Chapel Down Group (LSE:CDGP) — H1 Results

0:00 Good afternoon, and welcome to the CHAPEL DOWN GROUP PLC investor presentation. Throughout the recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. Have the company can review all the questions submitted today and publish responses where it is 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. In an emerging wine region where the traditions aren't set, We're defining the styles of English wine with every vintage that passes.

0:48 The similarities between English sparkling wine and champagne are clear. We use traditional method for our sparkling wines. We use the grape varieties, Chardonnay, Pinot Noir, and Pinot Meunier. And we have the same chalk terroir soil that we're blessed with. But the differences between champagne and English sparkling wine are as if not more important. Our climate is on average one degree cooler than champagne, and this cool maritime climate allows our grapes to ripen with a higher natural acidity leading to the fresh and crisp taste. When you stand at the top of a chalky slope looking down southwards and the sun is coming over and you think this could be the best vineyard in England.

1:36 We just don't know it yet.

1:41 I'd now like to hand you over to Martin Glenn, chairman. Good afternoon to you, sir. Good afternoon, and welcome to the presentation of our CHAPEL DOWN, twenty twenty four half year results. I'm Martin Glenn. I'm chairman of CHAPEL DOWN, have been so since 2020. I'm joined today by CEO, Andrew Carter, and our CFO, Rob Smith. We look forward to sharing with you an overview of our twenty twenty four half one result results. But first, I wanted to update you all on the news announced today regarding Andrew and to briefly reference the funding review. And to that point, on the call are Rothschild, our strategic advisers on that process to make sure that we stay within the constraints of the the takeover panel in terms of what we're allowed to say and not allowed to say.

2:27 So just in case you wonder why they're there. Now onto Andrew. You've no doubt read the board has announced that it's accepted the resignation of Andrew Carter as CEO as he moves to take up a new role with Timothy Taylor's in Yorkshire. Having recruited Andrew, I've very much enjoyed working with him over the last three years. He's made a significant impact on the growth of CHAPEL DOWN. He's refocused the business on our vision of being England's leading and most celebrated winemaker, successfully leading the market listing onto AIM. The market capitalization has increased substantially during his period of leadership and driven by the development of the leading brand in the English wine industry, CHAPEL DOWN. Importantly as well, Andrew has built a high performing business culture with strong commercial and operations teams in place under an experienced executive team who who will continue to deliver the CHAPEL DOWN future growth plans.

3:18 A recruitment process for the new CEO will commence shortly, and Andrew will continue to lead the business until this process is completed in the first half of twenty twenty five. Now with respect to the strategic review as mentioned earlier to fund the long term growth of our of our business, This is an ongoing process, and therefore, there can be, unfortunately, no further update nor questions possible on this topic today, but the company will provide a further update in due course. So the focus very much today is our h one results. Overall, the board is pleased to report strong sales growth in the on trade, export, and direct to consumer channels, offset by some one off challenges in our biggest channel, the off trade. The company continues to make good strategic and operational progress and remains in profit, and it develops market leading brand it develops the market leading brand CHAPEL DOWN in The UK and around the world. And on this note, I'll hand over to Andrew and Rob to take you through the details of the twenty twenty four h one results.

4:22 Thank you, Martin. As you're all very much aware, CHAPEL DOWN is England's leading and largest winemaker, and our mission is to change the way the world thinks about English wine forever. Our vision is to be the leading and most celebrated English winemaker, and the company journey is in full flight. As a reminder for those new to the call, this business has a first class executive team who are managing the business on a day to day basis. Let me reintroduce the team. You all know Rob Smith, who's here as our CFO. And during the course of the year, many of you will have met Liam Newton, our CMO, Tom Hepworth Bond, our sales director, and, of course, our head winemaker and operations director, Josh Donnehis Baum.

5:07 Our executive team is rounded out by Denise Claxton, who manages the welfare and development of our 82 full time employees and seasonal workforce of a 150. Now the first half of twenty four, as you've read this this morning, has delivered some strong sales growth in the on trade, export, and direct to consumer channels, unfortunately, offset by some one off challenges in the off trade, which we will continue to discuss later. The company continues to make good strategic and operational progress as it develops a market leading brand in The UK and around the world. There have been a number of highlights, some reflected on this page. Our traditional method sparkling wines have been recognized internationally with over 28 awards.

5:54 The highlights of which were the decanter world wines best in show award to our sparkling rose, and in our wine GB awards, the most prestigious prize of supreme champion was awarded to our kids Kotikur at Kube. We have once again enjoyed an outstanding summer of events and sponsorships in spite of some of the weather. The picture in the top right of the screen shows the launch of our new CHAPEL DOWN branded bar of Alaska, which is a particular summer highlight. We completed the planting of our new vineyard at Buckwell in Kent, and now this takes us to 1,024 acres, 414 hectares of planted vineyards. Our entree business grew by 20% as we continue to see increasing demand for English sparkling wine in the entree, and we now have over 2,200 outlets stocking our brand.

6:45 And our direct to consumer business continues to flourish. It's up 23%, and we will talk about the successes of our ecommerce in Tentherton retail and tours later in the presentation.

