23 February 2021

Springfield Properties plc

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

Interim Results

Significant six-month growth - well placed for the full year

Substantial reduction in net debt through delivery against strong order book

Springfield Properties (AIM: SPR), a leading housebuilder in Scotland delivering private and affordable housing, announces its interim results for the six months ended 30 November 2020.

Financial Summary

* Adjusted to exclude exceptional expenses of £0.5m primarily relating to consolidation of Livingston operations into the existing Larbert office (H1 2019/20: £nil)

Operational Summary

·   Build and sales activity rebounded strongly following resumption of operations from late June - reflecting a longer shutdown of construction sites in Scotland due to COVID-19 restrictions

o Resumption of build work enabled completion of homes scheduled for handover in April and May 2020; sites have remained open with no significant impact from subsequent lockdowns

o Robust sales activity strengthened the order book, providing substantial visibility over full year forecasts

·    Realisation of work in progress enabled substantial reduction in net debt to £33.2m at 30 November 2020 from £68.8m at 31 May 2020

·    Total completions increased to 443 homes (H1 2019/20: 438)

·    Sustained progress in advancing land bank with planning approval received for more than 450 homes during the period and the proportion of land bank with planning permission increasing to 53.8% (31 May 2020: 49.7%)

·    Total land bank of 15,029 plots (31 May 2020: 15,882) with Gross Development Value ("GDV") of £3.1bn (31 May 2020: £3.3bn)

·   Strengthened operations with implementation of efficiency and rationalisation measures to reduce costs by approximately £1m on an annualised basis

·    Post period, agreed with Sigma Capital Group plc to commence progressing first homes for the Private Rental Sector ("PRS") at Bertha Park Village

Private Housing Delivery

·    Revenue of £74.3m (H1 2019/20: £57.1m) with 311 completions (H1 2019/20: 258)

·   Significant growth primarily reflecting completion of homes originally scheduled to be delivered at the end of 2019/20, but postponed to this year due to the temporary cessation of build activity during the first COVID-19 lockdown

·   Strong sales activity following reopening of sales offices at the end of June; reflecting pent-up demand and increasing desirability of the type of larger housing with plenty of green space that Springfield offers

·    Continued progress on Village developments, with key highlights including:

o  Advancing of community facilities, including the opening of convenience stores at Bertha Park, Perth and Dykes of Gray, Dundee

o  Planning approval received for PRS homes at Bertha Park

Affordable Housing Delivery

·    Revenue of £19.5m (H1 2019/20: £22.2m) with 132 completions (H1 2019/20: 180), reflecting limited activity in June 2020 compared with a full six-month period of operations for the comparative period

·    Construction commenced at The Wisp, Edinburgh - a 104-home development - and on the first phase of 144 homes at Dalmarnock, Glasgow under agreements worth £18.5m and £18.2m respectively

·  Continued progress under the Group's local authority framework agreement with Moray Council for 10 affordable-only developments with completion of handovers at the second development

·    Commenced handovers at Duns in the Scottish Borders to Berwickshire Housing Association - a new partner for Springfield

Innes Smith, Chief Executive Officer of Springfield Properties, commented: "This has been an excellent six months for Springfield. We safely and efficiently resumed construction to complete the homes that had been scheduled for handover at the end of the previous financial year. Our sales offices re-opened to significant interest, reflecting pent-up demand and the increasing desirability for the type of housing Springfield provides with spacious homes with private gardens and easy access to plenty of green space. As a result, we were able to deliver significant revenue growth and substantially reduce our net debt position, reflecting the operational gearing of the business. On behalf of the Board, I would like thank our employees for their hard work and dedication during this time, which has enabled us to achieve these great results.

"Springfield has a large, high-quality land bank across almost all the key geographies in Scotland, which we continued to develop and received planning approval for over 450 homes. We strengthened our operations by implementing a number of efficiency and rationalisation measures that will reduce our cost base going forward. We are also pleased to have agreed, post period, with Sigma Capital that we will be progressing our first housing for the private rental sector at our Bertha Park Village.

"With substantial visibility over our private and affordable housing revenue for the full year, we look forward to delivering significant growth for 2020/21, and expect to be slightly ahead of current market expectations."

Enquiries

Analyst Presentation

Innes Smith, Chief Executive Officer, and Michelle Motion, Chief Financial Officer, will be hosting a webinar for analysts at 9.00am GMT today. To register to participate, please contact joequinlan@luther.co.uk.
 

