Chapel Down Group Plc (CDGP) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Chapel Down Group Plc Year-end Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in the meeting itself. However, the company can review the questions submitted today and publish responses when it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to play a short video before we begin. [Presentation]

I'd now like to hand over to James Pennefather, CEO. Good afternoon to you, sir.

Thank you, Alessandro, and a very good afternoon, and thank you to all our investors who are on this call. As hopefully you know, I'm James Pennefather, and I've been at Chapel Down now for 2 months, and I'm loving being here. The previous 25 years of my career have been spent in the world of single malt whiskey, and I found great similarities with Chapel Down's focus on building a high-quality, high-margin global brand, which is still firmly rooted in its local terroir. Even though I cannot personally claim any of the credit for the significant strategic and operational progress that the company made in 2024, I'm delighted to have the opportunity to present you Chapel Down's 2024 performance results as well as update you on our exciting ambition for the future. I'm joined today by our Chief Financial Officer, Rob Smith. And between us, we'll take you through this afternoon's agenda, which covers the market opportunity, brand, operations, financials and our outlook. So starting with my first impressions, it's clear that Chapel Down is well positioned to deliver its ambition to deliver sustained profitable growth over the medium term. Firstly, I want to talk about the attractive global opportunity. Chapel Down's core strategic focus is on sparkling wines for which England's cool climate is ideally suited. The opportunity for us is highly attractive with the global sparkling wine category not only very large at GBP 26 billion, but also forecast by IWSR to grow in the medium term and has the aspirational champagne category at its heart. Champagne is a particularly attractive category because it is synonymous with celebration occasions where consumers are prepared to spend more, resulting in the category being brand-led and correspondingly higher margin. Rob is going to provide more detail on this in his section, and I'm confident that Chapel Down sparkling wines can win market share sustainably in this category. Secondly, Chapel Down benefits from an exceptional asset base built up over 3 decades of experience and investment. Firstly, we have over 1,000 acres of vineyards, 70% of which are situated on exceptional land in Kent North Downs, which is increasingly referred to as England's equivalent of the Côte d' Blanc. We have a clear wine-making philosophy, which produces invigorating wines with a backbone of crisp and fresh flavors, which makes them perfect for celebration occasions. The wines are exceptional. And last year, we won 41 awards for quality, our highest achievement to date. We've built up good stock levels of these maturing wines in our cellars, valued at GBP 26 million on our balance sheet, but of a much higher realizable value than that. We have the leading brand within English sparkling wine with higher levels of brand awareness and distribution than any other, and we have a committed and hard-working team with years of relevant experience. Thirdly, Chapel Down has a proven vertically integrated business model with expertise at all levels: viticulture, winemaking, brand building, route to consumer. In particular, I have been struck by how effective Chapel Down is at consumer acquisition and retention. Each year, approximately 70,000 consumers sample Chapel Down products at our brand home at Tenterden or at one of our experiential events. Once consumers are converted to the brand, and now we have over 100,000 of them in our online community, they are further engaged by our exceptional customer relationship management team through e-mail marketing as well as the chance to own shares. This has helped Chapel Down build scale, which in turn brings benefits in our route-to-market distribution and also in terms of efficiencies, and delivers profitability to the company. As a result, there's no need to change our long-term vision and mission for Chapel Down, which will continue to provide clear and focused direction for the company as we aim to create shareholder value by building our leadership position within English wine. I'm fortunate to have a strong management team already in place: Sales Director, Tom, who has built significant team capability and penetrating the on-trade over the past year; Chief Marketing Officer, Liam, who has done a great job in updating the visual identity of the brand and portfolio, and who runs our successful direct-to-consumer business; Denise, who is instrumental in leading our people agenda; and Josh, who continues to provide inspirational leadership across viticulture, winemaking and operations after 15 years working for Chapel Down. I'd like to call out Rob, our CFO, who has been a great asset to Chapel Down over the past 3 years and who has transformed our internal performance management systems, putting them onto a single platform as well as having an exceptional commitment to excellence in everything he does. Rob will be handing over the CFO role to Louan Mouton after these results. Louan has extensive relevant experience from Fever-Tree and Typhoo Tea, and I'm delighted that he has joined Chapel Down for the next phase of our growth. I'm now going to talk about some 2024 successes, and there were major successes during the year. 122 acres of new vines were planted at Buckwell in Kent North Downs, taking our planted acreage to 1,018 acres, which is roughly 10% of the U.K.'s total. Buckwell's vines will come into production in 2027, which will provide us with the wines to continue top line volume sales growth from existing vineyards into the early 2030s. They will also allow us to be in a position to sell 3 million bottles of sparkling wine per annum by 2035, a key figure that Rob will tell you more about shortly because it represents an equivalent 1% share of the global champagne market. Last year, we won 41 awards for quality across 5 competitions, our highest total ever, including the coveted best-in-class award for our rosé in the prestigious Decanter Awards out of the 269 global sparkling rosés that were entered. It is clear that England is fast establishing itself as the world's most exciting new world wine region. Chapel Down strengthened its position as the leading English wine brand in terms of raising levels of brand awareness, distribution and market share where it is measured in the important off-trade channel. English sparkling wine remains a growth category with a value growth of up 2% in the off-trade during the year. Chapel Down's consumer sales were up 4% in the same channel, which shows how we outperformed the category. And we saw exceptional double-digit growth in 2 of our channels: e-commerce, up 22%; and on-trade, up 16%, with listings growing by 25% during the year and by the glass listings up 73%, which demonstrates not only our ability to increase availability of the brand for consumers, but also to create a brand with strong consumer demand. In 2024, we also conducted a strategic review, which was helpful in understanding our options. The Board and I are aligned that the best way to achieve superior long-term shareholder value is for Chapel Down to remain a stand-alone AIM-listed company. And I'll now hand back to Rob, who will tell us more about the sparkling wine category.

