Ryman Healthcare Limited (RYM) Earnings Call Transcript & Summary

[Foreign Language] Good morning, everybody. I'm Greg Campbell, and I'm delighted to be here for the first time in the role of Chair of Ryman Healthcare and to present our full year results for the year ended 31 March. Here with me in Christchurch, I have Richard Umbers, our Group CEO; David Bennett, our Group CFO; and Cameron Holland, CEO of our Australian business. In a second, I will hand over to Richard to give you an overview view of the year. Cameron will then give you an update on progress in Australia and then David Bennett will provide the financials. We, of course, welcome questions at the end. You can ask questions either online or over the phone. And of course, you can connect with us afterwards. For those of you on the phone, our operator will advise when you can -- when you are free to ask a question. We're planning to wrap up in 50 minutes. Today, we're announcing a strong result delivered during a period of considerable disruption. We have been tested like never before, firstly, with Delta, which significantly affected Victoria and Auckland, in particular. This was closely followed by Omicron arriving in Australia on Boxing Day and the wave is still making its presence felt. The resilience, commitment and professionalism of our team played a key role in helping us adapt quickly and respond decisively to changing circumstances. Our team's work has underlined that. When things are tough, there's nothing better than living in a supportive community with the best of care on hand. It's enhanced our reputation for excellence and word of what we do continues to spread well beyond our village gates. We regard the strength of our reputation and brand as a considerable asset in uncertain times. In the past 6 months, other operators have closed more than 500 care beds around New Zealand because of funding pressures and skill shortages. That leaves 500 families desperate to find care for their loved ones causing considerable distress and uncertainty. We are committed to building -- continuing to build to provide homes and care for as many people as we can. Care is paramount to what we do. It's in our name. We are committed to providing the highest standard of care possible and it is key to our growth plans. The challenges the industry is facing is a key focus for management and the Board, and we are making sure we have the resources everybody needs today and into the future as we grow. It's an extremely exciting time to take over as Chair. I've had a long connection with Ryman and my 15 months on the Board has confirmed everything I thought about this special company and its wonderful purpose. As a Board, we are acutely aware of how important Ryman's culture is and are protecting it. We are laser-focused on delivering a sustainable commercial performance in the current environment. In my view, these 2 ideas, delivering on our care purpose and delivering our commercial outcome for shareholders are joined at the hip. Rising costs and inflationary pressures across Ryman, changes in the housing market, debt and interest rates are all issues that are top of our mind. Like you, we are well aware of the pressure on our share price in recent months. There's pressure on the whole sector and headwinds in the market, which we are not immune to. However, these headwinds do not phase our plans. Underlying everything is our absolute faith in the strength of our business model, our reputation, our culture and the commitment of our team. The momentum and increased payoff we are seeing from our investment in Australia and our continued focus on executing our plans and delivering our long-term strategy. That's because Ryman has enormous potential to continue to deliver in the years ahead. Just to note on our Board structure. David Kerr, who has served on Ryman's Board for more than 28 years, including 22 years as Chair has let me know he will be stepping down at our Annual Meeting in July. That's a long stint and I think everybody would agree he's deserves a break. David has put in a huge amount of work and effort over these years, and he has played an important part in the success of Ryman. He will be not gone completely, however. David will be staying on as an adviser to our Clinical Governance committee. On behalf of the Board, shareholders and the team of residents of Ryman, I'd like to say thanks. David's departure means it's a good time to carry out a formal external review of our Board structure, its portfolios and skills so that we can ensure we are in the best possible shape into the future. We will update you more at the AGM as well as formally farewelling David. Before I hand over to Richard, I'd like to recognize and thank the extraordinary efforts of Rymanians everywhere who have gone above and beyond to deliver an exceptional standard of care and this result. Over to you, Richard.

