INL.L Regulatory News (INL)

8 February 2021

Inland Homes plc

(the 'Company' or the 'Group')

Audited results for the year ended 30 September 2020

A CREDIBLE PERFORMANCE IN A CHALLENGING YEAR

Inland Homes plc (AIM: INL), a housebuilder, partnership housing developer and regeneration specialist, today announces its audited results for the year ended 30 September 2020 (prior period was fifteen months ended 30 September 2019).

Stephen Wicks, Chief Executive at Inland Homes, commented:

"The Group has weathered the global pandemic well. The flexibility in our diversified business model allowed us to adapt quickly during the year despite challenging conditions. The consolidation to land-focused activity, supported by the Group's other income streams and the new equity raised during the year, has benefited our balance sheet. A steady reduction in net debt is a strategic priority for the Group.

"We are seeing increasing demand for our experience and skills in successfully navigating the complex planning system. A primary focus in the year ahead will, therefore, be growing our asset management division. As a 'capital light' activity - where our skills and expertise are the service - this has lower risk and delivers attractive returns.

"There are plenty of opportunities ahead for Inland with growing demand in the affordable and build to rent spaces. We have proven capability in delivering such schemes and are actively seeking these opportunities, which provide regular cash flow and land sales.

"Above all else, there is a significant shortage of new homes being built in the UK and we will play our part in building sustainable communities for the future. We end the year with a record land bank and sustained demand from customers, partners and investors for our quality land assets and build expertise, leaving us well positioned for future growth."

Financial performance*

· Raised £9.4m (net of expenses) in May 2020, to provide additional liquidity

· EPRA NAV[1] sustained at £235.7m (30 September 2019: £233.1m)

· ERPA NAV per share 103.97p per share (30 September 2019: 113.69p), 8.5% lower due to placing of 20.75m new ordinary shares during the year

· Revenue at £124.0m (30 September 2019: £147.9m), different from that guided to in the Trading Update due to change in accounting policy for contract income

· Gross profit reduced to £22.0m (30 September 2019: £32.5m) as a result of a lower number of homes sold by the Group and increased costs due to COVID-19

· Profit before tax at £3.7m (30 September 2019: £25.0m)

· Net debt reduced to £148.2m (30 September 2019: £152.3m)

· Cash balances increased to £15.7m (30 September 2019: £10.9m) of which £4.7m was restricted (30 September 2019: £1.3m)

Operational performance*

· Activity disrupted by COVID-19 pandemic

· Robust health and safety procedures ensured operations continued throughout the first lockdown on all but three sites, which reopened in August 2020

· Strategy refined to focus on four key pillars: increase the size of our land bank; secure capital light opportunities; use the flexibility within our model to maximise the value of land; deliver homes that meet market need in a cost-efficient way

· Two major land sales achieved at Wilton Park, Beaconsfield and Cheshunt Lakeside, Cheshunt

· Resolution to grant planning consent achieved at Hillingdon Gardens (former Master Brewer site) subject to signing of a Section 106 agreement to deliver 514 homes including 182 affordable homes

· Secured our first two sales to 'Build to Rent' (BTR) funds for £52.8m

· Building a high-quality land bank to support expected growth in demand from affordable housing providers and BTR operators. Total land holdings at a record 11,045 plots (7,796 plots) with an anticipated gross development value (GDV) of £3.1bn

· Private Housing:  226 completions (30 September 2019: 201) including joint ventures. Continued strong demand with a forward order book of £50.8m (2019: £39.3m)

· Partnership Housing: Revenues of £51.8m (30 September 2019: £62.6m). Will continue to increase our partnership housing activity as it achieves both land sales and a forward income stream for the Group that provides a good balance to our business model

· Asset Management: Grown to six live projects in Greater London with the potential to deliver more than 3,100 homes. During the year, the Group earned management fees of £24.4m (30 September 2019: £18.6m) from these sites

· Land sales: 107 land plots sold (30 September 2019: 532). Five significant land sales were aborted as an immediate result of the COVID-19 pandemic. Subsequently the Group has secured new purchasers for these sites.

· Hugg Homes: Winner of the 'Innovator of the Year: Housing Delivery' at the UK Housing Awards. Our temporary modular housing business continues to grow and once additional units at Cheshunt and Southampton have been constructed, the total number of Hugg tenanted homes will be 118 (30 September 2019: 54).

· Rosewood Housing: Our affordable housing provider continues to see high demand and made good progress, adding four Shared Ownership and eight affordable rent homes to its property portfolio

*2019 data is for the 15-month period to 30 September 2019

Enquiries:

The information contained within this Announcement is deemed by the Company to constitute inside information as stipulated under Market Abuse Regulation (Regulation 596/2014), as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").

Notes to Editors:

Incorporated in the UK in 2005, Inland Homes plc is an AIM listed specialist housebuilder and brownfield developer, dedicated to achieving excellence in sustainability and design.

Inland Homes acquires brownfield land in the South and South-East of England principally for residentially led development schemes. The business then enhances the land value by obtaining planning permission, before building open market and affordable homes or selling surplus consented land to other developers to generate cash.

The Company is committed to extensive public and community consultation in order to ensure that, where possible, local community needs and objectives are met.

Inland's aim is to create sustainable communities and homes which set a benchmark for all future developments in the South and South East of England. The Company is always looking for brownfield sites without planning permission for future development.

For further information, please visit the Inland Homes website at: www.inlandhomes.co.uk 

Hugg Homes - www.hugghomes.co.uk 

Rosewood Housing - www.rosewoodhousing.co.uk 

Chairman's statement

This has been a challenging year but we are a resilient business and have adapted well to weather the headwinds in our market place and the continued uncertainty caused by the global COVID-19 pandemic.

As a result of the prudent action outlined below, we start the new financial year with cautious optimism. We have used the flexibility in our diversified business model to adapt to the changing conditions, swiftly and decisively implementing a strategy of land focused activity to reduce costs, conserve cash and create opportunities for future growth.

Unlike others in the industry, Inland generates income from multiple sources - primarily land sales, asset management, private and partnership housing, supported by revenue generated from investment and rental properties. This diversity enabled us to respond quickly to the challenges presented by COVID-19, enabling the Group to adapt to changing market conditions and maintain cash flow.

This change of emphasis to land-focused activity, supported by the Group's other income streams and the new equity raised during the year, has improved our balance sheet. I continue to be impressed by the sustained demand from customers, partners and investors for our quality land assets and build expertise.

The health and safety of our colleagues and suppliers has been, and remains, our priority. Inland is an agile and adaptable business and its people are too. I am extremely pleased with how the Inland team has responded to the COVID-19 crisis and continues to do so. I would like to acknowledge and thank them for their continued support.

Land-focused activity

The Group had been trading in line with expectations up to March 2020. COVID-19 changed the market backdrop significantly and its ramifications were immediate. The extent of the overall disruption inevitably impacted on the Group's final results for the year ended 30 September 2020, with five significant land sales, which were at an advanced stage of documentation with solicitors, aborted in its immediate wake.

Despite this backdrop, the Group maintained continued operational delivery across all but three sites and has been quick to adapt to the new trading environment. In parallel, the housing market has responded positively to the Stamp Duty Land Tax holiday until March 2021 and it is reassuring to see good demand for our high-quality homes and land assets.

Subsequently, the Group has completed the five aborted land sales with new buyers, with the proceeds providing additional cash flow. These include the sale of 94 plots at Inland's flagship site Wilton Park, Beaconsfield and 195 plots at Cheshunt Lakeside, Cheshunt. The sale at Cheshunt Lakeside to a local housing association via the Group's joint venture Cheshunt Lakeside Developments Limited, also secured a £34.5m contract for Inland Partnerships to construct the homes. The sale of a further 53 units at Wilton Park in January 2021 will deliver further cash flow and debt reduction benefit.

The scale of our operations now allows us to seek to maximise returns in the short and medium term through these phased sales whilst maintaining overall control of the scheme masterplan and the subsequent long-term returns.

The Group's asset management arm has grown rapidly this year and it is now managing six projects with the potential for more than 3,100 homes. The Group secures sites on behalf of investors and uses its extensive land and planning expertise to secure planning approval on their behalf. The fees generated from this 'capital light' activity, generate attractive returns for the Group, whilst preserving its working capital. During the financial year, the Group earned management fees of £24.4m (fifteen-month period to 30 September 2019: £18.6m). We are seeking to grow this part of the business in the year ahead.

Using our agility, we secured our first forward sales to two 'Build to Rent' (BTR) funds within our Centre Square joint venture and wholly owned Buckingham House developments in High Wycombe in September 2020. The total forward sale consideration is £52.8m, comprising £31.5m for 123 units and amenity space at Centre Square and £21.3m for 85 units at Buckingham House. These are the first of what we hope will be many BTR opportunities secured by the Group, with Inland's land bank and build capability making it well-placed to access this attractive market. We listed securing such opportunities as one of our priorities in last year's accounts, recognising that our high-quality assets and expertise would be in demand in this rapidly growing market.

Our partnership housing (contract income) activity has supported our land-focused activity this year. Growing the partnership housing arm of the Group has also been a focus for the past few years and its benefits in terms of market resilience compared to self-delivery has been beneficial in these uncertain times. At the year end, our partnership housing forward order book stood at £105.8m, with 1,302 homes under construction. Margins on some of our older legacy sites have not been as good as they should have been and with the experience gained from the significant volume of homes now under construction, we will look to increase these gross margins in the future.

Similarly, we will seek to improve margins in private housebuilding. We have further tightened our internal controls to achieve this. While COVID-19 restrictions have resulted in overall lower completions than targeted (2020: 226 private house completions, including via joint ventures but excluding bulk sales to BTR operators, fifteen-month period ended 30 September 2019: 201), the sales rate in the final quarter of the year exceeded expectations. The Group has 415 private homes under construction and with an average selling price of £287,000 (fifteen-month period ended 30 September 2019: £250,000), homes continue to be attractive to, and within reach of, first-time buyers.

Our equity fundraise earlier in the year and increased bank facilities have provided additional liquidity. We welcomed several new shareholders to our share register through an oversubscribed placing in April 2020. In addition, we triggered the accordion part of the revolving credit facility (RCF) with HSBC of £20.0m, taking the facility available from £45.0m to a new maximum of £65.0m. As at the year end, we had drawn down £42.8m of this facility leaving headroom of £22.2m. The facility expires in March 2023.

Results and dividend

Revenue and profit before tax are lower than originally expected at £124.0m and £3.7m respectively (fifteen-month period ended 30 September 2019: £147.9 and £25.0m). The EPRA net asset value of the Group has been sustained at £235.7m (2019: £233.9m) and cash balances have increased to £15.7m (30 September 2019: £10.9m).