Thanks, James, and good afternoon, everyone. As we've previously commented, the English wine industry does not have consistently good forecast data available as yet. So we, as a company, have created our own forecast, which we have updated for this presentation and will now reshare. On the left-hand side, you'll see that we forecast that the planted land will continue to grow gradually from about the 4,400 hectares, which is about 10,000 acres, the Wine GB data shows today. The current planted land is made up of over 1,000 vineyards in the U.K., and you'll see that this means that the current average vineyard size is very small. In contrast to the current position, we think that much of the future net growth of planted acres will come from larger and more productive vineyards, which is one of the key reasons that we forecast production to grow slightly faster than planted vineyard acreage. As a note to understanding the planning and capital cycle, vineyards become fully productive about 3 years after planting. On the right-hand side here, you see the production, and you'll see the impact of the exceptional 2023 harvest here. The Wine GB annual report showed that over 22 million bottles of English wines were produced in 2023, of which 16 million were traditional method bottles of sparkling. It was truly exceptional. But we then see the 2024 preliminary estimate, and a significantly lower yield, and hence, production overall. In 2024, Chapel Down's harvest was 2.5 tonnes per acre, so below our 6-year rolling average of 3.2 tonnes per acre. It was also about half lower than the truly exceptional 5.1 tonnes per acre we saw in 2023. The preliminary U.K.-wide figures show that 2024 harvest was, on average, only 1/3 the size of 2023. So this data suggests that we fared significantly better than average in terms of harvest yield last year. By 2030, as you can see, we forecast that total production will be up 35 million bottles, of which nearly 25 million will be traditional method. Then in terms of demand, firstly, we'll talk about the U.K. market today, which on the left-hand side, you will see is dominated by Prosecco. As James mentioned, this is a different quality and price point to our sparkling wine made in the traditional method. We consider our addressable market to be English sparkling wine and champagne only. However, we do expect over time some Prosecco drinkers, for example, to progress to English sparkling wine. But to be conservative, we do not include this dynamic in our calculation of addressable market. On the right-hand side, you will see the sales volume position in the off-trade only for which we do have good data. And for those eagle-eyed amongst you, you will see that we have now moved up to being the fourth largest-selling brand in our addressable market from seventh last year and in the process, outselling some famous names. We will now talk about the forecast domestic addressable market with traditional method sparkling wine. As an aside, we do not forecast still and other wines here since our production is small relative to market size. Of the 2 key parts of our addressable market, we forecast that champagne will have relatively flat volumes over the 10-year period, largely due to constrained supply. We forecast English sparkling wine to grow at an average rate of about 9% until 2027, then 7% thereafter. This is much lower than historic growth levels of closer to 20% domestically and even higher in export markets. Overall, thus, the domestic addressable market is forecast to grow at an average volume of just less than 2% a year to reach nearly 40 million bottles by 2034. Now let's talk about export. And finally, this is a great opportunity. Shown here are the global champagne volumes, about 300 million bottles are sold each year. And you will see this varies a little over time, but it's very, very consistent over a number of decades. Contrast that 300 million bottles number with our international volumes, which were approximately 50,000 bottles last year, majority of which went to global travel retail. As you can see, the export opportunity for English sparkling wines in Chapel Down is vast. We have an amazing large domestic market, and this, coupled with this huge export opportunity, will help us grow towards our ambition of selling 3 million bottles of sparkling wine a year by 2035, the equivalent of 1% of champagne volumes. We expect the signing of the agreement with Jackson Family Wines to help with this.

