SHARES in Springfield Properties plunged by nine per cent after the Elgin-based housebuilder revealed spiralling inflation had led it to pause activity in the affordable housing market, sparking an unspecified number of redundancies at the company.

Springfield declared the impact of cost inflation on fixed-price contracts in affordable housing had offset the growth it had seen in the private market as it reported profits had fallen by 5% to £5.9 million in six months to November 30.

The company said it will not enter any new long-term fixed contracts for affordable housing until market conditions improve.

And chief executive Innes Smith said it would not invest in speculative building in the near future, with the company focusing on reducing its debt.

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Profits at Springfield dipped in the first half amid the fall-out from former Prime Minister Liz Truss’s mini-Budget in September, which Mr Smith said had reduced homebuyers’ confidence and increased the cost of mortgages “significantly” in light of the subsequent rise in interest rates.

He told The Herald that Springfield has seen “green shoots” in the New Year, with reservation rates gradually increasing in January, but said the recovery had still to be established.

Springfield underlined the impact of its acquisitions of Mactaggart & Mickel Homes in July and Tulloch Homes in December 2021, as revenue from its private housing business increased to £118.6m in the first half from £47.3m at the same stage last year.

The company completed 429 homes in the first half, and is on track to deliver 1,200 for the full year, the company said.

However, revenue from affordable housing dipped by 12% to £27.9m from £31.7m amid the impact of cost inflation on fixed price contracts that were signed two to three years ago, which reduced margins.

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Overall revenue increased by 85% to £161.9m.

Springfield said it would hold back from further work in affordable housing until conditions improve and the Scottish Government reviews its affordable housing investment benchmark.

Next year, affordable housing will account for 13% of Springfield’s business, compared to the 30% it has been responsible for previously.

“It has just become an incredibly difficult market,” Mr Smith said. “We have had 15 very good years of affordable. It’s a bad year this year so clearly we are pulling back and we have got the projects right down on affordable.

“But on the positive side the customer reservations are up.”

Mr Smith noted reservation rates in the private housing had steadily recovered in January to levels seen before the Truss mini-Budget, declaring that “there is more confidence in the market”.

He added: “People can see where the mortgage rates are at. Inflation is on its way down. We have seen prices remain stable. We have had no price decreases and we have no need of doing that so we do think the green shoots are there. Whilst we can’t quite see the flowers, we do see the green shoots.”

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Mr Smith went on to highlight the falling price of commodities such as natural gas, oil and timber, which he said will accelerate as housebuilders reduce output and, ultimately, feed through to energy bills and the cost of living.

“That is coming, so that is clearly a positive,” he said.

Springfield reported that it undertook a restructuring further to its £46.3m acquisition of the housebuilding business of Mactaggart & Mickel which, along with other actions to save costs, will lead to annualised cost savings of around £3m.

Asked where the savings have been made, Mr Smith said “some senior management have left the business” further to the restructuring, while other people have departed and not been replaced.

He said: “Obviously, as turnover has gone down in affordable [housing], then unfortunately redundancies have had to happen.

“That is one of the consequences of taking the foot off the gas.

“There are real people getting impacted – [it is not just that] they are not getting the houses, [there are] employees that are no longer here because of that.”

Asked to specify how many people had been made redundant, Mr Smith said: “I would prefer not to.”

Springfield currently directly employs around 900 people, plus a further 1,500 on a sub-contracted basis.

The company has also stepped back from building homes for the private rented sector, following the move by Scottish ministers to cap rent increases to help people amid the cost-of-living crisis. It had previously been planning to build 300 PRS homes in partnership with Sigma Capital Group.

Springfield reported that net debt stood at £73.7m on November 30, compared with £38m at May 31. It noted that the increase reflected the “usual working capital cycle... with significant work-in-progress at period-end for delivery in the second half of the year and in the next financial year, as well as the Mactaggart & Mickel Homes acquisition.”

Shares closed in Springfield Properties closed down 8p, or 9%, at 80p.