Scottish housebuilder warns over profits and reservation activity as economic reality bites
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The group also cautioned that inflationary pressures in materials and labour costs have become more acute while its plans to deliver homes for the private rented sector are unlikely to come forward in the next couple of years following the Scottish Government’s introduction of a temporary rent freeze. In a trading update ahead of announcing its interim results for the six months to the end of November, Springfield said it had entered the financial year with a strong order book and “sustained demand” in private housing, but against a challenging market backdrop. Since then, a series of interest rate hikes and broader economic uncertainty have impacted reservations for private housing.
Bosses noted that revenues for the current financial year were largely protected by the Scottish missive system, which ensures that customers are contracted into the purchase much earlier in the build programme. As a result, the group expects to report a “strong increase” in revenue for the first half and remains on track for good revenue growth for the full financial year. However, “cognisant of the continued market uncertainty”, the board is taking a cautious approach to expectations of future sales rates.
The group, which is led by chief executive Innes Smith, told investors: “The industry-wide inflationary pressures in materials and labour have become more acute as supply chain disruption has persisted and 7.5 per cent inflation has been prudently applied to the group’s future costs for [the second half]. Private house price growth is no longer anticipated in the short term rendering the increase in build costs more difficult to mitigate. The group’s affordable housing business continues to be impacted due to the industry’s model of fixed price contracts and with the Scottish Government yet to review its affordable housing investment benchmark.
“In addition, the group’s plans to deliver homes for the private rented sector are unlikely to come forward in the next couple of years following the Scottish Government’s introduction of a temporary rent freeze. These factors are expected to combine to impact the group’s margin and, as a result, the group now expects to report profit before tax for [the financial year] 2023 below that of [financial year] 2022.”
Bosses said the housing market in Scotland remained strong with an undersupply of housing “across all tenures”. They noted that the Scottish Government “maintains its commitment to investing in the delivery of more affordable homes”. The group’s interim results are expected to be published in February.
In September, Springfield confirmed that it had delivered more than 1,000 homes in a single year for the first time as it booked record full-year results. During its financial year to the end of May, the group acquired Inverness-based Tulloch Homes and, in June, struck a £46.3 million deal to buy the housebuilding business of Mactaggart & Mickel in a major consolidation move for the sector in Scotland. Springfield was established in Moray and floated on the stock market in 2017.