INLAND ZDP PLC

Half-yearly report

for the six months ended 31 March 2023

The half-yearly report can be accessed via the Inland ZDP PLC pages on the Inland Homes PLC ('Inland' or 'Group') website at http://inlandhomesplc.com/investors/inland-zdp/ or by contacting the Company Secretary on 01494 762450.

COMPANY SUMMARY

Background

Inland ZDP PLC ('INLZ' or the 'Company') was incorporated on 22 November 2012 as a wholly owned subsidiary of Inland.

INLZ was formed especially for the issuing of Zero Dividend Preference Shares ('ZDP' Shares). It has raised a total of £22.28m through a series of placings of ZDP Shares, which are listed on the UK Official List and admitted to trading on the London Stock Exchange. There are 18,101,857 ZDP Shares in issue, none of which were issued during the half year period to 31 March 2023.

Pursuant to a loan agreement between INLZ and Inland, INLZ has lent the proceeds received from all the ZDP Share issues to Inland. The loan is non-interest bearing and is repayable on the ZDP Share redemption date or, if required in certain circumstances by INLZ, at any time prior to that date in order to repay the ZDP Share entitlement. The funds raised form part of the Inland Group's financing arrangements for its property development business. 

A contribution agreement between INLZ and Inland has also been made whereby Inland undertakes to contribute such funds as would ensure that INLZ will have in aggregate sufficient assets on the final redemption date to satisfy the final capital entitlement of the ZDP Shares.

On 13 August 2018 several changes to the rights of ZDP Shares and the underlying loan documentation were made extending the ZDP Shares a Final Redemption Date from 10 April 2019 to 10 April 2024 and increasing the Final Capital Entitlement from 155.9p to 201.4 pence.  The annual accrual rate of return from 20 December 2012 to 13 August 2018 was 7.3% and is 5.49% for the period from 13 August 2018 to 10 April 2024, being a rate of return of 6.39% per annum to 10 April 2024 on the original issue price of 100p on 20 December 2012.      

INTERIM MANAGEMENT REPORT

The Company was incorporated solely to issue ZDP Shares and has never traded.

Covenant compliance

I am pleased to report that as at 31 March 2022, Inland had complied with all its covenants under the Loan Note, Contribution Agreement and related security documentation.  These covenants are based on asset cover and security.

Asset cover

The Asset cover is the key performance indicator used by the Board to measure the Company's success.  This is calculated on a Group basis, broadly comprising tangible gross assets at book value less trade creditors and deferred consideration liabilities for land purchases up to 60 per cent. of the total consideration - "Assets"; divided by Financial Indebtedness, which includes the ZDP Final Redemption Liability, borrowings repayable prior to 10 October 2024 and deferred consideration in excess of 60% of the total consideration payable for land).

The Group's annual results for the year to 30 September 2022 and subsequent interim results to 31 March 2023 have been delayed pending the completion of additional requirements by the non-executive directors of Inland and the auditors.  As the Asset Cover of the ZDP Shares is derived from the Group's consolidated financial statements, the figures below are subject to adjustment.  If any such adjustment is material the updated cover ratio will be announced.

The amounts shown in the cover ratio calculation below are in accordance with the relevant documentation, which differs in some respects from the amounts shown in the Inland Consolidated Financial Statements.  For example, unsecured borrowings falling due more than six months after the redemption date of the ZDP Shares are excluded from "Net debt" for cover ratio purposes.  The Hurdle Rates are calculated from the Book values as shown in Inland's interim financial statements, but] excluding intangible assets.

* being the period from 31 March 2023 to 10 April 2024, based on the Assets and Financial Indebtedness as at 31 March 2023

** being the period from 29 June 2023, being the latest practicable date prior to the publication of this interim report to 10 April 2024 based on a share price of 95p, being the closing price of a ZDP Share on 29 June 2023 and based on the Assets and Financial Indebtedness as at 31 March 2023.

Security cover

Inland ZDP PLC ("ZDPCo") has the benefit of first legal charges granted by members of the Inland Homes Group over specific pledged assets and pledged cash.  The book value of the Pledged Assets has to be 120% of the accrued liability to ZDP Shareholders net of any Pledged Cash.

