Just a bit of housekeeping. This presentation is being recorded and will be available on the Equity Development website in due course. You can also access our analysts' research and forecasts on our website. There will be a Q&A session at the end of the presentation, so if you've got any questions for management, please post them in the Q&A box at the bottom of your screen, and I will now hand over to management to run through the presentation. Thank you, guys.
Thanks, Rach. Welcome to our results presentation for thirty-first March, two thousand and twenty-four. Apologies for the delay. I'm blaming IT for that. So if we can move on to the next slide, please. Okay, to my left is, or your right is Sandy Adam, Chairman and Founder of Springfield Properties.
Good morning.
Ian Logan, our CFO.
Morning.
And myself, CEO. Okay, this time last year, we were here, and we were probably at a low point in the housing cycle. We were upfront about it. We had just come back from summer holidays, and three weeks of sales hadn't kind of picked up. So we came to the market, and we realized at that point we needed to change our plans. So we set a new, ambitious plan with some challenging decisions and tasks to undertake. So we decided we were going to sell land, we were gonna stop speculative build, and we were gonna focus on getting debt down. And I'm pleased to announce today that we've exceeded our targets as we set out for the year.
So the number one target we set to the market was to get our bank debt down, and we set a target of GBP 55 million, and we were able to get the bank debt down to GBP 39 million. And we will explain how we got to that point to over GBP 15 million ahead of our target. Our trading results are ahead of expectations, and we've kind of followed the rest of the market with our results. One of the ways we managed to realize value was from our long, high-quality land bank, and we set ourselves a target to set 25 million, to sell GBP 25 million, and we actually secured profitable land sales of GBP 28 million, all above book values. One of those deals was a transformational agreement signed with Barratt Developments for Durieshill Village, and we'll explain a bit more about that through the presentation.
It still leaves us with a large open land bank of five and a half thousand plots, 90% of which has planning permission, and we have a strategic land bank of some thirty-one thousand, five hundred plots. We have significant land holdings in the north of Scotland, which is set to benefit from significant investment in the infrastructure and the electricity network, from the U.K. Decisive action was taken through the year to reduce costs and to manage working capital across the business, and Ian will give a bit more detail on that. Good news, we have seen an improvement in private housing since year end. It's now two years since Liz Truss did her famous Mini- Budget, and, you know, mortgage rates went up, and we've now two years passed from there.
This summer, holidays, we actually saw probably a 20% increase in our reservations compared with the same period last year. So the signs are pretty positive on that front. Affordable housing contracts, we set ourselves a target to go back into affordable after pausing it due to a dissatisfaction with inflation, build cost inflation, and the prices we were getting. So both of those things turned in our favor, and we were able to sign up GBP 50 million of contracts during the year. All of these actions and all of these results that we got gave us the confidence to go back to declaring a dividend and give a return to our investors. Ian?
Thanks, Innes. Before we go into some of the detail, as Innes said, I'm pleased to report that we've exceeded both our key targets for the year, which was a profit before tax and exceptionals of GBP 10.6 million, against the market expectation of GBP 10 million, and importantly, again, as Innes said, we've ended the year with net bank debt of GBP 39.9 million versus our stated target at this time last year of GBP 55 million. Going into some of the detail on the table, revenue was GBP 267 million versus GBP 332 million. The main reduction was in private housing. Again, this follows the trend of other house builders. That revenue reduction was offset by the land sales, and it's mentioned of GBP 28 million.
Those were a real positive for the group, and they demonstrated the ability to monetize surplus land bank quickly. So that was a really good result for us. Gross margin improved from 14.4% to 16.3%, with improvements in affordable housing margin and also the profitable land sales. Given the challenging market conditions, we've reduced our overheads from GBP 28 million to GBP 26.5 million. We flagged in half one last financial year that we had created GBP 4 million of annualized overhead savings. Some of that came through last year, and the remainder's coming through this year. We continue to keep a close eye on our overheads and make sure they're appropriate for the size of the business. Operating profit came in at GBP 18 million against GBP 20.7 million in the prior year.
