REG - Springfield Props. - Final Results and Publication of Annual Report
20/09/2023 12:45
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RNS Number : 0997N Springfield Properties PLC 20 September 2023
20 September
2023
Springfield Properties plc
("Springfield", the "Company", the "Group" or the "Springfield Group")
Final Results and Publication of Annual Report
Springfield Properties (AIM: SPR), a leading housebuilder in Scotland focused
on delivering private and affordable housing, announces its final results for
the year ended 31 May 2023.
Financial Summary
2023 2022 Change
£m £m
Revenue 332.1 257.1 +29%
Private housing revenue 253.4 174.4 +45%
Affordable housing revenue 53.9 64.3 -16%
Contract housing revenue 19.7 16.5 +19%
Other revenue* 5.1 1.9 +168%
Gross margin 14.5% 16.8% -230bps
Operating profit 20.0 21.5 -7%
Adj. operating profit** 20.7 22.6 -8%
Profit before tax 15.3 19.7 -22%
Adj. profit before tax** 16.0 20.8 -23%
Basic EPS (p) 10.19 14.74 -31%
Adj. basic EPS** (p) 10.74 15.63 -31%
Net debt*** 67.7 38.1 -78%
* Includes land sales of £3.7m (2022: £0.2m)
** Adjusted to exclude exceptional costs of £0.7m (2022: £1.1m) (See the
Financial Review for further detail)
*** Bank borrowings plus long-term obligations under lease liabilities plus
short-term obligations under lease liabilities less cash and cash equivalents
Operational Summary
· Record year of completions, which increased to 1,301 (2022: 1,242)
· Strong growth in private housing, reflecting acquisitions of Tulloch
Homes and Mactaggart & Mickel Homes and organic growth despite challenging
market backdrop
· Significant impact from build cost inflation, particularly on
fixed-price contracts in affordable housing, affecting margins across the
Group
· Strategic decision taken to pause entering new long-term
affordable-only housing contracts due to inflationary environment; post year
end, the Group has recommenced engaging with providers following the Scottish
Government increasing the affordable housing investment benchmarks
· Completed delivery of first contract for private rented sector
("PRS") housing, however plans for further PRS housing were withdrawn
following the Scottish Government's introduction of rent controls
· Decisive action taken across the business to address the market
conditions, resulting in annualised cost savings of £4.0m, which will benefit
the Group in the new financial year
· Acquired the Scottish housebuilding business of Mactaggart &
Mickel Group Ltd ("Mactaggart & Mickel Homes"), a premium brand
housebuilder, on favourable payment terms
· Total owned land bank of 6,712 plots, 83% with planning permission,
and strategic options over a further 3,255 acres, equating to c. 33,000 plots
o One of the largest land banks in Scotland, in areas of high demand and
with a low cost per plot, underpins the Board's long-term confidence
o Large owned land bank provides asset for cash generation
· Progress made against the first-year objectives set within the
Group's ESG strategy that was published during the year
Current Trading & Outlook
· 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
· Secured additional £18.0m term loan and 12-month extension to
overdraft facility to ensure sufficient headroom in the short-term
· The Board has accordingly adopted a strategy focusing on maximising
cash generation in order to reduce the Group's debt
o The Group will carefully manage working capital and curtail speculative
private housing development by only commencing building homes when they are
reserved
o The Group will actively pursue land sales in order to accelerate cash
realisation from its large land bank
o The Board will not make dividend payments until the bank debt is
materially reduced
· The Group has recommenced engaging with affordable housing providers,
with contracts signed on 31 May 2023 for £9.7m, another post year end for
£8.1m and 13 currently under negotiation
o Affordable-only housing contracts have strong cash flow dynamics and high
revenue visibility
· Cost price inflation of materials has fallen to below 5% and the
Group is experiencing some price reductions
· Consequently, 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
· 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
Group will be able to quickly accelerate site development when market
confidence returns and is well-placed to satisfy pent-up demand for
high-quality, energy efficient housing in attractive locations across the
country
Innes Smith, Chief Executive Officer of Springfield Properties, commented:
"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 £4.0m.
"Trading conditions have remained tough into the new financial year as private
housing reservations continue to be impacted by reduced homebuyer confidence.
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. We have an excellent reputation of offering high quality, energy
efficient homes in desirable locations in key housing markets. 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."
Enquiries
Springfield Properties
Sandy Adam, Chairman +44 1343 552550
Innes Smith, Chief Executive Officer
Singer Capital Markets
Shaun Dobson, James Moat, Oliver Platts +44 20 7496 3000
Gracechurch Group
Harry Chathli, Claire Norbury +44 20 4582 3500
Results Investor Webinar
Sandy Adam, Chairman, Innes Smith, Chief Executive Officer, and Iain Logan,
Chief Financial Officer, will be presenting to retail shareholders via a
webinar hosted by Equity Development at 8.30am on Thursday 21 September 2023.
Investors can register their attendance for the webinar: here
(https://www.equitydevelopment.co.uk/news-and-events/spr-fy23-investor-presentation-21sept2023)
.
Operational Review
During 2023, the Group delivered its highest number of annual completions, at
1,301 (2022: 1,242) - securing its position as one of the top three
housebuilders in Scotland. This was driven by the Group's private housing,
primarily due to the contributions from Tulloch Homes and Mactaggart &
Mickel Homes, which were acquired in H2 2022 and at the start of the year
respectively. Importantly, despite reduced homebuyer confidence resulting from
rising mortgage rates and cost-of-living challenges, which peaked around the
time of the UK Government's mini-budget, slowing private sales activity, the
Group also delivered underlying organic growth in private housing.
Significant build cost inflation particularly impacted affordable housing and
the Group's gross margin due to the fixed-cost nature of contracts in
affordable housing as well as the Scottish Government not revising the
affordable housing investment benchmarks to take account of inflation. In
addition, there was an increase in overheads due to the acquisitions.
Accordingly, the Group took the strategic decision to pause entering new
long-term affordable-only contracts. However, post year end, with the
affordable housing investment benchmarks having been increased and a reduction
in cost price inflation, the Group is now reengaging with affordable housing
providers.
Following the Scottish Government's introduction of rent controls, the Group's
plans for expanding its PRS housing activity were withdrawn during the year
and remain on hold.
The Group took a number of actions, as described below, to address these
conditions to carefully manage its activities to limit exposure while seeking
land sales where terms are favourable to support the balance sheet.
Decisive Response to Market Conditions
To address the uncertain and difficult market conditions, Springfield took
decisive action during the year alongside maintaining tight cost control. The
Group halted entering new large long-term affordable housing contracts, as
described further below, and adopted a cautious approach to new site launches
in private housing, including undertaking 'soft launches' to test the market
before making further investment into site infrastructure. Land buying
activity was reduced and a land sale of £3.7m was completed. Recruitment was
paused and staffing levels were reduced in areas most impacted by the market
downturn as well as where synergies were identified across the Group. As a
result of these actions, the Group has delivered savings of approximately
£4.0m on an annualised basis.
Since year end, the Group has continued to closely monitor the economy and
buyer behaviour in both the housing and land market and carefully manage its
activities to limit exposure in the slower sales environment. With private
housing reservations remaining subdued and the uncertainty around when demand
will improve, 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. The Group is actively seeking
land sales, on favourable terms, in order to accelerate the realisation of
cash from the Group's large land bank - with the target of selling 800-1,000
plots within two years. The Group will also take action to further reduce its
cost base where necessary and has paused the payment of dividends until debt
has been materially reduced.
Through these actions, the Group will limit its exposure to the uncertain
conditions in the short term while maximising cash generation to reduce debt
and thereby be in a stronger position for when normalised demand returns. This
is further supported by having one of the largest land banks in Scotland with
6,712 owned plots - 83% with planning permission - and strategic options over
a further 3,255 acres, equating to c. 33,000 plots.
Land Bank
During the year, the Group strengthened its land bank with the acquisition of
Mactaggart & Mickel Homes. This comprised a total of 701 plots in highly
desirable locations within the Central Belt of Scotland and strategic options
over a further c. 2,300 acres.
At the same time, the Group continued to realise value from its large,
high-quality land bank with the sale of land to a housebuilder. The Group is
actively seeking further opportunities for land sales where the terms and
price are desirable and is currently in discussions with a number of national
housebuilders about a selection of its sites. The slowdown across the industry
has had a corresponding impact on the land market, however the Group expects
this position to change in the near term and the Group will be well placed to
benefit from this pent-up demand.
