Heavitree Regulatory News (HVT)

22 Jul 2008 14:20



The Heavitree Brewery PLC

Trood Lane

Matford

Exeter

Devon EX2 8YP

Date : 22 July 2008 

Contact: Graham Crocker - Managing Director - 01392 217733

Rod Glanville - Director and Company Secretary - 01392 217733

Pascal Keane - Shore Capital - 0207 468 7995

ISIN: GB0004182720 for 'A' Limited Voting Ordinary Shares

ISIN: GB0004182506 for Ordinary Shares

Restatement of Financial Information under International Financial Reporting Standards ('IFRS')

The Heavitree Brewery PLC is required under AIM Rules to adopt International Financial Reporting Standards (IFRS) as its primary base of accounting for the year ending 31 October 2008. IFRS replaces UK Generally Accepted Accounting Practice (UK GAAP), under which the Group previously prepared its financial statements.

The most significant impacts of the adoption of IFRS on the Group's previously reported financial information are as follows:

Valuation of unlisted investments at fair value

Reversal of depreciation on freehold properties

Provision for employee benefit liabilities in respect of holiday pay

A summary of the impact on the Group of the transition to IFRS for the year ended 31 October 2007 is as follows:

	UK GAAP
	(as previously		Movement
Year ended 31 October 2007	Reported)£'000	IFRS £'000	£'000
Profit after tax	2,052	2,081	29
Earnings per share (basic) pence	38.9p	39.4p	0.5p
Earnings per share (diluted) pence	38.7p	39.2p	0.5p
Total equity as at 1 November 2006	7,598	7,750	152
Total equity as at 31 October 2007	9,250	9,435	185

A full description of the impacts of the change and adjustments required to bring the financial information in line with IFRS for the 12 months ended 31 October 2007 and six months ended 30 April 2007, and on the consolidated Balance Sheet at the date of transition of 1 November 2006 is presented in the following sections.

Contact details:

The Heavitree Brewery PLC 01392 217733

THE HEAVITREE BREWERY PLC

Restatement of Financial Information under International Financial Reporting Standards ('IFRS')

22 July 2008

CONTENTS 

1 Introduction

2 First time adoption of IFRS

3 Summary of major impacts of adoption of IFRS

4 Consolidated Balance Sheet at 1 November 2006 (date of transition to IFRS)

5 Consolidated Balance Sheet at 31 October 2007 (end of last period presented

under previous GAAP)

6 Consolidated Income Statement for the year ended 31 October 2007

7 Summary of significant accounting policies under IFRS

8 Independent Auditors' Report to The Heavitree Brewery PLC on the preliminary

IFRS Financial Statements for the year ended 31 October 2007

9 Appendix 1 - Consolidated Balance Sheet at 30 April 2007 (last Interim Statement 

presented under previous GAAP)

10 Appendix 2 - Consolidated Income Statement for the six months ended 30 April 2007

  

1 Introduction

The Heavitree Brewery PLC is a public limited company, incorporated in England and Wales under the Companies Act 1985, whose shares are publicly traded on the Alternative Investment Market (AIM). In these financial statements, 'Group' means the Company and its subsidiaries.

Heavitree Brewery PLC ("the Group") has historically prepared its consolidated financial statements under UK Generally Accepted Accounting Practice ("UK GAAP"). 

With effect from 1 November 2007, the Group is required to prepare its financial statements in accordance with International Financial Reporting Standards ("IFRS"). The Group's first Annual Report under IFRS will be for the year to 31 October 2008, with the first published IFRS results being the Interim Report and Accounts for the half-year to 30 April 2008.

The Group is required to publish one year of comparative information, which results in a date of transition to IFRS of 1 November 2006. This document describes the main differences between UK GAAP and IFRS that impact the Group and provides IFRS consolidated preliminary financial statements for the year ended 31 October 2007, as well as the IFRS opening balance sheet at 1 November 2006, together with reconciliations to previously reported figures under UK GAAP.

