Inland ZDP PLC

31 January 2022

INLAND ZDP PLC

AUDITED RESULTS FOR YEAR ENDED 30 SEPTEMBER 2021

The board of Inland ZDP PLC (the "Company") announces the results for the year ended 30 September 2021 and the publication of its annual report.

Inland ZDP plc ('the Company') was incorporated on 22 November 2012 and has a capital structure comprising unlisted ordinary shares and zero dividend preference shares ('ZDP shares') listed on the Official List and traded on the London Stock Exchange. The Company's ordinary share capital is wholly owned by Inland Homes 2013 Limited which is a wholly owned subsidiary of Inland Homes plc ('Inland' or 'Group'), which has a principal activity of acquiring residential and mixed-use sites and seeking planning consent for development. Inland develops a number of the plots for private sale and sells consented plots to housebuilders.

Following the publication of a prospectus on 14 December 2012 and issue of 8,500,000 ZDP shares at 100p per share there has been a series of further placings of new ZDP Shares in successive years resulting in there being 18,101,857 ZDP shares in issue as at 30 September 2020.  No new ZDP shares were issued during the year ended 30 September 2021 (2020 1,671,067 new ZDP shares).

Pursuant to a loan agreement between the Company and Inland, the Company has lent Inland the gross proceeds of its placings to pursue future opportunities and all issue costs were borne by Inland. This loan is on terms requiring its repayment by Inland to the Company on the ZDP shares repayment date when the Company must be wound up. The ZDP repayment date was initially 10 April 2019, but this was extended by 5 years to 10 April 2024 by the passing of resolutions at general and class meetings on 13 August 2018.

Key performance indicators

The key performance indicators used by the Board to measure the Company's success are the cover ratio (which is described in detail in the chairman's statement), the accrued capital entitlement and the price of the ZDP shares.

The asset value and the accrued capital entitlement will continue to increase as the repayment date approaches. The book value of ZDP Shares in the financial statements is derived from the various issue prices using the effective interest method, whereas the accrued capital entitlement is based on the initial issue price (100p) and its accrual over time to the redemption price and is not affected by the prices of subsequent issues. As at the repayment date, the book value and accrued capital entitlement will be equal to one another.

The ZDP share price dropped in line with the fall in markets in March 2020 caused by COVID 19. The ZDP Share price increased by 8.0%, rising above pre-COVID levels, during the year to 30 September 2021.  At that date it was trading at a 4.2% discount to the accrued capital entitlement.  The ZDP share price is expected to trade at a premium to the accrued capital entitlement when the accruing return is higher than is generally available from investments with a similar risk profile elsewhere. It is unlikely that the ZDP share price will exceed the ultimate repayment price of 201.4p which is due on 10 April 2024.  

Objective

The objective of the Company is to make loans to Inland on terms which provide the final capital entitlement due to the holders of the ZDP shares at the repayment date of 10 April 2024.

Principal risks and uncertainty and risk management

The Board believes that the principal risk faced by the Company is the credit risk associated with the loan made to Inland.

The specific risks faced by Inland, which may impact the credit risk the Company has with the loan made to Inland,  are included within its financial statements. These comprise: major incidents or events (such as the COVID pandemic); adverse economic conditions affecting the housing market; adverse government policy and planning regulations; climate-related risk; the inability to source and develop suitable land at the appropriate cost and quality; access to site labour and materials; failure to effectively manage major projects to industry standard margins; health and safety risks; the inability to retain or source high calibre and experienced staff; solvency and difficulty in procuring borrowing facilities at competitive rates and maintain sufficient cash headroom; and cyber and business continuity risks.

The Directors of the Company are also directors of the ultimate parent company and are therefore in a position to assess the recoverability of amounts due by Inland. 

The Company is also exposed to risks in relation to its financial instruments.  Further details of these risks and the way in which they are managed are contained in note 9.

CHAIRMAN'S STATEMENT

The Company is a wholly owned subsidiary of Inland Homes 2013 Limited which is a wholly owned subsidiary of Inland Homes plc ("Inland") and was established solely for the purpose of issuing ZDP shares and lending the proceeds to Inland.

