Inland ZDP PLC Half-year Report (4003R)

TIDMINLZ

RNS Number : 4003R

Inland ZDP PLC

30 June 2020

INLAND ZDP PLC

Half-yearly report

for the six months ended 31 March 2020

The half-yearly report can be accessed via the Inland ZDP PLC pages on the Inland Homes PLC ('Inland') 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 raised GBP8,500,000 before expenses on 20 December 2012 by a placing of 8,500,000 ZDP shares, which are listed on the UK Official List and admitted to trading on the London Stock Exchange. Further issues in subsequent years increased the number of ZDP Shares in issue to 16,430,790 as at 30 September 2019, the beginning of the six month period covered by this interim report.

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 three business days before the ZDP share redemption date or, if required 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 was effected giving the ZDP Shares a Final Redemption Date of 10 April 2024 and a Final Capital Entitlement of 201.4 pence.

Last year, Inland Homes plc and the Company changed their financial year end from 30 June to 30 September, so the comparative figures shown below for the previous interim results are for the six months ended 31 December 2018 and the comparative figures for the most recent audited accounts are for the fifteen months ended 30 September 2019.

INTERIM MANAGEMENT REPORT

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

1,671,067 new ZDP Shares were issued at a price of 161.5 pence on 12 November 2019, giving the investors an annual rate of return to redemption of 5.13%. This increased the number of ZDP Shares in issue to 18,101,857.

The accrued Capital Entitlement is based on the original issue price of 100p per ZDP Share as increased over its life to the Final Capital Entitlement of 201.4 pence per ZDP Share payable on 10 April 2024.

The accounting book value of the ZDP Shares differs from the accrued Capital Entitlement, because ZDP Shares have been issued at various prices and redemption yields and each tranche is booked at its individual issue price and the liability accrued using the effective interest method over its life to the Final Capital Entitlement. As at 31 March 2020, the accounting book value was 163.48p per ZDP Share. 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.

I am pleased to report that as at 31 March 2020, Inland had complied with all its covenants under the Loan Note, Contribution Agreement and related security documentation.

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. As shown in the table below, the market price of a ZDP share has fallen below its accrued value as at 31 March 2020, being at a time when the economy and share prices were adversely affected by the Coronavirus pandemic.

 
                                             31 Mar 2020   30 Sept 2019 
------------------------------------------  ------------  ------------- 
 Accrued capital entitlement per ZDP Share   162.4p        158.1p 
  ZDP share price as at the accounts date     137.5p        161.5p 
------------------------------------------  ------------  ------------- 
 

The asset value and the accrued capital entitlement will continue to increase as the repayment date approaches.

The Cover Ratio as at 31 March 2020 has been calculated as follows:

Cover Ratio (Assets / Financial Indebtedness) 1.97 times

Financial Indebtedness is stated net of cash balances and excludes liabilities falling due after 10 October 2024, being six months after the redemption date of the ZDP Shares.

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/ .

Nishith Malde FCA

Chairman, Inland ZDP PLC

Registered in England No: 8303612 29 June 2020

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 2019 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. These comprise liquidity risk, and credit risk as set out in note 9 of the Inland ZDP PLC's Annual Report.

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 Inland Group's business has been affected by Covid-19, which represents a continuing risk. T he Group has moved quickly to manage the immediate consequences of the pandemic with its priority objective being the health, safety and wellbeing of its staff, customers and sub-contractors.

Particular actions taken by the Group have included:

   --      Ensuring full compliance with the Government's Covid-19 Secure Guidance; 

-- Stringent new procedures regarding hygiene, social distancing, travel and self-isolation and these measures are subject to continual review by the Group's health and safety personnel;

-- Maintaining good communication with our staff and other stakeholders during these uncertain times and the transition of office-based staff to home working with minimum disruption to the business;

-- Furloughing 73 of all employees from 1 April 2020 and making a claim under the Government's Job Retention Scheme;

   --      Undertaking a restructure, resulting in a 11% reduction in headcount to-date; 

-- Implementing measures to allow all staff to work effectively from home in line with the Government's policy;

-- Instituting a number of measures to reduce the Group's cost base, preserve its assets and to conserve cash including significant salary reductions for the Board, Operating Board and staff members earning over GBP40,000 per annum;

-- Negotiating deferrals of certain land payments and successfully renegotiating the terms for some loan repayments;

-- In order to improve our financial flexibility, increasing our development facility from Homes England for our Chapel Riverside development in Southampton from GBP11.3m to GBP15.3m; and

-- Successfully raising GBP9.4m (net of expenses) through a placing and subscription of 20,750,000 new ordinary shares.

The Board is mindful that there are no certain forecasts about how the COVID-19 global pandemic will play out and how this may affect the Group, the industry in which it operates and the wider economy for the foreseeable future. In particular, a significant worsening of the situation and a return to a strict lockdown for a prolonged period would have implications for us as it would for many other businesses. As such, there is significant uncertainty as to what foreseen or unforeseen action or actions, the Group may be required to take in order to respond to any circumstances that may arise in the future.

In May 2020, the Bank of England warned that the COVID-19 pandemic is likely to push the UK towards its deepest recession in history. As a result, it is likely that this will have a dramatic effect on employment and thus on incomes in the UK. It is also likely that in a recession, the availability of credit, and in particular mortgages, will be reduced which will adversely affect the ability of home buyers to complete their purchases.

