Aveo Group discusses strong growth and how to maintain it

Interviews

Transcription of Finance News Network Interview with Aveo Group (ASX:AOG) CEO, Geoff Grady
 
 
John Treadgold: Aveo Group (ASX:AOG) is a revitalised property management company, now focused on the aged care community and services sector. I’m John Treadgold and joining me today at the ASX Investor Series is the Company’s CEO, Geoff Grady. Geoff welcome to FNN.
 
Geoff Grady: Thank you John, it’s a pleasure to be here.
 
John Treadgold: Let’s start with your first half results, profits surged and sales were at record levels. What’s the strategy and what contributed to the results?
 
Geoff Grady: It was a good set of results; our underlying profit of $24 million was up fully 26 per cent on the previous half. And what it was really about was built on the strength of our retirement sales. We had 370 retirement sales in the period. That was a record high for us and importantly, they were built on increased margins – improved increasing margins. So we’re very proud of that result, the team worked very hard on it.
 
John Treadgold: The Company began a major transformation in 2013 to focus on the aged care sector. How’s the progress going?
 
Geoff Grady: It’s progressing very well. We’re focused on the retirement village sector in whole now. No other listed company in Australia is focused on that space. And there are three important things that are part of our strategy. Firstly, we’re improving the results of our established villages. We aim to produce by way of development, more villages over time.
 
And as importantly for our consumers, what we’re doing is adding improved and more comprehensive care offerings into what we’re delivering in our villages. And so in the background, what we’re also doing is realising all of our non-retirement assets, fully $800 million to be realised over time, so that we can put all of that into our retirement growth projects.
 
John Treadgold: We know that cost retirement and aged care is a very hot sector. What sets Aveo Group apart from other players that are entering the market?
 
Geoff Grady: We have our customers for longer, typically our average customers come to us in their mid-seventies. And depending on their levels of care, they can be there for many, many years. Typically they come to us after they’ve sold their family home. So we’re not reliant as the aged care sector is, on Government funding per se.

A lot of our income, in fact by far the majority of our income, comes from the private sector.So we see ourselves as touching the customer base for longer, having more points to generate profit along the way and frankly, having a more rewarding relationship with our customers.
 
John Treadgold: A significant part of your business involves developing and acquiring retirement property. Where are you concentrating your activity, and what impact are record property prices having on your purchase decisions?
 
Geoff Grady: So we’ve got a pipeline of about 2,800 units at the moment, and we’re soon to announce some acquisitions that will add fairly significantly to that. We’re steadily stepping up our production from 60 units in the current year, to over 500 by the time we get to FY18. And so by the time even when we get to FY18 we’ve delivered those 500, we’ve still only exhausted about a third of our existing pipeline and about a sixth, after the new acquisitions.
 
So with the strength of our balance sheet, what that opens up is the ability to acquire properties in a counter-cyclical way. So we very much want to be in New South Wales, we’re not at all or more strongly in New South Wales. We’re not at all in Western Australia, those will be two of our focuses. But the counter-cyclical opportunities is really the one that we’re focused on.
 
John Treadgold: You recently announced the new My Aveo Way contracts for residents. Can you explain that offering?
 
Geoff Grady: So My Aveo Way came about because of customer feedback. And this is a very important thread through our business overall, listening to what the customers have to say. So out of the survey of over 5,000 residents last year, there were a number of touch points that concerned customers in retirement villages, generally. And they related to the way they come into the villages and the way they exit. So we set about engineering a new relationship, a new contract with our residents that solves some of those problems for them.
 
Giving them a 21 day cooling-off period, a 90 day settling-in assurance and then on the way out, they don’t have to worry about when their property will sell. We’ll buy it back after certain periods. We don’t charge them any selling fees, or any marketing fees and they don’t have to worry about refurbishing their units. And we know already that customers will accept those, as addressing part of their concerns.
 
John Treadgold: Looking forward for the next 12 months. What are the Company’s priorities?
 
Geoff Grady: Really the big focuses are continuing to listen to our customers. But in terms of investment returns, focusing on getting an eight per cent return on our retirement assets by FY18. And of course, the intermediate goal is getting a return of 6 to 6.5 per cent by the time we get to FY16. And we’re firmly on track to deliver exactly on those returns.
 
John Treadgold: Geoff, thank you for joining us on FNN.
 
Geoff Grady: Thank you John, thanks for the opportunity to talk about Aveo and where it’s going.
 
 
Ends

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