CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 MAY 2021

The Group has no items of other comprehensive income.

These financial statements were approved and authorised for issue by the Board of Directors on 13 September 2021. Signed on behalf of the Board by:

COnsolidated BALANCE SHEET

FOR THE YEAR ENDED 31 May 2021

consolidated Statement of Changes in Equity

FOR THE YEAR ENDED 31 MAY 2021

The share capital account records the nominal value of shares issued.

The share premium account records the amount above the nominal value received for shares sold, less share issue costs.

Retained earnings represents accumulated profits less losses, and distributions. Retained earnings also includes share based payments.

Consolidated Statement of Cash Flows

year to 31 May 2021

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEAR TO 31 MAY 2021

1.    Organisation and Trading Activities

Springfield Properties PLC is incorporated and domiciled in Scotland as a public limited Company and operates from its registered office in Alexander Fleming House, 8 Southfield Drive, Elgin, Morayshire, IV30 6GR.

The Group consists of Springfield Properties PLC and its subsidiaries Glassgreen Hire Limited, DHomes 2014 Holdings Limited, Walker Holdings (Scotland) Limited and SP Sub 2018 Limited.

The Group also indirectly includes Dawn Homes Limited, DHPL Limited and DHHG1 Limited which are subsidiaries of DHomes 2014 Limited.

The Group also indirectly includes Walker Group (Scotland) Limited, Walker Contracts (Scotland) Limited and Craig Developments Limited which are subsidiaries of Walker Holdings (Scotland) Limited.

2.    Summary of Significant Accounting Policies

The principal accounting policies adopted and applied in the preparation of the financial statements are set out below.

These have been consistently applied to all the years presented unless otherwise stated.

2.1          Basis of accounting

The financial information set out in this announcement does not constitute statutory accounts as defined in Section 434(3) of the Companies Act 2006. The consolidated balance sheet at 31 May 2021 and the consolidated profit and loss account, consolidated cash flow statement, consolidated statement of changes in equity and associated notes for the year then ended have been extracted from the Group's financial statements which were approved by the Board of Directors on 13 September 2021 and are audited with an unqualified opinion. The comparative consolidated financial information for the year ended 31 May 2020 is based on an abridged version of the Group's published financial statements for that year, which contained an unqualified audit report. A copy of the 2020 financial statements has been filed with the Registrar of Companies.

The financial statements of Springfield Properties PLC have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The Group has adopted all the standards and amendments to existing standards which are mandatory for accounting periods beginning on 1 June 2020.

The financial statements have been prepared under the historical cost convention except for contingent consideration.

Standards adopted for the first time

There are no new or revised standards effective for annual periods beginning on or after 1 April 2020 that are relevant to the Group.

Standards, amendments and interpretations to existing standards that are not yet effective

There are no new standards, amendments to existing standards or interpretations that are effective as at 31 May 2021 relevant to the Group. After Brexit, the UK will continue to apply International Accounting Standards in conformity with the requirements of the Companies Act 2006.

Prior period restatement

On reviewing the Group's accounting policy for revenue recognition on construction contracts for the year ended 31 May 2020, the Board concluded that the application of the policy resulted in the Group accruing for costs that had not yet been incurred, which is now understood to be non-compliant with IFRS15. The Group has therefore moved to a policy based on stage of completion being determined by the development cost incurred as a proportion of the total expected development cost as this is considered to be in line with the satisfaction of the underlying performance obligations. The accounting policy note (Note 2.5) has been updated to reflect this change. As a result, in May 2020 both revenue and cost of sales have been reduced by £0.9m with no impact on the profit for the year. An amount of £2.8m has also been reclassified on the balance sheet from accruals to payments on account with no impact on current liabilities or net assets.

The Directors have reviewed the liabilities included in the provisions line in the prior year and have concluded, in line with accounting standards, that deferred taxation of £2,413,000, deferred consideration of £2,107,000 and contingent consideration of £3,797,000 should have been presented separately. The prior year has been restated to reflect that. These presentation changes have no impact on net assets in either period.

2.2          Basis of consolidation

The consolidated financial statements incorporate those of Springfield Properties PLC and its subsidiaries and jointly controlled entities. Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Contingent consideration is measured at its fair value at the date of acquisition. If the contingent consideration meets the definition of equity, it is not remeasured, and settlement is accounted for within equity. Other contingent consideration is remeasured at fair value at each reporting date with subsequent changes in the fair value of the contingent consideration recognised in the consolidated profit and loss account.

All financial statements are made up to 31 May 2021.

All intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.

2.3.         Functional and presentation currencies

The financial statements are presented in Pound Sterling (£), rounded to the nearest £000, which is also the currency of the primary economic environment in which the Group operates (its functional currency).