Land buying activity was significantly reduced in response to the current
market conditions. In addition, the Group made the decision to no longer
pursue Gavieside in Livingston, a site of 2,500 plots without planning
approval, that had previously been identified as a further Village
development. Having explored various options, the Group concluded that, under
current market conditions and with a difficult planning environment, it would
be prudent to reduce cash outflows and that its resources will be better
utilised by focusing on its sites that are more advanced. Accordingly, the
Group no longer has the Gavieside site under option.
At 31 May 2023, the Group had 6,712 owned plots and strategic options over a
further 3,255 acres, equating to c. 33,000 plots.
Of the owned land bank, 83% has planning permission (including detailed and
outline planning), which provides an asset for cash generation. The gross
development value of the owned land bank at 31 May 2023 was £1.9bn.
Approximately 22% of the land under strategic option is contracted and c. 14%
has planning permission.
At year end, the Group was active on 50 developments (31 May 2022: 51 active
developments) and during the year 16 developments were completed and 15 new
active developments were added to the land bank (of which 7 were under
Mactaggart & Mickel Homes).
Private Housing
The number of private home completions increased by 21.6% to 866 (2022: 712),
which primarily reflects the contributions from Tulloch Homes and Mactaggart
& Mickel Homes.
The challenging market backdrop impacted reservation rates as increased
mortgage rates combined with ongoing cost-of-living pressures reduced
affordability and homebuyer confidence. In particular, there was a sharp
reduction in sales levels following the UK Government's mini-budget in
September 2022, which remained low for a three-month period. While there was
recovery in January to May 2023, the forward order book at year end was below
that of the previous year.
The Group saw a further softening in demand following the Bank of England
increasing interest rates to 5% towards the end of June 2023. Sales levels
remained low over the summer weeks, with a traditional seasonal dip during the
school holidays. Since schools in Scotland reopened in the middle of August,
reservation rates have continued to be significantly below the levels usually
experienced at this time of year. As a result, and as described further above,
the Group has taken the decision to significantly curtail its development
activities and only build homes when a reservation is secured.
The average selling price ("ASP") for private housing during the year was
£293k (2022: £245k). This reflects the contribution from Mactaggart &
Mickel Homes, which has higher selling prices than the rest of the Group, as
well as a general increase in sales prices across the Group's brands. This
served to mitigate some of the build cost inflation in private housing during
the year. As previously stated, private house price growth is no longer
anticipated in the short term, however Springfield is pleased to note that
selling prices have remained stable across the Group's developments post year
end, supported by the established reputation of the high quality of its
brands. This also reflects the affordability of the market in Scotland (see
'Markets' section below) as a result of the greater affordability in Scotland
and undersupply of housing.
As at 31 May 2023, the Group was active on 32 private housing developments (31
May 2022: 31), with 9 active developments added during the year, of which 4
were from Mactaggart & Mickel Homes, and 8 developments completed. In
total, as at 31 May 2023, the owned private housing land bank consisted of
5,075 plots (31 May 2022: 4,605), of which 86% had planning permission.
Village Developments
Springfield Villages are large, standalone developments that include
infrastructure and neighbourhood amenities. Each Village is designed to
deliver approximately 3,000 homes, primarily for private sale, but also
include affordable, and at Bertha Park, PRS housing, with ample green space
and community facilities.
The Group has three Villages that are well underway and already home to
thriving communities: Dykes of Gray, Dundee; Bertha Park, Perth; and Elgin
South (formally 'Linkwood Village'), Elgin. Post year end, in August 2023, a
section 75 agreement was reached with Stirling Council for 3,042 homes at
Durieshill. The Village was granted planning in 2019 and is believed to be the
largest detailed planning consent to have been granted in Scotland to date.
With the section 75 now in place, the Group has all consents required to
commence work on site, which is expected in 2024. As noted above, during the
year, the Group decided to no longer pursue Gavieside, a site in Livingston
that had been identified as a further Village, in order to reduce cash
outflows and focus resources on more advanced sites.
While not immune to the broader market trends, demand for Springfield's
Villages remained high, driven by the desirability of larger family housing,
with local amenities and commuting distance to major cities. In total
(including homes delivered under contract), there were 145 private housing
completions at the Villages during the year (2022: 143). At Elgin South, a new
phase of homes has been released for sale since year end. There was also a
continued expansion of amenities and strengthening of community engagement at
the Village developments, enabling the local communities to become more
established.
The success of Springfield's Villages has been recognised by several industry
awards. This year, two of the Group's Villages secured awards from a UK-wide
platform, WhatHouse? Bertha Park was named Best Sustainable Development (Gold)
and Dykes of Gray secured the Best Public Realm (Silver) title. In Scotland,
Bertha Park was also named Best Large Development by the Scottish Home Awards.
Affordable Housing
The Group's affordable housing business was significantly impacted during the
year by the macro-economic conditions. Build cost inflation, which peaked at
c. 30%, substantially reduced gross margin due to the industry's model of
fixed-price contracts. In particular, margin suffered from the delivery of two
large, long-term contracts that had been signed in early 2020 and were
therefore based on expectations of lower material and labour costs. The Group
was also impacted in the first half of the year by key subcontractors going
out of business, which necessitated the finding of replacement subcontractors
that led to some delays and higher costs. Alongside this, the Scottish
Government did not review its affordable housing investment benchmarks during
the year to take account of the significant level of inflation.
As a result, during the year, Springfield took the decision to pause entering
new long-term affordable-only contracts. However, post year end, in June 2023,
the Scottish Government increased the affordable housing investment benchmarks
by 16.9%. This, combined with a reduction in levels of cost price inflation,
is expected to enable housing associations to increase the price of affordable
housing contracts to progress the building programmes required to meet the
Government's affordable housing targets. Accordingly, along with other
housebuilders, the Group is now finding affordable housing more attractive.
The Group has recommenced engaging with affordable housing providers, with a
focus on short-term contracts with lower pricing risk, and is pleased to have
signed one contract on 31 May 2023 for £9.7m and another post year end for
£8.1m for the delivery of 40 affordable homes. The Group is currently in
negotiations for a further 13 contracts representing 460 homes.
The contract signed on 31 May 2023 was with the Wheatley Group to deliver 55
homes (including nine private homes) at Deans South in Livingston to
regenerate a former residential Council development that was condemned in 2004
and earmarked for demolition. This reflects Springfield's longstanding
commitment to the transformation of Deans South, and support for the local
community.
The fundamentals of affordable housing delivery remain strong. The nature of
affordable housing contracts provides high revenue visibility with low capital
exposure and strong cash flow dynamics. The Group is well placed to benefit
from a return in this market as it has significant experience and an excellent
track record, having been delivering developments exclusively dedicated to
affordable housing since 2002. Accordingly, it has established relationships
with housing associations, local authorities and other public bodies
throughout Scotland. The Group is encouraged by the interactions that it is
having with affordable housing providers since the increasing of the
affordable housing investment benchmarks and expects to sign further contracts
in the coming months, which will support the Group's cash generation. This
also includes opportunities for bulk sales of private homes that are already
under construction but unreserved.
During the year, the Group completed 328 affordable homes (2022: 405). Average
selling price was £164k (2022: £159k). The number of active affordable
housing developments was 15 at 31 May 2023 (31 May 2022: 18), with five active
developments (under section 75 agreements) added during the year and eight
developments completed. This included delivering the Group's first affordable
housing development for Aberdeenshire Council and completing an additional
phase of affordable housing at Elgin South Village for Moray Council. Post
year end, the Group completed handovers of another affordable-only development
under the Group's local authority framework agreement with Moray Council,
bringing the total number of projects completed in this framework to six.
As at 31 May 2023, the total owned affordable housing land bank consisted of
1,637 (31 May 2022: 1,626), of which 79% had planning permission.
Contract Housing
In contract housing, the Group provides development services to third party
private organisations and receives revenue based on costs incurred plus fixed
mark up. To date, this has largely consisted of services provided to Bertha
Park Limited, which, during the year, included homes across all tenures -
private, affordable and PRS housing. During the year, contract housing also
included a small number of PRS houses to complete historic contracts through
Mactaggart & Mickel Homes.
At 31 May 2023, the contract housing land bank with planning consent consisted
of 603 plots (31 May 2022: 675). The 107 homes completed during the year
(2022: 125) comprised 57 private homes, 12 affordable homes and 38 PRS homes
at Bertha Park Village as well as 10 homes through Mactaggart & Mickel
Homes.
This handover of homes for PRS at Bertha Park Village marked the completion of
the Group's first PRS contract. They represent the first houses built
specifically for private rent in Scotland and the Group has been pleased to
note the popularity of the quality, energy-efficient homes amongst families
looking to live in the area. While the strategy to expand PRS activity was put
on hold following the introduction of rent control by the Scottish Government,
the Group is hopeful that opportunities to build more PRS homes, particularly
in its Village developments, will return when PRS providers adjust to the
policy environment and invest in Scotland.
