REG - Springfield Props. - Trading Update

Springfield PropertiesAnnouncement

19/07/2023 07:00

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RNS Number : 4385G  Springfield Properties PLC  19 July 2023

19 July 2023

 

Springfield Properties plc

("Springfield", the "Company", the "Group" or the "Springfield Group")

 

Trading Update

 

Springfield Properties (AIM: SPR), a leading housebuilder in Scotland focused
on delivering private and affordable housing, provides the following update on
trading for the year ended 31 May 2023.

 

Summary

·    Full year 2023 revenue expected to be approximately £330m,
representing year-on-year growth of 28% and the Group's highest ever annual
turnover despite the turmoil in the housing market

·    Revenue growth driven by the full year contribution from the
acquisitions of Tulloch Homes and Mactaggart & Mickel Homes

·    Profit before tax for FY 2023 expected to be in line with market
expectations

·    Strategic decision taken to pause entering long-term affordable
housing contracts

·    Implemented cost savings of c. £3.0m on an annualised basis in
direct response to market conditions

·    High-quality land bank of c. 16,300 plots at 31 May 2023, with over
half having planning permission, and a GDV of c. £3.5bn

·    Net debt reduced to £68.0m at year end (30 November 2022: £73.7m)

·    Progress made against the first-year objectives set within the
Group's ESG strategy that was published during the year

 

The Group expects to report its highest annual revenue of approximately £330m
for the 12 months to 31 May 2023 (2022: £257.1m), representing year-on-year
growth of 28%. This increase was driven by the acquisitions of Tulloch Homes
in December 2021 and the Scottish housebuilding business of Mactaggart &
Mickel Group ("Mactaggart & Mickel Homes") in June 2022, reflecting their
first full 12-month contributions. In total, the Group completed over 1,300
homes during the year (2022: 1,242).

 

The Group expects to report profit before tax for 2023 in line with market
expectations. As previously announced, the reduction in profit compared with
the prior year reflects the impact of significant build cost inflation,
particularly on fixed-price contracts in affordable housing, affecting margins
across the Group.

 

Private housing

 

Revenue and completions increased significantly in private housing, primarily
reflecting the contributions from Tulloch Homes and Mactaggart & Mickel
Homes. However, the Group also delivered organic revenue growth in private
housing. The average selling price for private housing increased to
approximately £290k (2022: £245k). This partly reflects the higher sales
prices associated with Mactaggart & Mickel Homes, but also an increase in
prices across the Group's private housing.

 

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, which
remained low for an approximately three-month period. While there was recovery
in the second half of the year, the forward order book at year end was below
that of the previous year, as expected.

 

Affordable housing

 

In affordable housing, there was a reduction in revenue, as expected, as the
Group took a cautious approach to entering into new long-term affordable
housing contracts, which it has maintained since year end. However, the Group
is pleased to note that, in June 2023, the Scottish Government increased the
affordable housing investment benchmarks by 16.9%. This 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.

 

Land bank

 

As at 31 May 2023, the Group's land bank consisted of c. 16,300 plots (31 May
2022: 16,652), of which over half had planning permission (31 May 2022:
52.1%). The gross development value ("GDV") of the land bank at year end was
c. £3.5bn (31 May 2022: £3.5bn). The Group strengthened its land bank
during the year with the acquisition of Mactaggart & Mickel Homes,
comprising a total of 701 plots in highly desirable locations within the
Central Belt of Scotland. However, overall, the number of plots at year end
was lower than the same point of the previous year as the Group's focus has
been on building out its existing land bank and reducing land buying activity
in response to market conditions. The Group also realised value from its land
bank with the strategic sale of land (of 60 plots) to a national
housebuilder, as previously announced, and will seek similar opportunities
going forward. The Group's land bank ensures it is well-placed for when market
conditions improve.

 

Decisive response to market conditions

 

The Group took decisive action during the year, which has been maintained post
period end, to address the uncertain market conditions. As noted, the Group
temporarily halted entering new large long-term affordable housing contracts
and adopted a cautious approach to new site launches in private housing. Other
actions include reducing land buying activity; pausing recruitment and
reducing staffing levels in areas most impacted by the market downturn; and
maintaining tight cost control, including identifying synergies across the
business. As a result of these actions, the Group has delivered savings of
approximately £3.0m on an annualised basis. As noted, the Group also made a
strategic land sale during the year and will consider further opportunities as
they develop where the terms and price are desirable.

 

Alongside these actions, the Group's private housing is supported by the
Scottish missive system, which ensures that customers are contracted into the
purchase much earlier in the build programme.

 

Building sustainably

 

Already benefitting from decades of experience in modern methods of
construction and providing air-source technology as an alternative to gas, the
Group took further action to improve the sustainability, quality and
efficiency of its homebuilding. This includes completing a review into the
design, construction and plotting efficiency to refine the house-type range
across the Group's brands. Good progress has been made against the first-year
objectives set within the Group's ESG strategy that was published during the
year. In addition, the acquisition of Mactaggart & Mickel Homes included a
timber frame factory near Glasgow, which complements the Group's facility in
Elgin, further reducing the Group's carbon footprint.

 

The Group will provide further details in its final results announcement,
currently expected to be announced in September 2023.

 

Innes Smith, CEO of Springfield Properties, said:

 

"Against a challenging market backdrop, we delivered our highest annual
revenue, reflecting our acquisitions as well as organic growth in private
housing. While our margins were impacted by significant build cost inflation,
particularly in affordable housing, we took decisive action to address this.

 

"We remain cautious about the near-term outlook, particularly given the
softening in demand following the increase in rates by the Bank of England to
5%. We are closely monitoring the economy and buyer behaviour in both the
housing and land market and carefully managing our activities to limit our
exposure in the slower sales environment. This will also ensure that we can
respond quickly when normalised demand returns. With over half of our large,
high-quality land bank having planning permission, we are well-positioned for
when market conditions improve. We are also encouraged that the Scottish
Government has now increased its affordable housing investment benchmarks,
supporting the viability of affordable housing projects going forward.

 

"Moreover, the fundamentals of the housing sector in Scotland remain strong.
There is an undersupply of housing, which is being exacerbated by the current
conditions, and there is greater affordability in Scotland compared with the
UK as a whole.

 

"Above all, we remain committed to delivering great quality housing for our
communities and value for our broader stakeholders both now and in the years
to come."

 

 

Enquiries

 

 Springfield Properties
 Sandy Adam, Chairman                                          +44 1343 552550

 Innes Smith, Chief Executive Officer

 Singer Capital Markets
 Shaun Dobson, James Moat, Oliver Platts (Investment Banking)  +44 20 7496 3000

 Gracechurch Group
 Harry Chathli, Claire Norbury                                 +44 20 4582 3500

 

Analyst Research

 

Equity Development and Progressive Equity produce freely available research on
Springfield Properties plc, including financial forecasts. This is available
to view and download here:

https://www.thespringfieldgroup.co.uk/news/updates-and-analyst-reports
(https://www.thespringfieldgroup.co.uk/news/updates-and-analyst-reports)

 

 

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