Aussie real estate has suffered on multiple fronts over the past year. Rising interest rates, inflation, labour shortages, lack of materials (plus the high costs) and unfavourable weather gave birth to a rather bitter financial cocktail for companies, like home building company Simonds Group (ASX: SIO).

In FY23, its revenue saw a minor uptick of 5.1% to $722.4 million, thanks to site start values of jobs and higher productivity. In December 2022, Simonds successfully raised $25.5 million to take advantage of strategic opportunities. At the same time, it undertook many cost reduction initiatives, re-aligning the employee base and overheads.

Simonds’ loss after tax increased by 92.6% on FY22 to $23.5 million. Operational challenges and investment in new initiatives brought about an EBITDA loss of $11.4 million, falling from a profit of about $4 million in FY22. The Company’s profit after tax from discontinued operations was down 96% to just $100k.

The reason behind its losses falls in line with what most home building companies had to deal with in FY23. Prolonged weather events, including floods, in H1, continued inflationary pressures of supply and trade, and labour shortages across the industry, had limited ability to be recouped in a fixed price contract environment.

Moreover, CEO and Executive Chairman, Rhett Simonds, feels that this trend is not going away any time soon. He said, “The higher interest rate environment and cost of living pressure will continue to impact residential customers in the near term. Simonds’ investment in new channels during FY23 will allow the Group to play a meaningful role assisting customers to complete their homes following builder insolvencies as well as develop solutions aligned with State and Federal Government investments in affordable housing.”

Simonds Homes recorded 1,951 site starts for the period, down by 425 on FY22. The Company saw higher project cancellations because of the higher interest rate environment and subsequent challenges with affordability. 

To address these challenges, Simonds raised capital and kicked off some strategic initiatives to counter further emerging risks. These initiatives included the investment in resources to support the new channels to market and various cost reduction initiatives aimed at right-sizing the overhead cost base. 

Even as the Company battles it out in the home building space, there is something to be said for Simonds’s resilience at a time when most construction companies are collapsing. From Porter Davis to Probuild, Rescon Builders, Harmac Group and more—many builders have entered voluntary administration, waving the white flag from beneath the debris.  

Simonds added, “Despite the challenges of FY23, Simonds proactively invested in several initiatives in the second half to set the business on a course for a material improvement to the trading performance. The Group remains in a strong financial position with healthy liquidity and a positive outlook ahead. The equity raised during the year, coupled with the strategic initiatives to diversify channels to market and reduce overheads have created a solid foundation for the Group.”

The current environment has resulted in reduced operating cash flows of $4.09 million, a deficit of $2.33 million on FY22. Now, with increased hiring and supply costs battling uncertain demand, Simonds is cutting costs and hedging its bets on its diversification strategy.