As at 30 September 2021 the ZDP share price was 168.5p (30 September 2020: 156.0p), representing a discount of 4.2% (30 September 2020: discount of 6.5%) to the accrued capital entitlement per ZDP share of 175.96p (30 September 2020: 166.81p).

The original loan and contribution agreements between the Company and Inland contain certain protections for the Company which are intended to benefit its ZDP shareholders. These include first charges over pledged assets and pledged cash in a charged bank account. The pledged assets (such as property and interests in property development joint ventures) must have a book value of at least 120% of the accrued value of the ZDP shares net of the pledged cash. As at 30 September 2021, the accrued amount due to ZDP shareholders was £31,852,736 (30 September 2020: £30,195,543), the pledged cash was £7,327,479 (30 September 2020: £7,702,396) and the pledged assets had a book value of £36,962,175 (30 September 2020: £ 32,861,848), thereby satisfying this requirement.

The loan agreement also contains a covenant relating to asset cover, which is shown below as at 30 September 2021. The definitions of Assets and Financial Indebtedness are set out in the prospectus published in connection with the issue of the ZDP shares which is available at www.inlandhomesplc.com/inland-zdp-plc. The definition of Financial Indebtedness excludes indebtedness which falls due more than 6 months after the final ZDP Repayment Date of 10 April 2024.

Asset cover:

Assets / Financial Indebtedness plus ZDP Final Redemption Liability = 2.5 times cover (30 September 2020: 2.2 times cover).

The asset cover should be at least 1.8 times, so this covenant, which is tested quarterly, was satisfied at 30 September 2021.

The board believes that the use of book values is generally conservative, because a substantial proportion of the group's assets are properties for which planning consents are sought. The planning process takes time and any progress towards reaching the stage when building can commence is not reflected in an increase in the book values beyond the costs attributable to the relevant sites, whereas any diminution in value is reflected by way of impairment provisions, such that planning gains are not generally recognised in Inland's financial statements until sales are contracted. If the covenant ratios were to be calculated by reference to the market values of the assets, the cover would be higher and the gearing lower.

The COVID-19 pandemic continued to affect the Inland Homes plc group in a variety of ways as described in its annual report for the year ended 30 September 2021. The financing arrangements for the group are designed to spread loan and ZDP share maturities over time so that the risk of having to refinance an excessive amount when financial and credit markets are stressed is reduced. The funding comes from several sources, but with compatible terms and security arrangements, reducing the group's reliance on any single lender. Some of the group's financial commitments are at fixed rates and others (mainly revolving credit) are at floating rates of interest. This achieves a balance between deferring the impact of changes in interest rates and providing flexibility to draw down and repay some debt without early repayment penalties. The ZDP Shares represent an important element of the Group's financing structure and benefit from the group's debt policies which mitigate and spread certain financing risks. ZDP Shareholders' ongoing support for the group is much appreciated by the Board.

Enquiries:

Inland ZDP PLC

Nishith Malde FCA       Tel: 01494 762450

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CASHFLOWS

The £2.7m proceeds from the share issue during the year ended 30 September 2020  were paid directly to Inland Homes plc by the brokers to the issue and are included in the  intercompany receivable on the Statement of Financial Position.

The accompanying accounting policies and notes form and integral part of these financial statements. 

NOTES TO THE FINANCIAL STATEMENTS

1        Accounting policies

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

1.1    Basis of preparation

The financial statements have been prepared in accordance with the Companies Act 2006 and International Accounting Standards in conformity with the requirements of the Companies Act 2006.  The principal accounting policies adopted by the Company are set out below.

The financial statements are prepared in sterling, which is the functional currency of the Company. Monetary amounts in these financial statements are rounded to the nearest £'000.

These accounting policies comply with each accounting standard that is mandatory for accounting year ended 30 September 2021. 

At the date of approval of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective and have not been adopted early by the Company.

Management anticipates that all of the relevant pronouncements will be adopted in the Company's accounting policies for the first period beginning after the effective date of the pronouncement.  Information on new standards, amendments and interpretations that are expected to be relevant to the Company's financial statements is provided below.

Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company's financial statements.

