REG - Chapel Down Group - Update on Strategic Review, Harvest & Trading

Chapel DownAnnouncement

25/10/2024 12:45

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RNS Number : 7216J  Chapel Down Group PLC  25 October 2024

This announcement contains inside information for the purposes of the retained
UK version of the EU Market Abuse Regulation (EU) 596/2014 ("UK MAR").

 

Chapel Down Group Plc

('CDG' or 'the Company')

EPIC: CDGP

UPDATE ON STRATEGIC REVIEW, HARVEST AND TRADING

 

Strategic review

Chapel Down announced a strategic review on 25 June 2024. Having evaluated a
number of opportunities, this review is now complete, with the Board
concluding that there were no transactions that would create superior long
term shareholder value than Chapel Down remaining a stand-alone AIM listed
company. Accordingly, the Company is no longer in an "offer period" as defined
in the Takeover Code. Chapel Down will continue to lead the development and
consolidation of the English wine industry and will only consider transactions
that are value creating for our shareholders.

The Chapel Down Board and team, have great confidence in the continued growth
of the English wine region, which is underpinned by the quality of the wines
being created. The quality of Chapel Down's wines continues to be recognised
by international awards such as the 2024 'best in show' for Sparkling Rosé at
the International Decanter awards as well as Kits Coty Coeur de Cuvée being
crowned WineGB 'supreme champion'.

Chapel Down is the largest brand in English wine with 42%(2) awareness, 16%(2)
penetration and a social media following of more than 120,000 users. The
Company has 1,024 planted acres of vineyards, which is c10% of the UK's total,
has previously invested in the Tenterden winery and is able to produce up to
3m bottles of wine per year. Chapel Down also benefits from the largest
distribution in English wine, across the Off-trade, On-trade, Export, Global
Travel Retail, eCommerce and our own Retail outlet and Tourism business in
Tenterden.

The Company awaits final planning permission being granted on the winery at
Highland Court before making a final decision on progression. An update will
be communicated separately, when that outcome is known.

Harvest

Chapel Down has nearly completed its 2024 harvest, which will be of a high
quality with particular similarities noted with the 2019 vintage, but of a
lower yield than the exceptional 2023 and the 5-year average harvests. Chapel
Down has built a strong inventory of wine from previous vintages, and
therefore future sales plans will not be impacted by stock availability.

As disclosed in the Company's Half Year results announcement, growing
conditions for 2024 started well, with no frost damage during early spring,
and fine, warm weather during flowering, however the 2024 vintage has faced
more difficult weather conditions in September and October. Although our
vineyards were not impacted as heavily as other regions in England, late
season weather has led to some pressure from mildew and consequently reduced
yields, given our strict focus on quality. Vintage quality and grape flavours
are however excellent, reminiscent of the 2019 harvest, which delivered great
quality traditional method sparkling wine.

The impact from adverse late season weather has been minimised by our
vineyards being geographically spread across Kent, our network of 46 weather
stations feeding back live data to allow us to take rapid mitigating actions,
coupled with the outstanding expertise of our vineyard and grower teams.

Chapel Down expects the 2024 Harvest to be approximately 1,875 tonnes (2023:
3,811 tonnes, 2022: 2,050 tonnes, 2021: 1,450 tonnes). This equates to 2.5
tonnes per productive acre (2023: 5.1 tonnes per acre, 2022:  2.7 tonnes per
acre, 2021: 2.2 tonnes per acre). Since the harvest is below our forecast,
this will impact the forecast in-year Fair Value biological assets non-cash
adjustment, see below.

Chapel Down expects to create c1.7m bottles from the 2024 vintage. The
majority of our harvest will create traditional method sparkling wine, in line
with the Company's strategy to focus on its higher margin award-winning
sparkling wines, which benefit from the cool maritime climate and chalk soils
of the North Downs of Kent.