2.4.         Going concern

The financial year ending 31 May 2021 was an exceptional one for the Group with a strong rebound from COVID-19 seeing record sales and profit levels. The £18m term loan which was secured in April 2020 to cover the Group in the event of an extended lockdown period was repaid in full in April 2021.

The Group continues to have a strong relationship with Bank of Scotland as principal bankers. In September 2021, the revolving credit facility (£64.5m) was extended and is now repayable in January 2025. As part of securing the extension of the revolving credit facility the Group prepared a 3-year plan which incorporated the Board approved budget to May 2022.

A range of sensitivities were run including reducing selling prices, build costs increasing offset by land purchase delays and any associated revenue impact.

The extended bank facility and detailed 3-year plan gives the Directors comfort that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.

2.5.         Revenue and profit recognition

Sale of private homes

Revenue on private home sales is recognised at a point in time and the performance obligation is the transfer of the completed property to the customer on legal completion and receipt of cash. Revenue is measured at the fair value of the consideration received net of VAT and trade discounts.

The Group's site valuation process determines the forecast profit margin for each site. The valuation process acts as a method of allocating land costs and construction work in progress costs of a development to each individual plot and drives the recognition of costs in the profit and loss account as each plot is sold. Any changes in the forecast profit margin of a site from changes in sales prices or costs to complete is recognised across all homes sold in both the current period and future periods.

Revenue on contracts recognised over time

Revenue from affordable housing contracts is recognised over time as development progresses as the construction activity enhances an asset controlled by the customer.

Where the outcome of a contract can be estimated reliably, the amount of revenue recognised depends on the stage of completion. This is based on the development costs incurred as a proportion of the total expected development costs.

Contractual cashflows are determined by independent surveys of work performed to date. These do not always align with the revenue recognised on the underlying performance obligation and any cashflows received that are in excess of the revenue recognised are included as payments on account. Where the cashflows received are less than revenue recognised the difference is included within trade debtors.

Revenues derived from variations on contracts are recognised only when they can be reliably measured. Where the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as expenses in the period in which they are incurred and contract revenue is recognised to the extent of contract costs incurred where it is probable that they will be recoverable. When it is probable that total contract costs will exceed contract turnover, the expected loss is recognised as an expense immediately.

Land Sales

Revenue from land sales is recognised on legal completion based on fair value at transfer.

2.6.         Grants

Grants are recognised when it is probable that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Revenue grants are credited to the profit and loss account as and when the relevant expenditure is incurred.

2.7.         Employee benefits

The costs of short-term employee benefits are recognised as a liability and an expense in the period in which the services are received, unless those costs are required to be recognised as part of the cost of stock.

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the Group is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

2.8.         Retirement benefits

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

2.9.         Net finance costs

Finance costs comprise interest payable on bank loans and the unwinding of the discount from nominal to present day value of provisions and lease liabilities. Finance income comprises the unwinding of the discount from nominal to present day value of shared equity. Interest income and interest payable is recognised in the income statement on an accruals basis.

2.10.      Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax is not recognised on temporary differences arising from the initial recognition of goodwill or other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax is measured on a non-discounted basis using the tax rates and laws that have then been enacted or substantively enacted by the reporting date.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the Company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

2.11.      Exceptional items

Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the profit and loss account to enable a full understanding of the Group's financial performance.

Transactions that may give rise to exceptional items include transactions relating to acquisitions and costs relating to changes in share capital structure as well as redundancy and restructuring costs.

With respect to the impact of COVID-19, the furlough grant income received from the government has been separately disclosed within the consolidated profit and loss account as exceptional, due to its incremental nature. The direct furlough payroll costs are considered abnormal costs in the current year and consistent with previous years, any direct payroll costs reflecting employee down time (abnormal production) is expensed to the profit and loss account. Due to the COVID-19 pandemic and sites being closed from April until the end of June 2020, the quantum of direct employee down time in the current year is significant. The administrative furlough payroll costs disclosed as exceptional are considered to be interdependent with the related government grant income and while not being incremental or abnormal in nature, the government support measures were key in protecting these jobs. See Note 5.

2.12.      Property, plant and equipment

Tangible fixed assets are initially measured at cost and subsequently measured at cost net of depreciation and any impairment losses. Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives on the following bases:

Buildings                                                - 2% and 5% straight line

Plant and machinery                           - 2-10 years straight line

Fixtures, fittings & equipment           - 2-5 years straight line

Motor vehicles                                     - 4-5 years straight line

Right of use leased assets   - over the lease term, straight line with no residual value

Land is not depreciated.

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset and is credited or charged to the profit and loss account.

2.13.      Intangible fixed assets

Intangible assets comprise of market related assets (e.g. trademarks, imprints & brands) and goodwill on acquisition.

