INL.L Regulatory News (INL)

brownfield regeneration specialists and housebuilders

INLAND HOMES PLC

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

Preliminary Results for the year ended 30 June 2013

Strong performance delivers record annual results

Inland Homes, the strategic land developer with a growing housebuilding business, today announces its preliminary results for the year ended 30 June 2013.

1 Excludes the Group's interest in Drayton Garden Village Limited ('DGVL') from which Inland expects to derive a further 5.0p per share

Stephen Wicks, Chief Executive, commented:

"It has been a very good year for Inland. Our strategic move to increase the Group's housebuilding activity has proved to have been well timed, while we continue to make progress in growing our land bank in terms of both size and quality.

"The Group is well financed and with market conditions in our favour, we are confident of making further progress throughout the course of this financial year and beyond."

Editor's Note:

Inland Homes plc's strategy is to identify brownfield land in the South of England where it considers it to hold excellent potential for residential and mixed use development, including commercial space. The Group then seeks to enhance its land value by obtaining planning permission before selling consented land onto developers. It also develops some of its plots for sale.

CHAIRMAN'S STATEMENT

A strong performance in improving market conditions

I am delighted to report a very strong set of results for Inland Homes, driven by an increased number of plots sold to other developers as well as a significant contribution from the development and sale of new homes built by the Group.

We are conscious that we work in an extremely cyclical industry and it is therefore crucial that we are 'in the right place at the right time'. Our strategy to extract the maximum value from our land bank by building out more developments ourselves appears to have been well timed given the improvement in market conditions and the increasing volume of housing transactions recorded in the UK.

As a result of this increased activity, total Group revenue, which includes revenue from land and house sales, rental income and project management fees, increased by over 400 per cent to £31.12 million (2012: £6.11 million). Gross profit was nearly doubled to £7.69 million (2012: £3.89 million) with a margin of 24.7 per cent and operating profit was up over 370 per cent at £5.08 million (2012: £1.06 million). Profit before tax was up over 225 per cent at £5.21 million (2012: £1.60 million) translating into a near fivefold increase in earnings per share of 1.98p (2012: 0.41p).

Net asset value per share increased to 28.7p (2012: 27.0p). These financial results exclude the future value from the development services provided by the Group to DGVL where Inland's profit share is expected to increase from the current level of 74 per cent to 90 per cent by the end of March 2014 once the outstanding deferred consideration of £6.7 million for DGV has been paid. The Board anticipates that Inland Homes' share of the future profits from DGV should be in the order of £10.1 million net of tax which is equivalent to 5.0p per ordinary share. Shareholders will appreciate that the unrealised profit, resulting from the difference between the market and carrying values of the Group's land bank, is significant. The Group finished the period with cash reserves of £12.2 million, with net gearing reduced to 6.7 per cent (2012: 13.0 per cent).

I am pleased to report that during the period DGVL sold 76 plots for a total consideration of £5.3 million.

Successful fund raisings strengthen capital base

During the year the Group strengthened its financial position through two successful fund raisings, the first raised £8.94 million net of costs through the placement of approximately 9.35 million Zero Dividend Preference shares ("ZDPs"), which have a redemption yield of 7.3 per cent per annum and will be repaid on or before 10 April 2019 and the second, in May 2013, raised £4.73 million net of costs through a placing of approximately 18.3 million ordinary shares. These fund raisings have increased the Group's financial flexibility and have strengthened the Group's longer term capital base.

Increased dividend reflects progressive dividend policy

At the time of our 2012 results, the Board announced its intention to adopt a progressive dividend policy. In line with this policy, and reflecting these strong results, the Board is recommending a fourfold increase in the final proposed dividend of 0.27p (2012: 0.067p) per share if approved by shareholders at the Annual General Meeting which is expected to be called for Thursday 5 December 2013. The final dividend will be paid on 6 January 2014 to shareholders on the register at the close of business on 6 December 2013. The ex-dividend date will be 4 December 2013.

Consistent progress against clear strategic goals

Our strategy going forward is demanding but we believe achievable and is:

1. To increase the size of our land bank year on year;

2. Continue the core activity of plot sales to other developers to generate cash to fund our operations;

3. Maximise the value from our land bank by expanding our housebuilding programme; and

4. Maintain borrowings at a relatively low level through a strong focus on cash management and vendor financing.

The increase in housebuilding will lead to an increase in the Group's net gearing because of the increased working capital requirements that this entails. However, this is envisaged to reduce over time as legal completions of unit sales and land disposals are achieved and the Board is focussed on keeping net gearing under control. In this regard the Group has a good level of forward sales on both residential homes and development land with planning consent.

The number of residential plots in the land bank of the Group and those separately held by DGVL is currently as follows:

Owned with planning consent 753

Drayton Garden Village 311

Owned or contracted without planning consent 300

Plots controlled or terms agreed 942

Total plots 2,306

Well positioned to exploit market opportunities

Inland Homes currently has 348 homes under construction on seven sites and a further 138 units are being developed by DGVL. The Group is managing the programme of developing some of Drayton Garden Village and this should further enhance the returns we expect from this project.

Our housebuilding activity has had a strong start to the new financial year with 34 reservations across three active sites since 1 July 2013. Forward sales for both Inland Homes and DGVL either agreed or contracted currently stands at £46.3 million.

