Springfield Properties Plc (SPR.L) Earnings Call Transcript & Summary

Good morning, everybody, and many thanks for joining us this morning for Springfield's full year results presentation. Just to allow people to join the call, I'm going to run through a little bit of housekeeping. So as a reminder, equity developments research and forecast can be found on our website. [Operator Instructions] The webinar is being recorded and will be available in due course. So from Springfield, we have Sandy Adam, Chairman; we have Innes Smith, the CEO; and Iain Logan, CFO. I will now hand over to the management team to run through the presentation.

Good morning, everyone. I'm here to present the full year results for the year ended 31st May 2025 for Springfield Properties. For those who don't know, this is Sandy, and this is Iain. Okay, next slide. Okay. We set out this year to reduce the debt. And to do that, we had to sell land and make profit, sell land profitably. We're delighted to show the profits increased by 90%, profit before tax compared to last year, and that's in spite of a subdued private market, and that was largely fueled by GBP 60.5 million of land sales, primarily to Barratt Redrow. Because of our confidence in our results, we're delighted to announce that we've been able to double the dividend to 2p per share. Another big story that we're leading on this year is a new strategic focus. And this new strategy is basically targeting the north of Scotland using the money that we raised from the sale of the land, we're going to be investing in the north of Scotland to try and supply houses for the infrastructure works and Freeport's work and renewable work that's going on in the area, more of which will come. We have advanced discussions with various infrastructure providers about providing housing. And again, we will lead more on that as we go through the presentation. We have a very significant and valuable land bank of some 7,000 plots, 66 with planning permission, and we're significantly more going through the system at this point in time.

So on the time line, Springfield was started by my grandfather in 1956 and run by my grandfather and my father as a market garden right up until I took over in around about 1988. At that point, the farm shop that we had was closed out because our supermarket opened up next door and overnight, nobody came to the shop. So the council owned the land for housing, and we tried to sell it to another housebuilder -- a housebuilder but that wasn't successful. So we started building houses ourselves instead. Before that first site was finished, I bought another 2 sites and the business became ongoing from that point. During the early 2000s were boom times for housing, and we expanded the company to about 200 of our staff. In 2006, things were getting really steamy in the housebuilding business. We've increased our prices 25% 1 year and then 25% again the next year. Still, we were getting queues outside our show houses when we opened up a new phase, blocks of flats were selling out in an hour. We're getting 125% mortgages, and we thought that, that situation couldn't go on. So we sold 1/3 of our land bank at that point, again, to Barratts and got into a cash positive situation around about the start of the downturn. So that proved to be a very wise decision, and we survived throughout the downturn. We've signed a contract for 400 affordable houses with local council, and that kept our workforce intact during that time as well. Around about 2010, we decided to start investing in Central Scotland. And in 2011, the opportunity came along to buy Redrow's operation in Scotland and that gave us 8 sites, an offices in Larbert and 60 of the staff there. That proved successful. And as the sites finished, we were able to replace them with others. In 2017, we floated the company on the stock market. And since then, we have had 4 acquisitions, Dawn, Walker, Mactaggart & Mickel and Tulloch and Inverness. Around about -- during COVID times became quite tough for us. Costs increased, and we had a few fixed contracts, which seemed the right thing to do at the start of COVID. However, we weren't able to increase the prices, and it was a tough couple of years then. In 2025, we decided to sell some of our land to Barratts, which we've successfully done this year, as Innes said. And now in the last bit of the time line there, we've changed our strategy to seize the opportunity that's occurring in the north of Scotland, which Innes will go on about later on.