Reducing net debt and gearing remains a key priority for the Board; however, the impact of COVID-19 has limited our progress. Net borrowings have reduced by only £4.1m, from £152.3m to £148.2m at 30 September 2020, representing net gearing of 85.5% (2019: 93.9%). Net gearing based on EPRA net assets of £235.7m was lower than last year at 62.9% (2019: 65.1%). The Group is focused on and committed to making significant reductions to its net debt and gearing in the year ahead.

Given the uncertainties caused by the impact of COVID-19 and the need for prudent cash management, in March 2020 the Board resolved to cancel the second interim dividend of 2.25p per share due to be paid on 12 June 2020, which conserved £4.6m cash. The Board intends to resume the payment of dividends in the current financial year, provided there is no deterioration in the land and housing market caused by the COVID-19 pandemic or otherwise.

Market environment

The roll-out of the UK's COVID-19 vaccination programme is clearly positive and the new trade agreement between the UK and the EU significantly reduces previous concerns over a 'no deal' exit. However, we remain cautious around what the broader impact of the new trade agreement will be. Added to this, the third lockdown for England and subsequent tighter restrictions mean the uncertainties surrounding the potential impact of the pandemic remain.

We have revisited and updated our risk register to reflect this environment.

However, even in these difficult times there are plenty of opportunities for Inland. The Government maintains its commitment to building 300,000 new homes per annum by the mid-2020s, the Prime Minister has implored the country to 'Build, Build, Build' and the Government's 'Planning for the Future' White Paper on planning reform seeks to support this; a welcome and much needed move. The cumbersome planning process continues to cause the Group frustration. A faster, less bureaucratic system would benefit all. It is fair to say that we have not witnessed much improvement in the planning system for brownfield sites to be built at a faster pace, which is disappointing. We are keen to contribute to the ongoing discussions around planning reform and work with the Government to improve the process.

Governance

After fourteen years as Chairman of the Company, I have decided not to seek re-election at the forthcoming Annual General Meeting. Inland today is a very different business to the one I joined in 2007 and I am proud to have played a part in its exciting growth journey. I wish the Company well for the future as it enters the next phase in its development.

Having served as a Board member for two years, Laure Duhot resigned from the Board in July 2020. We thank Laure for her service and valued contribution. We are pleased to welcome Carol Duncumb to the Board from early February 2021. Carol is an experienced Non-executive Director with considerable experience in Executive and Non-executive roles. Her wealth of experience, especially in brand building and consumer-related businesses, will bring an added dimension to the Board.

The Board is committed to upholding the principles of good governance as set out in its chosen governance code, the Quoted Companies Alliances (QCA) Corporate Governance Code. In line with changes to our reporting requirements, this year we detail how key stakeholders' interests have been considered in Board discussions and decision-making. We also report our carbon emissions across sites.

Outlook

The Board and the Executive team have demonstrated clear leadership this year, acting decisively in response to the unprecedented challenges of COVID-19. Predictions about COVID-19 cannot be made with any certainty but having taken measures to ensure the health and safety of our workforce, improve our financial security and deliver a more efficient business, we are much better placed to manage this challenging environment.

Whilst the short-term economic outlook remains unclear, the sustained levels of developer, investor, partner and private interest in Inland's land assets and homes reflect the fundamental shortage of high-quality, affordably-priced housing across the UK as well as the Group's positioning in its markets.

The Group remains focused on maximising the value in its land bank in the year ahead, via planning, private and partnership housebuilding activities and using the flexibility within the business model to adapt to changing market conditions. This flexibility is proving to be Inland's greatest strength in this rapidly changing market.

Terry Roydon

Chairman

Chief Executive's review

COVID-19 has brought unprecedented challenges but there has been sustained demand for our high-quality land and we have achieved some significant sales of sites during the year.

We are focused on and committed to delivering a clear strategy of land-focused activity geared to positive cash generation and net debt reduction. Whilst our final results have inevitably been impacted by the pandemic, the actions we have taken have put us in a better position to manage the ongoing market uncertainty.

We start the new financial year with a record land bank of 11,045 plots, a forward order book of £105.8m for partnership housing and £50.8m for private homes and commercial units. Whilst we have achieved a £4.1m reduction in net debt (30 September 2020: £148.2m, 30 September 2019: £152.3m) and increased cash balances to £15.7m (30 September 2019: £10.9m), reducing the Group's net debt further is the key focus for the year ahead.

These results would not have been possible without the support of our staff and supply chain. They have embodied our values of both making no compromises on safety and working to be 'stronger together'. I would like to express my sincere thanks to all for their immense efforts during these unprecedented times and their continued support.

Land portfolio

In line with our strategy, our land bank continues to reach new heights - a record 11,045 plots (2019: 7,796) with an estimated £3.1bn gross development value. We have achieved planning permission on 2,470 of these plots, submitted planning applications on 1,819 and have a further 3,961 plots at pre-application planning stage. The land bank includes 2,795 plots on strategic sites, the majority of which are held by way of discount to market value options. In aggregate, 107 plots were sold this year.

These sales include the 94 plots within the first phase at Wilton Park, Beaconsfield to a private developer and 195 plots within our joint venture Cheshunt Lakeside, Cheshunt to a local housing association. The sale of Phase 2 at Wilton Park, comprising 53 plots, in January 2021 and a £34.5m partnership housing contract at Cheshunt Lakeside will further enhance our position.

We submitted the reserved matters application for the first two phases at Wilton Park, comprising 147 plots, in June 2020 and this application was approved in December 2020. Detailed planning consent for the first phase at Cheshunt Lakeside was achieved in February 2020 and construction started in November 2020.

With our ability to move nimbly, as explained in the Chairman's Statement, we were able to secure our first Build to Rent (BTR) opportunities this year.

Asset management

Our 100% success rate in achieving planning consent on brownfield sites is driving this rapidly growing arm of the business which offers attractive returns with significantly reduced capital investment.

This year, we secured the 4.4-acre former Homebase site in Walthamstow, North East London and the 36.7-acre Cavalry Barracks site in Hounslow, West London on behalf of third-party investors, bringing the total number of schemes in our asset management division to six, which combined have the potential for more than 3,100 homes. We submitted a planning application for 583 units at Walthamstow in August 2020 and will submit an application for 1,650 homes at the Cavalry Barracks site in the first quarter of 2021.

We were delighted in January 2021 to receive notification that our planning application for the delivery of 514 new homes on the former Master Brewer site in Hillingdon, West London can be determined at a local level by the Greater London Authority. The site had been the subject of third-party requests to call in for determination by the Secretary of State who recently decided that the application could be approved at a local level. Following approval by the Mayor of London in September 2020, we will shortly finalise the Section 106 agreement. We look forward to progressing delivery of the scheme, which is supportive of the Government's housebuilding agenda, delivering much needed affordable homes and regenerating a dilapidated site.

Private and partnership housing build performance

In line with our strategy, we are now constructing more homes on behalf of partners than ever before. As at 30 September 2020, there were 1,302 partnership homes and 415 private homes under construction (30 September 2019: 921 partnership homes, 892 private homes). The forward order book for partnership housing contract income stands at £105.8m (30 September 2019: £123.7m) and includes £40.3m of future contract income secured during the last two months of the financial year.

While we anticipate the highest demand in the year ahead for our partnership housing offer, the rate of reservation of private homes in the fourth quarter exceeded expectations, driven in part by the summer relaxation of COVID-19 restrictions and the temporary relaxation in Stamp Duty Land Tax. Our weekly net reservation rate per active sales outlet was 0.69 for the year (fifteen-month period to 30 September 2019: 0.73) and this increased to 1.12 homes per active sales outlet during the fourth quarter.

The number of private home completions also increased this year, from 201 in the fifteen-month period to 30 September 2019 to 226 in the year to 30 September 2020 (excluding bulk sales to BTR operators). Of these sales, 130 were across sites held in joint ventures (fifteen-month period to 30 September 2019: 71).

To protect ourselves from any softening of the private housing market, we are focused on building homes which meet market need. This means building houses rather than apartments and continuing to target the first-time buyer market. Our average selling price of £287,000 (fifteen-month period to 30 September 2019: £250,000) continues to make our homes attractive to this market. We have experienced significant cost increases on some of our projects due to COVID-19 and other inefficiencies which have impacted our margins. However, we now have several years of housebuilding experience under our belt and we will seek to grow the profit margins this activity delivers, increasing efficiencies through design and fit-out and improved internal controls.

Strategic focus

This year has been one of refocus and consolidation. We have taken the opportunity to review and refine the areas of our strategic focus in light of the COVID-19 pandemic. The refined strategy ensures a focus on maximising the value of our land bank and reducing net debt and gearing.

01 Increase the size of our land bank

Land is at the heart of what we do. We will continue to focus on increasing our land bank of brownfield and strategic sites where we expect residentially led development in the South and South East.

02 Seek to secure capital light opportunities

We will grow the asset management division of the Group, managing the acquisition and securing planning permission on behalf of third parties. This activity is capital light and offers attractive returns.

03 Use the flexibility within our business model to maximise the value of land that has planning consent

We will continue to make the decision to sell, build or partner with others based on an assessment of what will deliver the highest returns and the Group's cash requirements. In the short term, we will continue to increase our partnership housing activity as this achieves land sales for the Group and also secures a forward income stream, thus protecting the business against any potential decline in the private housing market.

04 Deliver homes which meet market need in the most cost-efficient way

We will continue to target the first-time buyer market, building homes of outstanding quality and value. Now that we have achieved critical mass of homes under construction, we are standardising our product offering, both in design and fit-out to drive efficiencies. Our focus will be on building houses rather than apartments for the private sale market as this is where there is greatest customer demand.

Chairman of the Board

Chairman of the Board Terry Roydon has announced he will not stand for re-election at the Annual General Meeting in March 2021. Terry has played an integral role over the past fourteen years in the Group's success, setting clear strategic direction and delivering strong leadership. I sincerely thank Terry for his longstanding dedication to the interests of Inland and the very considerable contribution that he has made to the Company during his time on the Board.

The position of the Chairman will be assumed by Simon Bennett who has also considerable experience with the Group, having been with the Company since it joined the AIM market in April 2007.

Outlook

The Group was trading in line with expectations until March 2020, with momentum returning to the market; the general election in late 2019 and progress in Brexit negotiations had returned confidence to both the house-buyer market and the wider economy. However, COVID-19 changed the marketplace significantly and the long-term economic ramifications are still to be felt.