7:00 Before talking about CHAPEL DOWN highlights, let's give you a brief update, though, on the English wine market. The demand opportunity for English sparkling wine remains very strong. As the left hand side of this chart shows, the sale of English sparkling wine is only 4% of the total market with circa 7,000,000 bottles according to IWSR. But this is a small share of that total market with 207,000,000 bottles of sparkling wine sold in The UK alone. The most relevant market opportunity is the 26,000,000 bottles of champagne. And based on our '23 sales, as you look on the right hand side, you can see that CHAPEL DOWN is now ranked the seventh biggest brand alongside some illustrious champagne brands, and the opportunity to convert more champagne buyers to CHAPEL DOWN is our significant UK and international growth opportunity.

7:58 Thanks, Andrew. And here, we see our future growth projections for the supply side of the planted vineyards and wine production, which is a combination of both wine GB and CHAPEL DOWN data and forecasts. We forecast that planted land will continue to grow from the 4,400 hectares or about 10,000 acres the YN G B data shows today. The current planted land is made up of about 1,030 vineyards in The UK, and this, of course, 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 in planted acres will come from larger vineyards, often on more productive sites, which is one of the key reasons that we forecast production to grow slightly faster than the planted vineyard acreage.

8:43 As a note to understanding the planting and capital cycle, vineyards become fully productive from around three years after planting. On the right hand side of the slide is the production side. You will see the impact of the exceptional '23 harvest here. Wine GB annual report shows that over 22,000,000 bottles of English wine were produced in 2023, of which 16,000,000 were traditional method bottles of sparkling. Truly exceptional. We forecast that in 2024, we will revert to a more normalized harvest, fitting long term growth profile, although this is, as ever, partially dependent on the growing conditions we encountered during the remainder of the 2024 growing season.

9:23 By 2030, we forecast that total production will be above 35,000,000 bottles, of which nearly 25,000,000 will be traditional method. Now on to the demand side. And here, we're talking about the forecast domestic addressable share of traditional method sparkling wine. We exclude still and other wines here since our production is small relative to market size. We will talk about export markets momentarily. There are two key parts of our addressable market. Firstly, champagne, which we forecast will have flat volumes over the ten year period shown here due to constrained supply and also the attractive US and Asian export markets. Then secondly, there is English sparkling wine, which we forecast to grow at an average of about 10% per year, which is lower than historic growth levels of closer to 20% domestically and higher than that in export markets.

10:16 Overall, thus, the domestic addressable market for sparkling wine traditional method is forecast to grow at an average volume of just less than 3% a year to reach about 40,000,000 bottles by 2034. And on to export, and that is a big opportunity for us. And shown here is the global champagne volumes, around the world. So about 300,000,000 bottles are sold each year, but importantly, of which 275,000,000 are sold outside of The UK. So remember that number, 275,000,000. Contrast that with our export volumes in the first half, which we were really pleased to say were up 15% to just under 35,000 bottles, a significant amount of which was focused on global travel retail, also known as duty free.

11:04 So less than 35,000 bottles of CHAPEL DOWN sold in export versus 275,000,000 bottles of champagne. And as you can see, the export opportunity for both English sparkling wines and CHAPEL DOWN is vast. So let us now focus in on CHAPEL DOWN, the product, the brand, and the distribution. CHAPEL DOWN brand is the number one brand in English sparkling wine category. For new shareholders on the call, let me just reintroduce you to the CHAPEL DOWN range and the segmentation of our portfolio. Moving left to right on the screen, you have our premium sparkling wines, Brut and Rose, our super premium wines, Brut Reserve, Grand Reserve, and Rose Reserve, and our luxury sparkling wines under the KITS Coty brand.

11:53 Our retail pricing remains at circa 20 to 30% price less than champagne, which maintains a strong competitive position against the fast rising retail consumer pricing of champagne. The 28 international awards achieved by our our sparkling wines reflect that excellent quality produced by Josh and the winemaking team. Our still wine portfolio was also relaunched in 2023, and it continues to play an important role in the CHAPEL DOWN portfolio. At the luxury end of our still wines, the quality of kids Coty Chardonnay and Bacchus continued to win multiple awards, and our premium still wines are much lauded by critics and our consumers. In the first half of twenty twenty four, as a result of the bounteous '23 harvest, we were able to reduce our retail pricing of premium wines to £15 per bottle to make these wines as accessible as possible in a very competitive still wines marketplace.

12:55 Rounding out the portfolio in the first half of twenty four, we we redesigned our touch of sparkle wine and launched the rose variant. Our Touch of Sparkle is a great tasting carbonated white wine, which is an excellent alternative to Prosecco and offers a price point to allow specific groups of consumers to access English sparkling wine. It's strategically important that we continue to offer this fund fizz proposition for the relaxed weekday occasion, that Thursday evening barbecue or book club meeting, but equally important that this product is distinguished from our traditional method English sparkling premium and luxury wines. It's priced ongoing at £18 with discounted price promotions at key periods throughout the year, and these new designs will be coming into market in q four.

