Thank you for standing by and welcome to the Winton Land Limited H1 FY24 results. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Chris Meehan, CEO. Please go ahead.
Thank you, and good morning, everyone. Welcome to Winton's interim results call. It's a pleasure to be here today and present our first half FY24 results, and thank you for taking the time to dial into this call. Alongside me today, we have Jean McMahon, who is Winton's Chief Financial Officer. Today, I'll start off with a business update and then hand over to Jean for the financial overview. Then I will finish up on the market and outlook. We'll then take questions from investors and analysts at the end. Half 1 FY24 revenue has decreased by NZD 7.2 million since half 1 FY23, while EBITDA has reduced by NZD 35.5 million.
As we communicated in our FY23 results, this is largely in line with what we expected and is a reflection of the significant year of delivery in FY23, the timing of development, construction, and settlements, and a continued subdued property market. We see it as our job to play the property cycle to our maximum advantage, and I continue to believe that at Winton, we're doing that extremely well. In the six months ended 31 December, we have successfully delivered 158 units. We've maintained a strong pre-sales book to protect the future revenues, and that sits at NZD 409 million with a land bank of 6,268 units. We've unlocked land value for residential developments, now with 66.6% of our land bank rezoned to date.
We're pleased with our continued Northbrook sales, and we're currently north of NZD 100 million and growing in confirmed sales with resource consent now granted for all five sites and initial funding in place, and we look forward to delivering our vision to the market across these properties. We've successfully opened Ayrburn, our hospitality offering near Arrowtown, and there's nothing quite like Ayrburn anywhere in New Zealand. We're immensely proud of Ayrburn, and it's a fantastic place for Winton to showcase our development capabilities to the very, very wide audience. We're pleased to have announced that Guy Fergusson has joined the board, bringing with him his vast corporate finance and capital markets experience, and we've additionally seen Macquarie's investment in Winton increase in H1 FY24, which signals a strong commitment to Winton.
I'd like to thank David Liptak for being instrumental in Winton's early growth and also thank him for his continued support as a shareholder. We continue on our ESG journey, having approved and implemented our sustainability framework, and we've made good progress towards the required climate-related disclosures. It was good to see that our ESG improvements were acknowledged this half by external commentators. As previously mentioned, we've delivered 158 units in half 1 FY24. While this has reduced from half 1 FY23 by 62 units, we've achieved a higher price per unit of NZD 523,000. This is primarily due to 34.8% of settlements comprising constructed product or built product in half 1 FY24 compared to only 11.9% of built product in half 1 FY23, obviously the built product commanding a greater price on sale. Our land bank pipeline yields 6,268 units, including 902 retirement units.
Winton has continued to unlock land value with 66.6% of our land bank now successfully rezoned. At Northlake, the Stage 18 plan change has been approved and is closed without appeal. This has provided us an additional yield of 130 lots. In November 2023, we received resource consent for Northbrook Arrowtown, a significant milestone towards unlocking value. This consent includes a 16-room boutique hotel providing accommodation at Ayrburn. We'll look forward to welcoming visitors to our full-sized Northbrook show apartment very, very soon. We additionally received consent for Northbrook Launch Bay in September 2023. We continue to work through the consenting process with North Ridge to deliver the remaining stages of that development. Winton is continuing to progress to 56 hectares of property currently zoned Future Urban at Sunfield with a rezoning application in front of Auckland Council. This is a traditional master plan and is supported by current regulations.
We remain absolutely firm in our resolve to pursue alternative legislative pathways to rezone the remaining 150 hectares. With regards to the legal proceedings, discovery obligations have now been met by both Winton and Kāinga Ora, so the matter is on track to proceed to a hearing which is set down for September 2025. In addition, there are various legislative pathways opening up so that they might provide a suitable consenting outcome for Sunfield. The reality is that New Zealand still needs to urgently fix its housing supply shortfall, and Sunfield remains an excellent opportunity to do this in a more sustainable and resilient way. Jimmy’s Point is our premium waterfront apartment development at Launch Bay. Construction of the structure is largely complete, and fit-out is well advanced. We look forward to opening a show suite there in April 2024 to showcase the quality of the development to the public.
Additionally, we continue to market the few remaining Ovation apartments and Launch Bay townhouses. We settled 78 units at Lakeside, and we're pleased to have completed the playground in October 2023 and signed a lease as a café operator, providing valuable assets to the community. In the meantime, our earthworks and civils program continues to be on track for future stages. At Beaches, Stages 14 and 15 near completion, as we expect to settle the pre-sold lots in the second half of FY24. Final works over the development have well progressed, with the coastal walkway providing a walkable link for the community. Early works at Northbrook Wynyard Quarter are now complete. There has also been significant progression of earthworks, civil works, and building works at Northbrook Wanaka and Northbrook Arrowtown.
Ayrburn has been very well received following its public opening in mid-December 2023 of the first few venues, and we look forward to introducing our next few venues, being The Barrel Room, The Bakehouse, and our fine dining offering Billy’s over the coming months. I'll now hand over to Jean to discuss the financial results. Thank you.