Market related assets

Market-related assets are expected to have an indefinite useful life; however, impairment reviews are performed annually. Any impairment losses or reversals of impairment losses are recognised immediately in the profit and loss account.

Goodwill on acquisition

Goodwill on acquisitions of subsidiaries represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired.

Any impairment losses are recognised immediately in the profit and loss account.

2.14. Fixed asset investments

Interests in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.  The investments are assessed for impairment at each reporting date and any impairment losses are recognised immediately in the profit and loss account.  Costs associated with the acquisition of subsidiaries are recognised in the profit and loss account as an exceptional item.

2.15.      Impairment of fixed assets

At each reporting end date, the Group reviews the carrying amounts of its tangible fixed assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value-in-use. Any impairment loss and reversal of losses are recognised in the profit and loss account.

2.16.      Inventories and work in progress

Property, including land held under development, acquired or being constructed for sale in the ordinary course of business, rather than to be held for rental or capital appreciation, is held as stock and is measured at the lower of cost and net realisable value.

Cost comprises of the invoiced value of the goods purchased and includes attributable direct costs, labour and production overheads.

Net realisable value is the estimated selling price in the ordinary course of the business, based on market prices at the reporting date and discounted for the time value of money if material, less estimated costs of completion and the estimated costs necessary to make the sale. Any excess of the carrying amount of stocks over its net realisable value is recognised as an impairment loss in the profit and loss account.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of stocks over its estimated selling price less costs to complete and sell is recognised as an impairment loss in the profit and loss account.

Where sites are 'secured' via option agreements, these sites are only included as stock when the agreement becomes unconditional.

Options included as part of stock are stated at the lower of cost and net realisable value.

2.17.      Financial instruments

Financial instruments are recognised in the balance sheet when the Group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Financial assets at amortised cost

The Group's financial assets fall into loans and receivables category.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets included in loans and receivables are recognised initially at cost. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method, less any impairment losses.

Loans outside the Group are valued at the recoverable amount and a market rate of interest is charged.

Impairment of financial assets

The Group recognises an allowance for expected credit losses for all debt instruments not held at fair value through profit and loss account. Expected credit losses are based on the difference between the contracted cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.

For trade receivables and, in the Parent Company, intercompany receivables, the Group applies a simplified approach in calculating expected credit losses. The Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime expected credit losses at each reporting date.

Derecognition of financial assets

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the Group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities

All of the Group's financial liabilities are measured at amortised cost.

Other financial liabilities

Other non-derivative financial liabilities are initially measured at historical cost less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability to the net carrying amount on initial recognition.

Derecognition of other financial liabilities

Financial liabilities are derecognised when the Group's contractual obligations expire or are discharged or cancelled.

2.18.      Deferred consideration

Deferred consideration payments are initially recognised at fair value at the date of acquisition which is based on the timing of the cash outflows and an appropriate discount rate. It is subsequently measured at amortised cost.

2.19.      Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

2.20.      Dividends

Dividends are recognised as liabilities in the period in which the dividends are approved and once they are no longer at the discretion of the Company.

2.21.      Leases

All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets and leases with a duration of 12 months or less.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the Group's incremental borrowing rate at commencement of the lease.

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.

Right of use assets comprise the Group's existing premises in Elgin, Larbert, Livingston and Glasgow along with certain items of office equipment and motor vehicles.

2.22.      Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of a Group after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.

Share capital represents the amount subscribed for shares at nominal value.

The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Any bonus issues are also deducted from share premium.

Retained earnings include all current and prior period results as disclosed in the profit and loss account.

2.23.      Share-based payments

Equity-settled share-based payments are measured at fair value at the date of grant and recognised as an expense over the vesting period. The amount recognised as an expense is adjusted for leavers to the scheme. Fair value is measured by use of a relevant pricing model.

3.    Segmental Reporting

A segment is a distinguishable component of the Group's activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Group's chief operational decision makers to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available. In identifying its operating segments, management generally follows the Group's service line which represent the main products and services provided by the Group. The Directors believe that the Group operates in one segment:

·      Housing building activity

As the Group operates solely in the United Kingdom segment reporting by geographical region is not required.

4.    Taxation

  The charge for the year can be reconciled to the standard rate of tax as follows:

5.    Exceptional Items

(1)       2020 Acquisition and other transactions related costs relate to the planning being achieved at Carlaverock which had previously been assessed as 98% likely

(2)       The £2,318k (2020: £3,064k) is the Company cost of all employees who were on furlough during the year.  The £2,085k (2020: £2,723k) is the furlough grant income received from the UK government in relation to the furloughed employees for the year.

