LONDON--(BUSINESS WIRE)--

Chapel Down Group Plc
(`CDG' or `the Company')
EPIC: CDGP

AUDITED RESULTS FOR THE YEAR ENDED 31^st DECEMBER 2017

Chairman’s Statement

I am delighted to announce another period of progress in the results for the year ended 31 December 2017.

Key highlights:

• Year on year sales up 15% to £11.796m (2016: £10.233m)*
  • Chapel Down Wine sales up 20% to £8.119m (2016: £6.791m)
  • Beer and Cider sales, in the associate company Curious Drinks Ltd, up 7% to £3.677m (2016: £3.442m)**
• Wine gross profit up 12% at £3.244m (2016: £2.888m)
• Beer and Cider gross profit (in the associate company Curious Drinks Limited) up 11% at £1.224m (2016: £1.099m)
• Continuing EBITDA up 29% to £968k (2016: £750k)*** as we continue to reinvest in our brands, infrastructure and supply
• Successful Fundraise of £18.53m through the issue of new shares (the “Fundraising”) in December 2017 and launched an Open Offer to existing shareholders raising a further £1.47m (the “Open Offer”)
• 50 acres of new vineyards planted on our leased sites in Kent
• A Gold medal at The International Wine and Spirits Challenge 2017 Awards for our Kit’s Coty Coeur de Cuvee 2013
• Outstanding initial results from our Spirits’ launch

Your company continued to build its most important assets - its brands - through innovative and well executed marketing, high profile sponsorships and publicity and a differentiated and creative approach to all our activities.

The new injection of £20m combined with the further enhancement of an outstanding management team is a measure of our intent. There is much to be done.

We will be making substantial investments over the coming years in vineyards, the brewery, commercial infrastructure, people and marketing to ensure that we are best placed for future growth and any industry consolidation.

Our assets are supportive of the business: land – and high quality vined land in particular – continues to appreciate; our brand assets are more valuable than ever; and our balance sheet is extremely strong. We enjoy the custom and support of our many shareholders who tell the Chapel Down story with energy and enthusiasm. Thank you for your faith, your continued encouragement and your enthusiastic support.

John Dunsmore
Chairman

Chief Executive’s Commentary

Your company has continued to invest in its brands, its assets and its people to build a healthier, more sustainable and highly innovative drinks company with a really exciting future both at home and abroad.

With sales growth of 15% in the group (up 20% on wine and up 7% on beer and cider), we are able to invest the proceeds to build the business whilst still delivering growth in EBITDA (+29% vs 2016). With 7 years of strong compound growth, Chapel Down is maturing to become a player with serious potential in growth markets. We are seeing good demand for English sparkling wines in sophisticated international markets and we enjoyed our first full year in the USA, reaching our target of 10,000 bottles of sparkling wine with ease.

Performance Review

The combined business continued to grow in sales and gross profit of both Wine and Beer and Cider in 2017:

We have made a conscious decision to continue reinvesting any surplus cash in our people, our systems, and our brands. Nonetheless the total business reported Continuing EBITDA of £968k***, up 29% compared with £750k*** in the year to December 2016.

Gross margin on wine was slightly down due to euro exchange rates and increased cost of raw materials, but remains very healthy.

We believe that there is great potential in our brands. They are well positioned, well managed and in attractive growth markets. We will accelerate our investment in planting new vineyards on the finest land, develop our winery and tourism infrastructure, build out our new brewery in Ashford and continue to innovate and excite the drinks business with initiatives like our gin and vodka.

In addition to being cited as one of the ’s 1000 Companies to Inspire Britain, we are members of the influential Walpole Group of luxury brands and retained our official CoolBrand status. We were also delighted to be official partners of The Boat Race and Royal Ascot for the first time.

Wine

Wine sales grew 20% in the year to £8.119m. We have broad premium distribution and a strong base of distribution partners, which include Matthew Clark and Bibendum. We are delighted that the immediate trading situation at Conviviality has been resolved, but we have always been mindful of the need to ensure that we have a variety of partners to reach our customers. We are developing some exciting long term export opportunities, particularly the USA where we hit our first year sales target of 10,000 bottles. We are also growing our direct sales through our own shop, direct online sales, events and pop-ups where we can bring a Chapel Down experience to consumers. Sales in the shop were up to £1.5m (+16%) and our pop-up at Bluewater added £170k to sales and also won “pop-up” of the year at the Industry awards. Our visitor numbers and spend in the shop are both up and the restaurant has also benefitted.