Acquisition
At the start of the year, in June 2022, the Group acquired the Scottish
housebuilding business of Mactaggart & Mickel Group Ltd for a total
consideration of £46.3m to be paid over five years, interest-free, with an
option of a payment holiday for one year. Mactaggart & Mickel Homes is a
premium brand housebuilder that has been delivering high-quality housing
across the Central Belt of Scotland for almost 100 years. Under the terms of
the acquisition, the Group acquired seven live private, affordable and
contracting sites with work in progress, and acquired a brand licence to build
homes as Mactaggart & Mickel Homes on a further 11 private and affordable
sites, which would transfer to Springfield as homes are sold in line with the
payments of the deferred consideration (with a minimum annual payment of
£7.7m). In addition, the Group was given strategic options over a further c.
2,300 acres of land still owned by Mactaggart & Mickel Group Ltd across
Scotland.
The acquisition also included Timber Systems, a timber frame factory near
Glasgow. The addition of a second timber frame factory, to complement the
Group's pre-existing facility in Elgin, will secure kit supply and increase
capacity for future growth while further reducing Springfield's carbon
footprint. It also enables sales of kits to third parties. In addition, as
part of the consolidation progress, the Group undertook some restructuring of
the Mactaggart & Mickel Homes business to consolidate some of the
operations with the existing Group, which has generated cost savings.
Financial Review
For the year ended 31 May 2023, revenue increased by 29.2% to £332.1m (2022:
£257.1m). The significant increase in revenue was driven by the acquisitions
of Tulloch Homes in December 2021 and Mactaggart & Mickel Homes in June
2022, reflecting their first full 12-month contributions.
Revenue 2023 2022 Change
£'000 £'000
Private housing 253,362 174,442 +45.2%
Affordable housing 53,931 64,251 -16.1%
Contract housing 19,681 16,494 +19.3%
Other 5,158 1,908 +170.3%
TOTAL 332,132 257,095 +29.2%
Private housing remained the largest contributor to Group revenue, accounting
for 76.3% (2022: 67.9%) of total sales and grew by £79.0m to £253.4m. This
was primarily due to contributions from the acquisitions, but the Group also
achieved increased sales in private housing of 13.2% on an organic basis.
The reduction in affordable housing revenue to £53.9m (2022: £64.3m)
reflects lower activity, as well as inflation in development costs based on
the revenue recognition model in affordable housing.
In contract housing, revenue grew as the Group completed delivery of the
contract for PRS homes at Bertha Park; completed two PRS developments for
Mactaggart & Mickel Homes; and generated increased revenue from private
housing delivery at Bertha Park. There was also a significant increase in
other revenue, driven by £3.7m received from a strategic land sale (2022:
£0.2m in land sales).
Gross profit increased by 11.4% to £48.0m (2022: £43.1m) due to the
significant growth in revenues. Gross margin was 14.5% (2022: 16.8%), which
reflects a significant reduction in affordable housing margin as well as a
reduction in private housing margin, primarily reflecting sales mix. In
private housing, higher costs impacted the margin of a small number of sites
that were reaching the end of development. However, in general, cost price
inflation in private housing was softened by house sales price inflation. In
affordable housing, margin was significantly impacted by the industry-wide
inflation in materials and labour costs as a result of the fixed-price nature
of contracts in this area of the business.
Administrative expenses, excluding exceptional items, were £28.0m (2022:
£20.9m). This reflects the increase in overheads from the acquisitions of
Tulloch Homes and Mactaggart & Mickel Homes. 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 £4.0m on an annualised basis.
Finance costs were £4.8m (2022: £1.9m), which represents greater bank
interest payments due to the rise in interest rates and the increase in bank
debt to fund the Mactaggart & Mickel Homes acquisition and the first
deferred payment for the acquisition of Tulloch Homes.
Exceptional items were £0.7m (2022: £1.1m), which mainly relates to the
Mactaggart & Mickel Homes acquisition.
Operating profit was £20.0m (2022: £21.5m). Excluding exceptional items,
operating profit was £20.7m (2022: £22.6m). Statutory profit before tax was
£15.3m (2022: £19.7m) and adjusted profit before tax and exceptional items
was £16.0m (2022: £20.8m). This reflects the lower gross margin and
increased administrative expenses offsetting the growth in revenue. It also
includes the impact of a c. £750k write-off as a result of the decision to no
longer pursue Gavieside.
Basic earnings per share (excluding exceptional items) were 10.74 pence (2022:
15.63 pence). Statutory basic earnings per share were 10.19 pence (2022: 14.74
pence). Return on capital employed was 8.8% (2022: 13.6%), which primarily
reflects the significant increase in total assets due to the land and work in
progress gained through the Mactaggart & Mickel Homes acquisition.
In June 2022, the Group acquired Mactaggart & Mickel Homes for a total
consideration of £46.3m, comprising £10.5m cash paid on completion and a
deferred cash consideration of £35.8m to be paid proportionally as homes are
sold over a five-year period, of which £5.1m was paid by year end. The
acquisition is being funded from Springfield's internal resources and existing
debt facilities with Bank of Scotland.
Net debt at 31 May 2023 was £67.7m compared with £38.1m at 31 May 2022. Net
debt to EBITDA was 2.9 times (2022: 1.6 times). The net debt increase
primarily reflects the Mactaggart & Mickel Homes acquisition; the first
deferred payment of £6.1m for the acquisition of Tulloch Homes; and the
significantly higher interest payments as described above.
The Group's revolving credit facility of £87.5m is in place until January
2025. In December 2022, the Group's overdraft facility was increased from
£2.5m to £12.5m with an expiry date of 31 August 2023, to provide extra
short-term headroom. This has now been extended to 30 September 2024. In
addition, a term loan of £18.0m has been put in place with a repayment date
of 30 September 2024 to provide extra surety against the current market
backdrop.
The Group is highly focused on reducing its debt position. As described above,
it has taken decisive action in response to the market conditions and is
significantly curtailing its activities to limit exposure and increase cash
generation while also seeking land sales. As a result, the Group is planning
to reduce net debt to c. £55m by 31 May 2024.
Customer Satisfaction
Springfield strives for excellence in customer service through all stages of
the house buying process and the quality of the houses the Group builds. The
Group is exceptionally proud to offer customers a high level of specification
as standard as well as significant choice. Feedback from mortgage lenders and
surveyors suggests that they also recognise the high specification that is
offered as standard and have strong confidence in the Group's house prices.
In July 2022, Springfield registered for the New Homes Quality Board Code of
Practice ("NHQB Code"), well ahead of the December 2022 deadline. The NHQB
Code aims to improve consumer protection covering important aspects of the new
home construction, inspection and the sales process. In preparation for
activation, a full review of processes was undertaken across the Group
ensuring compliance and best practice was in place. Across the Springfield
Group, customers who reserved homes since 4 April 2023 have done so under the
new NHQB Code. In addition, a new formal, online complaints process was
launched to improve service levels and the monitoring of any complaints
received. New processes being rolled out across operations complemented the
Quality Management System and ISO 9001 was recertified within the year.
The Group has set an objective to work towards 100% customer satisfaction to
encourage year-on-year improvements and ensure the Group is always doing what
it can to provide the best product and service to customers. This year the
Group achieved an overall customer satisfaction rating of 94% (2022: 93%),
showing a positive start against this aspiration.
Build Quality and Efficiencies
Through acquiring new brands within the Springfield Group, Springfield has
inherited a range of over 200 house types. Detailed planning consents and
building warrants that came along with each acquisition made it efficient to
build out the homes that were already planned. This year, however, the Group
has undertaken a fundamental review of the house types offered across the
Group and has rationalised this portfolio down to the most popular homes
that are most efficient to plot, build and be capable of accommodating future
building standards to maximise energy efficiency.
For all new planning applications, homes for each brand will now be selected
from a portfolio of under 50 house types. Where planning is in place for
larger sites, remix applications are also to be considered to bring forward
the benefits. The rationalisation of house types will enable the
standardisation of construction processes and will ensure the Group maximises
capacity within its two timber kit factories. Standardisation in component
parts has also been agreed, including for kitchens, bathrooms, window sizes
and roof details, which will also enable the Group to capitalise on purchasing
opportunities.
Environment & People - ESG
This year the Group published its first ESG Strategy, bringing together all
the good practice from across the brands and regions and setting new,
challenging objectives to ensure the Group continues to improve. The strategy
included priorities identified across the ESG spectrum that were regarded as
critical to the future success of the Group and valued by its varied
stakeholders. Being the first year of a formal strategy, much of the
objectives involved research and data collection, setting a baseline upon
which to improve, measure and report performance.