6.    Dividends

On 30 October 2020, a final dividend of 2.0p (2020: 3.2p) per share was paid to shareholders, amounting to £1,957,644 (2020: £3,083,186). In respect of the current year, on 23 February 2021, an interim dividend of 1.3p (2020: nil) per share was paid to shareholders, amounting to £1,316,186 (2020: £nil). The Directors propose that a dividend of 4.45p per share will be paid to shareholders on 9 December 2021. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed final dividend for 2021 is payable to all shareholders on the Company's Register of Members on the record date of 5 November 2021.

7.    Earnings per share

The basic earnings per share is based on the profit for the year divided by the weighted average number of shares in issue during the year. The weighted average number of ordinary shares for the year ended 31 May 2021 assumes that all shares have been included in the computation based on the weighted average number of days since issue.

In respect of diluted earnings per share the weighted average is calculated by adjusting for all outstanding share options that are potentially dilutive (i.e. where the exercise price is less than the average market price of the shares during the year).

(1)       Underlying earnings is presented as an additional performance measure and is stated before exceptional items.

8.    Deferred Consideration

As part of the purchase agreement of Walker Holdings (Scotland) Limited, there was a further £4,375,000 of Deferred consideration payable.  This can be broken down into: (i) £2,187,500 payable on the first anniversary of the acquisition date (31 January 2020); (ii) £2,187,500 payable on the second anniversary of the acquisition date (31 January 2021). The outstanding discounted amount payable at the period end is £nil (2020: £2,107,289).

9.    Contingent consideration

As part of the purchase agreement of Walker Holdings (Scotland) Limited, there was a further £6,000,000 payable which is included within Provisions. £4,000,000 is payable when outline planning is granted at Carlaverock and £2,000,000 payable when detailed planning is granted at Carlaverock with probability was assessed at 98% and 95% respectively. The outstanding discounted amount payable at the period end is £1,900,000 (2020: £1,796,486). The remaining £100,000 (5% on the £2,000,000 still to be paid) has been treated as a contingent liability due to the uncertainty over the future payment.

As part of the purchase agreement of DHomes 2014 Limited there was a further £2,500,000 payable for an area of land if (i) we make a planning application when we reasonably believe the council will recommend approval; or (ii) it is zoned by the council.  The directors have assessed the likelihood of the land being zoned and have included provision of £2,000,000 based on 80% probability.  The outstanding amount payable at the period end included within Provisions is £2,000,000 (2020: £2,000,000). The remaining £500,000 (20% on the £2,500,000 still to be paid) has been treated as a contingent liability due to the uncertainty over the future payment.

10.  Provisions

Dilapidation provisions are included for all rented buildings within the Group. An onerous lease provision has been created due to the closure of the Walker office in Livingston. Maintenance provisions relate to costs to come on developments where the final homes have been handed over.

11.  Share capital

The Company has one class of ordinary share which carry full voting rights but no right to fixed income or repayment of capital.

The share capital account records the nominal value of shares issued.

The share premium account records the amount above the nominal value received for shares sold, less transaction costs.

During the year 2,539,270 shares (2020: 30,660) were issued in satisfaction of share options exercised.

On 31 January 2021, 1,677,293 shares (2020: 1,480,742) were issued to satisfy the second anniversary (2020: first anniversary) payment for Walker Holdings (Scotland) Limited.

12.  Transactions with related parties

Other related parties include transactions with a retirement schemes in which Directors and close family members of key management personnel are beneficiaries.

During the year dividends totalling £1,415k (2020: £1,446k) were paid to key management personnel (Board of Directors and the members of the Operational Board).

The remuneration of the key management personnel (PLC Directors and Group Directors) of Springfield Properties PLC is set out below in aggregate for each of the categories specified in IAS 24 - Related Party Disclosures:

During the year the Group entered into the following transactions with related parties:

Sales to related parties represent those undertaken in the ordinary course of business.

The following amounts were outstanding at the reporting end date:

Amounts owed to/from related parties are included within creditors and debtors respectively at the year-end. No security has been provided on any balances.

Transactions between Group companies have been eliminated on consolidation and are not disclosed in this note.

(1)    Bertha Park Limited is a Company in which Sandy Adam and Innes Smith are Directors. During the year the Group made sales to Bertha Park Limited of £8,989k (2020: £14,911k) in relation to a build contract. At the year-end £1,772k (2020: £2,411k) is included in trade debtors and included within other debtors is a loan of £5,000k (2020: £4,344k) at the year-end.

(2)    During the year, DGGH 1 Limited became a wholly owned subsidiary therefore the transactions during the year are eliminated on consolidation.  For the year ended 31 May 2021, DHHG 1 Limited was a jointly owned entity of Dawn Homes Limited, which Michelle Motion is a Director.  Comparative figures show that the Group made sales to DHHG 1 Limited totalling £2,519k in relation to a build contract and management fees. At 31 May 2020 £26k was due from DHHG 1 Limited.

13.  Analysis of net debt

The analysis of net debt is as follows: