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

Ladies and gentlemen, my name is Rob Campbell, and I'm the Chairman of Summerset Group Holdings Board. Today, we're very pleased to welcome you as online participants through our virtual meeting platform provided by our share registrar, Link Market Services. Welcome to Summerset's 2020 Annual Meeting. Due to the current COVID-19 pandemic, we're holding a virtual meeting to assist in curbing the spread of the virus while still providing for participation and engagement amongst our shareholders. You can vote and ask questions online. I'll provide you with further instructions as we progress through the meeting. If you encounter any issues, please refer to the virtual annual meeting online portal guide or you can try in the helpline on 0800-200-220. Also, in attendance online are my fellow Directors, Dr. Marie Bismark, Venasio-Lorenzo Crawley, James Ogden, Grinne Troute, Anne Urlwin and Dr. Andrew Wong. We also have with us our CEO, Julian Cook. Now for the formalities of the meeting. The company Secretary has confirmed to me that the Notice of Meeting has been duly given to shareholders and all other persons entitled to receive it, and the meeting has been properly convened. We will turn to resolutions later in the meeting. I confirm that the requirement for a quorum for this meeting has been met, and I declare the meeting open. The agenda for the meeting will be as follows: first, the Chairman's address; then the CEO's address; then the formal business of the meeting, which includes the resolutions for the meeting. Due to the difficulties associated with conducting an entirely virtual Annual Meeting with all of our Directors at different locations, this year, Board committee chairs will not be providing a separate update on their committees. Voting on all resolutions will be conducted by way of a poll. Shareholders will be able to cast their vote using the electronic voting card received when online registration is validated. Please refer to the virtual meeting online portal guide or use the helpline specified. Questions will be taken online throughout the virtual meeting website. I encourage the shareholders who have questions to send their questions through as soon as possible. Proxies have been appointed for the purposes of this meeting in respect to approximately 118 million shares being 50% of issued capital. As indicated on the proxy form, I intend to vote all undirected proxies I have received as Chairman in favor of the resolutions before the meeting. I am holding up to 55,000 undirected proxies for each resolution. The results of the proxies will be displayed following voting. The financial statements for the 12 months period to 31 December 2019, together with the Auditor's report, are set out in the company's Annual Report, which has previously been distributed to shareholders. We will address any questions on the financial statements in the General Business section at the end of this meeting. Again, I welcome you, and thank you for joining us at Summerset's Annual Meeting for 2020, and this is our first virtual ASM AGM. I don't need to tell you that this year's meeting is taking place amidst the most extraordinary circumstances with the global response to COVID-19 coronavirus dominating our lives and, of course, the operation of our retirement villages or care facilities. Firstly, I would like to acknowledge the anxiety and challenges COVID-19 has placed on our residents and their families who are, of course, unable to visit their loved ones during the lockdown; and also, on our 1,500 staff who are working very hard behind the scenes to keep our business running smoothly. Many people are making sacrifices currently, and on behalf of the Board, I would like to thank the efforts of our staff and the understanding and assistance of our residents and families. My comments this year will be focused on our response to the pandemic as that has become the center of our operation and will be for the foreseeable future. Like so many other businesses around the world, COVID-19 has had a significant impact on Summerset. Our priority through this time is keeping our residents and staff safe. We have been prepared for COVID-19 since January, and we have taken a series of success actions as the crisis developed. Measures which we have in place now include staff manning entrance gates to restrict visitor flows with gates being closed all other times; provision of a grocery-ordering service so residents do not need to leave the village; delivery of parcels dropped off for residents at our gates; extra staffing levels in our care centers; health, travel and contact status declarations for all visitors; temperature scanning for staff, admissions to care centers requiring negative COVID-19 test; 14-day isolation for all admissions into care center, including the use of full PPE by staff caring for those residents; facemasks being worn by all staff in our guest centers as a preventative measure; social-distancing protocols requiring staff to take paid sick leave for any sign of illness; and COVID-19 testing for any staff showing signs of illness. We have gone over and above the Ministry of Health guidelines in many areas. But we believe these measures are justified, evidence-based and provide an important extra layer of protection for residents and staff. At this point in time, none of our residents or staff have tested positive for COVID-19. The Board has been pleased with the effort and diligence of the Summerset response to date. Supporting our staffs through this time is very important. In addition to increasing staffing levels, we have also increased weekend allowances to provide an increase in wages through the level 4 alert period and part of the level 3 alert period. The pandemic is having a significant effect on our business. There is additional cost being incurred in the villages, much of which I've outlined just before, and sales and retirement units through the level 4 alert period have practically ceased. However, the business has sufficient reserves and will survive through this crisis. In particular, we have excess to $400 million of unutilized debt facilities, and we have substantial headroom within our banking and bond financial covenants. We've also reduced costs at our corporate office and in the development and construction teams. Around 260 staff are now on a 4-day week, which sees our wage costs in this area reduced. Following a consultation period with staff, this commenced on Monday, 20 April. This extends to the CEO and executive leadership team. The Board has also agreed to reduce its fees by 20% as long as this lasts. We have just moved into a level 3 alert across the country. We do not know how business conditions will evolve, but I stress that we are in a good position to weather a prolonged downturn. And when the time comes, we will be ready to take advantage of the opportunities, which will arise. As we emerge from the current restrictions, we'll be watching business conditions closely. Particularly, we will be watching progress on the sales of retirement units. There is a general expectation that the property market will slow, and prices may drop. We have been through these times before, and we will get through the coming challenges. The needs-based nature of demand for our villages will assist this. We will also be modifying our investment program in response to conditions. We have indicated that we will now build in the order of 300 to 350 retirement units for 2020. This is down from 400 prior to the pandemic. Over the level 4 alert period, our construction sites were shut down. These sites are now remobilizing. Due to protections being put in place to provide for safe social distancing, the least workers are able to be on-site at any one time, and therefore, the time frame for completing construction projects will increase. Looking further into 2021 and beyond, the majority of our investment program has not been committed to. Through the year, we will be making decisions on the level of investment we will make. We have the benefit of a large number of sites on the level -- a large number of sites across the country, which we are either building on or plan to build on. We also benefit in that nearly all of our investment program involves broad-acre villages. These consist of a main building and then a series of stages of single-level villas. Each stage of investment is relatively small, and we can start and stop them quickly. As such, we have a good deal of flexibility as to our investment level in the future. In terms of financial performance over 2020 and beyond, we are not in a position to give guidance at this stage. Also, you will have seen many companies cancel or defer their dividends this year. We paid a dividend in March relating to our 2019 year. The Board will consider the issue of dividend payments through the year, but I do wish to signal that there is potential that we do not pay a dividend for 2020. Last year now seems like an eternity ago, but I will briefly run through our progress in that year. Summerset is now in its 22nd year of operation with 31 villages completed or under development and a further 10 earmarked for development. This includes 2 sites in Australia. We have more than 5,500 residents and 1,500 staff. For the 2019 year, we achieved an underlying profit after tax of $106 million, up 8% on 2018; and net profit after tax of $175 million, down 18% on the previous year. We sold 329 new occupation rights and made 323 resales. Our operating cash flow for 2019 was $238 million. Total assets reached $3.3 billion. We made a total dividend payment for 2019 of $0.141 per share. In 2019, we built 354 retirement units and opened 3 new retirement villages in Christchurch, Nelson Tasman and Wellington. We opened 3 new sites in 2019, and we're planning to open 3 new villages in 2020. However, I note that given the COVID-19 situation, we will be revisiting our build program, and it is possible one of these site openings will be delayed. We purchased 7 sites in 2019: Whangarei, Cambridge, Blenheim, Prebbleton and Rangiora; and our first 2 Australian sites in Cranbourne North and Torquay, both in Victoria. In regards to our Australian expansion, we still see this as an attractive path for us. We have launched our consent application for Cranbourne North, and we are working on planning for Torquay. We will be continuing on the paths of planning and consenting these 2 sites. We are fortunate that when the COVID-19 crisis started, we have not started to build our Australian teams. This was planned for later this year. We will be assessing market conditions throughout the year and making a decision on commencing construction on those sites as appropriate. In late 2019, we agreed to considerable wage and allowance increases for our leasing and caregiving staff to position ourselves top equal in the sector. We also flagged this investment in our annual results released in early 2020. We expect this investment in our people will translate into lower staff turnover, higher staff engagement and improvements in the level of care and service provided to residents over time. In April, we also added an extra allowance for all village staff working during the level 4 alert to recognize the unique circumstances they are operating in. This will continue for around 2 weeks into level 3, and then will cease. This year, we welcomed Vena Crawley to the Board. Vena is the Chief Customer Officer at Contact Energy and an Advisory Board member at the Auckland University of Technology. Vena adds a new set of expertise to our Board with his background in strategy, IT, data analytics, digital technology and culture and brand. Vena is standing for formal election to the Board at this meeting. I'm also standing for reelection to the Board in this meeting. Having been Chairman of the company since its IPO in 2011, and in accordance with standard practice, this coming term will be my last. The Board is working through the appropriate succession planning. Looking ahead, it's a tricky business right now, as you will appreciate. But while there is much uncertainty and rapid change in the world right now, we believe this business is well placed in the long run. We will face challenges over the coming months, but the Board is focused on ensuring that we take in staff, ensure our villages are secure refuges for residents during these times and that we prudently manage the business. As this crisis passes, there will be significant opportunities in our market, and we want to be well placed to take advantage of them. As always, thank you to our residents for choosing Summerset, our staff for their professionalism and the high standard of care they provide and to our shareholders for your continued support. I will now hand over to Summerset's Chief Executive, Julian Cook.

