Springfield Properties plc (AIM:SPR) Scottish housebuilder lists on AIM

Springfield Properties, a leading housebuilder in Scotland offering private and affordable housing, is pleased to announce that trading in its shares commenced at 8.00am BST today on AIM.

The Group has successfully raised £25.0 million before costs and expenses through the placing of 23,584,906 new shares at a price of 106 pence per share, capitalising Springfield at £87.0 million. The Group is trading under the ticker “SPR” and ISIN number GB00BF1QPG26.

Admission and Placing Statistics

  • Placing Price 106 pence
  • Number of Existing Ordinary Shares in issue at the date of the Admission Document 58,498,736
  • Number of New Ordinary Shares being issued pursuant to the Placing 23,584,906
  • Number of Ordinary Shares in issue immediately following Admission 82,083,642
  • Placing Shares as a percentage of the Enlarged Share Capital 28.7 per cent.
  • Market capitalisation of the Company at the Placing Price on Admission £87.0 million
  • Gross proceeds of the Placing £25.0 million
  • Number of options over Ordinary Shares to be issued immediately following
  • Admission pursuant to the CSOP and ESOP 1,332,325

Sandy Adam, Executive Chairman of Springfield, said:

“I am delighted that we have been able to bring £25m of investment into Scotland. This will support an increase in the number of homes we build and create new jobs. The level of support shown by our new investors on our admission to AIM is gratifying. It is a real endorsement of the work our employees have put into building a strong and growing business. I would like to thank our new investors for their faith in our company and its staff.

“Springfield is poised to play a significant part in the delivery of the many new homes needed across Scotland. Our investment in the infrastructure of new Villages will accelerate our building of new homes, private and affordable, in new communities. The Scottish Government’s aim of building 50,000 affordable homes by 2021 has created an opportunity which underpins the growth of our affordable housing business. We welcome our new shareholders, and look forward to updating them and the wider market as we develop our pipeline of projects and position Springfield as a leading housebuilder in Scotland.”

Nplus1 Singer Advisory LLP (“N+1 Singer”) is acting as Nominated Adviser and Broker to the Group in relation to Admission.

Certain capitalised terms are as defined in the Group’s Admission Document. A copy of the Group’s Admission Document (dated 10 October 2017) is available on the Springfield Properties plc website (www.springfield.co.uk).

Business overview

Established in Elgin in 1956, the Company changed its primary operations to the development and construction of housing in 1988. Since then the Group has grown organically and through strategic acquisitions to become an award winning housebuilder, completing 620 homes in the year to 31 May 2017.

The Group’s business model focusses on securing land for residential use which often requires considerable remediation works and significant investment in infrastructure prior to commencing development of private or affordable houses. As at 31 August 2017 the Group had a land bank of 10,453 plots, with a GDV of £1.8 billion, of which 41.4 per cent. had planning permission, equating to approximately 17 years of development at current levels of activity. The total land bank increases to 12,058 plots with a GDV of over £2 billion when the Group’s unallocated land bank is included.

The Group offers both private and affordable housing, through its two operating divisions. In addition to developing affordable housing on new private developments under Section 75 agreements, the Affordable division also includes developments which consist entirely of affordable housing using a proven business model. The Directors believe that the combination of the Group’s Affordable and Private Housing divisions produce two distinct revenue streams which reduces the Group’s exposure to the Scottish private housing market cycle. The Directors believe that the combination of the two divisions is key to long term growth, with the Private Housing division producing higher margins and the Affordable division providing income and cash flow visibility.

The Group also undertakes construction-only projects. These projects typically entail the construction of homes on land that is not owned or controlled by the Group for which the Group receives fees for its design and construction work on a “cost plus” basis where the gross margin to be received by Springfield is effectively fixed. In the year to 31 May 2017 this represented 4.6 per cent. of revenue. The Group evaluates on an ongoing basis material construction-only opportunities with reference to expected margins and the available resources of the Group.

Land acquisition

The Group benefits from an experienced land and planning team who focus on sites with development potential, which may or may not be on the open market and which could be considered complex to develop. They are supported by in-house engineers and architects, who can identify site issues requiring remediation and estimate the costs of their rectification so that expected costs can be factored into purchase agreements. The land and planning team is well placed to deal with sites with several owners.