Thanks, Rob. I'd like to update you on the progress we've made with our brand and route-to-consumer development. But first, I want to show a visual way of thinking about the opportunity for Chapel Down and English sparkling wine. You'll remember that I talked earlier about the sparkling wine category, which is made up of different segments within it: Champagne, Prosecco, Cava and so on. If we plot the category on a 2x2 grid where the vertical axis relates to how consumers view the quality of different segments and is broadly correlated to price points and the horizontal X-axis relates to how formal and brand-led the segment is, with informal on the left and more formal and brand-led on the right, you'll see that there are some clear differences and a clear white space opportunity. At the unbranded lower-quality perception end, you have Prosecco and Cava. Crémant is more formal and seen as higher quality, and then Champagne at the top right-hand side. There's a clear opportunity to build a new sparkling wine category with the same quality credentials as Champagne, which is brand-led and with a more approachable proposition. This will shape our brand positioning moving forward. Our traditional method sparkling wine portfolio is our strategic core focus, representing 70% of our sales. Our sparkling wines are increasingly recognized for their exceptional quality with a clear portfolio pricing ladder from premium to super premium vintage expressions and then luxury expressions from our Kit's Coty single vineyard in Kent North Downs, which allows exploration by consumers, premiumization and gross margin improvement for Chapel Down. Our new plantings in Kent North Downs give us the opportunity to create further luxury single-vineyard expressions and further premiumization in future years. Our still wines portfolio remains a valued part of the portfolio, showcasing our exceptional winemaking talent and expanding the range of occasions on which Chapel Down brands can be enjoyed. We're particularly proud of our Bacchus wines, which are England's equivalent of a New Zealand Sauvignon blanc, and in which Chapel Down is the clear leader and in which we have recently won new listings in Sainsbury's and Virgin Atlantic. A Touch of Sparkle is a more fun, fizz proposition that targets the more informal occasions on which Prosecco, the largest category of sparkling wine in the U.K., has historically been drunk. Over the past year, the packaging has been redesigned to put clear space between this and our traditional method sparkling wine. The launch of the rosé variant has been well received with a listing in Waitrose. Turning now to how we are building the Chapel Down brand. We increased our investment in marketing by 5% in 2024 as we work to establish Chapel Down as an approachable luxury for all life's moments of celebration. With over 20 years of investment, we have now established relative scale in acquiring and retaining consumers. With our positioning of more approachable luxury, we aim to inspire more moments of celebration on which Chapel Down can be enjoyed. In 2024, we ran a digital advertising campaign, which delivered 38 million impressions on YouTube, Instagram and Facebook. Sponsorships and events are an effective way of introducing consumers to our wines. And in 2024, we sampled approximately 70,000 consumers across our brand home and through our partnerships. Chapel Down is associated with some of Britain's most iconic sporting events such as being official English sparkling wine of Ascot Racecourse, England cricket and the Boat Race. And I'm pleased to report that we will be continuing our successful presence this summer with Tom Kerridge's’ Pub in the Park, amongst other festivals. We're extremely proud of our Kent vineyards. One of the most effective ways to connect our U.K. consumers more emotionally with English wine has been connecting them to the seasonal cycle of our vineyards. We celebrate each vintage with tasting videos direct from the vineyard with our Head Winemaker, Josh Donaghay-Spire, and showcase the craft of our vineyard and winemaking teams throughout the viticulture year. We believe that many people have had their first ever taste of English wine at our Tenterden brand home. Every year, about 50,000 people visit us at Chapel Down. We have a 4.5 rating on Tripadvisor and have won the Travelers' Choice Award for 3 years running, putting us in the top 10% of visitor attractions worldwide. And the result of over 2 decades of investment behind the Chapel Down brand is that we increased our important brand health and penetration metrics and have established ourselves as the brand leader within English wine. You will note from this slide that there remains significant headroom still for growth to achieve the levels enjoyed by leading champagne brands, which gives us confidence in our ambition to deliver sustained profitable growth over the medium term. On distribution, we have good levels of availability and distribution across all U.K. channels, which drives conversion to purchase amongst our consumers. I've already mentioned the strong underlying sales growth we saw in our U.K. channels in 2024, and you can see a summary of those figures here. A word on the U.S. tariffs and our export business. This morning, we announced that we have signed an import agreement with Jackson Family Wines, a top 10 U.S. winemaker, to increase our penetration of this highly attractive market, the largest champagne export market. The tariffs announced do not impact our agreement and don't really change our excitement about the opportunity the U.S. offers. Whilst we lead our competitors in terms of distribution, there remains a huge runway to further grow distribution across all our channels. As Rob will further explain, global expansion remains a large and relatively untapped opportunity for Chapel Down.

