Springfield issues profit warning amid rising interest rates and economic uncertainty
Springfield Properties said it is taking a cautious approach to expectations of future sales rates after it warned higher interest rates and economic uncertainty is hitting demand for private homes.
In a trading update published yesterday, the Moray-based group said it entered the 2023 financial year with a “strong order book” and “sustained demand” in private housing, but against a “challenging market backdrop”. “Since then, the rise in interest rates and broader economic uncertainty have impacted reservations for the group’s private housing,” it added.
More than 11% was wiped off the company’s share price following the announcement.
Since its revenues for this current financial year are largely protected by the Scottish missive system, Springfield said it “expects to report a strong increase in revenue for H1 2023 and remains on track for good revenue growth for FY 2023.” However, cognisant of the continued market uncertainty, the Board is taking a cautious approach to expectations of future sales rates.
The announcement added: “The industry-wide inflationary pressures in materials and labour have become more acute as supply chain disruption has persisted and 7.5% inflation has been prudently applied to the group’s future costs for H2. Private house price growth is no longer anticipated in the short term rendering the increase in build costs more difficult to mitigate.”
The group said its affordable housing business “continues to be impacted due to the industry’s model of fixed price contracts” and with the Scottish Government yet to review its affordable housing investment benchmark. As a result, it will continue to hold off from entering into long-term fixed-price contracts in affordable housing.
In addition, Springfield’s plans to deliver homes for the private rented sector (PRS) are unlikely to come forward in the next couple of years following the Scottish Government’s introduction of a temporary rent freeze, it said. These factors are expected to combine to impact the group’s margin and, as a result, it now expects to report profit before tax for FY 2023 below that of FY 2022.
The update added: “The Board continues to believe that the fundamentals of the business and of the housing market in Scotland remain strong. There is an undersupply of housing across all tenures, and the group offers high quality, energy efficient homes in popular locations across the country - with greater affordability in Scotland compared with the UK as whole. The Scottish Government maintains its commitment to investing in the delivery of more affordable homes and the group’s strategic land bank provides opportunities for land sales in the short term.
“The group is focused on maintaining tight cost control during this volatile period, whilst the historic investment in the land bank, half of which has planning permission already granted, provides the group with visibility and an excellent platform from which to take advantage of the next upturn in the market cycle.
Springfield’s interim results are currently expected to be published in February 2023.