Simonds Group considers capital injection as an option in challenging times

A major sponsor of The Block and one of Australia’s largest home builders is considering its options, including a capital injection from its largest shareholder, amid a perfect storm of challenges.

One of Australia’s largest home builders and a major sponsor of the renovation television show The Block, the Simonds Group, is considering a capital injection as it faces a prolonged and challenging construction environment.

The Melbourne-based company, that started in 1949 and was ranked in seventh place in the Housing Industry Association largest home builders list this year, faces an uncertain future.

In September, Simonds said it would slash 9 per cent of its workforce after suffering a net loss of $9.7m in the 12 months to June 30 due to rising costs. It has been seeking to realign its cost base and strengthen core operations.

However, the company told the ASX on Monday that the impact of wet weather and flooding, especially in Victoria, supply shortages and materials delivery delays, the labour shortage and interest rate rises to impact on housing demand.

Simonds said it was prudent to investigate options to strengthen the company’s balance sheet to withstand a more “prolonged adverse” trading period.

The board has established an independent committee to consider various options, one of which was a “capital solution” on terms yet to be determined.

The company’s largest shareholder – its founder Gary Simonds – has given an in-principle support to a capital solution.

“The board is confident that additional funding will allow Simonds to continue to operate strategically during this adverse period, including positioning the company to respond to the opportunities presented in the recent federal government budget announcements concerning the new housing accord and a new national housing supply target,” the company told investors.

Prolonged challenging construction environment continues to hurt builders.

Simonds Group has a number of subsidiaries and Simonds Homes is the largest detached home builder in Victoria with operations in NSW, Queensland and South Australia. According to the HIA, it recorded 2376 starts across the country in 2021-22. It remains high profile, especially in Victoria, and this year returned this year as a major sponsor of The Block on the Nine Network.

Despite its ASX listing, the company remains a family affair with founder and largest shareholder Gary Simonds’ son Mark sitting on the board as executive director and his grandson Rhett Simonds is the executive chairman, group chief executive and managing director.

In the past 12 months the construction industry has come under unpredented pressure with household names such as Privium, Condev, Probuild, Oracle Homes and others collapsing.

In May, Australia’s biggest builder Metricon underwent a $30m cash injection from its private owners and later announced a 9 per cent its staff numbers of about 250 across Australia.

Russ Stephens, the co-founder of the Association of Professional Builders, said the industry will continue to come under pressure

“The larger building companies had their equity destroyed by the price increases because they signed so many contracts at the back of 2020 and early 2021, they lost a lot more money than the smaller building companies,” he said. “They’re relying on cashflow because construction is cashflow positive but they’re going to have to get profitable to cover … losses.

“These companies basically have to Peter to pay Paul and when these cashflows slow down then the wheels come off and the tide goes out and we can see who has been swimming naked and it will be those building companies with little or no equity.”

According to the Australian Bureau of Statistics, the residential construction sector recorded its fourth consecutive quarterly decline in building commencements in June. The latest ABS data show a 2.7 per cent drop in total dwelling commencement to 48,078 dwellings.

In 2019, the Queensland Building and Construction Commission briefly suspended the state license of Simonds Group’s wholly owned subsidiary Simonds Queensland Constructions.

The QBCC acted after Simonds failed to show it had enough assets to support its revenue of more than $350m.

The license was reinstated only a few days later and the company blamed the suspension on a “technical … breach”.

The Simonds Group shares closed 9.09 per cent, or 1.5c lower, at 15c on Monday.

Originally published as Simonds Group considers capital injection as an option in challenging times