It's been a very busy year for the vineyard team, as we noted in our half 1 results. The Buckwell vineyard is now fully planted with Chardonnay and Pinot Noir. This takes us to over 1,000 acres planted which, based on the Wine GB figures, is about 10% of all U.K. planted vineyards. A bit more detail on that will follow. The harvest went well, giving us a very high-quality grapes akin to the 2019 vintage. As noted earlier, though, the yield was below our 3.2 tonnes per acre 6-year average at 2.5 tonnes per acre. And the primary reason was, of course, weather. We avoided the late frost that afflicted other vineyards, particularly those further West, but we lacked sunshine at critical moments and had too much rain. The winery saw an incredibly busy summer with more than 2 million bottles of traditional method sparkling wine bottled from the exceptional 2023 harvest. This was 85% more than we have ever previously managed. As we mentioned in our results statement published this morning, given the highly extended planning permission to do with our new winery, as you'd expect, we are now actively reviewing alternative options to increase winemaking production in the medium term since the ongoing planning process means we will not have a new purpose-built winery built within the envisaged time horizons. This was the 2026 harvest. So we will not manage to have it built by 2026 harvest, no matter what the outcome of planning. What we will do, though, is we will update more on that late this summer. Now on to the vineyards. And this is definitely a recap for most of you, but here's a little more detail. On this first slide, you can see the location of our vineyards and the soil type they sit on. As you all know, our largest vineyards are on the North Downs and sit on the exact same chalk sea found in Champagne. You will also see the planting we completed a Boxley Abbey here right next door to Kit's Coty and our new vineyard, Buckwell, situated on the same chalk sea. Here, you will see a breakdown, which also you will be familiar with. We've got 739 fully productive acres. But since we have now planted Boxley Abbey fully, as mentioned, this is right next door to Kit's Coty and now Buckwell, we will now have 1,018 acres. These will all be fully productive by 2027, which will underpin our medium-term growth. In terms of grade mix, the traditional method grades predominate, Chardonnay, Pinot Noir and Pinot Meunier, but we also have plenty of Bacchus, which creates such in-demand still wines. And whilst we look at this table, I would also like to reiterate that when looking for new vineyard sites, whilst we broadly want to maintain the current mix of freehold, leasehold and grower contracts, by far, the most important criteria for future vineyard selection is quality and potential and not ownership structure. Simply put, we want the greatest vineyards in the U.K. for Chapel Down. Sustainability has long been at the heart of our plans. We're founding members of Sustainable Wine GB and aspire to sustainability leadership in the English wine sector. Our next step is to publish our baseline carbon footprint and finalize the future time line for Chapel Down's ambitions. This will include a meaningful and measurable sustainability plans that will deliver. Furthermore, Josh and his team are already doing some great work. We always look to practice sustainable viticulture, for example, reintroducing indigenous grasses in our vine rows and use of mechanical weeding on the vines. All our vineyards have been fully mapped and biodiversity plans are in place to encourage a wildlife habitat. All packaging is recyclable, and our glass is made from 75% recycled glass and our packaging is made from 80% recycled content. This is just the start, and we want to go further. Our waste grape skins are sent for anaerobic digestion to convert them into green electricity. And at Tenterden, we use 100% renewable electricity. Our people and culture is at the heart of our business. We now employ 84 passionate wine ambassadors across our vineyards, operations, commercial, retail and tourism businesses. We'd like to publicly thank all of them for their continued great work in the first half of 2024. Finally, in the operations section today, we'd like to summarize the investments made to create our future business platform. All of these components went live in the first half and are fantastically well, giving us a single technology and data platform for the business and considerable benefits, including commercial insights, reduced costs and operational risk throughout the second half of the year. In line with accounting standards, this expense is treated as an exceptional item in the P&L. Accounting standards for cloud-based Software-as-a-Service type systems are treated in this way since the primary intellectual property that underpins the systems is not owned by Chapel Down, and we thus, cannot capitalize the expenditure in the traditional way. Now let's move to the financial highlights. Net sales revenue ended up 5% down on prior year or 3% down if you exclude the Spirits business, which we have now exited. As flagged, this is primarily due to one-off items, particularly in the off-trade, which we'll go into in more detail on the following slide. Gross profit was lower as expected due to the sales mix and selling vintages, which were most affected by the inflation of 2021 and 2022. I will also show you some more detail on this. The in-year fair value movement is a noncash accounting adjustment for viticultural profit during the year. This is calculated as the estimated market value of grapes harvested less the vintages' growing costs. This accounting policy is required by IFRS. The in-year fair value movement is correlated with growing conditions within the year and can thus be uncertain. The other side of that accounting entry is stock, which is realized through the P&L as cost of goods sold when wines from each vintage is sold. Because in 2024, the in-year fair value P&L movement was a P&L loss, i.e., a debit, this is reflecting a reduction, i.e., a credit, to the balance sheet stock valuation, which will result in lower cost of goods sold and hence, higher gross profits in future years. The opposite would, of course, occur in years when the company records an in-year fair value gain such as 2023. The fair value adjustment is a loss this year due to the material change in yields I mentioned earlier. We continue to invest in the brand to maintain our leading position and continue to manage overheads closely. Exceptionals are predominantly related directly and indirectly to the strategic review, but also include a much smaller amount relating to the investment in technology and data. EBITDA profit reduction is due to the reduced gross profit that's just