Chapel Down Group (LSE:CDGP) — Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the CHAPEL DOWN GROUP PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and a tab. It's just situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions submitted today will be reviewed with responses published on the Investor Meet company platform where it is appropriate to

0:31 do so. Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And we would now like to play you a short video. And I'd now like to hand you over chief to chief executive officer, Andrew Carter. Good afternoon, sir.

1:43 Good afternoon, everyone, and welcome to the presentation of our CHAPEL DOWN twenty two half year interim results. For those I haven't met, my name is Andrew Carter. And as I enter my second year as CEO at CHAPEL DOWN, I'm delighted to be joined by Rob Smith, our new chief financial officer. Rob previously worked at PricewaterhouseCooper and joins us at CHAPEL DOWN in week three. So welcome, Rob. Thank you. Today, we're looking forward to sharing with you our twenty two half year results and business update, and also an update on progress against our strategic road map to double the size of the CHAPEL DOWN business over the next five years.

2:29 Ahead of getting into the h one numbers, I would like to share a brief update on the CHAPEL DOWN business and English wine market. CHAPEL DOWN is England's leading and largest winemaker. We are selling over 1,500,000 bottles of award winning premium sparkling and still wines in 2021. Over twenty years ago, we started this business with the mission to change the way the world thinks about English wine forever. Our journey is in full flight, and we are converting more and more champagne drinkers to English sparkling wines every year as they discover the elegance and freshness of our wines. Having sold our beer business in April 21, we are now focused solely on building our English wine business.

3:17 Our vision is to build our position as the number one and most celebrated English winemaker and double the size of our business by 2026. There is huge momentum in the growth of the English wine market. English wine is cool. During the first six months of '22, there has been an exceptional level of media coverage on the English wine market. As category leader, CHAPEL DOWN is driving this coverage with over 400,000,000 views in The UK and internationally in the first half of the year. Now since we last updated, YN GP has released the '21 industry data that really confirms the growth momentum for our English wine market.

4:04 There are now over 897 vineyards in The UK covering over 4,000 hectares or in old money nearly 10,000 acres. In 2021, there were 9,300,000 bottles sold, as you can see on the left hand side of this chart, growing at 31% year on year versus 2020, of which 5,800,000 bottles were sparkling. On the right hand side of the chart is the '21 IWSR industry data. You can see a total market here of 223,000,000 bottles of sparkling wine that have been sold in this country. A large part of it in the blue is Prosecco, but most importantly in the green are the 24,000,000 bottles of champagne.

4:50 The opportunity to convert more champagne buyers to CHAPEL DOWN is a significant growth opportunity. Now during the first half of the year, we have conducted conducted several research groups among champagne and sparkling wine consumers. There is genuine excitement around how English sparkling wine is establishing itself as a truly unique category versus champagne. It's really important we understand that we no longer need to try to be like champagne. English sparkling wine is setting new standards of excellence.

5:26 English sparkling wine is developing a unique position relative to the champagne category. When you drink or gift CHAPEL DOWN wines, it marks a really important celebration, a truly considered moment. Your choice of English sparkling wine says a lot about you as an individual. Furthermore, in a second quantitative study of over a thousand consumers amongst our current database, over 85% there on the left hand side think our brand is of a higher quality than champagne. And as you can see on the right hand side, the major part of our consumers prefer the taste of CHAPEL DOWN versus champagne. So it's very clear that CHAPEL DOWN is truly delivering against our new brand positioning to deliver a fresher way to celebrate the moments that really matter in life.

6:21 We previously shared with you that CHAPEL DOWN brand is the category power brand in the English wine category with the highest level of brand awareness. Brand awareness for CHAPEL DOWN far exceeding any other English wine in the market.

6:37 And where we share with you what we've done in the first half of, 2022, you can see the launch of our impactful new advertising materials across all of our media channels. And very importantly, you're able to see that by our sponsorship of British sporting and art institutions, most notably our new official sparkling wine partnership of the England and Wales Cricket Board, which has delivered audience numbers of over 20,000,000 across our first English summer, have contributed to driving the awareness of the brand, and we look forward to the ashes of 2023. At the twenty one full year results, I shared the importance of further premiumizing the CHAPEL DOWN brand.

7:24 This chart shows three things. On the left hand side, you can see the shift in portfolio with sparkling wines now accounting for 73% of our wine sales in h '1. We've increased our retail selling prices during h one. As you can see from the prices on the top there under the the bruit at non vintage where we've increased now to 28 on shelf. And the fact that our brand rate of sale has not been impacted, reflects the strength of our brand. And furthermore, as champagne pricing continues to increase and even more so at the current exchange rates, we believe there is a further opportunity for price premiumization whilst maintaining an attractive price differential versus champagne.

8:11 We have an excellent portfolio of sparkling and still wines across different price points. Our brand proposition and pricing is continuous continually underpinned by the quality of our wines. They have been further recognized in h one with the numerous awards that we've won. We have received an impressive 38 awards this year, including six gold medals. Notable highlights include our CHAPEL DOWN's KITCote chardonnay, which continues to receive critical acclaim, having received a further two gold medals at the IWC and the Decanter Worldwide Awards. And our CHAPEL DOWN KITSCOTE BACUS receiving the best in class BACUS trophy at the YN GB Awards for the third consecutive year.

