Company Announcements

The Heavitree Brewery PLC

Trood Lane

Matford

Exeter EX2 8YP

Date:               19 February 2024

Contact:          Graham Crocker - Managing Director - 01392 217733

Nicola McLean - Company Secretary - 01392 217733

Patrick Castle /Anita Ghanekar - Shore Capital - 0207 408 4052

Following a Board Meeting held today, 19 February 2024, the Directors announce the preliminary statement of results for the year ended 31 October 2023.

ISIN: GB0004182720 for 'A' Limited Voting Ordinary Shares

ISIN: GB0004182506 for Ordinary Shares

Chairman's statement

In my statement at the half-year, I reported that the consensus among our tenants was that top line trading had held up well during the first six months of the year despite the many concerns we all shared about the pressures to which the trade as a whole was and continues to be subjected. Now that we are reviewing the full year, I am pleased that the second half of the year has continued in a similar vein and a small increase in turnover has been achieved. I do feel it is important to understand that very few of the aforementioned pressures have gone away and it is a reflection of the hard work of our tenants in the pubs combined with the good support from Head Office that has meant that the pubs continue to trade well in these difficult times.

Turnover has increased by 0.9% to £7,346,000 (2022: £7,280,000).  Rental income has been adjusted, as in recent years, by the winding down of the rental concessions given during the Covid years in accordance with the IFRS16 Lease Accounting standard; there has been reduction to revenue of £121,000 (2022: £230,000). An operating profit for the year for the Group of £1,042,000 has been returned (2022: £1,422,000).

The reduction in operating profit against the previous year has been as a direct result of a programme of significant spending on repairs including at the Swan Inn in Lympstone, Henry's Bar in Exeter and the Two Mile Oak near Newton Abbot which now have wonderfully improved external trading areas. Further significant repairs were completed at the Beach in Exmouth and the Horse and Groom in Heavitree. In total the spend on repairs has reached £1,061,000 (2022: £771,000).  Operating profit was further affected by increased insurance costs inflated by an 18% hike in the rebuild index applied to the base cost.

The Group results are also affected by an impairment cost of £150,000 relating to the Heavitree in Exmouth

The Company has continued with the programme of selling non-core assets to reduce debt and it is planned to make a further reduction in the year ahead.  Although in the year under review an increase in net debt of £188,000 has been reported, this is a consequence of a large capital refurbishment at the Ley Arms (further details below), large repair costs as detailed above and the timing of the sales of a couple of properties which have been delayed into the new financial year.

Dividend

The Directors are pleased to recommend a final dividend at a rate (unchanged from last year) of 3.5p per ordinary and 'A' limited voting ordinary shares to those shareholders on the Register on 15 March 2024.  The dividend, subject to shareholder approval at the Annual General Meeting to be held on 11 April 2024, will be paid on 19 April 2024.

Chairman's statement (continued)

Property

The following properties have been sold during the year under review:

The Jolly Abbot in Newton Abbot.

The Sun Inn in Buckfastleigh.

The Wonford Inn in Exeter.

The Dewdrop Inn in Kingsteignton.

Also, a terraced cottage in Clyst Honiton and a house connected to The Marshalls in Barnstaple (sold in the previous year) have been sold together with a pocket of garden land in Christow. These sales have realised a profit of £1,065,000 in total.

The development of the new accommodation block at the Ley Arms in Kenn is close to completion with the bedrooms being available to book from the beginning of February. The rooms are original in design, beautifully finished and complement the quality offer at the pub. We wish Karen and Martin every success with this exciting new addition to their business.

The plans for the rebuild on the Jolly Sailor site in East Ogwell, which was destroyed by fire in 2021, are being discussed with the local parish council prior to submitting a full application to Teignbridge District Council

Heavitree Inc.

All final tax returns were filed in the year under review. Our accountants in the USA are awaiting the issue of a 'Certificate of Good Standing' to allow the Texas Secretary of State to finalise the termination of our American subsidiary.

Bank Facility

Our bank facility with Barclays was renegotiated and renewed for a further five years under slightly better terms but without any additions or reductions applied. The Directors are grateful for this continued relationship with Barclays. Please see the Going Concern explanation for further details on the renewal.