under GBP 1 million of the impact and a noncash fair value adjustment, which is close to GBP 2.8 million of that difference. Therefore, you can see the EBITDA movement is mainly due to that noncash movement. And finally, we can reconfirm that we do not intend to pay dividends in the foreseeable future because as we want to continue to invest in the business, but also to manage debt sensibly. As mentioned, let's do a deep dive into the off-trade in the year now. The off-trade is our largest channel, and so the impact of the one-off items that occurred here in 2024 significantly impacted our overall result. Firstly, the largest effect was the reduction in stock held by retailers. Partly this was due to stockholdings being higher at the start of the year due to heavier competitor discounting in Christmas 2023 and partly as many supermarkets significantly reduced their working capital in 2024 through a reduction in their overall holdings for approximately 10 to 12 weeks to more like 6 to 8 weeks of stock. The impact of this was that consumer sales are coming from stocks and not from new orders, which impacted sales by at least GBP 1 million. You will also see an impact of about GBP 400,000 when comparing to last year due to the combined effect of the coronation being in that comparative and the effect of our exit from Spirits. We also want to reiterate the point made in media interviews in our results that the 19% reduction in statutory sales was not reflected in consumer sales from supermarkets, which were up overall during the year, particularly in Q4, where we grew 10% ex Spirits. Consumer demand remains in growth and the challenges in 2024 were one-offs. Also, I wanted to give you more detail on the gross margin. As you can see, the main impacts on gross margin between 2023 and 2024 are the increased proportion of still wines. On the product mix side here, that still wines are a lower-margin product. And hence, you see the reduction there. The increased proportion in terms of channel mix now, the increased proportion of our wines sold through DTC, our direct-to-consumer channels, is a positive for us, and therefore, you see that as a positive on the gross margin waterfall here. Overall, changes in average selling price were positive for us. Average selling price is the sales price realized by us. So it's not the retail price, it's the price realized by us as Chapel Down, with the improvements in pricing on sparkling wine more than offsetting the planned reductions in still and the Touch of Sparkle. And finally, you see the impact on cost of goods sold from the vintages of 2021 and 2022. They were the prime vintages sold during 2024 in sparkling. And as mentioned, they were most affected by the inflation we saw in those years, but also a small 2021 harvest. Let us then break down our sales performance by looking at how product categories performed, firstly, traditional method sparkling wine. Now this remains our core focus, but it's the area which has been most impacted by the one-off items in the off-trade we highlighted earlier. We are pleased to see the continued growth in average selling prices here, though, which highlights the quality of the wines and the strength of our brand. At Touch of Sparkle, sales reduced slightly, but still wine sales performed very strongly, up 22% on prior year, showing the continued consumer support for those. Tours also continued to perform well despite the poor weather. The reduction you see here in Tours and other is actually due to us not selling any grapes to third parties in this year. That impact was about GBP 200,000. As a final note, as previously flagged, we have now fully exited our spirits category and sold all of our stock in those areas. There were no write-offs. All of the stock was sold. Continuing the breakdown, now let's look at performance by channel, and firstly, the trade channels. The off-trade remains our largest channel, and we have covered the one-off items mentioned here previously. It's also worth noting, though, that we held our market share of English sparkling wine at 34% in the year in the off-trade. It's a fantastic performance in a competitive category, and we're very glad to remain #1. The on-trade was up 16% as distribution grew during the year, which will also benefit us in 2025. In particular, as James mentioned earlier, by the glass distribution grew strongly, up 73%. Many of you will remember me saying in the past that this is important for us as by the glass both increases rate of sale, but also encourages sampling among new customers. By the glass listings is going to remain a strong focus for us. We've also mentioned international, and international has a very strong global travel retail business within it, with 30 U.K. travel hubs now selling Chapel Down. This is a fantastic market, but also a great driver of brand awareness given the significant footfall on those sites. This masks a slightly more challenging performance this last year in export, which we have taken a large step to address with our new agreements with Jackson Family Wines, but also it's a place where we'll spend more time focusing on 2025 and beyond. Secondly then on to direct-to-consumer channels, and these grew 12% and were 39% of the business in 2024. The result shows the strong underlying consumer demand for Chapel Down. As we grow, we aim to continue keeping direct-to-consumer at least 30% of the business as this is particularly important for brand and margin. E-commerce, in particular, had a great year, up 22% with a particularly pleasing number of new customers. Then finally, on to the balance sheet. As you see, stocks have grown 18% to GBP 26.6 million as a result of the exceptional harvest in 2023 being bottled and now sitting on lease to underpin our future growth targets. After planting 122 acres of new vines, taking our total planted acreage, to recap, to 1,018, we've also increased GBP 4 million in stock levels from the exceptional '23 harvest. And sorry, what I was trying to say is the stocks alongside the planting are the main reasons for the increase in net cash -- decrease in net cash. We also signed a new 6-year revolving credit facility in the year, which reduced interest rates payable and extended the headroom to GBP 20 million on what is called an accordion, which increases to GBP 30 million if required by the company and agreed by lenders credit committee. Finally, I'd like to reiterate that the Board believes that the market value of our tangible assets, particularly wine stocks, is considerably higher than their reported value. And to note that although we do not -- although we consider the brand to be hugely valuable and hard-to-replicate assets, it is not assigned a value on the balance sheet. I'm now going to hand back to James for the outlook.

