Springfield Properties has said it expects to post record revenues for the latest financial year helped by acquisitions although the Scottish housebuilder underlined the scale of the challenges facing sector players amid ‘turmoil’ in the market.
Shares in the Elgin-based group surged seven per cent yesterday when it said it expected revenues for the year to May 31 to total around £330m, up 28 per cent from £257m in the preceding year.
Chief executive Innes Smith said the rise was driven by acquisitions involving other Scottish housebuilding businesses, worth around £100m in total. Springfield bought Tulloch Homes in December 2021 for £56m. It acquired the Scottish housebuilding division of MacTaggart & Mickel for £46m June last year.
The deals put Springfield in a good position to benefit from the strong market conditions that developed after the Bank of England cut interest rates to record lows to support the economy amid the pandemic.
Mr Smith noted Springfield also achieved organic growth in private housing.
Average selling prices rose to around £290,000 from £245,000.
READ MORE: Housebuilder underlines confidence in Scottish market amid ‘turmoil’ in sector
However, Mr Smith noted that conditions got much tougher during the latest financial year following moves by the Bank of England to tackle the surge in inflation that started after coronavirus restrictions were eased. This accelerated after Russia launched its full scale invasion of Ukraine in February last year.
The series of interest rate rises implemented by the bank since December 2021 has left consumers facing sharp increases in borrowing costs, which weighed on demand for Springfield’s private homes.
The company said yesterday: “In particular, there was a sharp reduction in sales levels following the UK Government's mini-budget [in September], which remained low for an approximately three-month period. While there was recovery in the second half of the year, the forward order book at year end was below that of the previous year, as expected.”
The company did not give details of sales volumes since the year end.
During the latest year the company also faced cost increases which it found hard to pass on to buyers of homes.
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In December the company issued a profit warning citing the pressure on demand and costs. It said then that profit before tax for the year to May 31 was expected to be below the preceding period’s £19.7m.
Cost increases have weighed especially heavily on the group’s affordable housing operation which has been building homes on fixed price contracts.
The company temporarily stopped taking on new long term affordable housing contracts.
Greg Poulton at house broker Singer Capital Markets noted yesterday: “There are signs of green shoots in affordable housing, where the Scottish Government has increased its affordable housing investment benchmark.”
Mr Smith said Springfield had taken decisive action in response to market conditions. This has included taking a cautious approach to new site launches in private housing, reducing land buying and cutting staffing levels in areas most impacted by the market downturn.
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However, Mr Smith appears confident that conditions will improve eventually and that Springfield will be well placed to respond.
Mr Smith said demand is expected to remain strong in Scotland on a long term basis. Recent cuts in activity by housebuilders will exacerbate supply shortages. Prices in Scotland have remained more affordable than in the UK as a whole.
Analysts cautioned that the outlook for private home sales could remain uncertain in the UK for months.
“We believe the current slowdown in transactions, widely reported by UK housebuilders could be temporary,” said Alastair Stewart at Progressive Equity Research. He added: “The key uncertainty for us is how long the current cycle of rate tightening deters buyers – our sense is around three to six months.”
News that the headline rate of inflation fell to 7.9% in the year to June, from 8.7% in the year to May, was welcomed by sector investors yesterday.
Shares in UK housebuilding giants Barratt Developments and Taylor Wimpey rose 7%.
Shares in Springfield Properties closed up 4.5p, at 69p.
The company said it expected to post profits for the latest year in line with market expectations.
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