LONDON--(BUSINESS WIRE)--

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

AUDITED RESULTS FOR THE YEAR ENDED 31^st DECEMBER 2018

Chairman’s Report

I am delighted to announce another period of progress in the results for the year ended 31 December 2018.

Key highlights:

• Year on year combined sales up 10% to £13.016m (2017: £11.796m)*^/**
  • Chapel Down Wine and Spirits sales up 11% to £8.977m (2017: £8.119m)
  • Beer and Cider sales, in Curious Drinks Limited, up 10% to £4.039m (2017: £3.677m)***
• Wines and Spirits gross profit up 12% at £3.626m (2017: £3.244m)
• Beer and Cider gross profit (in Curious Drinks Limited) up 1% at £1.229m (2017: £1.224m)
• On a like for like basis, EBITDA up 18% to £1,141k (2017: £968k)*^/**** as we continue to reinvest in our brands, infrastructure and supply
• A Gold Outstanding medal at The International Wine and Spirits Challenge 2018 Awards for our Kit’s Coty Coeur de Cuvee 2013 along with a Gold for our Kit’s Coty Blanc de Blancs and Gold medals at The Decanter World Wine Awards for our Kit’s Coty Blanc de Blancs and Kit’s Coty Coeur de Cuvee 2013 and our still Chardonnay 2013
• Additional 102 acres of new vineyards planted on chalk terroir in Kent
• Brewery build complete and open to the public from 10^th May 2019
• In October we completed on the Lease of a further 388 acres of prime viticultural land adjoining our existing vineyards on the North Downs
• In December we completed on the Lease of a 5,000 sqft site in King’s Cross, London by the Regent’s Canal where we have opened the “Chapel Down Gin Works” an experiential bar, restaurant and Gin Works
• Extraordinary harvest – over double our highest ever harvest and excellent quality

* For the years ended 31 December 2016 and 2017 Curious Drinks Limited was accounted for as an associate company in the consolidated financial statements. Following changes during the year in the composition of the board of Curious Drinks Limited and a significant increase in funding from Chapel Down Group Plc, Financial Reporting Standard 102 requires us to report Curious Drinks Limited as a subsidiary in the consolidated accounts of Chapel Down Group Plc from 30 January 2018. However the comparative period remains as if Curious Drinks Limited was an associate. To enable a like for like comparison table 2 in the perfomance review section of the Chief Executive’s commentary shows the profit and loss account as if Curious Drinks Limited had remained an associate for the entire year.
** Includes 12 months of Beer and Cider sales for Curious Drinks Limited for both periods
*** In April 2016 Curious Drinks Ltd raised £1.736m for a 9.79% economic share and a 50.21% share of the voting rights in the business. The sale resulted in Chapel Down Group PLC retaining a 49.79% voting share and a 90.21% economic share of Curious Drinks Ltd.
**** Excludes the effect of the FRS 102 Section 26 share option accounting adjustment of £57k (2017: £75k) which is a non-cash item.

Your Company is focused on building strong differentiated and valuable brands that will deliver a sustainable long term profitable business. Chapel Down operates in attractive growth sectors – English wine, craft spirits and contemporary beers and cider with good growth potential both in the UK and abroad. Chapel Down has created a portfolio of attractive innovative brands with premium positioning supported by well executed marketing, high profile sponsorships, attractive experiential brand homes and an excellent customer base.

2018 has been a busy year preparing the Company for further growth. 388 new acres of prime vineyard land will produce up to 1 million extra bottles of wine per annum. Our gin and vodka have had critical acclaim and we have developed a new experiential brand home on the Regents Canal in the developing Kings Cross area of London. Our brewery building, which is just 38 minutes from St. Pancras, is now complete and our facilities at Tenterden have been given a facelift that has driven an increase in retail sales of 17%. We have an ambitious and experienced management team focussed on our desire to make Chapel Down England’s most exciting drinks company. We are on the way, but there is much to be done.

We will continue to make substantial investments over the coming years in planting more vineyards, developing our winery, improving our commercial infrastructure, hiring and training the best talent and creating smart effective marketing to ensure that we build the strongest quality brands and are therefore 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 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 continued faith, excitement, encouragement and 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 innovative drinks company with a really exciting future both at home and abroad.