During the course of finalising the draft statutory accounts, it was identified that a technical breach in the debt service covenant as at 31 October 2023 had occurred.  The bank are not able to issue a formal waiver of the breach as the old loan and applicable covenants are no longer in existence following the agreement of the new loan after the year end. The bank have confirmed that the debt service covenant was not an appropriate testing mechanism and as the loan has already been replaced with a new facility, there will be no further action in respect of the breach.

However, due to the requirements of IAS1 the Term Loan balance of £2,065,000 is shown in the balance sheet of the 2023 financial statements as a current, rather than non-current liability. As a result of the post year-end renewal, and on the basis that there are no further instances of covenant non-compliance, next year's financial statements will show a movement back to non-current liabilities. 

Chairman's statement (continued)

Pension Scheme

The last requirements to achieve the wind-up of the Company's final salary pension scheme have been slow to finalise. The regulatory obligation to complete wind-up by 17 January 2024 was not met although all the delays have been out of the hands of the Trustees and, in turn, the Directors. We are caught up in the painfully slow process of the insurance companies (of which there are five) providing their annuity reassignment requirements to allow for direct payments to each individual member. Although immensely frustrating, the scheme's actuary is continuing to liaise with insurers and progress is being made. The scheme's actuary has also contacted the Pension Regulator and passed on all relevant correspondence.  I shall report further at the half-year.

Prospects

The announcement by the Government to extend the 75% business rates relief for a further 12 months was received with relief from all operators although the headline announcement failed to draw attention to the inflationary increase that was implemented. There had been nervousness about a further financial squeeze which would have been, in the present inflationary climate, difficult to absorb.

The Company has enjoyed a decent start to the new financial year with like-for-like beer sales being ahead of the previous year. I look forward to further progress during the year ahead.

N H P TUCKER
Chairman

19 February 2024

Group income statement

for the year ended 31 October 2023

Group statement of comprehensive income

for the year ended 31 October 2023

Group balance sheet

at 31 October 2023

Group statement of cash flows

for the year ended 31 October 2023

Group statement of changes in equity

for the year ended 31 October 2023

Equity share capital

The balance classified as share capital includes the total net proceeds (nominal amount only) arising or deemed to arise on the issue of the Company's equity share capital, comprising Ordinary Shares of 5p each and 'A' Limited Voting Ordinary Shares of 5p each.

Capital redemption reserve

The capital redemption reserve arises on the re-purchase and cancellation by the Company of Ordinary Shares.

Own share reserve

Own share reserve represents the cost of The Heavitree Brewery PLC shares purchased in the market and held by The Heavitree Brewery PLC Employee Benefits Trust  ('EBT').

At 31 October 2023 the Group held 98,938 Ordinary Shares and 59,641 'A' Limited Voting Ordinary Shares (2022: 210,335 Ordinary Shares and 195,386 'A' Limited Voting Ordinary Shares) of its own shares. During the year there were purchases of 38,603 Ordinary Shares and sales of 23,393 'A; Limited Voting Ordinary Shares.

Fair value adjustments reserve

The fair value adjustments reserve is used to record differences in the year on year fair value of the investment classified as fair value through other comprehensive income.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Notes to the preliminary announcement

1.  Basis of preparation

These figures do not constitute full accounts within the meaning of Section 396 of the Companies Act 2006. They have been extracted from the statutory financial statements for the year ended 31 October 2023. The statutory financial statements have not yet been delivered to the Registrar of Companies.

The auditors, PKF Francis Clark, have reported on the accounts for the years ended 31 October 2023 and 31 October 2022. Their audit reports in both years were unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 in respect of those accounts.

The financial information in this statement has been prepared in accordance with UK adopted international accounting standards as applied in accordance with the Companies Act 2006. The accounting policies have been consistently applied and are described in full in the statutory financial statements for the year ended 31 October 2023, which are expected to be mailed to shareholders on 07 March 2024.  The financial statements will also be available on the Group's website www.heavitreebrewery.co.uk.