At 31 March 2023, the accrued value of the ZDP shares was £34,508,684 (190.6 pence per ZDP share) and the balance in the pledged bank account (the Pledged Cash) was £2,226,091, leaving a net £32,282,5938 to be supported by Pledged Assets with a book value of at least £38,739,112.  As at 31 March 2023, the Pledged Assets had a combined book value of £42,536,486, satisfying this requirement.

Pledged Assets

Any assets (other than intangible assets) may be pledged to ZDPCo by companies in the Inland Homes Group.  Inland Homes PLC can substitute one asset for another at any time, provided the book value of all Pledged Assets exceeds 120% of the accrued Capital Entitlement less any Pledged Cash.  The security covenant is tested quarterly and Inland has 90 days to remedy any shortfall (ie pledge additional assets as security or buy in ZDP shares to reduce the accrued Capital Entitlement).  The values used for the security covenant are the book values of the Pledged Assets.

The book values represent historical cost less any impairment provisions.  However, as noted in the ZDPCo annual report, the value of assets (such as a partially completed development project) in a liquidation scenario could be significantly lower than any book value based on the Group being a 'going concern'.

The main asset pledged to ZDPCo is the Group's loan to Cheshunt Lakeside Developments Ltd ("CLDL").  However, with the increase in the accrued Capital Entitlement over time, 79 modular homes were pledged to ZDPCo in anticipation of the 31 March 2023 security covenant.  These homes are bespoke, modular housing units which can be moved from one site to another. Located on dormant land going through the planning process, the modular homes generate additional cashflow for the Inland Group while offering a high-quality, cost-effective solution to local authorities and others in meeting short-term housing needs.

Cheshunt Lakeside Developments Ltd

CLDL is a joint venture company owned by Inland Group (50%) and a third party investor (50%). Inland is entitled to performance fees under a promote agreement as well as its 50% profit share. A loan account balance due from CLDL to Inland is Pledged to ZDPCo.  As at 31 March 2023 this amounted to £35,875,551 (30 September 2022: £37,792,479).

The 30 acre Cheshunt Lakeside development site was formerly a Tesco headquarters and supermarket and is being developed in line with an approved masterplan. Planning permission took three years of close consultation with the local Council and community and was granted in June 2019, with the terms of the Section 106 agreement agreed promptly and signed in August 2019.

The Cheshunt Lakeside original masterplan and outline planning consent was for a new "urban village" comprising 1,725 homes, 19,000 sqm of commercial space together with the provision for a new primary school.  Inland Homes, together with its equal joint venture partner, owned 1,253 residential plots and 4,905 sqm of commercial and educational space within the masterplan area. Inland Homes is the lead developer on the broader masterplan, which it is working with the council to deliver.

Since gaining the original planning consent Inland Homes has achieved reserved matters consent on three phases of development selling all 422 plots.  On 9 March 2023 Inland announced that CLDL had received a resolution to grant detailed consent for a further phase of development at Cheshunt Lakeside, Hertfordshire increasing the outline consent with a further 51 homes on the site, subject to the Section 106 Agreement being varied.  The resolution to grant detailed consent for this phase delivers a total of 425 homes including the 51 extra homes added to the development masterplan, as such the masterplan will now deliver 1,776 new homes overall, of which 904 882 are owned by Inland and its joint venture partner, after the previous phase sales.  This next phase of development will also deliver the new local centre for the development including 2,400 sqm of commercial space, a landscaped public square and key highways infrastructure.

CLDL has loan facilities from Paragon Bank and Homes England as well as the loan from Inland Ltd.  The land loans are being repaid as land sales occur. The loan from Inland Ltd fluctuates with ongoing cash requirements.

The recoverability of Inland's loan to CLDL as at 30 September 2022 has been assessed by reference to forecasted cash flows regarding the development of the site and no impairment provisions were found to be required.