Thanks, Chris, and good morning, everyone. It's great to be here today to present our interim results for FY24. Winton's financial performance reflects the timing of development progress and investment in the business for future returns. Revenue has decreased 7.7% due to 61 less units settled in H1 FY24 compared to the prior period. 34.8% of these settlements comprise of constructed product, which commands a price premium over land lots. Cost of sales have increased in the period as a result of the increase in constructed product settled. We recognize a fair value gain of NZD 2.6 million in H1 FY24 relating to Northbrook Launch Bay land following the receipt of resource consent. This compared to a gain of NZD 15.6 million in H1 FY23, with a lower gain as a result of the timing of consents granted, the properties being revalued, and the original purchase price of the underlying land.
Expenses have increased in H1 FY24, primarily driven by administrative expenses and selling expenses. Administrative expenses increase is a result of an increase in headcount. Selling expenses have increased 29.4%, reflecting additional marketing spend to support Northbrook sales and the opening of Ayrburn. The combination of the above factors has led to a decrease in EBITDA of NZD 35.3 million, resulting in profit after income tax of NZD 9.7 million in H1 FY24. As at 31 December 2024, cash and cash equivalents were NZD 99.3 million. This has increased from NZD 76.3 million at 30 June 2023 as a result of settlement timing and the drawdown of NZD 63.3 million in debt, net of cash outflows relating to development activity. The settlement profile in H1 FY24 has driven the NZD 20.5 million decline in inventories. Winton continues to invest in long-term operating assets.
This has seen an increase in property, plant and equipment of NZD 23.6 million, primarily driven by Ayrburn precinct in H1 FY24. Winton entered into a new debt facility with Massachusetts Mutual Life Insurance Company. The initial drawdown has provided an equity release of NZD 63.3 million, which we will use to fund the Northbrook development. With a limit of NZD 80 million, the facility is ring-fenced to the Lakeside development and will function as a working capital facility, where drawings will fund development works at Lakeside. Settlements at Lakeside will be used to fully extinguish the loan over a period of four years.
As at 31 December 2023, cash and cash equivalents were NZD 99.3 million compared to NZD 89 million on 31 December 2022, with the increase in balance a result of the use of capital raised during the IPO of NZD 350 million for acquisitions, developments, and expansion offset by proceeds from the Massachusetts Mutual Life Insurance Company facility and settlements. While the timing of works on site has seen a decrease in payments to suppliers and employees, we have continued to invest in property, plant and equipment , primarily at Ayrburn, as previously discussed. This is aligned with Winton's strategy to hold the asset long-term to provide annuity income. As noted in our FY23 results, we have experienced some defaults in two of our communities. At Beaches, no further defaults have occurred beyond the four lots previously communicated, and one of these lots has since been resold.
At North Ridge, we had previously communicated that 12 lots had defaulted. This increased to 16 lots during the half year. Of these 16 lots, we have resold 10 lots during the period, and we have realized 7% more than the original sales price, including the recovery of the deposit. We expect to resell and settle the remaining 6 lots during H2 FY24. As at 31 December 2023, we had completed an unsold stock of 25 units, of which 5 have since been sold to date. The board declared an interim dividend of NZD 0.0055 per share for the six months ending 31 December 2023. The dividend will be paid on 12 March 2024. The interim dividend is in line with our dividend policy, updated in February 2023, to exclude any unrealised valuation movements in investment properties and within a payout ratio of approximately 20%-40% of distributable earnings.
We will declare and pay our full year dividend as part of the 30 June 2024 results. Dividends are declared at the board's discretion and are dependent on the company's financial performance. I'll now hand back to Chris.
In first half 2024, we've seen some positive economic indicators appearing, but we do remain cautious heading into the second half of FY24. Inflation pressures appear to be easing, but slowly, and domestic inflation remains high and still well outside the RBNZ inflation target of 1%-3%. Net migration, approximately 126,000 people in the year end to December 2023, continues to be above long-term averages and presents a record number of both arrivals and departures in the year. The REINZ data for January 2024 has shown an increase in sales. The House Price Index remains relatively flat year-on-year. I would say this suggests that the market has bottomed out within 2023. Meanwhile, mortgage rates appear to have leveled off in recent months.
Anticipated reduction in the bright-line test to two years and the gradual reintroduction of interest deductibility removes some barriers to entry for prospective property investors. We do note, however, there is still significant uncertainty ahead. The ramifications of the Evergrande bankruptcy are still unknown, with over $300 billion in liabilities, over $25 billion of which is owed to foreign creditors, effectively larger than the New Zealand economy. Similarly, ANZ's recent predictions of OCR increases in February and April 2024 provide further uncertainty for this year. Bloomberg notes that higher than estimated inflation in the U.S. has stymied hopes for rate cuts over there, while others are concerned about elevated risks of a U.S. recession in 2024, which we believe would have a knock-on effect here. Construction company liquidations continue to run at a very high rate, around twice that of any other businesses.