8:59 Ahead of getting into the numbers, let's just look at our sales channels where we've made strong progress across all sales channels. We have the strongest customer distribution base in English wine. Going from left to right, you can see that we have a great presence in off trade, on trade, ecommerce, and our Tentaton retail. Starting on the left hand side of this chart, you can see that our off trade distribution base has gone over 2,900 outlets in the first half. The off trade accounts for 56% of our sales, and we have seen sparkling wine growth of 31% in off trade over the first six months of the year.

9:43 The on trade has rebounded strongly from 2021 and was up 109% in the first half with significant increase in out number outlet numbers to 1,230 from 420 at the start of the year. You can now find our brand everywhere from, Avroche, to Hand and Flowers, to Accor Hotels, to Open Inns, and all the way through to our most recent listing at Giggling Squid. We have a strong direct to consumer offering, and that includes both ecommerce and Tentaceton retail. It's been a tougher first six months for ecommerce as post pandemic, consumers have returned to retail stores. And as you can see from the chart, our traffic numbers have fallen. However, our underlying database of 56,000 consumers, the high returning customer rate percentages of 64%, and the increase in our average order value by 27% to 136 demonstrate the underlying strength of this channel and the strategic importance going forwards.

10:50 On the other side of our direct to consumer business, our retail and tours income at Tenston has grown significantly in h one due to a resurgence in biz visitor numbers. In the first half, we saw 31,000 people go through our Tenston site, a growth of over a 120%, and they now account for 14% of our sales. At the full year results, you asked me to give you some color on our international performance, and here it is. There is a huge long term international growth potential opportunity for English wine when you consider that champagne is exporting over 160,000,000 bottles per year. Our CHAPEL DOWN brand is now in 14 markets highlighted in red on the map, and our international volumes are forecast to double by the end of twenty two, albeit from a small base.

11:43 Our core market focus is The USA, global travel retail, Scandinavia, Japan, Hong Kong, and UAE. And I'm delighted to confirm that only last week, the brand was, listed in London Heathrow and London Gatwick, to supplement both London City and Luton airports that we currently have. Global Travel Retail is a true, shop window for the brand, and we look forward to expanding our presence to the international consumer in GTR. Whilst the scale of our international volumes remain relatively small, as we focus on building the number one brand position in The UK homeland, we will continue to develop our international markets presence, but at the right pace and with the right levels of focus and investment to capitalize on the long term opportunity for CHAPEL DOWN.

12:34 I'm now gonna hand over to Rob to take you through the business and financial highlights for the first half. Thanks very much, Andrew, and good afternoon, everyone. Before I start, a very brief introduction. I joined CHAPEL DOWN this month having spent my previous fourteen years as a partner of PLC, where my last role was leading the finance transformation team in The UK and EMEA. Although I'm obviously new, actually, I do know part of the CHAPEL DOWN story reasonably well since I have actually been a shareholder and a Tenston site for sixteen years now. And I'm really looking forward to playing my part in the CHAPEL DOWN story. And starting with our h one results. So as you'd expect, those key points Andrew makes on brand, mix, and pricing are reflected in the half one numbers. So let's get into those, and we'll start with the p and l. So as you'll see at the top, net sales revenue in half one has grown 4%.

13:29 But within that number, there are two very important dynamics to consider. The first, referenced earlier, is the very strong growth in traditional method sparkling we've seen, up 35% on last year. The second is the average sales price increase of 21%, and you see a breakdown there on the right. And partly, this 21% increase in average sales price is driven by the realized prices you see here, Also partly is the effect of mix moving towards traditional method sparkling. About two thirds of that impact is due to that mix change and one third due to the individual price increases you see there. And this has two effects overall. So number one, despite being 33% down on stills, we'll talk about that in a minute, due to availability, our overall revenues have continued to grow.

14:18 And equally important is the consequent step change in gross margin from from 46% through to 51% of net sales revenue. And that's a really significant move up and demonstrates our margin potential as we transition to a focused premium wine company. And moving on to the balance sheet now. As you'll see, the balance sheet is strong. And as a result of our profitability and the equity raise in 2021, we are net cash positive, and this supports the growth of the business. Since the raise, we have spent some of those funds on upgrading our winery so we can capitalize on this year's very positive harvest, and Andrew will talk more about that soon, but also in planting 38 acres this spring in Borley ready for future years.

15:05 Even after that, we still have net cash of 3,800,000, and we also have 12,000,000 of an unused borrowing facility. So that's 12,000,000 out of a 15,000,000 facility is unused, and that will partly be used for the planting and boarding next year. Now to help understand the dynamics of the business more, what we should do is look at both products and channel, and and that's what this slide does to help drive that understanding of of how the dynamics work. And what you can see here very clearly on the product side first is the impact of the 2021 harvest on still wines. We are trading in line with plan, but a 33% down on stills last year due to reduced available stock because of that harvest. But also since the sparkling carbonated wines come from similar stock, they were also expected to floor fall, and they have done down 28%.

15:58 In line with plan, though, you'll see traditional method sparkling has more than offset these expected reductions. And we're 35% up on last year, and we think that means we're growing faster than the overall English sparkling wines market. Spirit sales, you'll see there. Their decline does reflect our focus on being a wine business primarily, and we will appraise the role of spirits in the overall business during the second half and speak to you after that. Now let's look at it by channel, and and you see the channel details in the bottom left there. Firstly, you'll see the off trade, it's really important to us and remains important to us. And the 13% reduction through that channel, it's again attributable to the still wines availability. And we knew that was coming, and we had that in the plan.

