Losses deepen for McGrath but can new CFO turn the tide?

Written on the 14 June 2019 by Business News Australia

Losses deepen for McGrath but can new CFO turn the tide?

A new CFO will soon fill the void left by the departure of Glynn Wright at listed property company McGrath (ASX: MEA) in March, with Howard Herman set to start in the role on 24 June.

But Herman, who was recently CFO at NASDAQ-listed Australian apparel business Naked Brand Group, will have a tough job on this hands as the company reports continued impacts from challenging market conditions.

In a trading update today, McGrath indicated further losses in the final quarter of FY2019 were expected if weak market trends continued, with key factors being generally lower levels of listing volumes and average sale prices, as well as negative influences from the NSW and Federal elections.

In March the company forecast an EBITDA loss of $4.5 million for the eight months to 28 February, and now for the full year it expects that loss to be in the range of $6-6.5 million. The final result will be announced on 26 August. 

Earlier this month McGrath acquired Sydney Sotheby's International Realty for $1.6 million, while in April it bought former agent John McManus' real estate business LJ Hooker Willoughby/Artarmon on the lower north shore of Sydney for $2 million. 

Trading conditions for the residential sector have continued to be subdued with market transaction volumes down in Sydney, Melbourne and Brisbane by 20.2 per cent, 27.4 per cent and 12.7 per cent respectively.

"The market conditions for FY2019 have been challenging. While we have seen a general improvement in interest and enthusiasm in the market, we are yet to see this translate to an increase in listings," says CEO Geoff Lucas.

"However, with the elections now behind us, there is evidence of rising confidence in the property market and broader economy.

"We are seeing significantly increased buyer engagement at auctions, both from owner-occupiers and investors, buoyed by the recent interest rate cut by the RBA - the first since August 2016, and APRA's decision to lower the mortgage assessment criteria for new loan serviceability."

Lucas emphasises there is certainly more activity in the housing sector, and more favourable conditions are expected to flow through to an improved performance in FY20.

Regarding the new appointment of Herman as CFO, Lucas points to his extensive financial experience in retail, property and public markets as an asset to the business. The new executive was also previously CFO of Speciality Fashion Group, now known as City Chic Collective (ASX: CCX).

His experience in the property sector includes finance roles with Bovis Lend Lease in Sydney and Anglo American Properties in Johannesburg, South Africa.

"As we continue to take advantage of opportunities, Howard's proven track record in corporate transformations and mergers and acquisitions, will be a valuable addition to the senior management team," says Lucas.

"I am thrilled to join the team at McGrath. The company is entering an exciting new phase and I look forward to playing an integral role in its future growth, working closely with Geoff and the Board to execute on our strategies to generate long-term sustainable value for our shareholders," says Herman.

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