Summerset Group Holdings Limited (SUM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Summerset 2019 Full Year Results Announcement. [Operator Instructions] I must advise you that this conference is being recorded today, 25th of February 2020. I would now like to hand the conference over to your speaker today, Mr. Julian Cook, the Chief Executive Officer. Thank you. Please go ahead.

Good morning, everybody. Welcome to the 2019 full year results announcement. Look, as per normal, it will be myself and Scott Scoullar, our deputy CEO and CFO who will be speaking today. Look, we'll move relatively quickly through this pack to allow for -- to ask questions at the end. So if we move to Page 4. Look, I think overall, looking at the results for last year, we're pretty pleased with how the business has tracked, we're continuing to see a pickup of some of momentum around the group when you look out longer term and in terms of looking at the land bank and the growth potential for the business. Key highlights. At the bottom line, underlying profit was up 8%; assets are up 21%; equity is up 16% for the business. And looking forward on the growth track of the business, I think we're well positioned with a couple of main buildings which we worked on through this year -- or sorry, through 2019, which will open in 2020. You will have seen we had 3 new villages open across the country last year. And we had 3 new villages underway, which will open this year. So a lot of focus into opening new villages around the country. And from the land bank position, now largest land bank of the operators across the country. But I think most importantly, most of this [indiscernible] the largest number of sites which just gives us those options. You will have also seen in terms of Australia that, today, we announced a second site in Torquay which is in the Bellarine Peninsula. So we now have 2 sites. So we'll talk a bit about that a little bit more. Look, you will have also, of course, seen guidance for the [ outstanding ] for FY '20 where we'd say not expecting profit growth in FY '20 but will return in FY '21 and beyond. We'll touch on this, of course, in a bit more detail further on. But I think our key point is we do manage this business for long-term value growth, and we're pretty comfortable we are making the right investments at the right time for this business going forward. So moving to Slide 8. This is just the usual update on strategy, pretty consistent with prior years and really want to touch on how this benefits the business through the following pages. And if you look at Slide 9, that's just a snapshot of how the business sits currently and largely self-explanatory, of course. But I think particularly, just like to draw your attention to the state of the business across New Zealand but also now into Australia, which leads us into the following slides, which is really a sort of focus around how we've been positioning ourselves for growth coming forward. So if you look at Slide 10, dealing with New Zealand first. We had 354 unit deliveries for FY '19. Now that's down around 100 units on prior year. But if we actually look at construction spend across the business, that's up to about $330 million. So that's up about 15%. And that really reflects a couple of large main buildings, 1 in Hamilton, 1 in Christchurch which we worked on through last year and which we'll deliver this year. Those buildings contain around 150 units each -- or sorry, in total. And on the go forward, look, I think the key things to look at in terms of growth of the business is what's the size of the land bank, what progress are we making on consenting, how are we going on village openings and how are we going on main building openings. And so as I said, we'll have a couple of main buildings opening this year, which are our new generation main buildings and where we have open for presales, those buildings doing very well at the moment. And we'll have another couple. So next year -- we had 3 villages open in FY '19. We'll have 3 villages open in FY '20 and with a total land bank of around 5,400 retirement units sitting pretty well. On the consent side, so 4 villages consented through last year. So good progress in bringing that land bank into consent and obviously through delivery. Onto the next slide, 11, again, just some sort of some analysis of the land bank. So you see obviously a lot of activity in land buying, which you'll be familiar with over the last couple of years, really for '18 and '19. And the intent there was really just to broaden out the number of sites, give us greater diversity of sites, more growth options, more flexibility around how we run the business. That gives us more ability to flex supply in the markets we're in. And I think importantly, the growth options where we have purchased sites are in markets where we see good population data, good economic growth, good population, good numbers of older people. And I think, importantly to note, good historical price appreciation in those areas across the country and generally in areas which are less competitive than [indiscernible] retirement village market at the moment. Turn to Slide 12, just another illustration of the land bank. I think what you can see there on the left-hand side, it's really the pickup in the amount of land coming through the consenting and design funnel and then moving into construction over the last sort of few years. So there's certainly been a lot of focus on that. And in terms of diversity across the country, I think we got a pretty good spread at the moment, around 57% of the land bank being in the metro areas, with the remainder being in retirement destination in stronger regional growth accounts. Slide 13 is just touching on the -- how we're doing in Australia. So obviously, today, we announced a second site in Victoria, we'll touch on that quickly over [indiscernible]. Overall progress is pretty pleasing. The demographic story very similar to New Zealand but in fact growth, in a proportional basis, is actually stronger. And generally, I think we'd see this market is having much lower penetration rates and generally a lower quality of competing offerings in the retirement village and aged care space. So and you'll be familiar, we opened an office here in 2019 -- sorry, through -- sorry, in 2018 through 2019, purchased a site in Cranbourne and just -- and the site we just announced today in Torquay. We secured our approved provider status, which permits us to provide aged care and home care services. And the next steps from here, really focused on building out that business over the year. So we're starting to apply for bed licenses in the upcoming [indiscernible] rounds for both sites but also growing the team and the capability in bringing some investment into the business to seed for the growth going forward. Slide 14 touches on the 2 sites we do have now in Victoria. The first site we announced obviously late last year in Cranbourne, that's 8 hectares in the southeast of Melbourne. Good location, close to shopping and amenities. It's a largely established residential area, which has been there for some time. And it's got a good [ catchment ] population, expecting to apply for development approval this year, which would see us as successful building through '21 and village opening in late '21, sometime in '22. Also announced today a site on the Bellarine Peninsula which is in Torquay, 8.3 hectares. Torquay is the largest of the coastal towns along this peninsula, fairly high socioeconomic positioning. We've got a good location, closer into the town. There's a good population base of older people. And certainly when you look at the proportion of older people in these towns along the Bellarine, significantly higher than the rest of Melbourne. And some very good property prices to support the development down there. So that's an overview of growth track for the business. And we'll move quickly through the operating side of the business. So if we turn to Page 16. Resident satisfaction continues to maintain high level so sitting at around 96% for village and 96% in our care centers. And this -- there's always a lot of work going on in this area, but I think particular focus, just to touch on quickly, we continue to work around that food offering with broader Dedicated Food Services Lead in-house and particularly pleased with the couple of villages we are running in-house ourselves. But obviously, continuing to work with our outsourced providers to run that and have seen improvement and progress in terms of resident satisfaction around that offering, which is good. We're also looking to revamp our exercise programs. They've trialed very well, and we'll be rolling that out progressively through this year and the following. And our Summerset Connect Speaker series, which is really about bringing people into our villages. Our [ speakers ] talk to residents and prospects and their for instance family, has gone very well again, so over 3,000 people coming through those