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Inland ZDP PLC (INLZ)

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Friday 12 October, 2018

Inland ZDP PLC

Final Results

RNS Number : 9509D
Inland ZDP PLC
12 October 2018
 

INLAND ZDP PLC

 

AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018

 

The board of Inland ZDP PLC (the "Company") announces the results for the year ended 30 June 2018 and the publication of its annual report.

 

Inland ZDP plc 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'), 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 12,444,200 ZDP Shares in issue as at 30 June 2018.  No new ZDP Shares were issued during the 12 months ended 30 June 2018.  The proceeds of the ZDP share issues were lent to Inland for use in future investment opportunities.

 

Pursuant to a loan agreement between the Company and Inland, the company has lent Inland the gross proceeds of its placings 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, ie after the after the end of the financial year to which this annual report relates.

 

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.

 

It is anticipated that the ZDP share price will be higher than the accrued entitlement as it will reflect the fixed nature of the return. Provided interest rates remain low, there will be a premium on the ZDP shares for as long as the return is higher than is generally available elsewhere. It is unlikely that the share price will exceed the ultimate repayment price, which was increased after the financial year end from 155.9p per share on 10 April 2019 to 201.4p 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 its ultimate parent company, Inland Homes plc.  The specific risks faced by Inland Homes plc are included within its financial statements and comprise: the inability to source, acquire, promote and dispose of land; the increased complexity in the planning process and the adoption of the Community Infrastructure Levy; a severe fall in the housing market in the regions in which the group operates; inability to retain or source high calibre and experienced staff; significant upward changes in interest rates; unexpected contamination being found on a site; changes in legislation; cost overruns, material shortages and construction delays; and the availability of finance for land acquisition. 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 Homes plc.

 

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 of the financial statements.

 

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 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 June 2018, the accrued amount due to ZDP shareholders was £18,365,950 (2017: £17,116,681), the pledged cash was £nil (2017: £nil) and the pledged assets had a book value of £22,880,249 (2017: £26,644,059), thereby satisfying this requirement.

 

The original loan agreement also contained two covenants relating to asset cover and gearing, both of which are shown below as at 30 June 2018.  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 initial ZDP Repayment Date of 10 April 2019. Inland Group's borrowings are substantially all due for repayment after 10 October 2019, causing the calculation of the ratios below to show high levels of asset cover and low gearing. 

 

Asset cover:

Assets / Financial Indebtedness plus ZDP Final Redemption Liability = 17 times cover (2017: 25.2 times cover).

The asset cover should be at least 1.8 times, so this covenant, which is tested quarterly, was satisfied at 30 June 2018.

 

Gearing:

Financial Indebtedness plus ZDP accrued liability / Adjusted assets 5.5% (2017: 3.0%).

The gearing ratio should not exceed 40% so this covenant was also satisfied at 30 June 2018.

 

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.

 

Following consultations with certain ZDP Shareholders, your Board convened general and class meetings held on 13 August 2018 at which resolutions were passed approving (i) the continuation of the life of the ZDP Shares for an additional five years to 10 April 2024, (ii) an increase in the Final Capital Entitlement to 201.4 pence per ZDP Share, (iii) various amendments to the Loan Notes and Contribution Agreement between Inland Homes and ZDPCo, (iv) the adoption of new Articles of Association and (v) the ratification of a previous issue of ZDP Shares. The foregoing proposals were accompanied by a Tender Offer by Panmure Gordon (UK) Limited (as principal) to holders of ZDP Shares on the register of members at close of business on 18 July 2018 enabling those who preferred not to hold a longer dated ZDP Share to sell their ZDP Shares for 150.8 pence.  Panmure Gordon (UK) Limited procured placing commitments from investors willing to buy ZDP Shares at 150.8 pence.  These were applied to pay for tendered ZDP Shares and to subscribe for 1,000,000 new ZDP Shares which were admitted to Listing and to trading on the main Market of the London Stock Exchange on 16 August 2018.

 

The passing of the resolutions at general and class meetings on 13 August 2018 resulted in amendments being made to the loan agreements between the Company and Inland Homes plc and to other related documents.  The changes included the removal of the gearing covenant.  If these resolutions had been passed and other changes made prior to 30 June 2018, the Asset Cover as at that date would have been 4.2 times. As this is higher than 1.8 times, the asset cover test would have been satisfied.

