Springfield Properties plummeted in lunchtime trading on Wednesday as it announced plans to stop paying dividends to deal with its rising debts.
The FTSE 250 housebuilder also said it expects annual pre-tax profits to fall in the current financial year as tough market conditions persist.
At 51.5p per share, Springfield Properties’ share price was last 14.9% lower in midweek trading.
Springfield said that it is witnessing “significantly lower levels of reservations in private housing due to demand being impacted by continued high interest rates, mortgage affordability and reduced homebuyer confidence.”
It added that it does not expect market conditions “to materially improve before Spring 2024.”
As a result, Springfield said it will take steps to manage its working capital, which includes not paying a dividend for the financial year to May 2023. It added that it will not deliver any shareholder payouts “until the bank debt is materially reduced.”
The company finished the fiscal year with net debt of ?67.7 million. This was up from ?38.1 million previously.
City analysts had been predicting a full-year dividend of 3.1p per share for financial 2023, down from 6.2p the year before.
The Scottish housebuilder said it was taking additional steps to repair its balance sheet. This includes actively pursuing land sales, and curbing speculative private housing development by only starting the building process when homes are reserved.
It said that “with a large number of sites with planning already in place, the group will be able to quickly accelerate site development when market confidence returns.”
The company said it is seeking to reduce net debt to around ?55 million by next May.
Profits Tipped To Drop
Reflecting current trading difficulties, Springfield said that it expects to record adjusted profit before tax of between ?10 million and ?14 million in the current financial year.
Last year profits tumbled 8% year on year to ?20.7 million. This was despite the builder printing record completions of 1,301, up from the 1,242 homes it sold the previous year.
Revenues rose 29% over the period to ?332.1 million.
Springfield noted that profits were impacted by “significant impact from build cost inflation [and] particularly on fixed-price contracts in affordable housing.” Gross margins across the group slipped to 14.5% from 16.8% a year earlier.
Due to the inflationary environment the business said it has no plans to enter any new long-term affordable housing contracts.
“Challenging Market Backdrop”
Commenting on last year’s results, chief executive Innes Smith noted that “against a challenging market backdrop, we delivered our highest level of annual completions and revenue.” He noted that the company had made cost savings of ?4 million as it took steps to mitigate high build cost inflation.
Smith said that “trading conditions have remained tough into the new financial year as private housing reservations continue to be impacted by reduced homebuyer confidence,” adding that “we do not expect to see any material improvement in homebuyer confidence before next Spring.
He said that “our priority is to maximise cash generation to reduce our debt to ensure that we maintain the value of our business.”