Thank you, Greg. [Foreign Language], everyone. As Greg outlined, we've delivered a strong result in a challenging environment, demonstrating the resilience of the business and the strength of our team. I'd like to start off by setting out the key highlights of our result. Our audited underlying profit rose 13.6% to $255 million. Reported IFRS profit increased 64% to $693 million, and this, of course, includes the investment property revaluations. The Board has decided that shareholders will receive a final dividend of $0.136 per share. The total dividend for the year is $0.224 per share, unchanged from the last year and within our payout range of 30% to 50% of the underlying profits. The record date for entitlements is during the 3rd and the dividend will be paid on June 17, 2022. Total assets approached $11 billion. We had total cash receipts of $1.4 billion, up 18.7% on the prior year. Only 1.4% of the group's retirement village portfolio was available for resale at the 31st of March. We built 711 units and beds this year across the group, in line with last year. As communicated at our half year result, our build program was impacted by COVID delays. We started work on 4 new sites during the year at Takapuna in Auckland, Northwood in Christchurch and Highett and Ringwood East in Melbourne. This brings our total villages under construction to 16. That's 9 in New Zealand and another 7 in Australia. We also have another 13 in our land bank. When complete, these 29 villages under development and in our land bank will be home to over 9,000 new residents. We anticipate capital proceeds from them of over $6 billion. We're targeting a build rate of more than 1,000 beds and units in the coming year, a significant increase on the 2022 financial year. In addition, we continue to build our land bank. During the year, we purchased 4 new sites and added additional land at 2 of our existing sites. These sites nicely complement our existing land bank with a mix of townhouses and apartment style developments improving our mix of capital intensity. Today, we are also announcing 2 new sites: Rolleston in Canterbury and Coburg North in Melbourne. These are in addition to the 2 purchases made earlier in the year at Mulgrave and Kealba in Melbourne. Our construction team has successfully operated through COVID. We are however, continuing to experience some disruption to supply chain and some upward pressure on construction costs. The ongoing work in the exciting new acquisitions give us a great springboard for the growth as we continue to get ready for the increasing demand that lies ahead of us. We further strengthened our balance sheet during the year, and we further diversified our debt funding. Meanwhile, we continue to invest in the residence experience. Our Olympics at Ryman experience brought 700 competitors across 41 villages together to compete in the world's first retirement village games. We made the most of digital technology to link competitors across New Zealand and Victoria to compete in a range of sports from swimming and walking and cycling through to virtual bowls. It helped everyone forget about COVID just for a moment. The Olympics at Ryman was recognized with an innovation award at the Aging Asia Awards in Singapore, which are regarded as the Oscars of the industry in our region. Setting up the team for success is critically important, and our expansion necessitates good systems and processes. During the year, we moved to a group and regional structure. The structure has bedded in nicely and means that functions and responsibilities are clearly defined across our 2 key markets. And it's coming to its own during COVID when travel was severely restricted and reflects the fact that Ryman is now an international business operating in 2 distinct markets. The imminent appointment of a New Zealand CEO will complete the final piece in that structure. Now as Greg mentioned, the Omicron wave arrived just after Christmas in last year. The teams in Victoria coped superbly, not only keeping residents safe, but providing a blueprint for our response when it inevitably landed in New Zealand. This put a lot of pressure on our teams. And as Greg said, their resilience and professionalism shown through. In times of crisis, of which recently, of course, we've seen plenty. Trust is a valuable commodity. Being named the most trusted brand in our sector for the eighth time was a highlight for the entire team this year. We've now been able to turn our thoughts to the next phase of the pandemic. That's what we are calling living with COVID. We're optimistic that the COVID crisis is in the rearview mirror, and living with COVID is the new normal. We have well-practiced drills to keep our residents and teams safe, and we can now look up to the journey ahead. I'd now like to take just a few moments to say something about my first 7 months getting to know Ryman. Getting around the villages, I've been blown away by the way that our purpose, that is care drives all of us, and just how amazing our team are delivering on this purpose. And ultimately, I've come to realize just how positive our residents are about their experiences with us because of this drive, this care that we offer, consistent and mitigated focus on our purpose. The result is that the only regret our residents seem to have is that they did not move in sooner into a Ryman village. I've also been amazed to learn about the number of other things we have going on, things that most people don't know that our team do for their wider communities. Initiatives like the Ryman price, our annual charity partner work and our extensive partnerships with NGOs and arts organizations, both in New Zealand and in Victoria, which all serve to reinforce our social license. Our strategy is built on our purpose. And since I joined, we have been doing a lot of work, further refining our strategy for the future. We offer care that is good enough for mum and dad. And we do so in a commercially viable way to ensure we can bring the Ryman lifestyle to even more residents. We have a vertically integrated business model based around a continuum of care. It's proven its resilience during the recent challenge of COVID, and we are committed to it. In delivering on our strategy, you can expect us to offer the best continuum of care for aging well, to deliver an unparalleled residence experience, to continue our expansion to new villages targeting high-value sites to meet the ever-rising demand. And you can also expect us to continue to invest in our people so that we can provide the leadership the sector needs. This Ryman team has the strength and capabilities to deliver, and I'm very much looking forward to the year ahead. This is my focus, a strong and unremitting focus on care, matched by strong commercial performance. Thanks for your time today. I'd now like to hand over to Cameron for an update on our progress in Australia.