Thank you, Rob, and good afternoon, everyone, and thank you for being online with us today. Firstly, I'd like to add to Rob's update on our COVID-19 response. As of today, we have seen 19 deaths in New Zealand from COVID-19. These deaths are tragic, and we all extend our sympathies to those involved. However, it is also clear that as a country, we have avoided the worst of the pandemic. We have seen what has happened in places such as Italy, Spain, New York, Britain. Hospitals have been overwhelmed, and the rates of death have seen hundreds dying each day. Many of the deaths overseas have been in aged-care facilities, which, by their nature, care for society's most frail. New Zealand has benefited by its remoteness, lower-density living arrangements, more integrated health system and by the early move by the government to impose severe restrictions on the country to stop the spread of the virus. In New Zealand, COVID-19 has made its way into around 7 aged-care facilities and a number of the deaths relates to these facilities. Our priority has been to keep our residents and staff safe. This is quite simple in these times, keeping COVID-19 out and being prepared to manage it carefully if it does get in. I'm pleased to say that today, we still do not have any residents or staff who have been tested positive for COVID-19. As the level of infection reduces in this country, the chances of it getting into one of our villages or aged-care facilities reduces also. However, as has been seen in countries such as Singapore and China, the virus can reemerge quickly, and it is likely we will face dealing with this virus for some time. How long? We cannot tell. Rob has covered a number of measures, which we have in place to keep residents and staff in our villages safe. Our pandemic response has been evolving since January with the COVID-19 response team comprising myself and a number of key executives in the business meeting regularly since then. The rapid spread of the virus saw us make a number of moves to protect our villages. This has involved a large amount of work from many people throughout the business. In many areas, we have reallocated staff from other work streams to focus on our COVID-19 response. Our business plan for 2020 is now respond to COVID-19 in a way that protects our residents and staff's health and well-being and ensure that Summerset as a business gets through in a good health, too. We restricted access to visitors who had traveled early. We extended these travel bans early. We restricted visitors to care centers before Ministry of Health guidance. We instituted 14-day self-isolation for new residents in care centers before guidance. Currently, we are insisting on new admissions to care having a negative COVID-19 test. This is counter to the Ministry of Health policy, but we believe this is necessary for the protection of our residents. We have also bought additional supplies of protective personal equipment early. Today, we have all our staff in our care centers wearing face masks as a preventative measure. As well as health, the welfare of our residents is important. Across our sites, staff have been checking in and engaging with residents with the appropriate social distancing. Centrally, we have provided an online wellness center for our website for residents. We have provided weekly fitness videos, regular communications to families and residents and also set up a grocery-ordering service through our own food suppliers. In the early days of the lockdown, most supermarket delivery services were overwhelmed. This service has ensured residents had access to food and supplies without having to leave the village. Many families have also come to sites to drop off food parcels for residents, which our staff have been delivering. On each site, the staff have also organized various activities, quizzes, virtual happy hours, Easter egg drops and NZ gifts and many others. Many of our residents have commented that they feel very secure and supported being inside a Summerset village through this crisis. In our care centers, the lack of contact with the loved ones has been difficult. We have put iPads and mobile phones into all of our care centers to provide for video and phone communications with families. This has proved very popular. We have also set up a system to provide for remote general practitioner consultants to speed up their work and further reduce the requirement for on-site visits. The country has just moved into alert level 3. For us, there is not a lot of change. All of the protections present in level 4 in our care centers will continue. For our village residents, we will start to permit each resident to have a visitor who is able to come to visit. This is in line with the Prime Minister's guidance that people's bubbles can be expanded but only ever so slightly. Throughout level 3, we will keep all of our recreation areas, cafés, pools closed. We will not run any Summerset-organized activities, either in the village or outside of it. As we move into level 2, we do expect to be able to start to bring these things back. In level 3, we will commence sales of retirement units again. We have been taking admissions to care centers through level 4, subject to strict criteria. We have developed careful and safe protocols to allow viewings of units by appointment only. We will also be providing virtual tours of our facilities and homes to again reduce the amount of contact required. At the end of the first quarter of this year, we had a total of 98 new sales contracts in hand and 73 resales contracts. These are still in place, and we will be working with these people over the coming weeks and months. Challenges ahead for incoming residents will include how to sell their home in a weaker property market and how does their real estate agent conduct viewings of their home. We have developed a series of tools to assist residents to move quickly into a Summerset retirement unit. This will allow them to not be present in their home while it is shown to prospective buyers and will provide them additional time to sell their home. You can see there have been huge changes to the way we do business in the last 2 months. I would like to acknowledge our staff and our Board in this. From my executive leadership team down to our frontline housekeepers, caregivers, nurses and gardeners, I have seen a huge amount of dedication and effort. People have worked tirelessly to put these new systems in place and then operate them to keep our residents and staff safe. To all of our staff, my sincere thanks and gratitude. Also to our Board, I would like to say thank you. The business has moved very quickly and our Board has guided and enabled us to make the changes we have made. This has required quick turnarounds on decisions and willingness to invest in important parts of our business, i.e., our frontline staff and systems. I will now turn to other matters. Our strong underlying profits and cash flows from prior years puts us in a good position to navigate this current crisis. Importantly, our debt funders are very supportive, and we have a diversified range of debt funding with 2 bond issues and a strong banking syndicate. Rob has talked to you about some of the measures to control our costs such as moving many corporate staff to a 4-day week. This includes myself and the executive leadership team. And as Rob has noted, the Board has also volunteered a 20% reduction in director fees. We have a range of other cost-control measures in place. These primarily relate to new hiring and projects within our corporate teams. We are also considering our investment in new villages care fee. We expect continued good demand for our villages, particularly the new sites we have acquired, but we will take a cautious approach to investment through the coming downturn. Late last year, we received resource consent for our St Johns project. We had previously been declined a consent by the Auckland City Council. On appeal to the Environment Court and with some modifications to the design, we have been able to secure a consent. We are in the early stages of site preparation and earthworks on the site. Another long-standing consent process has been our Lower Hutt village. Earlier this month, we received a draft decision providing consent for our plans, subject to meeting some specific concerns. We are confident we will meet these whilst retaining a viable project. We expect a final approval later this year. After this, we will then move into earthworks. Both of these projects will be substantial undertakings. Both villages have very good waiting lists for prospective residents already. And by the time we are ready for construction on these villages, we should have a good picture of how the country is coping with COVID-19. In a worst-case scenario, we could delay construction, if required. One of our big points of difference in our new villages is our award-winning dementia memory care centers. As New Zealand's population ages, the incidence of dementia is set to triple. Late last month, we opened a new-generation memory care center at our Casebrook village in Christchurch. The purpose-built center has 20 large 1-bedroom apartments within a secure and homely environment for people living with dementia. We will be opening these memory care centers in our new villages, including those in Australia. The new memory care -- sorry, the next memory care center will open at Rototuna and Hamilton later this year. We were also very proud to be accredited this month as a dementia-friendly organization. This is the outcome of 2 years' work to meet the 7 international dementia-friendly recognition standards across all our villages and corporate offices. While Summerset is in a difficult and challenging period alongside the rest of the business community, we do believe we are well placed to come out the other side of it. Our business is essential, it is resilient, our staff are professional and resourceful and the plans we have in place stand us in very good stead. As always, thank you for your continued support.

