Springfield Properties PLC

LSE:SPR

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and thank you very much for joining us today for Springfield's Interim Results for the 6 months ended November 30, 2023. As a reminder, this webinar is being recorded. The recording will be available on the Equity Development website in due course. You can also access our analysts forecasts and research on our website. There will be a Q&A session with management at the end of the presentation. So please feel free to submit your questions in the Q&A box at the bottom of your screens.

I will now hand it over to management, specifically Innes, to start the presentation.

[Innes Smith, executive]

Okay. Welcome to the Springfield Properties PLC Half-Year Results to 30th November '23. My name is Innes Smith, I'm the Chief Executive Officer of Springfield. I've been with the business for almost 20 years, and we've been on the stock market since 2017. To my left is Martin Egan. Martin joined us when we acquired Dawn, as Managing Director and is now Chief Operating Officer. [ QS ] trade is always -- qualification could be seen at the bottom there. To my right is Iain Logan, who is Chief Financial Officer, appointed in July 2023, but [ he was with ] Springfield, 4-5 years with over 20 years of experience as a chartered accountant.

Okay. It's so good to see some of you again, although I can't see you. It's good to speak to you again. For those that I haven't met before, nice to meet you. This is an update from September and the main points that we're making today is that we are on track to hit our year-end figures.

We have taken a number of significant actions this year which have been successful and that gives us some substance behind our confidence in hitting the year end projections. As we will show throughout the presentation, we will talk about the private housing market and how we believe it is picking up and we've got some evidence of that.

We have managed to sign affordable contracts since we last spoke to people in September. Some 40 million of contracts have been achieved with more to come. We have land sales which have been secured, some 18 million with again more to come in the future. And we've managed cost savings of some 4 million a year annualized.

Going forward. Decisive action to reduce debt. We recognized that debt was too high at the end of last year and when we came down in September and we really focused on the target, and that target is to get debt down to GBP 55 million.

We have an asset base of some 277 million, so we believe that's a good place to get to as a first step. And once we get there, we'll have the opportunity to work in our land bank, which is some 6,500 plots, 90% of which are planned.

What have we done? We've carefully managed our working capital. Speculative private house building was paused. We had soft launches at new development. That basically means before we start a new site, we make sure we've got sales and we've got interest.

We've signed some 40 million of affordable contracts which are positive working capital, as I will explain as we go through. We've had a focus on cost control, generalized generating annualized savings of some GBP 4 million, which has basically been a consolidation of businesses and it has not impacted our performance.

Actively pursuing land sales. We agreed 18 million. We had said we would target over the next 2 years between 24 million and 25 million or 50 million. And we're making great headway in that with more sales to come. We've significantly reduced our land buying activity. Obviously, we have a large bank. We've really built our land bank up over the last 5 years through acquisitions. And with all of the difficulties that we're aware of with planning, we think that is a very valuable asset.

We have closed dividends up until bank debt is materially reduced. And you'll see from the projections that are out in the market and on our website that they are returning in '25 if we continue along the track that we are going.

So over to you, Iain.

[Iain Alexander Logan, executive]

Thanks, Innes. Good afternoon, everyone. The key positive from a financial perspective is that we're on track to hit our May '24 numbers, which is a profit before tax and exceptional items of GBP 10 million. And, as Innes said, reducing the bank debt to GBP 35 million.

If we look at the revenue for the 6 months to November '23 versus the revenue for the 6 months to November '22, it's GBP 120 million versus GBP 160 million. The main movement is in private housing, which is in line with what other householders are reporting.

Our gross margin has improved from 14% to 14.7%. This is a result of an improvement in the affordable margin, which we'll talk about in the next slide.

Another positive product is admin expenses. And as mentioned, the fact that we've achieved annualized cost savings of GBP 4 million, and that's starting to pick through these numbers, where we've reduced some GBP 14.7 million to GBP 12.6 million in this period.

Our profit before tax in the period was GBP 2 million versus 1 GBP 6.6 million. Aside from the revenue and the profit coming down, we've also paid GBP 3.6 million of bank interest in this period versus GBP 1.6 million previously. That's a function of higher interest costs and interest rates and higher bank debt, which is obviously something we're looking to bring down.