Operational Review

Springfield achieved significant growth in the first half of 2020/21, driven by strong sales of the Group's private housing. This primarily reflects the completion of homes that were scheduled to be delivered in the final two months of 2019/20, but which were postponed to H1 2020/21 due to the temporary cessation of build activity during the first COVID-19 lockdown. Operations on site were resumed, with COVID-19 safe working protocols in place, from 15 June 2020 and construction activity had recommenced on every development by mid-July. The Group's operations have continued with minimal disruption since re-opening in June and the Scottish Government has provided certainty that housebuilding and supporting activities can continue in all tiers of the local restrictions that have been in place in Scotland since October 2020.

Sales activity rebounded strongly following the reopening of sales offices on 29 June 2020. This reflects pent-up demand as well as an increasing desirability for the type of private housing Springfield offers, with larger homes, gardens and access to plenty of green space, particularly at its Village developments. The Group's sales teams also successfully adapted to new ways of engaging customers. In particular, this includes greater use of technology, such as virtual walkthroughs of show homes and online reservations. The Group also continued to expand its pipeline of contracted revenue in affordable housing to be delivered during the year.   

During the period, the Group undertook a review of its business to identify areas for greater efficiency and rationalisation. These measures, which include consolidating its Livingston operations at its office in Larbert, will improve efficiency, reduce overheads and strengthen the Group's ability to navigate any potential future challenges.    

Land Bank

In the first half of the year, the Group focused on realising value from its large, high-quality land bank and generating cash by prioritising the delivery of homes nearing completion. At 30 November 2020, the Group had 43 active developments (31 May 2020: 44 active developments) and during the period:

·    five developments were completed;

·    four new active developments were added to the land bank;

·    planning gained on 479 plots over eight developments;

·    the proportion of the land bank with planning consent increased to 53.8% (31 May 2020: 49.7%); and

·    as at 30 November 2020, the land bank consisted of 15,029 plots (31 May 2020: 15,882).

Private Housing

During the period, the Group completed 311 private homes (H1 2019/20: 258). The average selling price for private housing increased to £239k compared with £221k for H1 2019/20 due to housing mix.

The Group had 26 active private housing developments at 30 November 2020 (31 May 2020: 25), with four active developments added during the period and three developments completed. In total, as at 30 November 2020, the private housing land bank was 10,815 plots on 60 developments (31 May 2020: 11,416 plots on 61 developments).

During the period, the Group gained planning consent for 89 plots across two developments for private housing. As at 30 November 2020, 52.1% (5,639 plots) of private housing plots had planning consent (31 May 2020: 49.7%), with 26.7% going through the planning process and 21.2% at the pre-planning stage.

Village developments

Springfield Villages are standalone developments that include infrastructure and neighbourhood amenities. Each Village is designed to have up to approximately 3,000 homes, catering for around 7,000 residents, with ample green space and community facilities. They primarily offer private housing, but also include affordable housing and with the potential to expand to include PRS housing. The Group has three Villages that are home to growing communities and two Village developments that are going through the planning process.

Key developments during the period include the expansion of amenities at the Group's most advanced Villages - Dykes of Gray near Dundee and Bertha Park near Perth - with the opening of convenience stores. The Group also strengthened community engagement at these Villages with the appointment of a community liaison officer and the launch of quarterly newsletters.

A key milestone was achieved, post period, with the Group agreeing with Sigma Capital Group plc ("Sigma"), a high-quality PRS provider specialising in suburban, family homes, to commence progressing housing for PRS at Bertha Park. This will be Springfield's first PRS housing. It follows the Group entering into a strategic partnership with Sigma last year and, during the period, receiving planning approval for 75 homes to be built for PRS at Bertha Park. The Group will deliver purpose-built houses for families to rent, which, following handover, will be owned, let and managed by Sigma under its 'Simple Life' brand. This is expected to increase the build out rate for the Village and underscores Springfield's commitment to develop mixed-tenure Villages that meet everyone's housing needs.

Also at Bertha Park, post period, the Group commenced construction on the second phase of private housing, which consists of 25 homes.     

Other private housing highlights

Outside of its Village developments, the Group completed 243 private homes during the period (H1 2019/20: 200). Private housing revenue excluding the contribution from Villages made up 79.8% of total private housing revenue (H1 2019/20: 82.3%). The significant increase in completions primarily reflects the handing over of homes that had been nearing completion prior to lockdown.

As noted, the Group's sales teams successfully adapted to new ways of engaging customers as a result of the pandemic. This included developing a facility to enable digital reservations with secure online payments and arranging 'drive in' reservations where customers remain in their vehicle while liaising with sales personnel.