Okay. So a couple of words on the outlook. The global consumer environment remains uncertain, but Chapel Down is currently trading well ahead of prior year and expecting strong sales growth for the year with a return to full profitability. I'd like to give you an update on 2 operational items. The first relates to the previously announced planning permission for a new purpose-built winery in Kent. This planning permission is subject to ongoing judicial review, the next step of which we expect to be completed by late summer 2025 when we will provide an update. We do not have any certainty on the final completion date of the planning process or its outcome. And as Rob said earlier, in the meantime, the company has been reviewing alternative options to increase winemaking production capacity in the medium term. Secondly, I'm pleased to announce that we have signed the contract with Jackson Family Wines, who are a top 10 U.S. wine company, to distribute Chapel Down's portfolio in the U.S., which is the world's largest export market for champagne, which starts later this quarter. Looking ahead, our ambition remains to deliver sustained profitable growth over the medium term while further cementing Chapel Down's position as the leader in the fast-growing English wine category and to win an equivalent 1% share of the global champagne market by 2035. Thank you again for joining this 2024 results presentation. And I'm now going to hand back to Rob, who will lead the question-and-answer session.

Just wait, I think we're going to come back on to the screen now.

Yes. What I'll do is I'll just bring your cameras back up now. [Operator Instructions] Rob, I will hand over to you to chair the Q&A, and I'll pick up from you at the end.

Great. Thanks, Alessandro. And many of you will have been on these sessions before, so you know how we work this. What I'll do is I will group the questions into themes as we go, and that allows us to answer more of the questions around. I'll also sort of mention where I can the initials of the person rather than the name of the person asking those questions. You'll also see me looking to the right every now and then, because there's questions coming up on the screen there. So I'm not losing folks. I'm just trying to get the questions together. Now many of the questions are for James, as ever. And what I'm going to do is I'm going to start off with a very topical one, which is a number of questions on export, particularly the tariff situation. So we have IN, what do you think the effect of U.S. tariffs will be on sales? And also any knock-on impacts on to the U.K. market? We have question from RJ on a similar topic and from AW on, will Champagne supplies be redirected to the U.S. market -- sorry, from the U.S. market? And then a similar one from LF, about expansion into overseas markets more generally and the strategy there. So if you wanted to take those, James.

Great. Thank you, Rob. I think given that the announcement was only made last night about the tariffs, it's still too early to tell on the detail of what's going to happen to the pricing in the U.S. market. The tariffs haven't changed our excitement about the opportunity that the U.S. itself offers. I think some of the questions that have come in relate to what will happen to the U.K. And I think initially, a few weeks ago, we've heard that potentially, there would have been a 200% tax on some of the EU products, which I think really would have almost certainly made an impact on the U.K. market. We think the 20%, it is too early to tell around what that impact is going to be on pricing, but it is something that we will monitor carefully.

Great. And then I'm going to do the big 2 straight off just so we cover them at the start. Winery, there is a number of questions on winery, a couple of them pre-submitted questions. I don't know the names of the pre-submitted ones, I'm afraid I can't see that. But I have IN, what is the current situation with the new winery? And a couple of variants thereof, could you update more details on the new winery? That is AA. And then we have -- the question actually is why was there no plan B for the new -- he said new vineyard, but I think RM, you mean new winery, and uncertain planning process is well known about, et cetera, so new winery.

Great. There's not much more that I can say that we didn't say during the presentation. It is still in the planning process, and we expect a clearer picture in the late summer. The management team are reviewing alternatives to increase production in the medium term, and we will update shareholders later this year about those plans.