Thanks, Richard, and hello, everyone. As mentioned, the Christmas dinner was barely cold before Omicron landed in Victoria and have proved to be a challenge that tested all our planning and preparation on how we respond to a widespread COVID outbreak in the community. We came through well, and we're delighted to pick up an award for the innovative way we tackle the virus. The judges described our approach is ahead of the curve and recognized Ryman's array of infection control innovations, including moving staff into our villages, who are more at risk of contracting the virus, developing a digital contact tracing tool and being the first aged care provider of Victoria to introduce rapid antigen testing for visitors. While the awards and industry accolades we've received for our COVID response are a testament to the outstanding work of our operations team, the result we've announced today tells a broader story of the strength and resilience of the business in Victoria. In Australia, we've achieved a significant lift in underlying profit from $32.1 million to $51.2 million, which is a remarkable achievement and a credit to the wider team's determination to find a way through the constant COVID disruption. While our operations team was busy doing a superb job, the construction side of the business in Victoria kept on pace and delivered on our full year plan despite intermittent COVID restrictions. We opened our new Raylene Boyle village at Aberfeldie. We completed more new villa stages at Deborah Cheetham Village in Ocean Grove and opened the care centers at both Charles Brownlow Village at Highton and John Flynn Village at Burwood East. Now John Flynn Village independent apartments have proven particularly popular with over 95% presold in our final stage. Construction is underway at our Ringwood East and Highett villages, and we have resubmitted our plans to VCAT for Mt. Eliza and already expecting an outcome later this calendar year. We have purchased new sites at Kealba, Mulgrave and Essendon during the year. And as Richard announced, I'm thrilled to share details of our most recent purchase in Coburg North. The site is near the popular Pentridge residential development in the fast-growing suburb north of Melbourne. It will feature intercity apartments with multiple care options that reflect the changing demographics of the region. Also during the year, we added land to 2 existing sites. We acquired additional land adjacent to Deborah Cheetham at Ocean Grove in response to extremely strong demand at that village, fueled in large part by pandemic, weary Melbournians looking for a sea change with the security and safety that our continuum of care model provides. And we also purchased our first operating village at Essendon Terrace, adjacent to our existing Essendon site. This provided an immediate foothold in the market while enabling an improved design for the future asset and village. Having Omicron land, just as we had come through a difficult year, it was far from ideal. But once the COVID cloud is lifted, our sales came roaring back as pent-up demand in the market was released. As a result, we finished the year with a record sales for Ryman Australia. Ryman is now well and truly on the Australian map. As you may be aware, I've worked in the aged care industry sector in Australia for some time and was attracted to join Ryman because I hadn't seen anything quite like it before. The model is a disruptor, a change agent, and we feel very well positioned to showcase our continuum of care model and lead by example during a period of very significant change back home in Australia. The plaudits we've received for our industry-leading response to COVID reflects this. We won 2 awards from the Victorian Chamber of Commerce and Industry, including the team award for innovation in our response to COVID. Ryman is transforming how aged care is delivered in Australia, and we are now well on the road towards becoming an industry leader, both in scale and forward leadership. Today's result just underscores that. For investors, all the hard work and investment Ryman has made so far is being reflected in sales. Like New Zealand, there is plenty to keep an eye on, but we have restored the sternest examination the company has ever faced, have come out the other side in great shape and feel well placed for whatever the year ahead brings. So thank you, and over to you, David.

Thanks, Cam. Good morning, everyone. I hope you're keeping well. It's fair to say, there's been another interesting year for all of us on so many fronts. Given everything that has happened, I believe we are in a healthy position and can be very proud of the fact that today, we are announcing a record profit of $693 million. This is a lift of $270 million or 64% on last year. The key driver of this was the unrealized fair value movement on investment property, which was $467 million. While these gains are unrealized, they are based on the pricing we have been able to achieve in the last 12 months as the valuation is based on recent sales activity and shows the growth and the value of our portfolio. Our underlying profit of $255 million was up 13.6% on last year. Our current year underlying profit was despite the fact COVID remained a challenge, and we spent an additional $20.9 million on protecting our residents and the team during the year. These costs largely consisted of additional staffing, security and reasonable outfit alongside additional PPE. These are the direct costs attributable but ignore the other impacts such as the impact on sales, particularly during lockdown periods. The main driver of the growth in underlying profit was the lift in our resale earnings during the year. This, again, is a reflection of the increased pricing, which lifted our resales margin to 26.9%. I'd like to point out that due to the timing of these pricing increases during the year, we haven't seen the full benefit of these price increases captured in this year's result. We would expect resales earnings to further lift in the future. As the number of resales grow on the back of our maturing portfolio and the benefit of these prices increase has been captured for the full year. Our resale bank has grown to $1.85 billion. This is the resale earnings we would expect to realize over the coming years without any further price increase. Demand for our villages is strong with only 120 units or 1.4% of our retirement village portfolio available for resale at the end of the year. Our development margin was 24%, and this was despite rising construction costs. And this reflects our ability to keep a tight rein on costs and the high level of demand for the environment offer in the marketplace. We carefully monitor the timing of our presales and adjust accordingly. Our average new sale price has increased to $814,000, which is double what it was 5 years ago. And this new sale pricing reflects our focus on high-value locations over the last few years, and we are now starting to see that focus come through in our resale pricing as well. Environment unit remains very affordable. Our residents are freeing up significant amounts of capital when they move into a Ryman village. Taking Auckland as an example, prices would have to drop 27% before our residents stop freeing up capital. We also benefit from building high-value locations, which are highly sought after and are always in strong demand. Therefore, they are typically more resilient during any market correction. So we are in a strong position to weather any market correction and hold prices. In fact, we are likely to continue to lift prices over the coming year as we are more affordable than ever before. Personally, I can't think of a better time than now to buy into a Ryman village. Total receipts from residents were $1.4 billion, up 18.7% on last year. Our operating cash flows were $586 million, an increase of 41.8% on last year. We've invested $783 million into our portfolio during the year, which is spent on building new villages and continuing to invest in our existing portfolio through upgrades in the physical form and the resident experience. This is to ensure our villages remain in strong demand, and we unlock the embedded value of our existing portfolio. Our embedded value, which consists of our resale bank and accrued deferred management fees has lifted to $2.5 billion. Our gearing ratio has reduced to 43% on the back of our strong IFRS profit. We ended the year with $737 million of funding headroom. Our debt continues to affect the investment we have been making over the last few years. We have continued to diversify our debt with another successful USPP in April, which was nearly 3x oversubscribed. And this means the average tenor of our debt facilities is now approximately 6 years. With the hedging we have in place, 1/3 of our debt is fixed. What will this means is we are in a strong position to continue to invest wisely in the business to meet the demands of the rapidly aging population. And I must say, after having toured our sites recently, it's easy to see where the investment we have made over the last few years has gone. The quality and scale of our build has increased from what we are building a few years back, and their assets that I believe will be very sought after for a lot of years to come. The high-value nature of our 29 sites in development means we anticipate generating $6.8 billion of capital proceeds from these sites on sold down. And to put that into context, our 32 fully sold villages to date have contributed $3.6 billion of capital proceeds today. This shows the scale of the momentum we have been building over recent years, well timed with the demographic boom on our doorstep. Our total assets were agonizingly close to $11 billion, and this is up from $9 billion just 12 months ago. So how would I summarize the year? For me, it's a year which has experienced its challenge -- its fair share of challenges, but I think we can be proud of the position we have ended up in. I also look out to the year ahead, and I'm excited about the developments we have in our pipeline, the investment we continue to make in our existing villages, our residents and our team. We are in great shape as we head into the biggest growth in the over 75 population Australasia has ever seen. This is why we continue to invest today so that this generation can benefit from living in a Ryman village. And I want to leave you with one last number, and that is 10.1 million. This is how many hours have gone into caring and supporting our residents this year. Our team has done an amazing job, and they make this company truly special. After all, care is what we are about. This is the key ingredient to our growth story. So thank you for your time, and please take care of yourselves. And back to you, Greg.