Thank you, Julian. Ladies and gentlemen, we now come to the matters requiring resolution, which are outlined in the Notice of Meeting. You may ask questions on each matter being put to shareholders through the virtual meeting website. Please start submitting your questions on the resolutions now as there may be a small delay in us receiving them. If your question is received late, we will respond to you separately after the meeting. I will call a poll in respect to all of these resolutions. As I mentioned, shareholders will be able to cast their vote using the electronic voting card received when online registration is validated. To vote, you will need to click Get Voting Card within the online meeting platform. You will then be asked to enter your shareholder or proxy number to validate. Please then mark your voting card in the way you wish to vote by clicking For, Against or Abstain on the voting card. Once you have made your selection, please click Submit Vote on the bottom of the card to lodge your vote. Voting will remain open until 5 minutes after the conclusion of the meeting, and the results of the vote will be announced through the NZX. If you require any assistance, please refer to the virtual meeting online portal guide or use the helpline specified. Each of the resolutions set out in the Notice of Meeting are to be considered as an ordinary resolution and, as such, must be approved by a simple majority of the votes cast by shareholders entitled to vote and voting on the resolution. The outcome of the proxy votes will be displayed for your information after voting on all resolutions. Resolution 1. We turn firstly to the matter relating to the company's auditors. The motion concerns the fixing of the auditor's remuneration and seek shareholder approval that Directors be authorized to fixed Ernst & Young's remuneration. Are there any questions online?

