Ryman Healthcare Limited

Tēnā koutou, tēnā koutou, tēnā koutou katoa. Good morning, everyone. I'm Richard Umbers, Group Chief Executive Officer of Ryman Healthcare, and I'm delighted to be here to present our full year results for the year ended 31st of March. Here with me in Christchurch, I have Dave Bennett, our Group CFO. As previously announced, Dave will be transitioning into the Chief Strategy Officer role and remains the CFO until a new appointment is made. We'll be happy to answer questions at the end of this presentation, and we're hoping to wrap up within 60 minutes. Today, we're announcing a solid result. We delivered this while taking a number of steps to reposition the business for future growth and for improved financial performance. This result was achieved in a challenging economic environment, compounded by significant weather events and the tail-end impacts from COVID. Our result confirms healthy demand for what we offer. Our Australian business continues to go from strength to strength. Following our recent 902.4 million equity raise, we have reset our balance sheet. Importantly, our gearing has reduced to 33.1%, which is within our new medium-term target of 30% to 35%. In line with previous communications, the Board has confirmed that there will be no final dividend for FY23. The board anticipates making an announcement on board renewal, including the appointment of a new chair in the near future. During the presentation, we'll discuss the results in detail, as well as changes we've made to the business. You'll notice some new metrics and improved disclosure in specific areas. So, starting off with the headline numbers. Underlying profit of 301.9 million increased by 18.4% driven by strong resale margins and a growing contribution from the Australian business. Our reported or IFRS profit decreased by 62.8% to 257.8 million due to lower revaluation gains and costs associated with early USPP repayment. To help our decision-making and tracking of progress, this year we've also highlighted two new metrics, free cash flow and operating EBITDA. Free cash flow demonstrates the total cash generated or used by the business, including for development, before any external financing from our debt or equity holders. Ryman invested 1.04 billion in portfolio development in FY23 and finished the year with net operating cash flows of 650.8 million, resulting in a free cash outflow of 389 million. As we've previously indicated to the market, we're targeting positive free cash flow by FY25. We've also introduced operating EBITDA as a key metric to track performance. This metric focuses on the performance of our existing operations, excluding the impacts of development earnings, interest, depreciation, and amortization. Our operating EBITDA is up 29.4% year on year. Neither of the two new metrics are intended to replace underlying profit, but rather to give you a broader perspective on how the business is tracking. Before I talk to strategy, I'd also like to reiterate that our core purpose remains unchanged. We'll continue to operate a vertically integrated business model based around the best continuum of care in each market. We'll continue to offer unparalleled resident experiences and care that is truly good enough for mum and dad, but focused on doing so in a commercially viable way. Our sustainable growth model strikes a balance between development and optimizing the existing operations. To improve cash recovery from development, we are focused on three core things. Firstly, rebalancing our portfolio to lower-density townhouse-style developments. Secondly, right-sizing our care offering. And thirdly, introducing care suites and other design innovations to meet growing market expectations for a premium care offering. Turning now to our existing villages, we're optimizing our pricing strategy, including a trial of alternative DMF structures. Secondly, we're maximizing resales via our refurbishment program. And thirdly, we're placing an increased focus on operational efficiencies. You can expect us to continue bringing new villages to market in carefully selected locations based on local demand and a strong commercial model. We remain very positive about the age and wealth demographic in both New Zealand and in Australia. Our equity raise at the end of the financial year was a very significant event and was strongly supported. Thank you to all our shareholders who participated. The completion of the raise enabled us to strengthen our balance sheet through the repayment of debt, leaving us better able to execute our growth framework. The total cost of repaying our USPP notes and associated swaps was $855.5 million, reducing net debt from $3 billion at September to $2.3 billion at the year end. In conjunction with the raise, we have been able to adjust key covenant ratios, which will give us additional flexibility in the current high interest rate environment. We have provided additional disclosure on these covenant ratios in the appendices. During the year, we continued to invest strongly in portfolio development to meet the growing demand for our product, which is underpinned by positive age and wealth demographics. Within our investment program this year, we have continued to meet our obligation to residents by progressing six high capital intensity main buildings across the portfolio. Overall, we have reprioritized our development program to achieve two key outcomes. Firstly, remixing our land bank with lower density villages that have an improved cash flow profile. And secondly, rightsizing our care offering for future developments. If we looked at these six projects today under our new investment criteria, we would not build care centres with this capital intensity. I'll talk to our development programme just a little later. Our portfolio of RV units and aged care beds increased by 821 in FY23. This movement comprised of 519 units and beds, which were fully complete, and by that I mean you could physically