Thanks very much, Dave. I'd like to now open up to any questions that -- from any of our first callers or if we could take our first call, please.

[Operator Instructions] Your first question comes from Stephen Ridgewell from Craigs IP.

Congratulations on the results, particularly the second half. Just wondering if you could give us a little bit more flavor on the performance in the March quarter, which you called out was a record for the Australian business, but didn't talk too much data on the New Zealand business. And also just wondering if you could give us a little bit of flavor on trading in the last few months. Obviously, the investors in the market is watching the New Zealand housing data pretty closely at the moment. So any additional detail you could provide would be appreciated.

Thank you very much, Stephen. Well, certainly, Australia was certainly where the recovery was led from in terms of the sales and the picture was quite different in New Zealand where Omicron was, of course, flowing through the country. Cam, perhaps you'd like to just talk a bit more about how that recovery took place.

Yes. Well, we were very pleased to say that it was quite a swift recovery after the Omicron wave in January. So we are close to a 100 sales in February and March. What was particularly pleasing for me was that, that was all of the existing stock. So there were no new stage releases in the last couple of months of Q4 there. And so it was a really remarkable result, very strong leads, excellent quality of appointments and significant activity on every site to drive those sales. And I was really pleased with the speed of the snapback.

And Stephen, if I could add, we're certainly seeing significant inquiry and demand is recovering and returning well. There's no question. We know Omicron arrived. It was a little more difficult. But frankly, things have really opened up again, and we're really confident about the future and execution of that.

I think there's been quite a significant evolution of our brand through the COVID crisis in the sense that when the crisis began, many people saw the retirement sector somewhere where you would go perhaps to risk getting COVID. And I think what played out through the crisis is that we were able to demonstrate actually that we could protect our residents. And what has played out as a result is that our inquiries are now higher than ever before as people see the benefit of moving into a village now in an environment where COVID is circulating freely in the community. And that -- as a result of that, we're seeing some of the highest levels of inquiry that we've ever seen.

That's helpful. One from me. So on the $6.8 billion, you flagged this capital proceeds from the completion of the current land bank. Can you give us a steer over kind of what time frame we should be thinking about for completion of that? I mean very, very broadly, obviously, but the rough time frame for completion of that. And then is there any steer even broadly you can give us for kind of run desperations for build rate in FY '23?

Yes, sure. I think what I'll do is I'll just hand to Dave, if you can talk more about that. We do, of course, take a very long-term view of our real estate. And Dave, perhaps you'd like to elaborate.

Yes. Thanks, Stephen, and thanks, Richard. On that $6.8 billion, Stephen, that relates to the total capital proceeds we would get from those sites. So some of those sites we would have received some of that already. So like William Sanders development that's already underway. What that is though is the total proceeds of those 29 sites will generate. So really, we would be expecting to realize that over the next 4 or 5 years as we build out and develop those sites in our land bank. But obviously, we will be looking to add additional sites over time as well to sort of continue lifting there.