And one that just come in, TH, to add to that. No, we do not believe there is -- a U.S. winery going to be part of the Jackson Family Wines deal. I'll give you a 2-second break. GB has a question on net working capital as well as National Insurance, which I will take. So the net working capital negative is actually, we have negative net working capital ex stocks, which was actually quite a good position to be in. The reason for that is that generally, our terms on creditors are better than our terms on debtors, which is why we overall run a net negative working capital. In terms of National Insurance, it impacts us. There is about 40,000 in the P&L, about 20,000 going to stock. So it's very manageable, budgeted for, and it does not impact our activities. So that's those. Then we have a question from FT. We're going to switch to winemaking now, James, or vineyards. What's your view on machine harvesting? Are you doing it now?

That is a great question. All our traditional method sparkling grapes, I know, are handpicked and very gently pressed to ensure that the delicate flavors are preserved. My understanding is that for some of the legacy other grapes, we do use some -- a little bit of machine harvesting as well, but not on the traditional method sparkling grapes.

Great. And then we have a number of questions, 3 questions, around sort of the position on balance sheet and debt. CH, why is the balance sheet with debt when we're heading into a challenging consumer environment? We have then plans for refinancing existing loan facilities from AW. And finally, from NV, where is the increase in debt come from? So I mean, maybe let me start on with that, and then James, if you want to say anything extra on top of it afterwards. So in terms of refinancing, we will not be refinancing that debt. We actually have a new 6-year revolving credit facility that we signed very recently. And we were very lucky enough to have that on significantly reduced rates from the previous deal. We are comfortably within that, and we have a great relationship with them. So we'll not be renegotiating that at any point. We don't envisage doing that in the next 6 years. Second question in terms of where does the net debt increase come from, firstly, it's that increase in stocks. So the '23 harvest, as it gets bottled, the value of that goes up, which is a working capital increase. And that takes the debt, and that's by far the largest element of it. So it's creating an asset which underpins our future growth. The second biggest part of it is around CapEx, which is the planting of Buckwell vineyard, and the second and third year cost of the Boxley Abbey vineyard. So again, it's going into creative assets for the company, which we then sell through into the market going forward. In terms of -- sorry, and the final one is an interesting one, NV, on creditors. So at the end of 2023, our trade creditors were about GBP 1 million higher than usual because of the AIM listing. Therefore, there's a natural unwinding of GBP 1 million in working capital as that unwinds itself. So those are the main reasons for the increase in that net debt. Then in terms of where we are in terms of the level of that, clearly, we are comfortable with that debt. But clearly, we are very vigilant about that net debt as we go forward and manage that very, very carefully alongside the Board and alongside our lenders of that RCF. So we will be watching that very, very carefully as we go forward. We also had one question -- sorry, was there anything to add to that...

No. The only thing I would stress is we are a growing business set to return to profitability in 2025. And the Board is, as Rob said, very vigilant about debt, making sure we have appropriate levels of debt moving forward.

Okay. And we have one question on looking backwards towards the strategic review from GB, what were you trying to achieve in the strategic review and the impact of that strategic review?

So the purpose of the strategic review was to assess all options to fund our future growth. We had extensive conversations with interested parties regarding equity investments as well as M&A. And the conclusion of which was that the Board agreed that the best way to create superior long-term shareholder value was for Chapel Down to remain a stand-alone AIM-listed company.

Thank you very much. We have then 2 quick ones for you. A question that I've got all the way back out over there. I don't know who this is from actually, it's a pre-submitted one. Are we going to go back and have a face-to-face AGM? The second one, again, it was a pre-submitted one, the doubling size of the business by 2026.

Okay. So a face-to-face AGM, we will come back to you on that, but a number of shareholders have mentioned that. We moved online to try and increase attendance, but we do realize that our shareholders also value face-to-face. So we will have an announcement on that in due course. And then the second question is around have we doubled the business between 2021 and 2026 or are we on track to do that. It's actually very hard to go back to 2021 because our accounting policies changed when we moved on to AIM. And so from what I can see, we are not far off that trajectory. But instead, I have refocused our ambition to be achieving an equivalent 1% share of the global champagne market by 2035, which is our new ambition.

Great. And as we're on there, JS has a question on A Touch of Sparkle. Do you think it will come across as a lower-quality brand, which damages the brand? Have you considered Charmat?

So a couple of questions in there. The answer is, from an innovation point of view, we are always looking at how we can extend the Chapel Down brand without diluting focus from our strategic core focus, which is traditional methods sparkling. And at the moment, we have no plans for Charmat. In terms of A Touch of Sparkle, that is playing quite a specific role within the portfolio to be more approachable and accessible and target that more informal Prosecco occasion. And you'll see how we've repackaged it over the last year to take it a little bit further from the Chapel Down to branded visual identity as a way of allowing it to stand in its own right in that way.