16:44 It's worth noting though that off trade played a really big role in expanding sparkling wines. They were up 23% by volume, 31% by value through that period. You'll also see though, of course, the on trade has grown spectacularly, up a 109%, but from a very weak COVID comparative. As we go into h two, though, you'll have noted, Andrew mentioned earlier on, there's a really significant increase in outlets in the on trade we brought on in the first half, which underpins the second half, and also that outlets will grow during the second half as well. That will underpin the entree for us as an important and a continued growing channel. D to c, as mentioned, is, of course, the combination of the ways we sell direct to our consumers, mainly through ecommerce and also our tenanted site.

17:34 And we're really, really pleased that actually we have managed to have a 3% growth there because unlike the on trade, we have quite the opposite dynamic in the in in d to c with ecommerce where the comparative was very, very strong due to the COVID restrictions in 2021. Despite that, though, we grow overall. As Andrew mentioned, international is a relatively small channel for us at present. We are taking a responsible approach where we establish the relationships so we can expand this channel at an appropriate speed in future years. And just for information, our international business is disclosed through the off trade channel in these numbers there. As a final point on the half one numbers, let me talk around, the net asset value per share that we quote earlier on.

18:23 So what you can see here is our fantastic assets, including massive vineyard acreage, probably the largest in the English wine industry. And it's important to note that all of our assets that you see here, including land, biological assets, buildings, and our wine stock, are presented on our balance sheet at historic

18:43 cost. And we have a lot of confidence that the net realizable value of those assets is considerably higher than that UK GAAP reported value. So before I hand back to Andrew to talk about the outlook for the business, I'd like to give you a summary of where we are against our key priorities. And these are the priorities that we think will help us deliver the 2022 results, but also grow thereafter. Firstly, brand. So you heard we are the power brand of English sparkling wine, and we will continue to invest in partnerships and other activities to grow this. And that brand will help us with the premiumization. You will will have heard all about this, particularly that 73% of our wine sales in the first half are traditional method are sparkling.

19:29 A very significant mix shift, and this is a big positive effect on brand and a big positive positive effect on margin as well. Underpinning this and really the bedrock of everything we do, of course, is the award winning wines. 38 awards in 2022 and counting. We need to keep that going, and we need to have alongside that, of course, the best distribution channels that we have. You see there on the on and off trade, we're available through all channels, the biggest distribution of any English wine company. And this gives us scale, but it also increases our resilience to things like channel switching during a downturn. But at having alongside those on and off trade, having the best direct to consumer offering is really important for us too, important for margin as well as brand, and we continue to focus very, very strongly here.

20:16 Then moving on to the world class people culture and systems. Yeah. We accept we've made a good start here, but we accept there's an awful lot still to do. We have a new senior leadership team in place, people such as Andrew and myself. We're trying to create this high performance culture underpinned by our new values to further build on the strong culture we already have at CHAPEL DOWN. But looking forward, one of the big focuses we have in this area is gonna be around systems and data part here. And this will be a critical focus for us in 2023 as we look to upgrade our capabilities in our customer relationship management and our financial systems and data. Getting towards the end of our priorities, you'll think look at the long term strategic advantage we have from our vineyards and wineries. We have the largest acreage in the English wine industry. As well as creating our award winning wines, there are significant barriers to entry given the availability of quality land, capital outlay, and the time it takes to produce wines.

21:13 That that's a big advantage for us strategically in this business. And then finally, excellent shareholder benefits and returns. And, we we we know this is a work in progress. I've only been at the company three weeks, but I've seen enough correspondence to confirm that our shareholders greatly enjoy the fantastic benefits we offer, including, for example, getting 33% off the traditional method sparkling wines through the website of the cellar door in Tenston. But importantly, after three weeks of the company, we all recognize and I recognize there is also significant concern at the share price movements you've seen. Now we're in the middle of, obviously, volatile markets. And as you know, sometimes the share price does not reflect the operational performance of the business. The share price valuation itself is not something we can directly control, but we want to reiterate that we are very focused on the delivery of our business growth plans, and we feel if we continue to deliver those plans, we're confident that the share price will ultimately reflect that success.

22:12 Handing back to you, Andrew, to start talking around the outlook for the rest of '22. Thanks, Rob. Let's start, the outlook and, with an update on the the '22 harvest. Firstly, we've enjoyed an excellent summer. Record temperatures, no pest or disease challenges, and a tremendous growing season. As a result, we started our harvest at the end of August, for the first time ever, and we forecast strong yields and quality from our total 750 acres. Whilst the recruitment of seasonal labor off the back of Brexit and COVID remains a challenge for the agricultural industry, through our strong relationships with our labor agency partners, we have the right seasonal labor plan in place and currently have over a 100 seasonal workers, European and English, to bring home safely at 22 harvest.

23:10 And finally, as you can see on the right hand side of this chart, in order to progress the twin to process the 22 and future 23 grapes harvest, we've invested in capital in tanks and pressing equipment at our Tentaton Winery. This will increase our capacity to manage up to two and a half thousand tons of fruit intake. It's a very exciting time for the operations side of our business. With respect to our '22 trading outlook that we've shared with the markets today, we forecast continued growth in h two underpinned by greater sparkling wines availability than in q four last year and stronger distribution and promotional plans.