Despite these headwinds, there are plenty of opportunities for Inland. The market has been buoyed by news of effective COVID-19 vaccines, long-awaited planning reform is on the horizon and there is growing demand in the affordable and build-to-rent space. Above all else, there is a shortage of new homes being built in the UK, reflected in the sustained demand for our private sale homes.

Growing our asset management division will be a primary focus. We are seeing increasing demand for our experience and skills in successfully navigating the planning system and will continue to seek new opportunities within this sector. As a 'capital light' activity - where our skills and expertise are the service - this activity has lower risk and delivers attractive returns.

We will continue to grow our land bank and build houses that meet market need. The shortfall in the number of new homes being delivered across the UK and particularly in the South and South East of England will continue to drive demand for our land assets and build capability.

We anticipate increased activity in the year ahead from affordable housing providers as demand for temporary accommodation increases due to COVID-19. We have proven capability in delivering these schemes and are actively seeking these opportunities which provide regular cash flow and land sales.

The BTR market is growing rapidly and we have a substantial number of sites suitable for rental housing within our portfolio. Being able to offer the build capability as well as the land makes us an attractive proposition to investors and we look forward to making more progress into this market.

We have a clear strategy for dealing with the short-term future: maximising the value within our land bank with reduced borrowings and risk. Our business model allows us to adapt our activity - land sales, private or partnership housebuilding activity - to the changing market conditions and this flexibility is standing us in good stead.

With multiple income streams, we have a balanced business model to progress through the current uncertain times.

Stephen Wicks

Chief Executive Officer

Group Finance Director's review

The results for the year ended 30 September 2020 are presented against the backdrop of two very distinct trading periods where the underlying conditions were radically different caused by the emergence and then subsequent worldwide impact of the COVID-19 pandemic.

On 6 June 2019, the Group changed its accounting reference date from 30 June to 30 September. Consequently, the current period is a year to 30 September 2020 and comparative information is for the fifteen-month period to 30 September 2019.

The global uncertainty caused by the COVID-19 pandemic and the consequential measures taken by the Group have significantly impacted the results for the financial year ended 30 September 2020.

As we approached our half-year end, five planned and well-advanced land disposals to major housebuilders worth £46.2m were aborted by the purchasers in late March following the introduction of national restrictions by the UK Government. The Group responded swiftly to this changing environment, taking various measures, with the principal objectives being: the safety of our workforce, conserving cash and raising new equity.

As a result, the Group has weathered the storm of the global pandemic. We have extended existing facilities which were due for repayment before 31 December 2021 and grown the asset management segment of the business.

Share placing

The Group raised £9.4m (net of expenses) in April 2020 from a placing and subscription of 20,750,000 new ordinary shares at 47.5p per share, the proceeds of which have improved the balance sheet and provided additional liquidity. We were delighted with the response from investors and welcome several new institutional shareholders to our register, as well as many new retail shareholders via PrimaryBid.

Operational performance

Although the severe impact of COVID-19 reduced the Group's revenue for the year to 30 September 2020 to £124.0m (fifteen-month period to 30 September 2019: £147.9m), the run rate was better than the previous period.

The Group achieved housebuilding revenue of £23.8m (fifteen-month period to 30 September 2019: £34.5m) from the completion of 96 private home sales (fifteen-month period to 30 September 2019: 130), excluding those via joint venture and bulk sales to Build to Rent (BTR) operators. The average selling price decreased to £240,000 (fifteen-month period to 30 September 2019: £250,000) due to a change of sales mix between houses and apartments sold, as well as price differences in different geographic locations. 130 homes were completed by our joint ventures at an average price of £322,000 (2019: 71 homes; £300,000). In addition, our joint venture at Lily's Walk, High Wycombe completed the sale of 123 homes to a BTR fund on a forward-funding basis with completion due in March 2021. Contracts were also exchanged to sell 85 homes to a BTR operator for delivery in March 2022.

Our weekly net reservation rate per active sales outlet was 0.69 for the year (fifteen-month period to 30 September 2019: 0.73); however, this increased to 1.12 homes per active sales outlet during the last quarter of the financial year, demonstrating the strength of the market in the areas we operate, which is supported by the relaxation of Stamp Duty Land Tax. Purchasers of 60% (fifteen-month period to 30 September 2019: 65%) of our homes used the Government's Help to Buy scheme. Our forward order book of homes and commercial buildings reserved and exchanged as at the year-end amounted to £50.8m (2019: £39.3m).

The total number of plots within our land bank increased to 11,045. The Group sold 107 residential plots (fifteen-month period to 30 September 2019: 532 plots) for £21.7m (fifteen-month period to 30 September 2019: £29.2m).

The revenue from our partnership housing activity was £51.8m (fifteen-month period to 30 September 2019: £62.6m) from contracts across five sites. All but one partnership housing site remained operational during the period from 23 March 2020 to 31 July 2020 albeit at lower operational capacity due to the stringent measures put in place for the safety of those working on the sites. As at 30 September 2020, the forward order book of partnership housing contract income was £105.8m (2019: £123.7m) with two new partnership and external build contracts secured in the last two months of the financial year for total revenue of £40.3m. The Group will continue to target partnership housing activity as it generally secures a land sale and a forward income stream that provides a good balance to our business model.

The Group's asset management division, which acts on behalf of property investors to procure sites and provide planning and management services, has grown this year to six live projects in Greater London with the potential to deliver more than 3,100 homes. The Group generally enters into a planning and management services agreement with investors. The agreements set out certain programme obligations and associated fees that the Group would be entitled to. The fees would be received by the Group once the property assets are sold. During the financial year, the Group earned management fees of £24.4m (fifteen-month period to 30 September 2019: £18.6m) from six sites. The transactions are structured so that they require significantly reduced investment and working capital from Inland Homes and are also generally non-recourse to the Group. These sites are sold on receipt of planning consent and the sale may also lead to a partnership housing contract for the Group.

Other revenue of £2.3m (fifteen-month period to 30 September 2019: £3.0m) includes letting income from investment properties and short-term rents from brownfield sites being processed through the planning system.

Gross profit reduced from £32.5m to £22.0m as a result of a shorter accounting period compared to the previous period and lower revenues. It is also due to lower margins in housebuilding, losses incurred in contract income and increased costs due to COVID-19, together with reduced output leading to an inefficient rate of absorption of site overheads and sales costs. Production cost increases also impacted on contracts. These increases were due to changes in building regulations which necessitated changes to design and materials used.

The Group also wrote off £2.1m of work-in-progress relating to aborted land transactions and provided for a £2.8m expected credit loss. These relate to legacy sites and controls have now been put in place to ensure improvements on future projects. At 30 September 2020, the project teams hold project contingencies within their budgets totalling £4.0m (30 September 2019: £5.2m) and a clear focus for the forthcoming year is a significant improvement in both operational efficiency and commercial delivery to drive up gross margin in the Contract Income and Housebuilding segments. Increased site costs along with extended construction periods are expected to continue on the legacy sites and will therefore affect the margins for the financial year ending 30 September 2021.

Consequently, gross margin reduced from 22.0% to 17.7% and operating margin fell from 22.1% to 9.5%. During the year the Group sold 50% of its interest in High Wycombe Developments Limited (HWDL) at a loss of £2.0m. It is noteworthy that the previous period's operating margin included profit of £12.6m from the sale of our 50% beneficial interest in Cheshunt Lakeside Developments Limited.

Administrative expenses are in line with the prior period run rate at £12.6m (fifteen-month period to 30 September 2019: £15.7m) as the Group's staff base had grown to 161 employees at the start of the financial year. Due to the economic uncertainties that lie ahead as a result of COVID-19, 25 staff were made redundant, resulting in additional redundancy costs. The Group ended the financial year with 128 employees.

Profit before tax was down to £3.7m (fifteen-month period to 30 September 2019: £25.0m). A detailed analysis by operating segment is shown in Note 10 to the Financial Statements.

Net finance costs

Finance costs of £9.2m (fifteen-month period to 30 September 2019: £9.4m) comprised principally bank and other loan interest, amortisation of arrangement fees and exit fees, non-utilisation fees and interest rolled up on the Zero Dividend Preference shares (ZDPs). Finance income of £1.1m (fifteen-month period to 30 September 2019: £1.7m) includes interest from joint ventures and associates, other interest receivable and notional interest income on long-term receivables. Interest on development funding is capitalised where required by IAS 23.

The increased net finance costs are a reflection of the level of gross borrowings during the year. Interest on bank and non-bank borrowings amounted to £6.2m (15-month period to 30 September 2019: £7.5m), amortised loan arrangement and other fees were £2.3m (15-month period to 30 September 2019: £1.7m) and the finance cost relating to the ZDPs was £1.5m (15-month period to 30 September 2019: £1.5m). The funding costs capitalised into work-in-progress were £0.8m (15-month period to 30 September 2019: £1.3m).

Taxation

The Group is domiciled in the United Kingdom and does not make use of any tax structure that is not domiciled in the United Kingdom.

The total tax charge of £1.4m combines a current taxation charge of £0.9m and a deferred tax charge of £0.5m and represents an effective rate of 37.8% of the profit before tax. The current corporation tax rate is 19% and the difference between the expected tax charge and the actual tax charge is mainly due to the loss on the disposal of controlling interest in subsidiary and the interest accrued on the ZDPs which are disallowed for tax purposes.

Earnings per share and dividends

Basic earnings per share fell from 11.79p to 0.79p, reflecting a combination of the lower profit after tax and the dilution resulting from the issue of 20.75 million new ordinary shares in May 2020.

Given the uncertainties caused by the impact of COVID-19 and the need for prudent cash management, the Board cancelled the second interim dividend of 2.25p per share that was due to be paid on 12 June 2020, resulting in a cash saving of £4.6m. The Board is presently minded to resume the payment of dividends in the current financial year, provided there is no further deterioration in the land and housing market caused by the COVID-19 pandemic or otherwise.

Balance sheet

The Group's net assets have increased from £162.2m to £173.3m at 30 September 2020 predominantly due to the profit after tax and a placing of 20.75m new ordinary shares in May 2020 at 47.5p per share. The EPRA net asset value at 30 September 2020 was £235.7m (30 September 2019: £233.9m). Net asset value per share fell from 78.8p to 76.5p and the EPRA net asset value per share reduced to 104.0p per share (30 September 2019: 113.7p) due to the ordinary shares issued in the fund raising during the year.

The Board is required to assess the fair value of its sites held in current assets when determining EPRA NAV. For undeveloped sites (both owned and controlled by way of options), a residual land valuation is carried out to determine the expected value of the site with planning consent. The valuation is then discounted by a factor of between 0% to 90% to reflect the probability of achieving planning permission.

