Simonds Group swings back into profit despite a fall in house builds

Simonds Group swings back into profit despite a fall in house builds

Photo via Simonds Group Facebook

Homebuilder Simonds Group (ASX: SIO) has swung back into the black for the first half of FY24, reporting a $2.5 million net profit despite a fall in revenue as building starts declined.

The profit has been built on five consecutive months of positive net profit after tax (NPAT) and follows two years of NPAT losses - including a $12.7 million deficit in the previous corresponding period.

CEO David McKeown says the positive earnings result reflects ‘the impact of hard work undertaken over the past 12 months to improve profitability and put this business on a more sustainable footing’.

He says the turnaround has been aided by lower operating costs and expanding margins.

“This is further underpinned by a more diverse revenue mix following our recent investments into new channels to market,” McKeown says.

The half-year profit was delivered on a $45.2 million fall in revenue to $337 million, largely due to a lower number of jobs on site.

The company says that retail starts softened over the year due to higher interest rates and inflationary pressures on consumers.

Simonds made 962 site starts over the December half, which was 137 lower than the previous corresponding period.

“A reduction in starts for the period was expected by management given the weaker macroeconomic environment,” the company says. “Offsetting lower site starts, Simonds saw continued improvement in both site-start value and margin of jobs started in the period.”

After hinting at a profit turnaround last October, Simonds Group reveals that the rebound has been supported by the company ‘working through the tail of older low-margin jobs in the retail channel’ along with the revenue contribution from alternative sales channels.

Buoyed by a strong performance in January, Simonds has given a positive outlook ahead due to the improved margin profile of work in progress, improving retail demand and a continued focus on cost improvement.

“We see a number of leading indicators supporting an increase in retail demand although caution that affordability and consumer confidence in the sector are likely to remain challenged in the short term,” says McKeown.

“In addition to further embedding our margin improvement initiatives in the second half, we will also continue to invest in our product range and brand positioning and look forward to releasing this to the market in the next few months.”

Simonds says it is working to embed its newly rolled out channels and nurture ‘several commercial partnerships to further complement the retail channel’.

The company is banking on confidence improving among new home buyers and investor amid signs of inflation easing and interest rates stabilising.

Simonds Group is not paying an interim dividend.

The company’s shares were trading almost 13 per cent higher at 22c at 2.56pm (AEDT).

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