INL.L Regulatory News (INL)

31 March 2015

Inland Homes PLC

specialist housebuilder and brownfield land developer 

('Inland', the 'Company' or the 'Group')

Unaudited half-yearly financial results for the six months ended 31 December 2014

Outstanding progress, driven by housebuilding operations

Inland Homes, the specialist housebuilder and brownfield land developer, today announces its half-yearly financial results for the six months ended 31 December 2014.

Group Highlights

· Outstanding progress, delivering a substantial increase in revenue and profitability

· Demand for the Group's homes and land remains strong; 199 units completed and sold in the period (2013: 47 units)

· Current land bank at an all-time high of 4,512 plots

· Maiden interim dividend of 0.3p per share (2013: Nil) declared

Outlook

· Group on target to achieve its objectives - business strategy focused on housebuilding, land sales and fee income, set to provide a reliable, balanced profit stream and cash flow going forward

· Forward sales position of £30m for Inland and Drayton Garden Village Limited (DGVL)

· Continued progress at Wilton Park, with the Development Brief to be adopted by the Local Authority on 31 March 2015; Abbeywood Park, West Plaza and Carter's Quay schemes expected to be major profit contributors this year

· Joint ventures with Europa Capital and Christian Candy's CPC Group Ltd (CPC) providing further project opportunities

· Board is confident of continued strong growth for the business

Stephen Wicks, Chief Executive of Inland, commented:

"I am very encouraged by the Group's robust first half performance, with the land bank at an all-time high and demand for homes and land continuing to be strong. 

"The maiden interim dividend declared today is testament to the strength of Inland's growth strategy, solid financial position and future prospects. I am confident that the Group is well placed for continued progress in the current financial year and beyond."

Notes to Editors:

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 to reinvest in new brownfield opportunities.

Chairman's statement

This has been a period of outstanding progress for the Group. As a result, we are on target to achieve our ambitious strategic objectives.

Introduction

The Group performed strongly during the six months to 31 December 2014, delivering substantial increases in revenue and profitability over the corresponding six months to 31 December 2013.

This financial performance has been driven entirely by our housebuilding operations. We were anticipating a number of significant land sales, some of which were delayed into the second half but, as stated previously, the timing of land receipts are notoriously difficult to predict. We are confident that the current strategy of housebuilding, land sales and fee income will provide a reliable, balanced profit stream and cash flow for the future.

Housebuilding completions for the first half were 199 units compared with 47 units for the corresponding period last year with an average sale price of £242,000. Our homes are largely targeted at first and second time buyers and small investors, a market we are very comfortable with, where strong demand exists and was recently boosted by changes to the stamp duty land tax regime. We are also very advanced in our negotiations with a substantial institutional investor in the Private Rented Sector for the sale of 205 units at Drayton Garden Village (DGV). This will provide another stream of revenue and strong forward visibility of revenue and cash flows.

Results

Revenue for the six months to 31 December 2014 was £54.5m (2013: £12.8m), representing an increase of 326%, as follows:

I am very pleased to report that this performance has led to gross profit of £12.7m (£2013: 6.1m), an increase of 107% over the corresponding period last year, and growth of 68% in profit before tax to £6.1m (2013: £3.6m).

Reported net assets of the Group have increased by 11.3% to £67.7m (2013: £60.8m) equating to a net asset value per share of 33.47p per share (2013: 29.97p). Shareholders will be aware that this figure excludes Inland's share of profits from DGV where Inland's fee for the provision of development services is now at the maximum limit of 90%. The Board expects the future profit (net of tax) from Drayton Garden Village Ltd (DGVL) to be approximately £2.6m or 1.27p per share.

As most of the Group's development sites are held at the lower of cost and net realisable value, their carrying value generally reflect the pre-planning value. The Directors therefore believe that the underlying value of the Group's assets is significantly greater than that reported.

In December 2014 the Group entered into an option arrangement (the Option) with Wilton Park Developments Limited (WPDL), a company owned by funding partners, to acquire the Wilton Park site over a period of time. The site was acquired by WPDL for £35.0m, of which £29.0m is deferred over a period of three years. All the WPDL funding is non-recourse to the Group. However, in accordance with the recently introduced IFRS 10, the Group is required to consolidate WPDL within its results and this has had the effect of increasing the Group's liabilities, including borrowings, even though those of WPDL are non-recourse to the Group. Further details of the effect of consolidating WPDL are shown in Note 6.