There is not a ready market for sites where construction has commenced. The Directors have therefore assumed that fair value equates to the carrying value for such sites unless the site is forecast to make a gross margin in excess of 16%, in which case a fair value adjustment is made to reflect the residual land value uplift.

The Group transferred a further eight residential investment properties and one commercial property to Assets held for Sale. The commercial property was sold in January 2021 and the residential properties are intended to be sold during the current financial year.

The balance of investment properties amounting to £43.5m (2019: £49.3m) comprise principally of existing residential properties at Wilton Park and some development land in Poole.

In accordance with IFRS 16 (Leases), the lease on our head office in Beaconsfield has been capitalised and classified as a 'right-of-use' asset at £1.2m with a corresponding lease liability of £1.2m at the year end.

Investment in joint ventures consists of five joint ventures with the most significant being our investment in Cheshunt Lakeside Developments Limited at £6.0m with amounts due from the joint venture within current assets being £28.6m. Similarly, Other Receivables due after more than one year of £22.3m represents the amount due from our joint venture partner in Cheshunt Lakeside Developments Limited which is secured by way of a charge over their share of profits from the development of £20.7m and £1.6m of retentions owed on contract income.

Inventories have reduced from £192.4m to £173.6m due to land and unit disposals. In addition, the Group sold a 50% interest in High Wycombe Developments Limited, thereby de-consolidating £36.2m of land and work-in-progress and £23.6m of external borrowing at the date of disposal. Most new site acquisitions were procured for investors to whom the Group provides planning and management services.

Trade and Other Receivables due within one year have increased from £45.4m to £60.9m principally due to a significant increase in accrued management fees from our planning and management services activity which comprised £28.6m (30 September 2019: £21.4m) of the total balance. Included in prepayments and accrued income due in less than one year is £10.6m treated as short term as it represents the normal operating cycle of business but is not expected to be received until greater than one year. These amounts will be received upon disposal of the underlying land by the third party.

Net debt and borrowings

The Board's strategic objective is to reduce the Group's net debt and gearing position. Net debt has reduced by £4.1m from £152.3m to £148.2m at 30 September 2020 representing net gearing of 85.5% (2019: 93.9%). Net gearing based on EPRA net assets of £235.7m was 62.9% (2019: 65.1%).

In November 2019, Inland ZDP PLC issued a further 1,671,067 zero dividend preference shares for gross proceeds of £2.7m. As at the year end, the accrued liability to holders of ZDP shares was £30.2m (2019: £25.9m).

In May 2020, we increased our revolving facility from Homes England to £15.3m which continues to finance our development of 520 homes and 64,000sqft of commercial space at Chapel Riverside in Southampton. Phase 3 of this development is at an advance stage with many homes sold and occupied. As at 30 September 2020, we had drawn down £13.2m of this facility.

In September 2020, we triggered the accordion part of our revolving credit facility with HSBC of £20.0m, taking the facility from £45.0m to £65.0m. As at the year end, we had drawn down £42.8m of this facility leaving headroom of £22.2m. The facility expires in March 2023.

The Group had a secured revolving credit facility of £17.2m from a Fund of which £14.3m was drawn down at the year end. In January 2021, the facility was extended at a lower amount of £15.4m to 31 December 2021.

The Group has negotiated a new facility for £15.4m with the Fund for a period of five years with an option in favour of the Group to break the facility at the end of three years. The new facility is intended to be in place by the end of April 2021 and will replace the existing facility.

The Group has three bank facilities for a total sum of £41.3m which have been extended to 30 April 2022.

The Group has also extended two loan facilities for the sum of £11.0m to 31 December 2021.

The Board is targeting further significant reductions in net debt by 30 September 2021, to be achieved through considered land disposals and recovery of management fees.

Going Concern

In preparing the forecasts the Directors have considered the continued adoption of stringent cash management procedures, market disruptions already brought about by COVID-19, the possibility of future disruption in the Going Concern period which could potentially be caused by COVID-19 and other risks and uncertainties, including credit risk and liquidity risk, the present and possible future economic climate, the current and possible future demand for land with planning consent and the state of the housing market in the geographic areas where the Group operates. The Directors have performed detailed sensitivity analyses to test the Group's future liquidity and banking covenant compliance based on several scenarios. The Group has forecast land sales in the next twelve months in the normal course of its business.

The Directors have a reasonable expectation that the Group and parent Company have adequate resources to continue in operational existence for the foreseeable future. The Directors therefore consider it appropriate to prepare the financial statements on the Going Concern basis. Further details can be found in Note 2.

Outlook

The Group is focused on making further progress in net debt reduction and improving operational and commercial margins. We will also continue to grow the asset management and partnership housing segments in line with our refined strategy. Whilst the unsettled short-term economic outlook persists, the various business activities within our business model provide the flexibility to adapt to changing market conditions and meet these strategic objectives in the year ahead.

Nishith Malde

Group Finance Director

Group statement of comprehensive income

for the year ended 30 September 2020

The accompanying notes form an integral part of these financial statements.

Statements of financial position 

at 30 September 2020

Retained earnings for the Company includes a profit after tax for the period of £4.2m (fifteen-month period ended 30 September 2019: loss after tax of £3.4m).

The Company has taken advantage of the exemption allowed under Section 408 of the Companies Act 2006 and has not presented its own statement of comprehensive income in these financial statements.

The accompanying notes form an integral part of these financial statements.

Statements of changes in equity

for the year ended 30 September 2020

The accompanying notes form an integral part of these financial statements.

Group statement of cash flows

for the year ended 30 September 2020

The accompanying notes form an integral part of these financial statements.

Notes to the financial statements

for the year ended 30 September 2020

1. Nature of operations and general information:

Inland Homes PLC ("Inland Homes", "The Group" or "Company") registered number 05482990, the ultimate parent company, is a public limited company incorporated and domiciled in England and Wales. The Company's shares are quoted on AIM, a market operated by the London Stock Exchange. The Group's registered office is located at Burnham Yard, London End, Beaconsfield, HP9 2JH.

The principal activities of Inland Homes are to acquire brownfield, mixed-use or residential land and to then seek achievement of planning consent for development. The Group also develops a number of plots for private sale and constructs partnership housing for registered providers. These activities are grouped into the following business segments:

At 30 September 2020, the Group, directly or indirectly, held interests in equity via holdings of ordinary shares of the following:

Company

Inland Homes 2013 Limited is the only direct subsidiary of the Company and all others are indirect holdings.

All of the above entities are incorporated and domiciled in England and Wales, and are registered at the same registered office of the Company, with the exception of:

The joint ventures and associate listed above are accounted for using the equity method.

There are no restrictions on the ability of the Company or its subsidiaries to transfer cash or other assets to or from other entities in the Group.

Additions of subsidiaries

During the year, the Group incorporated the following subsidiaries:

Disposal of subsidiaries

During the year ended 30 September 2020, the Group disposed of:

During the period ended 30 September 2019, the Group incorporated and disposed of Hillingdon Properties Limited (formerly Inland Developments Limited). No profit or loss arose on this disposal.

2. Basis of preparation

The Group financial statements have been prepared under the historical cost convention, except for certain financial instruments and investment properties which are measured at fair value and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and as issued by the International Accounting Standards Board. These financial statements have also been prepared in accordance with those parts of the Companies Act 2006 that are relevant to companies that prepare their financial statements in accordance with IFRS. The Parent Company financial statements have been prepared in accordance with FRS 101, Financial Reporting Standards Reduced Disclosure Framework.

On 6 June 2019, the Group and Company changed its accounting reference date from 30 June to 30 September so that the reporting timetable was more closely aligned to value recognition and the operational cycles of the business.

As a result of the change in the Group and Company's accounting reference date, the current period is a year in comparison to the prior period which is fifteen months. The current period is therefore not entirely comparable with the prior year.

The consolidated financial statements present the results of the Group as if it formed a single entity. Intercompany transactions and balances between Group companies are eliminated in full.

On 1 October 2019, the Group adopted the new accounting standard for the recognition of leases (see note 3). The new Standard has been applied using the modified retrospective approach. Accordingly, the Group is not required to present a third statement of financial position as at that date.

The consolidated financial statements are presented in GBP, which is also the Group and parent company's functional currency.

Disclosure exemptions adopted

In preparing the financial statements of the Parent Company, advantage has been taken of all disclosure exemptions conferred by FRS 101. The Parent Company financial statements do not include:

In addition, and in accordance with FRS 101, further disclosure exemptions have been adopted because equivalent disclosures are included in the consolidated financial statements of Inland Homes Plc. The Parent Company Financial Statements do not include certain disclosures in respect of:

The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and does not present its own profit and loss account in these financial statements.

Going concern

The Directors have reviewed the performance of the Group and parent Company for the current year and forecasts for the period to 28 February 2022.

The Directors are required to assess the Group's and parent Company's abilities to continue as a Going Concern for a period of at least the next twelve months. Given the significant adverse impact of the COVID-19 crisis on the economy and the activities of the Group, a thorough review of the Going Concern assumption has been undertaken in preparing the Group and parent Company financial statements.

The Group's and parent Company's Going Concern assessment considers the Group's and parent Company's principal risks and is dependent on several factors, including its financial performance, continued access to borrowing facilities and the ability to operate within their respective financial covenants.

In response to the global COVID-19 pandemic, which quickly emerged in March 2020, the Group adopted stringent cash management procedures to conserve resources, a range of other measures undertaken to reduce the cost base and raised new equity of £9.4m, net of expenses, to strengthen the balance sheet and provide additional liquidity during this uncertain period.

In preparing the forecasts the Directors have considered the continued adoption of stringent cash management procedures, market disruptions already brought about by COVID-19, the possibility of future disruption in the Going Concern period which could potentially be caused by COVID-19 and other risks and uncertainties, including credit risk and liquidity risk, the present and possible future economic climate, the current and possible future demand for land with planning consent and the state of the housing market in the geographic areas where the Group operates.

The key risks faced by the Group are set out below. At the date of signing of the Group's and parent Company's accounts, the continued and prolonged impact of COVID-19 may result in further uncertainties that are not apparent at present.

There are contractual and anticipated cash inflows expected which ensure that the Group and parent Company have sufficient working capital for its requirements.

At the date of signing of this report, the Group has a total forward order book of £53.5m for private homes reserved or contracted, including two contracted block sales of 109 units and a contracted sale of a hotel and £73.9m for partnership housing contract income. In addition, the Group has contracted to sell a parcel of land for £14.0m (including payments for infrastructure works) subject to certain conditions being fulfilled.