Our sparkling wines continue to set the standard for the industry. They are widely available in the on and off trade and supported by headline events and sponsorships such as The Boat Race, Royal Ascot, The Donmar and London Symphony Orchestra. We believe our sparkling portfolio offers outstanding quality and value from £25 to £100. We will manage the sales of these wines to ensure we can build reserve stock to enable us to manage our customers and our growth. With more international accolades and very strong demand from a consumer seeking something more interesting and distinctive than Champagne, we are confident in our plans to double the acreage of vineyards supplying us to over 1,000 acres over the next three to four years. The Company estimates that Chapel Down represents over half of the growth in English sparkling wine in the off trade. Our still wines (which are more individual vintage dependent, but much of which can be released in the year following vintage) have also been winning international accolades and wide critical acclaim particularly at the premium end. As a result we continue to see strong demand and excellent sell through.

In the vineyards we continue to improve the quality of the wines we make through the management of our own vineyards and the spread of good practice with our 24 partner vineyards. We apply the most modern viticultural techniques to ensure we get the finest fruit.

In the winery, the fruit is being made into the best possible wine through the expertise of a young winemaking team who use the latest technology and equipment. In a highly competitive market, both vineyard and winery teams are constantly challenged to surprise and delight, and that spirit is reflected in the innovative wines and products that we have created to ensure we remain at the forefront of consumer’s minds. And they find us thanks to the wide availability and constant stream of exciting news about the company and its brands.

The recent fundraise has enabled us to secure an exciting future. We will continue to invest in creating further high quality supply from the best sites we can find. We have planted a further 50 acres this Spring taking the total planted on long term leased land to 172 acres since 2015. We now have 533 acres of vineyard planted from which to source our fruit We will continue to invest in further capacity and equipment to enhance efficiency and quality in the winery over the coming years, improving our systems and processes as well as building a world class brand and team.

Beer and Cider

Beer and cider sales in our associate company, Curious Drinks Ltd, rose 7% to £3.677m. Our growth had to be carefully managed this year as we were forced to change our brewing partners and needed to ensure consistency of supply and exemplary matching of the product to ensure we lost no customers or consumers in the process. We took the opportunity also to refresh our brand identity and make our winemaking links more obvious.

Our growth remains focused on premium accounts - top end restaurants, bars, hotels and premium off trade. We have national distribution through Majestic and Waitrose in the off-trade and a network of wholesalers that enables us to supply Curious beers in draught or bottle to the whole of Great Britain. We are supplying Mitchells & Butlers as well as a number of up and coming on trade groups looking for something truly original. We recently launched our canned Curious Brew in 232 Tesco stores nationally.

We have a unique and distinctive consumer proposition – a winemaker’s beer – which is increasingly rare in an exciting and fast-growing beer market. This real point of difference along with the ambition of the team have been enhanced by the addition of a new Managing Director for Beer and Cider, Gareth Bath who joined us in October 2017 from Brewdog where he was MD. This will enhance an already strong management team.

Our real point of difference and our appeal to a broad church of consumers give us a fantastic opportunity. The construction of the new brewery and visitor facility in Ashford is progressing well and should start test brews at the end of 2018 and open in the first quarter of 2019. It is just 38 minutes from St Pancras and its construction will be a further stimulus for growth.

Business risks and uncertainties

Brexit has had no significant impact on our business to date. We would be affected, like all agriculturally based businesses, if we were not able to access EU workers for our viticulture. We are lobbying as an industry and are confident that there will be a solution given the strategic and cultural importance of a strong domestic food and drink industry and the growing importance of tourism to our economy. Nevertheless, we believe that maintaining and developing a strong brand and building a team of very high quality people are our best defence and we will continue to invest wisely to ensure we are best placed and risk is minimised.

There is a risk of a poor harvest through extreme weather events which we mitigate through maintaining the highest standards of viticulture, choosing the very best sites and utilising the latest proven advances in technology and agriculture. We source from a wide geographic area to minimise micro-climatic variations that can blight individual sites. The diversification into beer and spirits also further protects our ability to continue to grow. The risk of a poor hop harvest also exists and the group mitigates this risk by buying forward contracts on its key hops.