Okay. We're aware that there may be some people in the presentation today that don't really know Springfield. If you do want to get to know us, please get in touch. We're more than happy to meet you and show you around north of Scotland and show you what we're about. So that offer is there for anyone who wants to come and see us and learn a bit more about our history. Two years ago, I was invited to a presentation, Eden Court, Inverness, and the Housing Minister was there, the Economics Minister was there and Chief of the Council, Chief of Freeport and 4 of the port leaders who are Roy MacGregor, Liz Gillies and a couple of folks and went along and it was a housing summit and didn't really know what to expect. And I sat in a room with other housebuilders and all of us kind of interested to what this was about. And we basically got told about this Freeport that was being applied for in the Highlands. And basically, there are 4 ports, Ardersier, Nigg, Inverness and Cromarty. And Highland Council was applying to the Green Freeport to get Freeport status, which would mean there were tax breaks, there were basic benefits that made doing business easier. They then kind of stood up and listed up from Haventus and said, we're doing 350 acres. We're reestablishing a port. We're going to be for offshore wind turbine, and there's going to be GBP 350 million invested just to get the port up and running with another GBP 700 million expected over the next 5 to 10 years. We then had Roy MacGregor stood up from Global Engineering and say well, Nigg ports. We're covering negotiations with Sumitomo. They're going to be building a GBP 350 million cable factory. And so the conversations went on. And then Calum MacPherson, Chief Executive of Green Freeport stood up and did a chart which showed that there were 10,000 jobs coming to the area. Now I kind of sat there and thought 10,000 jobs, you can't commute to the Highlands. So clearly, there's a housing shortage because these guys won't be able to stay in hotels and won't be able to rent properties, they won't be able to buy because there isn't the stock. So what are we going to do? So clearly, that was -- the reason for the meeting was yes, we're going to need a call to action because we're going to need a lot more houses. And these jobs were kind of predicted to happen over the next 5 to 10 years. So I drove home and immediately phoned Sandy to my left and said, you won't believe what I've just heard that there's going to be massive economic growth in this area. It's renewable energy security. It's the offshore wind. It's connecting cables from Orkney to Scotland, from Shetland to Scotland, from Beauly to Spittal to Peterhead and so on. So we were excited. So we got in touch with Roy MacGregor, and we went and visited him at Global Energy headquarters, and he told us all of the plans and what was involved, and we left that meeting convinced that this is a real thing that's going to happen. So for those of you that remember from 2 years ago, we had kind of mentioned this and saying, yes, there's good economic growth coming in this area. So then kind of wind forward a year, and we get -- we've been renting our office downstairs to Balfour Beatty, who are working on the Peterhead to Beauly line. We didn't really know much about it. And they basically get in touch and say, look, can you help us out? We've got this contract coming from SSEN, and it's to basically upgrade the power between Peterhead and Beauly, and we're going to need 800 workers, and we need to house them. We can't -- SSEN are very conscious, they don't want to fill up all the hotels and jack up prices and ruin tourism. They don't -- they can't rent the properties, and they don't want to price locals out of the market, and they're not allowed to buy properties. So is there any chance you guys could think about? Could you build houses and rent them to us? And we went, "Wow, that's really interesting. What's the project?" And so I kind of briefly told us. And then we kind of thought about this for a couple of weeks and then we've got another phone call. And this time it was BAM Nuttall. They phoned up and said, we've got the Peterhead to Beauly contract, and we're going to have 800 workers. We're going to need to house them, exactly the same story and we said, wow, we've already spoken to Balfour Beatty. And he says, "No, no. Balfour Beatty are doing the pylons. We're doing substations." So immediately, we're thinking 1,600 people. Wow. So we've got in contact with Highland Council, and we got in contact with SSEN, and we had a meeting with them. And there, we had our eyes open to over the next 5 years to 10 years, the offshore wind is going to be expanding from 10 gigawatts or 10 gigawatts of power, which Scotland generates in total to 30 gigawatts. And in order for that to get across U.K. and down to England, then every pylon needs upgraded from 275 to 400 kilowatts, and every substation need significant expansion. And their estimate for the next 5 years was actually 5,000 transitional jobs that would be required. And could we help them, then house them? And we -- obviously, that's what we do. So this was very exciting to us and other housebuilders clearly. And we then start to formulate a plan of, well, we could sell the houses to a third party. Maybe we could retain some shares in that third party. And these would be rented, and then these houses at the end of the 5 years would be available for the Freeport jobs. Remember, the Freeport jobs that are happening over 3 to 5 years. And a kind of plan was forming. So in the last year, we have identified sites. We've identified kind of -- we've discussed how we would lease them, how it would work. And the infrastructure providers we're speaking to are proposing that as part of the help to make sure that this can happen, they will effectively pay some of the rentals in advance, which effectively funds a large chunk of the project. So it means that the finance required externally is significantly less. So bearing that in mind and looking at the rental streams, we were actually looking at the properties now. And with the sale of the land to Barratts, we're in a much stronger financial position. We now believe we can retain all of these houses and set up a separate company, be it an LP or whatever, and basically rent out for a 4, 5-year period. This will then -- what will basically happen is that we will then agree to sell some of these houses back to Highland Council at a discount, and that will be built into the rental prices. So the infrastructure providers will be leaving behind the legacy for the community and housing. It will mean that it's not impacting on the hotel. It's not impacting on the rental markets and the private market. But in addition to this, there will probably be some workers caps. Workers' caps. When you look at the price of them, they're extremely expensive per man, per night because they need canteen facilities, security, washing facilities, gyms and all these things, and you don't leave anything behind. So the preference is to try and get as many houses as possible. So we now are in a position that we believe we can, a, build the houses and then rent them out to make a good profit from the servicing of those apartments. And then at the end of the period, we will either -- we will definitely sell some to Highland Council or Moray council, Aberdeenshire Council. We will then potentially sell some to the private market. We may retain them because there'll be more jobs coming. We may sell them to a PRS provider or a pension fund. So many opportunities for us. So we basically came here today with a revised strategy where rather than selling the houses to the third party, we'll try and retain houses and rent them. And then at the end of the period, we'll monetize it going forward. It's a really exciting opportunity there's now. Just to give you some of the background, Highland Council have identified there was a local plan in place, which was for 12,000 houses over the next 10 years which was not sufficient because it didn't take account of Freeport, didn't take account of any of the infrastructure upgrade. And they have now got a call for sites, and they're looking for 24,000 homes. So that's twice the amount that they are looking for. So the opportunity there is obvious. We have submitted a significant amount of sites in that local plan, some 1,400 acres. And if you do roughly 8 to 10 an acre, you can work out the number that's in there. So we're in a very good position. Tullochs, one of our companies there is celebrating its 100th year. Springfield is about 50 years. So we have many contacts with landowners, long-term relationships, and we're in a really good position to help them out with this situation. We've got a very proactive council, Derek Brown, Karen Greaves at Moray. These guys are very pro economic growth and development. So we have a friendly council. We have an ambitious council. We have a local plan coming in with significantly more houses, and we have a customer. Now that what this kind of gives us is an anticyclical bubble in this area because the 10,000, if you think there's 80,000 houses in total, in this area. So an additional 24,000 houses to that, you can understand the impact and the opportunity that we have here. And as I say, this is all to do with energy security. This will -- I mean we know with data centers, with electric cars, with less use of gas, there's going to be a bigger, bigger reliance on electricity. And if U.K. is going to be self-sufficient and have energy security, then it needs a combination of nuclear, oil, gas and wind. And all of these things need to be thrown into the mix to ensure that U.K. has its energy security. So I think that gives a good overall view on why we see this as a very good opportunity for us. Iain?

