Simonds Group seeks $25.5m equity raising to shore up balance sheet in tough times

One of Australia’s largest residential builders with projects in three states needs $25m cash to keep it trading through ‘adverse’ conditions in the construction sector.

One of Australia’s largest home builders the Simonds Group is seeking a $25.5m equity raising as it faces a prolonged and challenging construction environment.

The Melbourne-based group told the ASX that the pro rata traditional renounceable entitlement offer to meet conditions imposed by its lender to restructure its debt agreement and support its balance sheet and working capital requirements.

The company’s largest shareholder – 87-year-old founder Gary Simonds who owns 47.5 per cent of the business – will underwrite the crucial capital raising.

Two other major shareholders, McDonald Jones Homes and FJP, were approached prior to the announcement and said they were “not prepared to commit” to taking up their entire entitlement.

Simonds chief executive Rhett Simonds – Gary Simonds grandson – said the builder has been dealing with a range of factors that have adversely impacted the business including prolonged wet weather, flooding, supply chain shortages, delivery delays and reduced availability of skilled labour.

“These factors have delayed the improvement of margins, as the company must first trade through the older, lower margin contracts in its pipeline and we now expect adverse conditions to continue for longer than originally anticipated,” he said.

Simonds will issue new shares at 12¢ to existing shareholders in a 13-for-9 pro renounceable entitlement offer. That represents a 28.8 per cent discount to the 30-day volume weighted average price of 16.8¢ and a 4 per cent discount on Thursday’s closing price of 12.5¢.

Simonds Group is seeking a $25.5m equity raising as it faces a prolonged and challenging construction environment.

A major sponsor of the renovation television show The Block, the company that started in 1949 has a number of subsidiaries including Simonds Homes which 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 making it the seventh largest builder in the country.

However, on Friday Simonds released unaudited figures showing that while revenue in the first quarter of 2022-23 rose 16.4 per cent to $199.5m from the same period a year earlier, its gross profit margin fell to 16.6 per cent from 22 per cent. Its net after-tax loss increased to $5.8m from $1m over the same period.

In September, Simonds said it was would slash 9 per cent of its 750-strong workforce after suffering a net loss of $9.7m in the 12 months to June 30 due to rising costs.

The Simonds board announced on November 7 that it was exploring various capital solutions to strengthen the company’s balance sheet to allow it to withstand a more prolonged adverse trading period.

Challenging conditions in the construction sector continue.

Rhett Simonds said with the continued availability of the overdraft and borrowing facilities and net proceeds of the offer he expects the company will have pro forma liquidity of at least $44.2m to sustain it through what is expected to be a more prolonged adverse trading period.

“Once the adverse conditions subside, the company will be able 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 as well as work through its existing pipeline of contracts,” he said.

Ord Minnett is acting as lead manager and Gilbert and Tobin is acting as legal adviser to the offer.

Over the past 12 months the construction industry has come under unprecedented pressure with builders such as Privium, Condev, Probuild, Oracle Homes collapsing. Earlier this month, Perth-based ABN Group announced a $42.5m after-tax loss for the year to June compared to $19m in the previous 12 months.