13:44 Now CHAPEL DOWN brand is truly becoming an iconic power brand within the sparkling wine category. Our brand metrics there on the left have reached record levels. We have brand awareness amongst sparkling households now at 42% and penetration of 15. Our social media media following is now over 118,000 followers. We have a database of a hope over 100,000 consumers, and we have 60,000 visitors to Tenston each year. Furthermore, there are now 10,000 shareholders that are very key part of this CHAPEL DOWN brand journey, many of whom are on this call today. Our brand awareness is being driven by our new advertising campaign, inspiring fresher ways to celebrate, with over 17,000,000 impressions delivered in the first half of twenty three.

14:37 As as prestigious sponsorships in England and Wales Cricket Board, the annual boat race, our new Ascot race course partnership, and the Tom Keridge Pub in the Park festival sponsorships all continue to play a major role in driving that brand engagement. As we continue to grow brand scale, it's also very important to focus on the communication of the quality of our wines. You will have seen on social and in your shareholder mails the new films of Josh introducing the quality of our wines and beginning to celebrate the launch of new vintages. Hopefully, by now, most of you will have visited Tenston, or in the case of many of you, occasions. We have continued throughout the year to make several improvements to our brand tours and shop, and it is testimony to the hard work of Gavin, Natalie, Sarah, and the team that once again have been awarded with the TripAdvisor Travelers Choice Awards reflecting on the quality of our tour offering.

15:39 We'd really encourage you to pay us a visit and see the changes as we move into the quieter autumn months post harvest. This strong first half brand performance is reflected in the resulting brand metrics with brand leading market share of 35% in the off trade and record levels of brand awareness on this chart, as you can see, of 45%, brand affinity of 24, and household penetration of 15. With continued brand investment and distribution scale, these metrics will continue to develop, and the pathway is long and full of growth opportunities, particularly when at the bottom there as a benchmark, you consider Moet Chandon with awareness levels of 90% and household penetration of 25%, demonstrating the great opportunity that lies ahead for our brand.

16:31 Our wines continue to be the most widely distributed for any English wine brand in '24. This chart gives you a fuller picture of our trading channels. On the left hand side, the off trade, it accounted for 46% of our business, and we have strong and much valued partnerships with Waitrose, Tesco's, Sainsbury's, Morrison, Majestic, Marks and Spencer's, and we continue to extend the depth of distribution and the amount of off shelf visibility. It has been a challenging first half in the off trade driven by a number of one off factors, and Rob will outline that later in the presentation. Our on trade business currently now represents 17% of total business. As you can see, our distribution has increased in the year to 2,278 outlets in the first half, but with a significant opportunity for further growth with 5,000 premium on trade outlets, the midterm target.

17:28 We've already referenced our rapidly growing direct to consumer business, which now represents over 35% of the business. Ecommerce channel grew an impressive 33% in the first half of the year. It was driven by a significantly growing database. We had 12,000 customers buy in the first half, average order values of £113, and an outstanding returning customer rate of 65%. Our brand home in Tenston, in spite of poor weather, had over 20,000 visitors in the first half, and our retail sales were up 8%. And to Rob's earlier point, international is a growing opportunity. Today, we have seeded the CHAPEL DOWN brand in 14 markets, and in h one, the sales value was up 20% on last year and is now 6% of our total business.

18:18 We believe there is opportunity to grow international to 10% of our business in the midterm, and we now have the brand listed in 24 UK travel hubs, including London Heathrow, Gatwick, Luton, and City airports, and we're now onboard key cruise lines with Harding Retail. To date, the rate of sale is a major success, and as both the departing UK and international travelers start to discover English wine and are able to gift it to to to friends and, family.

18:53 It's been another busy year busy year for the vineyard team. We're pleased to report, that the new Buckroyal vineyard is now fully planted with chardonnay and Pinot Noir. As you can see, we now have over a thousand acres planted, which based on the YN GB figures we talked about earlier, is about 10% of all UK planted vineyards. A bit more detail on that will follow. The growing season this year has progressed well so far with no frost issues and good weather during flowering. We've additionally not seen any significant disease pressure and are envisaging beginning to harvest towards the back half of September, which is about a usual time zone. In addition, the winery has seen an incredibly busy summer with more than 2,000,000 bottles of traditional methods sparkling wine bottles, which is 85% more than we have ever previously managed.

19:43 As promised, we want to show you now a little bit more detail on the vineyards. On the first slide, you can see here the location of our vineyards and the soil type they sit on. As you'll know, our largest vineyards are on the North Downs and sit on precisely the same chalk seam that is found in Champagne before it goes under the channel and up through the White Cliffs Of Dover. You will also see the planting we completed at Boxley Abbey here right next door to Kitscote and also our new vineyard, Buckwell, situated on the same chalk scene. On the next slide, you will see a breakdown which some of you will be familiar with. We have 750 fully productive acres at present, but have planted Boxley Abbey next door to Kitts Coty, as I mentioned, and now Buckwell to take our total to 1,024 acres. These will all be fully productive by 2027.