If you go to the bottom of the presentation slide, net bank debt, again, GBP 39.9 million versus the previous year level of GBP 62 million. So that's something we're very pleased to land on. Next slide, Rachel. On private housing, you can see our completions are down. Again, we've mentioned that that's in line with the wider sector. Our average selling price increased from GBP 293K to GBP 316K... with increases across almost all of our brands. Most of that was due to housing mix, but as you'll see from a slide later on, pricing in Scotland is holding up very well at the moment. On affordable housing, again, our revenue was down, and that was a result of the actions we took a couple of years ago, where we had a planned pause on signing new contracts.
However, with build cost inflation more stable, we've been signing new contracts, as we've announced, over the last 12 months, totalling over GBP 50 million, and those are on terms that are more favorable for us in terms of shorter period contracts, where we can have more certainty on our cost and the ability to have predictability on our margins. Contract housing, again, the revenue was down. In the prior year, we had PRS income at Bertha Park, which we didn't have in the current year, and also Bertha Park had a planned pause in their new private phase until market conditions improved. We've now launched that private phase of housing, which is selling well, so as we go into 2025, we'll expect to see those contract housing revenues increase again. Next slide, please, Rachel.
This slide evidences the positive action that was taken last September and the strategic approach to reduce our bank debt. So we've gone from GBP 62 million to GBP 39.9 million. The main inflows are the land sales that we've talked about, of GBP 25.6 million of cash, and the operating profit of GBP 19 million. We've also got a positive working capital inflow of GBP 5.3 million, which again evidences our strategy of controlling the build spend on sites, and that's come through positively for us. In terms of outflows, the two main outflows were bank interest and tax payments of GBP 8.5 million and GBP 12 million deferred consideration payments. Next slide, Rach. Again, the balance sheet falls out really of the reduction in the net debt, but net bank debt, so you can see what our assets look like.
Our net assets at GBP 150 million at year-end, again, is an important number for us. The one other point I would highlight on there is, at this time last year, we took out a term loan for GBP 18 million to give us extra comfort. We didn't really use that term loan at all, and we repaid it early in May, similar to what we did in the Covid times, where we took out emergency funding, but it wasn't required. So on the next slide, you see our land bank distribution. Land is the key to our business, and it gives us control. It's a store of volume that we can call on in tougher times, which is what we've done this far.
... mortgage reductions. We're seeing mortgages about 1% lower than they were this time last year. I do believe that interest rates are gonna continue to fall, and we're obviously well-placed for that. Scotland, one of the important things that we always kind of come back to is Scotland is more affordable than the rest of the U.K. We are at full employment, and we're currently four times salary to mortgage rates versus six for the U.K. as a whole, so we are more affordable. Okay, then, ESG, obviously we take ESG very seriously, and just today I was reading the Press and Journal, and I can just say on an ESG front that Springfield categorically denies eating any cats or dogs. It is not what we do. We are not associated with that story, so you've heard it here.
And so all of our homes are built using MMC, which is modern methods of construction. We make the panels, and we assemble them on site. We find it's a very efficient way to build a house. We use air source heat pumps, ground source heat pumps. 22% of our site workers are currently undertaking apprenticeships. We recognize we have a responsibility to train, and it's something that's very good for our business if we're training our own people. And we have electrification of our fleet, and obviously, we follow all of the governance as required. Standards.
So to sum up, as you've heard, we've delivered on our objectives for the last year. We've put the company back into a strong strategic position. We're seeing recovery in both private and affordable markets. We retain a large land bank and strategic positions.
Our strategic alliance with Barratt at Durieshill is an excellent deal for us. We see a huge opportunity coming in the north of Scotland, where we have a dominant market position. We're on track to achieve a strong increase in profits for this next year. And the current situation, our confidence in the future, and the increasing opportunities available to us have given us the confidence to restore our dividend.