With sales growth of 10% in the group (up 11% on wine and spirits and up 10% on beer and cider), we are able to invest the proceeds to build the business whilst still delivering growth in like for like EBITDA (+18% vs 2017). With eight years of strong compound revenue growth of 22% per annum, Chapel Down is now developing 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 second full year in the USA and growth at present is limited only by our production. Nevertheless, our key market remains the UK and managing and servicing our customers better to ensure we turn awareness and desire for Chapel Down and Curious into profitable sales remains our key challenge.

We were blessed with an extraordinary harvest this year. Our average yields per acre were up some 97% and with the addition of new plantings starting to produce, our heroic vineyard and winemaking team were able to secure well over double the volume of fruit in good condition to enable us to build our stocks and to start to satisfy the excess demand for our wines. With a further five International Gold Medals in 2018, we are surprising and delighting more wine lovers than ever. Our brand home at Tenterden saw sales increase by 17% as visitor numbers improved thanks to excellent weather, improved awareness and better facilities and range at the vineyard.

We enjoyed a very successful first full year for our new gin and vodka which use the skins of our grapes to create a real point of difference in a crowded market. The proposition has received widespread critical acclaim with the liquid picking up Double Gold in the Spirits Masters and the bottle design receiving a prestigious D&AD award. With the addition of a new brand experience home at Kings Cross, we also took another step forward in creating a better brand for today’s knowledge-hungry, discerning consumer. The initial reaction has been extremely positive.

Our beer and cider performance has been steady as we continue to invest in our own brewery which opened in May 2019. We continued to manage our growth through a focus on premium accounts - top end restaurants, bars, hotels and premium off-trade such as Mitchells & Butlers and Fullers. We believe that the new brewery will add a significant impact to our brand offering as well as enable us to profit from managing our own brewing.

Along with many other drinks businesses our performance was slightly affected by the collapse of Conviviality, but we are pleased to see the recovery under C&C. We continue to be able to offer our beers, wines and spirits to the widest range of customers in the UK through a strong network of regional wholesalers along with Matthew Clark.

Performance Review

The combined business continued to grow in sales and gross profit of both Wine and Spirits and Beer and Cider in 2018:

Table 1

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 like for like EBITDA of £1,141k, up 18% compared with £968k**** in the year to December 2017.

Gross margins on beer and cider have declined following the forced change of our brewing partner in 2017 which has also limited our scope for short term volume growth whilst developing the brand and managing supply. At 30% gross margin from contracted out brewing, we are satisfied with its performance.

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 and develop our winery and tourism infrastructure in Tenterden and look to improve our capacity and quality. We will benefit from the awareness, excitement, product freshness and duty savings from our new brewery in Ashford and win new friends and customers as we continue to innovate and excite the drinks business with initiatives like our gins and vodka and the Gin Works at Kings Cross.

In addition to being cited as one of the London Stock Exchange’s 1000 Companies to Inspire Britain, we are members of the influential Walpole Group of luxury brands and are an official CoolBrand. We are also delighted to continue to be official partners of The Boat Races, Royal Ascot, Donmar Warehouse, The London Symphony Orchestra and headline supporters of the Curious Arts Festival.

As highlighted in the notes to the Chairman’s Report, from 30 January 2018 Curious Drinks Limited has been accounted for as a subsidiary in the consolidated financial statements. In order to show a like for like comparison of results, below we have demonstrated what the consolidated results would have been had Curious Drinks Limited remained an associate entity for the entire year.

Table 2

Wines and Spirits

Wine and spirits sales grew 11% in the year to £8.977m. We have broad premium distribution in the national retailers including Waitrose, Sainsbury’s, M&S and Majestic. We enjoy an enviable presence in premium on trade accounts too, delivered across a number of strong partnerships including Matthew Clark and Bibendum, now revitalised under the ownership of C&C. Beyond the UK, we are developing exciting long term export opportunities, particularly the USA. We are growing too our direct sales through our shop, online sales, events and pop ups where we can bring a Chapel Down experience to consumers via our own team. Sales in the shop were up to £1.72m (+17%).

Our sparkling wines continue to set the standard for the industry, offering outstanding quality and value at every price tier. 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 increase the acreage of our vineyards. 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 consumers’ minds. And they find us thanks to the wide availability and constant stream of exciting news about the Company and its brands.