This restatement document has been based on an assessment of IFRSs and International Financial Reporting Interpretation Committee ('IFRIC') interpretations in issue that will be relevant for the year ended 31 October 2008.   The UK GAAP information contained in this document does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The auditors, Ernst & Young LLP, have issued unqualified opinions on the Group's UK GAAP financial statements for the years ended 31 October 2006 and 31 October 2007.

2 First time adoption of IFRS

The Group has applied IFRS 1 'First Time Adoption of International Financial Reporting Standards' as a starting point for reporting under IFRS. The Group's date of transition to IFRS is 1 November 2006 and comparative information in the financial statements is restated to reflect the Group's adoption of IFRS except where otherwise required or permitted by IFRS 1.

IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for its first financial statements prepared under IFRS. As a general rule, IFRS 1 requires such standards to be applied retrospectively. However, the standard allows several optional exemptions from full retrospective application.

The Group has elected to take advantage of the following exemptions:

Cumulative translation differences for all foreign operations are deemed to be zero as at  1 November 2006;

IFRS 2 Share-based Payment has not been applied to any equity instruments that were granted on or before 7 November 2002, nor has it been applied to equity instruments granted after 7 November 2002 that vested before 1 November 2006, the Group's date of transition to IFRS;

Cumulative actuarial gains and losses are recognised in full in equity at the date of transition to IFRS in accordance with our previous UK GAAP policy.

3 Summary of major impacts of adoption of IFRS

For the year ended 31 October 2007, the key headlines from the IFRS results compared to those under UK GAAP are as follows: 

Operating profit of £1,679,000, £27,000 higher than under UK GAAP. 

Effective tax rate of 22.4%, 2 percentage points lower than under UK GAAP. 

Profit after tax of £2,081,000, £29,000 higher than under UK GAAP. 

Net assets at 31 October 2007 of £9,435,000, £185,000 higher than under UK GAAP. 

Property, Plant and Equipment (IAS 16)

An entity must adopt either a cost or valuation model for valuing its property, plant and equipment. Consistent with its approach under UK GAAP the Group has decided to continue with a cost model. 

Freehold buildings are depreciated to write off the difference between their carrying value and residual value over their useful economic life of 50 years. However no depreciation charge arises in respect of 2006 or 2007 as the residual value of freehold properties is at least equal to their carrying value.

The impact of this is to increase net assets by £80,000 at 31 October 2006 and £127,000 at 31 October 2007.

Non-current Assets Held for Sale and Discontinued Operations (IFRS 5)

A reclassification has been made at 31 October 2006 and 30 April 2007 for property, plant and equipment being marketed for sale. This reclassification had already been made in the accounts for the year ended 31 October 2007.

Holiday pay accrual (IAS 19)

The standard requires liabilities for employee benefits to be recognised on the basis of a legal or constructive obligation. Liabilities and expenses are generally recognised in the period in which the services are rendered. In accordance with the standard the Group has recognised a provision for employee holiday pay earned but not taken at the end of each accounting period.

The impact of this is to reduce net assets by £15,000 at 31 October 2006 and £20,000 at 31 October 2007. 

Financial Instruments : Recognition and Measurement (IAS 39)

Our unlisted investment is now stated at fair value rather than cost in accordance with IAS 39. This investment is categorised as available for sale under IAS 39.

The impact of this is to increase net assets by £108,000 at 31 October 2006 and £92,000 at 31 October 2007.

Pensions (IAS 19)

We have chosen to recognise all actuarial gains and losses immediately through equity in accordance with our previous UK GAAP policy.

Under IFRS, the pension deficit is shown on the balance sheet gross of deferred tax. This is a change in presentation from UK GAAP which required the liability to be shown net of the related deferred tax asset.

Income taxes (IAS 12)

The unlisted investment has been revalued to fair value. This is not a 10% holding therefore does not qualify for substantial shareholdings exemption. The increase in value will create a temporary difference between the carrying value and the tax base and therefore a deferred tax liability has been recognised in respect of this.