The Group had cash balances of £9.8m at the 31 December 2014 with net debt of £28.8m, representing net gearing of 42.6%. If WPDL was excluded these figures would be £24.8m and 36.7% respectively.

Earnings per share and dividend

Earnings per share increased by 42.6% over the corresponding period to 1.94p (2013: 1.36p).

In line with the Board's intention to maintain a progressive dividend policy, the Board has decided to pay an interim dividend of 0.3p per share (2013: £Nil), reflecting on the Group's strong results, progress and outlook. The dividend will be paid on 31 July 2015 to shareholders on the register at the close of business on 10 July 2015. The ex-dividend date is 9 July 2015

Review of operations

During the first half of the current financial year, we completed and sold 199 private homes generating £48.1m of revenue with a gross margin of 22%. As stated earlier, the business model moving forward is expected to be a balanced mix of housebuilding, land sales, rental and fee income.

The major development at West Plaza, Ashford, Middlesex (152 units) is now fully sold and proved to be a very successful development for the Group. Another major profit contributor this year is our Abbeywood Park scheme in Markyate, near St Albans, an ongoing development of 40 homes, as well as Carter's Quay in Poole, Dorset which is an ongoing development of 268 units. We are currently building on six sites and expect to open up further outlets during the course of the year. The forward sales position, for both Inland and DGV, of homes that have been reserved or where contracts have been exchanged, amounts to £30.0m.

Land and planning

The Group has continued to make good progress during the period in further growing its land holdings; a breakdown of the landbank is set out below:

Shareholders will note that the landbank is at an all-time high of 4,512 plots. A 'satellite' operation has been established in Essex where we have engaged an experienced Building Director and Land Manager. We have two operating sites in Essex with 31 units under construction with a third due to commence shortly. A substantial land assembly is underway on a site with potential for 750 units. Our strategy is leaning towards the acquisition of larger projects which will accelerate the pace of accumulating a more substantial landbank.

Our flagship development project at Wilton Park in Beaconsfield, Buckinghamshire - which is allocated for up to 350 units - continues to make progress. I am pleased to report that the Development Brief is to be adopted by the South Bucks District Council on 31 March 2015, paving the way for the planning application. We intend to retain some of the former MoD houses currently located on the site and plan to let them out on short-term tenancies. Consent has now been granted for the first phase of the Beaconsfield relief road, which we will construct in due course.

Joint ventures

In November 2014 we entered into a joint venture with Europa Capital on a strategic site in Aylesbury which has the potential for 400 residential plots. Under the terms of the joint venture agreement, both parties will provide capital for the project on an equal basis. £2.1m of this investment is accounted for as Loans to Joint Ventures within Non-Current Assets in the Group Statement of Financial Position with the balance of £1.4m in Investment in Joint Ventures.

In December 2014 we concluded a joint venture with Christian Candy's CPC Group Ltd (CPC), to jointly fund the acquisition of brownfield sites with the potential for residential or mixed-use development across the South-East of England. Under the terms of the joint venture, CPC will contribute 80%, and Inland Homes 20%, of capital to acquire suitable brownfield sites over an initial investment period of three years, with the intention of obtaining planning permission and selling the sites to the open market. The planning process has begun on the first project in High Wycombe and a number of other opportunities are currently being reviewed. This investment is accounted for as Loans to Joint Ventures within Non-Current Assets in the Group Statement of Financial Position.

Outlook

Demand for our homes and land remains strong and despite the uncertainties surrounding the forthcoming election, it has been established that all the political parties have recognised the fact that the UK has a serious housing shortage. We are particularly well placed to capitalise on this with our focus on brownfield sites and homes at the lower end of the market. The Group is in excellent shape and I am confident that this will be a particularly strong year of growth for the business.

Terry Roydon

Chairman

Group income statement

for the six months ended 31 December 2014

Group statement of comprehensive income

for the six months ended 31 December 2014

Group statement of financial position

at 31 December 2014

Group statement of changes in equity

for the six months ended 31 December 2014

Group statement of cash flows 

for the six months ended 31 December 2014

Notes to the half-yearly financial report

for the six months ended 31 December 2014

1. Nature of operations and general information

The principal activity of the Company and its subsidiaries (together called the Group) is to acquire residential and mixed use sites and seek planning consent for development. The Group also develops a number of plots for private sale.