20:33 In terms of great mix, the traditional method grades predominate, Chardonnay, Pinot Noir, and Pinot Meurgnier. But we also have plenty of Bacchus, which creates such in demand still wines as well as being a significant component of a touch of sparkle. And whilst we look at this table, I would also like to reiterate that when we're looking for new vineyard sites, whilst we want to broadly 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 UK for CHAPEL DOWN. Sustainability has long been at the heart of our plans. We are founding members of Sustainable Wine GB, and we are committed to delivering our long term ambitions and aspire to sustainability leadership in the English wine sector.

21:26 Our immediate goal is to publish our baseline carbon footprint and finalize the future timeline for our CHAPEL DOWN carbon net zero ambition. This plan will this will include a meaningful and measurable set of sustainability plans that will deliver this. But furthermore, Josh and his team are already doing some great work here. We always look to practice sustainable viticulture. For example, where we're reintroducing indigenous grasses in our vine roads and use mechanical weeding of the vines. All our vineyards have now been fully mapped, and biodiversity plans are in place to encourage wildlife habitat. All our packaging is recyclable. Our glass is made from 75% recycled glass and packaging from an 80% recycled content.

22:11 This is just the start, and we will go further. Our waste grape skins are sent for anaerobic digestion to convert them into green electricity, and at Tenthton, we use 100% renewable electricity. We're looking forward to publishing our environmental sustainability plans and our timelines to establish a net zero position in the coming weeks. Our people and culture are at the heart of our business. We now employ 82 passionate wine ambassadors across our vineyards, operation, and retail and tourism business. Our four behaviors are at the heart of our high performance culture, and I'd like to thank publicly all of our team for their continued great work in the first half of twenty four. Finally, in the operations section today, we'd like to summarize the investments made to create our future business platform.

23:04 All of the components you see in front of you are now live and working well, giving us a single technology and data platform for the business and considerable benefits, including revenue growth from better tools, bundling, gift cards, significantly improved commercial analytics and insights alongside reduced costs in the back office and operational risk. In line with accounting standards, this expense is treated as an exceptional item. 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 on to the financial highlights.

23:49 You will have seen that we've had a more challenging first half than in the past. Although sales revenue has grown in all channels except off trade, we are down 11% overall for the half year. Most of this underperformance has been due to one off factors in the off trade, and we will go into those in more detail shortly. Gross profit was expected to be lower due to an increased amount of still wine in the sales mix in in the first half as well as selling sparkling vintages, which were most affected by the inflation that we saw in 2021 and 2022. The fair value adjustment on biological assets is a noncash item as previously discussed on these calls and is calculated from estimated full year yields and the estimated market price. As previously indicated, we think the fair value adjustment will be significantly lower in 2024 than the exceptional 2023 figure, which will impact headline profitability.

24:44 We are pleased with the average selling price performance in the year with traditional method sparkling up 9% and the reductions in a touch of sparkle and still wines being from planned RRP production reductions allowed by the 2023 exceptional harvest to increase consumer accessibility. We continue to invest in the brands and maintain our leading position, and we continue to manage overheads closely. I mentioned the exceptional item previously. It relates to our investment in technology and data. Finally, EBITDA and operating profit reductions are a result of the above. Sales impacted predominantly by the one off items, therefore, a global gross profit alongside that, and it's significantly lower estimated fair value adjustment.

25:29 A bit more detail on gross margin before we look at the segmental analysis. As you can see, the main impacts on the half one gross margin are the increased proportion of still wines, which is a lower margin product in the sales mix, and the sparkling vintages from 2021, 2022 being sold, which are those which were much more affected by the inflation we saw during that period. And these have been partially offset by the strong average selling price performance in sparkling.

26:02 Let us next then break down our sales performance by looking at how our product categories performed. And please note that the revenue numbers shown on the next two slides are gross of retro this transition year to allow us to present a like for like comparative number. And you'll see traditional with the sparkling wine remains our core focus, but has been the most impacted by the one off items in the off trade, which we'll highlight in more detail shortly. A touch of sparkle sales reduced 19%, which was partly due to the planned reduction in ASP average selling price, but mainly due to volume. This is part of our plan to move the largest part of promotional activity for a touch of sparkle into the second half of the year. Still wines performed strongly, showing continued consumer support. The launch of a chardonnay still and the planned retail price reductions clearly supported here.

26:51 Tours also continued to perform well with an increased focus on corporate activity. Finally, our vine to wine event fell in half one this year, which accounted for some of the increase of revenue against 2023. Now on to the trade channels. The off trade remains our largest channel, and we'll cover this shortly. I will add here, though, that the off trade is the channel where we have the best third party sales data available, and we had a 34% market share in the first half twenty twenty four according to Nielsen, which makes us the largest English wine brand. The on trade was up 20% as distribution grew during the year, which will also benefit us in the second half, and in particular, the by the glass distribution, which grew strongly.

27:42 This is important for us as by the glass both increases rate of sale, but also encourages sampling among new consumers. By the glass listings will remain a strong focus. There was 20% growth in exports, as you heard, which is primarily driven by our success in global travel retail, I e, duty free. It's a fantastic market, but also a great driver of brand awareness given the significant footfall on those duty free sites. Secondly, the direct to consumer channels, which grew 23% and were 35% of the business in h one. This result shows the strong underlying consumer demand for CHAPEL DOWN continuing. And as we grow, as we've said previously, we aim to continue to try and keep the direct consumer elements of our business about 30% or higher because it's so important for our brand and our margin.