Thanks, Innes. I'm delighted to report on a very strong financial performance of the group for the year. Increased revenues, increased profits, a doubling of the dividend and bank debt reduced ahead of target. To pick out some of the key numbers on this slide, revenue increased to GBP 281 million from the prior year level of GBP 266 million. Private housing revenues reduced. However, this was more than offset by the land sale profits from -- the land sale revenues from the deal with Barratt. Gross margin improved to 18.6% from the previous year level of 16.3%. This was driven by the profitable land sales and a significant improvement in affordable housing margins. Profit before tax and exceptionals was GBP 20.1 million. This was a near doubling on the prior year level. And as we've mentioned before, really pleased to see the net bank debt at the year-end at GBP 20.9 million versus the previous year level of GBP 40 million. And the last point on this slide was again delighted to be doubling the dividend in the year. So we go to the next slide. So private housing completions and revenues were lower in the prior year. This was due to having a lower opening order book and the slower sales cycle that are being seen across the wider industry. Average selling prices remain robust across all the group's brands, which was a positive. Gross margin was lower than the prior year. This was due to increased costs and time to complete sites. As we move forward, we would expect to see private housing gross margins improve as we open new sites. Affordable housing was the real positive for the business for the year. Revenues increased due to higher average selling prices as a result of the increase in the Scottish government grant substantially and as we've flagged previously, margins returned to double digits. This was a real positive again for the group. And a function of the legacy contracts in May '24 completing and also the strong performance of the new contracts agreed. In contract housing, we increased the revenues and profits. That was a result of a new private phase at our Bertha Park Village. And as we've mentioned already, land sales in the year were significant at GBP 60.5 million. This was mainly from the Barratt sale where we sold 6 sites, 5 of which completed in the year and 1 which happened post year-end in August. The key positive here is, again, a demonstration to profitably monetize the land bank quickly if we require it. On to the next slide. So again, the big positive here is our bank debt, which reduced from GBP 40 million to GBP 20 million. The key contributors in here, land sale cash received of GBP 35 million, operating profit of GBP 28 million. This positive financial position allowed us to be active again in the land bank market with a spend of GBP 15 million. Other outflows were bank interest and tax paid at GBP 9 million, along with deferred payments and acquisitions. Working capital was also an outflow in the year, and that results from the fact of opening up new sites. Okay, next slide. In terms of our balance sheet, the big number on there is our net assets now, which have grown to GBP 171 million. And also the other key metric on there, again, is the bank debt reduction. We also signed new banking facilities in the year, a 3-year deal with Barclays. So we have an GBP 80 million facility in year 1, which reduces to GBP 50 million in years 2 and 3, and that's aligned with our group strategy of reducing debt. Again, the facilities were secured on improved commercial terms. Next slide. What this slide shows, again, is the increase in net asset value per share since the business listed in 2017, up in today's date. It also shows the compound growth rate of 15% and the fact that in that same period from 2017 to '25, we've paid total dividends of GBP 24 million.