Next slide, please. Private housing completions are down again in line with wider market trends. Our average selling price during the period has increased from 277,000 to 314,000 per home. That's a function of higher prices across all of our brands, higher selling prices and the mix of the homes we're selling.

Going on to affordable housing. Again, our revenues are down. That's in line with the strategy whereby we stopped signing affordable contracts for a period. But again, as Innes has mentioned, that's a landscape that's come back and is attractive for us. So we're currently signing new contracts and those revenues will increase as we move forward.

On contract housing, the revenue has gone from GBP 10 million to GBP 2 million. That was a result of a planned pause in our private phase at Bertha Park whereby we completed the current phase in August and September and we wanted to wait till we saw better market conditions, which we're now seeing. So we're having a soft launch in the coming weeks which will see those revenues rise again.

We've also signed a new affordable contract at Bertha Park, which again will help with the revenues. In the previous period there was PRS revenues at Bertha park as well, which we haven't seen in the current period.

Next slide, please. If we look at the balance sheet, our total assets have reduced by GBP 20 million to GBP 327 million. This is as we would expect with lower work in progress due to the lower volumes. And we've also got lower accounts receivables from affordable contracts as the existing contracts tend to come to an end.

Other liabilities have reduced significantly to GBP 83 million, a GBP 55 million reduction. A big part of that is deferred consideration payments. We've made GBP 17 million worth of payments in the period, GBP 13 million relates to the Tulloch acquisition with those deferred payments completed and nothing further to pay, and we've made the first payment in relation to the Mactaggart & Mickel acquisition.

Bank debt has increased from GBP 67 million to GBP 93 million. Again, the main part of that is the deferred consideration payments and some land purchases. What's important when looking at the bank debt figure of GBP 93 million is that of the GBP 18 million of land sales that we've secured in the first half, GBP 15 million of that cash is set to come through in the second period, which will automatically come off the GBP 93 million.

We go on to the next slide, please. So this slide shows the bridge from net debt GBP 67 million in November '22 to GBP 93 million in November '23. Working capital and land payments account for GBP 17 million. Interest and tax GBP 8 million, GBP 17 million of the deferred consideration payments on the acquisitions that we've talked about and offsetting that sort of operating profit of GBP 18 million in the period.

The most important thing on this slide for me is how do we go from the GBP 93 million in November to the GBP 55 million at May. We always have a working capital swing in the second half whereby we hand over more private homes. So typically we're building up our cost and our work in progress in the first half of the year with a weighted handover of private homes in the second half. So there's always a natural working capital inflow in the second half.

We've got some more affordable contracts that we're working on which will have a positive cash contribution in the second half. And as we said, GBP 13 million of land sales to date, which will bring that debt figure down.

[Innes Smith, executive]

Okay, this schedule here basically shows the land holdings. And I'll just try and take you through this, the dark green there you can see our total inventories, which is GBP 277 million represented by GBP 103 being land and GBP 174 being work in progress, which is infrastructure, houses, sewers, roads, et cetera.

That's represented by 6.500 plots that we fully own and 86% or 90% if you want to round it up with planning, that is a particularly high number. And this is what we keep trying to emphasize, that the asset we have built up over the last 5 years, there are huge problems with planning. I think we're all aware of those. However, 90% of our balance sheet land has planning on it. Land has been secured off market, resulting in an attractive cost price of some GBP 16,000 per plot. That is GBP 103 million divided by 6.500.

To the right there you can see the strategic land. Now, the strategic land are options that we have over future land and none of that is represented on our balance sheet. Now, that is options over some 3200 acres, which if you take 10 plots per acre, equates to 32,000 plots. Now, clearly some of that will be speculative, some of it will be with planning, some of it will be zone, some of it will be agricultural land. But the important number that we have there is 14% of that does have planning. So that's equivalent to another 5000 plots and that's 2000 plots in sterling, about 2000 plots in [ Elgin ] And there are various other ones in there. Clearly some of the other stuff will come through. So that gives us a really good pipeline going forward.