There are no questions online.

Thank you, Robyn. Given that there are no questions on this matter, please now select either For, Against or Abstain for resolution 1 on the voting card. [Voting]

Resolution 2 concerns my own reelection as a Director. I have asked James Ogden to manage the second resolution on the basis that it concerns my own appointment. James?

The next resolution concerns the reelection of Rob as a Director of Summerset, having retired by rotation. The Board recommends Rob to you as a Summerset Director and unanimously supports his reelection. Rob will now say a few words about his background.

Thank you, James. They will be quite a few words. I'm a Professional Director that holds a number of positions in New Zealand-listed companies. I've had a long-term commitment to Summerset, as I noted earlier, since its inception as a public business company in 2011. We've had the amazing experience of working with fantastic people, our residents and staff in that period. And I think everyone that's been involved over that whole time takes immense satisfaction from the quality of life that we've been able to provide to our people, the quality of the jobs we've been able to provide, and the recognition, too, that we've grown this business to a point where it now has assets, which totals well over $3 billion. I'm looking forward to the next 2 or 3 years because, really, it's the new challenges that are involved arising out of COVID-19 and the advantage that we're going to have setting up in Australia. This will be my last term of office with Summerset for normal rotation purposes, and I'm looking forward to the opportunity to represent you. Thank you.

I now propose that Rob be reelected as a Director of the company. Are there any questions online concerning the motion relating to Rob?

We've received a question from Alastair Duncan. It's a question that's being put to each of the candidates who are standing for reelection to the Board. The question is, "Noting the extraordinary commitment from frontline care and support staffs, in their reports this week that extra staffing levels are making important contributions to resident care levels as evidenced by reduced falls and higher staff morale, and also noting the Ombudsman's interest in the sector, do each of the candidates support a return to regulated and guaranteed staffing levels across the sector? If not, why not?"

I don't support regulated levels per se. What I do recognize is that adequate staffing levels and indeed, more than adequate staffing levels are needed in care centers, particularly in times of stress, but all the time. And I believe that this is an issue which the industry has to work on together. No one organization can really solve this issue. From Summerset's point of view, we are very, very open; in fact, enthusiastic about working with the industry, our staff, the industry involved and the other stakeholders in the industry, to ensure that we do get the appropriate standards. So not regulation for its own sake but regulation which ensures we have good standards going forward, yes, certainly I'll support them.

