好色先生TV

The collapse of the Stewart Milne Group earlier this month left many in the industry scratching their heads. How such a large housebuilder could find itself in administration? And is its failure a bad omen for the rest of the housing sector? 

好色先生TV took a look at the firm鈥檚 accounts going back nearly a decade to find out how this once healthy firm fell into trouble and discovered a homegrown crisis of dwindling assets rooted in the slump in the oil-linked property market around Aberdeen and the firm鈥檚 hesitance to buy land during Covid.  

The seeds of the crisis at Stewart Milne go back to the middle of the last decade in 2015, when the housebuilder was posting a profit of 拢5m and held 拢107m in net assets. 

There was, however, a bad omen contained within that set of accounts, with the north-east of Scotland market 鈥� the firm鈥檚 spiritual home 鈥� noted to be 鈥渆xperiencing challenging conditions as a result of the low price of North Sea oil鈥�. However the company said it remained 鈥渙ptimistic鈥� about the Aberdeen market despite the challenges. 

The following year (FY16) the firm attributed a drop in turnover to the 鈥渟ustained reduction in the global oil price鈥� impacting the north-east Scotland market. In FY17 it announced that it had decided to reduce investment in new sites in the region until demand recovered. 

It was not until FY19 that troubles in the north-east were reflected on Stewart Milne鈥檚 balance sheet. A drop in the price of oil in the middle of the 2010s had hit the Aberdeen property market and the annual accounts accordingly read: 鈥淭he housing market has remained challenging since the collapse in global oil and gas pricing in 2015 and the company has recorded losses in this division since that time.  

鈥淭hese losses generally stem not only from lower activity levels but also from the fact that land was acquired prior to 2015 and therefore held at a higher price than reflected in the current market. The group has therefore performed a full valuation of both our actively developed sites and also those held on the balance sheet but not under development.  

鈥淚n order to reflect current market positions and the group鈥檚 strategy regarding future sites, an exceptional operating charge of 拢42.8m has been recorded in this period鈥檚 profit and loss account, principally related to asset impairment.鈥� 

From FY19 onwards, the firm was evidently in some trouble, posting negative net assets of between 拢48m and 拢61m in its final three sets of accounts. 

There was some progress made during these years to correct course. Liabilities were reduced from 2019 onwards after a strategic review in 2020 and 2021 which saw it pivot toward becoming a dedicated housebuilder.

The timber system division was sold to James Donaldson Group in December 2021 for gross sale proceeds of 拢66.3m. Using the disposal proceeds, the business repaid 拢61m of its debt facility to the Bank of Scotland, reducing this facility to 拢114.3m. 

According to a pro forma balance sheet presented with the FY21 accounts, had this sale been completed during the financial year, it would have just marginally returned the business to a positive net asset position of 拢41,000 (compared with the -拢61.4m recorded in the statutory results). 

Meanwhile, a group subsidiary, Countesswells Development Limited, which oversaw the development of a new town in Aberdeenshire, was placed into administration in November 2021, resulting in a reduction of 拢86m to the group鈥檚 net debt, according to the pro-forma balance sheet.

In April 2022, the company was put up for sale, but the process was paused eight months later citing 鈥渦ncertainty in the market鈥� after Liz Truss鈥� disastrous mini-Budget. 

However, Stewart Milne鈥檚 efforts to reduce its liabilities, which were accompanied ultimately by a return to profit (FY22: 拢16.6m), did not keep pace with the decline in the value of its net assets. 

Successive write-downs in the value of stock from the October 2019 accounts onwards took a cumulative 拢89m off the balance sheet. A final write-down of 拢16.3m in the FY22 accounts was part of a group of exceptional operating items totalling 拢41.4m. 

According to the FY22 accounts, the business had also reduced its investment in land during Covid. The decline in the value of stock resulting from these two factors was the main cause for a decline in its total assets, which ultimately outpaced the progress made on reducing its liabilities. 

In its final set of accounts (FY22), the business posted negative net current assets (-拢32.6m) for the first time in the period examined by Housing Today (FY15 to FY22), meaning its liabilities falling within one year of the end of the financial year outweighed assets that the company could quickly make liquid. 

Despite this, the directors of the company continued to believe in Stewart Milne Group Ltd as a going concern. After the year end (FY22), the company extended its credit facilities with Bank of Scotland through to 30 June 2024, providing the 鈥渘ecessary platform for the group to seek a new buyer鈥� and allowing it to continue to acquire new sites to enable business growth.  

Stewart Milne鈥檚 auditor, KPMG, drew attention to the fact that 鈥渞equirements of the company鈥檚 bank facility include the completion of milestones in 2023 in this sale process鈥�, which was restarted in May 2023. 

The auditor also observed that 鈥渃ertain amounts owed by the company to related parties are forecast not to be called for repayment during the going concern assessment period鈥�, noting that these two facts were material risks for the company. 

Nonetheless, according to the accounts, the business鈥� directors believed 鈥� 鈥渂ased on their evaluation and inquiries鈥� 鈥� that the sale of the company and its refinancing would be completed in 2023 and that 鈥渦ntil then, amounts falling due by the group to related parties will not be called for repayment鈥�. 

But on January 8 this year, it was announced that Teneo had been appointed as administrators for the group. Teneo director Adele MacLeod said the 鈥渄ownturn in the UK housing market combined with an extensive sales process not resulting in any viable offers鈥� had led to the decision.

At the time, the business鈥� founder, the eponymous Stewart Milne, came out with a statement which said that two bids had been submitted for the company, one of which he believed could have 鈥渄elivered a comparable financial return to administration鈥�.

However it appears that the bank, which accepted neither bid and withdrew its funding, had finally run out of patience. 

When contacted by 好色先生TV, Stewart Milne declined to comment.