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Summerset first-half profit growth slows

Summerset first-half profit growth slows as focus turns to investment in villages ahead of sales

By Tina Morrison

Aug. 12 (BusinessDesk) - Summerset Group, New Zealand's third-largest retirement village operator, increased first-half profit at a slower pace as it focuses on developing villages for future growth.

The Wellington-based company said net profit rose 42 percent to $15.3 million in the six months ended June 30, lagging last year's first-half profit growth of 174 percent. Revenue rose 19 percent to $25.2 million, helped by increased occupancy of new villages.

Summerset, which doubled its annual profit last year on record sales of occupation rights, has said earnings growth is likely to slow this year as the company acquires sites for new villages. The company recently opened two villages in Auckland, and will open its New Plymouth village this year, while almost doubling the size of its Trentham village, meaning the company expects strong settlements over the remainder of 2014, it said today.

“Having delivered 136 retirement units in the first half of this year, we are in good stead to achieve our target of delivering 250 retirement units this year,” said chief executive Julian Cook. “We are on track to achieve a build of 300 retirement units per annum from next year.”

Retirement village companies are acquiring land and preparing for a record building spree in anticipation of increased demand as people born in New Zealand's post-war era start to reach the target age for operators, including Summerset and its larger rivals Ryman Healthcare and Metlifecare.

The company will pay an interim dividend of 1.4 cents a share after announcing in February that it would start to pay interim as well as full-year dividends while retaining its policy to pay 30 to 50 percent of annual underlying profit in dividends.

The company’s first half underlying profit, which strips out unrealised movements in the value of its properties fell 6.1 percent to $9.4 million reflecting the increased costs related to new villages and the startup phase of new care facilities.

In the first half, the company sold 105 new occupation rights, 9.5 percent lower than the year earlier due to the timing of new developments. Resales of occupation rights increased 23 percent to 90 as stock levels remained in line with the first half last year.

Summerset is expected to post a full-year underlying profit of $25 million, according to the mean forecast of analyst estimates compiled by Reuters. Cook declined to comment on the estimates.

The company improved its development margin to 13.6 percent from 12.4 percent in the first half of the last financial year and 11.9 percent in the previous first half. The company is improving its development margin as it takes management of construction sites in house, with the aim of bringing it into line with the 17 percent margin on sites where it manages construction itself.

Shares in Summerset last traded yesterday at $2.98 and have shed 8.3 percent so far this year, lagging a 6.6 percent gain by the benchmark NZX 50 Index. The stock is rated an average ‘hold’ according to analyst recommendations compiled by Reuters.


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