move in. 302 additional units and beds, which have been included on a near-complete basis. And the criteria for near-complete differs across different unit types. Units and beds within main buildings are included on the same proportion of the percentage of cost incurred, but only where we've spent at least 60% of the projected total cost. For units outside of the main buildings, we assess inclusion based on a number of factors, including the stage of the development, the percentage of cost incurred, and the resident move-in date. The net increase of 821 was lower than our prior FY23 guidance of approximately 1,000 units and beds due to weather events and the related impacts that incurred after our guidance was given. A material driver of this was the cyclone in the Hawke's Bay, which has materially delayed construction timeframes at James Watty. This remains a longer-term issue and will directly impact the delivery of future stages. Given that we didn't achieve the 60% threshold at James Watty for its main building, we did not include 109 care beds and service departments in our portfolio movement. In addition, severe weather events impacted all projects in Auckland, where a significant proportion of our development is located. I would also like to highlight that a large proportion of the build rate shortfall in FY23 relates to the main buildings and to care beds. Care is paramount to what we do. It's in our name. We're a market leader in this space, and we have been for some time. In Australia, our continuum of care model is widely talked about as a game changer. At the opening of the new $30 million apartment block at our Nellie Melba retirement village, Victorian Premier Daniel Andrews praised the quality of staff and the vibrant community at our village. Throughout the year, Ryman has maintained the highest standards of care and resident experience remains a key priority. 82% of our New Zealand villages have four-year certification. In Australia, all four of our operational care centres received a four-star rating following the launch of a new rating system for aged care. Aged care occupancy for mature villages has improved steadily throughout the second half to over 96% at March 2023. This again demonstrates the quality of our care operations and the strength of our brand. Sadly, we continue to see a decline in the overall availability of care beds in the broader market because of funding pressures and, of course, skills shortages. There have been some recent welcome developments, including the recent Australian budget and additional funding for nursing pay parity in New Zealand, but the overall situation is far from resolved. I want to assure you that we are actively campaigning both for a rewrite of the aged care residential, or the ARC contract as it's called, in New Zealand, and for a co-contribution model in care in Australia. The launch of the company's sustainability strategy during the year was a major milestone in our journey to a sustainable future. In consultation with stakeholders, the company identified a number of key projects that will be undertaken in coming years. As a step towards addressing our environmental impact, Ryman secured an exclusive agreement with renewable energy developer SolarBay, a first for the retirement sector. the solar farm is expected to generate 30 gigawatt hours of renewable energy and save an estimated 3,294 tonnes of carbon a year. With that, I'd like to pause and perhaps hand over to Dave to run you through the financials in a bit more detail.

Thanks, Richard. Good morning, everyone. I hope you're keeping well. It's fair to say it's been another unique and challenging year for the business. Before we dive into the financials, I want to take a moment to look at some of the key performance indicators for the business over the last 12 months. Booked sales of occupation rights have been stable year on year, despite softer housing market conditions. Pleasingly, our margins for both new sales and resales have been strong, and we finished the year with just 2.1% of resale stock available. This is up slightly on the prior year, but is still at very manageable levels. Our average occupancy in mature aged care centres was robust at 95% throughout the year, notwithstanding COVID challenges through the winter months of 2022, and it has actually rebounded to over 96% at year end. Now moving into a deeper dive of the numbers. Our IFRS profit decreased 62.8% to $257.8 million. The fall was driven by two main factors. First, a smaller unrealised revaluation uplift on investment property due to softer valuation assumptions and also costs relating to the repayment of our USPP and associated swaps. I would also like to note that our aged care centres received a valuation uplift in FY23 in line with our two yearly valuation cycle. This uplift is taken through reserves and is therefore only visible on the balance sheet and isn't reflected in the profit. Underlying profit of $301.9 million is up 18.4% year on year and ahead of guidance we provided in February of $280 to $290 million. This difference was largely due to resale volumes through February and March. Our Australian business has had a strong year with underlying profit lifting 36.1% to $69.7 million and has now grown to nearly a quarter of our group underlying profit. As mentioned earlier, we have introduced some new disclosures. This breakdown of our profit and loss movement starts with a non-gap presentation of underlying profit, and then bridges this back to our reported profit. I would like to draw your attention to our operating EBITDA. This metric focuses on performance of our existing operations, excluding the impacts of development earnings, interest, depreciation, and amortization. Up until FY22, operating EBITDA has been relatively flat, as you can see on this chart. This reflects cost pressures that have been matched by additional funding specifically in our care centres during those years. While these funding challenges