Accrued capital entitlement and ZDP Share price

Accrued capital entitlement

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 shown above is based on the initial issue price (100p) and its accrual at 7.3% per annum from the initial issue date (12 December 2012) to 148.8p on 13 August 2013, when an extension of the redemption date was approved, subsequently accruing at 5.5% to 10 April 2024. The redemption price 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 accrued Capital Entitlement can also be calculated from the original issue price of 100p per ZDP Share on 20 December 2012 at an even rate of 6.39% over its life to the Final Capital Entitlement of 201.4 pence per ZDP Share payable on 10 April 2024.  On this basis the accrued capital entitlement as at 31 March 2023 was 189.0p.

Capital Entitlement, Assets, Financial Indebtedness and Cover Ratio have been determined as set out in the Prospectus published by Inland ZDP PLC on 14 December 2012, as amended (in the case of the Capital Entitlement) as described in the circular dated 19 July 2018, both of which are available at: http://inlandhomesplc.com/investors/inland-zdp/zdp-reports-and-presentations/.

ZDP Share price reduction

ZDPCo has lent the proceeds of ZDP share issues to Inland Homes PLC for use in its Group's business and is reliant on the Inland Homes Group's ability to transfer cash to fund the redemption of the ZDP Shares on 10 April 2024. The market price of ZDP shares has been affected by announcements by Inland Homes of significant provisions for actual and expected losses on a few development projects and construction contracts, bank covenant breaches and the resignations of several directors. The reconstituted board is reviewing the business of the Inland Group (including certain related party issues and other relevant matters) and the non-executive directors of Inland Homes plc have engaged FRP Advisory Limited to undertake an independent review of these issues. The foregoing has resulted in delays in finalising the Group's annual report for the year to 30 September 2022 and the suspension of dealings in Inland's ordinary shares on AIM.

These factors and concerns about the Group's ability to fund the redemption of the ZDP shares in April 2024 led to a significant reduction and increased volatility in the market price of ZDP shares.  On 29 June 2023, the mid market closing price of a ZDP share was 95 pence, representing an annualised rate of return of 161.6 % to 10 April 2024.

Funding the redemption of ZDP Shares

The Inland Homes Group generates cash from selling sites and completed residential and commercial units as part of its normal business activities.  It has adopted a less capital intensive business model over recent years, pursuing major new developments as either asset management projects (funded by third parties with Inland receiving fees for services and performance), partnership housing or joint ventures.  Thus much of the cash realised on sales of development sites and homes owned by Inland Homes Group is not needed for re-investment in further projects and can be applied to reduce borrowings and for working capital.  This led to a reduction of net debt from £152.3m as at 30 September 2019 to £86.8m as at 30 September 2022.  The Inland Group's net debt was £103.4m as at 31 March 2023.

The Inland Homes Group does not seek to time specific asset sales to match individual loan maturity dates in order to avoid being pushed into a forced sale position by the buyers of assets. 

The Group's borrowing policy is to have facilities with compatible covenants from a range of sources, mostly with certain subsidiaries.  The Group can seek new term facilities to refinance those which mature.

Inland Homes has a business plan for managing its cash flows and meeting its obligations to ZDP shareholders, retaining flexibility to adapt to circumstances rather committing to a fixed source of repayment.

Nishith Malde FCA

Chairman, Inland ZDP PLC

Registered in England No: 8303612                                                                              30 June 2023

PRINCIPAL RISKS

The principal risks facing the Company are substantially unchanged since the date of the Company's Annual Report for the period ended 30 September 2022 and continue to relate to the risk of Inland Homes plc being unable to satisfy its obligations to INLZ under the Loan Agreement and Contribution Agreement. 