23:57 Our q four and Christmas plans have already been locked in with our off trade and on trade customer partners. And likewise, we have strong plans across our direct to consumer channels in ecommerce and dental and retail, and our forward winter tour bookings are very good. We also, this year, have an increased focus on corporate gifting in q four. If your business wants to say a proper thank you to your staff and business partners, then please get in touch. Despite the evolving consumer backdrop, our current trading is in line with our management expectation, and our outlook for the full year '22 remains positive.

24:35 We expect to deliver further net sales revenue growth and sustained margins for the full year ahead. And beyond '22, our harvest is gonna provide the platform for continued growth in '23 and beyond.

24:53 Finally, I wanted to update you briefly on the progress that we are making against our strategic road map. As outlined previously, our ambition is to double the size of our business in the next five years. This is achievable without the requirement of further external funding, and the strategic road map is built up around the four pillars. The continued premiumization of our CHAPEL DOWN brand and award winning wines, further building the scale of our UK and international distribution footprint, ensuring we have the right talent, business culture, and systems in place to deliver our plans, and finally, invest in increasing the scale of our vineyards and operations to deliver the ten year plus growth ambitions of this business.

25:40 With respect to operations expansion, a brief update on our vineyards expansion. We planted an additional 38 acres in the spring of twenty two, and we will plan a further 118 acres in spring twenty three. This will take our total acreage from 750 acres to just over 900. The expansion of this acreage is fully funded, requires no further external funding.

26:08 Looking to our long term needs, we are in active discussions with the support of our land agent partner, Knight Frank. This is to source additional high quality acres of land over the next three year period to underpin future plans beyond the five year target. And really importantly, and a couple of questions were asked around this, throughout the expansion of our vineyards, we're continually focused on the sustainability of our vineyard practices. We are founding members of the sustainable wines of Great Britain, and we've implemented a number of environmental initiatives across our vineyards and winery. In '22, we have worked with research companies and also other environmental agencies to plant wildflowers, cover crops, and we've moved away from herbicides.

26:59 We continue to process the waste of our grape skins into by anaerobic digestion into, reusable energy, and 100% of our energy used at the winery is from renewable resources.

27:16 And finally, in terms of longer term update, an update on our winery. To reiterate again, we've extended Tenston, to ensure we have the capacity to double the size of the business with our two two and a half thousand tons of capacity. But furthermore, over and above that, we have now started the planning consultation on our project to build a new winery at Highland Court Farm East of Canterbury.

27:41 We had enjoyed a successful public consultation meeting, and we have now submitted our planning application and will be working closely with Canterbury Council as they build their local plan to develop this groundbreaking viticulture hub in Kent. We are targeting planning approval in the towards the end of q one twenty three, And alongside our review of external investment funding, we'll then take a decision on the time frame with which we move forward with a new winery construction.

28:14 So last chart ahead of, q and a. Let me finish with a brief summary of this CHAPEL DOWN business, which is in tremendous shape. The CHAPEL DOWN business completely is now refocused on building our position as England's leading and largest winemaker. We have delivered h one top line net sales revenue growth for the business in line with expectation, including sparkling wine growth of 35%. We have a profitable UK wine business with the growth of gross margin in the first half to 51%. We have the largest wine brand in The UK with the broadest distribution base in this fast growing English sparkling wine market. We have the largest vineyard acreage with 750 acres, which will all be fully productive by '23 and will increase by a further 150 acres across 2223.

29:04 We have this strong net asset base valued at historic cost of 31,000,000 with considerable upsize in terms of its realizable value. And as confirmed just then, our new winery plans have been submitted for development. As a board, we have confidence in our business ambition to double the size of the business in the next five years without any further additional funding required to underpin this growth.

29:32 Okay. That's the end of the presentation. What we'd like now to do is answer as many of your questions as we can possibly do so. Andrew, Rob, that's great. And thank you very much for your presentation this afternoon. I will just, bring back up your cameras. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the right hand corner of your screen. But just while the team take a few moments to review those questions that were submitted already, I'd like to remind you that a recording of this presentation along with a copy of the slides and

30:02 the published q and a can be accessed via your investor dashboard. Andrew, Rob, we did receive a number of presubmitted questions ahead of today's event as well as as you can see in the q and a tab, a number of questions have been submitted throughout today's presentation itself. So firstly, thank you to all of those on the call for taking the time to submit their questions. And, Andrew, Rob, if I could just hand back to you to address those questions where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Great. Thanks very much. And thank you all for your questions as stated, both pre submitted and as we've been talking. There are lots of questions there, and what we're gonna do is try and answer as many as we possibly can now. But because there are so many, I will try and group some of the questions together because there are quite a lot of overlapping questions on the same or very, very similar topics.

30:55 So if you don't recognize the exact wording on every single one of your questions, please do bear with us. We are trying to answer them all together. Anything that isn't, answered here, we will provide written answers on this platform within the week as well anyway. And talking around getting lots of questions on certain topics, Andrew, and trying to group the answers together. Number one is the share price. So, the various questions come at different angles, but essentially, it's saying what we think is behind the share price volatility, the share price reduction, and what can we do about it going

31:31 forward? What will we do about it going forward, essentially?

