‘Decisive action’ puts Springfield on course to record highest annual revenue
Springfield Properties has highlighted the “decisive action” taken to address build cost inflation and the “strong” fundamentals of the housing sector in Scotland as the housebuilder revealed it expects to record its highest ever annual revenue.
In a trading update issued today, the group said it expects to report its highest annual revenue of approximately £330 million 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 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), while net debt reduced from £73.7m to £68m.
As at 31 May 2023, the group’s land bank consisted of circa 16,300 plots, of which over half had planning permission.
Springfield also expects to report profit before tax for 2023 in line with market expectations but reduced in comparison with the prior year, something the group attributes to the impact of significant build cost inflation, particularly on fixed-price contracts in affordable housing, affecting margins across the group.
Revenue and private housing completions increased significantly, primarily reflecting the contributions from Tulloch Homes and Mactaggart & Mickel Homes. The average selling price for private housing increased to approximately £290k (2022: £245k), partly reflecting the higher sales prices associated with Mactaggart & Mickel Homes, but also an increase in prices across the group’s private housing.
In the trading update, the group said: “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.”
In affordable housing, there was an expected reduction in revenue as the group temporarily halted entering new large long-term affordable housing contracts, which it has maintained since year end.
Springfield said it welcomed moves by the Scottish Government in June to increase 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, the firm added.
Other actions to address the uncertain market conditions included 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, Springfield said it has delivered savings of approximately £3m on an annualised basis.
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.”
Springfield will provide further details in its final results announcement, currently expected to be announced in September 2023.
The results come as investment research firm Equity Development found that Springfield has navigated previous cyclical downturns impressively and has emerged strongly from them.
In a newly published detailed initiation note on the housebuilder, the firm said it has confidence in Springfield’s long-term growth prospects and sees scope for a material re-rating of the shares as investor sentiment improves.