Finance Director's Review

Nishith Malde
Group Finance Director

Revenue by segment

  • Land sales
  • Housebuilding
  • Contract
  • Rental and other
  • Hotel




Profit before tax

We have adopted the performance measures of the European Public Real Estate Association ("EPRA"), which enables us to fully reflect the unrealised value that has been created within our substantial land bank. The EPRA net asset value per share at 30 June 2016 was 86.63p and the adjusted EPRA net asset value was 91.54p per share.

Inland Homes has delivered another year of strong progress, both strategically and operationally. Against a record prior year, profit before tax was £32.9 million (2015: £34.0 million), and includes revaluation gains of £18.0 million (2015: £14.5 million). This has been achieved despite a delay in 23 unit completions following the failure of a third party contractor, which resulted in an increase in cost provisions to complete the affected projects.

We have adopted the performance measures of the European Public Real Estate Association ("EPRA"), which enables us to fully reflect the unrealised value that has been created within our substantial land bank. The EPRA net asset value per share at 30 June 2016 was 86.63p and the adjusted EPRA net asset value was 91.54p per share, further details of which can be found in the Chairman's Statement.

Group income statement

Inland Homes delivered 147 (2015: 248) private unit completions during the financial year, generating revenues of £51.5 million (2015: £66.1 million), and sold 425 (2015: 440) consented residential building plots, realising £43.3 million (2015: £39.6 million). Gross profit from private unit completions was £11.3 million (2015: £13.8 million) and from the sale of consented residential building plots was £17.1 million (2015: £17.0 million). Total revenues decreased by 10.8% over the previous period to £101.9 million (2015: £114.2 million). This was partly due to the normal course of housebuilding project cycles and the completion of our development, West Plaza in Ashford, Middlesex, in the previous year where there was a bulk sale of 59 units. Revenues were also affected by the delay of 23 units following the failure of a main contractor engaged on three of our sites, however, these 23 units will be realised in the current period, albeit with much lower margins due to increased costs. The average selling price of Inland Homes' private residential units was £337,000 (2015: £264,000), the increase being the result of both a change in the mix between houses and apartments sold, as well as regional house price growth during the period.

Gross profit has decreased by 14.0% to £29.6 million (2015: £34.4 million) and gross margin reduced to 29.0% from 30.1%. The margin on private unit sales improved slightly to 21.9% (2015: 20.9%). Provisions of £1.1 million were made in respect of costs to complete on two of the three sites under construction where the main contractor failed.

The strategic focus on developing our in-house construction capabilities and the self-delivery of our products has naturally meant an increase in staff numbers and, therefore, administrative overheads have risen from £6.0 million to £6.3 million. It is expected, however, that this will result in cost savings and reduce the risk around project delivery over the medium to long term as the Group's activities continue to expand.

There was a further revaluation gain of £18.0 million (2015: £14.5 million) to investment properties, which relates principally to the 86 existing residential properties at Wilton Park, Beaconsfield where the current annual rent roll is £0.9 million as they are now unencumbered.

In November 2015, one of the Group's subsidiaries entered into a £20.0 million revolving credit facility with Barclays Bank to fund the majority of its housebuilding activities, which were previously financed via individual development loans. The facility expires on 31 October 2019 and has contributed towards a reduction in our net finance costs to £6.9 million (2015: £8.2 million). The facility includes standard net asset based covenants as well as site specific covenants. It is also worth noting that last year the Group incurred a one-off cost of approximately £1.0 million in finance fees for the arrangement of the joint venture with CPC Group Limited, which has not repeated during the financial year ended 30 June 2016. Interest cover, expressed as the ratio of operating profit (excluding revaluation gains) to net interest (excluding notional interest on deferred consideration) was 4.1 times (2015: 4.0). The Group has not capitalised any interest charges.

As announced on 19 November 2015, Inland Homes committed a £1.0 million investment in return for a 25% stake in a newly formed, premium housebuilding company, Troy Homes Limited. The Group has since committed to invest a further £250,000 of equity. As was expected for a business in its infancy, Troy Homes incurred a loss of £553,000 during its first 10 months of trading to 30 June 2016. Inland Homes' share of this loss, representing £138,000, has been recognised within the share of losses of associate companies.

Gross profit by segment

Gross Profit Pie Chart 2016
  • Land sales
  • Housebuilding
  • Contract
  • Rental and other

Investment property

Investment Pie Chart 2016
  • Residential
  • Commercial
  • Developmental land

Asset by segment

Asset Segment Pie Chart 2016
  • Land
  • Housebuilding
  • Contract
  • Investments
  • Investment properties
  • Other
  • Hotel


The total tax charge of £3.5 million represents 10.8% of the profit before tax. The effective corporation tax rate for the financial year is 20% and the principal difference relates to the recognition of capital losses against revaluation surpluses on investment properties resulting in no deferred tax charge on the surplus.