28:31 I should also call out that ecommerce in particularly had a good year, up 33% with a particularly pleasing number in the number of new customers. So as promised, and this is the focus of a couple of the questions we've had here, let's look at the off trade in the first half in some more detail on this waterfall. And as you will see, we've had significant one off factors in the first half. The largest was the movement in retailers, which mainly means supermarket stock holdings. Retailers started the year with higher stock than planned due to softer rate of sale in November and December 2023. As such, the usual and expected stock build in h one did not occur. In addition, the King's coronation, which was the largest consumption event for English whilst we have witnessed so far, occurred in the occurred in the comparative period.

29:24 There has been some ongoing softness in rate of sale caused, we think, by a challenging macroeconomic situation, the poor weather in the first half reducing demand, and also our promotional calendar being more heavily weighted to the second half this year. This has been somewhat offset by increased distribution. A final point here is we get the EPOS, so electronic point of sale data on retail sales of value, which is clearly third party independent data. And not attempting to adjust this for any coronation effect, this shows a sales decline of 7% for CHAPEL DOWN in the first half versus the 36% reduction in statutory revenue we declare. This is a reason for positivity alongside an upweighted trading plan and ongoing strength in our brand, Metix.

30:10 Onto the balance sheet. Next. And you'll see stocks, which is wine stocks, have grown 49% to 21,800,000 versus this time last year, and that's a result of the exceptional harvest in 2023. You see the net debt has increased to 5,700,000 with the main elements being the in year cost of the 2023 harvest, including payment for grower contracts and all bottling. You will also see that we've repaid the fixed asset lending proportion of our revolving credit facility, which attracted the highest interest rates. And as previously mentioned, we expect to sign an extended and enhanced facility during q three. And finally, I'd like to reiterate the board belief that the market value of our tangible assets is considerably higher than their reported value and to note that although we consider the brand to be hugely valuable and hard to replicate asset, we do not assign that value in the balance sheet.

31:03 I'll now hand back to Andrew for the outlook. As we move into the final part of the presentation, I just want to reconfirm our plans and the outlook. Our 24 plans continue to build into our long term business plans to be the leading and most celebrated English winemaker. As a reminder for those who may be new to this call, our road map for growth is based around four strategic growth pillars. The first pillar to grow and make the best award winning wines. As we've referenced, we have the best vineyards and wines in England. We've planted Buckwell in the first half, which takes our planted acreage to a 24 acres. With respect to the development of our new winery, whilst there has been frustrating delays due to planning approval, as previously announced, we plan to have a new purpose built winery operational in time for the twenty sixth harvest.

31:56 Post a successful judicial review ruling in May, we are now awaiting the publication of the final planning approval in the coming days. Our second pillar is focused around the continued development of our UK leading sparkling wine brand, continuing to further invest in communications, sponsorships, and events alongside continual upgrades to our Tenston brand home. And, naturally, we are also working on the development of further new product development. The third pillar being the continued development of our UK on and off trade distribution blaze our flourishing direct to consumer business, and the continued focused international expansion of CHAPEL DOWN wines on which we have updated earlier. And finally, as also referenced earlier, given the importance of growing our business in an environmentally sustainable way, we have separated out this key part of our future strategic plan, and we look forward to updating you on our carbon net zero ambition and sustainability plan in the coming weeks.

32:57 All of this will be underpinned by the continued development of our high performance team and culture and the continued professionalization of our business systems and process. Now looking to the second half of twenty four, we have a significantly upweighted marketing plan and spend. We will continue with our upweighted digital media campaign. We have further key food and drink sponsorships events, including the first sponsorship of Ascot's food and drink festival this weekend. Our high profile sports sponsorships continue,

33:31 and we look forward to the return of the Aussies for their one day cricket series in the back half of September and the profile that that will bring our brand. We are up waiting both our corporate gifting programs, and we are bringing our CHAPEL DOWN brand experience to town with the opportunity for London based corporates to book CHAPEL DOWN tastings. These will be bookable via our website, and we really would appreciate your business support. Likewise, September marks the KITS COTE luxury wines releases, and several of you will have attended the event last night in London. If you missed it, don't worry. You can buy via your shareholder account. And, also, there is an event at Tenston on Friday. We will continue to focus on the growth of our on tape distribution, and we are very focused on winning Christmas and being the sparkling choice of, of wines at the office Christmas party.

34:24 And finally, we will look to address the challenges we've had in the off trade through increased promotional pricing, increased visibility for that all important festive season where up to 40% of sparkling wine is sold during the six weeks to Christmas. With respect to our outlook for '24, as you would have read earlier, given the one off challenges in the off trade in h one, we have reduced our forecast to single digit revenue growth with a return to normalized profitability levels. As a board, we have confidence in our h two plans based on the strong underlying consumer sales in DGC on trade and the removal of those one off stock factors that have impacted us in off trade in h one. In particular, we have well developed plans for Black Friday and Christmas, which are the most important sales periods and critical to our full year outcome.

