Release Date: February 24, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lifestyle Communities Ltd (ASX:LIC, Financial) reported a reasonable half-year result in a tough operating environment, slightly above the range stated at the AGM.
- The company has taken proactive steps to manage its balance sheet, including refinancing and restructuring debt to provide additional headroom.
- Encouraging signs of improvement in lead indicators, with face-to-face appointments showing consistent conversion rates.
- Appointment of a new CEO, Henry Ruiz, with extensive experience in property, digital media, and technology sectors, expected to bring strong strategic acumen.
- The company remains committed to its Deferred Management Fee (DMF) model, which supports equity release for homeowners.
Negative Points
- Sales were materially lower than the prior corresponding period, leading to expectations of subdued settlement numbers in FY26.
- High inventory levels and an outsized land bank present challenges, with plans to exit up to three sites to reduce debt.
- The dividend has been paused to preserve capital until there is more visibility and confidence in sales rates.
- Resale volumes have been impacted by market conditions, resulting in a 25% reduction in DMF compared to the second half of FY24.
- Economic conditions and adverse media coverage have contributed to a slowdown in sales rates, creating a challenging environment for the company.
Q & A Highlights
Q: How does Lifestyle Communities plan to manage its inventory reduction strategy, and will there be a halt in development?
A: David Blight, Non-Executive Independent Director, explained that while they won't completely stop building, they will slow down the build rate significantly. This approach ensures that construction activity continues, albeit at a reduced pace, to avoid the impression that everything has halted. The strategy will be calibrated on a site-by-site basis.
Q: Can you quantify the discounting being done to clear inventory compared to prices 12 months ago?
A: David Blight noted that the discounting is project-specific and not severe. They have rolled back some price rises to mirror previous sales and are monitoring prices relative to the median house price in each catchment. The gross margin has reduced by about five basis points, indicating the level of discounting.
Q: What is the expected timeline for the VCAT hearing resolution regarding the DMF model?
A: David Blight stated that the timeline is uncertain as it depends on the VCAT member's decision. They hope for a resolution within three to six months post-hearing, but this is not guaranteed.
Q: How is the slowdown in volumes affecting Todd Devine, given Lifestyle Communities is a large part of his business?
A: David Blight acknowledged the industry-wide impacts but noted that Todd Devine has adjusted his business accordingly. Todd has diversified his business streams and remains supportive, ensuring he will be ready when Lifestyle Communities ramps up again.
Q: What are the terms of the new CEO's employment agreement, especially in the event of a change of control?
A: David Blight explained that the CEO's contract is ongoing and includes a clause for compensation if his role materially changes without agreement, capped at one year. The CEO will participate in the STI and LTI programs but has no upfront equity requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