As you can see there, we have sold 3 pieces of land in the period those land sales were for over the period, and to this date, some GBP 18 million. We've announced each of these to the market when they've happened. We have sold those in open market and we have had closing dates on them, and we've sold to private equity backed householders. We've had interest from national householders and from private householders. They have sold, on average, around about GBP 50,000 pounds per plot. All of those sales of land were on larger sites, maybe up to 400 houses for 2 of them, and they were not in our sales plan for 3 years. So they were acquired in the last 3 years through our other acquisitions, and all were done profitably.

One of the other sites, which is not a 400 site, but it was a site that was part of the [ Walker ] acquisition, had 8 million times worth of infrastructure that was required. So we did not think that was good use of capital just now, and sold that and made a small profit. As you can see at the bottom, we have an extremely large land bank, and to the right, you can see we cover most of Scotland, probably with the exception of [ Aberdeen ] Next slide.

[Iain Alexander Logan, executive]

Thank you, Innes. Afternoon, everyone. With regard to private housing, demand has been impacted by the reduction in affordability, and this resulted in the active measures that we took in September of last year to reduce our work in progress spend. We introduced strict [ build home ] stages throughout the group, and that has allowed us to more closely monitor cash outflow.

Although the market has remained subdued over the period, the past 5 weeks have seen sales average throughout the group at 15 per week and sales -- private sales now represent 90% of our target for the year.

Sales prices remain resilient across the group and we are experiencing marginal price increases. The outlook on sales volume over the coming 12 months has turned increasingly positive, supported by the expectation that interest rates will ease as the year progresses.

The forecast, in particular for the Scottish housing market, based upon the latest RICS survey information, shows a positive uptick in the key 5 housing metrics for housing. We continue to offer a high level specification of standards in comparison to our peers and have implemented new operating procedures within the period in accordance with the new Homes Quality Board. With all homes now being completed 2 weeks prior to client handover, this significantly reduces snagging items and ultimately improves quality for our clients.

Next slide, please. With regard to affordable housing, after the pause being taken on entering fixed price affordable contracts owing to build cost inflation, we have recommenced engaging with affordable housing providers with forecast inflation for the upcoming 12 months to be circa 2.5% tender costs we believe are now more stable and this, coupled with the Scottish Government increasing affordable housing benchmarks, makes previously unviable projects far more attractive again.

We are receiving strong demand for our affordable housing offering and since May '23 we have signed GBP 40 million worth of contracts across multiple locations in Scotland. The market fundamentals of affordable housing remain strong and we are actively growing this part of the business once more. Next slide please.

With regard to build quality and products, et cetera, the significant work has been undertaken to rationalize and improve the portfolio of our house types across the group. In doing so, we have consulted with all the departments and focused on saleability, plotting efficiency, commerciality, buildability, improving build quality and minimizing defects from the build processes.

We have went through a robust selection of process and ensured that we have a range of house types with adequate floor space gapping from 700 square foot through 2500 square foot, which largely covers 2 bed mid terrace properties, through to large 5 bed detached properties.

We've also taken the opportunity to simplify our construction detailing across the range. The net effect of this rationalization and selection process showed that we only actually required 2 new house types out of the 40 that were already within the group.

A significant benefit of this review has been the positive impact on our plotting efficiency with more sellable square footage to the acre of land being achieved and this will impact future planning applications with increased density of square footage. The increase of this additional sellable square foot area will mitigate the impact of upcoming cost increases associated with environmental and building standard changes in Scotland.

In undertaking the process, we are focusing on enhancing the quality, space and character of our house type design whilst further embracing modern methods of construction by utilizing [ train erect ] on all of our products, incorporating just in time delivery methods, minimizing build durations whilst decreasing health and safety risks. By increasing the quality from these consistent build approaches, we will undoubtedly improve already high standards of build quality whilst further minimizing our defects. Next slide please.

Okay. So I'm just going to go off piece here from the presentation just to kind of give those that are new to the story as to why we are in the position we are in just now and the focus is very clearly on debt, just bringing back to 2020.