Okay, so we would just like to thank all of you who have invested or encourage you that are thinking of investing, and we'll open up now to questions. Rachel?
Thanks, guys, for that comprehensive run-through of the presentation. We've got a number of questions coming through. I'll try and keep those bunched together. So, let's start with private housing. Are you seeing a pickup demand across all regions in Scotland or any specific areas?
We've seen a general upturn across most regions. The biggest upturn has been in the Central Belt, which probably had the biggest downturn. So where the north held up quite strong throughout the last two years, certainly in the Moray area and Highland area, we kind of held our sales position. We didn't open new sites because we weren't being speculative, so that affects the sales rates. But in Central Belt we did see a downturn, but we've certainly seen in recent weeks and since June the first and since the August decision on rates, we have seen an upturn in Central Belt. That's some of the feedback I get from our colleagues across Scotland as well.
Great. Thank you. And staying with private, would you say that private reservation rates are nearly back to normal, or is there still more recovery potential to come through?
Normal. What is normal? We had-- I mean, normal, the last normal year is probably 2018, 2019. And I think we're still a bit behind that. I think Scotland-wide, we're probably at 0.5 reservations a week. This is as an industry, and we were certainly higher than that in those years. But then when you follow on from that, you had the COVID year, and then you had the frenzy after COVID, and then you've got the Liz Truss, where you've got the big downturn. So no, I think we would, you know, we'd certainly welcome a further increase in sales rates.
But we're at a level where we're above our targets, and as our targets are out there and projections, and if we're doing better than that at this current point in time, then, you know, we've got the overheads. We've adjusted those to make sure they fit with our sales now. So any increase in our sales, we think we've got some capacity for improvement from where we are. So, you know, it could be better? Of course, it could, but it's nowhere near the kind of frenzied years of 2021, 2022.
Right. Thank you. And going forward, do you expect your mix of private and affordable to stay roughly where it is at the moment, or do you think there's more growth potential on one side of the business than the other?
I think we're probably with affordable. I think there is scope for that to increase over the next two years. The issue there we have is we've got a change in government probably happening in 2026, so budgets will get a bit confused. So we've certainly got the land, we've certainly got the, you know, the volume there. What I would expect to see with the work coming in the north is an avenue of potentially PRS that we don't currently have. I think there is an opportunity to build housing that will be able to accommodate the workers that are coming up. We don't know exactly what form that would take, but we're certainly looking at that, and that's something not in our figures at this point in time.
I do see a great opportunity there because those jobs, I mean, the electrification and the upgrading of the network, as Scotland goes to try and get to 50 gigawatts, which is a target by, you know, 2050, which would then effectively supply the whole of U.K. Scotland currently uses about 5 gigawatts and, you know, England, I'm guessing, would be 45, you know, ten times, ten times the size of Scotland. Then the kind of national security aspect to that and, you know, us becoming self-sufficient is really important. So the other important thing about that is that almost becomes a non-cyclical business up north because those jobs and the investment in the Freeport, it's not really depending on what the economy is doing because it's government money that's going to be coming in.
You know, that's something that we really are excited about, and we see a great potential.
Right. Thank you. And something we often hear house builders talking about, and that's planning. What? How is there planning reform coming through? What's the outlook like?
Yes, we keep getting more and more regulations to ease the planning and to speed it up, and that Sandy's older than me, but, you know, we've never seen any regulations that speed it up, but the important thing is, while we smile and we joke about it, the kind of things to just point out is we've got five and a half thousand of our plots that we fully own and 90% of planning. We have a further, you know, a few thousand that have planning that are contracted. So any changes to planning and any slowing up of planning, in a way, it's, we've, you know, our land bank that we have is a positive because we already have that asset, and that's our, you know, Sandy says we can unlock value from that.