Affordable Housing

During the period, Springfield completed 132 affordable homes (H1 2019/20: 180). The reduction was primarily due to monthly valuations (of work completed) largely recommencing in July, following work on site resuming from late June, compared with a full six-month period for H1 2019/20. The average selling price increased to £148k compared with £123k for H1 2019/20 reflecting the higher build costs of the property types and locations of the homes delivered as well as the prior period including a larger proportion of cost-plus contract sales.

The number of active affordable housing developments was 17 at 30 November 2020 (31 May 2020: 19), of which seven were affordable-only developments (31 May 2020: nine). As at 30 November 2020, the total affordable housing land bank was 4,214 plots on 44 developments (31 May 2020: 4,466 plots on 47 developments).

During the period, Springfield secured planning consent for 390 affordable housing plots across eight developments (of which one was an affordable-only development). As at 30 November 2020, 58.2% (2,453 plots) of affordable housing plots had planning (31 May 2020: 48.7%), with 24.7% of plots going through the planning process and 17.1% at the pre-planning stage.

Key operational highlights in affordable housing during the period include commencing construction at

The Wisp, Edinburgh under an £18.5m development agreement with PfP Capital for 104 apartments and at Dalmarnock, Glasgow under an £18.2m agreement with West of Scotland Housing Association for 144 affordable homes and two commercial units. This represents the first phase of construction at these two large developments that are for a total of 200 and 237 homes respectively.    

Springfield continued to make progress under its local authority framework agreement with Moray Council for 10 affordable-only developments. The Group completed handover of a second development under this agreement and commenced construction on another development - with four developments currently undergoing construction. The Group is also nearing completion of its second phase of 58 affordable homes at Bertha Park Village.

The Group commenced handovers at Duns in the Scottish Borders to Berwickshire Housing Association. This is Springfield's first project with this housing association and represents an expansion of its partnership network.

Financial Review

Revenue for the six months to 30 November 2020 increased by 18.3% to £94.4m (H1 2019/20: £79.8m). This reflects significant growth in private housing revenue, which was primarily due to the handover of homes that were scheduled for completion in April and May 2020 being postponed into the new financial year. Revenue from affordable housing was lower compared with the first half of the previous year due to monthly payments on contracts largely recommencing from July. Consequently, private housing accounted for 78.7% (H1 2019/20: 71.5%) of Group revenue with affordable housing contributing 20.6% (H1 2019/20: 27.7%) of total sales. 

* Principally land sale, plant hire revenues as well as construction-only projects, typically on land not owned or controlled by Springfield where the Group receives fees for design and construction work.

Gross profit increased by 16.4% to £18.5m (H1 2019/20: £15.9m) due to the higher revenue. Gross margin was 19.6% (H1 2019/20: 19.9%), which primarily reflects changes in sales mix. There were also some one-off costs related to the start-up of operations following lockdown.

Administrative expenses were lower at £8.9m (H1 2019/20: £9.1m). The reduction reflects the initial savings from the measures implemented following the Group's review of its business to identify areas for greater efficiency and rationalisation as noted above. The Group expects these measures to reduce expenses by approximately £1m on an annualised basis from the current financial year. 

Exceptional items during the period were £0.5m (H1 2019/20: £nil). This mainly relates to employee costs as a result of the consolidation of the Group's Livingston operations at its office in Larbert as well as the cost of furloughed employees, which was largely offset by grant income received under the UK Government's Coronavirus Job Retention Scheme.

Operating profit increased to £9.3m (H1 2019/20: £6.9m) and operating profit before exceptional items increased to £9.8m (H1 2019/20: £6.9m), which was due to the higher revenue. Profit before tax was £8.6m (2019/20: £6.3m) and profit before tax and exceptional items was £9.0m (H1 2019/20: £6.3m), which primarily reflects the greater revenue, but also lower finance costs.

Basic earnings per share increased to 7.07 pence (H1 2019/20: 5.28 pence). Basic earnings per share (excluding exceptional items) increased to 7.55 pence (H1 2019/20: 5.28 pence).

Net debt (excluding right-of-use lease liability) at 30 November 2020 was £33.2m (31 May 2020: £68.8m; 30 November 2019: £53.7m). The substantial reduction reflects the Group completing handovers and delivering against its strong order book of near-term revenue following the recommencement of operations at the end of June, generating a net cash inflow from operations of £36.3m (H1 2019/20: outflow of £20.4m).

In April 2020, in response to the COVID-19 outbreak, the Group agreed an additional £18m, 12-month, term loan facility to ensure it would have sufficient financial headroom in the event of a 12-month lockdown. With the Group's strong financial performance following the resumption of operations, the facility has been largely unutilised and the Group does not intend to renew it at the end of its term in April 2021.