A new governance structure was launched with the CEO leading a dedicated ESG
Committee of the Board. Since its launch in August 2022, the ESG Committee has
met a number of times to monitor progress of strategy delivery, with a report
having been made to the Board. Alongside this annual report, the Group is
pleased to be publishing an update to its ESG Strategy for investors. The
publication, which can be found within the ESG pages of the Springfield Group
website, reports on the performance within year one, summarises findings
within today's economic and environmental climate and sets objectives for the
year ahead.
Alongside strategy development and delivery, the Group became the first
housebuilder to engage with NextGeneration Core. This initiative was recently
launched by NextGeneration - which provides an external assessment of the
largest 25 housebuilders in the UK - to encourage small to medium-sized
businesses to benchmark performance. Through the voluntary scheme, the Group
was assessed against 14 key criteria including policies for reducing energy
use and waste, health and safety standards, commitment to placemaking and
affordable housing, and educating its workforce. In the feedback, the Group's
drive to reach net zero stood out, with its head start on the use of air
source heat pumps being commended. In recognition of its efforts in
placemaking, it was noted that the Group's role in community creation met
aspirational standards and far exceeded practice elsewhere in the wider UK
industry.
The Group's dedicated Community Engagement Co-ordinator has made a strong
impact within the first full year in post, working closely with communities
where the Group is building and engaging new residents within Village
developments through community events. This year, steps were taken to
strengthen the Group's approach to community engagement during the planning
process. Despite the challenges in delivering affordable housing, the Group's
commitment to regeneration was reinforced by the signing of the contract to
deliver new homes at Deans South.
As noted above, the Group's abilities in placemaking and the creation of
sustainable communities, particularly at its Village developments, were
recognised with several awards during the year.
The Group's approach to charitable donations was refreshed during the year to
ensure it maximised its impact, which included the creation of a dedicated
webpage encouraging applications. This year, the Group donated £80,284,
supporting 86 local causes as a result.
Markets
As described above, market conditions across the Group's business were
particularly challenging during the year, which has continued post period.
There are initial indicators of recovery with the Consumer Price Index
inflation rate falling in June and July and prevailing build cost inflation
now stable below 5%, with the Group experiencing price reductions in
materials. A number of mortgage providers have reduced mortgage rates, and the
mortgage market is supportive of new build homes, particularly given their
energy credentials. However, there remains significant uncertainty with low
reservation rates across the industry in private housing.
Towards the end of the year, alterations were made to the National Planning
Framework (referred to as "NPF4") in Scotland, resulting in greater complexity
within the planning system and restrictions on the promotion of sites not
allocated within a Local Development Plan. As a result, the Group's land
bank, with a large proportion of planning already in place, has become more
valuable and, going forward, is expected to be in high demand.
Within a UK context, the Scottish market is typically more stable than the
broader market and the South of England in particular. This is reflected in
the lower levels of house price inflation in recent years. With many regions
experiencing a decline in average house prices, it is notable that average
house price growth in Scotland is ahead of other UK regions in the year to
July 2023 (source: Zoopla
(https://www.zoopla.co.uk/discover/property-news/house-price-index/) ). This
is partly due to the greater affordability in Scotland, characterised by lower
loan to income levels with data showing that it is cheaper to buy a home than
rent privately. The Group's private housing is also supported by the Scottish
missive system, which ensures that customers are contracted into the purchase
much earlier in the build programme.
In affordable housing, with the Scottish Government increasing its affordable
housing investment benchmarks since year end, and with build cost inflation
easing, the Group envisages a return in this area of the business to deliver
against built-up demand - which remains exceptionally high with 178,000
applicants on Local Authority housing lists across Scotland. In addition, the
Scottish Government remains committed to delivering new affordable homes,
illustrated by its target to deliver 110,000 energy efficient affordable homes
by 2032.
The position regarding PRS housing has remained unchanged. The uncertainty
surrounding the Scottish Government rent caps, which had been put in place to
support families with cost-of-living concerns, has deterred PRS providers from
entering new contracts in Scotland. While there is nothing yet to suggest a
change to this policy environment, the Group is hopeful that proven demand for
purpose-built, high quality, energy efficient PRS homes will drive investment
into Scotland. The 75 PRS homes delivered at Bertha Park have been extremely
popular amongst families looking to move into the area. In addition, recent
data from Zoopla suggests that Scotland has overtaken London as the area with
the fastest rental growth.
Moreover, there remains an undersupply of all types of housing across
Scotland, which can only be satisfied through the delivery of new homes.
Dividends
While recognising the importance of the dividend to shareholders, the Board
has resolved not to propose a dividend for FY 2023 as a measure to preserve
liquidity in response to market conditions. The Group's focus is on managing
cash flow and reducing its debt so that it is well positioned for the medium
term. The Board intends to resume making dividend payments once the Group's
bank debt is materially reduced.
Outlook
The challenging and uncertain market conditions have been sustained into the
new financial year, with reservations in private housing continuing to be
significantly depressed due to reduced homebuyer confidence as interest rates
have remained high. The Board does not expect this to materially improve
before Spring 2024. To limit exposure in the uncertain conditions, the Group
is curtailing its private housing development activity to only commence
building a home once it is reserved. This will enable the Group to maximise
cash generation from work-in-progress to reduce the Group's debt. The Group is
also encouraged by the engagement it is having with affordable housing
providers following Scottish Government increasing the affordable housing
investment benchmarks. The Group now expects affordable housing contracts
signed this year to make a material contribution to Group revenue while also
supporting the Group's efforts to maximise cash generation due to the strong
cash flow dynamics associated with affordable housing. The Group is also
actively pursuing land sales to accelerate cash realisation from its large
land bank, and will further reduce its cost base where necessary.
Accordingly, for FY 2024, the Group now 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.
Notwithstanding the short-term challenges, the fundamentals of the Group's
business and of the Scottish housing market remain strong. The Group offers
high quality, energy efficient homes in popular locations across Scotland
under multiple highly respected brands. It has one of the largest land banks
in Scotland, with 6,712 owned plots - 83% of which have planning permission -
and strategic options over a further 3,255 acres, equating to c. 33,000 plots.
This can be developed - with a low cost per plot - for years to come as well
as providing an asset for cash generation.
There remains an undersupply of housing across all tenures in Scotland, which
is being exacerbated by current conditions and can only be rectified through
the building of new homes. The Scottish Government's increase of the
affordable housing investment benchmarks demonstrates its commitment to
affordable housing. While in private housing, there is greater affordability
in Scotland compared with the UK as a whole. Together, this provides an
excellent platform to take advantage of the next upturn in the market cycle.
As a result, while the current period is not without its challenges, the Board
remains confident in the Group's prospects and in its ability to generate
shareholder value.
Publication of Annual Report
The Company's annual report and accounts for the year ended 31 May 2023 are
being sent to shareholders today and have been made available on the
'Financial Results and Reports' page of the Company's website:
www.thespringfieldgroup.co.uk (http://www.thespringfieldgroup.co.uk)
COnsolidated PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 May 2023
2023 2022
Note £000 £000
Revenue 3 332,132 257,095
Cost of sales (284,177) (213,960)
Gross profit 47,955 43,135
Administrative expenses before exceptional items (27,955) (20,950)
Exceptional items 5 (720) (1,100)
Total administrative expenses (28,675) (22,050)
Other operating income 688 396
Operating profit 19,968 21,481
Finance income 133 134
Finance costs (4,812) (1,889)
Profit before taxation 15,289 19,726
Taxation 4 (3,216) (3,652)
Profit for the year and total comprehensive income 12,073 16,074
Profit for the year and total comprehensive income is attributable to:
Owners of the parent company 12,073 16,074
12,073 16,074
Earnings per share
Basic earnings on profit for the year 7 10.19p 14.74p
Diluted earnings on profit for the year 7 9.90p 14.37p
Adjusted earnings per share
Basic earnings on profit for the year 7 10.74p 15.63p
Diluted earnings on profit for the year 7 10.43p 15.24p
Adjusted earnings per share is a non-GAAP measure and is presented as an
additional performance measure and is stated before exceptional items.
The Group has no items of other comprehensive income.