Are there any further questions on this matter?

We've received a question from Tony Mitchell. The question is, "Thank you for explaining that this will be Rob's last term with Summerset. Is there a time frame for making a decision on the successor?"

Well, there's an endpoint which is -- that needs to be made before I go. So the answer to that is yes, we'll be working through that over the next year or so and putting in place the right procedures. There's more than adequate experience and skill on the current Board to take over the role when I do move on, and we'll make that move at the time that's appropriate to the business.

So Robyn, are there any further questions on this matter?

There are no further questions, James.

So thank you. So now please select either For, Against or Abstain for resolution 2 on the voting card. [Voting]

Thank you, James. Resolution 3 concerns the reelection of Andrew Wong as a Director, having retired by rotation. The Board recommends Andrew to you as a Summerset Director and unanimously supports his reelection. Andrew will now say a few words about his background.

Thanks, Rob. Good afternoon. My name is Andrew Wong, and I hope, firstly, that all of you and your loved ones are safe and well in these very difficult times. I am pleased to put myself forward for reelection onto the Summerset Board. If I am successful in getting reelection, this will be my second term as a director, having first been elected onto the Board in April of 2017. I believe I am suited and qualified and have the relevant experiences to continue contributing as a member of the Board. My formal training is as a specialist medical practitioner with a Fellowship and Masters in public health medicine. However, for the last 20 years, I have been the chief executive of a range of businesses in the private health care sector, both here and overseas. Businesses I have been responsible for have included hospitals, day surgeries, property companies, cancer care centers, radiology providers and day centers such as endoscopy units. I am now almost exclusively focused on business performance and strategy, development and execution in these companies. This includes growth strategies, company acquisitions, property development and assisting a portfolio of startup businesses. Whilst every role is unique, there are a range of experiences and skills, which I have developed throughout my career, which are directly applicable to being a director of Summerset. Past 3 years have been particularly busy for the Board, executing the strategy that we know will deliver long-term benefits to Summerset. And some of these things have included improving the terms and conditions of employment for our staff as we aim to be the employer of choice in the sector; the clinical information systems in VCare; as previously mentioned, our memory care strategy; the continued diversification of our land bank in New Zealand and more lately into Australia with the opportunities that allows us to continue to grow; and our ongoing focus on health and safety in our construction sites. I would, at this time, like to commend the tireless work of our management, the village and care teams during this very difficult time of the COVID crisis at everything that they have done to keep our residents, our staff and all our people safe. This is a rapidly changing situation and is by no means over. The team have done a really wonderful job, and I know it has been greatly appreciated by all of our residents, our shareholders and their families. Please keep safe in your bubbles. Thank you.

Thank you, Andrew. I now propose that Andrew be reelected as a director of the company. Are there questions online concerning the motion relating to Andrew?

There are no questions online.

I would note that there was that question that was placed to all of us by Alastair Duncan, I think.

Yes. I wonder if each of the directors standing for reelection perhaps want to comment on safe staffing levels in response to Alastair's question.

Yes. I did want to reaffirm Rob's comments and also note that we do currently monitor minimum staffing levels within all of our care centers for both nurses and other caregivers. And we try very hard when we're doing this to reflect not only the numbers of patients within the care centers but also the complexity of the care that is actually required for each of those individual residents. And so we try very hard to ensure that the care is, as much as possible, personalized to those individuals. Thank you.

Thank you. Andrew. Would you please now select either For, Against or Abstain for resolution 3 on the voting card? [Voting]

Resolution 4 concerns the reelection of Vena Crawley as a director of the company, having been appointed by the Board in February and holding office only until the annual meeting. Vena is the Chief Customer Officer of Contact Energy and an Advisory Board member of the Auckland University of Technology. He has also recently completed a term as a future board director for The Warehouse Group. Vena's previous directorships and trustee positions include the Electricity Retailers Association of New Zealand; Gas Complaints Commission, now the Utilities Disputes Commission; Loyalty New Zealand; and Workbase. He has held senior executive positions at ASB Group and at IAG in both New Zealand and the U.K. and has worked across a wide variety of areas, including strategy, finance, IT, pricing, data analytics, digital technology, culture and brand. Vena holds an MBA and BA from Steinbeis University in Germany and has studied at the Darden School of Business via Virginia State University. The Board recommends Vena to you as a Summerset director and unanimously supports his reelection. Vena will now say a few words about his background.

