Debt forces Springfield to revise trading strategy

Accounts for the Scottish housebuilder for the year ended 31 May 2023, revealed a 29 per cent increase in overall revenue, with strong growth (£253.4 million) coming from private housing after the acquisitions of Tulloch Homes and Mactaggart & Mickel Homes.  

Springfield also had a record year of property completions, increasing from 1,242 in FY2022 to 1,301. 

However, there was a significant impact on margins from build cost inflation, particularly on fixed-price contracts in affordable housing. Indeed, inflationary pressures led Springfield to pause entering new long-term affordable-only housing contracts. 

The Group is aiming for annual cost savings of £4 million. 

Springfield also required an additional £18 million loan and a 12-month extension to its overdraft facility to “ensure sufficient headroom in the short-term”. Net debt was reported at £67.7 million, compared to £38.1 million in the previous year.  

To reduce the Group’s debt, Springfield said it will “curtail” speculative private housing development, only building homes when they are reserved. The Board will also not make dividend payments until its bank debt is reduced.      

Highlights 

• Revenue: £332.1 million (FY2022: £257.1 million) 
• Gross margin: 14.5% (FY2022: 16.8%) 
• Operating profit: £20 million (FY2022: £21.5 million) 
• Profit before tax: £15.3 million (FY2022: £19.7 million) 
• Basic earnings per share (EPS): 10.19 pence (FY2022: 14.74) 

Outlook  

The Group said it expects adjusted profit before tax of between £10 million and £14 million for FY2024 and is planning to reduce net debt to £55 million by 31 May 2024. 

Innes Smith, CEO of Springfield, said: “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 £4m. 

“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 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.” 

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