31:34 Yeah. I I think Rob talked a little bit about this during the course of the presentation, but I just wanna reiterate that from a a CHAPEL DOWN board point of view, we are taking very seriously the concerns that everybody is raising around the share price. We are very aware of the share price decline over the last, six to twelve months. These are turbulent times, for the market. We are also sitting on a relatively illiquid market in aqueous. And, also, we have been, experienced some sell off of shares from institutional holders, which has been completely unrelated to the health of the CHAPEL DOWN business. Combination of these factors ultimately is meaning that our share price performance is not reflecting the operational strength of our business.

32:25 Hopefully, by what you've seen at the half year results and and what we've outlined, in addition to the underlying net asset value of our business, which even at cost is showing at 20 p a share, the realize that realizable value of those assets clearly far higher. But we think we have a very strong balance sheet, and we have a very strong growing business. As a management team, ultimately, we can't control share price. What our job is to do is to now deliver for you as shareholders

32:56 this growth plan. I'm delighted with the progress we've made in '22, and I also believe that as we move to '23 and to the five year plan of doubling the size of this business, that that is achievable. And at that point, the share price will follow. I can only apologize to the share price performance. It's not in my control. What is in my control is making sure that we deliver on the numbers. Cool. Understand. And and the the final thing I I would add to it as well is is that you'll notice that a lot of directors and and that the leadership team were also shareholders, have been for a very long time and have purchased extra shares as you go forward to show our confidence in the overall story. And and, yeah, as we deliver that plan, the, you know, the share price will hopefully follow on that.

33:45 Moving on to the next question. We have a couple of questions around the harvest. Particular questions around the harvest focus on the yield and quality of the 22 harvest and labor around the harvest and what we've been doing around sourcing labor. Any particular updates we wanna give on that? So harvest is is the second group of questions we've we've received. Yeah. I I think I gave you a a flavor of the harvest, and it's a it's a it's a very positive one. We're seeing strong harvest in terms of quantity and in terms of yield. Whilst it's our earliest ever harvest, we started it only at the end of August. So we are literally four weeks in. We see that harvest extending out for another five weeks, and what we will do is we'll come back in in the end of October, early November, and give you a full read on the harvest. But I'm delighted where we're at. I think we're gonna have a very strong basis for '23, both in terms of the still wines that we will have available, the backers grapes we will have available for sparkling backers, and then over and above that, we will clearly start to rebuild even further as sparkling wine stops.

34:56 But from a stock point of view of sparkling wine, from a harvest point of view of grapes, there's an excellent foundation for us to deliver on our plans. Cool. Thanks. And then our next batch of questions is gonna be around CapEx and the winery, Andrew. And if I'll start, I'm gonna hand over to you around the winery in terms of our approach, timelines, etcetera on that But answering some of the the the questions on CapEx and net cash and our facilities. So firstly, just to reiterate, we are fully funded through to 2026. So we have enough by way of the

35:35 current balance sheet and facilities to do the plans to deliver that doubling of growth by 2026. Andrew will talk about things like the winery as as post 2026 looking at growth there. Second set of questions we've had is around the cost of the facility at PNC and also at what rates that facility is. First the first part of response to that is that the bits we don't draw down on within that facility, we don't pay for. So we're not paying for unused facility of that 15,000,000 facility, which only 3,000,000 we have drawn down on, that that that's there for us to use should we need it, should we want to need it. And in terms of the rates, yes, it is at an agreed rate, those drawdowns on the facilities, but it is at a rate linked to the bank base rate. So it's the bank base rate plus a set basis points on top of that?

36:25 And therefore, that facility is gonna be impacted in terms of its cost by by changes to the base rate going forward. So it it's a base rate plus facility, but it doesn't cost us if we don't use it. There are other questions, though, around the winery, Andrew, around basics around the the timelines and where we are on that, but also around how we plan to pay for that new winery, you want to pick up the story at that point there. Yeah. No. Specifically, someone asked to please set out the operational milestones and the the timelines. And just to to reiterate, we've got two things obviously going on in tandem here. The the the first one is from an operational point of view, the the planning submission, as I say, we would look to be successful.

37:11 We would look to be getting that by the end of, q one twenty three. We would most likely then all go in according to plan be in a position to commence a build in the second half of twenty three. But from a financial point of view, as we look at that alongside it, clearly, over the next six months whilst we're finalizing approval on planning, particularly with the arrival of Rob and all the support of the board, we're looking into a number of different ways in which we would then externally fund the cost of a new winery. What will a new winery bill bring? Ultimately, a new winery will bring a larger capacity for us to be able to produce anywhere up to six to 7,000,000 bottles over the long term plan.

37:58 It will bring us cost efficiencies. It will bring us the opportunity to to use our Tenston site to expand on our retail and tourism offer, and also bring us the opportunity to offer processing partnership to our people within the industry. And as I answer another question in the same time, as we look at an industry that matures, it will give us the opportunity to be the leader in any form of industry consolidation and m and a that's likely to take place over the next couple of years. So really importantly for us is a decision point, and we'll come back and and we'll share with you an update on this around the full year results in in April 23 where we'll come back with a clearer view on where we're moving from an external funding point of view, and that will dovetail with the number of conversations that we're having with council and planning and developers with respect to the development of the new wiring.