Inland Homes plc is the Group's ultimate parent company. It is incorporated and domiciled in Great Britain. The address of Inland Homes plc's registered office, which is also its principal place of business, is Decimal Place, Chiltern Avenue, Amersham, Buckinghamshire HP6 5FG.

Inland Homes plc's shares are quoted on AIM, a market operated by the London Stock Exchange. This consolidated half-yearly financial report has been approved for issue by the Board of Directors on 30 March 2015.

The financial information set out in this half-yearly financial report does not constitute statutory accounts as defined in Sections 434(3) and 435(3) of the Companies Act 2006. The Group's statutory financial statements for the year ended 30 June 2014 have been filed with the Registrar of Companies and are available at www.inlandplc.com. The auditor's report on those financial statements was unqualified and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2. Basis of preparation

This consolidated half-yearly financial report has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

The consolidated half-yearly financial report should be read in conjunction with the annual financial statements for the year ended 30 June 2014, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

From 1 July 2014 the Group has adopted IFRS 10 'Consolidated Financial Statements'. This has not impacted on the accounting for the DGVL arrangement. As per the requirements of this standard, control will continue to be assessed on an ongoing basis.

3. Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2014 with the exception of a new policy having been introduced for the treatment of shares purchased by the Employee Benefit Trust (EBT). Where the Group purchases its own equity share capital to hold in the Employee Benefit Trust (EBT), the consideration paid, including any attributable incremental costs (net of income taxes) is deducted from equity attributable to the Group's equity holders, until the shares are cancelled or reissued via the EBT Reserve. Where shares are subsequently sold or reissued, any directly attributable incremental transaction costs and the related income tax effects are included in equity attributable to the Group's equity.

4. Going concern

The Board has reviewed the performance for the current period and forecasts for the future period. It has also considered the risks and uncertainties, including credit risk and liquidity. The Directors have considered the present economic climate, the state of the housing market and the current demand for land with planning consent. The Group has continued to see demand for consented land in the areas in which it operates. The Group has significant forward sales of residential units and is in discussions for the sale of some of the land within its projects and expects to make sufficient disposals in the foreseeable future to ensure it has adequate working capital for its requirements. The Directors are satisfied that the Group will generate sufficient cash to meet its liabilities as and when they fall due for a period of twelve months from signing this half-yearly financial report. The Directors therefore can consider it appropriate to prepare the financial statements on the going concern basis.

5. Critical accounting estimates and judgments

Estimates and judgements are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

(a) Valuation of inventories

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. Estimation of the selling price is subject to significant inherent uncertainties, in particular the prediction of future trends in the market value of land.

Whilst the Directors exercise due care and attention to make reasonable estimates taking into account all available information in estimating the future selling price, the estimates will, in all likelihood, differ from the actual selling prices achieved in future periods and these differences may, in certain circumstances, be very significant. The critical judgement in respect of planning consent (see below) further increases the level of estimation uncertainty in this area.

(b) Income taxes

The Group recognises tax/deferred tax assets and liabilities for anticipated tax based on estimates of when the tax/deferred tax will be paid or recovered. When the final outcome of these matters is different from the amounts initially recorded, such differences impact the period in which the determination is made.

(c) Fair value of derivatives and other financial instruments

The fair value of instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on existing market conditions.

Critical accounting estimates

 (d) Investment properties

Investment properties are viewed annually for impairment; critical accounting estimates relate to the forecasts prepared in order to assess the carrying value.

(e) Discounting on deferred consideration of inventories

The Group discounts deferred consideration of inventories under the discounted cash flow method, using the cost of debt capital as the discount rate.

Critical judgements in applying the entity's accounting policies

Inventories

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 given for each site. The Group believes that, based on the Directors' experience, planning consent will be given. If planning consent was not achieved then a provision may be required against inventories.

Zero Dividend Preference Shares

The Group has in issue Zero Dividend Preference Shares which are accounted for as debt. ZDP shares are repayable, plus accrued interest to date, in the event of a takeover. The Directors consider that the potential early repayment meets the definition of a derivative instrument under IAS 39. However, they consider that this instrument is closely related to the host contract and therefore have not accounted for the embedded derivative separately.