The Company's directors recognise that the above risks to Inland Homes plc could have an adverse impact on its ability to fulfill its obligations to the Company including funding the Final Capital Entitlement of the ZDP Shares on 10 April 2024. The risk of any loss to ZDP Shareholders in such circumstances is mitigated by cash and tangible assets legally pledged to the Company with no prior charges over the pledged assets.

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 29 June 2020 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 2020

 
                                              6 months      6 months      15 months 
                                                 ended         ended          ended 
                                              31 March   31 December   30 September 
                                                  2020          2018           2019 
                                           (unaudited)   (unaudited)      (audited) 
 Continuing operations              Note        GBP000        GBP000         GBP000 
--------------------------------  ------  ------------  ------------  ------------- 
 Revenue 
 Interest income                                   750           583          1,523 
----------------------------------------  ------------  ------------  ------------- 
 Total income                                      750           583          1,523 
 
 Expenditure 
 Expenses                                            -             -              - 
--------------------------------  ------  ------------  ------------  ------------- 
 Total expenditure                                   -             -              - 
 Profit before finance costs 
  and taxation                                     750           583          1,523 
 
 Finance costs                                   (750)         (583)        (1,523) 
 Profit before tax                                   -             -              - 
 Income tax                            2             -             -              - 
--------------------------------  ------  ------------  ------------  ------------- 
 Profit and total comprehensive                      -             -              - 
  income 
----------------------------------------  ------------  ------------  ------------- 
 

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 2020

 
                                             As at         As at          As at 
                                          31 March   31 December   30 September 
                                              2020          2018           2019 
                                       (unaudited)   (unaudited)      (audited) 
                                Note        GBP000        GBP000         GBP000 
----------------------------  ------  ------------  ------------  ------------- 
 
 Non-current assets 
 Intercompany receivable                         -             -              - 
----------------------------  ------  ------------  ------------  ------------- 
                                                 -             -              - 
   Current assets 
 Intercompany receivable                    29,643        22,853         26,194 
------------------------------------  ------------  ------------  ------------- 
                                            29,643        22,853         26,194 
 Creditors: amounts falling 
  due after more than one 
  year 
 Zero Dividend Preference 
  Shares                                  (29,593)      (22,803)       (26,144) 
------------------------------------  ------------  ------------  ------------- 
                                          (29,593)      (22,803)       (26,144) 
 -----------------------------------  ------------  ------------  ------------- 
 Net assets                                     50            50             50 
------------------------------------  ------------  ------------  ------------- 
 
 Equity 
 Ordinary share capital                         50            50             50 
 Revenue reserve                                 -             -              - 
----------------------------  ------  ------------  ------------  ------------- 
 Shareholders' funds                            50            50             50 
------------------------------------  ------------  ------------  ------------- 
 

STATEMENT OF CASHFLOWS

for the six months ended 31 March 2020

 
                                           6 months      6 months      15 Months 
                                              ended         ended             to 
                                           31 March   31 December   30 September 
                                               2020          2018           2019 
                                        (unaudited)   (unaudited)      (audited) 
                                             GBP000        GBP000         GBP000 
-------------------------------------  ------------  ------------  ------------- 
 Cash flow from operating activities 
 Profit for the period before                     -             -              - 
  tax 
 Adjustments for: 
 - interest expense                             750           583          1,523 
 - interest and similar income                (750)         (583)        (1,523) 
 Net cash flow from operating                     -             -              - 
  activities 
-------------------------------------  ------------  ------------  ------------- 
 Cash flow from investing activities 
 Loan to ultimate parent company            (2,699)             -              - 
-------------------------------------  ------------  ------------  ------------- 
 Net cash outflow from investing            (2,699)             -              - 
  activities 
-------------------------------------  ------------  ------------  ------------- 
 Cash flow from financing activities 
 Proceeds on issue of ZDP Shares              2,699             -              - 
-------------------------------------  ------------  ------------  ------------- 
 Net cash inflow from financing               2,699             -              - 
  activities 
-------------------------------------  ------------  ------------  ------------- 
 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 
-------------------------------------  ------------  ------------  ------------- 
 

NOTES TO THE HALF-YEARLY REPORT

for the six months ended 31 March 2020

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 fifteen-month period ended 30 September 2019, 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 2020 has also been consolidated into the results of Inland for the six months ended 31 March 2020.

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 fifteen-month period ended 30 September 2019.

2. 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.

3. Going concern

The Company will fulfil its obligations to ZDP Shareholders through the Contribution Agreement it has with Inland. The contribution from Inland will provide the funds to pay the Capital Entitlement of the ZDP Shareholders when it falls due. The main risk the Company faces is, therefore, that Inland would not have sufficient assets to repay the loan and to make a contribution to fulfil the amount of the Capital Entitlement due to ZDP Shareholders. Covenants are in place between Inland and the Company, which ensure that Inland will not undertake certain actions in relation to both itself and the Company.

All operating expenses of the Company are borne by Inland.

Due to the Company's dependence on Inland to repay the loan and provide a contribution to meet the Capital Entitlement of the ZDP Shareholders, other risks faced by the Company are considered to be the same as for Inland. Please see the paragraph headed Principal Risks above for further information.

Inland has adequate financial resources and therefore the directors believe that the Company is well placed to manage its business risks and also believe that Inland will have sufficient resources to continue in operational existence for the foreseeable future. Accordingly, they have prepared this half-yearly report 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 2020, the loan to the ultimate parent company was GBP29,642,629 (2018: GBP22,852,831).

Sources of 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 now 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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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June 30, 2020 02:00 ET (06:00 GMT)