38:56 My final point is just to reiterate that by expanding out the capacity at Tenston, which we've done literally in the last two months, that enables us to process two and a half thousand tons of fruit. That enables us ultimately to produce around two and a half million bottles of wine. K? Cool. Thank you. And we're gonna go to international next. And there's a couple of questions around international we can pick up Mhmm. In one answer. One is around the role of FX impact might be having on the international channel. Yep. And and there's quite a lot of press on movements in FX over the last weekend. So impact of FX on international. The profit contribution on international that would make to the business ultimately, and the comment was around is quite an expensive channel to to to crack. Mhmm. And therefore, what's the profit contribution? Will it be dilutive?

39:52 And then two very specific ones around is is it available in Taiwan? And when can I buy some at Heathrow? Okay. You may need to remind me of that as we go. Four four in one. So first of all, in in in terms of the international business, I think I talked a lot about that in the the presentation. At this stage, it is a small part of our business and we are only in 14 markets. The model tends to be the use of a distributor in those markets, and then we work closely with them. Oh, in the first instance, to see the brand in places like the British embassy, in places that are very British friendly in their perspective on brand, but then also in top end entree. That's how you build a brand internationally. You start to put it in the right places, and then over time, you start to come down the pyramid from top end entree hotels, restaurants into bars, and and into specialist retail and then into to to wider retail outlets.

40:55 So we would do that at the right pace and time. Yes. It is expensive to build a brand internationally. It's a statement of the obvious. Every time you launch a brand in a new market, you're launching a new product. And so it requires investment, which is why as a company, we have been very focused on firstly, building our number one brand position in The UK, but then looking to expand out at the right pace because it needs to be done at the right pace. In developing our five year plan to double the size of the business, you've seen that the ambition is to get to 5% share in terms of international. We believe that that style of volume and and size of business is what is best afforded in the overall mix of the the channels as we move forwards. With respect to Taiwan, we do have the product in Taiwan, albeit I think it would be quite challenging to find it, if I'm being totally honest. So it's part of a South East Asian pack opportunity, which sits more as a second stage of of development.

41:59 From a point of view of of Heathrow, it's exciting that we've literally, in the last week after, you know, twelve months of great discussions with our partners, Dufry and London Heathrow, agreed a listing for a a traditional brute and English sparkling rose. So as from the November 1, you will be able to buy CHAPEL DOWN going through the airport, and that's a great shop window for us. Okay. I'm gonna give you a quick break now, and I'm gonna answer one myself, and I'm gonna ask you about the brand and the range afterwards. So there's a couple of questions around net asset value methodology and timing for any revaluations and the like. It says the net asset value of 20p per share. What we've simply done is we've taken the balance sheet numbers, which you've seen in the interim statement, and and there's about a 159,000,000 shares in issue and just divide it into two. So what you're seeing is just the share of of those historic costs.

42:56 As mentioned, though, things like the land are done at at the cost we bought the land at at the time, and and some of that land we bought a while ago. And things like the the wine stock, you know, you you'll you'll see that sitting there at over 12,000,000, 12,500,000. That again, it also is a cost, not a net realizable value. So that that's the methodology. In terms of what it looks like going forward, I'm in my first month. But during my my first half, I wanna talk to the the industry and the accounts and advisers to work out what best practice would be in terms of revaluing those assets, revaluing them either onto the balance sheet itself or as a a separate disclosure within the accounts. I don't know what the answer to that is gonna be, but we'll get back to you, at the full year results, either with an update on the approach or indeed an updated valuation of those assets.

43:53 Okay. So that's net asset value. So now we got a or two questions actually on brands in the range, and and they're nice questions because they're on either end. So there's one question around in the news. I think it was last week, might be the week before, the launch of a 195 pound bottle of traditional method sparkling. Yep. And then there's another question around, is sparkling back us? What's its role in a premium wine brand portfolio? So it's a question at at both end of that range for you. Okay. So first of all, in terms of our range, it's a very much a strategic decision to have sparkling wines and still wines. That enables us to be able to manage a whole acreage of grapes and also to maximize the quality of our brands when we're pressing out the different extractions within the grapes and allocating where they go to.

44:46 From a point of view then within sparkling, clearly, go all the way from our Kitskoti, Curde Cuvee, which is sitting at £100 to an entry point of carbonated ficus at 20 pounds. They play very different roles. When we talk about the luxury end and, you know, it's great to see that Gosborne have launched, you know, a 195 wine. I think there's two things to comment. One, I think it's a very good thing to do to take your brand up to launch a luxury product. And for me, that was very tried and tested in, for example, the Pembroke's range, and it's something that I think we should be aspiring to do. I think within there as well, I think we can also look at the pricing of the current very limited wines like Kitzker de Cuvee that we have.

45:36 I think at the other end of the spectrum, I think there is a real opportunity for us to be bringing consumers in from Prosecco and Garva, and that is effectively what the sparkling Bacchus looks to do. I think the most important question around there, though, is how do we treat the CHAPEL DOWN brand across the range? And you can get a little sense on that just from the products on the table that there is an opportunity with CHAPEL DOWN brand for us to bring together a tighter, brand architecture in terms of how we use our CHAPEL DOWN brand on our luxury brands like KITS COTI, which should be and is CHAPEL DOWN's KITS COTI. And then from a point of view on our backers, there's probably a question to say, should that be under the CHAPEL DOWN brand, or should it simply be from the house of CHAPEL DOWN with a different product name? So we're into the sphere of of marketing and brand strategy, but we are doing a lot of work at the moment. We call it project refresh and quite happy to share that with you where we are looking at our brand visual identity, and then we are looking at how best our brand works across the range.