In March 2020, as COVID was coming, we signed 2 very large contracts worth about GBP 40 million for affordable housing and it was 6 story blocks of flats, one in Glasgow, one in Edinburgh. At the time, it seemed like absolutely the sensible thing to do because it guaranteed revenue streams. While there was a lot of uncertainty with COVID coming and it guaranteed revenue and profits going forward, we thought.

What actually happened was that after COVID there was a huge boom in the market. Cost price inflation went up to 20%. Labor became very scarce, suppliers became very scarce, the subcontract chain all became very weak. And we ended up with those contracts where we had a fixed sales price based on March 20, and with cost price inflation of 20% and even had subcontractors go and bust that we struggled significantly and ended up making losses on those contracts.

Now, at the same time, we decided to withdraw from affordable, and because affordable was very cash flow positive, that had the opposite effect when we withdrew from it. That position has changed since now, and we have seen an increase in the benchmark for affordable housing of 16%. And that is why we are willing to sign contracts at 40%.

The other thing that has changed is that cost price inflation is around about 2.5% now, and that is manageable with shorter term contracts on 12 months is kind of the longest we're really signing now with affordable housing. We are also sticking to doing housing. We will not do 6. The one lesson we have learned from doing 6 story blocks of flats and doing 130 time, we learned lots of lessons, but the main lesson we've learned is that's not what we do and we are not going to do that going forward. We'll focus on what we understand, and that is building houses and doing affordable for local housing associations.

So that's a bit of a background with what happened with affordable and why the margins have been suppressed in the last 2 years, which may give an indication that our return on capital is less than we would like. We obviously have a very large land base as well, which also reduces the working capital. But we see that land asset as a very valuable asset and something that we worked very hard to get to.

The second thing that happened for us were we had got firmly behind the PRS market. We have a number of large land holdings at villages. So at Bertha Park we have 3,000 house, at Durieshill we have 3,000 houses, at Elgin South, 2.5, Linkwood 800. So we had these village sites and they actually are really -there's a private revenue stream, there's an affordable revenue stream. And we were also exploring the PRS revenue stream. We had done a deal with Sigma where we had done 70 houses at Bertha Park and that was going well. And we had an attention, I think, in September 2022, we had a contract in place for just about to get signed for 300 houses at GBP 100 million for PRS. And at that point, the Scottish government introduced the rent cap. In fact, it was a rent cap [indiscernible] that killed the PRS market in Scotland. It killed that revenue stream and it killed the land sales that we thought we were going to have. And that rent cap was put in place through March 24, where it will end, and I can speak about that at the ending and why we think that's going to come back.

What then happened was that we looked at that land and we thought, well, we'll go to the private market and we will sell in the private market instead, those 5 sites. And we went to the private market and we lined up some potential purchasers. And then [ Liz ] trusted the mini budget. This is all going back to September. Obviously, the mini budget came and people stopped buying land. So we had seen our revenue streams in our 3 different diversified areas of affordable housing was suffering with the cost price inflation of 20%, where the private housing market disappeared, and we had the PRS had gone completely. So from that point forward, we've really been making sure that we can shore up the balance sheet and get the debt down.

Now, why have things changed? Why am I more optimistic now? Clearly, we've done the GBP 40 million of signing of affordable contracts. Clearly we've sold GBP 18 million of land and we have seen a pickup in the house prices and in the housing market.

Why are we seeing a pickup in the housing market? Well, I think we can all see that interest rates have stabilized. I think when interest rates are going up, the psychology is, well, house prices will come down, so people stop buying. The opposite is true, that when they think interest rates are going to come down, people think, well, house prices will go up, so they start buying.

If we look on the right there, the story we hear about UK inflation figures and house prices have dropped. But if you look at the green, Scotland has actually had a 2% increase year-on-year in house prices, and it's really just to -- just amplify that point here. Now, the housing market, we are obviously, it's not just our experience where Martin said, we have seen sales pick up to 15 a week, our target is 10 a week. But we are seeing from [ Zooplab ], we are seeing from right move, we are hearing from other house builders, we are hearing from Rick's. A lot of evidence that things are happening. And clearly you see deals like the [ Red Road Barrier ] deal go through, and there is some interest in that. There is obviously some positive thoughts within the industry.