The potential for a capital gains tax increase to 40% is not going to lead to lots of farmers selling their land post-October or post-November. So we already have land, so we think we're in a very strong position for whatever hurdles are put in the way. And while that's, it's not what we would want long term, you know, clearly short term, we're well placed to meet those challenges where people with smaller land banks, without land planning, are not in that position. So rather than, you know, just, I criticize the planning system and say that it's a huge negative, you know, there is a positive in what we've done by banking land to this point.
... Great. That, that was one of the follow-on questions about the, impending budget, and do you, you know, foresee any potential changes that could impact you? And I guess you've mentioned, capital gains tax. Anything else?
Yeah, I stopped second-guessing government a long time ago. Like, you've seen me have a chat about government, what I think, Rachel, and it's not really for public consumption.
Probably not. Should we move swiftly on from that?
Yes.
Unsurprisingly, there's a lot of questions coming about the North of Scotland. So what does the competition in the North of Scotland look like with respect to other house builders?
I mean, there are other house builders, but it's all about land and planning and being able to react quickly. The upgrade, the initial upgrade, there's Peterhead to Beauly, Beauly to... And all of those lines that you see there, and substations. One of these substations, for example, the one at Beauly, it's a kilometer by 400 meters, so this substation, that's the size of it, and at its peak in 2028, it's gonna have 597 employees on it. So that's just an example of the kind of bodies that are coming up there. But it is happening, and it's starting in 2026, and there is... People are gonna have to stay somewhere. There's actually restrictions.
SSE are very aware that, you know, if they're having an impact on the communities, they want it to be a positive one. So they are very clear there isn't the hotel rooms, there isn't the, you know, there isn't the rental market for the influx that's coming. So they're very aware that, you know, we're gonna have to seek innovative solutions. Highland Council and Moray Council have been very positive and proactive as well. So I can see a very, you know, very positive... Everyone, the key players are working together, trying to find solutions. We have regular meetings, and I can only see that as positive. The, the other house builders, they may want to get in there, but you need land, and you need land with planning, and you need deals with landowners, and we have all of those things in place.
I think we're not the only people, and there's enough to share, and there's enough to go around, and we're gonna need, you know, everyone to be doing things here. It's such a massive impact that there's enough for everyone, but we're very well positioned for it.
Right. And, specifically with regard to Springfield, have you got the required management structure in place in the north of Scotland, and have you got the capacity, or will you need to invest more?
No, I mean, we're gonna have to grow. I mean, if we're increasing output, then we're gonna need more people. We do have the two most established house builders in the region. Tullochs are almost a hundred years old and have been building, a number one builder in the Highlands for many, many years. Springfield, obviously, in Moray, we've been there for as long as Sandy's been going. So yes, I started Beauly in our management, so yes, we know the area, and I would, I genuinely would claim we know that area as well, if not better, than anyone. So we know the area. We have great relations with the councils, great relations with the supply chain. So yes, I think we're very well equipped to deal with any upsurge.
There's certainly a boom time coming for the Highlands and the Moray area, and it's gonna bring challenges as well as opportunities, but we've just got to manage them as best we can. But it's better to have that challenges and opportunities than no opportunities. So, just, you know, we're certainly very well placed to take advantage of them.
Fantastic. And would you consider any further land sales in general, and specifically in the north of Scotland?
No. We set a target for getting our debt down, and every time we sell a bit of land, we sold surplus land that wasn't in a sort of two- or three-year plan. But every time we sell land, we're losing 20% margins that we would've made ourselves. Now, there is our debt. We set a target, 55, and then down to 40 the year after. We've actually got our debt down to where we want it to be a year from now. So we've got that to where we need it. We pressed that lever. We made profitable land sales. Each one was above book value. We've demonstrated, you know, as well as the market, what our value of our land bank could be and what the value of the business could be.
So yeah, I don't think there's a need to do it. But like anything, if things change and we need to use that lever again, then we still have that lever. But certainly, selling land to someone else doesn't make any sense in the north at this point in time.