series last year. On Page 17, we've previously talked about making memory care and dementia a key pillar for our offering to residents. And it's not just about secure dementia care. It's about how we view dementia in all its levels throughout the wider business and for residents from Independent Living Services, [indiscernible] hospital as well. We're close to being accredited as dementia-friendly by Alzheimer’s New Zealand across all of our business. And we will see in 2020 sort of our market-leading member care centers opened in Christchurch and Auckland. And these are the next evolution on -- from that first member care center which we opened in Levin. And beyond that, obviously, every main building, the building will have one of these member care centers in it. In the clinical space, certainly seeing some pressure in the registered nurse space. And that's one of the drivers behind the investment we're making in wages, which we'll -- maybe I'll talk about later. But continue to see strong occupancy, which shifted around 97% across the group. And good order results. We're obviously going from 1 to 4 years, on its first order this year, and we've just been 4 more years in the last few weeks. We also note there that we've started working with one -- to lead a group of nearly all of the large operators across the country, benchmarking and sharing clinical results. And that group is now starting recognition to work with the National Health and Safety Quality Commission. So some really good progress around [ resident wellbeing ], clinical quality and looking to lift up our results across the board. Page 18 in the staff space. Look, we're obviously making some reasonably significant investments, particularly in 2020. Our stated objective is to be top equal payer in the sector. We've traditionally been under this slightly in different parts of the business. And we're primarily talking caregivers and nurses here. And so the investment is this -- for FY '20 to ensure we can get to that space. And that's really on base rates and [ penal ] rates we offer our benefits packages in addition to that. We think this is an important step for the business to make. Obviously, there's going to be always ongoing wage pressure and escalation through time, and we've always said that. And -- but this is -- we do see as sort of one-off step to move up to that position and to be able to say to staff hand on heart that we are there and we'll maintain it. In the engagement space, we did see staff engagement slip back slightly from 67 down to 69. I think it's probably slightly somewhat reflective of a lot of pressures that just generally the industry is seeing around staffing here. In 2017 and '18, we were in the top quartile of the Kincentric survey, which is around 600 companies in Australia and New Zealand. And in 2019, we just slipped slightly. I think we're 1 or 2 percentage points under that top quartile. So I think that's sort of indicative of the pressure we -- the industry is seeing generally, but it's certainly the strong focus from ourselves and the Board to keep working in the space to do better. And the health and safety space, did see slightly increased injury rates across the board. And it was interesting diving into that, construction continued to trend down and construction is our highest risk part of the business. So that's a pleasing result where we did see the increases in operations. And there was no specific trend behind this. But I think one of the -- in part, one of the drivers behind it is we did start reporting stress, which we haven't previously reported around incidence of stress or fatigue. So we did see some of those sort of coming through which has, no doubt, impacted those numbers. In the sustainability space, so Page 19, you can see that we continue to lead the sector here. We were the first operator certified by CEMARs in 2018, first operator carbon-zero in 2019. Pleasingly, we have seen a reduction in the absolute amount of emissions. We did start to report emissions out of our construction business in FY '19. Taking that out, looking at the '18 to '19 track, that's a reduction of around 10%. So that's good in -- on the emissions in key city, seeing some strong reductions there. The next slides just highlight our development deliveries in new sites and development pipeline status. And look, they largely speak for themselves. Suffice to say, we think we've got a good range of projects and sites across the country. And with that, I will hand over to Scott.