The Group also has contracted annualised residential and commercial rental income of £2.3m.

As also disclosed in Note 42, the Group extended the following facilities during January 2021:

The Group has three facilities totalling £26.4m falling due for repayment on 31 December 2021. The Directors are in advanced discussions with the provider of the revolving credit facility to renew the facility for a further five-year period. The Directors have positive relationships and have had constructive discussions with all their existing lenders and a number of other potential lenders; however, they do not as yet have a binding commitment to extend or refinance these facilities beyond 31 December 2021.

The Group has also negotiated a relaxation to the interest cover covenant test under the revolving credit facility with HSBC in respect of the December 2020 and March 2021 periods as proactive defence against any possible severe but plausible downside scenarios.

The Directors have performed detailed sensitivity analyses to test the Group's future liquidity and banking covenant compliance based on several scenarios. The Group has forecast land sales in the next twelve months in the normal course of its business. As part of their Going Concern review, the Directors have considered the impact of a delay of six months on each of these sales in isolation. They have also considered, again in isolation, a price reduction of 10% on all residential unit sales that have not been contracted and are forecast to complete after 31 March 2021. Finally, the Group considered a delay in residential unit sales by three months. None of these scenarios leads to an issue with either the Group's debt covenants or its liquidity.

The Directors have also considered the following severe, but plausible downside scenario:

Additionally, the Directors considered an even more severe scenario which mirrors the above but assumes no residential unit sales for a period of three months from 1 April 2021 before returning to the assumptions in the Group's base case.

The Board's modelling choice of cessation of activity period for the severe, but plausible downside scenario is based on the market experiences of 2020, when the national housebuilders stopped purchasing land for a short period during national lockdown.

In making their assessment of the sensitivity tested above the Directors have considered the Stamp Duty Land Tax holiday which expires on 31 March 2021. The Directors are therefore confident that residential unit sales reserved or exchanged for completions due in the months of February 2021 and March 2021 are secure. The Directors have assumed that the current Stamp Duty Land Tax holiday window is not extended by the UK Government after 31 March 2021 in preparing their projections.

Under both severe, but plausible scenarios, the Directors would need to make strategic choices in the near term to delay both planning application activity, construction activity and identified but non-contractual purchases however there is no need for any further liquidity to be introduced into the Group or any need for any relaxation of the Group's financial covenants with its lenders.

Should the cessation of the land and planning activity and housebuilding activity discussed above, extend beyond the periods referred to above, then the Group may have to rely on the sale of property assets at lower than open market values to generate liquidity for the Group and parent Company to meet their obligations as they fall contractually due. Again, there would be no need for any relaxation of the Group's financial covenants with its lenders under such circumstances. Additionally, the Directors also have the option to access the capital and debt markets to raise further liquidity as may be needed.

The Strategy outlined above details our approach to the current situation but, the Directors are mindful that no one can forecast exactly how the global COVID-19 pandemic will play out and how this may affect the Group, industry and the wider economy for the foreseeable future. A significant worsening of the situation and a return to a strict national lockdown for a prolonged period longer than the severe, but plausible downside scenarios would have implications for the Group as it would for many other businesses. Such a situation would then require the Directors to re-examine the Group's financial position at the time and if necessary, report any significant adverse changes.

At the time of approving these financial statements and after making appropriate enquiries, the Directors have a reasonable expectation that the Group and parent Company have adequate resources to continue in operational existence for the foreseeable future. The Directors therefore consider it appropriate to prepare the financial statements on the Going Concern basis.

3. Changes in accounting policies

The principal accounting policies are described in note 5 and are consistent with those applied in the Group's financial statements for the year ended 30 September 2020 and the fifteen-month period to 30 September 2019, as amended to reflect the adoption of new standards, amendments and interpretations which became effective in the year as shown below.

New standards adopted during the year

The following standards, amendments and interpretations endorsed by the EU were effective for the first time for the Group's year ended 30 September 2020 and had no material impact on the financial statements.

Standards in issue but not yet effective

The following new standards, amendments and interpretations to existing standards were in issue at the date of approval of these financial statements but are not yet effective for the current accounting year and have not been adopted early. Based on the Group's current circumstances the Directors do not anticipate that their adoption in future periods will have a material impact on the financial statements of the Group, however, the impact of standards in issue but not yet effective is currently being assessed by the Group.

*Standards and amendments not yet endorsed by the EU.

4. Adoption of new accounting standards

In the year ended 30 September 2020, the Group has adopted IFRS 16 'Leases', which has resulted in the Group recognising a right-of-use asset and liability on the Statement of financial position at the present value of all future lease payments for any leases for which it is the lessee.

The impact on the Group's Statement of financial position at 1 October 2019 was to recognise a right-of-use asset and lease liability of £1.5m. The right-of-use asset relates to the Group's occupation of Burnham Yard, Beaconsfield, as a Head Office facility.

IFRS 16 - Leases

IFRS 16, 'Leases' replaces IAS 17, 'Leases' along with three Interpretations (IFRIC 3 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases - Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease').

IFRS 16 eliminates the classification of leases for lessees as either operating leases or finance leases as per IAS 17, and introduces a single lessee accounting model. The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and a related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than twelve months from the date of initial application.

The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. The adjustment to equity is immaterial and therefore, no adjustment has been made. Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 14.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 October 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than twelve months and for leases of low-value assets, the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 4.75%.

The treatment of leases where the Group is acting as a lessor is substantially unchanged from that currently applied under IAS 17.

Other than as described above, the same accounting policies, presentation and method of computation are followed in these financial statements as were applied in the previous audited financial statements.

IFRS 15 - Revenue from contracts with customers

As described below, during the year the Group changed the method of accounting for contract income from the output method to the input method.

5. Significant accounting policies

Basis of consolidation

The Group's financial statements consolidate the financial statements of the Company and all of its subsidiary undertakings drawn up to 30 September 2020. 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 subsidiary; exposure, or rights to, the variable returns from its involvement with the subsidiary; and the ability to affect those returns through its power over the subsidiary. The Group obtains and exercises control through voting rights. Further information can be found in notes 1 and 24.

Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Acquisitions of subsidiaries are dealt with by the acquisition method. The method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities and non-controlling interests of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the Group Statement of Financial Position at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of the fair value of the consideration transferred over the fair value of the Group's share of the identifiable net assets and non-controlling interests of the acquired subsidiary at the date of acquisition.

Business Combinations

At the time of acquisition, the Group considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business combination where an integrated set of activities is acquired in addition to the property. Where such acquisitions are not judged to be the acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based upon their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred tax arises.

Revenue

In the previous fifteen-month period to 30 September 2019, the Group adopted IFRS 15 'Revenue from Contracts with Customers'. This establishes a principles based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are satisfied and the control of goods or services is transferred.

The standard is applicable to sales of land and sales of reversionary freehold, sales of residential units, property construction services and management fees from management of sites owned by third parties but excludes rental income which is accounted for within the scope of IFRS 16 'Leases'.

To determine whether to recognise revenue, the Group follows a 5-step process:

The Group often enters into transactions with multiple performance obligations. In these cases, the total transaction price for a contract is allocated amongst the various performance obligations based on their relative stand-alone selling prices. The transaction price for a contract excludes any amounts collected on behalf of third parties.

Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers.

The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other payables in the Statement of financial position (note 33). Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or receivable in the Statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied, excluding VAT and trade discounts.

Sales of land and sales of freehold

Revenue from the sale of land and reversionary freeholds is recognised at a point in time on legal completion. In some instances, payment terms are deferred, such balances are discounted if deferred terms are more than one year.

Sales of residential units

Revenue from the sale of residential units is recognised at a point in time on legal completion.

Contract income

On reviewing the accounting policy for contract income adopted by the Group for the fifteen-month period ended 30 September 2019, the Board have concluded that the policy is not appropriate and that adopting the input method faithfully depicts the transfer of goods and services. Additionally, the Directors made an accrual for costs of sales associated with contract income that were yet to be incurred. The impact of these errors is not material. Further details of the accounting policy for contract income are set out below.

Contract income relates to where the Group is providing construction services to third parties, resulting in a completed developed property, on land that is not controlled by the Group during the development phase.

Revenue is recognised over time, with reference to the stage of completion of the contract. The stage of completion is determined using an input method that reflects the development cost incurred as a proportion of the total expected development cost as it is considered proportionate to the satisfaction of the underlying performance obligation. These contracts are typically for a fixed cash consideration received on a monthly cycle over the course of the construction services contract.

Management planning and land management services

For each planning and land management services contract there are a number of milestones, which vary from contract to contract, but in all cases include a planning and a disposal obligation. The Directors must exercise judgement over whether each milestone constitutes a distinct performance obligation. In doing so they consider whether each milestone has a single commercial objective, whether any of the milestones are interdependent on any other milestone, and whether the service or goods being provided represents a single performance obligation. In determining the number of performance obligations, the Directors also consider the level of integration between the milestones.

Once the number of performance obligations has been determined, the Directors will exercise further judgement to allocate the consideration to each obligation, which is based on the stand-alone selling price of each performance obligation agreed by the customer. Once the Group considers that the outcome of the contract can be reliably estimated then revenue and profit is recognised based on the proportion of the contract that is completed. There is also judgement in considering whether the obligations have been satisfied, and whether the revenue is recognised at a point in time or over time. This is assessed on a performance obligation by performance obligation basis. In general, the Directors have assessed that any management of construction obligations are satisfied over time, given that Inland Homes' work enhances an asset controlled by the customer. The planning and disposal obligations have been assessed to be recognised at a point in time. Refer to note 9.

Overages

Any variable consideration on overages is estimated at the point of sale taking into consideration the time to recover overage amounts as well as other factors which may give rise to variability. It is only recognised to the extent that it is highly probable that there will not be a significant reversal in the future and is reassessed throughout the duration of the sales contracts.

Golden brick income

Sales of land where title transfers prior to construction beginning (or at 'golden brick') are considered to be a distinct performance obligation.

Revenue from land sales is recognised at a point in time, being the completion of contracts usually achieved at 'golden brick'. The separate construction element of the contract is recognised over time in accordance with the Group's policy above for construction contracts.

Administrative expenses

Operating expenses are recognised in the Group Statement of Comprehensive Income upon utilisation of the service as it is incurred.

Employee benefits

Defined contribution retirement benefit scheme

The Group operates a defined contribution retirement benefit scheme pension and costs charged against operating profits are the contributions payable to the scheme in respect of the accounting period.