Cash flows

There is no change to the cash flows under IFRS but there will be some presentational changes to the cash flow statement in the accounts for the year ended 31 October 2008

Reclassification

During the course of the IFRS conversion exercise we noted that certain assets which were included within property, plant and equipment were leased under finance leases and therefore should have been classified as lease debtors. We have taken the opportunity to correct the classification of these assets. This has no impact on the income statement.

  4 Consolidated Balance Sheet at 1 November 2006

		Re-	IFRS Re-	IFRS Re-
	UK GAAP	classification	classification	measurement	IFRS
	£000	£000	£000	£000	£000
Non-current assets
Property, plant and equipment	16,650	(161)	(14)	80	16,555
Financial assets	20	-	-	108	128
Deferred tax asset	-	-	650	4	654
	---------------	---------------	---------------	---------------	---------------
	16,670	(161)	636	192	17,337
	---------------	---------------	---------------	---------------	---------------
Current assets
Trade and other receivables	1,493	161	-	-	1,654
Inventories	142	-	-	-	142
Cash and short-term deposits	435	-	-	-	435
	---------------	---------------	---------------	---------------	---------------
Assets held for sale	-	-	14	-	14
	---------------	---------------	---------------	---------------	---------------
Total assets	18,740	-	650	192	19,582
	---------------	---------------	---------------	---------------	---------------
Current liabilities
Trade and other payables	(1,875)	-	-	(15)	(1,890)
Financial liabilities	(6,877)	-	-	-	(6,877)
Income tax payable	(315)	-	-	-	(315)
Provisions	-	-	-	-	-
	---------------	---------------	---------------	---------------	---------------
	(9,067)	-	-	(15)	(9,082)
	---------------	---------------	---------------	---------------	---------------
Non-current liabilities
Other payables	(285)	-	-	-	(285)
Financial liabilities	(11)	-	-	-	(11)
Deferred tax liabilities	(262)	-	-	(25)	(287)
Defined benefit pension plan deficit	(1,517)	-	(650)	-	(2,167)
	---------------	---------------	---------------	---------------	---------------
`	(2,075)	-	(650)	(25)	(2,750)
	---------------	---------------	---------------	---------------	---------------
Total liabilities	(11,142)	-	(650)	(40)	(11,832)
	---------------	---------------	---------------	---------------	---------------
Net assets	7,598	-	-	152	7,750
	---------------	---------------	---------------	---------------	---------------
Capital and reserves
Equity share capital	278	-	-	-	278
Capital redemption reserve	659	-	-	-	659
Treasury shares	(1,335)	-	-	-	(1,335)
Fair value adjustments reserve	-	-	-	108	108
Currency translation	69	-	(69)	-	-
Retained earnings	7,927	-	69	44	8,040
	---------------	---------------	---------------	---------------	---------------
Total equity	7,598	-	-	152	7,750
	---------------	---------------	---------------	---------------	---------------