46:46 And by the time we come back to you for the full year results in '23 and we talk to you about our plans, there'll be an update on that. Cool. Okay. And then one related to that, actually, which I should have should have given you three questions rather than only two in that one. Is there any concern around the Sussex DOC decision that was made, like, a month ago, a month and a half ago or so, wasn't it? That that's one of the questions maybe that relates into that grandpa as well. Yeah. Look. The Sussex PDO, for those that don't know, know, a couple of weeks ago, they were given a a protective designation of origin, a PDO, which is effectively what you have in the Champagne region to protect the the name of Sussex in the same way that you protect the name of Champagne.

47:38 There's a lot of surprise in the industry because that has been something that's been granted by DEFRA, the government agency, based on a county boundary. Our view about that PDO and the view of PDOs is we need to go all the way back up a level. What we are doing in England at the moment is we are creating an English wine region. We are creating English sparkling wine made in the traditional champagne method style. That needs to be our collective message both in The UK and to the world. I sit on the the wine GB board, and I think one of our biggest challenges as an industry is to make sure that consumers collectively understand that we have these award winning English sparkling wines that are grown on the same style of chalky terroiras in Champagne.

48:29 They've got a great climate here in terms of having a maritime climate versus continental, which gives us a longer growing season, and it means that we end up with these wines that are more elegant and more fresh. And then we also start to talk about the quality of our winemaking. English sparkling wine is defined itself as a region in itself. That is the most important thing that we should be focused off as an industry. Right. And I'll answer one quickly now, and then we're gonna talk about sustainability and net zero. I'll hand over to you. So there's a question around exposure to energy prices in here and and and how much we are exposed. Obviously, that's one of the first things that looked up when we got here. And and, actually, we do not have a big exposure to electricity price. So most of our our electricity is actually used around the the the harvest, which is around now.

49:24 I'm not gonna give an exact number for it, but it's not a big number. It is not a material exposure we have to electricity and the power prices. It's just not a big energy intensive industry like like some others out there as well. So it it's it's clearly not helpful, but it but it's it's not something that we it's material enough that you'll ever see kind of coming through as an effect in the accounts, don't think. So then on to we had a questions around do we have net zero targets? And can you talk about the sustainability plan? I know you covered a little bit of that, but maybe reemphasize some of those those Sure. Of that. I'll tell you what. Just before I answer sustainability, let let me just answer two related questions, and it's clearly very dramatic around what's happening out in the real world today.

50:11 So first of all, around the cost of living crisis. I just wanna reference that because there there's two parts to it and one links on from what Rob just said. First of all, we have seen increases in some of our inputs during the first half of twenty two, principally bottles, dry goods, and we've also seen some changes increasing cost in labor and a little bit at the utilities, albeit a small share. We've been able to mitigate those cost increases through the customer prices that we've been able to to to pass on, and so hence, we're in a good position from that point of view in terms of gross margin. Most of the morning, topical, clearly, journalists have been asking me about the impact the cost of living. It's really important for the drinks industry. It is being resilient through my thirty year career and way before in times of recession and challenging times. And CHAPEL DOWN, whilst it's a an expensive purchase, it's an affordable luxury. Consumers still want to be able to give themselves a treat even during hard times.

51:13 Furthermore, we've got a price benefit and differential, versus champagne, which is only gonna keep getting more and more expensive. So from a point of view of how exposed we are or not to this change in the macro environment, I think it's quite important that I just reassure around that, and that is built into our outlook for the for the year end. Sorry, Robert. Tangent, but let me talk to you about sustainability. Net zero. Net zero sustainability. Do we have a net zero plan or sustainability plan? We have a sustainability plan and a sustainability policy, albeit I think it's really important to say that both are something that are growing and emerging as we look to develop and grow the business. We have to develop our business in tandem with having the the right balanced environment approach.

52:00 We have a sustainability plan which really covers across firstly our vineyard practices. I think I've talked a little bit about some of the things we are doing in our vineyards in terms of the planting of cover crops, in terms of the herbs in terms of the grass, and then also in terms of not using, herbicide. We then have a focus on our packaging. All our packaging is recyclable. Currently, our glass is made from 75% recycled content and our packaging from around 80. We would like to improve, both of those, and we're working with our suppliers to do so. We're very focused on the waste reduction, and, all of our great skins are sent to anaerobic digestion to convert them into green electricity and soil conditioner.

52:46 I think I mentioned in the presentation, a 100% then of our energy is from renewable resources. Is that enough? No. And everything that we are doing on the operational side of business and the commercial running of our business needs to improve in the context of our sustainable policy, and that is something that we're working. With respect to, you know, net zero targets and in terms of carbon, the biggest part of our carbon footprint is the imported glass. That is the biggest piece, and we need to work on weight of bottle and we need to work on glass content, at the same time getting the right balance on that with what consumers are looking for in a luxury sparkling wine. So it is a balance.

53:33 We have to get the profitable growth of the business working in line with our environmental measures and the two go hand in hand. But I'm not gonna sit here and make any other promises over and above that because, you know, I think the most important thing for this is it's a step by step approach, and we're currently working more into our sustainability plans at the moment. And there are very big advocates out there in our shareholder base and people listening, and I'm very, very open to hearing from you on what you think we should do further. Yeah. Great. Thank you very much. I I know people submitting them are submitting confidential. The person with initials OP with very, very specific land questions, I suspect we can't answer those questions here. We'll check on on whether we we we can answer those questions, but I I it feels like a bit that we we should not be answering those questions OP, which is why why why we haven't gone to those so far. Right. Moving forward, there's a couple of questions on would we want to move to AIM? If we did want to move to AIM, what would be the process? What would be the timing?