Good morning. So I'll just cover Slide 25, development margin. I think the pleasing aspect for that [indiscernible] is at halfway through last year, we were seeing 28% and that maintained right throughout the second half of the year. So maintained that sort of margin throughout the second half. In terms of full year '18 at 33%, the reduction there really is 2019 had the benefit of some villages purchased prior to the last housing market growth cycle. And also in 2019, we have seen construction cost pressures we estimate in the metropolitan space of around 4% as well. So those are sort of the 2 differences between '18 and '19. And in terms of guidance looking forward, expect full year '20 to be in the range of our medium-term guidance of 20% to 25%. We're targeting a 2020 build rate of 400 and also targeting a 2021 build rate in the vicinity of 500 to 550 units. Slide 26. Look, pretty much sold what we delivered in full year '19. So we sort of built circa 350 units, sold circa 330 units. And just in terms of average days to sell, to give a little bit of color on that, it was 101 on average across the portfolio. Inside Auckland, that was a bit longer than that. So it was about 110 days. And then outside of Auckland, that was 89 days. So that Auckland [indiscernible] reflected our sort of best half assumptions in terms of the market out there. In terms of Ellerslie and Hobsonville, they were our top 2 selling villages, so they've contributed about 1/3 of our sales overall. And Ellerslie, when you're looking at that mix of apartment sales, there are 62, that principally was driven all from Ellerslie, the vast majority from Ellerslie. In terms of the second half of '19, the other thing on that slide is the sales doubled, so on the first half we had 71 sales and the second half we had 145 sales. So net step-up in villa sales half-on-half. That mainly reflected 2 things: opening of our 3 new villages; and secondly, from about June through to December, had a lot of stock become available, delivered on both Rototuna sites and our Casebrook sites as well. So really good step-up in total sales in the second half of the year. And Q4 was obviously our second highest new sales quarter for the company. In terms of presales, talked a little bit about it at half year, 3 villages [indiscernible] that was obviously competing against Casebook, really comfortable that got 60% presold. Average from the village was 87% presold and [indiscernible] village was 80% presold. And just in terms of [indiscernible] we've actually sold down subsequently with our stock right through to our external deliveries which is sort of later on in 2020. Slide 27, sales stock, as I mentioned before. So essentially remained sort of flat, a minor increase for the year, it's driven by both deliveries mentioned before and Casebrook converted tender late through the second half of the year. Overall, that 340 units of stock, if you sort of decompose that and split out those apartments, which are 98 units, which is largely Ellerslie, you've got a base of about 340 units across the rest of the country, spread across 9 villages, which is very, very typical sort of 20, 30 units in stock [ getting sold ]. With Ellerslie, just come to expect, so we've got 98 units was in contracted, 87 uncontracted. The 87 uncontracted just [ relatively-wise ] we got 60 units circa in 2019 and performing the same round in 2020. We're going to have like 20 to 30 units left in stock by the end of the year. [indiscernible] started off the year [indiscernible] as well. So I think last time I looked, [indiscernible] we'd done about 18,000 already in Ellerslie. So but I think that would be a challenge to sort of have those same sort of volumes in Ellerslie, so site performing really, really well. And in terms of sites and the volume of sites we've sold across in 2019, we sold across 10 sites. In 2020, we're going to sell across 12 sites, the extra sites principally being the fact that we've opened 3 villages last year and 3 villages this year, the 3 villages this year being [indiscernible] Bell Block and [indiscernible] sites in 2020 sort of drive that [indiscernible] see the start of that stronger land bank strategy sort of applying. Slide 28 is resales. We've got a gain of 29% being -- there's obviously 3 factors there. The first one being record volumes coming through. So up about 8% in volumes and then on the gain side, 26% resales gain there. And that's very good for the company. It really sort of reflects the benefit of that regional diversification, the regional house price growth in recent years. In terms of mix of product, where it's going to come from, about 20% in Auckland, 80% rest of the country. Slide 29, resales stock. So you'll see there slightly more stock sitting there at the end of the year, 78 units available for sale relative to 53 the prior year. And what's sort of driven that? So in the second half year you'll notice that those sales volumes were actually about 30% higher than the first half. So had really good sales volumes throughout the second half of the year. Just in the last few months there, we had a large component of stock becoming available for sale. And so -- and that's a good thing for the business, that really, really clustered timing of the year. So to give sort of context, during the last 2, 3 months, we had about 50% higher stock become available for sale than