Earnings per share and dividends

Basic earnings per share decreased by 3% to 14.23p (2015: 14.67p) per share while basic earnings per share (excluding revaluation gains) were 5.31p (2015: 7.49p). The Company paid an interim dividend of 0.4p (2015: 0.3p) per share on 31 May 2016 and the Board has recommended a final dividend of 0.9p (2015: 0.7p) per share, increasing the total dividend for the year by 30% to 1.3p (2015: 1.0p) per share. The proposed final dividend will be payable on 27 January 2017, subject to shareholders' approval, to shareholders on the register at the close of business on 30 December 2016.

Adjusted EPRA net asset value

Cash flow movements

Group balance sheet and financial position

On 30 June 2016 the Group acquired all of the issued share capital of Bucks Developments Limited, the holding company of Wilton Park Developments Limited. As a result, the Group now has 86 existing residential properties at Wilton Park, Beaconsfield which are held as investment properties. These properties were professionally valued at the year end at £45.4 million, reflecting a gain of £17.9 million. The majority of these properties are let on assured shorthold tenancies and currently generate annual rental income of £0.9 million. The Group's investment properties, comprising predominantly the 86 existing residential properties and commercial units developed by us along with other real estate acquired through land purchases, such as the property at Hamworthy, Poole, generated £642,000 of rental income in the year.

Investment in and loans to joint ventures have increased by 140% to £11.3 million (2015: £4.7 million). During the year the Group entered into a 50:50 joint venture with a land owner of a site in Garston, Hertfordshire, investing £2.7 million. On 30 June 2016, the Group also entered into a 50:50 joint venture (Inland (Stonegate) Limited) with a third party. The joint venture exchanged contracts to purchase a site of approximately 13 acres, which includes the former headquarters of Tesco plc in Cheshunt, Hertfordshire. The purchase of this site was completed in August 2016. The Group's investment in and loans to this joint venture were £1.0 million at the balance sheet date. In addition to these investments, the Group contributed £2.6 million towards its share of the additional investments in a joint venture platform with CPC Group Limited and £0.3 million in the joint venture with Europa Capital.

As at 30 June 2016, the investment in and loans to associate company Troy Homes amounted to £1.0 million after deducting the Group's share of its losses. The Group's current commitment to invest in the share capital of Troy Homes is £1.25 million, of which £250,000 has been called and paid up. In addition, at the date of the signing of the financial statements, the Group has committed to provide loan notes of £3.0 million, of which £0.9 million has been drawn down. The loan notes attract a rate of interest of 8% per annum. Amounts owed by associates of £3.4 million is in respect of two sites sold to Troy Homes as disclosed in note 13 to the financial statements.

In support of the growth strategy we have for the business, the Group has continued to invest in both land and work in progress, with inventories increasing from £121.0 million to £146.8 million. This excludes any land or work in progress within joint ventures.

The cash balances at the year-end amounted to £16.7 million (2015: £21.4 million) and net borrowings (loans and ZDP liability less cash) were £54.6 million (2015: £34.9 million) representing net gearing of 47.0% (2015: 39.2%) on net assets of £116.0 million (2015: £89.0 million) or 29.5% on EPRA net assets of £184.7 million. Net gearing is defined as loans and accrued ZDP liability less cash as a proportion of net asset value or EPRA net asset value.

Since the year end, the Group has secured a four-year revolving credit facility with a fund for up to £25.0 million to acquire land without planning permission, as well as a committed facility of £27.0 million with Secure Trust Bank, which has a five-year term. This has been fully drawn down and will result in an annual saving in funding costs of approximately £1.0 million.

At 30 June 2016 other financial liabilities of £22.4 million, includes £15.0 million that relates to the deferred consideration on Wilton Park, Beaconsfield due in May 2017. This sum is secured by way of a charge over part of this site which was professionally valued at £18.8 million. The remaining balance of land creditors relates to three further sites, all of which were settled in full by the date these financial statements were signed.

During the year, the Group raised a further £1.3 million by issuing 1,028,400 Zero Dividend Preference Shares. The total accrued liability as at 30 June 2016 amounted to £14.6 million. These shares are governed by various covenants and are due for repayment on 10 April 2019.

Nishith Malde

Finance Director
13 October 2016

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