McGrath halves full-year earnings in new trading update

McGrath has downgraded its earnings following a review of operations by new chief executive Geoff Lucas and the new board.

Based on current performance, earnings before interest tax depreciation and amortisation (EBITDA) for the full year will be between $5 million - $5.5 million before one-off costs, half of the EBITDA projected at the end of January when the board including chairman Cass O'Connor and former chief executive Cameron Judson stepped down.

At that time, McGrath said it expected to make EBITDA of between $10.6 million - $11.6 million before one off items.

The new EBITDA forecast was more in line with the current run-rate and historical performance, the company said. It also revealed that EBITDA for the eight months to February was $720,000.

After about $4 million in one-off costs, reported EBITDA for the full year will be around $1 million to $1.5 million.

"It is important that the market is aware of the right baseline financial position that appropriately reflects the current status of the McGrath business and trading conditions," Mr Lucas said.

Reduced sales volumes

"The impact of reduced sales volumes has affected the company more significantly than the prior forecast contemplated. We are pleased that this period is behind us, and are encouraged by current activity levels generating improved results."

"At the core of the McGrath business is a high quality and well respected real estate agency with a market leading position."

The more optimistic update at the end January had been met with scepticism by those close to the business, given that the best months for residential sales and auctions were in the first half of fiscal year. The current update brings sets the company on a more achievable earnings trajectory, based on its reduced capacity and slower but steady market conditions.

"The cost-cutting program put in place late last year is starting to generate the financial benefits expected, and we are seeing an uplift in performance so far this month, with expectations of continued rebuilding to the end of this financial year," Mr Lucas added.

Recruiting drive

The company had already seen a rise in listings in Sydney's eastern suburbs - where McGrath mostly operated in - of between 18 to 52 per cent for the two weekends leading up to Easter.

The company's chief auctioneer, Scott Kennedy-Green, said the "low volume" tide had turned, driven by a rise in activity in the downsizer market.

It is also on track to capture more new off-the-plan apartment project marketing business. It is selling Chinese-backed developer HPG's new luxury apartment project One Sydney Park in Alexandria, in innercity Sydney and Goldfields's Brisbane project, Hayfield.

The McGrath board led by Peter Lewis said its next steps were to implement a better business and office culture to support its agents, recruit more agents and franchisees into the network, and roll out more customer service development and training.

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