The Company's business activities principal risks and uncertainty, and risk management are set out in the strategic report. The Company is reliant on the ability of Inland Homes Plc to continue as a going concern as detailed in the strategic report.  Further disclosures regarding the Company's financial instruments and exposure to credit and liquidity risk are set out in note 9 of the Financial Statements.

Given the dependency on Inland Homes Plc, details regarding their going concern assumptions  are given below.

Standards in issue but not yet effective

·    IFRS 9, IAS 38 and IFRS 7 'Interest Rate Benchmark Reform' (Amendments to IFRS 9, IAS 38 and IFRS 7);

·    Classification of Liabilities as Current or Non-current (Amendments to IAS 1);

·    Amendments to IFRS 3 'Business Combinations'*;

·    Amendments to IAS 16 'Property, Plant and Equipment'*;

·    Amendments to IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'*;

·    Reference to the Conceptual Framework (Amendments to IFRS 3)*;

·    Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practive Statement 2)*;

·    Definition of Accounting Estimates (Amendments to IAS 8)*;

·    Annual Improvements (2018-2020 Cycle) IFRS 1, IFRS 9, IAS 41 and Illustrative Examples accompanying IFRS 16*; and

·    IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Return Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16).

*Standards and amendments not yet endorsed by the EU.

None of the standards above are expected to have an impact on the Company's financial statements.

Going concern

The Directors are required to assess the Company's ability to continue as a going concern for a period of at least the next twelve months. The going concern assessment considers the Company's principal risks and the ability to repay the ZDP shares on 10 April 2024.

For the duration of the going concern period the Company has no obligations or financial liabilities to settle.  However, the directors note that the company is required to repay the ZDP shares on 10 April 2024 and it does not have the available resources to settle the balance at the reporting date.  The company is reliant on Inland Homes plc being in a position to repay the inter-company receivable on or before the 10 April 2024 such that the Company is able to settle the obligation of the ZDP shares.  The final capital entitlement for the ZDP shares is not guaranteed should the proceeds received from Inland Homes Plc be insufficient. The directors have based their assessment on the fact that Inland's own assessment that it is a going concern has been properly conducted and reviewed by Inland's audit committee. The going concern assessment for Inland is included within its Annual Report.

The intercompany receivable impose a number of covenants that must be complied with and are discussed within the Chairman's Statement. As at 30 September 2021 Inland Homes plc is compliant with all covenants and there are no forecasted covenant breaches in the going concern period.

The ZDP shares are currently due for repayment on 10 April 2024. In advance of this date the Directors will consider whether to repay the ZDP shares or propose a resolution to approve the continuation of the life of the ZDP Shares for an additional five years as occurred previously on 13 August 2018 when the ZDP Shares were extended for five years from 24 April 2019 to 24 April 2024.

At the time of approving these financial statements and after making appropriate enquiries, the Directors have a reasonable expectation that the Company has 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.

1.2    Income

Income is recognised in revenue using the effective interest method on an accruals basis.

1.3    Expenses

All expenses are borne by the Company's parent Company, Inland Homes 2013 Limited.

1.4    Zero dividend preference shares

Zero dividend preference shares are recognised as liabilities in the Statement of Financial Position in accordance with IFRS 9: Financial Instruments.  After initial recognition, these liabilities are measured at amortised cost, which represents the initial proceeds of the issuance plus the accrued interest based on the effective interest method to 30 September 2021.

1.5    Intercompany receivable

Intercompany receivables are recognised as assets in the Statement of Financial Position in accordance with IFRS 9: Financial Instruments.  After initial recognition they are measured at amortised cost which represents the initial loan plus the accrued interest receivable at the reporting date. Directors have assessed intercompany receivables to meet the requirements under the business model test and SPPI test. The objective of the business model is to hold financial assets to collect their contractual cash flows. The cash flows are solely payments of principal and interest on the principal amounts outstanding.

The Company applies the general approach to providing for expected credit losses prescribed by IFRS 9 for intercompany receivables. The expected credit loss provision in the current year and prior period have been assessed as £nil.

Pursuant to a loan agreement between the Company and Inland Homes plc, the Company has lent Inland Homes plc the gross proceeds of its placings. This loan is on terms requiring its repayment by Inland Homes plc to the Company on the ZDP shares repayment date when the company must be wound up.