Sustainability

Springfield has always had sustainability at its core - taking measures to protect the environment, supporting the development of local communities and the Group's workforce, and building a business to last.

During the period, the Group continued to pursue initiatives to increase the sustainable nature of its operations. In particular, the Group strengthened its community engagement at its Village developments with the establishment of community liaison officers and commencing the publication of quarterly newsletters. The Group also continued its commitment to education by delivering its student mentoring and work placements activities on a virtual basis and, post period, developing video clips showcasing roles and skills within the business to inspire school pupils. In further support for the transition to employment, the Group maintained its apprenticeship programmes, with 17% of its employees during the period in apprenticeships or formal training programmes.  

The wellbeing of its workforce has always been of paramount importance to Springfield. The Group continued to actively implement COVID-19 safety measures across its business and, post period, enrolled in asymptomatic testing initiatives being piloted by Moray and Fife Councils. To help reduce community transmission and protect workers, mobile testing stations will be set up at each of the Group's developments in Moray and Fife to conduct lateral flow tests on everyone on site. If anyone tests positive, they will be asked to self-isolate immediately and book a PCR test at one of the larger test centres to confirm the result.

The Group is in the process of formalising a framework to capture its values and vision with regards to sustainability and establish targets against which progress can be measured. The Group looks forward to providing an update on these activities in its annual report where it will also continue to disclose its energy usage and greenhouse gas emissions.

Markets

The Group continues to be supported by strong short- and long-term market drivers across its private and affordable housing.

Demand for housing in Scotland continues to outstrip supply at a time of low interest rates and good mortgage availability. As a result, house prices remain buoyant, with an increase of 8.6% in the average house price in Scotland in the year to November 2020.  

A further key trend is the increasing desirability for the type of housing Springfield offers. Customers are prioritising homes that are more spacious, with gardens and greenspace and, as particularly provided by the Group's Village developments, have local amenities within walking distance.

While the Group was disappointed to note Help to Buy (Scotland) being largely closed to new applicants ahead of schedule, the pricing for the majority of its private housing falls outside the scheme limit and its cessation is applicable to approximately 5% of Group revenue (based on H1 2020/21 and FY 2019/20 sales). Moreover, the Scottish Government continues to support the private housing market with the First Home Fund, an interest-free equity loan for first time buyers of up to £25,000 and which is not restricted by house price.

The Scottish Government has reiterated its commitment to the delivery of affordable housing, including in its recently published Infrastructure and Investment Plan. Over £3.4bn has been earmarked for affordable housing funding through to March 2026, starting with an allocation of £787.6m for 2021-22.  

The Board keeps under review the potential impact of Brexit and the global COVID-19 lockdowns on the price and availability of materials and labour, and currently does not expect the Group to be significantly affected. Over 60% of the Group's private homes are built with timber kits produced at the Group's own off-site manufacturing facility. The Group has long-established relationships with suppliers and sub-contractors across Scotland. In addition, the Group has an established supply of skilled labour, which is supported by its apprenticeship and training programmes. As a result, the anticipated increases in labour and material costs are expected to have an immaterial impact on total costs, and are expected to be offset by the anticipated increases in housing sales prices.

Dividend

The Board is pleased to declare an interim dividend of 1.3p per share with an ex-dividend date of 4 March 2021, a record date of 5 March 2021 and a payment date of 25 March 2021.

Outlook

Springfield entered the second half of the 2020/21 financial year delivering against a strong order book, with substantial visibility over full year revenue forecasts based on homes delivered, contracted (missived and affordable contracts) and reserved. The Group's operations have continued with minimal disruption since re-opening in June and the Scottish Government has provided certainty that housebuilding and supporting activities can continue in all tiers of the local restrictions that have been in place in Scotland since October 2020.

The Group continues to experience excellent demand across the business, which is supported by strong market drivers in private and affordable housing. There remains an undersupply of housing in Scotland and the desirability of the type of housing Springfield offers has increased. With strong demand, good mortgage availability, low interest rates and the First Home Fund for first time buyers, the Group does not expect to be materially affected by the closing of Help to Buy (Scotland). In addition, it does not anticipate any significant impact on its supply chain as a result of the UK leaving the EU, although the Board keeps this under review.

As a result, the Group remains on track to report significant growth for full year 2020/21, and to be slightly ahead of current market expectations, reflecting increased sales of both private and affordable housing, and the Board continues to look to the future with confidence.