, Dave, first question around vaccination rates. Look, the 80%, it's not like we have 20% of our staff who are not prepared to be vaccinated. I think the actual opt out rates at the moment only range around about 4% to 5% across our What you're sort of seeing in New Zealand is sort of like that recent fast ramp up in the last couple of months All vaccinations happen, and that's happened across the averages at various at various sort of like Time frame is dependent upon when availability is existed for and when DHBs have sort of allowed us to have people on-site And so what you're seeing is a sort of first wave of people come through the vaccination process, but you've equally got a The virus vaccination effectiveness or you're more often, I think, Most likely just seeing people are a little unoccupied and not talking at which I suspect you're probably seeing nationwide in the moment where people are rushing in and all of a sudden You know that you're waiting for a 34 week wait.
And so look, I think it is moving quite rapidly, quite quickly up, and we've even seen it in the last And so yes, predominantly just reflective of a lot of those access to vaccinations at scale for us It's only happened over the last 4 to 6 weeks. And so yes, it's a bit of a vaccine rollout in New Zealand sort of it's probably principally driven up. And then just on your question around beads versus sort of orders and license things split for those. Look, probably my point would be around that is we're not predetermined on those splits. So when we're sort of looking to do the initial sell downs in our facilities, We've been quite flexible around that and the speed of sell down, people's desire to which model they want to run underneath.
And We're probably not at a point yet where we're saying, hey, we've got a fixed ratio. And I'm not sure that we'll probably move to that in shorter term because I think Actually, it's better to get people living in their facilities and then potentially look to sort of optimize that for a period of time, if that makes any sense.
Absolutely. And then secondly or thirdly, Just on the sort of medium to longer term outlook for retail margins. So obviously, on the new sale, we have an offset A little bit between higher construction costs and higher prices realized. But on the resale, presumably that effect Should really come into play. So I appreciate what you said about shorter deals having been closed last year and also shorter 10 years likely.
But if I look out into, say, FY 2022, FY 2023 type situation, And we continue to clock 6%, 7%, 8% increases. Is there any obvious reason why we shouldn't put in That's 35% retail margins or something in 2 years' time. What would be the dynamics that would stop that from happening effectively?
Yes. Look, a couple of things there. Obviously, even on the resale side of things, you'll look at kind of stock levels on a site by site basis. And Depending on how many homes become vacant, that may change our pricing on and you can often get like large fluctuations in that Over various periods of time, probably one of the things to sort of point out is some of our original sort of villages down the Lower North Island Previously, there was always been sort of not being to be more sort of slightly lower, socially, economic or lower median house price suburbs. We will have taken a choice there to bring those relative ease to median house prices back and potentially leave them back permanently as well and so Creating that sort of increased buffer.
So Aaron, I don't think you should think you'll sort of see 55% only for us. We will take some choices around backing some of that stuff off in some of those particular suburbs, but you'll also see a little bit of fluctuation sometimes like I think just in the first half When we were talking about and I think it's over, talked a little bit about in the results presentation about that being probably slightly lower than what we'd But it really was just driven by the mix of units that had resold in that first half of the year. So there was nothing sort of systemic in that slightly lower Other than it was just a mixed thing at a point in time. So I think you're right. Like you definitely see more stability on that resale side.
You definitely see putting more opportunity to push that up over time. Will it necessarily go up by any factors you've talked about? As I said, we've taken a constructive choice to bring back some of those reinsurance meeting house price relatively. So it's typically in areas like Well, we noted that we might have been uppriced like 110% of the median house price and you're picking that sort of upper quartile of people
Makes sense. Thank you. Finally, just on your cash recovery of new CapEx. Do you have anything you can say about CapEx outlook? Obviously, it was a fantastic first half with new sales, Covering your entire CapEx, how do you see that over the next 6 months or next year?
Specifically, maybe on sort of land banking, you talked a lot about Australia, but do you feel like your New Zealand land bank is Big enough and maybe even willing to shrink it a little bit? Yes, yes.
Couple of questions in there actually. So Land Bank in New Zealand, look, it has been about 8 months since, I think probably since we bought the land in New Zealand. I'm just trying to think back. And so Look, we're pretty comfortable to buy a couple of bits of land in New Zealand each year just to sort of maintain that land bank at that level. We'll obviously sort of jump at the opportunities around Great sites that we see.
But look, you'll probably see us continue to buy 2 sites a year. From a CapEx perspective and Will and Tom, you might have some other comments to add. Look, I don't think you'll see any sort of Investment cash flows. What you're probably seeing is the finishing of Ellerslie in the last sort of 6 months, the wind back of Kenapur Apartments in the last sort of 6 months. We're seeing a couple of main buildings complete, but we're developing a couple of main buildings going forward, so that's sort of a bit the same, same.
So you're seeing a bit of takeaway from LLS, takeaway from Kinapura apartment blocks, investing into sort of some John's from a cash flow perspective. And you obviously got a bit of civil works underway. So guys, I don't really put anything sort of further comments or views on that, but I wouldn't say construction Cash flows would be horrendously different. Tania, you might have a comment on that.