[Foreign Language], and good afternoon. Thank you, Rob. I'm very grateful for this opportunity to address you briefly today and offering myself for election. As Rob mentioned, I was appointed to the Summerset Board in February this year, and it has certainly been a pleasure to serve shareholders in what is unprecedented times. Summerset is an exciting business with robust performance and bold ambitions for the future, and delivering on those goals requires a strong Board of Directors with a diverse set of skills. Should I be elected, I'm committed to delivering those outcomes over the coming years, alongside the Chair, the rest of the Board and our very capable Summerset leadership team. From a capability standpoint, I bring over 25 years of corporate experience in management of both large national and multinational listed firms, a lot of organizations that have been highly competitive, customer-focused businesses in banking, insurances, telecommunications, technology and energy, which has honed, in particular, my skills with a deep knowledge of changing expectations of societies, the changing expectations of consumers, customers and governments and successful strategies for scale and growth of profits; key enablers -- understanding the key enablers for the future of any business in the realms of digitization, technology and monetization of data; the optimization of operations and management of change; marketing, reputation management and government relations; and a strong understanding of international and national capital markets and M&A. On a personal note, in my extensive search for retirement options for my own parents and my parents-in-law several years ago, Summerset was a standout. It was a standout in the service experience, a standout in the quality of product and a standout in customer care. So it makes me very, very proud to become a Summerset Board member. A great deal has been achieved with much more to come. I'm excited about the future of Summerset, and I feel very passionate to play my part in delivering on the company's plans and ambition. So I am accordingly pleased to seek your election as a director. And in particular answer to Alastair's question, my personal note, I think, answers that in the exploration, we are in the business, there's no doubt for me, that the Summerset experience and the essence of what this business is, is about care for our aged. And the experience since then and the levels of staffing and the care and the attention, which is given appropriately to that, leaves me in no doubt that I think that the appropriate levels of staffing are there now.

Thank you, Vena. Are there any other questions online concerning the motion relating to Vena's reelection?

There are no further questions. Thanks, Rob.

Thank you, Robyn. Please now select either For, Against or Abstain for resolution 4 on the voting card. [Voting]

Resolution 5 proposes an increase in the fee pool for directors' fees. The Board recommends to shareholders that the maximum annual director's remuneration payable to all directors of Summerset taken together be increased from the current level of $768,000 to $840,000, plus GST, if any. This reflects a total increase of $72,000 to the current approved fee pool, plus any GST payable on the fee pool. At the 2019 Annual Meeting, shareholders approved a fee pool that included a $72,000 surplus. However, that surplus was consumed when Venasio-Lorenzo was appointed as an additional director. The Board, therefore, wishes to reinstate that $72,000 surplus. The purpose of the surplus is to allow the Board to approve payments for directors for assuming additional responsibilities over and above the normal duties of the Board or any standard committee. This would include things like due diligence work for the issue of retail bonds or other significant strategic work or projects. There is no intention to increase the standard directors' fees at this time. In fact, the Board has recently agreed to a 20% reduction in the standard directors' fees given the current COVID-19 situation. It is intended that this reduction will remain in effect until we return to more normal operating conditions. It is too early to say when this might be, but we would hope later this year. Although the 20% reduction in directors' fees means there will be a small surplus in the fee pool for the current year, we do not yet know how long the fee reduction will continue or whether the surplus created will be sufficient to allow for key projects and initiatives that may require payment of additional directors' fees. We, therefore, consider that an increase in the fee pool to reinstate the $72,000 surplus remains appropriate despite the current reduction in directors' fees. Are there any questions online to the Board concerning this motion?

We've received a question from Jan Semerad. The question is, "Why are you seeking shareholders' consent to a director fee increase when the CEO mentioned that directors had agreed to a 20% fee reduction?"

Well, I think I've tried to explain that, but to put it in more simple terms, I hope, it is not proposed that individual directors receive a increase in fees. That won't be happening. What is proposed is that the pool is increased, and this is common practice across a wide range of publicly listed companies to have a surplus in the pool to enable Boards to meet any special situation which arises, which requires some extraordinary level of contribution from all directors or a small number of directors, potentially even a single director playing a particular role. It's prudent, good management to have some surplus available to do that, which is why we're seeking to reinstate the surplus that we always had. This should not be interpreted as, and it does not mean that, individual directors will be getting a fee increase. Are there any further questions on this matter?

There are no further questions.

Thanks, Robyn. Please now select either for, against or abstain for resolution 5 on the voting card. [Voting]

You should now submit your votes. Voting will be open until the close of the meeting. Results of the poll will be announced on the NZX and ASX after the conclusion of the meeting. The outcome of proxy votes will now be displayed online for your information. Thank you. I now move to general business. I would like to give shareholders the opportunity to ask questions, whether related to the presentations, the financial statements or the management of the company. You can continue to provide questions online, and we will also address questions, which have already been submitted online. We will allow 14 minutes for questions. So if we're running short of time and we're unable to answer your question online today, we will endeavor to respond to you after the meeting. Are there any questions online?

We've received a question from [ Colin Upchurch ]. The question is, "The impact of COVID-19 has radically changed our lives. Attitudes to the safety and desirability of living in a retirement village may have changed in a way that is detrimental to the company's sale and resale of units and the speed of development of existing land bank. Could the Board please comment on the outlook of the company's readiness and flexibility to respond to the new environment we are in?"

I'll ask Julian Cook to comment on some detail on this, but can I say in advance of that, that the Board has considered a range of scenarios from a quick return to normal operation to a failure for that return to occur. And we're confident that at the present time, we have the resources to cope and handle any one of those situations. We're very directed towards a return to normal trading conditions and growth of the business, and that's where all our endeavors will now be focused. So sales, in fact, have recommenced. Sales activity has now recommenced in earnest around our villages, consistent with the conditions under level 3. We don't know what the market reaction will be to these events. We believe that in our villages and indeed in many others, we provide a very safe as well as caring environment for people who are seeking an independent living unit or seeking a service department or who are in need of care unit -- care. And we're very proud of what our staff have been able to do so far to deliver that safety and security. We know anecdotally that many people who are within our potential market are more interested in high-quality living conditions in retirement villages and high-quality care should and when that be required and recognize that organizations like Summerset not only can but do provide that. So we're optimistic. There may will be some slower conditions in the residential property market, but we remain very optimistic that our market will continue to be a strong one. But we can't guarantee that, and we have a range of both cost reduction and new initiative steps in place, should some of the more adverse scenarios play out. I'll ask Julian to comment, though. He may have other detail to add.