Investments

In December 2008 the Group entered into a Development Services Agreement (the Agreement) with DGVL. The Directors have considered the requirements of IFRS 10 'Consolidated Financial Statements' and do not believe that the Group has the power to control DGVL. Firstly, the final decision on the financial and operational activities of DGVL resides with the director of DGVL, including the unilateral discretion over the choice of supplier of development services. Secondly, whilst the Group is exposed to variable returns it does not have the ability to use any power over DGVL to affect its return. The Board does not consider the ability for Inland to influence the return as evidence of power because the director of DGVL has the unilateral right to determine and control the overall percentage of the profit surrendered to the Group; Inland has no rights to influence the ultimate percentage it receives only the ability to influence the overall profit by performing development services in an efficient manner. The Group's ability to influence the variable returns it is entitled to receive is solely through the way in which it provides the development services. Therefore after due consideration of the applicable accounting standards and the way in which DGVL and Inland operate in reality, the Board is of the opinion that Inland does not control DGVL. Accordingly DGVL should not be consolidated in the financial statements of the Group.

The Group is entitled to receive a fee for the provision of planning application services, assistance in obtaining statutory and third party consents, assistance in entering into development and construction agreements, assistance in achieving sales, assistance in engaging professional advisors, seeking opportunities to generate interim revenues and the potential provision of finance to DGVL in respect of the site known as Drayton Garden Village. Under the agreement the Group is entitled to receive an increased share of the profits from the development on the basis that the director of DGVL did not have to procure funding to meet the deferred land consideration payments. Therefore, the Group is now entitled to receive 90% of all the profits realised from the sale of the property over the life of the project as the deferred land consideration has been met in full without the director of DGVL having to procure funding.

83.04% of the total profits from the development would be due to the Group for the provision of planning application and property management services completed at the balance sheet date and this has to be accounted for under IAS 18. 6.96% of the profits would be due to the Group for the provision of the initial £3m to pay the first installment of the deferred land payment and is therefore accounted for under IAS 39 as interest income.

In calculating the fee for the provision of planning application and property services to DGVL recognised in the half year, under IAS 18 the Group has estimated the following: 

• total profits (total expected sales less total estimated development costs to completion) to be realised from the sale of the property;

• profits would be realised over six years from 1 July 2010;

• percentage, where the stage of completion is an appropriate basis for evaluating fair value, of planning application and property services provided to DGVL as at the period end with the balance to be provided over the remaining life of the project (i.e. in future accounting periods); and

• the fair value of completed service components at the period end.

During the six months ended 31 December 2014 the Group has recognised £2.01m (2013: £3.34m) in revenue within the Group Income Statement for such services to DGVL. This is included within the £2,059,000 'Fee income' in note 6.

In calculating the fee for the provision of finance to DGVL, under IAS 39 the Group has estimated the following:

• total profits (total expected sales less total estimated development costs to completion) to be realised from the sale of the property; and

• profits would be realised over six years from 1 July 2010.

Under IAS 39 the Group has a choice as to how to account for the asset. The Directors consider the most appropriate classification for the asset to be 'loans and receivables' due to the underlying asset being a 'non derivative' financial asset with fixed or determinable payments. The effective interest rate method has been applied in calculating the income in the period. See Note 10.

During the six months ended 31 December 2014 the Group has recognised £0.14m (2013: £0.15m) within interest income in the Group Income Statement in respect of such fees.

In December 2014, the Group entered into an Option with WPDL. The Option entitles the Group to acquire land from WPDL within 10 days of the date that the vendor releases that land from its charge, as payment of deferred consideration is made by WPDL to the vendor. The Directors have considered the requirements of IFRS 10 'Consolidated Financial Statements' and have consolidated WPDL as part of these results from the date of the Option.

6. Income and segmental analysis

The Group generates income by way of land sales. It also generates income from housebuilding, fees from planning and property management services and other related services. These operating segments are monitored and strategic decisions are made on the basis of segment operating results. The segmental analysis of operations is as follows:

Segmental analysis by activity

7. Income tax

8. Earnings and net asset value per share

Basic and diluted EPS

Basic and diluted earnings per share has been calculated by dividing the earnings attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

On 29 October 2014 the Group's Employee Benefit Trust purchased 643,216 shares in Inland Homes plc under the terms of the Long Term Incentive Plan. This has resulted in a reduction in the weighted average number of ordinary shares in issue since 30 June 2014.