Yes. Before we go on to the next page, Rachel, it's just important to point out that our net assets now are GBP 171 million. When Innes started with us, the year before that, our total net assets were GBP 1.6 million. So that number has doubled nearly 7x times in the 20 years that Innes has been with us. Now if you think it gets harder and harder to double our net assets as time goes on. You've got it around the wrong way. The hardest part is the first million. It's the hardest one to make. Isn't that right, Innes?

Yes, you did well.

On the land bank side of things, you can see from the table on the top left that our land bank has shrunk this year with the sale to Barratts. I always like to see the land bank figure rise, but sometimes we need to sell down our land to reduce the debt, and that's what we've done this year. Our land bank is an important store of value for the company and the price we got at 1.3x the book value indicates this. What's not included in this table is all the promotional deals that we've secured in the north in the last year, and you can see the extent of them on the bottom right. That 1,400 acres would translate into approximately 12,000 homes if they all come through. Now I don't think they'll all come through, but we should get most of them. And that land bank figure will rise significantly in the years to come.

Thank you, Sandy. Okay. Operational overview. Private housing. I think like most people were aware of the general U.K. economy. I think it's fair to say that the market private is subdued. There isn't really consumer confidence, but there is reason for hope and there are signs. We have governments both in Scotland and in England, a very pro housing and increasing supply and recognizing the housing shortages. There is very much interest rates for the first time, 5-year fixed below 4%. But there are a number of sort of clients on that silver lining, that we've got a budget coming in November, and I think people are cautious. People in the U.K. are saving more money than they ever have, which probably indicates caution for the future. So I think that the fundamentals are there, but we're still waiting for that sort of boost in consumer confidence. With affordable housing, slightly different position. You see some pictures there where I pretend to be working next to John Swinney and next to Mairi McAllan, I look like her granddad. I must be getting old. So anyway, she's the new Housing Minister. And really important came out to see us on our site in Perth and very -- coming from a commercial background, commercial law, very proactive and in our first sort of statement to Parliament, she announced 2 really important things. One was GBP 4.9 billion being made available for the next 4 years for affordable housing. Currently, it's about GBP 750 million a year. So you can work out that increase. It's substantial. And also, she announced an exemption for the build-to-rent market from rent increases or rent caps. And that gives the opportunity for the likes of Feniks, Legal & General, Octopus, all of the pension funds to invest in the build-to-rent market in Scotland. So all of that will help. We have a housing emergency in Scotland. The solution for that clearly is build more houses. And we have a Scottish election next year. And I think we have a listening government, while they try and do as many good things as they can in the next year to try and win in our vote. So yes, I think, again, affordable housing, much stronger outlook for that going forward. The next slide really repeats a lot of what I've said. Common available -- so there's reads to cut financial red tape to boost homeownership, okay. We'll wait and see on that. I think on the important things to take from this slide are down the bottom there that the -- in Scotland, we have a 5.6% salary to house price ratio compared to 8.6% in England. So I wouldn't say it's great for England, but it does mean that in Scotland, there is some scope for growth there. And then when we look at the chart on the right, we can see that mortgage payments as a percentage of take-home pay. It's lowest in Scotland. So again, there's opportunity there. We would expect in the Highlands and Moray where we're focusing and where we're going to be investing that with the new jobs coming, they are higher skilled jobs, higher tech jobs. And we would expect some wages inflation also just with the supply and demand of labor. So that should lead to house price inflation and there is scope to do that. We are -- we had a meeting last week with one of the mortgage guys from the bank. And -- our understanding is that there are proposals to relax some of the mortgage criteria, lending criteria that is there just now. So where 4.5%, I think only 15% of their book are like to be 4.5%. That figure is due to change and change upwards, and also the affordability criteria, where you take the standard variable rate and add on 1% as a stress test is also going to be relaxed. So hopefully, that means more availability and more opportunity for first-time buyers to come back to the market. Moving on to the next slide, which is our commitment to environment and people. We are -- just by building houses in the north of Scotland and helping to supply the workforce for the renewable and energy security industry, we are doing our best certainly for the environment and the electrification of U.K. We recognize that one of the key things -- key factors in this will be the people. So we have taken on 25 apprentices this year. We expect that figure to grow again next year. We need to keep training people. We are working alongside University of Highlands, NHBC, CITV to try and get some sort of training hubs so that -- because it's not just us that are going to need people. It's also going to be the infrastructure companies, the Freeport. So yes, we already built all of our houses 100% timber kit off-site manufacture. We build panels and we assemble them on site. We don't ship boxes to site. We ship panels, which we then join up together. So we do offsite manufacture. We -- our product is incredibly efficient for energy lives. And yes, there's some nice pictures there of children and electric cars. Okay. Conclusion, Sandy.