Equity-settled share-based payment

All share-based payment arrangements are recognised in the Group and Company financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values using the Black-Scholes options pricing model for share options and the Monte Carlo simulation technique for LTIPs. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of any non-market vesting conditions. The Black-Scholes model is used to value the share options because it relies on fixed inputs and the options do not have non-standard features. The Monte Carlo simulation is more suitable to value LTIPs as they depend on the share price changing over time and therefore have more complex vesting conditions than the share options.

All equity-settled share-based payments are ultimately recognised as an expense in the Group Income Statement with a corresponding credit to retained earnings.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options or LTIPs expected to vest.

Estimates are subsequently revised if there is any indication that the number of share options or LTIPs expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options or LTIPs ultimately exercised are different to that estimated on vesting.

Upon exercise of the share options or LTIPs the proceeds received net of attributed transaction costs are credited to share capital and, where appropriate, share premium.

Taxation

Tax expense recognised in the Group Statement of Comprehensive Income comprises the sum of current tax and deferred tax not recognised in other comprehensive income or directly in equity.

Current tax is the tax currently payable based on taxable profit for the period calculated using tax rates and laws substantively enacted at the reporting date.

Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Temporary differences include those associated with shares in subsidiaries and joint ventures unless reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates and laws that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the year end date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Group Income Statement except where they relate to items that are recognised in other comprehensive income or directly in equity in which case the related deferred tax is also recognised in other comprehensive income or equity respectively.

Investment property

Investment properties are those properties which are not occupied by the Group and which are held for long-term rental yields, capital appreciation or both.

Investment property also includes investment property under construction that will be developed for future use as investment property.

Investment properties are initially measured at cost, including related transaction costs. At each subsequent reporting date they are remeasured to their fair value. Movements in fair value are included in the Group Income Statement. Investment properties are valued by the Directors based on up to date market information.

Subsequent expenditure is capitalised to the asset's carrying value only where it is probable that the future economic benefits associated with the expenditure will flow to the Group.

Any gain or loss resulting from the sale of an investment property is immediately recognised in the Group Income Statement. An investment property is derecognised on disposal. When the Directors consider that the status of the property has changed to being a development property it is transferred to inventories. A property is transferred to inventories when management changes its intentions and there is evidence of the change in use, such as the cessation of future rental income. When a partial disposal or transfer is made, the proportion relating to the disposal or transfer is derecognised.

Property, plant and equipment

Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment.

Disposal of assets

The gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the Group Income Statement.

Depreciation

Depreciation is calculated to write down the cost less estimated residual value of all property, plant and equipment by the straight line method where it reflects the basis of consumption of the asset. The rates applicable are:

Material residual value estimates are reviewed as required, but at least annually.

Leased assets

As described in note 3, the Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 14.

The Group as a lessee

For any new contracts entered into on or after 1 October 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition, the Group assesses whether the contract meets three key evaluations which are whether:

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet date. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guaranteed and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Right-of-use assets have been recognised as a non-current asset and lease liabilities have been included as a liability.

The Group as a lessor

The Group's accounting policy under IFRS 16 has not changed from the comparative period.

As a lessor the Group classifies its leases as either operating or finance leases.

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset, and is classified as an operating lease if it does not.

The Group earns rental income from operating leases of its investment properties. Rental income is recognised on a straight-line basis over the lease term.

Intangible assets

Intangible assets, comprising costs incurred in the development phase of new business models and associated set-up costs, are stated at cost less provisions for both amortisation and impairments. Development phase costs relating to new business models either separately acquired or acquired as part of a business combination are amortised over their estimated useful lives, generally not exceeding 20 years, using the straight-line basis, from the time they are available for use. The estimated useful lives for determining the amortisation charge considers the expected business model life. Asset lives are reviewed, and where appropriate adjusted, annually.

Research costs are recognised in the Income Statement as incurred.

The rates generally applicable are:

Joint ventures and associate

Joint ventures are entities in which the Group has shared control with another entity, established by contractual agreement. Where the Group has significant influence but not control or joint control over the financial and operating policy decisions of another entity, it is classified as an associate. Joint ventures and associates are initially recorded in the Group Statement of Financial Position at cost and are accounted for using the equity method. All subsequent changes to the share of interest in the equity of joint ventures and associates are recognised in the Group's carrying amount of the investment. Changes resulting from the profit or loss generated are recognised in the Group's carrying amount of the investment and in 'share of profit of joint ventures' for joint ventures and 'share of profit of associate' for associates in the Group Income Statement and therefore affect the net results of the Group. These changes include subsequent depreciation, amortisation or impairment of the fair value adjustments of assets and liabilities. If the share of losses equals its investment, the Group does not recognise further losses, except to the extent that there are amounts receivable that may not be recovered or there are further commitments to provide funding. Both realised and unrealised gains on transactions between the Group and its joint ventures and associates are eliminated to the extent of the Group's investment in joint ventures and associates. Realised and unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The accounting policies of the joint ventures and associates are consistent with those of the Group.

The Company's investments in joint ventures are held at cost.

Inventories

Inventories consist of land and work in progress and are valued at the lower of cost and net realisable value. Cost includes the purchase of sites, the cost of infrastructure and construction works, and legal and professional fees incurred during development prior to sale. Net realisable value is estimated based upon the future expected selling price, less estimated costs of completion and estimated costs to sell.

Deferred income

Deferred income is recognised where the Group receives cash from customers in advance of achieving the performance obligation under IFRS 15 'Revenue'. Deferred income arise in the contract income and housebuilding segments.

Shared ownership sales

Shared ownership is where initially a long lease on a property is granted through a sale to the occupier, in return for an initial payment (the First Tranche).

First Tranche sales are included within revenue and the related proportion of the cost of the asset recognised as cost of sales.

Shared ownership properties are split proportionately between Inventories and Investment Properties based on the current element relating to First Tranche sales. The split is made at the point of completion of the sale to the third party. The assumptions on which the First Tranche proportion has been based include, but are not limited to, matters such as the affordability of the shared ownership properties, local demand for shared ownership properties, and general experience of First Tranche shared ownership sales within the wider social housing sector. As at 30 September 2020, the average First Tranche sales percentage assumed for vacant shared ownership properties is 40%. If there is a change in percentage used, this will affect the proportion of inventory and investment property recognised with a higher assumed First Tranche sales percentage resulting in a higher inventory value and a lower investment property value.

Shared Owners have the right to acquire further tranches and any surplus or deficit on such subsequent sales are recognised in the Group income statement as a part disposal of investment properties.

Assets held for sale

Non-current assets are classified as held for sale when:

Non-current assets classified as held for sale are measured at the lower of:

Following their classification as held for sale, non-current assets are not depreciated.

The results of assets disposed during the year are included in the consolidated statement of comprehensive income in the appropriate segment, up to the date of disposal.

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

This category comprises amounts due from joint ventures (refer to note 25) where the terms of the loan are inconsistent with a basic lending agreement and are therefore not solely payments of principal and interest. This balance is carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line. Other than amounts due from joint ventures, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss.

Amortised cost

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Impairment provisions for all other receivables are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

The Group's financial assets measured at amortised cost comprise trade and other receivables, cash and cash equivalents and amounts due from joint ventures (other than those held at fair value through profit and loss) and associates in the consolidated statement of financial position.

Cash and cash equivalents comprise cash in hand and demand deposits, together with other short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Fair value through other comprehensive income

The Group has investments which are not accounted for as subsidiaries, associates or joint ventures. For those investments, the Group has made an irrevocable election to classify the investments at fair value through other comprehensive income rather than through profit or loss as the Group considers this measurement to be the most representative of the business model for these assets. They are carried at fair value with changes in fair value recognised in other comprehensive income and accumulated in the fair value through other comprehensive income reserve. Upon disposal any balance within fair value through other comprehensive income reserve is reclassified directly to retained earnings and is not reclassified to profit or loss.

Dividends are recognised in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment, in which case the full or partial amount of the dividend is recorded against the associated investments carrying amount.

Financial liabilities

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the instrument.

All financial liabilities are initially recognised at fair value net of any transaction costs. Subsequently they are recorded at amortised cost using the effective interest method, with interest-related charges recognised as an expense in finance cost in the Group Income Statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the Group Income Statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged, cancelled or expires.

Borrowing costs

The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset where developments are considered to fall under the requirements of IAS 23 Borrowing Costs (Revised). Qualifying assets are those which are being constructed over a significant period of time, which the Group interprets to be over twelve months. The majority of the Group's sites involve the development of large volumes of properties in a repetitive manner. The Group therefore expenses borrowing costs relating to such developments in the period to which they relate through the income statement using the effective interest method which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. Currently, the Group capitalises borrowing costs only in relation to the site at Wilton Park. Additionally, the Group's joint venture, Cheshunt Lakeside Developments Limited, also capitalises borrowing costs. These are the only sites where borrowing costs are directly attributable to the production of qualifying asset and where construction occurs over a significant period of time.

Guarantees

All guarantees are deemed to be insurance contracts. A financial guarantee is recognised where a contract requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due.

Share capital and other equity reserves

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Share premium represents amounts subscribed for share capital in excess of nominal value less directly attributable issue costs.

Employee benefit trust represents the purchase of the Company's own shares which are deducted from total equity until they are issued to employees under the Deferred Bonus Plan.

Special Reserve represents the capitalisation of the Parent Company's reserves to allow for the possibility of distributions in the future. A copy of this resolution is available from Companies House.

Treasury Reserve represents the purchase of the Company's own shares which are deducted from total equity until they are issued to employees under the share option plan.

Retained earnings represents cumulative net gains and losses recognised in the Group income statement together with other items such as dividends and share-based payments.

Employee Benefit Trust

The Directors consider that the Employee Benefit Trust (EBT) is under the de facto control of the Company as the trustees look to the Directors to determine how to dispense the assets. Therefore the assets and liabilities of the EBT have been consolidated into the Group and Company accounts. The EBT's investment in the Company's shares is eliminated on consolidation and shown as a deduction against equity. Any assets in the EBT will cease to be recognised in the Group Statement of Financial Position when those assets vest unconditionally in identified beneficiaries.

Dividends

Dividend distributions payable to equity shareholders are included in other short term financial liabilities when the dividends are approved in a general meeting prior to the year end date. Interim dividends are recognised when paid.

Segmental reporting

The Group has a number of operating segments. In identifying these operating segments, management generally follows the Group's service lines representing its main activities. Each of these operating segments is managed separately.

In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment. This primarily relates to the Group's headquarters.