Scotland is the most affordable part of the UK based on house price to earnings. You see that in the chart on the right, the bottom yellow one, it may not be that easy to see. In the screen is Scotland, which is around about 3 to 4 times salary to mortgage. And the one at the top there, that's 4G. Whatever crazy number that is, is London prices obviously.

The undersupply of homes in Scotland is the same as in England. Planning is hard to come by. That's why our 90% planning on our land bank, 6,500 is so valuable. We've had housing emergencies declared by Edinburgh, Glasgow and Dumfries and Galloway Council. They don't seem to understand that it's them that give permission for housing. So possibly the solution is build more houses.

Post for Scotland, find a quarter of households have a housing need. I'm sure it's the same in England. You know, houses aren't big enough, there's split families, there's energy deficient needs, many different things. Scottish government is still targeting delivery of affordable houses, and we're well placed now to take advantage of that.

Significantly more mortgage variety and more mortgage availability since the dark days of September 2002. And obviously, mortgage lenders need to lend mortgages in order to make their business, and we are seeing more of those. And even up to 40 years, I think, are now available.

There is a really strong need for PRS housing in Scotland. The end of the rent cap on 31 March, it seems to me, will create an opportunity to increase the supply of PRS at 0. At the moment, what's happened in the 2 years is not only have no new PRS been built, but also people have exited because they couldn't increase the rent. And you'll see mortgages rising or loans rising. So there is a really pent up demand, and Scotland, unsurprisingly, has the highest increase of rents across the whole of the UK.

What we see is a large pent up demand there, and we would hope to see PRS come back. And we are well placed with 5 sites that we could do deals on pretty quickly and sell land next year, get house building going on that side. We believe that the new cap coming in, which is set at 6% per year, is allowed. If the tenant disagrees with that, they can go to a tribunal, is a reasonable amount, and should, starting from a good yield point, should give the PRS people encouragement.

The other thing we just mentioned there is the Inverness & Cromarty Green Freeport, that is basically in the north of Scotland. There are 4 ports, Cromarty, Nigg, [ Artstier ] and Inverness. They've been granted Green Freeport, which basically means there are rates exemptions, there are customs exemptions, and lots of benefits for businesses growing there. It is expected to generate some 10,000 jobs over the next 6 years, just directly in the renewable industries and at these ports. Juventus has announced that they are investing 300 million at Artstier. And in the global yard, there is a 500,000 square foot factory that just got planning permission last month for doing the electric cables for connecting up the offshore and wind turbines to the grid.

We believe those jobs will come and we have a very good, healthy land holding from our acquisition of Tulloch and from Springfield in the north. And we are not selling any land in that area for that reason, because we do see a good boost coming to that economy. And we just need to make sure that we can provide the housing needed for the labor that's coming in a stimulus fashion.

Moving on. ESG, environment and people. It's what we have done. It's what we are doing and what we will continue to do. We have always looked after employees. We have always trained our staff, we've always worked well with our communities, and we've always tried to provide energy efficient, environmentally friendly houses. We think an energy efficient house leads savings to the customer and it's what customers want. And we see it as a good selling tool. Just on the right, you can see some of the pictures there.

So, in conclusion, the actions that we have taken have strengthened Springfield's position from where we were. We've put some substance behind our plan. We've reduced the overhead, we have sold land, we have stopped spec build, we have signed affordable contracts. And all of this is resulting in us getting our debt down to GBP 55 million, which against GBP 277 assets gets us to a decent position.

We do want to continue doing that. We've been very single minded in our focus to get the debt down. We are almost running the business like a private business. That is our target. Let's get the debt down to GBP 55, and if that's good for some investors, great. And if that doesn't suit other ones, fine. But we are focusing on getting to the GBP 55.

We are encouraged by the signs of recovery in private housing. With increasing recent reservation rates, we have a high demand in affordable housing. There is still a huge need, strong interest in our land bank with more profitable sales expected in the near term, an opportunity to return in PRS. And we still believe the Scottish housing market's fundamentals are paying supportive and we should be able to take advantage of our 6,500 plots in the balance sheet with 90% planning.

