Springfield Properties pointed to high interest rates, mortgage affordability and reduced homebuyer confidence hitting demand as it revealed another sharp slump in profits.
The Elgin-based housebuilder also revealed it is pausing shareholder dividends until its bank debt is “materially reduced”.
Springfield is also looking for cost savings and trimming its large land bank as it tries to shore up its balance sheet.
And it is curtailing speculative private housing development by “only commencing building homes when they are reserved”.
Shares in the firm fell slightly, just 0.5p to 77.5p, after its latest results.
Springfield owed bank nearly £100m at half-year
As of November 30, Springfield’s net bank debt totalled £93.4 million. A year earlier it was £67.8m.
The 38% increase is a concern, and bosses will be painfully aware of the sudden collapse of heavly indebted Aberdeenshire housebuilder Stewart Milne Group (SMG) at the start of 2024.
SMG went under after Bank of Scotland rejected takever bids for the business and withdrew its continued support.
Springfield builds homes in Moray, the Highlands, Tayside, Fife and the central belt.
The company is “maximising cash generation” to reduce its debt by the end of its trading year to May.
Today’s results from the firm showed adjusted pre-tax profits, excluding one-off costs, of £2m. This is a 70% plunge from £6m a year ago on revenue 25% lower at £121.7m.
But Springfield insisted it is “on track” to report full-year results in line with market expectations, as well as to reduce its net bank debt to about £55m by the end of May.
Springfield seeing green shoots of recovery in demand for new homes
And it said private housing reservation rates are showing initial signs of recovery this year amid a return in homebuyer confidence.
Meanwwhile, demand for affordable housing “remains strong” and the group is “confident of signing further contracts in the near term”.
Advanced negotiations are under way for “further profitable land sales”.
The latest of these was announced yesterday, when Springfield said it had struck a deal to sell about 11.2 acres of land, equating to 85 plots, for £8.7m.
This is expected to deliver £6.5m in the current trading year and the rest in 2024-25.
Springfield suffered a 22% plunge in profits in its 2022-23 trading year.
Announcing the interim figures for 203-24 today, chief executive Innes Smith said: “Trading for the first half of the year was in line with our expectations and reflects the challenging market conditions experienced across the industry.
“To mitigate the impacts of the downturn and ensure we are in a stronger position for when trading conditions recover, we took decisive actions to maximise cash generation and reduce our debt by year end.
“A key element of this was actively pursuing profitable land sales. We are pleased to have agreed sales worth £18m so far and we expect to conclude negotiations for further sales in the near term.”
Mr Smith added: “We are encouraged by the improvement in private housing reservations that we have experienced in recent weeks and the signs of increasing homebuyer confidence, as has been reported by other housebuilders.
“We are receiving strong demand in affordable housing and have already signed contracts worth circa £40m since May 31 2023.
“We are also hopeful that the ending of the Scottish Government’s emergency rent cap in April 2024 will enable a return of PRS activity.”
The fundamentals of our business and our position within the Scottish housing market remain strong.”
Innes Smith, CEO, Springfield Properties
Springfield’s CEO continued: “Build cost inflation is continuing to reduce and is expected to stabilise at low levels.
“The fundamentals of our business and our position within the Scottish housing market remain strong. There is an undersupply of housing of all tenures, which can only be addressed through building new homes. We remain confident in Springfield’s prospects.”
‘Sad’ demise of SMG
Mr Smith told The Courier the demise of SMG was “very sad to see”.
But he insisted Springfield maintained a good relationship with its “supportive” bank.
And the Moray firm’s £200m-plus asset base more than covers its overdraft, he added.
Highlighting a recent pick-up in new home sales activity and a “lot more positive noise” around mortgage availability, Mr Smith said the market was on the up.
He added: “We’ve got the company in a good position. The back window is a bleak picture but from the front window the view is clear.