Chapel Down sales sparkle in half year announcement 2016

Chapel Down Group PLC is pleased to announce the Company’s Interim Results for the six month period ended 30 June 2016.

KEY HIGHLIGHTS INCLUDE:
• Year on year sales up 26% to £4.093m (H1 2015: £3.249m)*
• Chapel Down Wine sales up 14% to £2.585m (H1 2015: £2.275m)
• Curious Drinks Ltd Beer and Cider sales are up 55% to £1.508m (H1 2015: £0.974m)
• Wine Gross Profit up 18% at £1.026m (H1 2015: £0.869m)
• Beer and Cider Gross Profit up 55% at £0.473m (H1 2015: £0.305m)
• EBITDA of £93k (H1 2015: £84k) as we continue to reinvest in our brands, infrastructure and supply
• The associate company Curious Drinks Limited raised funds of £1.736m (equating to a 9.79% economic stake) valuing the business at £17.74m**
• 95 acres of new vineyards planted (40 acres on our new leased sites in Kent and 55 acres with contract partners)
• A Platinum medal at the Decanter World Wine Awards for our Kit’s Coty Chardonnay 2013, as well as Gold medals for our sparkling wines in two prestigious global competitions – The International Wine and Spirits Challenge 2016 and the Champagne and Sparkling Wine World Championships 2016

*Total of Wine sales and Beer and Cider sales
**The sale resulted in Chapel Down Group PLC retaining a 49.79% voting share and a 90.21% economic share of Curious Drinks Limited and realising a Gain on Disposal of £467k.

Frazer Thompson, Chief Executive, said: “We continue to deliver good growth, with sales and gross profits both growing strongly. Consumers’ interest in English wines and specialist or craft beer shows no sign of abating and Chapel Down has worked hard to be well positioned to benefit. We are planting more vines in the finest sites, improving our production facilities, winemaking equipment and systems and developing our people and brands. The successful fundraising of £1.736m for Curious Drinks will enable us to build an exciting new brewery and develop our business for the long term. We are encouraged by the prospect of another good harvest in 2016, with excellent quality, which will enable us to continue to improve the quality of our wines and help our goal to have supply in place to meet future demand.”

 

CURIOUS DRINKS: FUNDRAISING & PARTIAL DISPOSAL

Prior to 4th April 2016, Curious Drinks Limited was a 100% subsidiary of Chapel Down Group PLC. In April 2016, Curious Drinks Limited raised funds of £1.736m for a 9.79% economic share and a 50.21% share of the voting rights in the business with Chapel Down Group PLC retaining the remaining 90.21% economic interest and the remaining 49.79% share of the voting rights. The ‘post money’ valuation of the Beer and Cider business was £17.736m. The sale of the 50.21% share of voting rights means there was a “deemed disposal” resulting in a Gain on Disposal for Chapel Down Group PLC of £467k as well as Curious Drinks Limited being accounted for as an associate from 4th April 2016 onwards. The Profit and Loss Account for the six months to 30th June 2016 shows the “Continuing Operations” which includes 49.79% of the performance of Curious Drinks Limited for the period 4th April to 30th June 2016 as a single line being the “share of income from Associate”.

Under FRS102 the results of Curious Drinks Ltd pre 4th April, which were previously consolidated on a 100% ownership basis, are now disclosed under the heading “Discontinued Operations” in the Profit and Loss Account.

 

PERFORMANCE REVIEW

The combined business continued to perform strongly in the first half of 2016, with growth in sales and gross profit of both Wine and Beer and Cider:

Wine Beer and Cider Combined Businesses

We have made a conscious decision to continue reinvesting any surplus cash in our people, our systems, and our brands. As a consequence the total business reported EBITDA of £93k, compared with £84k in the six months to June 2015.

We believe that the potential and the growth in both English wines and specialist or craft beer will continue and we want to ensure our brands are well positioned to participate in that growth. We continue to invest in planting new vineyards on the finest land on our long term leasehold land holdings in Kent and other long term partner sites.

Wine

Wine sales grew 14% in the first half, to £2.585m. We are confident in the positioning of our brand and are starting to see growth across the country, as well as some exciting export opportunities.

Our still wines (much of which can be released in the year following vintage) have been winning international accolades, as well as our sparkling. As a result we are seeing strong demand and excellent sell through (volumes up 17%). We are confident of maintaining the strong top line growth over the rest of the year providing we have a decent 2016 harvest.

Our sparkling sales are up 11%. We are managing the growth rate to ensure we do not over-extend our distribution, but maintain a premium profile and good relationships with our distributors and retailers. We continue to build our stock levels to enable consistency of supply which is critical in the continued development of our brand. Our mix of product has therefore been affected, but we can look forward to further progress as reserve sparkling wine stocks are built and the results of the excellent 2013, 2014, 2015 and – in all probability – 2016 harvests gradually become available for sale.

The investment by our shareholders has enabled us to secure an exciting future. We are very pleased with the development of our new vineyard sites and have planted a further 40 acres taking the total planted on our long term leased land to 122 acres since 2015. We have also added a further 55 acres which is under long term grower contracts. We continue to invest in further capacity and equipment at Tenterden, improving our systems and building our brand and team. The new storage, disgorging and dispatch warehouse in Ashford is now fully operational and releases space for further winemaking capacity. The relocation of our office and commercial teams to Ashford has also improved our connectivity and enabled us to gain planning consent for improved visitor facilities at the former office block at Tenterden.

Beer and Cider

Beer and cider sales rose 55% to £1.508m in the first half. Our growth has focused on premium accounts and we have been delighted by the continuing progress in top end restaurants, bars, hotels and premium off trade where the brand has good sustainable rates of sale. We are successfully attracting aspirant consumers wanting interesting, original and accessible brands. We have national distribution through Majestic and Waitrose in the off trade and a network of wholesalers, including Matthew Clark, that enables us to get Curious beers in draught or bottles to the whole of Great Britain. We are supplying M&B, Enterprise, Food and Fuel and a number of up and coming small groups looking for something truly original.

We have a unique and distinctive consumer proposition – a winemaker’s beer – which is increasingly rare in an exciting and fast-growing beer market. Our real point of difference and our appeal to a broad church of consumers give us a fantastic opportunity. We are very pleased with the top line growth and strong margins which are enabling us to re-invest in marketing and sales to build the brands. The construction of the new brewery and visitor facility in Ashford just 38 minutes from St Pancras will be a further stimulus for growth. The scheme is in planning at present and we expect to be brewing on site in early 2018.

 

OUTLOOK

We remain cautiously optimistic about continuing growth in sales in the second half of 2016 post Brexit, Olympics and Euros. We believe that the 2016 harvest will provide the quality of fruit from which we can seek to create more international award winning wines in the years to come. The exciting growth of our beer and cider in a vibrant artisanal market sector is also encouraging.

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 cash balances remain high. We enjoy the custom and support of our many new shareholders who are spreading the word on our behalf with energy and enthusiasm. Thank you for your faith, your continued encouragement and your enthusiastic support.