5 Consolidated Balance Sheet at 31 October 2007

		Re-	IFRS Re-	IFRS Re-
	UK GAAP	classification	classification	measurement	IFRS
	£000	£000	£000	£000	£000
Non-current assets
Property, plant and equipment	15,263	(113)	-	127	15,277
Financial assets	20	-	-	92	112
Deferred tax asset	-	-	413	6	419
	---------------	---------------	---------------	---------------	---------------
	15,283	(113)	413	225	15,808
	---------------	---------------	---------------	---------------	---------------
Current assets
Trade and other receivables	1,384	113	-	-	1,497
Inventories	210	-	-	-	210
Cash and short-term deposits	738	-	-	-	738
	---------------	---------------	---------------	---------------	---------------
Assets held for sale	733	-	-	-	733
	---------------	---------------	---------------	---------------	---------------
Total assets	18,348	-	413	225	18,986
	---------------	---------------	---------------	---------------	---------------
Current liabilities
Trade and other payables	(1,613)	-	-	(20)	(1,633)
Financial liabilities	(5,376)	-	-	-	(5,376)
Income tax payable	(521)	-	-	-	(521)
Provisions	-	-	-	-	-
	---------------	---------------	---------------	---------------	---------------
	(7,510)	-	-	(20)	(7,530)
	---------------	---------------	---------------	---------------	---------------
Non-current liabilities
Other payables	(272)	-	-	-	(272)
Financial liabilities	(11)	-	-	-	(11)
Deferred tax liabilities	(243)	-	-	(20)	(263)
Defined benefit pension plan deficit	(1,062)	-	(413)	-	(1,475)
	---------------	---------------	---------------	---------------	---------------
`	(1,588)	-	(413)	(20)	(2,021)
	---------------	---------------	---------------	---------------	---------------
Total liabilities	(9,098)	-	(413)	(40)	(9,551)
	---------------	---------------	---------------	---------------	---------------
Net assets	9,250	-	-	185	9,435
	---------------	---------------	---------------	---------------	---------------
Capital and reserves
Equity share capital	273	-	-	-	273
Capital redemption reserve	664	-	-	-	664
Treasury shares	(963)	-	-	-	(963)
Fair value adjustments reserve	-	-	-	92	92
Currency translation	70	-	(69)	-	1
Retained earnings	9,206	-	69	93	9,368
	---------------	---------------	---------------	---------------	---------------
Total equity	9,250		-	-	185
9,435
	---------------	---------------	---------------	---------------	---------------

  6 Consolidated Income Statement for the year ended 31 October 2007

			IFRS Re-	IFRS Re-
		UK GAAP	classification	measurement	IFRS
		£000	£000	£000	£000
Revenue		13,296	-	-	13,296
		---------------	---------------	---------------	---------------
Change in stocks		69	-	-	69
Other operating income		64	-	-	64
Purchase of inventories		(4,904)	-	-	(4,904)
Staff costs		(3,169)	-	(20)	(3,189)
Depreciation of property, plant and equipment		(661)	-	47	(614)
Other operating charges		(3,043)	-	-	(3,043)
		---------------	---------------	---------------	---------------
		(11,644)	-	27	(11,617)
		---------------	---------------	---------------	---------------
Group operating profit		1,652	-	27	1,679
Profit on disposal of
non-current assets		1,435	-	-	1,435
		---------------	---------------	---------------	---------------
Group profit before finance costs		3,087	-	27	3,114
and taxation
Finance income		7	-	-	7
Finance costs		(403)	-	-	(403)
Other finance costs - pensions		(38)	-	-	(38)
		---------------	---------------	---------------	---------------
		(434)	-	-	(434)
Profit before taxation		2,653	-	27	2,680
Tax (expense)/credit		(601)	-	2	(599)
		---------------	---------------	---------------	---------------
Profit for the year		2,052	-	29	2,081
		---------------	---------------	---------------	---------------

  7 Summary of significant accounting policies under IFRS

Basis of preparation

The Group's preliminary financial statements are prepared using the International Financial Reporting Standards accounting policies that the Group expects to apply in the financial statements for the year ended 31 October 2008. 

The Group's financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated.

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Pension and other post-retirement benefits

The cost of defined benefit pensions plans are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. The employee liability at 31 October 2007 is £1,475,000 (2006: £2,167,000). 

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Judgement is required in determining the most appropriate valuation model for a grant of equity instruments, depending on the terms and conditions of the grant. Management are also required to use judgement in determining the most appropriate inputs to the valuation model including expected life of the option, volatility, dividend yield and how many awards are likely to vest.

Basis of consolidation

The Group financial statements consolidate the financial statements of The Heavitree Brewery PLC and the entities it controls (its subsidiaries) drawn up to 31 October each year. 

Subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intragroup balances and transactions, including unrealised profits arising from them, are eliminated.

Foreign currency

On consolidation, the financial statements of the overseas subsidiary undertaking are translated at the year end rate of exchange, with the results translated at the average rate. Exchange differences arising on consolidation are dealt with in the currency translation reserve which has been set to £nil at the date of transition.

Property, plant and equipment

Buildings, furniture and fittings, equipment and vehicles are stated at cost less accumulated depreciation and accumulated impairment losses. Cost comprises the aggregate amount paid and the fair value of any other consideration given to acquire the asset and includes costs directly attributable to making the asset capable of operating as intended.

