Shares of Elgin housebuilder plummet as it launches debt crunching strategy

Shares of an Elgin-based housebuilder have plummeted as it announced that it will be suspending its dividend payments. The shares of Springfield Properties have dropped to 55.5p by Thursday morning compared to the same time last year when they were worth almost double that.

The slide started at that time, before rallying in February this year, before continuing its fall.

It released its annual summary of results yesterday and launched a strategy focusing on maximising cash generation in order to reduce the Group's debt.

It has also secured an additional £18m term loan and a 12-month extension to its overdraft facility.

The housebuilder, which has developments in Inverness, Forres and Elgin, said that there has been significantly lower levels of reservations in private housing due to demand being impacted by high interest rates, mortgage affordability and reduced confidence among the house-buying public. It does expect this to materially improve before Spring 2024.

Recruitment was paused and staffing levels were reduced in areas most impacted by the market downturn.

However, it did mark a record year of completions, which increased to 1,301 and has acquired Tulloch Homes Mactaggart & Mickel Homes despite the challenging market backdrop.

For the year ended 31 May 2023, revenue increased by 29.2 per cent to £332.1m (2022: £257.1m). The significant increase in revenue was driven by the acquisitions of Tulloch Homes in December 2021 and Mactaggart & Mickel Homes in June 2022, reflecting their first full 12-month contributions.

Innes Smith, chief executive of Springfield Properties, commented: "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 £4.0m.

"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 per cent of which has planning permission, and a further 3,255 acres, equating to c. 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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