Next question.

And importantly if I were to put it specifically -- sorry, the second part of that question was can you give us any steer on build rate aspirations for FY '23.

Yes. I think what's the build number, Stephen, obviously, it's something that we monitor closely. We've got really good building blocks in place and all going to plan, we would expect to build over 1,000 for next year. But yes, we'll continue to monitor that, but that is our expectation at this point.

Great. And just one last one for me, if I may. Construction costs, you did call out pressure there and that's been widely reported, of course. Just with the prices you're getting on new sales and particularly the demand you're seeing, can you give us a sense as to whether you think you can kind of hold development margin there or thereabouts from what you've reported in FY '22, which is really at 24% I believe or you might see that to come back a bit this year?

Obviously, very difficult to predict what's going to happen in the housing market. There's very mixed views out there. What I think is very encouraging, though, is that we have managed actually to build our combined margin over the course of the last 12 months despite the fact that construction costs have been going up over that period. So I guess there are some encouraging signs. And I believe that we've demonstrated that we've got resilience to be able to manage through a situation of rising construction costs, particularly in a market where we have demonstrated we got some room to move on price. And if you think about the increases in housing last year, some 30% or so, we were conservative in the way we put our prices through that period. And as a result of that, we've got some gap between the median prices in the market and the prices that we sell our units for.

Does that answer your question?

That's all for me.

Your next question comes from Nick Mar from Macquarie.

Just wanting to understand a bit about sort of settlements and what you're seeing at the moment. Receivables could step up a bit during the period and sort of looking at the cash from new sales versus the actual sales numbers and the build and new sales cases, there was a bit of a step up there. Could you just talk about that? And whether there's been any changes to how they hold in your accounting for those new sales. I couldn't see the sort of contracts not set out and contracts not booked from the reserves fund.

Dave?

Yes, perfect. So in terms of the basis that we're booking those net, it is consistent with prior years. The lift and details is obviously just a function of timing of when people do move in. But in terms of settlements, we're not seeing any push out and timing of those at this stage. It is obviously something we monitor closely, but everything at this stage, consistent with prior years.

Next question?

Right. And then on the land bank. Yes. The land bank lifting. Have you got any view on here that needs to get to at your medium-term aspirations in terms of build rate? And on land bank, are you seeing any signs of -- better pricing signs come through given the changes to the housing market?

Well, of course, during the course of the year, we were very pleased that we were able to continue investing for the long term for the business. And I guess for us, this is one of the highlights of the result, not just the financial performance, but also being able to build for the future. And at the moment, we're very confident that we're on track with the amount of land we're buying into the business to give us that future-proofing. But as you know, as you go through the planning and approval process, there are issues that can arise. But we believe that we've got the ability now with quite a significant land bank to be able to manage the ebb and flow, if you like, of new sites coming on stream. Dave, do you want to add anything to that?

No. I think that captures most of that. I think the key for us is we are always sort of looking to keep adding and stay in the marketplace for new sites. But we've also been focusing a lot on the consented sort of basis of our land bank because that gives us certainty of our build numbers going into the next few years.

Next question?

Yes. And sorry, the second part around land pricing, any changes there?

In pricing of land.

Pricing into -- I don't think -- I mean, yes, that is probably something we are monitoring. You are just starting to hear some noise of sort of development land starting to come back a little bit, particularly in the banking construction costs. But yes, that's something we are obviously monitoring.

Your next question comes from Shane Solly from Harbour Asset Management.

Obviously, congratulations on the strong results. The team is really hard work looking after residents. And Dr. Kerr, thanking him for his stewardship. I've got 3 questions, if I may. Firstly, the care piece of your business is crucial. Care profitability has obviously been under pressure. The governments, both New Zealand and Australia have been slow to support the work. Can you talk about what you're doing with your care offer going forward to lift or sustain profitability?

Shane, look, really good question. And clearly, care profitability is something that we are focusing heavily on. I mean care is underfunded. There's no doubt about that. We are really engaging with government to find a solution to that long term. I mean, as I had mentioned in my opening remarks, 500 beds were lost to New Zealand in the last 6 months, which is quite concerning. We do, of course, have a vertical integration and continuum of care model. So our residents can take some solace from that, that we can provide opportunity for them. What I would say, though, is we're looking with interest at the most recent budget, $14.9 billion announced is the greatest we have seen for health over the last 4 years. And we have got an aging population, which is driving our growth, of course, and it's front and center for us. We're really interested to see that finer detail of the $14.9 billion over the 4 years. However, the minister has repeatedly provided messages to support the growing population. So like you, we are intrigued to see the final detail on that. We think we are part of the solution, working collaboratively with government to provide an opportunity for the aging population and the increasing care needs for the community. So we'll certainly be looking at that hardy part. Any other comments from the team here?

No, no.

Just a second question, if I may then. Given the headwinds you noted in terms of growth, the flexibility and the development profile to actually deal with changes in conditions. Could you just talk a little bit about that?