  Depreciation is provided on all property, plant and equipment, other than freehold land, on a straight-line basis at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:

	Buildings	2%
	Fixtures and fittings	10% to 20%
	Computer equipment	20% to 331/3%
	Office equipment	20%
	Vehicles	25%

Freehold land is not depreciated.

An annual assessment of residual values is performed and there is no depreciable amount if residual values are the same as, or more than, book value.  Residual values are based on the estimated amount which would be currently obtainable from disposal of the asset net of disposal costs if the asset were already of the age and condition expected at the end of its useful life. 

The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the income statement in the period of derecognition.

Leases - lessor accounting

Assets leased out under operating leases are included in property, plant and equipment and depreciated over their estimated useful lives.  Rental income, including the effect of lease incentives, is recognised on a straight line basis over the lease term.

Where the Group transfers substantially all the risks and benefits of ownership of the asset, the arrangement is classified as a finance lease and a receivable is recognised for the initial direct costs of the lease and the present value of the minimum lease payments. As payments fall due, finance income is recognised in the income statement so as to achieve a constant rate of return on the remaining net investment in the lease.

Where the Group determines an arrangement, that does not take the legal form of a lease but conveys a right to use an asset is, or contains, a lease, that arrangement is accounted for in accordance with IAS 17.

Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell and are not depreciated.

Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use.  This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.  Management must be committed to the sale and completion should be expected within one year from the date of classification.

Impairment of assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used, these calculations corroborated by valuation multiples, or other available fair value indicators. Impairment losses are recognised in the income statement in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Financial assets

Financial assets are cash or a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or liabilities with another entity under conditions that are potentially favourable to the entity. In addition, contracts that result in another entity delivering a variable number of its own equity instruments are financial assets.. The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Trade and other receivables

Trade receivables, which generally have 30 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost. Provision is made when there is objective evidence that the Group will not be able to recover balances in full. Balances are written off when the probability of recovery is assessed as being remote.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. After initial recognition, available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Fair values

The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date. Where there is no active market, fair value is determined using valuation techniques. These include using recent arm's length market transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis and pricing models. Otherwise assets will be carried at cost.

Financial liabilities 

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

A financial liability exists where there is a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities under potentially unfavourable economic conditions. In addition contracts which result in the Group delivering a variable number of its own equity instruments are financial liabilities. Equity instruments containing such obligations are classified as financial liabilities.

Trade and other payables

Trade payables are recognised and carried at their original invoiced value. Payables are not discounted to take into account the time value of money, as the effect is immaterial.

  Preference shares

Preference shares are recognised as a liability in the balance sheet, net of transaction costs. The corresponding dividends on those shares are charged as interest expense in the income statement.

Preference shares are classified as a financial liability measured at amortised cost until they are extinguished on redemption.

Interest bearing loans and borrowings

Obligations for loans and borrowings are recognised when the Group becomes party to the related contracts and are measured initially at the fair value of consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in finance revenue and finance cost.

Derecognition of financial assets and liabilities

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, such that the difference in the respective carrying amounts together with any costs or fees incurred are recognised in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes purchase cost on a first-in, first-out basis. Net realisable value is based on estimated selling price less any further costs expected to be incurred to disposal.

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of 3 months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.

Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:

where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;

in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and

deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

  The carrying amount of deferred income tax assets is reviewed at each balance sheet date. Deferred income tax assets and liabilities are offset, only if a legally enforcement right exists to set off current tax assets against current tax liabilities, the deferred income taxes relate to the same taxation authority and that authority permits the group to make a single net payment.

Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised in the income statement.

Pensions and other post-retirement benefits

The Company maintains a defined benefit pension scheme for the funding of retirement benefits for scheme members during their working lives in order to pay benefits to them after retirement and to their dependants after their death. The scheme was closed to new members on 18 July 2002 and there has been no future accrual since 5 April 2006.