COnsolidated BALANCE SHEET
FOR THE YEAR ENDED 31 May 2023
2023 2022
Non-current assets Note £000 £000
Property, plant and equipment 7,816 5,799
Intangible assets 5,953 5,758
Investments - 520
Deferred taxation 1,783 2,133
Trade and other receivables 5,000 5,641
20,552 19,851
Current assets
Inventories 277,633 230,095
Trade and other receivables 22,588 21,363
Cash and cash equivalents 8,909 16,390
309,130 267,848
Total assets 329,682 287,699
Current liabilities
Trade and other payables 55,788 68,513
Deferred consideration 10 11,785 6,119
Short-term obligations under lease liabilities 1,884 1,284
Provisions 12 1,710 821
Corporation tax 362 273
71,529 77,010
Non-current liabilities
Long-term bank borrowings 9 70,673 50,486
Long-term obligations under lease liabilities 4,016 2,670
Deferred taxation 3,615 3,726
Deferred consideration 10 24,332 6,455
Contingent consideration 11 2,000 2,000
Provisions 12 2,884 1,825
107,520 67,162
Total liabilities 179,049 144,172
150,633 143,527
Net assets
Equity
Share capital 13 148 148
Share premium 13 78,744 78,744
Retained earnings 71,741 64,635
Equity attributable to owners of the parent company 150,633 143,527
consolidated Statement of Changes in Equity
FOR THE YEAR ENDED 31 MAY 2023
Share capital Share premium Retained earnings Total
Notes £000 £000 £000 £000
1 June 2021 128 56,761 54,341 111,230
Share issue 20 21,983 - 22,003
Total comprehensive income for the year - - 16,074 16,074
Share-based payments - - 554 554
Dividends 6 - - (6,334) (6,334)
31 May 2022 148 78,744 64,635 143,527
Total comprehensive income for the year - - 12,073 12,073
Share-based payments - - 601 601
Dividends 6 - - (5,568) (5,568)
31 May 2023 148 78,744 71,741 150,633
The share capital account records the nominal value of shares issued.
The share premium account records the amount above the nominal value received
for shares issued, less share issue costs.
Retained earnings represents accumulated profits less losses, and
distributions. Retained earnings also includes share-based payments.
Consolidated Statement of Cash Flows
year to 31 May 2023
2023 2022
Cash flows generated from operations £000 £000
Profit for the year 12,073 16,074
Adjusted for:
Exceptional items 720 1,100
Taxation charged 3,216 3,652
Finance costs 4,812 1,889
Finance income (133) (134)
Adjusted operating profit before working capital movement 20,688 22,581
Exceptional items (720) (1,100)
Gain on disposal of tangible fixed assets (312) (187)
Gain on disposal of investment (158) -
Share-based payments 601 554
Non-cash movement - 100
Amortisation of intangible fixed assets 255 161
Depreciation and impairment of tangible fixed assets 2,257 1,724
Operating cash flows before movements in working capital 22,611 23,833
(3,251) (16,505)
Increase in inventory
(Increase)/decrease in accounts and other receivables (404) 4,253
(Decrease)/increase in accounts and other payables (10,818) 7,503
Net cash from operations 8,138 19,084
Taxation paid (2,900) (3,522)
Net cash inflow from operating activities 5,238 15,562
Investing activities
Purchase of property, plant and equipment (478) (376)
Proceeds on disposal of property, plant and equipment 427 247
Proceeds on disposal of investment 678 -
Deferred consideration paid on acquisition of subsidiary (6,138) (2,362)
Acquisition of subsidiary, net of cash acquired (15,867) (41,525)
Purchase of intangible assets (30) (84)
Net cash used in investing activities (21,408) (44,100)
Financing activities
Proceeds from issue of shares - 22,728
Costs relating to share raise - (724)
Proceeds from bank loans 20,187 16,486
Payment of lease liabilities (2,147) (1,437)
Dividends paid 6 (5,568) (6,334)
Interest paid (3,783) (1,617)
Net cash inflow from financing activities 8,689 29,102
Net (decrease)/increase in cash and cash equivalents (7,481) 564
Cash and cash equivalents at beginning of year 16,390 15,826
Cash and cash equivalents at end of year 8,909 16,390
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR TO 31 MAY 2023
1. Organisation and trading activities
Springfield Properties PLC is incorporated and domiciled in Scotland as a
public limited Company and operates from its registered office in Alexander
Fleming House, 8 Southfield Drive, Elgin, Morayshire, IV30 6GR.
2. Summary of significant accounting policies
The principal accounting policies adopted and applied in the preparation of
the financial statements are set out below.
These have been consistently applied to all the years presented unless
otherwise stated.
2.1 Basis of accounting
The financial information contained within this final results announcement for
the year ended 31 May 2023 and the year ended 31 May 2022 is derived from but
does not comprise statutory financial statements within the meaning of section
434 of the Companies Act 2006. Statutory financial statements for the year
ended 31 May 2022 have been filed with the Registrar of Companies and those
for the year ended 31 May 2023 will be filed following the Company's annual
general meeting. The auditors' report on the statutory financial statements
for the year ended 31 May 2023 and the year ended 31 May 2022 is unqualified,
does not draw attention to any matters by way of emphasis, and does not
contain any statement under section 498 of the Companies Act 2006.
The financial statements of Springfield Properties PLC have been prepared in
accordance with UK adopted international accounting standards. The Group has
adopted all the standards and amendments to existing standards that are
mandatory for accounting periods beginning on 1 June 2022.
The financial statements have been prepared under the historical cost
convention except for contingent consideration.
The following standards have been issued but have not been applied by the
Group in these financial statements. These amendments to standards and
interpretations had no significant impact on the financial statements:
· Annual improvements to IFRS 2018-2020
· Amendments to IAS 37 'Onerous contracts - Cost of fulfilling a
contract'
· Amendments to IAS 16 'Property, plant and equipment - Proceeds
before intended use'
· Amendments to IFRS 3 'Reference to the conceptual framework'
The following new standards and amendments to standards have been issued but
are not effective for the financial year beginning 1 June 2022 and have not
been early adopted:
· IFRS17 Insurance contracts (including amendments to IFRS17)
· Amendments to IAS 12 'Deferred tax related to assets and
liabilities arising from a single transaction'
· Amendments to IAS 1 and IFRS PS2 'Disclosure of accounting
policies'
· Amendments to IAS1 and IFRS PS2 'Definition of accounting
estimates'
· Amendments to IAS 12 'International tax reform'
· Amendments to IAS 1 'Classification of liabilities as current or
non-current'
· Amendments to IFRS16 'Lease liability in a sale and leaseback
The new standards and amendments to the standards noted above are expected to
have no significant impact on the financial statements.
2.2 Basis of consolidation
The consolidated financial statements incorporate those of Springfield
Properties PLC and its subsidiaries and jointly controlled entities. Where the
Company has control over an investee, it is classified as a subsidiary. The
Company controls an investee if all three of the following elements are
present: power over the investee, exposure to variable returns from the
investee, and the ability of the investor to use its power to affect those
variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
Contingent consideration is measured at its fair value at the date of
acquisition. If the contingent consideration meets the definition of equity,
it is not remeasured, and settlement is accounted for within equity. Other
contingent consideration is remeasured at fair value at each reporting date
with subsequent changes in the fair value of the contingent consideration
recognised in the consolidated profit and loss account.
All financial statements are made up to 31 May 2023.
All intra-Group transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation.
2.3. Functional and presentation currencies
The financial statements are presented in Pound Sterling (£), rounded to the
nearest £000, which is also the currency of the primary economic environment
in which the Group operates (its functional currency).
2.4. Going concern
In order to support the going concern period to 30 September 2024, the
Board-approved budget to May 2024, with a further year added to May 2025,
formed the initial basis to confirm the appropriateness of the going concern
assessment.
Following the subsequent weakening in demand, the Board-approved budget has
now been superseded by a reforecast scenario with the expected number of
private home sales in the year to 31 May 2024 reduced by 12% from the original
Board-approved budget with sales weighted to the second half of the year, but
where the reduction is expected to be offset by additional affordable contract
income currently under negotiation and through a slowdown in work-in-progress
payments from stopping speculative build.
In addition, the Group has prepared a worst-case sensitivity with the number
of private home sales in the year to 31 May 2024 being 12% behind the
Board-approved budget, with sales weighted to the second half of the year and
with no additional affordable income.
Under this worst-case sensitivity, the peak debt level would have been in
excess of the Group's banking facilities of £100m.
To prepare for this worst-case scenario, should it occur, the bank has
extended existing facilities and granted an additional term loan of £18.0m
with a repayment date of 30 September 2024. The term loan will be repaid from
the Group's trading activities. The Board has already taken the decision to
not pay a dividend until the bank debt is materially reduced. In addition to
this, the Group is targeting land sales to further reduce the longer-term
debt.
Under this worst-case scenario, the peak borrowing, which occurs in December
2023, utilises 94% of the extended facilities. However, by the year end in May
2024, the facility utilisation is forecast to drop to around 37%. At all times
the Group is able to operate within its bank facilities and covenants.
