Improving outlook

Springfield ‘confident’ despite 80% profits plunge

Innes Smith: strong fundamentals

Springfield Properties, Scotland’s only stock market quoted housebuilder, said it remains confident for the year ahead despite reporting an 80% plunge in half-year pre-tax profits.

Private housing demand for the six months to the end of November “continued to be impacted by high interest rates, mortgage affordability and reduced homebuyer confidence”, it said, but noted that the fundamentals of the business remain strong.

Profit before tax fell to £1.2 million from £5.9m in the corresponding period a year earlier, on a 25% fall in revenue to £121.7m from £161.9m.

It completed 432 homes, down from 673, in line with management expectations, as it entered the year with a lower forward order book due to challenging market conditions.

The company has focused on cost control, cutting debt and building only when reservations have been made. It has also sold land to accelerate cash realisation from its large land bank, with £18m of deals agreed during and post period, of which £15m is expected to be received in the first half of 2024.

Springfield has re-engaged with affordable housing providers following the Scottish Government’s decision to increase the affordable housing investment benchmarks. Affordable housing contracts totalling c. £40m have been signed since 31 May 2023 for first delivery in the first half of this year.

It has seen signs of recovery in private housing reservation rates with a return in homebuyer confidence and said demand remains strong in affordable housing, with the group confident of signing further contracts in the near term.

The Scottish Government’s emergency rent cap is due to end on 1 April, “which offers the prospect of a return of investment in Scotland by private rented sector providers”, it said.

Build cost inflation is continuing to reduce and is stabilising at about 2.5%, while the average house price in Scotland is expected to grow by 1.5% in 2024.

The board is pausing dividend payments until the bank debt is materially reduced.

Innes Smith, chief executive, said: “Trading for the first half of the year was in line with our expectations, and reflects the challenging market conditions experienced across the industry.

“To mitigate the impacts of the downturn and ensure we are in a stronger position for when trading conditions recover, we took decisive actions to maximise cash generation and reduce our debt by year end. A key element of this was actively pursuing profitable land sales.

“We are pleased to have agreed sales worth £18m so far and we expect to conclude negotiations for further sales in the near term. 

“Looking ahead, we are encouraged by the improvement in private housing reservations that we have experienced in recent weeks and the signs of increasing homebuyer confidence, as has been reported by other housebuilders.

“We are receiving strong demand in affordable housing – and have already signed contracts worth c. £40m since 31 May 2023.

“We are also hopeful that the ending of the Scottish Government’s emergency rent cap in April 2024 will enable a return of PRS activity. Alongside this, build cost inflation is continuing to reduce and is expected to stabilise at low levels. We are on track to meet our year-end target for net bank debt, which will continue to reduce in the next financial year.     

“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 6,421 owned plots, 86% of which has planning permission, and a further 3,217 acres of strategic land.

“There is an undersupply of housing of all tenures, which can only be addressed through building new homes. As a result, while there remains uncertainty in the near term, with our position having been strengthened through the decisive action that we have taken, we remain confident in Springfield’s prospects.”

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