1.6    Finance costs

Finance costs are calculated as the difference between the proceeds on the issue of zero dividend preference shares and the final liability and are charged as finance costs over the term of the life of these shares using the effective interest method. 

1.7    Finance income

Finance income is calculated on the amount lent to Inland Homes 2013 Limited and represents the difference between the amounts advanced (which was equal to the proceeds on the issue of zero dividend preference shares) and the final amounts due (which is equal to the liability payable on redemption of the zero dividend preference shares). It is recognised as revenue as interest income over the term of the zero dividend preference shares using the effective interest method.

1.8  Taxation

The charge for taxation is based on the taxable profits for the year. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expenses that are never taxable or deductible.  The Company's liability for tax is calculated using rates that have been enacted or substantively enacted by the reporting date.

1.9    Equity

An equity instrument is a contract which evidences a residual interest in the assets after deducting all liabilities.  Equity comprises 'Share capital', which represents the nominal value of equity shares.

1.10    Key estimates and assumptions

Estimates and judgements used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed reasonable.  The resulting estimates will, by definition, seldom equal the related actual results.

Judgement is required in assessing the recoverability of the intercompany receivable. Recoverability is underpinned by the profitability of Inland's development and strategic land sites

1.11  Segment information

In accordance with IFRS 8, information is disclosed to enable the users of financial statements to evaluate the nature and financial effects of the business activities in which the Company engages.  The board has identified that the sole operating segment is to provide the final capital entitlement of the Company's ZDP shares to the holders of the ZDP shares at the final repayment date of 10 April 2024.  Consequently, all information presented in these financial statements relate to that segment.

1.12        Restatement of prior year figures

The prior year figures have been restated due to the reclassification of financial assets. Further details can be found in note 12.

2        Interest Income

3        Expenses

Administration expenses of £nil were suffered during the year (year ended 30 September 2020: £nil).  All administration expenses during the year, including auditor's remuneration of £25,000 (2020 £25,000), were borne by the ultimate parent Company, Inland Homes plc. The directors received no remuneration for their services in relation to ZDP. Further disclosures with regards to the auditors' remuneration can be found in the group financial statements.

There were no employees other than directors in the current year or the prior year.

4        Finance costs

5       Taxation

6        Earnings per ordinary share

The calculation of earnings per share is based on a profit after tax figure for the year of £nil (year ended 30 September 2020: £nil) and the weighted average number of 50,000 ordinary shares in issue during the year.  The basic and diluted earnings per share are the same.

7        Zero dividend preference shares

Details of the issue of the ZDP shares can be found in the strategic report.  Certain ZDP Share issue costs included in the book value brought forward have been charged to the intercompany account between the Company and Inland Homes plc because they are borne by Inland Homes plc under the Contribution Agreement.

8       Ordinary share capital

Authorised/called up/allotted/fully paid

All ordinary shares are owned by the Company's parent Company, Inland Homes 2013 Limited.

Each ordinary share is entitled to one vote at a general meeting.

In addition to receiving any income distributed by way of dividend, the ordinary shareholders will be entitled to all surplus assets after payment of all debts, including the ZDP shares.

9        Financial instruments

The Company's financial instruments comprise fixed interest creditors classified as financial liabilities at amortised cost and financial assets classified as amortised cost.

The main risks arising from the Company's financial instruments are liquidity risk and funding risk and credit risk.

Liquidity and funding risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is considered to be significant as the Company is reliant upon repayment from its ultimate parent company. The Parent Company manages liquidity risk by maintaining sufficient cash balances and ensuring availability of funding through an adequate amount of credit facilities. The Parent Company aims to maintain flexibility in funding by keeping credit lines available.

Contractual maturity analysis for financial liabilities

Credit risk

This is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered with the Company. Credit risk is managed by way of a security over the loan. The security relates to pledged tangible assets (such as property and interests in property development joint ventures) and pledged cash in a charged bank account.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

Amortised Cost

The directors consider the carrying amounts to be a reasonable approximation of fair value.

The Company applies the general approach to providing for expected credit losses prescribed by IFRS 9 for amounts due from ultimate parent company. There were no expected credit loss provisions in the current year and prior period. The security that is pledged is more than sufficient to cover the amounts due. The Directors have assessed a possible downturn in the value of the pledged assets by 10% and following that assessment no credit loss, as defined by IFRS 9, would arise.