Competition continues to grow but we continue to invest in our people, brands and distribution to ensure that the business can continue to thrive.

Outlook

We are lucky to work in a great business. Our drinks are social glue. They tell a story. They are delicious. They are a reason to get together.

We are passionate about growing that congregation – introducing uniquely delicious products to enlightened consumers everywhere.

We are on a pilgrimage to get drinkers to fall in love with our brands so we can share their most special moments with them.

We think there is little point in just simply trying to be the best. That’s simply not good enough any more. We have to be the only people who can do what we do. That excites us and that’s what makes our brands stronger.

We think we have something special. Big brands are under attack as never before from products and brands that are more exciting. Brands that are more interesting and interested. Brands that have a relevant and engaging story to tell. Brands that have a real point of difference. Brands that try harder. Brands like Chapel Down.

The launch of Kits Coty premium wines and the consumer and trade interest in Chapel Down will continue to fuel the English wine market, interest in which shows no signs of abating. We remain appropriately optimistic about continuing growth in sales in 2018. We will be securing sites for a further 500 acres of new vineyards over the coming years as the industry grows and we remain its leading brand.

Beer and cider growth will be accelerated as we build out the brewery and create more interest and engagement around the Curious brand. Recent listings in Tesco and on trade chains are exciting.

Last year we saw the opportunity to add a winemaker’s expertise to the growing gin and vodka industry and created Chapel Down gin and vodka using the skins of our Bacchus and Chardonnay grapes. Immediately listed nationally in all Majestic stores in December, it is now also available in leading on trade accounts such as Le Gavroche, Roux at Landau, Le Manoir aux Quat’Saisons, Roast, Paris House, The Ned, Hospital Club, Hix, Selfridges and Harvey Nichols. Both products have received wide critical acclaim. These beautiful bottles give us an even more powerful portfolio and a further growth opportunity which we will develop this year.

Finally – to all our shareholders, thank-you. Its great to see so many of you using your shareholder benefits to get great discounts on our wines, beers and spirits. The energy, support and excitement that you create is something the whole team appreciate.

So let’s raise a glass. To you. To us. The curious optimists. The believers.

Frazer Thompson
Chief Executive Officer

***Excludes the effect of the FRS 102 Section 26 share option accounting adjustment of £75k (2016: £75k) which is a non-cash item. Refer to note 1 “Basis of preparation/accounting policies” for further information.

Contact

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/201.

1. BASIS OF PREPARATION/ACCOUNTING POLICIES

The Company’s report for the year ended 31 December 2017 was authorised for issue by the directors on 20th April 2018. The financial information does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 31 December 2017, which was prepared in accordance with the Company’s reporting standard (FRS102) that was in effect at that time.

The accounting standard requires the Company to restate its profit to attribute a notional cost of non-cash share option agreements to the business. After adopting the standard, the accounts show a decrease in profit of £75,416 (2016: £74,868) resulting in a Group pre-tax profit of £253,115 (2016: pre-tax loss of £765,126).

The Company is required to value net assets in accordance with the Company’s reporting standard (UK GAAP). The assets (wine stock, land, vineyard) are held at cost which the Directors believe is considerably less than the realisable value.

The statutory accounts for the year ended 31 December 2017, prepared under UK GAAP, have been reported on by the Company’s auditors, received an unqualified audit report and will be posted to shareholders in May 2018.

2. BALANCE SHEET REVIEW

The net asset value of the Company as at 31^st December 2017 was £33,914,893 which includes:

• Fixed assets of £10,944,912 includes the 2015 market value of the sites at Tenterden and Kit’s Coty as well as the vineyard development expenditure at Kit’s Coty and at Court Lodge, Boxley which is capitalised at cost.

• £4,561,202 of stock is valued at cost being the lower of cost or net realisable value.

3. PROFIT PER SHARE

The calculation of the profit per share for the year ended 31 December 2017 is based on the profit for the period of £122,411 and the weighted average number of shares in issue during the period of 112,411,301.

4. DISTRIBUTION OF THE FULL YEAR STATEMENT

Copies of this statement will be available for collection free of charge from the Company’s registered office at Chapel Down Winery, Small Hythe Road, Tenterden TN30 7NG. An electronic version will be available on the Company’s website, www.chapeldown.com.

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Chapel Down Group plc

Source: Chapel Down Group plc