The Directors believe that this approach helps to generate better margins for the Group than would be the case if it instead focused on sites that are on the open market and/or sites which are ready for housing to be built on.

By specialising in land that is not on the open market or which could be considered complex to develop, the Directors believe that the Group has been able to build a significant land bank at attractive prices which it intends to develop over the coming years.

The Group typically undertakes extensive due diligence prior to entering into any legal commitment relating to the acquisition of land, taking into account the site’s planning history and legal status, an analysis of adjacent sites and desktop reviews of engineering issues, ecology, archaeology, landscape, roads and services. The site acquisition approval process involves consideration of various factors relating to the proposed development, including the underlying assumptions related to value, risk, scale, costs and sales rates, as well as the overall design, quality, location and scale of the project.

The Group typically sources land through option agreements or conditional contracts in order to maintain capital efficiency and operational flexibility. Approximately 70.4 per cent. of the Group’s land bank is secured by way of conditional contracts or by way of option agreements.

Under an option agreement, the Group acquires an exclusive option to purchase land during an agreed period of time. Option agreements typically include obligations for the Group to endeavour to secure planning permission at its cost, and the land is often acquired and/or paid for in stages as it is developed. Planning permission is usually granted within 18 months, at which time the Group will agree the market value of the land with the seller, or, in cases where agreement cannot be reached, the parties will appoint a third-party expert to determine a valuation. Option agreements provide for the Group to purchase land, at discount against the open market value, and may include the opportunity for costs incurred in obtaining planning permission to be deducted from the purchase price to reflect the Group’s efforts in securing planning permission. The Group will generally seek to negotiate to acquire the land in phases, or to pay the purchase price in instalments.

Under a conditional contract, the Group agrees to acquire land subject to the satisfaction of certain conditions precedent, such as the securing of satisfactory planning permission, securing control of the other sites required to implement the masterplan of the development and/or the obtaining of satisfactory ground investigation surveys. In the event the suspensive conditions are satisfied, unlike an option agreement the Group is required to acquire the land at a pre-agreed value formula at a certain point in time, which may be adjusted depending on the type of planning permission obtained.

In order to avoid the risks attached to holding speculative unzoned land, the Group has occasionally purchased zoned land from an investment vehicle, Moray Land Farming Partnership, which is a related party. Moray Land Farming Partnership purchases unzoned land considered to be highly speculative and the Group promotes these sites for zoning. Once the site has been zoned, the Group will enter into a conditional contract or option agreement to purchase the land, typically at 85 per cent. of its Market Value before the reimbursement of third party costs. In the absence of agreement between the parties on the Market Value of the land, its value shall be determined by an independent expert. These contracts require the Group to acquire the site subject to the satisfaction of securing satisfactory planning permission.

Both option agreements and conditional contracts allow the Group to effectively control land prior to its acquisition with minimal impact on its balance sheet, providing visibility on future revenue and profits. For land subject to option agreements, until it has exercised its option, the Group holds the land on its balance sheet at the cost of the option. Land subject to conditional contracts is not recognised on the Group’s balance sheet until the contract has become unconditional. Once owned, land is recognised at cost on the Group’s balance sheet.

Typically there are a number of consents and third party agreements which are outside of the Group’s direct control that are required to facilitate the ultimate end development of a particular site.

These consents and agreements typically include, amongst others:

· planning consent;

· roads construction consent;

· planning obligations including Section 75 agreements;

· Scottish Water consent to the Group’s proposed water and drainage infrastructure; and

· consent from the Scottish Environmental Protection Agency to development proposals.

Prior to entering into a contractual obligation to purchase a site, the Group will take into account the conditions attaching to the proposed purchase and the anticipated contracts and agreements that will be required to develop the site in question, as well as the timing, quantum and obligations for payment when deciding if entering into the contract is in the best interests of the Group.

Selected historical financial information on the Company

The table below sets out the Company’s summary financial information for each of the past three financial years ended 31 May 2015, 31 May 2016 and 31 May 2017.

Year ended 

31 May

2017

Year ended 

31 May

2016

Year ended 

31May

2015

Number of completions

620

495

478

Revenue (£m)

110.6

90.8

84.3

Gross profit (£m)

16.7

13.8

10.8

Adjusted Profit/(loss) beforetax* (£m)

6.7

5.1

3.1

 * Excluding an exceptional cost charged in the year to 31 May 2015 

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