The Board believes that, for the foreseeable future, the market for new homes will remain strong in the areas in which we operate, particularly in the price range of £160,000 to £400,000 where sales are supported by the Government's "Help to Buy" scheme and the continuing fundamental shortfall of housing availability in the country. As such, we would expect a substantial increase in the number of units sold in the current financial year when compared with 2013.

In addition, we have a strong land pipeline with a number of attractive sites in London and the south east already secured and are experiencing robust demand for land with planning consent.

Inland Homes has had a highly productive financial year. The Group is well positioned to grow its land bank whilst our growing housebuilding activity will help to ensure we maximise the profit potential from the Group's asset base. Inland is well placed to meet the challenges and opportunities presented by the market and we look to the future with confidence.

Terry Roydon

Chairman

3 October 2013

GROUP INCOME STATEMENT

For the year ended 30 June 2013

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2013

GROUP STATEMENT OF FINANCIAL POSITION

At 30 June 2013

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2013

GROUP STATEMENT OF CASH FLOWS

For the year ended 30 June 2013

NOTES TO THE PRELIMINARY ANNOUNCEMENT

For the year ended 30 June 2013

1. Critical accounting estimates and judgements

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. Critical accounting estimates relates to the profit forecasts used to determine the extent to which deferred tax assets are recognized from available losses.

(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 market conditions existing.

(d) Investment properties

Investment properties are reviewed 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 by discounted cash flow method, the Group considers that the cost of debt capital is the most appropriate..

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 preference 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

The Group has entered into an Option and Development Services Agreement (The Agreement) with DGVL. The Directors have considered the requirements of IAS 27 'Consolidated and separate financial statements' (revised 2008) and 'SIC 12 Consolidation - special purpose entities' and do not believe that the Group has the power to control DGVL. DGVL makes its own decisions regarding the development of the site even though the director of DGVL receives property advice to consider and property services from the Group. The Directors also consider that the Group does not have the decision making powers to obtain the majority of the benefits and the risks of the activities of DGVL as the shareholder of DGVL maintains control as to whether he finances the deferred land consideration payments. The key requirement in influencing Inland's profit share is the basis on which deferred consideration is satisfied. This is at the discretion of the DGVL director and hence he can improve his profit share, or allow Inland to arrange the funding. Therefore the Directors do not believe that DGVL should be consolidated within the Group's financial statements.

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 has the potential to earn up to 90% of the profits realised from the sale of the property over the life of the project.

Because the final decision on the financial and operational activities of DGVL resides with the director of DGVL, the Directors of Inland Homes plc do not consider that they have significant influence over DGVL and therefore DGVL is not considered to be an associate or a subsidiary undertaking.

At 30 June 2013 the funding arrangements in place for the satisfaction of deferred consideration entitled Inland to 74.4% of the profits expected to be realised from the sale of the property over the life of the project. In accordance with The Agreement, 67.44% of the total profits 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 finance to DGVL and would be accounted for under IAS 39 as notional interest income.

In calculating the fee for the provision of planning application and property services to DGVL recognised in the 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 year end.

During the year ended 30 June 2013 the Group has recognised £3.00m (2012: £3.65m) in revenue within the Group Income Statement for such services to DGVL.

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.

During the year ended 30 June 2013 the Group has recognised £0.25m (2012: £0.24m) within notional interest income in the Group Income Statement in respect of such fees.

The table below shows the revenue and notional interest recognised by Inland under IAS 18 and IAS 39 in comparison to the results recognised by DGVL on its sales under UK GAAP:

The accounting policy for revenue recognition by DGVL is as follows:

Turnover comprises the sale of land acquired for resale, the sale of equipment and materials and amounts receivable by the company in respect of other services rendered during the period excluding value added tax. Turnover in respect of the sale of land is recognised at the point of completion, when the title passes. Turnover from other services is recognised as the service is delivered. Turnover on the sale of equipment is recognised on the completion of the sale.

2. 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

All activities arose solely in the United Kingdom.

Income and segmental analysis continued

Segmental analysis by activity continued

3. Income tax

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate applicable to profits of the consolidated companies as follows:

4. Earnings and net asset value per share

Basic and diluted EPS

Basic and diluted earnings per share is 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.

5. Deferred tax

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

The movement in deferred tax assets is as follows:

The deferred tax asset is recoverable 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.

6. Other financial liabilities

During the year the Group's subsidiary, Inland ZDP PLC issued 9,349,900 zero dividend preference (ZDP) shares of 10p each for a total cash consideration of £9.38m. The ZDP shares have a redemption yield of 7.3% per annum and will be repaid on or before 10 April 2019.

7. Contingencies

The Group has the following contingent liabilities as at 30 June 2013:

A subsidiary undertaking, 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. Advice is being sort to clarify the Company's position. 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 these financial statements in respect of this contingent liability.

8. Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The Group Income Statement, the Group Statement of Comprehensive Income, the Group Statement of Financial Position at 30 June 2013, the Group Statement of Changes in Equity and the Group Statement of Cash Flows and associated notes for the year then ended have been extracted from the Group's financial statements. Those financial statements have not yet been delivered to the Registrar, nor have the auditors reported on them.

This statement is not being posted to shareholders. The Annual Report and Financial Statements will be posted to shareholders shortly. A copy will also be available on the Company's website, www.inlandplc.com in due course. Further copies are available on request to the Company Secretary at Inland Homes plc.