So to sum up, it's been a tough year for the housebuilding industry throughout the country. Private sales are down due to higher mortgage rates. In the affordable sector, funding has been squeezed and our build-to-let landlords are being hit by continuing government battles. Despite all these headwinds, we've delivered on our 2 main aims of getting our debt down and delivering a decent profit. On our debt levels, I'm satisfied that we are now at an acceptable level. This has been endorsed by our Board who are prepared to double the dividend and by our new bankers, Barclays. Turning to the next year and the years ahead. It's been 46 years since I started in business. And in that time, I've seen many opportunities. Some of them have been massive, and we've gone for them. This opportunity in the north of Scotland is by far the best one that I've seen. It's within our circle of competence, and it's in our main geographical area, and we are going to go for it big time. The next few years ahead will be very good years for Springfield.

Okay. That concludes our presentation. I'll hand over to Rachel now to build questions, or to give me questions, I should say. Thank you.

Thanks, guys. I'm just going to go through the questions now. Okay. This -- I'm going to start with a big one. Innes, and it might take you a bit of time to come through -- go through it all. Prospects for the north of Scotland sound exciting. What are the biggest challenges you are likely to face? And what can you do to mitigate these risks? I think that's going to fall into 3 areas. So competition for land, competition for labor and competition for resources supply chain issues.

Yes. So the competition for land of the 24,000 plots that Highland Council is looking for, there's been a call for sites, and I think 25,000 have been submitted, and we have some 1,400 acres. So we're close to the half of that land. We've got very -- with Springfield and Tulloch, we've got long-term relationships in that area. So we have the land secured. To our knowledge, there's -- and one of the good things about the north of Scotland is that it's only really Barratt Redrow of the nationals that come up as far as that. We do have other local housebuilders like Robertsons and Scotia. But when you look at who's in the area, we don't have the Taylor Wimpey, the Persimmon, the CALA, the Miller, those guys. So when we look at who submitted for housing in the area, we're the main player in the main submissions. So the land side of things, I'm confident we've got a very good holding. But with the number of houses we're looking at, there's plenty for everyone to go around. So it's not really a massive area. The labor, without a doubt, you cannot commute to the Highlands. This is the thing. You can't commute from Aberdeen. It's 2.5 hours away. And when you go down A9, that's down to Perth, that's 2 hours away. So it's not possible to kind of commute. So people are going to have to come to the area. Now we have had a long history. If you look at our employee numbers at Springfield compared to every other housebuilder and the number of houses built, you'll see that our employees are significantly higher. That's because we tend to employ our own employees. We don't do the subcontractor route up north or we do for specialist sort of trades, but generally speaking, we have plumbers, we have casters, we have brickies, we got joiners, we got painters, we got tapers. All of these guys are on the books, and we've had a very strong apprenticeship record over the time. But it will be difficult, and that's why we're getting involved with, I think it's called training the Highland workforce. So there is a group that's been set up to try and to get more QSs through, to get more architects, to get more engineers, to get more -- the company just recently, was announced on Monday, they're going to be doing plant training at a disused quarry. And Calum MacPherson was in touch with me just last week. In fact, this week to try and discuss. So we are going to have to work hard to make sure the labor is there. But much like it's a bit of field of dreams, if you build it, they will come. And if the work is there, there is already -- and I didn't mention, but the Nigg port was sold to Mitsui for GBP 120 million just a few weeks ago. So clearly, they have belief and that's on top of the GBP 350 million being invested by Sumitomo. And then you've got Ardersier, GBP 350 million, and they're looking for an additional 100 acres to get through planning. So there's already a GBP 1 billion commitment in the ground on the Freeport. We know that the electrification is happening because, I mean, we had -- and again, so much to discuss, but there's also 6 dams being built in the area. The first one, I think, we've planning is GBP 1 billion first dam of its kind for many, many years in the U.K., and that's going to need 500, 600 people. So we have spoken to these guys as well because they also need to house people. So the opportunity is going to be there, getting the people here, it will be challenging, and it will be difficult. But if there's work, people will come. History shows us all over the world that where there is economic growth, then people will follow. Regarding materials, I don't see building an extra 12,000 houses in north of Scotland is going to affect material prices. The timber will be the same, concrete, bricks, windows. I don't see that as a major issue. Sure, we'll probably need more ground workers. We'll need more kind of infrastructure workers. But it's a nice problem to have. The problem we've had over the last 4 years has been not enough work, and I'd much rather have a problem of too much work than not enough work. So nice problem to have. And sure, there will be ups and downs, and there will be shortages and there will be obstacles to overcome or to go through or to through or to go by, but we will certainly challenge those obstacles, and we believe we'll do as much as we can to maximize our opportunity.

Great. And leading on from that, presumably, the Highland Council's predicted requirement is likely to be larger than the 24,000 homes over 10 years, given the anticipated increase in direct employment in the area?