35:19 With respect to profitability, we will continue to expect to see the gross profit margin decline against 23 for the full year, driven by the greater weight in the still wines due to the exceptional '23 harvest and the higher COGS largely due to higher cost of vintage in sales mix, and this was always part of our planning. EBITDA will return to normalized levels since last year's significant fair value gains on harvest are not expected to recur in '24 and as we guided in the '23 results presentation. Turning to harvest. The '24 growing season is progressing well with no frost damage and fine, dry, and warm weather for the flowering of the vines. And as Rob referenced earlier, we expect to be picking in the second half of September.

36:08 And finally, as we expect to sign a new RCF in q three, which will extend and increase our existing facility to cover the immediate cash flow requirements of the business.

36:21 So in closing, whilst '24 has been a more challenging half in our off trade business, our sales performance across all other channels has been excellent and is underpinned by record levels of strong brand metrics and distribution. Whilst personally moving to a new challenge, my personal belief in the CHAPEL DOWN vision and the future outlook for the growth of the English wine sector remain very strong. We have the most recognized brand, the most widely distributed products, and a vineyard acreage covering over covering over a thousand acres, which ensures we are well placed to deliver our midterm growth ambitions to '26, but as importantly, our longer term ten year aspirations. I would like to take the opportunity to thank all our shareholders for your personal support, and more importantly, your continued passionate support of the CHAPEL DOWN business.

37:12 And on that note, we're gonna finish and, open up to questions. Thank you very much for your presentation. What I'll do is I'll just bring your cameras back up at this point. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which situated on the top right hand corner of your screen. But just while the company take a few moments to read the questions that have been submitted today, I'd like to remind you the recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And if I could just hand back to you to read out those questions where it's appropriate to do so, I'll pick up from you at the end.

37:48 Great. Thanks very much. And just a preliminary first comment is that we are not going to add to the statements around both strategic funding review and Andrew. We're not gonna add to Martin's initial comments on there. So I know some people have still posted questions on that, but we cannot respond to those today. And as Martin said, we do have representatives from our advisers here today to make sure we do comply with takeover panel restrictions in that area. Having said that, let's focus on on the half one results. And what we'll do is is what we've done previously here, which means that I will read out the questions. I will look to bundle questions together in order that we can cover more of those. And in order to do that, you'll see me looking off to the right occasionally.

38:36 That's because I have a set screen here with the questions on there. So so that will that that that's why I sometimes look off to the right on those. And as we said, we will provide written answers to the questions or links to the the the presentation on on the IMC website going forward. So let's start off with a couple for Andrew, and then I'll give him a break after that. And we're gonna try and do it logically. So we'll start with a couple on vineyards, Andrew. So first question was presubmitted, so I can't see who submitted them, which says, I've noticed numerous new vineyards being parted in the South Canterbury area plus others between Canterbury and Ashford. Are these CHAPEL DOWN or other? Then the next question from DB.

39:24 I won't mention your full names. What's the current market value per hectare of good vineyard land in Champagne? And then the third vineyard question we will address is are you seeing lots of inbound investments for UK planted land? Okay. Look. Firstly, as as Rob mentioned earlier, there's there's now a 30 vineyards according to YNGP in The UK, which is a, you know, record level. We in terms of acreage, it's about eleven eleven thousand acres approaching of which we have the best part of 10%. Specifically on the question around Kent, we believe that is the best place to grow English wine in terms of its terroir and its its climate, and therefore, lots of other people are are following us into Kent.

40:18 Some of those vineyards you're describing are now being planted by Night Timber who are are moving more east in their plantings. We've also obviously seen the Tattinger plantings in in Kent. Tattinger will be launching their Domaine Evermond sparkling wine at the end of September and and opening their facility. And there continues to be other parties that are are looking at vineyards with respect to the international piece. We've not probably seen any further change on that since we last updated you, but as a reminder, we have Henkel Freshenay that own Bony. We have Jackson Family of Wines from The US that have brought vineyards in the in the Crouch Valley.

41:05 We also have Pommery in in the market. And, yeah, it's an area which many of our international players can then continue to look at and and are obviously interested in given the the nature of the climate and the terroir. With respect to Champagne, clearly, a defined region with no further opportunity for growth, and therefore, the pricing in Champagne for a fully productive acre can be as much as a million pounds of of of in terms of fully planted vineyard. For us in The UK, as we spoke reported by an acre of vineyard, it's in the region of £20,000 an acre, and to plant it is about 15,000.

41:56 They're the economics that we look at. But to Rob's earlier point, when we are assessing future vineyard growth opportunities, we are looking at it on the quality of the land. And in most cases, a lot of that land is then owned by generational families, and and therefore, we are often looking at leasing that land. Cool. And and that actually answers RJ question on the IRR of new vineyards in terms of the other areas. Because of the vertical integration, RJ, it's very, very hard to work it out and let you do it on a spot sale, which doesn't give you a very good number in as in it, it's not a very high quality number in terms of what an IRR in a vineyard is. And, therefore, we look at it on a fully integrated basis in terms of the return on capital on investments.

