This article is from the Australian Property Journal archive
INTEREST rate movements play the lead role in the outlook for home builder AVJennings, which posted strong increases in contract signings and settlements in FY24, but had nearly all of its annual profit wiped out by the writing off of a Queensland project.
Revenue grew 12% to $319.7 million year-on-year, while gross margin decreased 18% to $74.3 million.
Profit before tax was down 95% to $1.6 million largely due to its decision to terminate its option at the Rocksberg project in Caboolture, Queensland. The company wrote off capitalised development expenses and payments to reimburse the landowners’ transaction costs at a total expense of $17.8 million.
AVJennings had flagged the write-off after terminating its option at the land, north of Brisbane in May, as rising development and infrastructure costs made the project unworkable. The company had spent several years progressing the Rocksberg Development Approval as part of unlocking the option with finalisation expected in late in calendar 2024.
Normalised profit before tax was $19.4 million, down 44%.
Directors decided not to declare a dividend for the full year, in line with board policy to pay dividends from NPAT. However, directors anticipate a return to a normal dividend cycle in 2025.
AVJennings recorded a 15% uptick in lot settlements, to 874, with 584 of those related to retail lots. Key retail contributors to the figure settlements were Victorian projects Waterline, Aspect and Lyndarum North, Eyre in South Australia, and Queensland pair Riverton and Cadence, with an overall skew towards land settlements.
The increase was also driven by capital management initiatives to resolve legacy balance sheet matters during the year, it said.
Contract signings leapt by 139% to 830 lots, valued at $269 million.
“Retail contract signings were up 70% with the notable improvement in contract exchanges highly correlated with periods of interest rate stabilisation, leading to an improving outlook and price growth in some areas,” AVJennings said.
“The level of retail contract signings slowed through the second half of FY24 as uncertainty around the outlook for interest rates increased due to persistent inflationary pressures and general market commentary.”
Heading into FY25, AVJennings said it “notes the market’s supply and demand imbalance, and lead indicators which are slowly improving”.
South-east Queensland is expected to continue to be the company’s strongest market in the near-term, while Victoria and New Zealand will “remain challenging”.
“Looking ahead, the next 12 months will be highly impacted by expectations for, or changes in, interest rates which is highly correlated to purchaser confidence.
“We expect FY25 revenue to be roughly in line with the current year with continued pressure on gross margins until the macroeconomic environment improves further. Earnings are again expected to be heavily skewed to the second half.”
Customer enquiry levels were up 12% and have normalised to pre-COVID levels. More people are enquiring about built-form housing and turnkey options. A “significant improvement” in enquiry quality has led to a circa 44% increase in the conversion rate.
A gross margin percentage at 23% in FY24 was affected by ongoing cost pressures in most markets, a “significant” slowdown in the New Zealand market and the impact of the capital management initiatives.
During the year, the Pro9 Australian manufacturing facility was established on the NSW Central Coast as part of the company’s strategy to offer home building efficiencies beyond traditional construction methods. The factory recently began production, with the first walls manufactured this month and due for installation at AVJennings’ Riverton project in early September.
Walls for the first 80-plus homes from the Australian factory are slated to be homes for AVJennings’ customers. The walls were previously imported from Europe. Twenty-four Stellar Collection homes have been completed or are under construction, featuring the Pro9 walls.
The company said it has successfully erected external walls for a single-storey home in one day and late in FY24, erected the full structure for six double-storey attached terrace homes at its Elderslie community in Sydney in 15 days.