Yes. I mean the 10,000 jobs indicated by Freeport, that's direct jobs. That's not including the teachers, the Tesco workers, the bakers, the butchers, et cetera. So yes, there will be significantly more add-on jobs to that. And when you see the HIE report, there's an HIE report where they commissioned a review. And over the next 40 years, they have estimates of GBP 100 billion investments and 17,000 jobs. But even if half of that is achieved, that's -- those will be fantastic figures. I have no doubt that if you have 24,000 houses in a local plan, they will get built in 10 years. It's just no local plan ever delivers because there will be obstacles, there will be things, there would be barriers. In reality, if they wanted to build 24,000, they should be looking for about 35,000 houses in the local plan, but there just isn't that land available or the infrastructure to support. And it's important to note that we will need improvements in infrastructure and schools and health. We need to get the community with us, and we will need improvements in roads, health and education. But the way to fund those is through economic growth and through development. That stuff is not going to come without the development. So yes, so we can do lots of good things for the area. Certainly, it will give my kids an opportunity to stay in the area and have careers on their doorstep as opposed to having to move away.

Great. And unsurprisingly, there's quite a few questions around the build and lease model. I'll try and pull them all together. Regarding the build and lease model, are these for infrastructure workers only? Or will there be some private and affordable homes in there as well?

Yes. So the way we see this is that we're going to need across the Highland houses for sale, houses for affordable and houses for rent. And I think there's going to be a mix on most of our sites where there will be properties for rent, and it will be -- initially, if we -- I mean those that have been following us actually, and obviously, Barclay announced that instead of doing sales to PRS, they're going to hold on to the properties, rent them out and create the value that we then sell to the PRS market. Now we effectively have the opportunity to do the same apart from our customers, our blue-chip organizations there will be no voids. It will be a full lease for the 4-year period. And that's a very strong position. And it will be very, very good rental terms. It won't be compared to the rental market. It will be compared to other costs that they would have to incur. So how much would it cost for them to put people in a temporary housing to put -- not temporary housing, workers' accommodation hotels. So we'll be able to get good rents on that. But that enables us to sell back at discount to the council in the future. So it really is going to be a combination. And what we do after 4 years, we'll probably assess the whole situation in 3 years' time and decide, well, how many should we sell to private? How many should we retain? Should we keep some and rent them ourselves? Should we sell some to a pension fund? I think the options are there, but we'll have some GBP 60 million work in progress that we will have an opportunity on making profit again at the end of the project, if -- and will this project ever end? The plan is to go to 30 gigawatts and then the plan is to get to 50 gigawatts is with U.K. consumption just now. So will this project ever end? Or will they be constantly upgrading to infrastructure for many, many years. So yes, it's hard to predict.

And what style of housing will you be looking to build?

Normal houses. It will be the houses that we have planning for. And the infrastructure providers were quite clear. Their need is now. The works are commencing quite soon. So what we don't want to do is build like a workers' village with workers-type houses that is then not sellable in the future. So we're just building the houses as they are, and it will be a blanket rent regardless what kind of house it is. It will be -- you'll be renting out part of, I would say, it's 30 houses on the site. It will be 30 houses at X. It will be different rents for each house and okay, this one is this. So -- and I think the plan is for 2 people to occupy each house, and it will be normal houses. And then at the end of it, they'll be available for families or whoever. But once the people come because at the moment, the Freeport permanent jobs are not here yet, but some are, but not all of them.

Yes. Maybe you've already answered a bit of this, but what gives you confidence that there will be demand locally to purchase the housing after the multiyear lease period? What is the advantage of not selling into this demand immediately during the lease -- the second part, maybe during the lease period, will the housing appear on the balance sheet as a tangible fixed asset?

You go first, Innes.

Yes, the confidence is the Freeport jobs. The Freeport jobs are permanent jobs across the 4 ports, Nigg, Ardersier, Cromarty and Inverness and the significant investment over, I think GBP 3 billion is expected to be invested there. That is going to be a hub for assembling and manufacturing the offshore wind. I mean these offshore wind, I mean these things are 250-, 300-meter span, and they're basically on top of oil rig platforms. These things are just massive. You would not believe the scale of them when you actually see them. So they will be permanent jobs, and they will be coming over the next 3 to 5 years. And those are the jobs that would be going to these sizes, but we will assess the opportunities when we get there, and we will -- just on Monday, we had various discussions, and another site was added, we -- I actually look at this site now. And so it really is exchanging. The difficulty is getting contracts signed. These are big players, and they have lots of boardrooms and they have lots of authorization processes to go through to get it signed. But there is a need that if you take SSEN, it's GBP 20 billion is what they're forecasting to spend in the north of Scotland. I think it's GBP 30 billion across Scotland, which is kind of HS2 numbers now. How long will the project last? Will it be 4 years? Will it be extended? Will it last longer? Well, if it does, then we'll happily rent out for longer. So yes, lots of good opportunities. And the exact -- how we create on the -- it will be -- I mean, Iain, do you want to do the...