We will continue to invest in creating further high quality supply from the best sites we can find. We have planted a further 102 acres taking the total planted on long term leased land to 274 acres since 2015. We now have 635 acres of vineyard planted from which to source our fruit. In 2018 we were delighted to secure a further 388 acres of prime viticultural land adjoining our existing vineyards on the North Downs. This will be planted over the next 2 years taking our total acreage under vine to in excess of 950 acres which will be fully productive from 2024/25. In an average year it should be producing some 2.4m bottles of wine. 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 Curious Drinks Ltd rose 10% to £4.039m.

We continued to manage our growth through a focus on premium accounts - top end restaurants, bars, hotels and premium off-trade - while we completed the construction of our new brewery. We have national distribution through Majestic and Waitrose in the off-trade and a network of wholesalers including Matthew Clark that enable us to supply Curious beers in draught or bottle to the whole of Great Britain. We are supplying Mitchells & Butlers, Greene King, Ei Group and Fullers as well as several exciting up and coming premium UK on-trade groups looking for something truly original. 2018 also saw us launch our canned Curious Brew in 232 Tesco stores nationally, and at the start of 2019 regionally into Co-op.

We have a unique and distinctive consumer proposition – a winemaker’s beer – which is increasingly rare in an exciting and growing albeit highly competitive beer market. This real point of difference will be enhanced by the opening earlier this month of the new brewery and visitor facility in Ashford. It is just 38 minutes from St Pancras and its completion will be a unique stimulus for growth.

The custom-built state of the art brewhouse will enable us to produce more even better fresher Curious beer. We have added to the team bringing in Brewmaster Matthew Anderson to oversee brewing on the site. Matthew joins the team having spent over a decade in brewing roles at AB Inbev bringing significant expertise to the team.

We have developed unique experiential and product partnerships, launching our Curiouser & Curiouser small batch series in collaboration with Wild Beer Co, Brew By Numbers, Fourpure Brewing Co and Beavertown and working as headline partner for the Curious Arts Festival.

Business risks and uncertainties

Brexit has had no significant impact on our business to date. In an area of full employment, we may be affected if we were not able to continue to access EU or other foreign workers for our viticulture and to mitigate that risk we will be looking at trialling the latest mechanical picking technology in 2019. However, 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 grape 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 know we are lucky to work in a great British industry and an exciting business. Our drinks 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. Brands that are more interesting. Brands that have a relevant and engaging story to tell. Brands that have a real point of difference. Brands that try harder.

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 and we are planting for the future. We remain appropriately optimistic about continuing growth in sales in 2019.

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.

Our Chapel Down gins and vodka, which uses the skins of our grapes, are performing well in a growing gin and vodka market that shows no sign of slowing. Already listed nationally in all Majestic stores and now also available in leading accounts such as Le Gavroche, Roux, Le Manoir aux Quat’Saisons, Paris House, The Ned, Hospital Club, Hix, Selfridges and Harvey Nichols. The products have received wide critical acclaim and 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 £57k (2017: £75k) which is a non-cash item. Refer to note 1 “Basis of preparation/accounting policies” for further information.

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The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31^ST DECEMBER 2018

There was no other comprehensive income for 2018 (2017 - £Nil).

1. Represents the consolidated audited results for Chapel Down Group Company, English Wines Plc and Curious Drinks Limited for the period 31 January 2018 to 31 December 2018 and the share of loss from Curious Drinks Limited, for the period 01 January 2018 to 30 January 2018.
2. Represents the consolidated audited results for Chapel Down Group Company and English Wines Plc for the period 01 January 2017 to 31 December 2017 and the share of loss from the Associate, Curious Drinks Limited, for the period 01 January 2017 to 31 December 2017

CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 31^ST DECEMBER 2018

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31^ST DECEMBER 2018

1. BASIS OF PREPARATION/ACCOUNTING POLICIES

The Company’s report for the year ended 31 December 2018 was authorised for issue by the directors on 29 May 2019. 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 2018, 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 £57,161 (2017: £75,416) resulting in a Group pre-tax loss of £850,328 (2017: pre-tax profit of £253,115).

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 2018, 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 June 2018.

2. BALANCE SHEET REVIEW

The net asset value of the Company as at 31^st December 2018 was £35,017,230 which includes:

• Fixed assets of £18,641,920 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.

• £7,679,702 of stock is valued at cost being the lower of cost or net realisable value.

3. PROFIT PER SHARE

The calculation of the loss per share for the year ended 31 December 2018 is based on the loss for the period of £166,512 and the weighted average number of shares in issue during the period of 149,042,173.

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