Barkby actively looking for further opportunities to add to pub portfolio

03 March 2021

The Barkby Group PLC has issues an update on trading for the six months ended 31 December 2020, ands said the company "actively looking for further opportunities to add to our pub portfolio".

Commenting Charles Dickson, Executive Chairman said; "Barkby has weathered the COVID-19 pandemic largely due to the success of our highly cash generative commercial property development business and activity has resumed apace. As we come out of lockdown, our pubs and coffee business are poised for significant growth and a return to profitability. The Group's investments in SleepHub and Verso Biosense are performing well. Our liquidity is strong and the diversification of the business means that the Group is in a strong position to benefit from the lifting of government lockdown restrictions. We look forward to the next 12 months with confidence."

Current trading, post period end
· Commercial property division
o Recent exchange of contracts for the sale of development at Saffron Walden for £2.85m, generating a net profit of £1.8m with a net cash receipt of £1.0m expected to be received in summer 2021
o Exchange of contracts at Maldon to develop a 15,400 sq.ft. retail and trade scheme

Operational Highlights for the six months ended 31 December 2020

· Commercial property division
o Practical completion of Hastings development in August 2020 and completion of sale to Hastings Borough Council with a net balancing payment receipt of £1.8m
o Planning permission for 20,000 sq. ft. mixed use retail and trade scheme received at Wellingborough

· Barkby Pubs
o Pubs are currently not trading, but a path out of lockdown and a provisional date of 17 May 2021 set for re-opening gives cause for optimism
o Pubs materially impacted by COVID-19 and national lockdown, however traded well between July and October 2020, when lockdown in England was lifted
o Like-for-like sales down 3% between 1 July and 30 September 2020
o Like-for-like sales down 45% between 1 October and 31 December 2020 following re-imposition of trading restrictions
o Acquisition of a nine-year lease of The Harcourt Arms
o Actively looking for further opportunities to add to our pub portfolio

Financial Highlights for the six months ended 31 December 2020
· Revenue for the six-month period to 31 December 2020 was £7.9m, with EBITDA loss of £1.1m and a net loss of £2.0m. This includes start-up expenses of £0.5m incurred in relation to Cambridge Sleep Sciences
· Following repayment of HSBC overdraft of £1.5m, £2.7m of new facilities have been secured including a £1.5m increase in the Tarncourt facility and an extension of its repayment date to 30 June 2023
· Liquidity of £1.4m available as at 28 February 2021.

Charles Dickson, Chairman of Barkby, said: "Over the last 12 months our primary focus has been the wellbeing of our staff and customers and I would like to thank our team for their unwavering commitment during this unprecedented period. Despite the obvious challenges that the second half of the year presented, the team worked hard to position the business appropriately and we are looking forward to the future with confidence as the economy begins to unlock."

"Barkby has weathered the COVID-19 pandemic largely due to the success of our highly cash generative commercial property development business and activity has resumed apace. I am delighted to today announce the exchange of contracts for the sale of our development site at Saffron Walden."

"During the period, we took the opportunity to make a number of operational improvements in our pub business, which we expect to lead to higher margins once lockdown restrictions are lifted. As we come out of lockdown, our pubs and coffee business are poised for significant growth and a return to profitability.

"The Group also continues to deliver on its strategy of investing in growth businesses with the ability to disrupt and the investments in SleepHub and Verso Biosense are performing well and are on track. I am particularly excited about the potential of both businesses to supplement Group earnings for FY2022."

"Our liquidity is strong and the diversification of the business means that the Group is in a strong position to benefit from the lifting of government restrictions. I look forward to the next 12 months with increasing confidence."

Current Trading
Barkby Group's trading has been significantly impacted by COVID-19 trading restrictions and national lockdown periods. Despite substantial Government support via the furlough scheme, business rates relief and a reduction in VAT for hospitality businesses, as well as a proactive approach to cost control and supplier negotiations, the trading businesses all recognised EBITDA losses during the period, with the exception of Centurian Automotive, which has traded ahead of management expectations.

The diversification of the Group provided a degree of support to the impacted businesses. Completion of the Hastings property development generated positive cashflow for the Group in the summer of 2020 of £1.8m. The property development pipeline has experienced inevitable delays due to COVID-19 but it is pleasing today to announce the exchange of contracts for the sale of development at Saffron Walden for £2.85m, with net proceeds of £1.0m expected to be received by the Company. With the acquisition of the license and launch of the SleepHub product, we have further diversified into the consumer electronics and wellness market. The development of some sales channels has been slower than expected due to COVID-19, especially with physical retail, but we have seen a recent uptick in sales as product awareness grows.

We currently face unprecedented trading uncertainty, including significant risk of a prolonged economic downturn and permanent changes in consumer behaviour. It is therefore important that the Group remains adaptable to market conditions and modifies its business models as required.

Commercial Property Development
Construction work at our development at Hastings, which is anchored by Aldi Stores, Greggs and Costa Coffee, completed in June 2020 and practical completion was granted in August 2020. Hastings Borough Council completed their purchase of the site, resulting in a net balancing payment receipt of £1.8m.

COVID-19 has resulted in delays to the commencement of other developments, with tenant contracts taking longer than normal to agree commercial terms. That said, there remains a strong interest in the Group's upcoming schemes from tenants, as outlined below:

Saffron Walden
The land was acquired by the Company in 2010 and is still held at book cost. A series of successful planning applications have been made since the land was acquired, and the site now has planning permission for the construction of 35 residential units. We have exchanged contracts to sell the site for c.£2.85m which will result in a profit on sale of £1.8m, which is expected to be recognised in the current financial year. Completion of the sale is expected during the summer of 2021.