remain, these pressures have historically been offset by a growing contribution from resale margins and management fees. In FY23, operating EBITDA has lifted 29.4% to $272.6 million. This growth has primarily been driven by resale margins as a result of villages that were built in higher value locations in recent years having now started to mature. This has resulted in higher resale margins on increasing volumes and therefore increasing our management fees as well. As you can see on this chart here, our resale pricing, which is shown by the orange line, has lifted materially in FY22 and FY23 and now sits at $714,000. That's 42% higher than it was just five years ago. Our average new sale pricing has also lifted. It now sits at $905,000, up 35% on five years ago. This slide here provides a snapshot of the key sales metrics for our retirement village units. As mentioned earlier, our book sales of RV units has been stable with 1,519 sales in FY23, broadly flat on FY22. Booked resales lifted 7.5% to 1,057 units. Booked new sales fell 17.5% to 462 units. And this predominantly reflects the challenging market conditions in the second half in New Zealand. Resale margins during the year lifted to 31.1% in FY23. Our implied resale margin for our resale bank sits at 24.9%. However, this will be on higher value units and volumes are expected to continue to grow in the future years. New sale margins on developments also remain strong at 29.4%. underpinned by strong performance in Australia, which delivered margins of 32.7%. Our resale bank reflects the gross resale uplift, which would be realised if all of our retirement village units were resold today. This currently sits at $1.78 billion. While this is down on March 2022, this is due to the realisation of resale margin through FY23. Accrued management fees and resident loans reflect the timing difference between when contracted management fees are accrued and when they are realised. This is a key component of our embedded value. FY23 cash outflow of $389 million was driven by $650.8 million of net operating cash flows and $1.04 billion of net investing cash flows. As Richard mentioned earlier, we have reprioritised our development programme to achieve positive free cash flow by FY25. This includes remixing our land bank with lower density villages that have an improved cash profile and right-sizing our care offering for future developments. Total RADs increased to $300 million, resulting in a net cash inflow of $100 million during the year. While New Zealand contributed half of this increase, the opportunity for RADs remains substantial, with only 9% of our occupied beds in New Zealand having a RAD at year end. Following the completion of our capital raise and repayment of USPP notes, our balance sheet has been reset. Alongside our shareholders, our banking syndicate, institutional term loan holders, and retail bond holders have been incredibly supportive of the business. In conjunction with the equity raise, our interest coverage covenant has been amended from 2.25 times to 1.75 times through to March 2025. In line with our focus on improved disclosure, we have set out our covenant calculations in the appendices. We are compliant with all covenants at 31 March 2023. We had $577 million of funding headroom across our undrawn bank facilities and cash on hand at year end. As Richard mentioned at the start of the presentation, I will be transitioning into the Chief Strategy Officer role when a new CFO is appointed. I would like to assure you that I remain committed to playing my part in delivering on our plans. And at this point, I'd like to hand back to Richard.

Thanks, Dave. Turning to development activity, as you will see on the next two slides, there has been significant progress made over the past year. We've recently completed our Linda Jones village and have commenced construction at Cambridge in New Zealand. This means we now have nine sites under construction in New Zealand. Our land bank is in good shape, and two sites, that's Karori and Rolleston, achieved resource consent. During the year, we added Topo to the land bank, and Newtown is currently being held for sale. While in some ways it's disappointing to be selling sites, this also demonstrates our focus on capital discipline. If we don't think a site will achieve a viable return, then we won't build it. Looking to Victoria, we are now building across five sites, a reduction of two sites compared to FY22, having completed Charles Brownlow and Raylene Boyle during the year. Consenting activity has also been a highlight in Australia, with both our Mulgrave and Mount Eliza sites receiving planning approval. As announced at the half-year, we have divested our Mount Martha site. Guidance for the year. remains in line with that given in our equity raise outlook statement. FY24 underlying profit is expected to be in the range 310 to 330 million. Our portfolio is expected to grow by 750 to 800 aged care beds and units. And as I said earlier, we expect to invest between 800 million and a billion through FY24. The Board will consider the resumption of paying dividends in FY24, taking into account trading performance, cash flow and market conditions. Our medium-term outlook remains unchanged. During this year, we have not only delivered a solid result, but have also taken important steps to reposition the business to capitalise on the significant growth opportunities which lie ahead in both New Zealand and Australia. The strength of the Ryman team gives me every confidence that we will deliver on our care promise, reposition the business to capitalise on future opportunities and improve financial performance. The team continues to impress with their dedication and commitment and I wish to thank everyone for their efforts. I would also like to thank all of our shareholders for your continued support through this journey. And with that, I'll now open up to questions. And please note that we plan to wrap up at 11.30. Operator.