 

The accrued value of a ZDP Share as at 13 August 2018, being the date when the resolutions were passed to change the Final Redemption Date to 10 April 2024, was 148.84 pence.  This will accrue to 201.4 pence on 10 April 2024, which is an effective compound rate of 5.49 per cent. per annum.

 

The Board is pleased to note that the resolutions to approve the extension of the life of the ZDP Shares and related matters were approved by 99 per cent. of votes cast at the ZDP Class Meeting and the general meeting.  The loans from the Company to Inland Homes plc form an important component of the Inland Group's financing arrangements as its business evolves and grows.  The Inland Group thanks ZDP Shareholders for their ongoing support

 

Enquiries:

Inland ZDP PLC

Nishith Malde FCA       Tel: 01494 762450

 

 

STATEMENT OF COMPREHENSIVE INCOME

 

 

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

 

 

STATEMENT OF FINANCIAL POSITION

 

 

STATEMENT OF CHANGES IN EQUITY

 

 

 

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

 

STATEMENT OF CASHFLOWS

 

 

Year ended

Year ended

 

30 June 2018

30 June 2017

 

£000

£000

Cash flow from operating activities

 

 

Profit for the period before tax

-

-

Adjustments for:

 

 

- interest expense

1,156

1,128

- interest and similar income

(1,156)

(1,128)

Net cash flow from operating activities

-

-

Cash flow from investing activities

 

 

Loan to ultimate parent company

           -

(1,557)

Net cash outflow from investing activities

           -

(1,557)

Cash flow from financing activities

 

 

Proceeds on issue of ZDP Shares

-

1,557

Net cash inflow from financing activities

-

1,557

Net increase in cash and cash equivalents

-

-

Net cash and cash equivalents at beginning of period

-

-

Net cash and cash equivalents at the end of period

-

-

 

The accompanying accounting policies and notes form 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 information has been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS') as adopted by the European Union.  The financial information comprises the Statement of Financial Position as at 30 June 2018 and, for the year ended 30 June 2018, the related Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and related notes hereinafter referred to as 'financial information'.  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.

 

The accounting policies that have been applied in the opening Statement of Financial Position have also been applied throughout all periods presented in these financial statements.  These accounting policies comply with each IFRS that is mandatory for accounting periods ending on 30 June 2018.  

 

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.

 

Standards in issue but not yet effective

 

-    IFRS 9 Financial Instruments (effective 1 January 2018)

-    IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

-    IFRS 16 Leases (EU effective date 1 January 2019)

-    Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions (EU effective date 1 January 2018)

-    Amendments to IFRS 1 - Annual Improvements to IFRSs (2014-2016 cycle) (EU effective date 1 January 2018)

-    Amendments to IAS 28 - Annual Improvements to IFRSs (2014-2016 cycle) (EU effective date 1 January 2018)

-    Amendments to IAS 40 - Transfers of Investment Property (EU effective date 1 January 2018)

-    IFRIC 23 Uncertainty over Income Tax Treatments (EU effective date 1 January 2019

 

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

 

1.2   Revenue

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 plc.

 

1.4   Zero dividend preference shares

Zero dividend preference shares are recognised as liabilities in the Statement of Financial Position in accordance with IAS 32 Financial Instruments: Presentation.  After initial recognition, these liabilities are measured at amortised cost, which represents the initial proceeds of the issuance plus the accrued entitlement to 30 June 2018.

 

1.5   Intercompany receivable

Intercompany receivables are recognised as assets in the Statement of Financial Position in accordance with IAS 32 Financial Instruments: Presentation.  After initial recognition they are measured at amortised cost which represents the initial loan plus the accrued interest receivable at the reporting date.

 

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   Taxation

The charge for taxation 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.

 

1.8    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.

 

1.9   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.

 

The Company does not consider that there have been any significant estimates or assumptions in the current financial year.

 

1.10     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 initial repayment date of 10 April 2019.  Consequently, all information presented in these financial statements relate to that segment.

 

2      Income

 

Year ended

Year ended

 

30 June 2018

30 June 2017

 

£000

£000

Income from group undertakings

1,156

1,128

 

3      Expenses

Administration expenses of £nil were suffered during the period (2017: £nil).  All administration expenses, including auditor's remuneration, during the period 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 are no employees other than directors in the current year or the prior year.