The cost of providing benefits under the defined benefit scheme is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice.  A full actuarial valuation is obtained at least triennially and is updated at each balance sheet date.  Past service costs are recognised in the income statement on a straight-line basis over the vesting period or immediately if the benefits have vested. When a settlement (eliminating all obligations for benefits already accrued) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss recognised in the income statement during the period in which the settlement or curtailment occurs.

The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time, and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the income statement as other finance revenue or cost.

The group has applied the option in IAS 19 to recognise actuarial gains and losses in full in the statement of recognised income and expense in the period in which they occur.

The defined benefit pension asset or liability in the balance sheet comprises the total of the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less any past service cost not yet recognised and less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and in the case of quoted securities is the published bid price. The value of a net pension benefit asset is restricted to the sum of any unrecognised past service costs and the present value of any amount the Group expects to recover by way of refunds from the plan or reductions in the future contributions.

Contributions to defined contribution schemes are recognised in the income statement in the period in which they become payable.

Both the Company and Heavitree Inns Limited operate an employer-sponsored personal pension arrangement.

Treasury shares

The Heavitree Brewery PLC shares held by the Group are classified in shareholders' equity as "treasury shares" and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to revenue reserves. No gain or loss is recognised in the performance statements on the purchase, sale, issue or cancellation of equity shares.

  Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other sales taxes. The following criteria must also be met before revenue is recognised:

Drink and food sales

Revenue in respect of drink and food sales is recognised at the point at which the goods are provided, net of any discounts or volume rebates allowed.

Rents receivable

Rents receivable are recognised on a straight-line basis over the lease term.

Machine income

The Group's share of net machine income is recognised in the period to which it relates.

Dividends

Revenue is recognised when the Group's right to receive payment is established.

Finance income

Revenue is recognised as interest accrues using the effective interest method. The effective interest rate is

the rate that exactly discounts estimated future cash receipts through the expected life of the financial

instrument to its net carrying amount.

Exceptional items

The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance.

Borrowing costs

Borrowing costs are recognised as an expense when incurred.

Share-based payments

The cost of equity settled transactions with employees is measured by reference to the fair value at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately vest or in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity.

Where the terms of an equity settled award are modified or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of modification. No reduction is recognised if this difference is negative.

Where an equity settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement.

The Group has taken advantage of the exemption in IFRS 1 in respect of equity-settled awards so as to apply IFRS 2 only to those equity-settled awards granted after 7 November 2002 that had not vested before 1 November 2006, the Group's date of transition to IFRS.

New standards and interpretations not applied

The IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these preliminary financial statements. The Group does not intend to early adopt any of these standards in the first IFRS financial statements at 31 October 2008.

International Accounting Standards (IAS / IFRSs)		Effective date
IFRS 2	Amendment to IFRS 2 - Vesting Conditions and Cancellations	1 January 2009
IFRS 3	Business Combinations (revised January 2008)	1 July 2009
IFRS 8	Operating Segments	1 January 2009
IAS 1	Presentation of Financial Statements (revised September 2007)	1 January 2009
IAS 23	Borrowing Costs (revised March 2007)	1 January 2009
IAS 27	Consolidated and Separate Financial Statements (revised January 2008)	1 July 2009
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 12	Service Concession Arrangements	1 January 2008
IFRIC 13	Customer Loyalty Programmes	1 July 2008
IFRIC 14	Funding requirements and their Interaction	1 January 2008

IAS 23 has been revised to require capitalisation of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional provisions in the Standard, the Group will adopt this as a prospective change. Accordingly, borrowing costs will be capitalised on qualifying assets with a commencement date of 1 January 2009. No changes will be made for borrowing costs incurred prior to this date that have been expensed.

Whilst the revised IAS 1 will have no impact on the measurement of the Group's results or net assets it is likely to result in certain changes in the presentation of the Group's financial statements from 2009 onwards.

IFRS 8 requires disclosure based on information presented to the board. This is not expected to change the business segments about which information is given.

