Slow market

Springfield Properties ‘building only to order’

Innes Smith: decisive action

Springfield Properties is pausing speculative private housing development and building only to order as market conditions remain weak.

The Elgin-based builder said there have been “significantly lower levels” of reservations in private housing due to demand being impacted by continued high interest rates, mortgage affordability and reduced homebuyer confidence, which the board does not expect to materially improve before Spring 2024.

The company is re-entering the affordable homes sector after the Scottish Government modified its housing investment policy and building costs eased.

But the board is now “acutely focused” on managing cash flow and prioritising cash generation to reduce debt.

“Accordingly, the group will now only build a private home once a reservation is secured, which will improve cash generation in this part of this business,” it said.

Shares in the company fell 6p or 9.92% to 54.5p following the statement which accompanied year-end results showing a fall in profit.

During the year, the group focused on tight cost control and took a number of actions to address the uncertain market conditions and reduce the fixed cost base, such as restructuring the acquired Mactaggart & Mickel Homes business to consolidate some of the operations with the existing group, and pausing recruitment and reducing staffing levels in areas most impacted by the downturn.

As a result of these actions, the group has delivered savings of approximately £4m on an annualised basis.

Following the Scottish Government’s introduction of rent controls, the group’s plans for expanding its private rented housing housing activity were withdrawn during the year and remain on hold.

The board said it will not make dividend payments until the bank debt is materially reduced.

Results for the year to the end of May revealed a record year of completions across all house types, up to 1,301 from 1,242 in 2022. Revenue rose 29% to £332.1m.

But operating profit fell to £20m (2022: £21.5m) while statutory profit before tax was also down, coming in at £15.3m (2022: £19.7m) and adjusted profit before tax and exceptional items was £16m (2022: £20.8m).

For FY 2024, the group expects to report adjusted profit before tax of c. £10m-£14m and is planning to reduce net debt to c. £55m by 31 May 2024

It said the long-term fundamentals of the Scottish housing market remain strong with an undersupply of housing across all tenures and greater private housing affordability than the UK as a whole

With a large number of sites with planning already in place, the company said it will be able to quickly accelerate site development when market confidence returns and is well-placed to satisfy pent-up demand.

Innes Smith, chief executive, said: “Against a challenging market backdrop, we delivered our highest level of annual completions and revenue.

“We brought another premium brand into the group through the acquisition of Mactaggart & Mickel Homes, and on favourable payment terms.

“While we were significantly impacted by the build cost inflation, particularly in affordable housing, we took decisive action to address this, resulting in annualised cost savings of £4m.

“Trading conditions have remained tough into the new financial year as private housing reservations continue to be impacted by reduced homebuyer confidence.

‘We will build based on sales and not sell based on build’

– Innes Smith

“We do not expect to see any material improvement in homebuyer confidence before next Spring. Our priority is to maximise cash generation to reduce our debt to ensure that we maintain the value of our business.

“Accordingly, we are pausing all speculative private housing development. We will build based on sales and not sell based on build. We are actively pursuing land sales and will further reduce our cost base where necessary. We are also encouraged by the negotiations we are now having in affordable housing, which has strong cash flow dynamics.

“The fundamentals of our business and our position within the Scottish housing market remain strong. We have one of the largest land banks in Scotland with over 6,700 owned plots, 83% of which has planning permission, and a further 3,255 acres, equating to c. 33,000 plots, of strategic land.

“This is particularly valuable given the current planning difficulties being faced in Scotland.

“In addition, there is an undersupply of housing of all tenures, which is being exacerbated by the current conditions, and which can only be addressed through building new homes. The stability in house prices and the affordability in Scotland underpin the opportunities for medium-term growth.”

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