The following table presents the fair value of financial liabilities that are carried at amortised cost in the Statement of Financial Position in accordance with the fair value hierarchy. This hierarchy groups financial liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial liabilities. The fair value hierarchy has the following levels:

·    Level 1: quoted prices (unadjusted) in active markets for identical liabilities;

·    Level 2: inputs other than quoted prices included within Level 1 that are observable for the liability, either directly (i.e., as prices) or indirectly (i.e. derived from prices); and

·    Level 3: inputs for the liability that are not based on observable market data (unobservable inputs).

The level within which the financial liability is classified is determined based on the lowest level of significant input to the fair value measurement.

If the financial liabilities were measured at fair value in the Group Statement of Financial Position, they would be grouped into the fair value hierarchy as follows:

The level within which the financial liability is classified is determined based on the lowest level of significant input to the fair value measurement.

The ZDP shares are carried at their accrued value of 176.86p per share (30 September 2020: 166.81p) however their closing price on the main market of the London Stock Exchange on 30 September 2021 was 168.5p (30 September 2020: 156.0p). 

10     Capital management policies and procedures

The Company's objectives when managing capital are:

·    to safeguard its ability to continue as a going concern; and

·    to ensure sufficient liquid resources are available to meet the funding requirement of its ZDP shareholders.

The directors consider that the capital management policies and procedures of the ultimate parent company will enable the Company to meet its objectives.  Further details of the policies and procedures of Inland Homes plc can be found within its financial statements and include a target capital to overall financing ratio of over 40%.

The capital of the Company comprises 1,860,186 (ordinary shares and ZDP preference shares) and the nominal value of these amounted to £50,000 and £1,810,186 respectively.

11     Related party transactions

The loan to Inland Homes PLC is repayable along with all accrued interest, together with a contribution for such amount that will result in the Company having sufficient cash funds to satisfy the then current, or as the case may be, final capital entitlement of the ZDP shares on the ZDP repayment date (see the strategic report above) or immediately upon an event of default. At 30 September 2021, the total amount due from the ultimate parent Company was £32,065,000 (30 September 2020: £30,285,000).

12     Restatement of prior year figures

The Company has an intercompany receivable with Inland Homes PLC. The total value of the receivable at 30 September 2020 was £30,285,000 and this was presented in the Statement of financial position within current assets. The receivable should not have been classified as current because on 30 September 2020 management did not expect to realise the asset within twelve months of the reporting date.

The prior year comparatives have been restated to decrease current assets in the Statement of financial position by £30,285,000 and increase non-current assets in the Statement of financial position by £30,285,000.

The adjustment has no overall effect on the total net assets of the Company at 30 September 2020 or on the profit for the year ended 30 September 2020.

13.       Ultimate controlling party

The directors regard Inland Homes Plc as the ultimate parent and controlling party. 

14    Holding Company

The Company is a wholly owned subsidiary of Inland Homes 2013 Limited which is a wholly owned subsidiary of Inland Homes plc, a listed Company whose shares are traded on the AIM market of the London Stock Exchange.  Copies of its accounts for the year ended 30 September 2020 will shortly be available to view on Inland's website (www.inlandhomesplc.com)

15 Responsibility and audit

The Directors are the persons responsible for the full annual report and financial statements.

The directors confirm to the best of their knowledge:

·     the financial statements have been prepared in accordance with the applicable set of accounting standards,and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company; and

·     the management report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description or the principal risks and uncertainties that it faces.

The statutory financial statements have been audited by BDO LLP and their report was unqualified.

16   Publication of statutory accounts

The financial information for the year ended 30 September 2021 and comparative period ended 30 September 2020 in this announcement does not constitute the company's statutory accounts for those years.

Statutory accounts for the year ended 30 September 2020 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2021 will be delivered to the registrar of companies in due course.

The auditors' reports on the accounts for 30 September 2021 and 30 September 2020 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006. 

A copy of the annual report will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and at the Company's website: https://www.inlandhomesplc.com/investors/inland-zdp/zdp-documents-and-accounts/