54:39 We're currently sat on the accuracy decks. That's that's where we are. As we review overall investment strategy and as we review the funding options for us with respect to new winery and further vineyard acreage, we will also within that consider the options of index. And, you know, that is an ongoing process that we will continue to review as a board, and clearly, we'll continue to review any investment conversations in the context of what is rapidly moving macro environment at the moment. Great. And then another one related to that is, I think we have two questions on dividend policy as well. Do we plan to introduce dividends? If we do, what would be the timing be?

55:26 But brutally honest answer on that at the moment is within the current five year plan is that we don't intend to move to a dividend policy, and we intend to keep reinvesting our profits into developing the the growth of this business. We will look to keep reviewing, keep talking, and and be open to suggestion, but my strong sentiment from the major part of shareholders is that they want us to keep investing back into the business and keep growing. And whilst they do that, we'll also continue to ensure that we're giving the shareholders the the benefits of our discounted wine prices and also looking to do more communication and events for shareholders. And keeping with the corporate theme, one on m and a potential possible m and a opportunities. I know you mentioned that earlier on in in the presentation as well, but maybe just clarify kind of our our point of view on what that looks like.

56:22 Yeah. I I I think there are now, as I as I referenced, 897 vineyards, and there are over 200 wineries. A lot of people are are putting vines in the ground. And as this market matures and as it looks to go forward, there will inevitably be consolidation. And as the leading brand in in in this market, we want to be the person that's there looking at opportunities. I think on the other side of that, we have, as you know, seen Tattinger plant acreage in Kent and looking to launch there. Sparkling English wine in '24, and we've also seen the recent purchase of Bony by Henkel Frexinet. So there is a lot of activity that will continue to take place in this marketplace because inevitably, we are dealing with a fast growing 30% double digit market. We're dealing with wonderful terroir and opportunity for for growing grapes, and I think it's gonna be a really exciting place to be over the next period of time. Right. I think we got time for two more. The person with initials RS. I agree. Thank you for your comment. I'm not sure that's really a question, so I won't read that out.

57:34 That's intriguing. Second to last question. Why do we hardly ever see English wine on the top end restaurant wine list? What can we do about that? That's a great question, and we need to get it there. And we should be getting there, and I think we'll share happily share lists of top end restaurants that are stocking it because people like like, Avroche, Hand and Flowers are all starting to now put the likes of CHAPEL DOWN onto their lists. It is a focus area for us to make sure that in the top end of, entree in both luxury hotels and in luxury restaurants that they have, English sparkling wine brands and obviously in particular that they have CHAPEL DOWN.

58:22 You'll be aware that we launched CHAPEL DOWN Vintage Reserve Group. We did this solely for the entree channel to distinguish from the current group product that we sell in retail. It has a different level of dosage, and it calls out the vintage year. And the success of that product has been fantastic, and, yeah, we will continue to push that and also our Kits Kochi luxury wine brands into the top end of the entree. Okay. And final question then we'll hand back with thanks, I think, to investor me. So final question is any planned changes to the shareholder benefits scheme? There are no immediate changes. It's something that we will continue to review and look at what are the the best options to incentivize our shareholder base and say thank you for the support that you guys give to us.

59:16 We will do that in any shape or form through, you know, consultative process, and, you know, I really open up to your thoughts on what most motivates you as shareholders from a benefits point of view. And that won't be 50% off, by the way. But I'm really open to hearing what you have to say about that and and and how we deliver those benefits currently. I think just before we we hand back and we close, this session's always quite challenging with a flurry of q and a that are coming up and down the side. We've tried to be as open as possible in answering them. As Rob said earlier, we we will get back to you on the questions. It's a very exciting time for English Sparkling Wine and for this CHAPEL DOWN business. You know, we have an ambition to double the size of the business over the next, five years. We can do that without additional funding, and I'm really delighted with the progress we've made in the first twelve months that I've been here. And it's great to have Rob here as well as we now look to move forward on our on our future investment strategies for the long term.

1:00:17 So thanks very much for joining us. Thanks. Andrew, Rob, if I may just jump back in there and thank you very much indeed for being so generous of your time there and addressing all those questions that came in from investors this afternoon. And, of course, as you did kindly mention, we'll give you back all the questions post today's call for your review, and we'll publish all those responses where it's appropriate to do so on the investment company platform. Andrew, I know investor feedback is particularly important to you and the company, and I will shortly redirect those on the call to provide you with their feedback. But perhaps before doing so, if I may, just ask you for a few closing comments to wrap up with. Thank you. Yeah. What you see today really is, Rob and I. And we're the leaders of our business. I've got a wonderful team of people. There's 74 of them. I've got a 100 and seasonal workers out there picking grapes and making your wines at the moment, and I've got the support of a tremendous board.

1:01:08 Furthermore, we're working with a great customer base, great supplier base, and some really strong, agency partners. So this is what you see here today. Rest assured, I really have a world class team developing behind me and, yeah, really looking forward to catching up again in the very near future. Thank you. Andrew, that's great. And Rob as well, thank you once again for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in all that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of CHAPEL DOWN GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.

1:01:57 Thank you.