I think probably the fundamental dimension is that we operate a continuum of care model and a vertically integrated model, which means that there are several links in the chain, which create value for us. And there is a natural ebb and flow. As we've just heard in the previous question at the moment, the care component of this is under pressure, but our model is robust enough in that we delivered the results through the other elements of the value chain. And that, therefore, gives us a resilience that maybe some other players in the marketplace don't have. Dave, perhaps you've got some other views?

Yes. And just to sort of add to that, Shane. I think if you look at the land bank, we are looking at the mix of our developments a little bit. We are a care business, and we are very committed to care in looking after our residents. But we are just making sure we have that mix right given the current sort of funding sources and levels in place.

And I think the particular focus in the area of the market that we focus on, which is towards the mid- to upper end, the wealthiest generation in the history of mankind is now coming off into the ages of retirement, and it's particularly resilient base of potential residents for us. And I think we're very well positioned, therefore, to capitalize on that. And that, to some extent, mitigate some of the headwinds that are prevalent in the market at the moment. Okay.

Just a final one there. [Technical Difficulty] capital structure to support growth…

I'm sorry, Shane…

[Technical Difficulty]

Sorry, Shane, just repeat that. It just broke up for us.

Sorry, guys, in terms of the capital structure to support growth, you have addressed or extended your debt, which is fantastic. Can you just talk about that loop it back between the realization and what capital structure you see as ideal going forward?

Yes. I think with that, Shane, as we sort of touched on before, we look at the debt and the composition of that debt and it is to fund new villages that we are building. So our land bank in our village is under construction. We do make sure we actively manage that. And we are, I guess, making sure we have the appropriate funding lines in place. In terms of the capital management structure, there is a -- we have announced in November last year, a tweak to our dividend policy with a more flexible range with a 30% to 50% payout. And this year's dividend is consistent with last year, which does represent a slight decrease on our historical 50% payout. So that is making sure we keep a bit of more cash in the business to fund our future growth. But also looking at that debt and the investments we are making, it's important we keep investing in our existing villages and resident experience too. When you look at that embedded value of $2.45 billion that's in our existing portfolio, that's cash we're going to free up in the next 5, 6, 7 years. And I want to -- yes, that's incredibly close to the overall debt #2. So we've almost got 2 ways of paying down our bank debt through selling down our new stock as we build it, but also the cash that's pent up in our existing business.

Your next question comes from Andrew Steele from Jarden.

The first one for me is on underlying rate of cost inflation. You've touched on the pressures on build cost. What are your expectations for underlying operating cost inflation and the build cost inflation for year ahead?

I'll probably hand to Dave to actually answer that. But we do have a very, very strong supply chain and supplier base that we've built up over many years, which gives us some comfort that we're well positioned to manage it. But there's no question that we're facing some of those headwinds. Dave?

Yes. And I think on -- if we look at the sort of overall cost pressure, like construction, the supply chain has been under pressure and it is seeing cost lift is sort of talk of 5%, 6%, even 10% lift in construction. We are working with our suppliers and making sure we have a really good sort of planning lines in place, and we are working with them to make sure that we sort of rein in any cost inflation that we possibly can. The key for us is also making sure we can sort of monitor the pricing that we're looking to achieve as well to capture some of that as well. And then if you look at the operating sort side of the business, CPI has lifted. And obviously, that's something we are trying to address as a sector with the government through the aged care funding to address that as well. But a lot of our cost inflation that comes from the P&L was actually just us opening new villages as well. So about half of the increase in the operating expenses relates to new villages that have come on stream this year. And when you couple that with another sort of over $20 million spent on COVID. I look forward to one day, as maybe not having to spend quite so much that as well.

Yes. I think just the way to that from the Australian perspective. We're obviously seeing cost pressures and inflation in construction products as well. I get the sense that it's not to the extent of the Australia -- of the New Zealand region. And our long-term relationships and work we've been doing on procurement over the last 12 months and beyond has definitely set us up pretty well to be able to absorb that, but also to address the price rises on the other side as well to cover it. And I think going forward, we're a couple of months ahead on the COVID curves. So hopefully, the COVID cost impacts that we've had over the last couple of years are starting to diminish, and we can look forward to living with COVID moment where we've got that largely under control.

Perfect. Just to follow up on of your responses. As I look at the increase in revenue of the last year actually $63 million and then the growth in cost of $21 million -- sorry, $71 million. And so clearly, if you look, I guess, the operating loss which opening up here. And given your fixed fee model and funding pressures, how should we expect this to develop into FY '23? Should that gap open up further between year-to-year in costs? Or would you expect that there are some elements in there which are COVID related, which we should see it actually close a little bit?

Yes. I think there are very mixed signals we're getting about where costs are going, depending on where you look. I mean I think there are cost lines that are going through the labor line, obviously, with the cost pressures around people. The costs on PPE, for example, is something that's under particular pressure right now and obviously, given the medical challenges. And then there's the construction cost increases as well. And there are a very mixed views about how that's going to play out. A lot of it is dependent on global supply chains. And there is some evidence or some talk that this is more about the location of products as it is about -- there is actually the materials in place. So I think it's a mixed picture at the moment as how those costs are actually going to play out. What I would emphasize, though, from the Ryman perspective is just the mitigations that we put in place to be able to manage through that. We -- being vertically integrated, we manage our own construction programs. We can decide when we start, when we release stages, how we do the refurbishments. We can -- given our scale, we can also use that scale to be able to source alternative supply as well when things are in short supply. So it's a mixed picture, I have to say. Would any of my colleagues like to add anything to that?

