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National homebuilder Simonds Group (ASX: SIO) has achieved a $27.3 million turnaround in bottom-line earnings over the past year after posting a $4 million net profit for FY24, leading the company to declare that despite tough market conditions there is scope for optimism in the residential construction sector over the longer term.
Simonds Group has managed to maintain the profit momentum achieved in the first half when it bounced into the black to the tune of $2.5 million. The $4 million full-year result compares with a $23.3 million loss in FY23, which was its second consecutive year of annual losses.
But as with the interim result, the FY24 full-year net profit was achieved despite a fall in the number of builds which saw group revenue slip 8.1 per cent to $663.5 million.
Simonds made 1,772 housing starts during the year, down 179 compared with FY23. However, this was offset by higher margins as the group’s older, low-margin jobs under construction were settled.
Simonds Group CEO David McKeown points out that the underlying EBITDA result of $23.3 million represents a $34.7m turnaround year-on-year amid tough market conditions.
“This is the result of the successful implementation of our strategic initiatives, which include the expansion in alternative channels to market and a disciplined focus on cost management,” says McKeown.
“The positive result, which has been delivered whilst also investing in new capabilities, products and brand initiatives during 2H FY24, has set the foundation for the group to further improve profitability and growth into the future.”
While McKeown expects the residential market to “remain challenged until cost-of-living pressures moderate and affordability and consumer confidence improve”, he remains upbeat about the group’s prospects.
“Underscoring the importance of our new, diversified market offerings, we see a number of emerging opportunities in our Knock Down Rebuild, Speculative Build, Medium Density and Social & Affordable housing channels as both wholesale and retail customers seek alternative housing solutions,” he says.
Simonds Group’s result reflects signs of a recovery in the building sector and comes on the heels of Australia’s largest homebuilder Metricon announcing EBITDA of $42.2 million in FY24 as it returned to profitability during the year.
Simonds Group’s latest earnings result was achieved via improved cost controls, as well as higher margins that were achieved through alternative sales channels and as the group closed out older low-margin jobs.
As a result, Simonds says it has created a more diversified sales mix for its products which includes working with government and developers to support affordable housing initiatives.
“Display revenue reduced as the group rephased the settlement of new display homes as it invested in new homes reflecting the upgraded construction standards and aligning to the new product released to the market,” says the group.
Simonds finished FY24 with a healthy cash balance of $26.6 million, while net assets rose to $18.5 million, up by $4 million from a year earlier.
“The group remains optimistic about the longer-term trading performance given improved business fundamentals and the emergence of opportunities through alternative sales channels,” says Simonds.
“Whilst we acknowledge the short-term challenges of retail demand and affordability negatively impacting the residential market, we note the ongoing undersupply of homes nationally presents a significant longer-term opportunity for the group.”
Simonds Group is not paying a final dividend, with the latest earnings to be poured back into rebuilding the company’s asset base.
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