Prior period reclassification

Having considered the nature of the loans/ mortgage's receivable from Tenants and former Tenants in both the current and prior financial year, the Directors have deemed it most appropriate to show the loans due as financial assets rather than other debtors as they were presented last year and as such, the comparatives have been restated to reclassify the balances in 2022.

Going Concern

The Directors closely monitor the Group's financial resources. This included a continual review of the medium-term financial plan, along with sensitised cash flow forecasts for 12 months from the date of approval of these financial statements. We have seen some of the impact on our Tenants with the continued increase in prices for food, energy, staffing, along with the continued difficulty of retaining staff. These factors remain across the Estate and the industry as a whole. This has been taken into account when forecasting for the coming year and is included within the forecast for the period to April 2025. The forecast for capital receipts in 2024 includes sales of two non-core assets and one unlicensed property, with a budgeted estimate of £1.7m. Any further decisions on the sale of assets will be discussed in Board meetings during the year. These forecasts leave the Group with minimum headroom of over £2m on an overdraft facility of £3m. The Board will continue to review cashflows as part of its ongoing strategy.

The Board took the decision 3 years ago to accelerate the paying down of its £4.5m Term Loan by the selling of non-core assets to secure its current position and the long-term trading position of the Group. The Board originally identified up to 15 non-core assets with a value of between £5m and £7m to be realised over a period of 2 to 3 years. This has been reviewed each year with some further properties being added as the process has progressed. These include unlicensed properties and developments with permissions which are already within the Estate. This year the Group has sold 7 (2022: 8) of the non-core assets resulting in profits of £1,065,000 being realised from these sales, leaving the balance of the Term Loan at 31 October 2023 of £2,065,000.

The Board has continued to engage with the bank regarding its facilities and forward trading. After the year end the Board has negotiated a new 5 Year banking facility including the Term Loan and the £3m overdraft facility. The overdraft facility terms remain the same with no increase on interest rate over the base rate. A small reduction in interest rate on the Term Loan over base has been achieved with an adjustment in the debt service covenant which is now an EBITDA calculation only.

Covenant testing resumed from the 31 October 2022 and our year end results show that we have achieved one of our covenants but that a technical breach has been shown in the debt service cover, this covenant changes with the new bank agreement, which is now in place from November 2023. The bank are not able to issue a formal waiver of the loan as the old loan and applicable covenants are no longer in existence following the agreement of the new loan after the year end. The bank have confirmed that as the loan has been replaced with a new facility, there will be no further action in respect of the breach at the year end.  

The Directors are satisfied that the Group's forecasts and projections, which take account of the anticipated cost of living impact on the Estate. This has been reflected in the budgets with decrease percentage built in on trade and rental income. The forecasts indicate that the Group will be able to operate within its new covenants and facilities. The current trading performance of the Group also shows that it will be able to operate within the level of its facilities and covenant testing for the 12 months from the date of these financial statements. With value in the Estate being realised over time and with the support from the bank there are no material uncertainties in relation to going concern. For this reason, the Group continues to adopt the going concern basis in preparing its financial statements.

2.  Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary shares and 'A' Limited Voting Ordinary shares outstanding during the year.

The following reflects the income and shares data used in the basic and diluted earnings per share

Computation:

3. Dividends paid and proposed

4. Segment information

 Primary reporting format - business segments

During the year the Group operated in one business segment - leased estates.

Leased estate represents properties which are leased to tenants to operate independently from the Group, under tied and free of tie tenancies.

Secondary reporting format - geographical segments

Revenue is based on the geographical location of customers. All revenue is generated in, and all assets are held in the United Kingdom.

5. General information

The 2023 Annual Report and Financial Statements will be published and posted to shareholders on 7th March 2024 Further copies may be obtained by contacting the Company Secretary at The Heavitree Brewery PLC, Trood Lane, Matford, Exeter EX2 8YP. The 2023 Annual Report and Financial Statements will also be available on the Company's website at http://www.heavitreebrewery.co.uk/financial/

The Annual General Meeting will be held at the Registered Office on 11 April 2024 at 11.30am.

Ends.