Yes, I can. I think in the Australian context, the other thing to keep in mind is that we do have a large number of developing villages. And so we've opened up 2 new care centers just this year, and the other 2 are fairly relatively new. So that ramp-up period does take a bit of a time. But hopefully, by the end of this year, those should be largely full. I think the other thing to consider really is that there is quite a lot of legislative change going on in Australia this year. And there will be some changes to the funding profile largely with the main aged care funding instrument changing to the Australian National Aged Care Classification in October. And Ryman's model on the continuum of care basis is reasonably well set up for that change, and we should look forward to that funding change helping us beyond that October deadline.

Yes. I think I'll add to, Andrew, is that we are laser-focused on the costs as well. So we'll do everything within our power. And I think the other thing that was touched on by Richard was given our network, we're able to move our supply around and phase that accordingly when it comes to supply and the demand of various products. So we're not immune to it, of course. But I think we're better placed than maybe from potential single operators in that regard. Well, I know we are. So -- but undoubtedly, it's something that exercises the mind of the team. And I've got confidence that we'll keep ahead of that curve.

Your next question comes from Aaron Ibbotson from Forsyth Barr.

And again, congratulations on a good set of results all around. I've got a couple of questions on FY '23 is sort of forward-looking, if it's possible. So first one, you talked to over 1,000 delivered units, which would obviously be a quite big step-up from the last couple of years. And I'm just curious to know if there's anything you can guide us towards what you expect the sort of CapEx number to deliver those would be. And then I might as well run with my second question directly. And that relates to just your interest expense. If I heard you correctly, you mentioned that you had 1/3 of your debt fixed. I was just wondering, does it that mean that the sort of other 2/3 is fully floating. And am I assuming the right thing, if I'm assuming that this is going to drift up with the general interest cost in the market? Or is there any other hedges or stuff in place that I should be aware of?

I can probably answer both of those for you, Aaron. So in relation to the CapEx question, we don't give specific guidance. But if you look at our CapEx this year to sort of deliver 700 B10 units, if you were to sort of extrapolate it out to 1,000 B10 units, you'd probably be in the rough ballpark. It's probably the easiest way to look at that. And then in terms of the interest expense issue, right? So we've got 1/3 of it sort of as fix. It does mean the other 2/3 is floating. That's something we've continue to monitor. But I think just with the interest expense, it's -- look, it's one cost line that we do monitor, but there's significant upside in sort of the other sides of the revenue line as well in terms of the extra volume we're going to -- or development earnings we're going to generate from the lift in our build program and also the sort of under rented resale earnings this year, given the pricing increases that occurred during the year, haven't had the full benefit. So I think, yes, there's plenty more upside to look at as well.

Very good. And specifically on cash, I guess, if I look at resales cash flow versus the resales revenues was roughly $100 million lower on the cash flow line. A lot of that was in the first half, but I'd sort of expect it that to come back in this half. So I'm just curious to know, should we expect that sort of $100 million to come in with a delayed effect in this first half of '23? Or how should we think about resales? It seems like roughly $100 million of resales is going into receivables.

Yes. I think with that, Aaron, it's just important to remember around year-end, what was happening in the country with Omicron. So people were, I guess, just a little bit slower to move into particularly people that weren't necessarily selling their house. So we did see a few people just sort of delay slightly. And obviously, we were a bit more mindful of when people could move into some of our villages. So yes, we would expect to capture that in the first half of this year.

Your next question comes from John [ Boscawen ] from Versoix Custodians.

I've got 3 quick questions. First of all, David, I noticed on Appendix 17 on Page 40 of the presentation. You have did Deborah Cheetham Village center as being opened. My understanding that's actually still under construction. Am I correct?

It's both, of course.

So it's like the village is open with the independent units. So we have a village manager and a number of residents living on site already. And obviously, the rest of the site is still under construction, including the main building and the care facility. So…

And this, of course, is the typical picture for a large number of our villages because we take a very long-term view and open them in a series of stages. And the first stage of Deborah Cheetham is opened and functioning with the team in place. And that will now, over the next few years, in fact, have a series of new releases and new stages to it. You had other questions, John, I think.

I mean -- since and my reception on my phone is not pretty good, so you may not hear little bit clearly. But the second question is, if I'm correct, you've delivered 419 units in the second half. Am I right in saying that only 8 of those, the 8 villages that you have built had changed at James Wattie were actually complete and the other 411 would be units nearing completion? So 411 of the 419 actually haven't been finished.

Dave, you're probably well placed to answer that. But obviously, we have quite strict procedures for the way we judge where -- what stage an individual unit is at. But Dave, do you want to elaborate?

