AVJennings’ profit sinks after writing off $17.8m from abandoned Queensland housing project

The bottom-line result is 95 per cent lower than the previous year, although after stripping out the impact of the impairment, AVJennings would still have recorded a 44 per cent decrease in net profit after tax to $19.4 million for the year.

The company, which sees Queensland as a key market amid challenging environments in Victoria and New Zealand, announced in May the abandonment of the proposed 3,500-lot Caboolture development, known as the Rocksberg site, to the north of Brisbane.

The company has been progressing development of the site for more than five years, but a significant increase in infrastructure costs since the project was first mooted put an end to the proposal.

The weaker underlying profit result from AVJennings was delivered despite a 12 per cent increase in revenue to $320 million, aided by a 15 per cent increase in the number of lots settled to 874.

Most of these, or 584, were sales to retail customers largely from the group’s projects known as Waterline, Lyndarum North and Aspect in Victoria, Riverton and Cadence in Queensland, and Eyre in South Australia.

Contract signings surged 139 per cent to 830 lots worth a total of $269 million during the year. However, while retail contract signings were up 70 per cent, the pace of growth among retail customers tapered off in the second half due to uncertainty over interest rate movements.

Gross margin from sales fell 8.55 percentage points to 23.2 per cent over the year, impacted by cost pressures and a major slowdown in the New Zealand market.

Despite the mixed performance, AVJennings CEO Phil Kearns describes FY24 as a “productive year” marked by strategic decisions by the group to focus on improving the quality and profitability of its portfolio.

“Our decision to terminate the Rocksberg option, sell the Glenrowan (Queensland) project and other englobo (undeveloped) sites across the portfolio, highlights our commitment to prudent capital management and recycling of capital,” says Kearns.

The exit from Rocksberg has wiped 3,500 lots from the AVJennings development pipeline, pushing it down to 9,871.

The company expects to scale back acquisitions for now, at least “until overall market sentiment and buying conditions generally improve”.

AVJennings last year raised $30.4 million to ramp up production of built-form homes across its land portfolio using Pro9 Global’s energy efficient walling system to fast-track construction of homes. The walls were previously produced in Europe but AVJennings laid plans to establish an Australian manufacturing facility for the products.

“As expected, the Pro9 JV is showing great progress and has potential to transform our business model and revolutionise the industry,” says Kearns.

“Decisions and progress made in FY24 demonstrate our commitment to achieving long-term growth and operational excellence while mitigating the effects of operating in challenging market conditions.”

During the year, the Pro9 Australian manufacturing facility was established on the NSW Central Coast with the first walls manufactured this month and due for installation at AVJennings’ Riverton project in Queensland shortly.

Looking to the year ahead, AVJennings forecasts the Southeast Queensland market to be its strongest in the near term while Victoria and New Zealand remain under pressure.

The company notes the ongoing supply and demand imbalance in the housing market as positives for the group, but the next year will be guided by any changes in the interest rate environment and its impact on consumer confidence.

“We expect FY25 revenue to be roughly in line with the current year with continued pressure on gross margins until the macroeconomic environment improves further,” says the company. “Earnings are again expected to be heavily skewed to the second half.”

While the Pro9 factory has begun construction, the group doesn’t expect this to materially continue to FY25 earnings.

AVJennings is not paying a final dividend.