Government grants furlough

Grants for revenue expenditure are netted against the cost incurred by the Group. Where retention of a government grant is dependent on the Group satisfying certain criteria, it is initially recognised as deferred income. When the criteria for retention have been satisfied, the deferred income balance is released to the consolidated statement of comprehensive income.

Land options

The Group holds a number of land options that were bought for the potential to exercise the option and either develop the land or sell with planning permission. The land options are initially capitalised at cost and considered for any impairment indication annually. The impairment review includes consideration of the resale value of the option, likelihood of achieving planning consent and current recoverable value as determined by the Directors.

Investment in subsidiaries (Company only)

Subsidiaries are entities in which the company has control. Investments in subsidiaries are held in the Company's Statement of Financial Position at cost less impairment.

6. Significant judgements, key assumptions and estimates

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates and judgements. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The Group's significant accounting policies are stated in note 5. Not all of these accounting policies require management to make difficult, subjective or complex judgements or estimates. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may differ from those estimates. The following is intended to provide an understanding of the policies that management consider critical because of the level of complexity, judgement or estimation involved in their application and their impact on the financial statements.

Key sources of estimation uncertainty

Cost of and net realisable value of inventories (note 28)

In applying the Group's accounting policy for the valuation of inventories the Directors are required to assess the expected selling price and costs to sell each of the plots or units that constitute the Group's land bank and work in progress. The uncertainty relates to both land and work in progress. Cost which requires estimation includes the cost of acquisition of sites, the cost of infrastructure and construction works, allocation of site wide costs and legal and professional fees incurred during development prior to sale. Estimation of the selling price is subject to significant inherent uncertainties, in particular the prediction of future trends in the market value of land. The critical judgement in respect of receipt of planning consent (see below) further increases the level of estimation uncertainty in this area.

Fair value of investment properties (note 19)

The fair value of materially completed investment property is determined by independent valuation experts using the highest and best use method, subject to current leases and restrictions, as this has been assessed currently as the best use of these assets. Investment properties awaiting construction are valued by the Directors using an appraisal system; critical accounting estimates relate to the forecasts prepared in order to assess the carrying value. See note 19 for information about valuation methodology and assumptions made.

Deferred consideration on transfer of beneficial interest in Cheshunt Lakeside Developments Limited (notes 25 and 36)

The Group discounts deferred consideration payable or receivable using the discounted cash flow method; the Group considers the expected timing of payments and receipts and uses the third party cost of debt capital as the most appropriate discount rate and these are considered to be significant estimates.

The Group sold its beneficial interest of 50% of Cheshunt Lakeside Developments Limited on deferred terms during the fifteen-month period ended 30 September 2019 and estimated a discount to present value calculated from the date of disposal. At 30 September 2020, this is shown as an other receivable of £20.7m (2019: £19.9m) disclosed in note 29. Further details of Cheshunt Lakeside Developments Limited are provided in note 25.

The impact of a change in the discount rates by one percent up on the receipt would be a reduction in the receivable of £0.8m and the impact of a change in the discount rates by one percent down on the receipt would be an increase in the receivable of £1.6m.

Management do not envisage a timing opportunity where the receipt of the receivable could be brought forward. The impact of a delay in receipt of twelve months, at the current discount rate, would be a reduction in the receivable of £0.7m.

Significant judgements

Timing and recoverability of repayment - amounts due from joint ventures and associate (notes 25 and 26)

Certain amounts due from the joint ventures are contractually repayable on demand and the amounts due from the associate are repayable over the term of the underlying development. At each balance sheet date the Directors review the forecasts of the underlying developments and make a judgement as to the likely timing of the recoverability of each loan and whether they will be recovered within the normal operating cycle of the business. Amounts are then disclosed as either due in less than one year or greater than one year accordingly. The recoverability of receivables are dependent on the future profitability of land and development sales. The judgements involved are the same as outlined above for inventories.

Likelihood of achieving planning - inventories (note 28)

The Group values inventories at the lower of cost and net realisable value. The net realisable value is based on the judgement of the probability that planning consent will be granted for each site. The Directors believe that, based on the Group's experience, planning consent will be given. If planning consent was not achieved then a provision may be required against inventories. The cost value is based on actual costs incurred at the date of signing the financial statements taking account of an estimation of costs to complete. The judgement of costs to complete is based on the Directors' experience and if actual plus projected costs are higher than net realisable value then a provision would be required against inventories. £3.3m (fifteen-month period ended 30 September 2019: £0.4m) of inventories are held at net realisable value. A provision of £2.1m (fifteen-month period ended 30 September 2019: £0.2m) was recognised during the year.

Capitalisation of borrowing costs (note 32)

The Group capitalises borrowing costs where there is a qualifying asset. The Directors must assess each site held within inventories each year in order to judge whether or not the site is a qualifying asset in line with the requirements of IAS 23 Borrowing Costs. In the opinion of the Directors, sites are judged to be qualifying assets if they necessarily take a substantial period of time to be developed or become ready for sale. This has resulted in borrowing costs related to such sites to be capitalised in the current and prior periods. During the year, the Group capitalised £0.9m (fifteen-month period ended 30 September 2019: £1.3m) of borrowing costs. For non-qualifying sites the Group expenses borrowing costs due to the quantity and repetitive nature of the process adopted. In many cases, such developments may take longer than 12 months. The Directors are therefore required to exercise judgement as to whether or not a site represents a qualifying asset.

Management fee income (note 9)

The Group recognises revenue in respect of management services equal to the amounts entitled. The management fee formula in the contract reflects progress at any given time of the satisfaction of the contract's underlying performance obligations, which involves judgement.

There were a number of material management service contracts that were either ongoing or commenced in the period. For each management service contract there are a number of milestones and obligations. The Directors had to make significant judgements for each contract based on:

The Directors have a number of judgements to consider in recognising revenue from management service contracts which are if revenue:

The Directors were required to exercise judgement in respect of revenue recognition for the following contracts as set out below. For all of the following management contracts a key judgement is an assessment of the collectability of management fees on achieved planning and the eventual sale price of the site which is based on the assessment of value of the land once planning is achieved.

The significant judgements made were in relation to the following contracts:

Hillingdon Gardens:

For the contract at Hillingdon Gardens, it was determined that there were a number of distinct performance obligations of which no further performance obligations were satisfied in the year to 30 September 2020. The contract was entered into in the prior period where five performance obligations were satisfied in the fifteen-month period to 30 September 2019. It was concluded that these were distinct on the basis the customer benefited from each of the milestones and that these milestones were considered separable in the context of the contract. Planning obligations are considered to be one milestone achieved when the grant of planning is awarded. The performance obligations recognised were considered satisfied in the period as control of the relating service was transferred to the customer before the year end. For the remaining performance obligations still to be satisfied, it was determined by the Directors that they will be recognised in future periods at a point in time, given they all meet the criteria to be recognised at a point in time.

Walthamstow:

For the contract at Walthamstow, it was determined that there were a number of distinct performance obligations of which three were satisfied in the year to 30 September 2020. The contract was entered into in January 2020. It was concluded that these were distinct on the basis that the customer benefits from each of the milestones as they are actioned. Planning obligations are considered to be one milestone achieved when the grant of planning is awarded. The performance obligations recognised were considered satisfied in the period as control of the related service was transferred to the customer before the year end. For the remaining performance obligations still to be satisfied, it was determined by the Directors that they will be recognised in future periods at a point in time, given they all meet the criteria to be recognised at a point in time.

Hounslow:

For the contract at Hounslow, it was determined that there were a number of distinct performance obligations of which one was satisfied in the year to 30 September 2020. The contract was entered into in August 2020. It was concluded that these were distinct on the basis that the customer benefits from each of the milestones as they are achieved. Planning obligations are considered to be one milestone achieved when the grant of planning is awarded. The performance obligations recognised were considered satisfied in the period as control of the related service was transferred to the customer before the year end. For the remaining performance obligations still to be satisfied, it was determined by the Directors that they will be recognised in future periods at a point in time, given they all meet the criteria to be recognised at a point in time.

Bucknalls

For the contract at Farrier's Wood, the Directors concluded the milestones in the scheme were not distinct from one another in the context of the contract. It was therefore concluded that there was a single performance obligation, to manage the scheme on behalf of their joint venture. Management considered that there was a significant level of integration between the various stages and the overall objective of the contract was to sell the development for maximum value. They further concluded that the income in relation to this contract should be recognised over time, given that the management of the project is over an agreed period, and the customer is receiving and consuming the benefits to their asset over the length of the contract.

Accounting for the investment in Cheshunt Lakeside Developments Limited and the associated put and call option arrangement (note 25)

In addition to a direct holding in Cheshunt Lakeside Developments Limited (CLDL) (see note 25), the Group held a put and call option over the other joint venture partner's 50% share. Certain conditions were attached to the options which needed to be met in order for either side of the option to be exercised. The Directors determined that the acquisition date of CLDL was 6 June 2019 given that this was considered to be the date where there were no conditions outside of Inland's control and therefore Inland had full control to exercise their option. It was therefore considered that from this date the Group had the ability to control CLDL and it should be consolidated as a subsidiary from this date.

Further judgement was exercised by the Directors as to whether CLDL constituted a business in determining the correct treatment for the acquisition. The Directors considered whether CLDL meets the definition of a business and therefore whether it should be accounted for as a business combination. It was determined that CLDL did not meet the definition of a business as the entity did not include significant inputs, outputs and processes that were capable of being managed together for providing a return to investors. The transaction was therefore treated as an asset acquisition.

Assets held for sale (note 30)

At 30 September 2020, the Directors' intention was to sell some investment properties over the year ending 30 September 2021. These assets have been reclassified to assets held for sale at the expected disposal value after allowing for costs of disposal. The Directors have made a judgement that the properties will sell within the next twelve months.

Overages

Estimates are involved when determining how much revenue to recognise in relation to variable consideration where Inland Homes is entitled to an overage in relation to future sales at a site sold by Inland Homes to a customer. When determining how much of the variable revenue to recognise at the point of sale, the Directors estimate the amount that they would expect to receive based on market evidence for current house prices. They then consider the risk of a significant reversal of this revenue in future periods and constrain it accordingly.

Land and house building sales margins

There are significant estimates involved in determining the appropriate profit margin to recognise on land and residential sales. Assumptions are required to be made as to future costs to complete and future sales prices to be achieved on the remaining units. The Directors use detailed project appraisals for each development to determine the appropriate profit margin to recognise, which forecasts the costs to complete on such developments and the anticipated sales prices and which have been determined based on the type, specification and location of the property. The financial outturn in both the current year and prior period relating to land and house building sales margins is disclosed in note 10.