While the Board has confidence in the robustness of the asset base and
considers this worst-case scenario to be cautious, were there to be a greater
downturn in the market, there are a number of further mitigating actions that
are within the control of the Group and could be pursued. These include
additional land sales, greater slowing of development activity to preserve
cash and further reductions in the cost base.
Accordingly, the Directors believe that it remains appropriate to prepare the
financial statements on a going concern basis. The Directors are confident
that the Group has adequate resources to continue in operational existence for
the foreseeable future and are satisfied that the Group will generate
sufficient cash to meet its liabilities as and when they fall due for a period
of 12 months from the signing of the annual report and financial statements
for the year ended 31 May 2023.
2.5. Revenue and profit recognition
Sale of private homes
Revenue on private home sales is recognised at a point in time and the
performance obligation is the transfer of the completed property to the
customer on legal completion and receipt of cash. Revenue is measured at the
fair value of the consideration received net of VAT and trade discounts.
The Group's site valuation process determines the forecast profit margin for
each site. The valuation process acts as a method of allocating land costs and
construction costs of a development to each individual plot based on the
overall development margin and drives the recognition of costs in the profit
and loss account as each plot is sold. Any changes in the forecast profit
margin of a site from changes in sales prices or costs to complete is
recognised across all homes sold in both the current period and future
periods.
Revenue on contracts recognised over time
Revenue from affordable housing contracts is recognised over time as
development progresses as the construction activity enhances an asset
controlled by the customer.
Where the outcome of a contract can be estimated reliably, the amount of
revenue recognised depends on the stage of completion. This is based on the
development costs incurred as a proportion of the total expected development
costs (the input method).
Contractual cashflows are determined by independent surveys of work performed
to date. These do not always align with the revenue recognised on the
underlying performance obligation and any cashflows received that are in
excess of the revenue recognised are included as payments on account. Where
the cashflows received are less than revenue recognised the difference is
included within contract assets.
Revenues derived from variations on contracts are recognised only when they
can be reliably measured. Where the outcome of a construction contract cannot
be estimated reliably, contract costs are recognised as expenses in the period
in which they are incurred and contract revenue is recognised to the extent of
contract costs incurred where it is probable that they will be recoverable.
When it is probable that total contract costs will exceed contract turnover,
the expected loss is recognised as an expense immediately.
Land sales
Revenue from land sales is recognised on legal completion based on fair value
at transfer.
Plant hire revenue
Plant hire revenue represents amounts receivable for the short-term hire of
plant and equipment. Revenue is recognised when the hire period commences and
the customer benefits from the use of the plant and equipment and is
recognised evenly throughout the hire period.
2.6. Grants
Grants are recognised when it is probable that the grants will be received and
that all related conditions will be met, usually on submission of a valid
claim for payment. Revenue grants are credited to the profit and loss account
as and when the relevant expenditure is incurred.
2.7. Employee benefits
The costs of short-term employee benefits are recognised as a liability and an
expense in the period in which the services are received,unless those costs
are required to be recognised as part of the cost of stock.
The cost of any unused holiday entitlement is recognised in the period in
which the employee's services are received.
Termination benefits are recognised immediately as an expense when the Group
is demonstrably committed to terminate the employment of an employee or to
provide termination benefits.
2.8. Retirement benefits
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due.
2.9. Net finance costs
Finance costs comprise interest payable on bank loans and the unwinding of the
discount from nominal to present day value of provisions, deferred
consideration and lease liabilities. Finance costs are capitalised when they
are directly attributable to the acquisition, contribution or production of an
asset that necessarily takes a substantial period of time to get ready for its
intended use or sale. Finance income comprises the unwinding of the discount
from nominal to present day value of shared equity. Interest income and
interest payable is recognised in the income statement on an accruals basis.
2.10. Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the profit and loss account
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the reporting date.
Deferred tax
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax is not recognised on temporary differences arising from the
initial recognition of goodwill or other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit.
Deferred tax is measured on a non-discounted basis using the tax rates and
laws that have then been enacted or substantively enacted by the reporting
date.
The carrying amount of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the profit and loss account, except
when it relates to items charged or credited directly to equity, in which case
the deferred tax is also dealt with in equity. Deferred tax assets and
liabilities are offset when the Group or Company has a legally enforceable
right to offset current tax assets and liabilities and the deferred tax assets
and liabilities relate to taxes levied by the same tax authority.
2.11. Exceptional items
Exceptional items are those material items which, by virtue of their size or
incidence, are presented separately in the profit and loss account to enable a
full understanding of the Group's financial performance.
Transactions that may give rise to exceptional items include transactions
relating to acquisitions and costs relating to changes in share capital
structure as well as redundancy and restructuring costs.
2.12. Property, plant and equipment
Tangible fixed assets are initially measured at cost and subsequently measured
at cost net of depreciation and any impairment losses. Depreciation is
recognised so as to write off the cost of assets less their residual values
over their useful lives on the following bases:
Buildings -
2% and 5% straight line
Plant and machinery - 2-10 years straight
line
Fixtures, fittings & equipment - 2-5 years straight line
Motor vehicles - 4-5 years
straight line
Right-of-use leased assets - over the lease term, straight line
with no residual value
Land is not depreciated
The gain or loss arising on the disposal of an asset is determined as the
difference between the sale proceeds and the carrying value of the asset and
is credited or charged to the profit and loss account.
2.13. Intangible fixed assets
Intangible assets comprise market related assets (e.g. trademarks, imprints
& brands) and goodwill on acquisition.
Market related assets
Trademark assets in relation to Springfield Properties PLC are expected to
have an indefinite useful life; however, impairment reviews are performed
annually. Any impairment losses or reversals of impairment losses are
recognised immediately in the profit and loss account.
The brand asset in relation to Tulloch Homes has a 15-year useful life and
amortisation is charged on a straight-line basis.
Goodwill on acquisition
Goodwill on acquisitions of subsidiaries or businesses represents the excess
of the consideration transferred, the amount of any non-controlling interest
in the acquiree and the acquisition-date fair value of any previous equity
interest in the acquiree over the fair value of the net identifiable assets
acquired.
Impairment reviews are performed annually with any impairment losses being
recognised immediately in the profit and loss account.
2.14. Fixed asset investments
Interests in subsidiaries are initially measured at cost and subsequently
measured at cost less any accumulated impairment losses. The investments are
assessed for impairment at each reporting date and any impairment losses are
recognised immediately in the profit and loss account. Costs associated with
the acquisition of subsidiaries are recognised in the profit and loss account
as an exceptional item.
2.15. Impairment of fixed assets
At each reporting end date, the Group reviews the carrying amounts of its
tangible fixed assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and
value-in-use. Any impairment loss and reversal of losses are recognised in the
profit and loss account.
2.16. Inventories and work in progress
Property, including land held under development, acquired or being constructed
for sale in the ordinary course of business, rather than to be held for rental
or capital appreciation, is held as stock and is measured at the lower of cost
and net realisable value.
Cost comprises the invoiced value of the goods purchased and includes
attributable direct costs, labour and overheads and where possible and
directly attributable to a site borrowing costs will be included.
Net realisable value is the estimated selling price in the ordinary course of
the business, based on market prices at the reporting date and discounted for
the time value of money if material, less estimated costs of completion and
the estimated costs necessary to make the sale. Any excess of the carrying
amount of stocks over its net realisable value is recognised as an impairment
loss in the profit and loss account.
At each reporting date, an assessment is made for impairment. Any excess of
the carrying amount of stocks over its estimated selling price less costs to
complete and sell is recognised as an impairment loss in the profit and loss
account.
Where sites are 'secured' via option agreements, these sites are only included
as stock when the agreement becomes unconditional.
Options included as part of stock are stated at the lower of cost and net
realisable value.
2.17. Financial instruments
Financial instruments are recognised in the balance sheet when the Group
becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset, with the net amounts presented in
the financial statements, when there is a legally enforceable right to set off
the recognised amounts and there is an intention to settle on a net basis or
to realise the asset and settle the liability simultaneously.
Financial assets at amortised cost
Financial assets with fixed or determinable payments that are not quoted in an
active market. Financial assets are recognised initially at cost. Subsequent
to initial recognition they are measured at amortised cost using the effective
interest rate method, less any impairment losses.
Loans outside the Group are valued at the recoverable amount and a market rate
of interest is charged.
Financial assets at amortised cost
Financial assets with fixed or determinable payments that are not quoted in an
active market. Financial assets are recognised initially at cost. Subsequent
to initial recognition they are measured at amortised cost using the effective
interest rate method, less any impairment losses.
Loans outside the Group are valued at the recoverable amount and a market rate
of interest is charged.
Impairment of financial assets
The Group recognises an allowance for expected credit losses for all debt
instruments not held at fair value through the profit and loss account.
Expected credit losses are based on the difference between the contracted cash
flows due in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an approximation of the original
effective interest rate.
For trade receivables and, in the Parent Company, intercompany receivables,
the Group applies a simplified approach in calculating expected credit losses.
The Group does not track changes in credit risk, but instead recognises a loss
allowance based on lifetime expected credit losses at each reporting date.
Derecognition of financial assets
Financial assets are derecognised only when the contractual rights to the cash
flows from the asset expire or are settled, or when the Group transfers the
financial asset and substantially all the risks and rewards of ownership to
another entity, or if some significant risks and rewards of ownership are
retained but control of the asset has transferred to another party that is
able to sell the asset in its entirety to an unrelated third party.
Financial liabilities
All of the Group's financial liabilities are measured at amortised cost.
Other financial liabilities
Other non-derivative financial liabilities are initially measured at
historical cost less any directly attributable transaction costs. Subsequent
to initial recognition, these liabilities are measured at amortised cost using
the effective interest method.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial
liability to the net carrying amount on initial recognition.
Derecognition of other financial liabilities
Financial liabilities are derecognised when the Group's contractual
obligations expire or are discharged or cancelled.
2.18. Deferred consideration
Deferred consideration payments are initially recognised at fair value at the
date of acquisition, which is based on the timing of the cash outflows and an
appropriate discount rate. It is subsequently measured at amortised cost.
2.19. Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with
banks and bank overdrafts. Bank overdrafts are shown within borrowings in
current liabilities.
2.20. Dividends
Dividends are recognised as liabilities in the period in which the dividends
are approved and once they are no longer at the discretion of the Company
2.21. Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for leases of low value assets (less than £5,000) and leases
with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the Group's incremental borrowing rate at
commencement of the lease.
Right-of-use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received. Subsequent to initial
measurement lease liabilities increase as a result of interest charged at a
constant rate on the balance outstanding and are reduced for lease payments
made. Right-of-use assets are amortised on a straight-line basis over the
remaining term of the lease. Right-of-use assets comprise the Group's existing
premises in Elgin, Larbert, Inverness and Glasgow along with certain items of
office equipment and motor vehicles.
2.22. Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of a Group after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received net of share issue
costs. Share capital represents the amount subscribed for shares at nominal
value.
The share premium account represents premiums received on the initial issuing
of the share capital. Any share issue costs associated with the issuing of
shares are deducted from share premium, net of any related income tax
benefits. Any bonus issues are also deducted from share premium.
Retained earnings include all current and prior period results as disclosed in
the profit and loss account.
2.23. Share-based payments
Equity-settled share-based payments are measured at fair value at the date of
grant and recognised as an expense over the vesting period. The amount
recognised as an expense is adjusted for leavers to the scheme. Fair value is
measured by use of a relevant pricing model.
2.24. Provisions
Provisions include dilapidations to cover the Group's leased properties with
an upfront liability recognised. Maintenance provisions relate to the costs to
come on developments where the final homes have been handed over. Provisions
are liabilities of uncertain timing and amount. Provisions are recognised when
the Group has a present legal or constructive obligation as a result of a past
event and it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can
be made of the amount of the obligation.
3. Segmental reporting
As the Group operates solely in the United Kingdom, segment reporting by
geographical region is not required.
2023 2022
Revenue £000 £000
Private residential housing 253,362 174,442
Affordable housing 53,931 64,251
Contract housing 19,681 16,494
Other 5,158 1,908
Total revenue 332,132 257,095
Gross profit 47,955 43,135
Administrative expenses (27,955) (20,950)
Exceptional items (720) (1,100)
Other operating income 688 396
Finance income 133 134
Finance expenses (4,812) (1,889)
Profit before tax 15,289 19,726
Taxation (3,216) (3,652)
Profit for the period 12,073 16,074
4. Taxation
2023 2022
£000 £000
Current tax
UK corporation tax on profits for the current period 3,069 3,358
Adjustments in respect of prior periods (92) (311)
2,977 3,047
Deferred tax
Origination and reversal of timing differences 239 486
Adjustments in respect of prior periods - 119
239 605
3,216 3,652
The charge for the year can be reconciled to the standard rate of tax as
follows:
2023 2022
£000 £000
Profit before tax 15,289 19,726
Tax at the UK corporation tax rate of 20% (2022: 19%) 3,058 3,748
Effects of:
Tax effect of expenses that are not deductible in determining taxable profit 257 181
Adjustments in respect of prior years (92) (311)
Depreciation on assets not qualifying for tax allowances (40) (48)
Amortisation - (26)
Deferred tax adjustments in respect of prior years - 119
Land remediation relief (1) (1)
Income not taxable 11 -
Temporary difference not recognised 291 -
Other timing differences (3) 23
Adjust deferred tax to closing average rate (265) (33)
Tax charge for period 3,216 3,652
5. Exceptional items
2023 2022
£000 £000
Redundancy costs 349 141
Acquisition and other transaction-related costs((1)) 371 859
Other acquisition and other transaction-related costs((2)) - 100
720 1,100
(1) Acquisition and other transactions-related costs for the acquisition of
the housebuilding business of Mactaggart & Mickel Group Ltd.
(2) 2022 - Other acquisition and other transactions-related costs relate to
the planning being achieved at Carlaverock, which had previously been assessed
as 95% likely.
6. Dividends
On 16 December 2022, a final dividend of 4.7p (2022: 4.5p) per share was paid
to shareholders, amounting to £5,568,061 (2022: £4,558,486).
In respect of the current year, there was no interim dividend paid to
shareholders. In 2022, an interim dividend of 1.4p per share was paid to
shareholders, amounting to £1,775,716.
While recognising the importance of the dividend to shareholders, the Board
has resolved not to propose a dividend for FY 2023 as a measure to preserve
liquidity in response to market conditions. The Group's focus is on managing
cash flow and reducing its debt to ensure that it is in the optimal position
for when market conditions improve.
7. Earnings per share
The basic earnings per share is based on the profit for the year divided by
the weighted average number of shares in issue during the year. The weighted
average number of ordinary shares for the year ended 31 May 2023 assumes that
all shares have been included in the computation based on the weighted average
number of days since issue.
In respect of diluted earnings per share the weighted average is calculated by
adjusting for all outstanding share options that are potentially dilutive
(i.e. where the exercise price is less than the average market price of the
shares during the year).
2023 2022
£000 £000
Profit for the year attributable to owners of the Company 12,073 16,074
Adjusted for the impact of tax adjusted exceptional costs in the year 652 970
Adjusted earnings 12,725 17,044
Weighted average number of ordinary shares for the purpose of basic earnings 118,478,254 109,022,146
per share
Effect of dilutive potential shares: share options 3,507,257 2,797,323
Weighted average number of ordinary shares for the purpose of diluted earnings 121,985,511 111,819,469
per share
Earnings per ordinary share
Basic earnings on profit for the year 10.19p 14.74p
Diluted earnings on profit for the year 9.90p 14.37p
Adjusted earnings per ordinary share((1))
Basic earnings on profit for the year 10.74p 15.63p
Diluted earnings on profit for the year 10.43p 15.24p
((1) ) Adjusted earnings is presented as an additional performance
measure and is stated before exceptional items and is used in adjusted EPS
calculation.
8. Acquisition of the housebuilding business of Mactaggart & Mickel
Group Limited and Timber Kit factory
Revaluation adjustment Fair Value to Group
Book Value
£000 £000 £000
Property, plant and equipment - 220 220
Inventories 46,195 (2,312) 43,883
46,195 (2,092) 44,103
Consideration paid on acquisition - cash 10,000
Consideration paid on first year - land creditor 5,414
Deferred consideration 29,109
44,523
Less: Goodwill (note 14) (420)
Total 44,103
A fair value assessment has been performed resulting in an adjustment of
(£2,312,150) to inventories and £219,710 to property, plant and equipment.
The deferred consideration has been discounted, based on the Government Bond
5-year rate, in the financial statements.
The housebuilding business of Mactaggart & Mickel was purchased as it was
a good opportunity to acquire a well-run business with an excellent reputation
and to accelerate growth with live sites in new areas and with a healthy land
bank pipeline. The acquisition has contributed revenue of £36,350,445 and
profit before tax of £2,053,399 from the acquisition date of 1 June 2022 to
31 May 2023.
During the year, the Group purchased a timber kit factory for a consideration
of £453,000. The assets and trade are included within Springfield Timber Kit
Systems Limited.