So I'd like to thank you for your support, for your interest, and I'd now like to open it up for questions.

[Operator]

Thanks, guys. I think that was a really comprehensive run through. We do have some questions. Can you give a bit more color on the direction of travel in private home sales and what you're seeing at the moment?

[Innes Smith, executive]

Yes, I think it's what we said. We are seeing interest rates flattening out. We are seeing mortgage rates getting more stable, getting below the 5%. There are more variety in mortgages that are being offered. The reduction in supply, which still impedes planning regulations. And I know there's one thing in England, we have NPF4 in Scotland, that just means that the land bank we have with planning is even more valuable. And the demand for housing is going up.

It is very much down to sentiments and seeing stable interest rates, seeing inflation coming down 4% and projected to go down to 2%, seeing energy costs going down, see the cost of living, crisis coming down. All puts to a housing need that is there, and we have the houses to supply. We are seeing, as we said, over the last 5 weeks, we've seen an increase to 15 houses a week. Our plan for '24, '25 is 10 houses a week. So obviously that is a good rate.

We did decide to pause. I think we've got 8 new sites that we decided to pause because we didn't want to put money in the grind speculatively while the market was in the position it is. We will be able to start those 8 sites. That will add to the sales rates that we have and we will check the pent up demand and the waiting lists on those, and hopefully we'll be looking at 10 sales a week. We should be looking at beating that over the period.

[Operator]

Right. And leading on from those, got another question. Other house builders are offering incentives to buyers. Are Springfield doing this?

[Innes Smith, executive]

We have not needed to. We have highest price inflation in Scotland. Martin, with 1% is it we're offering?

[Iain Alexander Logan, executive]

1%. Fundamentally, we're finding peers are offering something up to 5% in discounts on stock properties. Fortunately, we have a strong product offering and we are finding that it's only through life properties. We're looking at 1% discounts. But on the whole, we're managing to maintain margin within our forecast.

[Innes Smith, executive]

Yes. And I think it's important that for those that are new, we offer quite a high spec house where you choose your paint colors, you choose your kitchens, full length bathroom urge and base turf in the gardens. All of these things we see as should come with a house, come with a house with Springfield.

So where others are maybe offering those things as free, we've been offering that as part of a package. And we find when the market gets hard and the market gets tough, the houses we offer, which are more spacious, we've got more square foot per house, per bedroom than other competitors or the national side. The people in harder times and the people with money that are buying houses want more for the money, not less.

So our reduction in sales, I think Iain mentioned in line with peers, I think we're at 36%, but we're seeing our competitors saying 30%. The market there has been a big reduction. But I think we do see in housing that we saw the cost price inflation coming before it hit the high streets. We saw the high price inflation coming. We saw the slowdown in houses and the slowdown in the market happening before it got the front pages as well. And I think we'll see the pickup as well. It tends to be the case with house building that we see things early in the economy. And I do hope we're seeing a pickup from this point forward.

[Operator]

Great. And leading on from that as well. What might the ASP be at the year end? Several GBP 500,000 homes for sale in Venice?

[Innes Smith, executive]

Well, hopefully they're sold in that projection.

[Iain Alexander Logan, executive]

It will be round about what it is at the half year [ ratio]

[Innes Smith, executive]

Thanks for that question Gavin.

[Operator]

Another question. You have made various acquisitions over the last few years. Do you see the various brands operating independently and regionally, or do you plan to use them more strategically or even integrate under the Springfield brand?

[Innes Smith, executive]

So I think Martin obviously covered the narrowing of the high sites from 200, which is 5 brands times 40 to 40. And that gives us one common product across Scotland that has been chosen. 38 of those are out of our current portfolio. So these will be energy efficient houses, all air source, all complying with latest regulations.

The branding itself. What we've typically done is we've acquired a company and a business, and the brand has been very important for the region that they're working. And I think in time, there is more pride over Springfield Group, and the brands will become a less important part of our business.