what we would sort of typically see in a traditional business. So it's not dated stock. It's all new stock. And I'm seeing opening the year, so a good thing for 2020. Just move on to IFRS profits. Obviously, sort of excluding new sales and resale sort of gain, if you sort of look at the cause or drivers of that revenue growth at 12%, it's really just the continuing maturity of that business that drives [indiscernible] management fee out of the business with a growing portfolio. So no sort of real story there, but on the cost side, probably just sort of mention that 9% cost growth, if you strip out the 3 new villages [indiscernible] and you also sort of strip out the notional [ CPR ] you get across the sort of base sort of costs, there's no real investment cost growth sitting from there. So the rest of the cost base has stayed pretty flat. In terms of fair value movement, just turning to Slide 32. Obviously, $165 million relative to that $210 million full year '18. What's the key driver there? Essentially, it's the 100 retirement units which we delivered on 2019 relative to 2018. So 350 units last year versus the 450 units the prior year. That has a $54 million impact. So you can see we sort of normalized that at the [indiscernible] on that growth, and you can kind of see like base year [indiscernible] being up about $10 million year-on-year if you sort of make that comparison. We're pretty comfortable with that. Slide 33, underlying profit. Look, I'm not going to talk about 2019 because I think we've covered all the sort of factors going through there. In full year '20, as Julian mentioned, we do not expect underlying profit growth. There's about 3 factors there, Australian investment, which is relatively minor, and then you've got 2 larger factors there. Just to give some sort of color on those factors, the investment on nurses and caregiver wages to become top equal payer, that has a cost -- one-off cost to the business of about $5 million that's sort of been rebaselined from the base. And then there's about another $10 million, which is a one-off sort of rebase down, which is essentially develop [indiscernible] margin that's driven by 2 factors. The first factor being just the change in the mix of the portfolio. So this product is a little bit [indiscernible] more regional diversification, and what that does is it essentially allows the new sale price on average per unit for 2020 of about $50,000. And then the second factor there is just the expectation for margin [indiscernible] between the 20% to 25% range, which is sort of driven by a couple of things, slightly higher land prices on those newer bits of land you're buying relative to that cycle 5 or 10 years ago. And then secondly, got a higher mix of just apartments and their deliveries for 2020. So out of those 400 deliveries, there'll be about 150 [indiscernible] apartments, which do have a lower margin upfront, that is of about [indiscernible] when we look at the retail side of the business. I think that's [ good ] about our sales for [ fixed apartments ] relative to about 15% of our portfolio. So we get really good turnover going forward on those. But I guess I'll just recap on that. So $15 million overall sort of abnormal sort of base, $5 million associated with the caregiver and nurse investment and $10 million associated with lower development margin. And then I'll just touch on underlying profit growth. Again, return to profit growth in 2021 with an increased build rate of 550 units, which I mentioned earlier on. Cash flow statement. The only thing I'd point out there was operating business cash flows remained relatively consistent, so marginally down from $28.5 million versus $30.5 million the prior year. Just point out that we -- basically in the first half of the year, there's a one-off change in the policy to repay our [indiscernible] residents from internal village transfers. That was sort of about $5 million, so if we normalized today, it's up about 10%. Slide 35, Julian touched on it before, but really good growth across the balance sheet. NTA is obviously up 14%, but core retained earnings up 21%. Investment properties, up 20%. And really, since we've listed, we've listed the balance sheet saw a strong $600 million to $3.3 billion. So that's [indiscernible]. Gearing. I think I talked at half year about sort of it was ending up somewhere between $600 million, $610 million, somewhere in that vicinity. Obviously in came a little bit lower than that. So it's $587 million, if you take off the $20 million worth of cash, $567 million, so 33% geared. Just probably just touch in terms of relevance around land banking, obviously, in the last 2 years, if you see the big composition of land purchased, it was about $110 million for the last 2 years combined, relative to if you look the 2 years prior, it was about $45 million. So you can see sort of that base about [indiscernible] it's about $65 million if you do that simple analogy, and that's about 4%. So if you strip that 4% out of the 33%, sort of the core business gearing would have been sort of 29%. So just to sort of give you a bit of simple context around that. And then Slide 38, the dividend [indiscernible] $0.07 for the second half, $0.141. A total unimputed [indiscernible] it's a 2% DRP, same as we've always done in the past and 30% of our underlying profit. So with that, I'll hand it back to Julian.