No. Scott, I'd I agree with that. That would be on the
area we'll be ramping up our courses in Australia, but New Zealand's status quo. Yes. Okay, very well. Thank you.
Your next question comes from Nick. Your line is open.
Well, my question has already been asked. In terms of pre sell margins, Excluding some of those mix impacts, you mentioned the absolute movement in kind of margins. Do you know what, say, the kind of the refound actions did over that period?
Are you talking about a normalized one? Yes. I couldn't probably tell you that offhand. It's probably too early. We can have a look at that, Nick, because I want to try and pull some of that mix split out.
I can kind of let you know that offline afterwards, if that's helpful.
Okay. That was great. And then just on the kind of the capacity, is there much of a cost for you to hold that kind of capacity? Because it's just hard to imagine what scenario In the next couple of years, you've made any way
to kind of get drawn? Yes, sure. Look, absolutely, I mean, you guys can probably do the simple a metaphor on that around additional unused life capacity and probably give some margin relatively quickly on that. There is definitely an implicit cost in that. But I think The world we live in at the moment, it's very unusual times, isn't it, in the last 12 or 18 months.
And I think to have it secured for us, it's a great insurance policy in place for the business. And as I said, it really does for us secure that growth path in Australia. And so look, probably at the moment, happy to live with the insurance cost, much like insuring our $3,000,000,000 worth of assets.
Okay. And then just on New Zealand, any kind of view on the long term build rate, you're still kind of holding that
Yes. Look, don't really want to get in front of ourselves too much on that. So we get to the 600, stabilize it at level for a year or 2, but there's definitely The opportunity potentially to build at a faster rate than that still. I'm not saying we will, Nick, but you definitely can look across the portfolio and you can Look at how many villages we've got and the land banking we've got, and you can see that we have built a build rate slightly higher than that. And so yes, look, 1st step, get to 600 consolidate and then take a look from there.
That's it. Thanks.
Your next question comes from Bianca Fodder. Your line is open.
Hi, good morning guys. Well, first of all, congrats, great results. And so, yes, just the first question for me is just around Lens acquisitions going forward. I'm just wondering if you've Seeing any changes recently in the environment? Like for example, do you find it harder to find high quality parcels of land to buy?
There's quite a few other development companies looking to buy land as well. Or do you see that you have to pay higher prices for high quality lands?
Yes, yes. Look, typically, I don't think we see an incredibly different environment. I don't think we see much difference across the country. I think you definitely see the most compression and contention in Auckland though. And so in Auckland, the top sectors you're talking about, you do see that.
You see crazy And you walk away and you just go you're not going to kind of build buy in those particular instances, but across the rest of the country, meaning like, The great thing about our model is we're reaching a diverse year is really, really strong. And in a lot of parts in New Zealand, there's not quite Thanks. I mentioned around land, but no comment there certainly is. In terms of Melbourne, we're seeing a good Volume of land options being available. And but equally, most of those situations go to tend You're paying sort of a market price.
It's not so much that you're building relationships over a number of years and working with someone to purchase Purchased the land. So I'd say sort of Australia, good availability of land, but they are market priced in New Zealand. You're sort of seeing that Low available land in Auckland, often high prices paid at rest of the country during normal conditions.
Yes. Okay.
Great. And then secondly, what's sort of your outlook on net debt and gearing? So yes, great See, going below 30%, but with an increase in strong build rates looking forward, do you believe you can So stay below 30%. What's your expectation there, please?
Look, we'll look to continue to run a conservative We're gearing going forward. So I don't expect anything other than sort of what we've looked to maintain historically, which is sort of between 30%, 35%. Thank you for the time. A reasonable way to answer it.
Okay. Great. And then lastly, do you see any other operational cost pressures at the moment, for example, with shortage of hospitality staff, some of your peers, I believe, increased wages for nurses Recently, with the new COVID outbreak, you have sort of see any increased operating expenses in the second half?
Yes. Look, in terms of operating costs, so as I mentioned before, COVID related, not really anything terribly material, but like generally With nursing, that's the biggest challenge the industry faces. Obviously, 70% of the industry is not Obviously, you're seeing DHBs undertaking that pay equity settlement or trying to sort of achieve The pay per settlement was public nurses and looking at increasing was at $2.78 The big Pressure there between them funding that sector and not funding our sector and I think a real call for our sector For government to take a stand and actually fund the sector appropriately from an HCAP spectrum fund funding nurses. And so a lot of, I think, operators in the sector are really struggling outside of the large listed operators who can often Some of these costs, so a real challenge for the sector, I think, around registered nurse costs And availability and access to risk definitions from overseas. So just a real challenge in getting paperwork processed From government authorities and getting access and dedicated access to people and to MiQ facilities And what is the deal with all challenges in the figure?
Okay. Great. Thanks. That's all for me.
There are no further questions at this time. Please continue, presenters.
Look, I'll just say thanks to everyone for participating. Stay safe and take care. Thank you. Bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.