13 December 2023

Springfield Properties plc

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

Trading Update

Trading in line with management expectations - on track to meet debt reduction target

Springfield Properties plc (AIM: SPR), a leading housebuilder in Scotland focused on delivering private and affordable housing, provides the following update on trading for the six months ended 30 November 2023.

·    Trading in H1 2024 has been in line with management expectations

o Demand in private housing remained stable but subdued

o Recommenced signing new affordable-only housing contracts, with c. £24.0m of new contracts entered into

·    Two profitable land sales agreed in H1 2024 for a total of £9.3m with funds to be received by the end of the financial year, and confident of signing other agreements in the near term

·    Net bank debt at 30 November 2023 of c. £94.0m (not including the c. £8.8m outstanding proceeds from recent land sales) and on track to meet target of reducing net bank debt to c. £55.0m by 31 May 2024 (31 May 2023: £61.8m)

·    Build cost inflation continues to reduce - expected to be c. 4% for H1 2024 - and there is greater availability of materials and labour

·    Confident of meeting market expectations for FY 2024

Focus on debt reduction

As noted in the Group's final results announcement of 20 September 2023, the Board adopted a strategy focusing on reducing debt to be in a stronger position for when normalised market demand returns. A key element of this is the active pursuit of land sales to accelerate cash realisation from its large land bank and without impacting the Group's development pipeline. During the period, the Group entered into two agreements for profitable sales of land for a total consideration of £9.3m, and is confident of signing other such agreements in the near term.  

The Group continues to carefully manage working capital by commencing to build private homes when they are reserved and maintaining tight control over costs across the Group. Build cost inflation has also continued to reduce as anticipated , and is expected to be c. 4% for H1 2024.

The Group's net bank debt was c. £94.0m as at 30 November 2023. This figure does not include the c. £8.8m of outstanding proceeds from contracted land sales to be received by the end of the financial year, with additional profitable sales expected in H2 2024. The Group remains on track to meet its target of reducing net bank debt to c. £55.0m by 31 May 2024 (31 May 2023: £61.8m).

The increase in net bank debt over the six-month period primarily reflects £11.0m in scheduled deferred payments relating to the Group's acquisitions of Tulloch Homes and Mactaggart & Mickel Homes and £6.0m in contracted payments for land. It also reflects the usual working capital cycle, with work-in-progress at the end of the first half for delivery in the second half of the year.

The Board also notes that the £18.0m additional term loan that the Group secured in September 2023 to provide extra surety against the challenging market backdrop has not been utilised.

Private housing performance

In private housing, reservation rates remained stable, but subdued, throughout the period and to date. Demand compared with the prior year period continued to be impacted by high interest rates, mortgage affordability and reduced homebuyer confidence, resulting in lower completions and reservations than in H1 2023.

The selling prices in private housing remained stable, supported by the established reputation of the high quality and higher specification housing of the Group's brands.

Affordable housing performance

The Group continues to be encouraged by the demand that it is receiving in affordable housing having recommenced engaging with providers during the period. As previously announced, since 31 May 2023 the Group has signed affordable housing contracts totalling c. £24.0m for delivery in the second half of the year and beyond, and it is in advanced negotiations regarding further contracts that it expects to be awarded in H2 2024. The Group has maintained its approach of only pursuing new affordable housing contracts that have a 12-18 month delivery timeframe, which bring lower pricing risk.

Summary & Outlook

The Group expects results for the first half of 2024 to be in line with management expectations. While there remains uncertainty in the near-term market, the Group is confident of meeting market expectations for the year to 31 May 2024, with growth anticipated in H2 over H1 across the business, in line with usual seasonality, and with a significant contribution from land sales.

Looking further ahead, the Board is encouraged by the early indications of a return in homebuyer confidence, with inflation reducing and the Bank of England holding interest rates for two consecutive months. Build cost inflation continues to moderate and there is greater availability of materials and subcontractors. The interest that the Group is receiving in its land bank - and at attractive valuations - reflects the market preparing for an upturn in trading conditions.

The fundamentals of the business and of the housing market in Scotland remain strong. There is an undersupply of housing across all tenures, which is becoming more acute - as evidenced by three local authorities, including Edinburgh and Glasgow Councils, recently declaring housing emergencies. The Group offers high quality, energy efficient homes in popular locations across the country and it has an excellent track record of delivering developments exclusively dedicated to affordable housing. This is further supported by the Group having one of the largest land banks in Scotland, with c. 6,500 owned plots and strategic options over a further 3,255 acres, equating to c. 33,000 plots as at 30 November 2023. This includes a strong landholding in the Highlands region, where new housing is recognised as a key infrastructure requirement to support the creation of the Inverness and Cromarty Firth Green Freeport, which is due to bring £3.0bn of investment and c. 10,000 new jobs into the region.

In addition, the decisive actions that the Group has taken during the current year put it in a stronger position to deliver future growth as more favourable economic and trading conditions return.

Accordingly, the Board remains confident in the Group's prospects and in its ability to generate shareholder value.

The Group will provide further details in its interim results announcement, which is expected to be announced in February 2024.

Enquiries

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