The amendment to IFRS 2 restricts the definition of vesting conditions to include only service conditions (requiring a specified period of service to be completed) and performance conditions (requiring the other party to achieve a personal goal or contribute to achieving a corporate target). All other features are not vesting conditions, and whereas a failure to achieve such a condition was previously regarded as a forfeiture (giving rise to a reversal of amounts previously charged to profit) it must be reflected in the grant date fair value of the award and treated as a cancellation, which results in either an acceleration of the expected charge, or a continuation over the remaining vesting period, depending on whether the condition is under the control of the entity or counterparty. The amendment is mandatory for periods beginning on or after 1 January 2009 and the Group is currently assessing its impact on the financial statements, although it is not expected to be material.

The Group does not anticipate early adopting the revised IFRS 3 and so will apply it prospectively to any business combinations on or after 1 November 2009.

IAS 27 revised is effective for annual periods beginning on or after 1 July 2009, with earlier application only permitted when the revised IFRS 3 is applied. The revised standard applies retrospectively with some exceptions. IAS 27 revised no longer restricts the allocation to minority interest of losses incurred by a subsidiary to the amount of the non-controlling equity investment in the subsidiary. A partial disposal of an equity interest in a subsidiary that does not result in a loss of control will be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to any gain or loss. Where there is loss of control of a subsidiary, any retained interest will have to be re-measured to fair value, which will impact the gain or loss recognised on disposal. The Group is currently assessing the impact on its financial statements from adopting IAS 27 revised.

The Directors do not anticipate that the adoption of the remaining standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

* The effective dates stated here are those given in the original IASB/IFRIC standards and interpretations.

As the Group has elected to prepare their financial statements in accordance with IFRS as adopted by the

European Union, the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt standards.

  8 Independent Auditors' Report to The Heavitree Brewery PLC on the  preliminary IFRS Financial Statements for the year ended 31 October 2007

We have audited the accompanying preliminary International Financial Reporting Standards ('IFRS') financial statements of The Heavitree Brewery PLC ('the Company') for the year ended 31 October 2007 which comprise a Consolidated Balance Sheet as at 1 November 2006, Consolidated Income Statement and a Consolidated Balance Sheet as at 31 October 2007, together with the related accounting policies note set out on pages 9 to 16. We have not audited nor reviewed and we will not provide any opinion in respect of the reconciliation of equity and the reconciliation of profit for the six months ended 30 April 2007 which has been included on pages 19 and 20.

This report is made solely to the Company in accordance with our engagement letter dated 13 June 2008. Our audit work has been undertaken so that we might state to the Company those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility or liability to anyone other than the Company for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

These preliminary IFRS financial statements are the responsibility of the Company's directors and have been prepared as part of the Company's conversion to IFRS. They have been prepared in accordance with the basis set out in Note 2 and Note 7 which describes how IFRS have been applied under IFRS 1, and the policies expected to be adopted when management prepares its first complete set of IFRS financial statements as at 31 October 2008.

Our responsibility is to express an independent opinion on the preliminary IFRS financial statements based on our audit. We read the other information accompanying the preliminary IFRS financial statements and consider whether it is consistent with the preliminary IFRS financial statements. This other information comprises the description of significant changes in accounting polices on page 1. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the preliminary IFRS financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the preliminary IFRS financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the preliminary IFRS financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the preliminary IFRS financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the preliminary IFRS financial statements for the year ended 31 October 2007 have been prepared, in all material respects, in accordance with the basis set out in Note 2 and Note 7, which describes how IFRS have been applied under IFRS 1, including the assumptions management has made about the standards and interpretations expected to be effective, and the policies expected to be adopted, when management prepares its first complete set of IFRS financial statements as at 31 October 2008.

Emphasis of matter

Without qualifying our opinion, we draw attention to the fact that under IFRSs only a complete set of financial statements with comparative financial information and explanatory notes can provide a fair presentation of the Company's financial position, results of operations and cash flows in accordance with IFRS.