Great. So CS, exploring the capabilities of AI. It's not formally, but we do have it within our systems. There are AI elements of that in terms of how it creates some of the workflows and how it creates some of the reporting. So it doesn't drive a huge amount of business, of the winery business and the vineyards business, AI. But we do actually sort of secondhand use it a fair amount as part of some of those systems in the analytics and data integrity type areas. And then secondly, there was a very simple one, but I want to answer this because I think it's a good thing to say. So RJ, how many shares do you have an issue? It's about 171.5 million shares. The reason for answering that here rather than putting it on the thing is to say that actually, on our website, we often get a lot of questions which are answered on the website. There is an Investors section, which has a lot of things such as the share price, the directors' holdings of shares, the announcements in all of those areas. So RJ, the answer is on there is 171.5 million. But for everyone else, it's a really good resource. So please do use it if you get the opportunity and if you have a question. One from CH for you, M&A activity, what do you feel about consolidation on a competitive market in the U.K. and consolidation thereof?

Well, remember, we've just been through a strategic review, and we're all aligned that the best way to create superior long-term shareholder value is to remain stand-alone and AIM listed. That said, the Board will always consider opportunities to increase shareholder value.

Great. And then GT, you don't answer the questions at the moment, we can't answer the questions you're asking, GT, because they are questions for someone else, not for us, so we won't be answering those. BS, sorry, that's the initials, how likely is the yield going to move back to the longer-term trend? Or is there an expected decline in the ideal weather conditions over the midterm?

Well, that's a great question. I think we have seen quite variability over the past 10 years. Rob was showing me the average yield per year that's achieved. It sort of averages out around 3.2. And so far, this year has obviously started off quite warm, but there's a long way to go, and I wouldn't be able to predict on that. What I can say is Josh, our winemaker, said that he has very carefully chosen our new vineyard site to maximize their yield. And that includes sites where there are no frost pockets and which get the maximum amount of sun. So I think with the land that we have and the vineyards, we are well positioned to maximize our yield. I understand that in a difficult year last year for the English wine industry, actually, the Chapel Down yield was better than average, and I'm sure that will continue to be the case.

Great. Thanks. And AS asked a question about is the stock fully insured. Yes, the stock is fully insured. And then we have one on Tenterden and plans for Tenterden from RF, are there plans to increase the size of the visitor center and maybe look to add further food and drink facilities for guests?

So that is something that we are looking at. We don't have active plans at the moment, but Tenterden, as mentioned earlier, is a place where we think a lot of people have had their first ever taste of English wine. It's a great way of getting people into the brand and becoming real sort of advocates for the brand. And we have a team, very hardworking there, who have got set up an amazing visitor experience. And of course, we'll look to improve that over time.

Great. And we're getting towards the end of the questions now. I only have a couple more, but a couple of very quick ones, and then maybe we'll go for closing comments. The first one is quite an easy one, which I will do, and then I'll secondly go to you. So what retros are and why they went up and sales went down. So retros are the support we give for promotions within the off-trade generally, but also within the on-trade. That's SG. And then SG also, you talked about having a 34% market share in the off-trade, but only 10% of the planted vines. Can you help us understand those 2 numbers? I think that's getting into why is one higher than the other.

That's a great question, Rob.

Well, the reason it's because in the off-trade, you have to have a certain scale to get into the off-trade. So a lot of the production in the U.K. are in those small vineyards and they cannot go into the off-trade. So then with 10% of the overall production, there are very few in the off-trade, and therefore, we have a much higher market share in the off-trade than we do in terms of the overall vineyards. So a lot of the average vineyards, it's like 5 acres, I think, average vineyard size there, and they're only just selling really from cellar door and maybe into local pubs and restaurants. Therefore, our off-trade market share is higher than the 10% you see there.

Thank you.

That's quite right. Well, here's a nice final one for you. From JH around shareholder benefits, what's the future of shareholder benefits?

There are no plans to change what we have at the moment. I know those are highly valued by our shareholders in the same way that we highly value our shareholders for your ongoing loyalty and particularly around introducing new people to our wonderful brand portfolio.

Great. And my final one is SW, which I'll answer and then we'll go to you for final comments. Talking about being on an exchange, is there any plans for us, so I'm paraphrasing the question, to become a private company. SW, no, there are no plans for us to delist from AIM. We are going to stay on AIM as confirmed by the strategic review. James?

Great. Thank you, Rob. And thank you again to everyone for joining this Chapel Down 2024 results presentation to hear about our ambition to deliver sustained profitable growth over the medium term while further reinforcing Chapel Down's position as the leader in the exciting English wine category. I'd like to thank Rob for all the work he has done in preparing this presentation and Alessandro from IMC for coordinating the delivery. And I hope to meet you all at one of our future shareholder events, one of which is taking place tomorrow in Wimbledon, and I will be there if anyone on this call is coming. So thank you to everyone, and I hope to meet you all soon.

Thank you.

James, Rob, thank you for updating investors today. Could I please ask investors not to close this session as you'd now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This going to take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of Chapel Down Group Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.