 

4      Finance costs

 

Year ended

Year ended

 

30 June 2018

30 June 2017

 

£000

£000

ZDP share interest costs

1,156

1,128

 

5      Taxation

 

Year ended

Year ended

 

30 June 2018

30 June 2017

 

£000

£000

Profit before tax

-

-

Profit on ordinary activities multiplied by the standard rate

 

 

of corporation tax in the UK of 19.00% (2017: 19.75%)

ZDP share interest costs disallowed

Group relief

-

220

(220)

-

223

(223)

Tax charge

-

-

 

 

6      Earnings per ordinary share

The calculation of earnings per share is based on a profit after tax figure for the period of £nil (2017: £nil) and the weighted average number of 50,000 ordinary shares in issue during the period.  The basic and diluted earnings per share are the same.

 

7      Zero dividend preference shares

 

2018

2018

2017

2017

 

No.

£000

No.

£000

ZDP shares

 

 

 

 

Opening ZDP shares

12,444,200   

 17,291

11,313,200        

14,607

Issued during the period

 

    

1,131,000          

1,556

ZDP share interest cost

 

1,156

                    

1,128

 

12,444,200   

        18,447

     12,444,200

    17,291

 

8       Ordinary share capital

       Authorised/called up/allotted/fully paid

 

2018

2018

2017

2017

 

No.

£000

No.

£000

Opening ordinary shares

50,000

50

50,000

50

Issued during the period

-

-

-

-

50,000 issued ordinary shares of £1 each

50,000

50

50,000

50

 

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 loans and receivables.

 

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

 

2018

2017

 

£000

£000

 

ZDP shares final redemption figure

ZDP shares final redemption figure

 

 

 

Less than one year

19,401

-

More than one year and less than five

-

19,401

Over five years

-

-

 

19,401

19,401

 

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:

 

Loans and receivables

 

2018

2017

 

£000

£000

Amounts due from ultimate parent company

18,497

17,341

 

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

 

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:

 

 

Level 1

£000

Level 2

£000

Level 3

£000

Total

£000

Net fair value at 1 July 2017

17,889

-

-

17,889

Additions

      -

-

-

      -

Fair value movements during the year

   989

-

-

   989

Net fair value at 30 June 2018

18,878

-

-

18,878

 

The ZDP shares are carried at their accrued value of 148.23p per share (2017: 138.95p) however their closing price on the main market of the London Stock Exchange on 30 June 2018 was 151.70p (2017: 143.75p).  

 

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 50%.

The capital of the Company comprises the 12,494,200 (ordinary shares and ZDP preference shares) and the nominal value of these amounted to £50,000 and £1,244,420.

 

11    Related party transactions

The loan to Inland Homes plc is interest free and is repayable, 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 or immediately upon an event of default. At 30 June 2018, the total amount due from the ultimate parent company was £18,497,000 (2017: £17,341,000).

 

12     Ultimate controlling party

         There is no ultimate controlling party.

 

13    Post balance sheet events

 On 13th August 2018, class meetings and general meetings took place to consider proposals which included the continuation of the life of the ZDP shares for an additional five years to 10 April 2024 and an increase in the Final Capital Entitlement.  The resolutions also proposed certain amendments to the terms of the loans to Inland and the contribution agreement between Inland and the Company.  All proposals were passed with the requisite majority. 1,000,000 new ZDP Shares were issued and admitted to Listing and to trading on the main market of the London Stock Exchange on 16 August 2018 and there are now 13,444,200 ZDP Shares in issue.

 

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 June 2018

       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.

       Each of the Directors confirms that to the best of his knowledge:

·      the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

·      the Strategic Report and the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties it faces.

       The statutory financial statements have been audited by UHY Hacker Young and their report was unqualified.

 

16   Publication of non-statutory accounts

       The financial information for the year ended 30 June 2018 and the year ended 30 June 2017 in this announcement does not constitute the company's statutory accounts for those years.

Statutory accounts for the year ended 30 June 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2018 will be delivered to the registrar of companies in due course.

        The auditors' reports on the accounts for 30 June 2018 and 30 June 2017 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 www.morningstar.co.uk/uk/NSM and at the Company's website: http://www.inlandhomesplc.com/investors/inland-zdp/zdp-documents-and-accounts/

 


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