If we locally that we think it's important locally, then we'll keep it. If we don't think it's important locally, then we won't. The important thing is the Springfield Group and the quality of houses, and we build that reputation there. The fact it's got [indiscernible] Tulloch or a Walker brand on it I think is less important going forward because we've regionalized a lot of the businesses then. We are kind of running as one business now anyway. So I think less important going forward.

[Operator]

Okay, moving on to maybe a few financial questions. First of all, how much land are you planning on selling and when will you stop?

[Innes Smith, executive]

It's a common question. We have in our plan to '25, some GBP 50 million of land sales. Obviously we've made a big buy into that just now in the second half. I would really like to see those land sales attached to affordable deals or attached to PRS deals. There is a point where having debt when the market is bad is not a good thing. Having debt while the market is good and funding growth is a different thing.

We are an entrepreneurial company. We will react to what the market is telling us and our focus is very much get the debt to GBP 55, be silly to think that we're going to stick to an exact plan to the end of '25. The market is changing. The affordable market could pick up, the PRS market could pick up, and we will adjust accordingly depending what that is.

Back of my head, I'd like to see debt down at GBP 30 million, which puts us in a very strong position. And then maybe once we've got the confidence back of the market, which is reflected in our price to book that we see just now, but once we get the confidence back, then we can look at do we need to expand again and do set to fund that.

So I think we're very much focused on getting to GBP 55 and we do not want to sell all the family jewels. All of the land we have sold has been land that we kind of acquired in excess and wasn't part of a 3 year sales plan. And we don't want to be eating into that. So yes, then the question is very much as per the projections out there, that is what we're doing just now. But as things pick up, we will react accordingly.

[Operator]

Right. And just following on from that, if debt reduces to GBP 55 million by the end of the financial year, net assets should increase to GBP 190 million. Is that correct? And the current market cap is GBP 100 million. What can be done to close the gap between net assets and market cap?

[Innes Smith, executive]

That's where you come in, Rachel.

[Operator]

I knew that was going to be the answer.

[Innes Smith, executive]

To answer the first point, Rachel, our net assets wouldn't [indiscernible] market cap. Okay, we're talking about market cap rather than net asset position.

[Operator]

Yes, it was just more about closing the gap, wasn't it?

[Innes Smith, executive]

Yes, we're talking about price to book closing that gap.

[Operator]

And that probably leads quite nicely onto the next question.

[Innes Smith, executive]

It is actually, Rachel, the question we get is from the institutional investors is that return on capital employed almost kind of says that you're better not having a land bank with planning, reduce that to as small as possible.

And that's kind of counterintuitive. Our history is Sandy Adam was a farmer and farmers want more land and holding more land because you don't get more land as time goes on. It's only less land. And we think we've built up a really good land back, quality land back 90%. Some of our competitors are down at 50% with planning. We have a really strong thing. We really want to highlight this to people and this is what today is good for, is really focusing on, yes, we're going through 2 difficult years just now where we are remaining profitable and we're meeting all of our obligations and everything. But once that 2 year period is off, we've got a great land bank to take advantage of and that is only going to be worth more with all of the political meddling that we have.

[Operator]

Well, I think that leads quite nicely onto the next question, which is, what is your view on the Red Road Barrier deal? And I suspect I know the answer to this one, but...

[Innes Smith, executive]

To me it's a land deal and the land deal is going to cut GBP 90 million of overheads. From what I read, pretax or post tax, I can't remember, but it gets [ barracks ] numbers up to where they wanted to be 3, 3 years ago. And Red Road have land with planning on it. So that's combining both of those together.

The interesting thing on that is that Red Road were, prior to the deal, were on the market price to book probably one to one. And this deal has been done at 1.2 and we're sitting at 0.6. So I think most of us, when we woke up in the morning and were taken by surprise by this. I know I got a text from Sandy Adam at 07:00 in the morning and we were expecting to see, well, okay, speculation in housing that's going to push our share price up and, well, nothing really happened, but what do we know.

[Operator]

Yes, there's been a suggestion that maybe highlighting your confidence in the plan could be illustrated by management buying some shares. Any view on that?