9. Bank borrowings
2023 2022
Secured borrowings: £000 £000
Bank loans 70,673 50,486
Payable after one year 70,673 50,486
The bank loan comprises of a revolving credit facility of £87.5m with an
expiry date of January 2025. The facility attracts an interest rate of 2.15%
per annum above Bank of England SONIA (Sterling overnight index average
response rate) and is secured over certain of the Company's properties with a
31 May 2023 work-in-progress value of £34.0m.
Post year end, a term loan of £18.0m has been put in place with a repayment
date of 30 September 2024. The facility attracts an interest rate of 2.75% per
annum above Bank of England SONIA (Sterling overnight index average response
rate).
At 31 May 2023, the Group had available £16.5m (2022: £36.5k) of undrawn
committed borrowing facilities. The Group's lender has a floating charge over
the assets of the Company and of its subsidiaries.
10. Deferred consideration
As part of the purchase agreement of Tulloch Homes Holdings Limited, there was
a further £13,000,000 of deferred consideration payable. This can be broken
down into: (i) £362,330 paid on 24 April 2022; (ii) £6,137,670 paid on 1
November 2022; and (iii) £6,500,000 payable on 1 July 2023. The outstanding
discounted amount payable at the period end is £6,493,552 (2022:
£12,574,228), which has subsequently been paid.
As part of acquiring the housebuilding business of Mactaggart & Mickel
Group Limited, there was a further £30,781,108 of deferred consideration
payable. This is payable quarterly in arrears as homes are sold starting from
August 2023. There is a minimum annual payment of £7,695,277. The outstanding
discounted amount payable at the period end was £29,623,127 (2022: £nil).
2023 2022
£000 £000
Acquisition of Tulloch Homes Holdings Limited 6,494 12,574
Acquisition of the housebuilding business of Mactaggart & Mickel Group 29,623 -
Limited
36,117 12,574
2023 2022
£000 £000
Deferred consideration < 1 year 11,785 6,119
Deferred consideration > 1 year 24,332 6,455
36,117 12,574
11. Contingent consideration
As part of the purchase agreement of Dawn Homes Holdings Limited there was a
further £2,500,000 payable for an area of land if (i) the Group makes a
planning application when it reasonably believes the council will recommend
approval; or (ii) it is zoned by the council. The Directors have assessed the
likelihood of the land being zoned and have included a liability of
£2,000,000 based on 80% probability. The outstanding amount payable at the
period end included within liabilities is £2,000,000 (2022: £2,000,000). The
remaining £500,000 (20% on the £2,500,000 still to be paid) has been treated
as a contingent liability due to the uncertainty over the future payment.
2023 2022
£000 £000
Acquisition of Dawn Homes Holdings Limited 2,000 2,000
2,000 2,000
12. Provisions
Dilapidation provisions are included for all rented buildings within the
Group. An onerous lease provision has been created due to the closure of the
Walker office in Livingston. Maintenance provisions relate to costs to come on
developments where the final homes have been handed over.
2023 2022
£000 £000
Dilapidation provision 169 150
Provisions for onerous contracts 353 -
Maintenance provision 4,072 2,496
4,594 2,646
The movement in the provision accounts are as follows:
Onerous contracts
Dilapidation Maintenance Total
£000 £000 £000 £000
Balance as at 1 June 2022 150 - 2,496 2,646
Additional provision 34 - 2,785 2,819
Amount utilised (15) - (1,516) (1,531)
Profit and Loss - 353 307 660
Balance as at 31 May 2023 169 353 4,072 4,594
2023 2022
£000 £000
Provisions < 1 year 1,710 821
Provisions > 1 year 2,884 1,825
4,594 2,646
13. Share capital
The Company has one class of ordinary share which carry full voting rights but
no right to fixed income or repayment of capital. The share capital account
records the nominal value of shares issued. The share premium account records
the amount above the nominal value received for shares sold, less share issue
costs.
Ordinary shares of 0.125p - allotted, called up and fully paid Number of shares Share capital Share premium
£000 £000
At 1 June 2022 118,469,399 148 78,744
Share issue 26,602 - -
At 31 May 2023 118,496,001 148 78,744
During the year, 26,602 shares (2022: 677,587) were issued in satisfaction of
share options exercised for a consideration of £33.
14. Transactions with related parties
Other related parties include transactions with retirement schemes in which
Directors and close family members of key management personnel are
beneficiaries. During the year, dividends totalling £1,854k (2022: £2,343k)
were paid to key management personnel (Board of Directors and the members of
the Operational Board).
The remuneration of the key management personnel (PLC Directors and Group
Directors) of Springfield Properties PLC is set out below in aggregate for
each of the categories specified in IAS 24 - Related Party Disclosures:
2023 2022
£000 £000
Short-term employee benefits 2,696 3,537
Share-based payments 555 404
Post-employment benefits 208 169
3,459 4,110
During the year the Group entered into the following transactions with related
parties:
Sale of goods Purchase of goods
2023 2022 2023 2022
£000 £000 £000 £000
Bertha Park Limited((1)) 13,751 18,691 - 371
Other entities that key management personnel have control, significant 76 83 325 45
influence or hold a material interest in
Key management personnel 244 176 - 11
Other related parties 1 29 1,616 332
14,072 18,979 1,941 759
Sales to related parties represent those undertaken in the ordinary course of
business.
Rent paid
2023 2022
£000 £000
Entities that key management personnel have control, significant influence or 162 170
hold a material interest in
Key management personnel 3 -
Other related parties 100 107
265 277
2023 2022
£000 £000
Interest received:
Entities that key management 125 125
personnel have control, significant influence or
hold a material interest in (short-term)
125 125
The following amounts were outstanding at the reporting end date:
2023 2022
£000 £000
Amounts receivable:
Bertha Park Limited((1)) 8,524 9,167
Other entities that key management personnel have control, significant 5 54
influence or hold a material interest in (short-term)
Key management personnel - 39
Other related parties - 1
8,529 9,261
2023 2022
£000 £000
Accounts payable:
Entities that key management personnel have control, significant influence or 62 -
hold a material interest in (short-term)
Other related parties 678 52
740 52
Amounts owed to/from related parties are included within creditors and debtors
respectively at the year end. No security has been provided on any balances.
Transactions between Group companies have been eliminated on consolidation and
are not disclosed in this note.
((1)) Bertha Park Limited is a Company in which Sandy Adam and Innes Smith are
Directors. During the year the Group made sales to Bertha Park Limited of
£13,751k (2022: £18,226k) in relation to a build contract. At the year end,
£3,399k (2022: £3,983k) is included in trade debtors and included within
other debtors is a loan of £5,125k (2022: £5,125k). During the year, the
Group had purchases from Bertha Park Limited of £nil (2022: £371k) in
relation to a build contract.
15. Analysis of net debt
An analysis of net debt is as follows:
2023 2022
£000 £000
Cash in hand and bank 8,909 16,390
Bank borrowings (70,673) (50,486)
(61,764) (34,096)
Lease liability (5,900) (3,954)
Net debt (67,664) (38,050)
Deferred consideration (36,117) (12,574)
(103,781) (50,624)
Reconciliation of net cashflow to movement in net debt is as follows:
At 1 June 2022 New leases On acquisition Cashflow Fair value At 31 May 2023
£000 £000 £000 £000 £000 £000
Cash and cash equivalents 16,390 - - (7,481) - 8,909
Bank borrowings (50,486) - - (20,187) - (70,673)
Lease (3,954) (3,694) - 2,147 (399) (5,900)
Net debt (38,050) (3,694) - (25,521) (399) (67,664)
Deferred consideration (12,574) - (30,781) 6,137 1,101 (36,117)
(50,624) (3,694) (30,781) (19,384) 702 (103,781)
At 1 June 2021 New leases On acquisition Cashflow Fair value At 31 May 2022
£000 £000 £000 £000 £000 £000
Cash and cash equivalents 15,826 - (22,921) - 16,390
23,485
Bank borrowings (34,000) - - (16,486) - (50,486)
Lease (2,613) (2,396) (301) 1,437 (81) (3,954)
Net (debt)/cash (20,787) (2,396) 23,184 (37,970) (81) (38,050)
Deferred consideration (2,107) - (13,000) 2,362 171 (12,574)
(22,894) (2,396) 10,184 (35,608) 90 (50,624)
16. Subsequent events
Post year end, a term loan of £18.0m has been put in place and the Company's
overdraft facility was extended by a period of 12 months, with repayment and
expiry date respectively of 30 September 2024. The term loan facility attracts
an interest rate of 2.75% per annum above Bank of England SONIA (Sterling
overnight index average response rate). The overdraft facility attracts an
interest rate of 3.0% per annum above Bank of England base rate.
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