Right. Thanks, Scott. So a lot [indiscernible] reviewed it pretty quickly, so we can get your questions. So operator, we can go ahead and -- now ready questions.

[Operator Instructions] Your first question comes from the line of Andrew Steele.

Just the first one for me is on the, I guess understanding, I guess the shape of the earnings guidance. So for FY '20, so no growth. I mean should we be thinking about that as broadly flat? Or is it more likely to be a down year? And then into FY '21, just to clarify on what you mean by growth, is that going to be year-on-year growth versus '20? Or is that going to be growth versus FY '19?

Yes. Sure, Andrew. I'll just start off by those bits. So full year '20, we're not giving direct guidance on that profit number. But I think what we're trying to give you is a bit of color to say this [ $15 million ] with an additional sort of cost or sort of $15 million worth of additional costs. So if you guys are sort of doing your normal modeling, you should take into account the extra $15 million, which [indiscernible] part of that [indiscernible] and then compressed sort of margins, and associated with that margin coming back and also associated with that regional diversification and new product coming out of Auckland of some other $3 million, so that's is where I think you adjust your numbers. In terms of full year '21, what we're talking here is in terms of relative to full year '20.

Okay. Great. And just on the, I guess the change in the way you're talking about the build rate guidance. You've obviously dropped the comment on the medium-term target of [ 600 ]. Could you just provide a little bit of color as you're thinking behind moving away from that medium-term target? Is it a greater caution as to how you see the outlook? Or is it just looking to improve, I guess on the flexibility and how you communicate with the market on growth?

Yes. So look, what we're trying to do in [indiscernible] the short-term is just give a little bit more color directly on 2020 and 2021. So I don't think our view around directionally towards that [ 600 ] has changed at all. It's just more specifically giving color on 2020 and 2021 and how that sort of works with that. You can't see that with, obviously, the land bank strategy places us well for looking at build rate at the time if which we choose to. So I wouldn't sort of read directly into the 600 not being the [indiscernible] factor. We're specifically trying to give you guidance around 2020 and 2021 specifically and net debt trajectory more directly.

Okay. No, that's very clear. And just one on the net debt and CapEx for the year ahead given the build rate target you have in your head. Could you give us a feel as to your expectations for CapEx and sort of how should we think about the trajectory for net debt for the year-end?

Sure. So as you -- I'll put a caveat over that, like [indiscernible] and all that good stuff. But like I said, look, you could probably expect it to be somewhere in the vicinity of 725 [indiscernible]. It's a big sort of caveat on that because it does [indiscernible] some of those cash funds. That would sort of have an expectation of gearing maybe less than circa 2%.

Okay. Great. And then just a final one for me. Could you just confirm the level of presales that you finished the year with or started this new year with? Or sorry...

In aggregate, we sort of don't disclose that, Andrew. [indiscernible] sell on contract levels for our stock has been delivered straight off the results presentation.

Your next question comes from the line of Stephen Ridgewell from Craigs Investment.

Just wondering if you could call out roughly what the guide for NPAT assumes in terms of new sales volumes for FY ‘20.

Again, Stephen, we don't really guide what the new sales volumes. But I mean the directional sort of take on that is to use deliveries as sort of a base and then form an expectation around what component of those are going to be sold.

So it'd be reasonable to assume that the net drivers is some kind of lag to the $400 million?

Can't comment directly, but yes.

Okay. And then in terms of the guide for the tick down in developed margin, you're expecting a lower ASP as much shift [indiscernible]. Can you just call out whether -- apologies if I missed this, but could you just call out whether you're expecting a similar percentage developed margin on [indiscernible] outside of [indiscernible] in the current financial year?

Short answer is you wouldn't expect sort of similar percentages, we still probably expect a [indiscernible] and traditionally we've had [indiscernible] that what we've had in the country. So [indiscernible] sales-wise [indiscernible] apartments sitting there, which I mentioned before as sort of a bit more painful up front but could break from [indiscernible]. You've obviously got a little bit more competition effect [indiscernible] apartments selling [indiscernible] as well. So that's what sort of essentially drives slightly lower margin in Auckland. [indiscernible] more construction cost pressure in Auckland, essentially.

Okay. That's helpful. And then just moving on to Australia. You have 2 sites acquired now in the greater Melbourne area. Can you give us any kind of broad indications [indiscernible] to acquire further starts in the current financial year?

Look, Stephen, always, always looking, but look, we've just got to be measured about it. But I think both the sites we've got, pretty happy with. We think there'll be pretty good villages, and we're seeing a decent amount of pretty good land. I mean you'll have seen residential markets really started to pick up, having sort of gone through a bit of a trough last year. But the spot that we're actually seeing a fair amount of land, which was pretty well located, pretty well priced. So we will continue. And you can expect at some point, we could make another announcement around then, but time will tell.

[Operator Instructions] Your next question comes from the line of Jeremy Simpson from Forsyth Barr.

In terms of the resale margins, sort of really strong in the second half. Is that -- around that sort 28%. Just wondering what your thoughts are on that going through into 2020? Are we more likely to see sort of a more of a typical [indiscernible]?

Yes. Short answer, Jeremy -- good question, is I think if you look at sort of like the sales for 2019 itself was a batting average of 115,000 per unit and then the big value on stock sitting at 118,000 per unit. So I think that is quite sustainable at that level.