[Innes Smith, executive]

Yes. So 2 answers. There are, because I'm part of a concert party and we're just at 30%. If I go and buy one share, I've got to buy every share because we have to go -- whenever I buy and you'll see this whenever I go. And when it comes to April and I buy some shares for my children, for the ice, I have to get permission from the takeover panel. So, yes, it's not easy for us to deal with the shareholding we've got. I think they're good value.

[Operator]

Okay.

[Innes Smith, executive]

Well, no, I don't, actually, where they are. They're good value for someone buying. Good value for me.

[Operator]

Just moving on to PRS, obviously, in the presentation, you sound quite confident about the prospects for PRS with the benchmarks. If that does come back, do you have the capacity to build at scale?

[Innes Smith, executive]

Yes. So we have a site in Inverness, in Elgin, in Perth, in Dundee, in Sterling and Linkwood that we could quite, with planet permission, we could quite quickly do deals for 60, 70 houses. The interesting thing with PRS is there is a mindset out there. It's a zero just now, so it has to get better than zero. So starting from a base point is zero. Clearly, it can't get worse from there.

So we have done PRS with Sigma. We did 70 houses, and it was very successful. And obviously they got spooked by the interventions of the Scottish government, which, with hindsight, I mean, it was done with best intentions to protect people from rent increases, but it's just led to an undersupply of rental house, as everyone predicted, and an increase. But what we're seeing is, what we haven't benefited from in Scotland is, I think, if you look at Barracks, maybe 10% of their sales rate was on PRS, that we haven't been able to do that.

Now, the question as to whether PRS will come back is, how long will PRS be able to do those deals with the big householders? Because I'm pretty certain as soon as the private market returns, the big householders won't necessarily be selling to PRS again. So we think from a good start point, for if yields are up at 4%, 7%, and then you've got a guaranteed 6% increase per year after, we think that's a decent proposition. We have heard people who say, yes, but now it's been government. There's no trust in government. Will people invest? Well, government's done Brexit and lots of things over the last while, and it doesn't seem to affect investment there. So let's see. I can only see it getting better. There's a huge need for rented properties. And the other thing, by pushing up the rental prices, it means that, obviously, buying a house is more attractive because it's cheaper than renting.

[Operator]

And final question, and it's quite a wide one. Any concerns about a potential change in government?

[Innes Smith, executive]

Any concerns about potential change in government, bring it on. And that's not just government, governments, can we put an s on that? We've had 2 parties that have been in for a long time and I think we need change.

I'm optimistic and I'm not seeing the normal thing with the general election where there's uncertainty and people are concerned. I think people can see, certainly labor are shouting a lot about housing. The [nimbia ] that we've had over the last 5 to 10 years in Scotland and in England, it gains votes in the short term for people trying to get it.

But once you've got a sustained period of not building enough houses, it starts to become a genuine crisis and a genuine problem. And I think we're seeing that in society now that governments and incoming governments are recognizing we don't have enough housing and new housing is energy efficient. I mean, if you want to hit green targets, build a new house instead of living in a 200 year old tenement flag.

There's so much positive for building new houses. Each house generates something like GBP 70,000 tax. It pays for roads, it's paid for infrastructure. You can't pay for infrastructure without getting money in. So, yes, I'm quite passionate about this and yes, I'm not political. I'm suspicious of a lot of them. But I think, yes, time for a change. That's fine.

[Operator]

Great. Well, thank you.

[Innes Smith, executive]

And I'm not speaking for this too here.

[Operator]

I'm sure you only ever speak for yourself, Innes. That was a great run through, guys. Thank you very much. Thanks for all the people that have dialed in. Just as a reminder, we will be sending out an email after this asking for feedback. So I'd appreciate it if you could complete those for us. And that's all. And we will hopefully see you all again in September for the final results. Thanks, guys.

[Innes Smith, executive]

And thanks everyone. Thanks everyone for the time. If anyone ever wants to come and see Springfield or see a site, please, I would encourage you to do it and see what we're actually doing. See the house, feel it, touch it. You will get more confidence from seeing what we actually do. So please contact Rachel or Hannah if that's what you want to do.

[Operator]

That's great. Much appreciated. Thanks very much, guys.

[Innes Smith, executive]

Thanks very much. Bye.