Absolutely. And,
You know, you would do the comparison of what's the interest on our debt compared to the return you can make from that land, and it's very much in favor of the return we can make on the land.
Absolutely. And, it sounds like you've got plenty to go at, but you know, as ever, we've had the question, any further M&A activity, do you think, or is that on hold for the moment?
Well, the last in this year, unfortunately, the M&A that's coming, or the opportunities that are coming, are small- and medium-sized house builders that are, you know, really struggling. Stewart Milne being the obvious one, and we looked at their sites. It wasn't for us. But we will always look at opportunities, and if opportunities come along, and they represent value, and we think they'll offer a better return to shareholders, then we will look at them. You know, I see Cala were acquired today, and private equity, you know, acquired Cala for GBP 1.35 billion today. So there's clearly a lot of that kind of activity going on in the market just now, but sadly, we're seeing the small- and medium-sized house builders really struggling just now. But, you know, the...
Yeah, I don't want to be a, you know, if opportunities come along and we can, you know, we can see value somewhere, then obviously we would look at it. Buying land is what we do.
... Thank you. And let's have a look. We've got some wider questions. Does Westminster's housing policy have much direct influence on Scottish house building prospects?
I think it will do if Labour get in charge in Scotland in two years' time. I think devolution could be argued. It works really well if you've got the same party in power in Scotland as is in charge at Westminster, because then there's no one to blame if it all goes wrong things. So you would think if the policy of, you know, Labour at Westminster is one thing, then you would think Scotland would follow. For the two-year interim period, I can't see the SNP doing anything Labour do, because that would then make what's the point in an SNP if they're just doing exactly the same as Labour? So again, it's very difficult to guess these things, but Scotland's housing is devolved in Scotland, and, you know, they make their own decisions.
Certainly, Paul McLennan, the Housing Minister, he's a lot more proactive and engaging with the housing and Homes for Scotland and house builders. And I, like I say, John Swinney and Kate Forbes have made very significant noises about housing, as Rachel Reeves has made in England. So yeah, I do think housing is right up in the priority. But clearly, the two things that go with that are, you know, health and education as well, and the infrastructure. We through house building, we can pay for education and schooling, and, you know, we help improve infrastructure as an industry. You know, we help improve the fabric of society, shall we say? So, you know, it's important to invest in housing. There's so many good social aspects come with it.
One of the things that does happen if Labour spends a lot more on affordable housing in England is the consequential speed through to Scotland. And in the past, that money has been ring-fenced for housing, but there's no guarantee that that will continue to happen. But obviously, we hope it does.
Right. Thank you. And just, a question on the PRS market: How quickly do you envisage that that could return?
There's a housing bill that's going through, and until that housing bill is approved, there is uncertainty. And as long as that uncertainty is there, I don't see PRS coming through. So it's six months to a year, but the longer it takes, the more pent-up demand there is. It's not... You know, I think we know this in England as well, you know, the private landlords, you know, with additional dwelling supplements we have in Scotland, 6% with the mortgage interest relief no longer allowed, it's, you know, there's not a lot of people investing. We used to have 8% of our sales used to be to the investment market. You know, it's down 1%-2%, maybe, maybe even less than that now. So any changes to PRS, and remember, we've got next to none in Scotland.
We did one of Sigma's only—I think they only did two schemes in Scotland, and we know how many they've done in England. And if you speak to Sigma, you know that they're a Scottish-based company, and they've only got two sites in Scotland. It's, you know, Graham, I know, I know Graham would love to do more in Scotland, as would Moda Living, and would Legal & General, that's with the rest of them. So the ball really is in government's court, and the sooner the Housing Bill gets through, the better.
Right, well, thank you very much for answering those questions. That concludes the presentation for this time around. Thank you very much for your time, gentlemen, and we look forward to hearing from you again next year, and I hope everyone can join us for the webinar in February 2025.
Yeah, thanks for your support, everyone.
Thank you.
Thank you.
Thank you. Bye-bye.
Thanks, guys.