9. Property, plant and equipment

10. Investments

On 18 December 2008, Inland entered into an Option and Development Services Agreement with DGVL which granted Inland Limited an option for a consideration of £250,000 to purchase the share capital of DGVL at an exercise price of £1. The initial period of the option was for one year from the date of the agreement and this could be extended on up to four occasions to a maximum period of ten years by making further payments. During the years ended 30 June 2010, 2011, 2012 and 2013, the option period was extended to expire on 15 January 2019 in consideration of £1,200,000. In accordance with the Group's accounting policy for financial assets, the option has been measured at fair value at 31 December 2014, which resulted in a fair value loss of £541,000 (2013: gain of £321,000) that has been recognised in the Group Income Statement, resulting in the option being valued at £1,200,000 less than the actual consideration paid for the option. The fair value of the option has decreased as the profits are being realized and are available for distribution to the shareholder of DGVL.

The Group acquired a 10% interest in Aston Clinton S.a.r.l (Lux) whose purpose is acquire a site near Aylesbury, Buckinghamshire and obtain planning permission. The Group has an obligation to fund 50% of the costs of the site and is entitled to receive 50% of the proceeds upon the sale. The Group has provided loans of £2,094,000 as at the balance sheet date in addition to the capital investment. Further details can be found in note 12.

In December 2014 the Group entered into a joint venture with CPC Group Ltd to purchase land, obtain planning permission and ultimately sell the land. The Group owns 20% of the share capital and is obliged to fund 20% of the costs of the sites acquired by the joint venture. A 'waterfall' calculation determines the amount of profit to be received by the Group using performance hurdles. At 31 December 2014 the Group had provided loans of £853,000 to the joint venture. Further details can be found in note 12.

11. DEFERRED TAX

The net movement on the deferred tax account is as follows:

The movement in deferred tax assets is as follows:

Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Group has capital losses amounting to £17,162,000 (2013: £17,162,000) that have not been recognised as the Directors consider the realisation of the losses is not expected to crystallise in the foreseeable future.

12. Trade and other receivables

Other receivables includes an amount of £12.9m (2013: £16.3m) accrued in respect of costs and sales invoices charged to

DGVL. The carrying value is considered a reasonable approximation of fair value.

The Group has provided loans of £2,094,000 to Aston Clinton S.a.r.l (Lux), a company in which it holds a 10% equity interest, as shown in note 10.

At 31 December 2014 the Group had provided loans of £853,000 to its joint venture with CPC, as shown in note 10.

13. Share capital

14. Trade and other payables

The carrying value of trade and other payables is considered a reasonable approximation of fair value.

15. Other financial liabilities

16. Acquisition of subsidiary

In December 2014 the Group entered into an option agreement to purchase the land owned by WPDL. The requirements of IFRS 10 necessitates that WPDL is accounted for as a subsidiary. The assets and liabilities arising from the acquisition are as follows:

No cash consideration was paid for the Option.

The fair value of inventories and land creditors has been calculated using the discounted cash flow method in accordance with IAS 39; the Group considers the cost of debt capital for WPDL to be the most appropriate discount rate.

17. Contingencies

The Group has the following contingent liability as at 31 December 2014:

A subsidiary undertaking, Poole Investments Ltd (formerly Poole Investments plc), ceased to participate in its operating subsidiary's pension scheme when it disposed of former subsidiaries in May 2004. The Scheme's principal employer, Pilkington's Tiles Limited went into administration on 14 June 2010 and as a result Poole may be liable for a share of the cost of securing the liabilities of the Scheme pertaining to its two former employees should there be a deficit on the Scheme's fund. The Directors consider that, as at the balance sheet date, material uncertainty exists over the basis and calculation of any obligation that may fall due to Poole, as confirmed by professional advice obtained in relation to this matter. A provision has therefore not been made in the financial statements as the basis of any provision cannot be reliably established.

No provisions have been made in this half-yearly financial report in respect of this contingent liability.

18. Copies of our half-yearly financial report can be viewed and downloaded from our website at www.inlandhomes.co.uk. Copies are also available on request by writing to the Company Secretary at the Registered Office of Inland Homes plc.

Independent review report to the members of Inland Homes plc

Introduction

We have reviewed the condensed set of financial statements in the half-yearly financial report of Inland Homes plc for the six months ended 31 December 2014 which comprises the Group Income Statement, Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Equity, Group Statement of Cash Flows and notes 1 to 18. We have read the other information contained in the half yearly financial report which comprises only the Chairman's Statement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company's members, as a body, in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

GRANT THORNTON UK LLP

CHARTERED ACCOUNTANTS

READING

30 March 2015