Other financial liabilities (Note 36)

During the year, the Group transferred legal title of land to a third party with a contract that contains a put and call option and did not recognise any revenue. At 30 September 2020, the Group had a put and call option over the land with a third party which can be triggered in certain circumstances where planning is achieved or after a certain elapsed time period by either party.

There is significant judgement involved as to whether or not this transaction should be accounted for as revenue or as a financing arrangement on the initial transfer of legal title of the land and in determining whether the put and call option could be exercised, on what grounds and at what time. The Directors consider that it is highly probable either they or the third party will trigger the option in greater than one year and therefore under IFRS 15, have accounted for the options as an other financial liability and this relates to a financing agreement and not a land sale.

7. Financial instruments

Financial risk management

The Group's activities expose it to a variety of financial risks: credit risk; liquidity risk; interest rate risk and price risk. The Group's overall risk management programmes focus on the unpredictability of financial markets and seek to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out centrally under policies approved by the Board of Directors.

(a) Credit risk

The Group's significant concentrations of credit risk are its loans to joint ventures and the associate and deferred receipts on disposal of investment in subsidiaries and joint ventures and management fees which are adequately covered by the underlying values of the assets within the joint ventures and associate or legal charges over the land within the vehicle disposed of or from where management fees are due. Further information can be found in notes 24, 25, 26 and 29. It has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history.

The Group's exposure to credit risk is limited to the carrying amount of financial assets recognised at the year end date, as summarised below:

The Group's policy is to only deal with creditworthy counterparties. A creditworthy counterparty is defined by the Group as a counterparty that carries a minimal risk that the counterparty in a transaction cannot honour its obligation to the Group.

Counterparties are assessed on contract inception through externally available information where legal charges are not available over the underlying asset and are reviewed periodically to determine if there are any changes in creditworthiness or other circumstances that may bring the financial viability of the counterparty into some doubt.

All new contracting and management service contracts entered into are with reputable parties and are subject to acceptance procedures which include detailed creditworthiness checks. This procedure ensures that collectability is probable (i.e. more likely than not), prior to commencement of the contract. In this regard no instances have been identified in the past where the collectability of the sales consideration has been considered improbable at the time of contract commencement.

In any instance where part of all the consideration is deferred, the Group endeavours to seek and secure a legal charge over underlying property assets held until such time that all elements of the deferred consideration have been fully received at which point that legal charge is released.

The Group has assessed loans and advances due from joint ventures and associate and have concluded there is a minimal risk of default. Default is defined and assessed as a risk of missed payment of interest and/or principal or a failure to honour the financial terms in place between the Group and the joint ventures and associate in question.

The assessment of credit risk for amounts due from joint ventures are based on a consideration of known future cash flows which have been sensitised, based on the most likely, the worst case and mid-case scenarios. These cash flows are reviewed against what is due and expected to be paid and analysis made of whether this is sufficient to repay monies based on the financial terms in place between the Group and the joint ventures in question.

The assessment of credit risk for amount due from the associate are based on net valuations. The valuation of properties has been sensitised based on the most likely, the worst case and a mid-case scenario downturn in valuations. These valuations are reviewed against what is due and expected to be paid and analysis made of whether this is sufficient to repay monies based on the financial terms in place between the Group and associate in question.

Loans to joint ventures and associates are secured via charge over either the underlying asset, the future dividends of or the future profits generated by the relevant entity based on the agreement between the joint venture or associate in question. The Group does not rely on this collateral in taking its position of reviewing and/ or recognising an expected credit loss.

At the balance sheet date there are no financial assets that are credit impaired.

Management has determined there has not been a significant increase in credit risk on loans to subsidiaries from the parent company and loans to joint ventures and associates for the Group during the year ended 30 September 2020 or the prior fifteen-month period ending 30 September 2019.

A majority of current trade and other receivables will be paid within 30-59 days of the balance sheet date. Due to the short term nature, the Group does not anticipate any material default and the Directors do not consider the macro economic environment conditions (inflation, exchange rates and property prices) to substantially change in the short term.

The vast majority of trade and other receivable balances relate to property transactions and are short term in nature. As a housing developer, the risk of not receiving settlement on sales or services are low and as such no trade and other receivables are deemed credit impaired.

The Group's management considers that all the above financial assets for each of the reporting dates under review are of good credit quality. The Directors consider that none of the financial assets have expected credit losses. Further information on the concentration of credit risk can be found in note 29.

Other forms of credit risk are for liquid funds and other short term financial assets but these are considered negligible, since the counterparties are reputable banks with high quality credit ratings.

Credit ratings of the financial institutions holding the Group's cash deposits as at 30 September 2020 are shown below:

Aldermore Bank is privately owned so no credit rating is provided.

Credit ratings of the financial institutions holding the Group's cash deposits as at 30 September 2019 are shown below:

(b) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash balances and ensuring availability of funding through an adequate amount of credit facilities. The Group aims to maintain flexibility in funding by keeping credit lines available. The Group also purchases property under deferred consideration arrangements.

See note 32 for the maturity analysis of borrowings and details of the undrawn committed borrowing facilities at the year-end.

(c) Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate due to changes in interest rate.

The Group's interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to risk. Most of the Group's borrowings are at variable rates as outlined in the table in note 32. The Group does not use hedging arrangements to limit the interest rate risk.

Market rate sensitivity analysis

The analysis below shows the sensitivity of the Group Income Statement and net assets to a 0.5 per cent change in interest rate on the Group's financial instruments that are affected by market risk. These financial instruments consist solely of borrowings.

The interest rate risk profile of financial assets and liabilities of the Group at 30 September 2020 was as follows:

The interest rate risk profile of financial assets and liabilities of the Group at 30 September 2019 was as follows:

(d) Price risk

The Group's price risk arises from the market value of land and house prices. These are affected by credit availability, employment levels, interest rates, consumer confidence and the supply of land. Whilst it is not possible for the Group to fully mitigate such risks on a macroeconomic basis, the Group does focus its operations in areas that have a favourable supply/demand ratio and ensures that planning permissions gained are for units of the type and price point which are less easily affected by any downturns in the housing market. The Group enters into construction contracts with housing associations which involve the bulk, forward selling of residential units and has less risk than private house building.

Financial assets and liabilities

The carrying amounts presented in the Statement of Financial Position relate to the following categories:

Other assets - non current includes investments, amounts due from associate in note 26 and joint ventures shown in note 25 and amounts shown as trade and other receivables in note 29 due in more than one year.

Other assets - current includes amounts due from joint ventures and associate shown in notes 25 and 26 and all amounts shown as trade and other receivables due in less than one year in note 29 except prepayments of £0.3m (30 September 2019: £1.0m). Amounts due from Bucknalls Developments Limited is split between amortised cost and fair value through profit and loss.

Other liabilities - current includes purchase consideration of £nil (30 September 2019: £4.1m) shown in note 36 and all amounts shown as trade and other payables in note 33 except sales and social security taxes of £0.5m (30 September 2019: £0.5m). All amounts are non-interest bearing and are due within one year.

Other liabilities - non-current contains another financial arrangement of £6.8m (30 September 2019: £nil) at an implied rate of interest tied to the triggering of the put and call options in place.

Borrowings consist of loans which attract interest at varying rates and there is a variety of fixed and variable rates (see table in note 32). The ZDP shares are carried at their accrued value of 167.83p per share (30 September 2019: 159.12p). Their closing price on the main market of the London Stock Exchange on 30 September 2020 was 156.00p (30 September 2019: 161.50p). The ZDP shares attract an interest rate of between 4.96% and 5.49%. The interest rates disclosed for the ZDP preference shares were the rates disclosed before the changes in August 2018.

8. Capital management policies and procedures

The Group's objectives when managing capital are:

This is achieved through ensuring sufficient bank and other facilities are in place; further details are given in notes 31 and 32 to the Group accounts. The Group monitors capital on the basis of the carrying amount of the equity less cash and cash equivalents as presented on the face of the Group Statement of Financial Position.

The movement in the capital to overall financing ratio is shown below. The target capital to overall financing ratio has been set by the Board at 40% and an outturn metric scoring higher than this amount is considered to be a good performance against the target. Further commentary on the level of borrowing, overall financing strategy and expected future direction is contained in the Group Finance Director's review.

The Group manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the level of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Every quarter the Group must report to the ZDP shareholders that the covenants attached to the ZDP shares have not been breached. The most significant covenant is the asset cover which is calculated as adjusted gross assets: financial indebtedness. This covenant is monitored on a bi-monthly basis by the Board and has not been breached at any time. Further details can be found in the Inland ZDP Prospectus on the Company's website at www.inlandhomesplc.com.

9. Revenue from contracts with customers

The Group has disaggregated revenue into various categories in the following tables which is intended to:

All revenue is earned in the United Kingdom.

Included within 'Land sales' are land sales to housing associations which include construction works to 'Golden Brick'. Subsequent construction works to completion are included within 'Contract income'.

Included within 'House building' are the sales of reversionary freehold reversions and customers' extras that arise as a by-product of house building activity.

Rental income and investment properties income is not disclosed in the table above as these revenue sources do not fall under the IFRS 15 accounting standard.

During the year, transactions with three customers each accounted for more than 10% of revenue from contracts with customers (fifteen-month period to 30 September 2019: no transactions). One customer was in the 'Land sales' segment (revenue of £20.2m) and two customers were in the 'Contract income' segment (revenue of £23.9m and £23.7m).

Contract assets and contract liabilities are included within the Group Statement of Financial Position. The timing of work performed and revenue recognised, billing profiles and cash collection results in trade receivables (amounts billed to date and unpaid), contract assets (unbilled amounts where revenue has been recognised) and contract liabilities (amounts relating to contracts where work is yet to be performed and the performance obligation achieved) being recognised on the Group Statement of Financial Position.

The reconciliation of the opening to closing contract balances is shown below:

Contract assets are recognised in prepayments and accrued income (note 29). Contract liabilities are recognised in accruals (note 33).

10. Segmental information

In accordance with IFRS 8, information is disclosed to enable users of financial statements to evaluate the nature and financial effects of the business activities in which the Group engages.

In identifying its operating segments, management differentiates between land sales, housebuilding, contract income, rental income, hotel income, investments, investment properties, management fees and other income. These segments are based on the information reported to the chief operating decision maker (which in the Group's case is the Operating Board comprising the three Executive Directors and four senior managers) and represent the activities which generate significant revenues, profits and use of resources within the Group. These operating segments are monitored and strategic decisions are made on the basis of segment operating results. Note 1 provides further information relating to each segment.

Segmental analysis by activity