Yes. So yes is the answer. The properties will be on the balance sheet as an asset until we get to the end. And as Innes said, we decide what we're doing with.

So whether it's stock or fixed assets is we've got accounting...

Yes. Absolutely...

But they'll be on things I'm looking at.

Great. And just leading on from that, the proposed housing has dual purpose first for the workers building the infrastructure and then to families. Is it correct to assume the housing will be built for families and towns, near shops and schools rather than near sites suitable for a workforce consisting mainly of single man?

Okay. I don't know what kind of diversity question we've got there, but no, we have planning permission for sites, and they are normal sites and they're in normal areas, and it will just be houses on those sites. So they're not specifically got planning permission near a substation or specifically got planning permission near where the work is. So these are just normal houses in the Highland area that are already in the local plan. So these are sites we already have planning on, and we had already proposed to sell to the private market. We just see an opportunity here of getting a rental stream and the sales value on the same property. So we're clearly making more profit out of one house. And if it's largely funded through advanced rentals, then the return on capital employed is going to be very healthy.

Great. And Sandy, maybe this one is for you. Are you able to expand upon Springfield's current position with regards to securing land holdings in the north of Scotland. I mean, obviously, you've already touched on that, but if you could expand at all?

Yes, the opportunity to do that was last year, and we went for it and secured work. We're able to secure a lot of proposed areas, which we put into Highland Council, over 1,400 acres. So that's about 12,000 homes potentially if they all come through. And I don't expect they all will. But given that our land bank is at the moment, it's about 7,000 houses, that gives you some idea of the scale and the success we've had in securing land over the last year or so to put to Highland Council and to fulfill their needs.

Yes. And it may be we don't do all of this ourselves. It may be that one of the nationals looks at the activity and decides they want to come up and they need land. And if they need land and they want land, they generally pay good prices as we've just shown last year with the sale to Barratt. And who's door are they going to come knocking at, it's going to be ours because we're the guys with the substantial and it may be a way of releasing big sites and getting them to fund the infrastructure. So there's many opportunities for us going forward.

And has there been fierce competition for those land holdings?

No, because none of the nationals are up here. It's not the same fighting. It's the long-term relationships with landowners and the reputation of being fair and paying good values for land, which we've built up over many years. So it really is relationship-based, how we've secured a lot of our land. Sandy puts his tweets on and goes out and visits people.

Giving away our secrets.

So it's not a young lad with a pinstripe suit that's going out and visiting the farmer, so yes.

Moving swiftly on. And is the north of Scotland experiencing above-average house price inflation given the anticipated infrastructure spend and lack of capacity?

We've had reasonable sales, I would say the north of Scotland has been stronger than the rest of Scotland over the last year or 2 years. But it's not happened yet. A lot of contract workers just -- I mean, they're here. We're renting out an office in Elgin. We got this substation. You can see the works going on in the card, you can see Nigg and Ardersier. So all these people, I mean, I gave a presentation to the Highland Housing Conference. And the weekend before that, there was only 1 property for rent in Inverness. Inverness rents have gone up from GBP 500 to GBP 800, GBP 900 a month. It's -- there is -- you can see the boom happening. Hotel, if you're staying in a travel lodge in Elgin, I think it's GBP 200 a night. So you're seeing it more in the hotels and the rental side than through house price inflation yet. But that's clearly when people say decide they're setting that will come afterwards. We're very used to this because we had the REF basis in the north of Scotland. And we're very used to people coming up renting for a while and then buying. And before you know it, their parents have moved up here, and it's a lovely place to live, and it's good place to settle.

And Sandy, obviously at the start of the presentation, you ran through the history of Springfield, and it's led to the question, what is Springfield's appetite for acquisitions going forward, especially with regards to the north of Scotland. Any appetite?

Well, we're not looking at anything at the moment. And we've done it in the past, and it was a good way to acquire land, but we don't really need to do that in the north of Scotland because of the option agreements that we've secured. So we're not really looking at that way of expansion at the moment.

Great. And what is Springfield's approach to net bank debt and capital allocation going forward and dividend policy? And a follow-on question from that. Given the capital required for the building program, why is the dividend forecast to rise rather than retaining scarce capital for additional homes?

Okay. So if you look at analyst forecasts, where you've obviously got a paper out that explains it quite well. We have -- I think we've said now we changed our -- we're going to be net debt of 0 at the end of '28, but we've now put that to GBP 20 million so that we can fund some working capital because we will only get the front funding of the rentals on this once we hand over the house. So there is working capital needs funded. We think with GBP 277 million of assets, GBP 20 million debt is very lowly geared. The dividend, we believe that it's a balancing act between -- there isn't a -- cash is not the resource that we're going to be short of. We'll have plenty of room within our facilities to fund the growth, and we believe in sharing our profits with the owners. We think that's a very important thing for people that buy shares in Springfield that they get a return on their money and they get an annual return and annual income. So it's all a balancing act. So we don't see debt as anywhere near the sort of issue it was 2, 3 years ago.