99 liquidations in Q4 2023 follows 118 liquidations in Q3 2023, 132 in Q2 2023. 38% of construction companies responding to the NZIER quarterly survey business opinion said they had experienced an increase in overdue debtors, the second highest level we've seen since the 2008 GFC . In light of this continued uncertainty, Winton is prepared for sales to remain slower and inflation to remain elevated, focusing on buyer groups that are least affected by these headwinds and are well positioned to use the current market conditions to our advantage. Remembering that Winton's beginnings during the global financial crisis saw Winton managing and often purchasing distressed developments, we have the skill set, the experience, and the people to navigate and profit from this environment. That brings our presentation to an end, so I'm happy to move on to any questions if there are any.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Rohan Koreman-Smit with Forsyth Barr. Please go ahead.
Good morning, Chris and Jean, and congratulations on getting another result under the belt. I just had a few questions. The first one, these extra lots at Northlake, are they part of the pre-sales to the government, or are they ones that you can sell off your own back?
Northlake, not Lakeside in Wanaka.
Sorry, was it Lakeside? The 130 that you were talking to, maybe I misheard.
Open market lots, yeah.
Open market lots. Okay, perfect. Then maybe just on the lot mix, just wondering if you could give us a breakdown of kind of what's completed and unsold and what's in production in the resi business?
I noted at 31 December, we had 25 completed and unsold stock items, of which 5 have since sold as of today.
Okay. And in production?
Well, hundreds.
To come back to you on that, Rohan, that's a lot. Many hundreds. I couldn't give you an exact figure.
No, it's still good.
Many, many hundreds, yeah.
The Northbrook pre-sales, oh, you've given us an update on the last couple of market updates that you've provided. I was just wondering if you had any update to that. And then is that pre-sales number now part of the NZD 409 million in total pre-sales that you report?
Yes, it is. And the Northbrook component of that is now north of NZD 100 million and climbing at a predictable rate.
Perfect. And then the last question from me, just on funding. You've got your first loan, and you kind of flagged this before that you'll probably draw down some loans. But given the pre-sales backing at Northlake, it's probably one of the cheapest loans or sources of debt you can find, kind of what are the next options around drawing down more debt?
We've always said that we'd go for project-specific debt, which is what we've done in this instance, and not encumber the wider group. So we would look to just pick off one project at a time and take debt to fund the construction of that project and ring-fence the loan to that project so there was no further recourse to the group.
Perfect. I'm guessing that.
Frankly, you could pick any project. Given the strength of the pre-sales and the strength of the locations of the land and the zonings in place, you could really pick and choose any one project or several to borrow against on a standalone basis from time to time.
Okay. Is it more likely to be resi or retirement projects that will be the next kind of cab off the rank?
Not sure. Probably retirement, but we'll just see what suits us at the time, really. We have lots of funders chasing us to lend us money, so we're more or less sort of seeing what works at what time at what property.
Perfect. I'll jump back in the queue and let someone else have a go.
Thanks, Rohan.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Nick Hill with Craigs Investment Partners . Please go ahead.
Hi, good morning. Just trying to get my head around some of the financial performance. Just looking at your gross margins, correct me if I'm wrong, but it looks like this period's gross margin is around 32%, which is a decrease of around 14% on 1H 2023, which was 46%. And you mentioned that a lot of this is due to a greater product mix of built form, which is a lower margin than residential lots. However, by applying sort of the same margin assumptions for both 1H 2023 and 1H 2024, it looks like the change in product mix accounts for around half of that decrease. And given that the built form is still evenly split between apartments and dwellings, it looks like there's been a decrease in average gross margin.
Is that correct, and would you be able to provide more detail as to what's driven this?
The first numbers are correct, like the 32 and the 46. And yes, we obviously had a higher proportion of built product settling in this period. We see that switching in the second half, and we see, as we communicated through the IPO, our average gross margin returning, on average, being that 40%. So that's what, yeah, we see on completed developments overall.
Okay. Because just on some back-of-the-envelope calculations, it looks like average portfolio margin has sort of decreased by 20% after accounting for the change in product mix. I mean, is that sort of due to sort of some built form selling for a built lower price or build cost increasing?
Well, they're selling for a higher price, but I guess you're not selling the same product in each half year, so it's quite difficult to do that comparison in isolation.
Okay. Thanks.
I think, Nick, you've got to look at that as a longer-term decision. Sorry. I just said it's more of a change you better look at in a longer run than a quarter-by-quarter or half or quarter-by-quarter or whatever. It just depends on what you happen to have settled in there.
Okay, thanks. Do you have any update on the medium-density funds? Are you starting to see more opportunities at or either moving towards your desired price levels?
Yes, but not there yet. So we still haven't pulled the trigger on anything, but we are seeing and you're reading about it in the press, there's various groups that are coming into distress. And in essence, we're waiting for a few of those to come up, which we're sure they will, but the pouncing date has not arrived.
Okay, thanks. That's all from me.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand back to Mr. Meehan for closing remarks.
Just like to thank everyone again for joining us today, and thanks for your ongoing support. We look forward to maintaining this momentum into the second half of the year. Again, we look to playing the cycle as best we possibly can and think we're continuing to do that. If anyone has any follow-up questions, we're very happy to address them, and please send them through to either myself or Jean. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.