Yes. I need to double check that. But look, John, I think the key with that is the way we've assessed that near complete is completely consistent with what we've done in previous years. So we have got people moving into our villages right throughout the year, and a lot of those movements have been occurring in the last few weeks as well.

And I think, John, I think you've reached out to us and I -- maybe we could have a conversation at some point about those. I mean they're quite detailed some of those questions you've got there, and we'll come out with the right information for you. So maybe if we could move to your third question.

Okay. And I would appreciate that talking to face to face. But my third question is you've said that there is a record profit in Australia. As I mentioned, when I listened to you, I was at the Burwood East village 3 weeks ago. And of course, the final apartment building with the 104 apartments, which you're saying is nearing completion, the structure is not complete, the roof is not on, the cladding is not on. By your own admission, you're telling your guest, your residents that it won't be complete until November. In an environment of rising construction costs, how can you actually calculate the profit if the thing is only half built?

Yes. John, maybe I could -- as David has mentioned, we have a formal policy. It's consistently applied. We only book units with contracts on those. And the key judgments that we make made by management, the directors, auditors and everyone is comfortable with that. And I think as I openly mentioned before, you would have reached out to us, and we're happy to meet with you around the detail. But the directors and the management and the auditors are comfortable with the position that we've taken on that judgment. So maybe if we could hold the rest of those conversations to when we have an opportunity to discuss them.

That does conclude the phone questions. I'll now hand back.

Brilliant. Okay. If we could have the online questions, if there's any, please.

Yes, a question from Kim Center. There's 2 bits to it. First bit for Dave Bennett. Referring to the income statement. Revenues have increased by 228% in the last 10 years, but expenses have increased by 311%. What steps are being taken to reverse this trend?

Yes, there's a lot of aspects that are involved in that. Obviously, the revenue number just includes the care fees and the deferred measurement fees. It doesn't include our resale earnings and development earnings, but the cost base doesn't include a lot of the costs associated with generating those earnings as well. So that's something that we are obviously trying to look at the cost base and the revenue match of that. COVID has also had an impact on that as well. But the key is that -- yes, there is a slight mismatch between that revenue line and the cost line associated with the resales earnings in particular.

Second question from Kim for Cameron. Mt. Eliza suffered further consent problems during the year, and you have resubmitted your plans to VCAT. What's the potential lift with the site given the downsizing of your plans?

All right. Well, so yes, during the year, we obviously went to VCAT back in July, and we're actually quite pleased with other than the decision in the end. But the response from VCAT at the time was that they did support our proposal, but just wanted some tweaks to the scale. So we are in the process of making those tweaks we've resubmitted through council. That time line has passed, and now we have resubmitted through to VCAT. There will be a hearing later in the year. They do take the previous decision into account in their next decision. So we're looking forward to putting our case once again later on this year. And hopefully, we'll have a result towards the end of this year.

Thanks, Cameron. Question from Andrew Ott for Dave Bennett. Clarification on payments to residents of $346 million. What is this for? Is it a refund of the 80% occupation right when the unit apartment has been vacated?

Yes, that is correct. That's what that relates to.

One more question. This is from Joshua Litton for Cameron. Why has Ryman purchased another site in Coburg North when a year ago had sold another site in Coburg in arguably a better location or demographic. And second part, is David Bennett is still managing development after Mr. Moore stepped down in September?

Yes. So thanks. That's a good question. I think the Coburg area is one of distinct interest for Ryman. We think it's a great location, obviously, and one that really fits well within our strategy of buying in premium locations close to urban centers. So it's 6 hectare sites within 15 case of Melbourne [indiscernible], don't grow on trees very often. And this site is about 2.5 hectares is a fantastic size for us in our model going forward. I think in terms of the site change, what we did notice and part of the analysis on the previous site was the capital intensity required to build a site like that, which was I think the plan was frigidly for 11 stories. I think the right decision was made that, that was not the right time to invest that much capital in one site in our current growth plans in Australia. And frankly, I think that's a mature sign of great portfolio management, and I can't take any credit for it because it all happened before I arrived. But I think it was a perfect decision. And now that I'm really excited actually that we found a site that we can invest in, in stages and release in a pattern that has appropriate capital velocity and one that it is in an area that we know is a rapidly changing demographic with a very high median house price and a great part of Melbourne.

The second part of that was the developments in New Zealand. So Chris Evans, our Chief Construction Officer, is currently looking after the development aspects of the business and seat of me.

No more questions from the web. Thank you.

Well, look, thank you, just maybe conclude, and look, we wanted to offer a really sincere thanks for your time and attention today and for your great questions. As I mentioned, we are proud of what has been a strong result delivered during a very interesting period of considerable disruption. The resilience, the commitment and professionalism of our team played a key role in helping us respond decisively to these changing circumstances. We look forward to reporting back to you in 6 months' time and seeing a number of you, of course, at our AGM. So I just wanted to pass on our thanks. Wish you all the very best. Keep COVID safe, and we look forward to seeing you again shortly. So [Foreign Language] and all the very best.