42:42 Right. A couple of questions on channels, which I'll take to give you a quick break, Andrew. Question number one is around is RJ again. Sales split between supermarket specialist merchants and independent wine merchants. And we have question RJ again. How does the margin vary across distribution channels? And and the b, what's the difference between d to c and ecommerce and GB? Should the ecommerce channel includes shareholder sales? So in terms of number one, the the the sales between supermarket, specialist merchants, independent wine merchants, we won't go through that in detail, but the the the big majority of that is supermarkets.

43:29 The the big supermarkets that you see there around Waitrose, Sainsbury's, M and S, that Tesco, that they're our biggest elements of the off trade. Next part of it was margin variable distribution channels. Actually, the off trade, the on trade, and the export when it comes down to the CAM, which is contribution after marketing level, are all broadly similar, actually. Because some of the the the costs and the profits taken by the retailers in off trade tend to be similar to the profits made by distributors in the on trade, which tends to be similar to the cost in export, which also tends to be similar actually to ecommerce.

44:14 So all of those channels are broadly similar at the cam level. The one which is head and shoulders above is a retail intensity since we take the full price and we don't have distribution cost there as well. So that for us is is a long way head and shoulders above in terms of margin for us at the CAM level. NB, the difference between d to c and ecommerce. So d to c is direct to consumer, which is everything direct to consumer. So it includes ecommerce, but it also includes retail. So the tented in site, it also includes tours. It also includes things like the income from the Swan Restaurant as well. So that's the more the entirety of consumers buying directly from us. Excuse me. And GB, yes, ecommerce does include shareholders.

45:01 We don't disclose the proportion of that to shareholders. It is significant, but it's not the majority of ecommerce sales. Okay. So let's go back to Andrew with one as well and a strategic one, which you may have answered before. Do you see further industry consolidation, especially given the forecast growth rates? Yeah. It's something we've talked about before. And as a board, our view is that industry consolidation is inevitable. At this point in time, when you have that many vineyards and that many operators in the market, as the market continues to mature and grow, we believe there will be continued consolidation, in the industry.

45:47 At this point in time, in terms of brand share, we're the brand leader with 34% market share in the off trade. Clearly, the other big brand in the market is Nitember. There are a number of great brands out there, whether that be in the the the top end of the market brands like Gelspin and Raffini or whether it be bigger brands playing like Balfour and Ridgeview and and the like. But there are numerous other players, and clearly not everybody is gonna continue to be able to win. And therefore, as we look to our future five and ten year model, we have assumptions around how that could potentially consolidate and how we could build that into our future model and position as the leader in the market. Okay. Thanks, Andrew. So a couple of questions on sales price and promotions now, and it starts off with a question, pre submitted one.

46:43 Does discounting compromise your premium pricing policy whilst you're only shareholder benefits? And another question is, regularly scanty sparkling wine supermarkets, does it set customer expectations price should be lower? And 30 especially 36, I think, broadly similar. Do you from GB, do you think that that with the with retail sorry. With the retail price is still going down and probably is going up, does that provide a clue that wines are are overpriced? Okay. Let's, pick up three parts on that. I mean, I think the first important part is throughout the three years here, we've been focused on premiumization of the brand. And that premiumization of brand is linked to design.

47:37 It's linked to image. It's linked to the events and sponsorships and support. It's a link to occasion, but obviously also linked to retail price. And one of the things we've looked to do, and I think we've done successfully for shareholders, is increase the value of our of our of our brands by increasing retail price, albeit still making the brand accessible versus champagne. And if you look at Moet, for example, which is in the time we over the last three years increased from around 25 to £40, you know, our relative change to take the brand to an ongoing retail of of circa $29.30, it's still incredibly good value for award winning wines. I think with any premium brand, you clearly want to sell as much of that brand at full price as you can. But inevitably, even for premium and super premium categories, a major percentage of that category is sold on promotion.

48:31 And we could spend a whole conversation here on marketing one zero one around how we want to bring new consumers into the brand to try on promotion and then continue to keep them in the brand as you return to normal pricing. That's part of building premium products and premium brands. From a sparkling category point of view, 55% of champagne is sold on promotion, and that percentage of volume on promotion is fairly consistent across most still and sparkling categories. On top of this, and often I get mails on this, so I'll take the chance to reference it, is the retailers will also run their buy six bottles, get 25% off.

49:16 That is clearly a retailer mechanic to drive people into their stores at key periods. Naturally, all brands are then taken into that. We don't fund that, but we're also part of that. So there's a constant, piece of work that we do behind the scenes here where we're analyzing our retail pricing by customer on a weekly basis. We then understand very clearly what our rate of sales are in terms of off and on promotion, and we're able to come up with our optimal promotional strategy to ultimately bring as many people into our brand as we possibly can and to maximize value for for shareholders in terms of both the sales value line and ultimately the operating profit line.

50:02 Cool. There are a couple of other questions on brand, but I'll I'll do I'll move away for a second just to give you a chance to Okay. Have a drink and rest your rest your rest your throat. So BL, what economies of scale are there in the industry? Well, actually, there's quite a good economies of scale within the the wine industry, believe, in The UK. So if you go through the value chain in terms of farming and the vineyards, we only really wanna look at new vineyards at a 100 acres plus because you need that critical mass to get the economies of scale in farming, both in terms of the machines and the equipment you have there, but also the vineyard teams that you have within there. Within production, there is also critical economies of scale there as in any productive capacity. We are nowhere near the diseconomies of scale level there, so there is definitely economies there.