Thanks, Rob. Look, I would just echo what Rob has said, plus also just add a little bit of color. Look, I think we all know that COVID-19 impacts older people more. We've seen that here in New Zealand. We've seen it overseas. So for a lot of our residents, it has been a very worrying time, a very anxious time. And at the same time as worrying about this virus, they've been cut off from their families and their friends. And for many, being told to stay home because you're over 70 is a very difficult thing to have to take. But I think the feedback we've received pretty consistently across all of our villages is that residents say to us, "Despite those things, I feel very safe being here. I'm very lucky I'm here, and I would rather be here and be supported of my independence and be kept safe than be somewhere else." So that's also reinforced in discussions that have been having -- had between our sales team and our database and potential customers as well. So potentially, we think there is a net positive for customers coming out the back end of this because we do believe that COVID-19 will be around with us for some time. But look, our focus is quite simple. It just has to be on continuing to do a really good job for our residents and for our staff in the villages. Thanks.

Thank, Julian. Robyn, are there any other questions?

Yes, we have a question from Bruce Parks. The question is, "Summerset has taken advantage of the government Wage Subsidy Scheme, which indicates an expected 30% drop in revenue. What impact will the reduced revenue have on the underlying profit for the 2020, 2021 years and future dividends?"

First, hi, Bruce. I hope you're going well and you and your family are keeping safe, and thanks for the question. We did apply for the wage subsidy process in the government, and we are applying that to support for our staff in accordance with the rules of the scheme. There obviously is a reduction in revenue that needed to be for that scheme to be applicable, and it's pretty obvious that there has been in our business. How long that continues is not yet obvious. And while we are working through a whole range of financial scenarios, we're not in a position at this stage to give any guidance as to the actual earnings impact on our business, taking a financial year as a whole or even a half year. Again, I'll ask Julian if he wants to add, but I'm pretty confident that's the right answer, Bruce.

Look, I think, Rob, I didn't really have anything to add to that. I think that pretty much is it.

Thank you. Are there any other questions?

Yes, we have a question from an [ Ann Elizabeth Aim ]. The question is, "Why did Julian Cook sell 1.5 million of Summerset shares?"

I'll let Julian answer that, but I will say, first, like every listed company, we have protocols in place as to when executives or directors can sell shares. There are quite limited opportunities during the year when this can occur. And when it does occur, an executive or director is required to get my approval and I check that is in accordance with the rules. And if it is, then it is approved. There can be all sorts of reasons for selling shares. Julian has a substantial shareholding in this business as a person because he has worked for the business for a long time. He has been incentivized by shares throughout that period. And he has -- still has a tremendous commitment in terms of his equity in the business. So there's no question of lack of alignment. He was entitled to sell the shares. There's obviously no detriment to the company in any way, no cost to the company from him selling shares. That's simply a transaction on the market that takes no money out of the company. So I really, from a governance point of view, have no sort of qualms about that decision. Would have been the same for any other director or executive. Whether Julian wants to add to the personal side of that question is entirely over to him.

Well, just quickly then, that was obviously a personal decision I made. So I don't want to go into the detail of that. But just to echo Rob's comments, it was, in totality, a relatively small part of my overall holding in past years, which I've nearly had for 10 years now, which is nearly how long I've been with the business. Thanks.

I might just comment, too, that if there's any suggestion that Julian was taking advantage of it or anything, this was by no means the high point of the share price at which he sold. Are there any further questions?

We have a question from [ Brian Sexton ]. The question is, "The annual report includes details of CEO remuneration but not those of other key management personnel. I know that Summerset is increasingly becoming an Australasian company, both operations in Victoria and ASX listing. I would like to see more disclosure for key management personnel other than the CEO regarding salaries, incentives and shareholdings, as is common for Australian companies. Will the Board consider this request for future annual reports?"

Thanks for the question. Yes, in Australia, the disclosure requirements are a little broader than they are in New Zealand. That's something that I'll ensure that the Remuneration Committee has a specific discussion on. We have discussed it before and opted to remain with the New Zealand system, but it's the sort of thing that we need to keep under regular review. And I'll ensure that the Remuneration Committee, which Gráinne Troute heads, does consider that issue during this coming year. Are there any other questions?

We have a question from Jan Semerad. The question is, "Can you advise that resale of units continues during lockdown and restricted access to sites?"

Yes, there have been a small number of resales of units during this period. It's quite a small number, though. Are there any other questions?

Yes, we have a question from [ Beryl Plummet ]. The question is, "I think that this crisis has made many elderly people reconsider whether they're best living alone or in a facility such as Summerset's range of accommodation. Does the Board have information or thoughts about how this might play out as we move through the remainder of the year?"