In addition, and due to the Company's dependence on Inland Homes plc to repay the loan and provide a contribution to meet the capital entitlement of the ZDP Shareholders, certain other risks faced by the Inland Group are considered to apply to INLZ as set out in the Prospectus published by INLZ on 14 December 2012.  These comprise operational risks (eg planning and environmental) which may be specific to individual sites and risks associated with the housebuilding sector (such as falling house prices or variations in the availability of credit for buyers). The Prospectus may be found at http://inlandhomesplc.com/investors/inland-zdp/zdp-reports-and-presentations/.  The risks facing the Inland Group, which evolve over time, are summarised in the annual and interim reports published by Inland Homes PLC which are available at  https://www.inlandhomesplc.com/reports-presentations-and-news/reports-and-presentations/.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY REPORT

We confirm that to the best of our knowledge:

•           the condensed set of financial statements has been prepared in compliance with the IAS34 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities and financial position of the Company; and

•           the interim management report and notes to the half-yearly report include a fair view of the information required by:

(a)        DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)        DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could do so.

This half-yearly report was approved by the Board of Directors on 30 June 2023 and the above responsibility statement was signed on its behalf by Nishith Malde, Chairman.

STATEMENT OF COMPREHENSIVE INCOME   

for the six months ended 31 March 2023

The total column of this statement is the statement of comprehensive income of the Company, prepared in accordance with International Financial Reporting Standards ('IFRS'), as adopted by the EU.

All items in the above statement derive from continuing operations.

STATEMENT OF FINANCIAL POSITION

as at 31 March 2023

STATEMENT OF CASHFLOWS

for the six months ended 31 March 2023

NOTES TO THE HALF-YEARLY REPORT

for the six months ended 31 March 2023

1. General information

The financial information contained in this half-yearly report does not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The statutory financial statements for the year ended 30 September 2022, which contained an unqualified auditors' report, have been lodged with the Registrar of Companies and did not contain a statement required under the Companies Act 2006. These statutory financial statements were prepared under International Financial Reporting Standards.

The financial information of the Company for the six-month period ended 31 March 2023 will be consolidated into the results of Inland for the six months ended 31 March 2023.

This half-yearly report has not been audited or reviewed by the Company's Auditors.

This half-yearly report has been prepared using accounting policies set out in note 1 of the Company's audited financial statements for the year ended 30 September 2022.

2.  Taxation

The charge for taxation, if any, is based on the taxable profits for the period. 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.

3. Going concern

The Directors are required to assess the Company's ability to continue as a going concern up to the date that the ZDP shares fall due for repayment on 10 April 2024.

The going concern assessment considers the Company's principal risks and the ability to operate within the financial covenants of the ZDP shares. The ZDP shares and associated loan documentation impose a number of covenants that must be complied with which are discussed within the Chairman's Statement. As at 31 March 2023 the Company is compliant with all covenants and there are no forecast covenant breaches in the going concern period.

In addition as Inland Homes plc ("the Group") is responsible for all the Company's liabilities including its obligations to ZDP Shareholders, pursuant to the Loan Note and Contribution Agreement, the Directors have due regard to the financial position of the Group as at the date of approving these accounts.

The Group has announced significant provisions for actual and expected losses on a few development projects and construction contracts.  The Directors understand that as part of its normal course of business the Group has budgeted and forecast completion of planned land, housing and commercial unit sales in order to remain a going concern. As the recoverability of the intercompany receivable in April 2024 and by association the Company's ability to meet its repayment obligations in April 2024 is dependent on the Group continuing in operation as a going concern these matters indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.  The financial statements do not include the adjustments that would result if the Company were unable to continue as a going concern.

At the time of approving these financial statements and after making the 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.

4. Related party transactions

The loan to Inland Homes PLC is interest free and is repayable on the ZDP repayment date (see corporate summary above) or immediately upon an event of default. At 31 March 2023, the loan to the ultimate parent company was £34,629,557 (2022: £32,913,571).

FURTHER INFORMATION

The Company's ZDP Shares are standard listed and are traded on the Main Market of the London Stock Exchange.

The Company's ZDP Asset Cover is released via the London Stock Exchange's Regulatory News Service on a quarterly basis.

Information about the Company and Inland can be obtained on the Inland Group's website: www.inlandhomesplc.com.

REGISTRAR ENQUIRIES

The register for the ZDP Shares is maintained by Link Registrars Limited. In the event of queries regarding your holding, please contact the Registrar on 03716 640300. Changes of name and/or address must be notified in writing to the Registrar.

Neither the contents of Inland's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.