Springfield Properties’ Shares Plunge Amid Plans to Suspend Dividends and Cut Debt

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Springfield Properties’ Shares Plunge Amid Plans to Suspend Dividends and Cut Debt
Credit: © Reuters.

Scottish housebuilder Springfield Properties, a FTSE 250 company, experienced a sharp 14.9% decline in its share price to 51.5p during Wednesday's midweek trading. The market reaction followed the company's decision to discontinue dividend payments in an effort to manage its increasing debts.

The firm anticipates a drop in annual pre-tax profits for the current fiscal year due to challenging market conditions, which are not expected to improve significantly before Spring 2024. High interest rates, mortgage affordability issues, and diminished buyer confidence have led to a substantial decrease in private housing reservations.

In response to the financial strain, Springfield Properties has outlined several measures. The company plans to suspend dividend payments for the fiscal year ending May 2023 and withhold any shareholder payouts until its bank debt has been significantly reduced. The firm ended its last fiscal year with a net debt of £67.7 million, an increase from the previous £38.1 million.

Additionally, Springfield Properties is actively seeking land sales and intends to limit speculative private housing development by only initiating construction when homes are reserved. With numerous sites already approved for planning, the firm believes it can swiftly accelerate site development once market confidence rebounds.

The company aims to reduce net debt to approximately £55 million by next May. City analysts had previously forecasted a full-year dividend of 3.1p per share for financial 2023, down from 6.2p the previous year.

Springfield Properties' profits are projected to fall amid ongoing trading difficulties. It expects an adjusted profit before tax between £10 million and £14 million for the current fiscal year. This follows an 8% decrease in profits last year to £20.7 million, despite a record number of completed houses at 1,301, up from 1,242 the previous year.

While revenue increased by 29% to £332.1 million over the same period, the company's profits were adversely affected by substantial build cost inflation, particularly on fixed-price contracts in affordable housing. This resulted in the group's gross margins sliding to 14.5% from 16.8% a year earlier.

Amid rising inflation, Springfield Properties has decided against entering any new long-term affordable housing contracts. Despite a challenging market backdrop, the company achieved its highest level of annual completions and revenue last year. It also managed to save £4 million in costs as part of its efforts to counter high build cost inflation.

The company's primary focus now is on maximizing cash generation to reduce its debt and preserve the value of its business.

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