Planting at the new Buckwell vineyard is now complete, and the vines are
growing in line with expectations. Buckwell gives an additional 91 acres (37
hectares) of Chardonnay and 27 acres (11 hectares) of Pinot Noir, extending
Chapel Down's planted vineyards to 1,024 acres (414 hectares), c10% of all UK
planted vineyards.

Josh Donaghay-Spire commented: "The fruit is looking and tasting great,
particularly at our vineyards on the Kent Downs. Whilst the 2024 vintage has
faced more difficult weather conditions in September, vintage conditions and
grape flavours are reminiscent of the 2019 harvest which delivered great
quality traditional method sparkling wine such as the recently released Grand
Reserve 2019 and Blanc de Blancs 2019."

Trading

Whilst sparkling wines sales performance in Q3 has improved and Off-trade
stockholdings have been reduced to normal levels, there remains some ongoing
pressure on rate of sale in the Off-trade. Chapel Down expects continued
double-digit sales growth for the year in the On-trade, Export and Direct to
Consumer channels, and the Company has strong consumer and customer
promotional plans in place for Q4, however Chapel Down now expects the full
year net sales revenue to be a low, single digit decline from prior year.

This revenue impact, alongside the expected reduction in gross margin from a
higher weighting in 2024 towards still wines, will result in a positive
'trading operating profit'(1) for the full year, but this will be lower than
in 2023.

The smaller than expected harvest noted above will result in the Company
booking a non-cash charge of between £750k and £850k for the full year
relating to fair value adjustment on biological assets. Taking this loss
in-year, will however reduce future cost of goods sold and hence increase
future gross margin. The non-cash FV adjustment loss on biological produce
coupled with the expected exceptional costs relating to the strategic review
announced on 25(th) June, will create a PBT loss for the full year.

During Q3, Chapel Down signed a long-term extension to its Revolving Credit
Facility, which reduces interest rates payable whilst increasing the
facilities size to £20m.

Chapel Down continues to invest in the leading English wine brand, resulting
in continued record levels of brand awareness(2) (42% end September vs 39% at
2023 year-end) and brand penetration(2) (16% end September vs 14% at 2023
year-end). These brand metrics and our unrivalled distribution scale underpin
our future growth.

Q4 is the most important trading period for Chapel Down and we have confidence
in our success, based on our strong brand and customer marketing support
plans. We expect to provide a further scheduled trading update in January.

 

Notes:

1.   Trading operating profit is profit excluding in-year FV adjustment on
biological produce and exceptional items.

2.   Source: BrandVue

 

Contacts

 

 Chapel Down Group plc    Chief Executive Officer

 Andrew Carter            Chief Financial Officer       01580 763 033

 Rob Smith

                          Nominated Adviser and Broker

 Singer Capital Markets

 Shaun Dobson                                           020 7496 3000

 Tom Salvesen

 Asha Chotai

 James Todd

 H/Advisors Maitland

 Sam Cartwright                                         020 73795151

 Jonathan Cook

 

About Chapel Down:

Chapel Down (AIM: CDGP) is England's leading and largest winemaker and the
power brand of English wine, the world's newest international wine region.
From its home in Kent in the heart of the Garden of England, Chapel Down
produces a range of sparking and still wines which consistently win
prestigious international awards for their quality. Chapel Down has over 1,000
acres of vineyards, of which 750 acres are fully productive.

Chapel Down's status as the most recognised English wine brand is supported by
its partnerships with flagship sporting and cultural events including Ascot,
The Boat Race and Pub in the Park, and Chapel Down is the 'Official Sparkling
Wine' of the England and Wales Cricket Board.

Chapel Down is listed on the London Stock Exchange's AIM and has over 10,000
retail investors who enjoy discounts on Chapel Down's wines, tours and
tastings at the brand's home at Tenterden in Kent, which each year attracts
c60,000 visitors.

Chapel Down is strongly committed to growing its business in balance with the
environment and sustainability is a strong, ongoing focus. The company is a
founding member of Sustainable Wines of Great Britain and practices
sustainable viticulture.

 

 

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