Wellingborough
On 9 July 2020 we obtained planning permission for a 20,000 sq. ft. mixed use retail and trade scheme. After further discussions with the local planning authority, we are likely to make a further planning application to add a drive-thru fast-food restaurant on the front of the site to meet a pre-identified requirement from a national branded operator. Construction is due to start in autumn 2021.

Maldon
We exchanged contracts on a development site in Maldon, Essex. We have entered into legal negotiations with four prospective tenants who will sign pre-let agreements for occupation at completion of the re-development. We are proposing to develop a 15,400 sq. ft. mixed-use retail and trade scheme at the site and we are working to submit a planning application shortly. We are planning to start construction in the autumn.

Huntingdon
We submitted a planning application for a 30,000 sq. ft trade scheme at Huntingdon last year and have subsequently amended the application to take into account the change in tenant requirements. We expect to get planning this year and start on site in around 12 months.

Further opportunities
We are currently in legal negotiation to acquire a further development site in the South East. We are also exploring opportunities to significantly expand the real estate side of our business, which we believe is core to the Group's business and where we see significant growth opportunities.

Barkby Pubs
Following the first national lockdown in March 2020, Barkby's pubs re-opened as soon as permitted on Saturday 4 July 2020. Trade built quickly over the first few weeks, returning to normal levels from the middle of July. In August, like-for-like sales increased significantly, supported by the UK Government's Eat Out to Help Out scheme. Busy trade in the earlier days of the week, alongside good summer weather and strong demand for accommodation due to staycations resulted in year-on-year growth of +21% in August and +24% in September, with good year-on-year growth across all pubs, even after the Eat Out to Help Out scheme ended.

Following his appointment in March 2020, our Operations Director Rupert Bagnall made several new General Manager appointments and the operational improvements implemented by his new team were reflected in strong trading results. The key to success is people and we have high quality General Managers supporting our plan to run premium quality pubs with rooms.

We experienced reduced trade in the October to December quarter due to more severe trading restrictions introduced in October followed by a second national lockdown in November. Despite being permitted to re-open in December, the ongoing trading restrictions alongside weak consumer demand as COVID-19 rates increased, resulted in particularly low sales and profitability during the normally busy festive period.

Overall, it is difficult to extrapolate the underlying performance of the pubs business over the six-month period as the impact of consumer confidence and enforced restrictions has made it difficult to build any period of normalised trade. The entire period suffered from some form of restriction, however Q2 was far worse than Q1 in terms of trading restrictions. We did benefit from a reduced cost base as a result of the furlough scheme and local grants alongside the support of our suppliers, including periods of reduced rent from our landlords.

We added the lease of the Harcourt Arms at Stanton Harcourt, a pub refurbished by its owner over four years. The Group's short term strategy remains to increase its portfolio to c.12 pubs under a combination of leasehold and freehold acquisitions. We are currently assessing the acquisition of a further leasehold interest and we anticipate further acquisition opportunities will arise as a result of the COVID-19 pandemic. We will look to take advantage of good opportunities where we find them, but we will be proceeding cautiously as short-term trading conditions remain uncertain.

Given the recent Government guidance of 17th May for reopening our business we will be in a strong position to benefit from restricted international travel, staycations, pent up demand for hospitality and changing consumer behavior.

Workshop Coffee
Wholesale revenues have been significantly impacted as independent coffee shops, hotels and other hospitality customers have been forced to close during the national lockdown periods. Wholesale revenues were down by 55% on the same period last year. However there has been a substantial increase in online sales, which increased 118% on the same period last year. This was predominantly driven by hardware and coffee subscriptions as an increasing number of consumers prepare and drink premium coffee at home.

With significant reductions in London footfall, we were cautious about reopening our retail stores. We re-opened two of our four units during the period, with reduced trading hours and a focus on cost control. Despite lower rents, the retail units did not return to profitability due to the low number of London workers, shoppers and tourists returning to central London. Despite taking mitigating actions including a review and implementation of a substantial cost saving plan, margins were lower in the six-month period to 31 December 2020 due to the reduction in revenue share from higher margin retail coffee sales.

A large number of the Workshop team have been on full or partial furlough during the period. All retail landlords have agreed to reduced or zero rent whilst shops are closed and we are in negotiations to agree further reduced rents going forward.

Liquidity
We have managed cash tightly through all three national lockdowns and have increased cash headroom by refinancing the current £3.5m Tarncourt facility into a new £5m facility with Tarncourt, with an expiry of 30 June 2023 (the "Revised Facility Agreement").

Furthermore, the Group has taken a £450k loan secured against the freehold of the Wellingborough site from James Dickson, a significant shareholder in the Company and CEO of Workshop Coffee (the "Wellingborough Loan Agreement").

The Group currently has net cash available of c.£1.4m as at 28 February 2021. The Board have taken the steps of consulting with their major shareholders regarding a potential equity raise should current restrictions remain in place beyond Spring and our shareholders have confirmed their continued support should this become necessary.

Related Party Transactions
The Company is entering into the Revised Facility Agreement with Tarncourt Investments LLP, a company ultimately controlled by Charles Dickson, a Director of the Company. Accordingly, entering into the revised facility agreement constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. The independent Directors, having consulted with the Company's nominated adviser, finnCap Ltd, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

The Company is entering into the Wellingborough Loan Agreement with James Dickson, a significant shareholder in the Company and a director of Workshop Trading Holdings Limited, a wholly owned subsidiary of the Company. Accordingly, entering into the Wellingborough Loan Agreement constitutes a related party transaction under Rule 13 of the AIM Rules for Companies. The independent Directors, having consulted with the Company's nominated adviser, finnCap Ltd, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.