Sure. And then how -- just what's your sort of thoughts on the market? [indiscernible] start of 2020 in terms of demand and the few demand metrics you're tracking and kind of like pricing on units.

I think the market is pretty early days for us because January is always pretty quiet and then for most of holidays and that stuff. I think generally seeing some more buoyancy in the market in the last few weeks. So the sales contract rates have been pretty good through the end of the year. That's sort of what we're seeing right now. Won't really equate to Q1 [indiscernible] because the stuff we're selling right now sort of equates to Q2 [indiscernible]. But I think, yes, early signs of a bit more buoyancy [indiscernible] in the market conditions. And it's probably not too dissimilar to what we sort of saw before Christmas with that Q4 result as well.

Yes. Sure. And just lastly for me, just on financial costs. Finance costs were up quite a bit [indiscernible] a bit higher, and you've completed some good [indiscernible] further drivers, but did your cost of funds go up quite a bit as well?

Not really, no. It probably predominantly reflect just that growth, obviously, in the book due to the refinance throughout last year. So we do experience any sort of one-off costs attached to refinancing, so there'll be a little bit of that in there as well. That cost will run [indiscernible] whether it refinanced at the end of last year and $175 million of capacity now. And that -- we're really, really comfortable with the rate that we got for that [indiscernible] in the market.

[Operator Instructions] Your next question comes from the line of Shane Solly of Harbour Asset Management.

I've just got 2 quick questions. Just the first one, just delving into the operating cost line a bit more. Appreciate the breakout there. So you're obviously seeing a lift in the operating costs will be pretty much in line with village growth in CPI going from FY '21?

Are you talking about guidance for '21 onwards, Shane?

I'm just -- the 9% uplift that you've guided to, or that you just recognized. Are you saying there's a bit of a step-up here? So I'm just trying to understand medium term where that operating cost trends were likely to run? Is it in line with growth in your book or...

Yes. Look, I don't think it'll be -- there's obviously some investment for us to go forward in Australia. That's certainly not running as hard as [indiscernible] I don't, at this point, think it's going to run as hard as the 25% it’s historically run at. So you can see that a bit [indiscernible]. I think in the last few years, [indiscernible] obviously, we've got a CAGR of 25%, and insurance, 9%. So there's a fair bit of investment for Australia to go on top of that. But yes, let's not [indiscernible] built in there, that build rate in New Zealand.

Okay. So sorry, in this -- in the result you just delivered, is there any Australian start-up costs included in that?

Yes, there's a little bit, Shane. Not hugely consequential. So you're talking sort of like an [indiscernible] [ $2 million ], but yes.

Okay. Just and not trying to overplay this, but the development margins in the 2025, the construction cost component guidance. So what are you expecting in terms of construction cost increases?

Yes. I think the markets, generally, it's a bit different across the country, I think. Most of that projections are you're going to see around 3% to 3.5% in all [indiscernible]. I think the biggest couple of things to be able to go on is sort of freeing up of a commercial sort of supply chain up there, so you've got commercial buying, you've got [indiscernible] coming off throughout the year. 2% sort of in the regional areas [indiscernible] is actually probably going to be highest at about 4%. So it's all the general market projections around some construction costs. But I think [indiscernible] in Auckland, our guys are saying they can see sort of signs of supply chain freeing up with those 2 big projects sort of coming to a conclusion the next 6 to 12 months.

Okay. And just a final one. So we won't see anything from Australia until FY '21, affecting some completions. So there's nothing in that '20 to '25 for Australia, right, in terms of margins?

Yes, that would be right. In reality, we won't really be seeing anything scale and taking it through to the earnings in '22 and beyond.

[Operator Instructions] There are no further questions at this time. I would now like to hand the conference back to our presenters.

Well, look, thanks, everyone, for attending the call. Appreciate your time. Look, as always, talk to myself or Scott with any questions post this, and we'll be coming around and seeing a number of you in the next sort of week or so in any event. Thank you all. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.