Okay. And another question. This looks like a very exciting opportunity. How mature is your thinking on this new business model? Have you looked at the ROCE you will receive on what you're investing in this new opportunity? How much of this may be in the residual value?

Okay. ROCE and the net debt to EBITDA, those are all metrics that you guys can explain to people. We see a very profitable opportunity and something that's funded -- work in progress that's getting funded by the infrastructure providers and then we're getting rent. So effectively, we're getting a return for no capital, and then we're selling it at the end, and we'll get house price inflation. So we look at things really simple. We used to have metrics for our group directors where they were getting bonuses based on the ROCE and the net debt to EBITDA and they didn't have a clue what targets they were working towards. So we tend to keep things simple, how many houses are we trying to build, what gross margin are we trying to get and what debt figure do we want. So we keep things simple, but James Tetley from you guys will certainly explain those answers in detail.

Right. And will the rental prices be set for 5 years, open market or controlled on those homes?

Yes. So we have not signed a contract yet, so they will be what they will be, but they will be favorable to us.

And what kind of time frame should we expect to start hearing about some potential signings?

I genuinely think they are late already. I think they need the houses 6 months ago. In order to -- it's not just -- you can't just press a button and suddenly you've got a house in 3 months' time. So if they're looking a year ahead, then they're already potential behind. So I can see us having a big push. We are having weekly conversations. We are having discussions on programs and project meetings. So we're getting very close. I said last time, I would love to see them signed by, when I come here just now. Short term, I'd love to say they were signed so that everyone had certainty. But long term, the later it's left, the more confident I would be that we'll get good terms for ourselves. But it needs to be fair. We need to have a contract that works for us, works for Highland Council, works for the infrastructure providers. So there is very much a chance for everyone to win on this. They win by getting security of the delivery of the houses, Highland Council wins by getting and Moray Council win by getting the housing stock, and we win by getting a good rental stream and a good exit at the end.

Great. Maybe just the final question, moving away from the build and lease, a bit more general. How much of the proposed GBP 20 billion spend on upgrading the network is actually committed?

I don't know. There's GBP 20 billion is what they've announced, how much of that is for housing, how much of that is for -- there's 3,000 pylons to be replaced between Peterhead and Beauly. That's...

You can't do half of them because then the new electricity only goes halfway. So they've got to do the whole lot.

But certainly, I'm listening to -- it started off. And if you listen to the language, the language has changed. It started off net zero, green, renewable. And now it's very much -- I was at a meeting with [indiscernible] last month, and it's very much about energy security. That is very much -- the message is now coming out is this is for energy security. They need to get the community on site. The spend is there. We have AI coming. We have data centers required. We have a bigger need for electricity. We need more power. And the current solution of importing oil and importing stuff from faraway places is not a good one. So I'm very confident this is going to happen.

Great. And sorry, just one final question. What seems to be the mood music up in the north of Scotland? Are the local residents excited about the prospect? Do they think it will bring prosperity to the region, broadly positive?

You can Google it and you'll get the -- we have Nimbus in Scotland as well. A lot of people retire to the north of Scotland and wanted to stay like a museum piece that is unchanged. And there are also people who tend to be the silent majority who want to see availability of housing. We want to see improvements in infrastructure. We want to see economic growth and economic development. And like anywhere, it's the large minority that you hear, but yes, I think -- I don't know, I think there is a reasonable expectation amongst the local people that there should be some payback for all of this infrastructure going in. And the phrase is the English are stealing our wind. They've done it with our oil. All of those are the normal phrases you would expect. But I think that all of these providers recognize that they need to get the community on site and whether it's leaving sports facilities behind, whether it's leaving housing behind, whether it's contributing to local causes, there is a lot of that community funds getting set up now to win the hearts and minds. But if there's an incoming of 10,000 people, then clearly, that's going to affect the dynamics and there will be -- nothing is going to be -- it won't be smooth and it won't be easy. It will need a lot of hard work to make sure that everyone is positive. But if you look at what happened in Aberdeen, I mean, Aberdeen. Aberdeen was a great place and it had exactly the same boom, and it was a lovely place to live and still is a nice time.

Great. Well, thank you very much. Thank you for your time. Thank you for your response to the questions and a very exciting period for you going forward. And we look forward to hearing from you again at your results in February. So to conclude the presentation, once again, many, thanks for your time. There will be a short survey being sent out to participants. If you could respond to that, I know that management would find it very helpful. And thank you very much, everybody.

Yes. Thank you, everyone. Thanks for attending.

Thanks, Rachel.

Thank you.