The Group has produced a record set of results for the year ended 30 June 2014 with increasing revenues and profitability from housebuilding. Inland's strategic decision to increase the housebuilding activity was well timed to catch both the recovery in the housebuilding sector as well as the wider economy. Although debt funding for the acquisition of land with or without planning consent has been almost non-existent, there are signs of some entrants into this market. Finance for housebuilding has become far more readily available and this has assisted the expansion of our housebuilding activities.
The key highlights of our financial performance are:
- Revenue has increased by 28.0% to £39.8m (2013: £31.1m);
- Profit before tax has increased by 65.7% to £8.6m (2013: £5.2m);
- Basic earnings per share has increased by 45.0% to 2.87p (2013: 1.98p);
- Dividend per share increased by 122.0% to 0.60p (2013: 0.27p)
- Net assets per share increased by 10.1% to 31.6p (2013: 28.7p) which excludes the Group's share of future profit from DGVL, currently estimated at 2.8p per share net of tax, and any unrealised gains within our land bank;
- Year end cash balance of £11.2m (2013: £12.2m);
- Net gearing (including the accrued ZDP liability) has increased to 45.0% (2013: 6.7%) due to a planned increase in housebuilding.
Group revenue was up by 28.0% to £39.8m (2013: £31.1m). This included land sales of £6.7m (2013: £16.4m), open market unit completions of £18.8m (2013: £11.4m), affordable home sales of £2.5m (2013: £nil) and fee income from DGVL of £6.6m (2013: £3.0m). The gross margin increased to 39.4% (2013: 24.7%) and the open market unit completions generated a gross margin of 27.5% (2013: 21.1%). The average selling price of the private units (including those sold on behalf of DGVL) was £256,000 (2013: £208,000). The Group uses main contractors to construct all the units we build and after administrative overheads of £4.4m (2013: £2.7m) it has achieved an operating margin of 26.4% (2013: 16.3%). Administrative overheads have increased primarily due to an increase in staff costs.
As expected, the Group's net debt has increased to £28.8m in comparison to £3.9m in the previous year primarily due to the expansion in housebuilding, and this resulted in the net finance expense increasing to £2.5m (2013: £1.4m). The net finance expense is covered 3.5 times (2013: 3.7 times).
The total tax charge represents 32.8% of profit before tax. This is significantly higher than the UK corporation tax rate because the Group wrote off £469,000 of the deferred tax asset due to a reduction in the future rate of corporation tax. £225,000 was also written off as a result of a stock and work in progress credit that has been released to cost of sales as it was originally subject to a notional interest adjustment due to deferred land payment terms. The current year tax charge of 25.3% is also high because of an impairment of the fair value of the option over shares in DGVL and the interest accrued to ZDP shareholders being disallowed for tax purposes.
Earnings per share and dividends
Earnings per share has increased by 45.0% over the previous year to 2.87p (2013: 1.98p). The increase is disproportionate to the increase in profit before tax due to the higher tax charge in the current year as explained above and a higher level of brought forward tax losses available for relief in the previous year.
The Board has proposed a final dividend of 0.60p per share for the year ended 30 June 2014, subject to approval by the shareholders. This is an increase of 122.2% in comparison to the previous year, in line with the progressive dividend strategy adopted by the Board and reflecting both the strong set of results as well as the confidence in the Group's financial position. The dividend will be paid on 9 January 2015 to shareholders on the register at the close of business on 12 December 2014. The ex-dividend date is 11 December 2014.
During the year the Group increased operating cash flows before movements in working capital by 125% to £11.6m (2013: £5.1m). The increase in investment in land and the expansion of the housebuilding activity led to £24.5m of cash outflow from operating activities which has predominantly been financed by a planned increase in debt. During the year, lenders have continued to remain very cautious in providing funding for land irrespective of whether it has planning permission or not. The Group had to therefore rely on its own resources as well as vendor financing to fund these purchases. In addition to bank debt, the Group raised £1.1m by way of issuing 934,900 Zero Dividend Preference shares with a gross redemption yield of 5.57% p.a.
Net cash inflow from financing activities was £22.6m (2013: £12.3m) and this included proceeds from the sale of 1,325,000 treasury shares of £580,000. It also included the repayment of a loan of £1.0m from our former associate company, Howarth Homes PLC, new loans of £26.3m and dividends paid of £0.5m.
The Group's inventories increased by 101.8% over the previous year to £90.3m (2013: £44.7m) due to the purchase of eight new sites during the year as well as the increase in investment due to the number of units under construction. The amount due from DGVL has decreased to £10.5m (2013: £13.7m) resulting in a lower amount of trade and other receivables. Current liabilities increased from £18.5m to £51.0m as land creditors, trade creditors and loan balances have increased. Net gearing at the year end (including the accrued ZDP liability) was 45.0% (2013: 6.7%) and net assets increased to £64.0m (2013: £57.7m) equating to 31.6p per share. It should be noted that this figure excludes the Group's share of future profit from DGVL, currently estimated at approximately 2.8p per share net of tax. It also excludes the unrealised added value accumulated within the land bank due to planning permissions achieved on some of the sites.
Group Finance Director
15 October 2014