I may have answered that question to the extent I'm able to a little earlier. We are aware that, that is a view that many people in our prospective age range are thinking and looking at. And we're doing everything we can to provide those people and the community generally with information about what is available in Summerset villages at all levels, right, from the very independent living situations to care facilities. And we are optimistic that, that will be a net positive for our business. But you can't assume that we have to market it, and we have to be as good as we aspire to be to make that attractive. Significant amount of the sales that go on in retirement villages and aged care facilities are word of mouth-related. There is the discussion in the community, the reputation you have and the immediate environment of the village that you're talking about. It becomes pretty well known what is a good village and what isn't a good village and whether people enjoy living there and feel safe and well kept for or not. So if we can do that, we see no reason why the future of this business is not a bright one. Again, Julian, if you want to add to that, please do.

No, nothing to add to that. Thanks.

Okay. Are there any further questions, Robyn?

We have a question from John Boscawen. The question is, "From the Chairman's comments, it would seem you are anticipating a much larger number of retirement village residents will take up occupation before full settlement of the unit. How do you expect to recognize the profit of a sale or resale in these circumstances? Will we wait for settlement to occur in full before recognizing a profit?"

John, thank you for that question. And you know I'm going to duck it and ask some of the specialists to deal with that question. Revenue recognition is quite complex in this business. So Julian, I think probably that's best for you to comment on, and maybe James Ogden as Chair of Audit would like to comment as well. But it's a legitimate question, too.

John, look, we currently book on settlement, and so we're proposing no change to that.

Okay. I don't need to ask James then. That's as simple as it gets, isn't it? Thank you for that question. Are there any further questions?

Yes, we have a question from Graham Roberts. The question is, "Can you please explain to shareholders why Summerset did a dawn raid at 6:00 a.m. on the 3rd of January to cut down whole, beautiful, 100-year-old trees on the far corner of your Parnell site? This was done with Summerset's full knowledge that Auckland Council had accepted a notable tree nomination submitted by local residents. It also ignored the petition of 2,400 signatures. How does the company plan to address this situation?"

Well, Graham, there's nothing we can do about the trees. At this stage, they have been removed. They were always going to be removed as part of the development plan for that area. Everything that Summerset has done has been in accordance with the right procedures. I understand that you and some other residents were not happy about that, but frankly, that is something that simply falls into the nature of the risks of undertaking developments. So there's no change that's going to take place there. The facilities that we are going to provide to that community well in advance of any value of those trees in our opinion and the development consents we have reflect that. Are there any other questions?

We have a question from [ Ray Simons ]. The question is, "Should house prices fall by 20%, this might impact sales of units. Should the situation occur and last perhaps for 18 months, what would the likely effect be on sales and profitability of empty or new units?"

Well, that is within the realm of scenarios that we have worked with. I've got to say that's at the -- towards the negative end of them, but we have to undertake those kind of scenario plans. As I said a bit earlier on, we have ways in which we can react to that kind of a slowdown in sales. As I want to repeat, it's not something we expect or anticipate. But if it does occur, we have planning taking place already to make the necessary cost, marketing, construction and other adjustments to deal with that. What would the effect be? The effect would be -- will be negative, clearly, but we're not in a position to give any precise details on that. I think it's helpful our practical scenarios are ones that involve us continuing to be able to grow our village stock, sell the stock and act as prudently as we always have. I just want to make the point. We do have substantial financial flexibility in our balance sheet and substantial operating flexibility in the way our business is conducted, and we will exercise that going forward. Again, if Julian wishes to add, I'm happy for him to do so, obviously.

Look, I'll just add the comment that the experience through the GFC has some relevance. Through that period there, through 2008, 2009, we saw property prices drop in New Zealand, particularly Auckland, by about 10%. And we saw sales volumes drop by about 60%, so that's pretty substantial. If you look back at our track record through that point, certainly, the sales cycle becomes longer, and it becomes more difficult. We still saw the level of inquiry, so people wanting to come to villages, holding up quite well. But certainly, it was harder for people to sell their homes, and we did see a slightly higher withdrawal rate. In that case, we did not drop prices anywhere, in any of our villages across the country. And I think you should -- a couple of points of comfort there. Firstly, with our old demographic that we see as the customer base, that is a more steady source of demand, number one. Number two, our unit prices are often substantially less than the price at which they are selling their homes. So even if the price for which they can sell their home comes back a little bit, our unit prices are often still very affordable. And when you look at our development margins and our embedded gains, which sit in our resale stock, those are both fairly substantial as well, which give us, if we had to, a little bit of flexibility in terms of the sales price. Thanks.

Thank you, Julian. Are there further questions, Robyn?

There are no further questions, Rob.

Thank you. If there are no further questions, I will move to close the meeting. I would like to thank those people who provided questions. I've done a few of these sessions now. I actually think those were as good a group of questions as we have had at any of our annual meetings. So they're really, really appreciated. They're all important issues and ones on which the Board either has pondered a lot or will ponder as we go forward. So I really appreciate that. Having said that, I'd like to thank you for your online attendance at Summerset's Annual Meeting. I hope the online experience has been okay for you all. It's an experiment for all of us. We're having to do these new things, which has made up good for us. I now declare the meeting closed. Thank you.