  

Ernst & Young LLP

Registered Auditor

Exeter

16 July 2008

9 Appendix 1 - Consolidated Balance Sheet at 30 April 2007

		Re-	IFRS Re-	IFRS Re-
	UK GAAP	classification	classification	measurement	IFRS
	£000	£000	£000	£000	£000
Non-current assets
Property, plant and equipment	16,912	(137)	(1,089)	104	15,790
Financial assets	20	-	-	107	127
Deferred tax asset	-	-	645	8	653
	---------------	---------------	---------------	---------------	---------------
	16,932	(137)	(444)	219	16,570
	---------------	---------------	---------------	---------------	---------------
Current assets
Trade and other receivables	1,926	137	-	-	2,063
Inventories	154	-	-	-	154
Cash and short-term deposits	467	-	-	-	467
	---------------	---------------	---------------	---------------	---------------
Assets held for sale	-	-	1,089	-	1,089
	---------------	---------------	---------------	---------------	---------------
Total assets	19,479	-	645	219	20,343
	---------------	---------------	---------------	---------------	---------------
Current liabilities
Trade and other payables	(1,890)	-	-	(64)	(1,954)
Financial liabilities	(7,527)	-	-	-	(7,527)
Income tax payable	(401)	-	-	-	(401)
Provisions	-	-	-	-	-
	---------------	---------------	---------------	---------------	---------------
	(9,818)	-	-	(64)	(9,882)
	---------------	---------------	---------------	---------------	---------------
Non-current liabilities
Other payables	(273)	-	-	-	(273)
Financial liabilities	(11)	-	-	-	(11)
Deferred tax liabilities	(262)	-	-	(24)	(286)
Defined benefit pension plan deficit	(1,505)	-	(645)	-	(2,150)
	---------------	---------------	---------------	---------------	---------------
`	(2,051)	-	(645)	(24)	(2,720)
	---------------	---------------	---------------	---------------	---------------
Total liabilities	(11,869)	-	(645)	(88)	(12,602)
	---------------	---------------	---------------	---------------	---------------
Net assets	7,610	-	-	131	7,741
	---------------	---------------	---------------	---------------	---------------
Capital and reserves
Equity share capital	276	-	-	-	276
Capital redemption reserve	661	-	-	-	661
Treasury shares	(1,172)	-	-	-	(1,172)
Fair value adjustments reserve	-	-	-	107	107
Currency translation	69	-	(69)	-	-
Retained earnings	7,776	-	69	24	7,869
	---------------	---------------	---------------	---------------	---------------
Total equity	7,610	-	-	131	7,741
	---------------	---------------	---------------	---------------	---------------

10 Appendix 2 - Consolidated Income Statement for the six months ended 30 April 2007

			IFRS Re-	IFRS Re-
		UK GAAP	classification	measurement	IFRS
		£000	£000	£000	£000
Revenue		6,202	-	-	6,202
		---------------	---------------	---------------	---------------
Change in stocks		13	-	-	13
Other operating income		37	-	-	37
Purchase of inventories		(2,247)	-	-	(2,247)
Staff costs		(1,457)	-	(30)	(1,487)
Depreciation of property, plant and equipment		(305)	-	24	(281)
Other operating charges		(1,453)	-		(1,453)
		---------------	---------------	---------------	---------------
		(5,412)	-	(6)	(5,418)
		---------------	---------------	---------------	---------------
Group operating profit		790	-	(6)	784
Profit on disposal of
non-current assets		235	-	-	235
		---------------	---------------	---------------	---------------
Group profit before finance costs
and taxation		1,025	-	(6)	1,019
Finance income		4	-	-	4
Finance costs		(212)	-	-	(212)
Other finance costs - pensions		(21)	-	-	(21)
		---------------	---------------	---------------	---------------
		(229)	-	-	(229)
Profit before taxation		796	-	(6)	790
Tax (expense)/credit		(250)	-	4	(246)
		---------------	---------------	---------------	---------------
Profit for the period		546	-	(2)	544
		---------------	---------------	---------------	---------------

ISIN: GB0004182720 for 'A' Limited Voting Ordinary Shares

ISIN: GB0004182506 for Ordinary Shares

Ends.

ENDMSCILFLVDVIFFIT