50:50 Ditto in distribution, things like ecommerce and fulfillment. Clearly, there will be economies of scale on there as well, but also potentially through some areas around off and on trade there. And then there is clearly the more classic synergies and economies of scale through back office consolidation and functions such as my own around finance, HR, IT, and the likes there. So in answer to your question, we think there are quite significant economies of scale within The UK wine industry. Then the question we had from RS, not me, around the RCF and asking us around commercial terms on that RCF. I'm afraid, clearly, we we cannot disclose those commercial terms, I'm afraid.

51:39 And, Andrew, then back to brand after you've had your your drink. From SM, the growth rates in brand awareness, affinity, and penetration seem to have slowed year on year. Is that correct, and why is that? And then a related question was the high profile actually, somewhat related question. Sports sponsorships are replicative spectators of the venues, beat the three test match for this ground, and should we be able to buy a CHAPEL DOWN sparkling wine for me and my guests to drink? First of all, in terms of that increase in in brand awareness and and penetration, I think you'll see over what is now a three year period that has increased from, twenty eight percent to 42%.

52:26 In terms of the returns that we're seeing on the investment we're spending, the absolute levels of increased percentage, no. It's not slowing down. I think what's also important is when you come underneath that level, we look at that by region. We look at it by demographic, and we look at it by consumer group. And we continue to be very happy with the level of increase relative to the amount we're spending. Specifically with respect to the cricket, The first point I would make, the the deal we have with the ECB, I I, again, clearly don't wanna get into the total economics of it, but it's a very cost effective deal in which the main return on that money is for us to use CHAPEL DOWN in the presentational moments and to get the impact of the brand association and brand awareness of that man of the match, man of the series, lady of the series celebratory moment.

53:28 We pay effectively an amount for that. It's actually a a a contra amount that we pay through stock, and we consider the return that we get on the awareness for that very, very effective. With respect though to then having the distribution of the product in each ground, that becomes a separate negotiation with every ground, and that's the, if you like, the disadvantage of the sponsorship. You can't centrally negotiate that through the English and Wales cricket board. You have to do that of each ground. So we then make a separate commercial decision as to whether we're getting a return on our investment in the stocking of that product in in each ground. So, for example, if you were going to the test match at the Oval, you'd see a fantastic CHAPEL DOWN bar. Likewise, if you were going up to, HEDNEL DOWN, you would see the brand available.

54:17 But as I suspect, if you've been to Lourdes, unfortunately, you need to take that in, but at least at Lord's, you're able to take your one bottle in, and I hope you could take CHAPEL DOWN. We continue to work on this. We will be looking at, as we are with all our agreements, the renewal periods, the content of those moving forwards. Okay. So I'll do two quick questions, and then, Andrew, I'm gonna leave you with one more strategic one at the end before we have five minutes before close. So PS, are there any plans to address the shortage of decent hotels around Tenton by opening our own? At the moment, no. We do not have any plans to open our own hotel, although it's something certainly we have considered in the past, not as a hotel, but in terms of accommodation, so potentially for the future.

55:04 AB question about sales and cruise lines. Yeah. Well, we definitely would like to get onto the f and b menu in the bar of cruise lines because we think there's a great rate of sale there, and we are currently working on that to try our best to indeed get into those areas and hopefully announcement at some point in the future. And then, Andrew, I'll leave you with one last question and then onto maybe a closing for it. And it's a strategic question from Feet. Which other brands do you admire in English wine and why? Hi, Feet. Thank you for that question. I think at the the luxury end, I think there are brands like Gosborne and brands like X and PLC that I think are doing a very good job.

55:57 I think Campbell Valley have done a very good job, and, clearly, I'm impressed by what they do and what they do with their real warrant, and that's been a subject that we've covered before and something that we aspire to be enabled to achieve. But I think there's some good brands out there, but I think really, really importantly, you know, as CHAPEL DOWN, we are the brand leader with the only brand of scale that's able to do what we're doing. And without wishing to sound arrogant, I think we're really pushing the boundaries of English wine. And, yeah, we also respect the competitors and other other brands that we work with. I'd like to think that we're doing a great job ourselves. Perfect. Thanks very much for answering those questions you can from investors. Of course, the company can review all the questions submitted today, and we'll publish our responses on the investor meet company platform.

56:49 But just before redirecting investors to provide you with their feedback, which is particularly important to the company, Andrew, can I just ask you for a few closing comments? Yes. By all means. Firstly, apologies for my voice. I've been doing a lot of talking today to media and to investors and shareholders, so apologies if I'm a little croaky. I appreciate that today is probably quite a frustrating day for shareholders. You want more information and updates on the strategic review. As a board, we understand that, but we are, as Martin said earlier, completely governed by public market regulation. And, at this point, it's not possible to give update, but as we reflected in our statement, we will do that in due course.

57:38 I also realized that this is the first time in for me, personally, in three years that I've been having to talk to you about more difficult results. And I really would urge you to look at the results and to go below the top line of those results. And as I've spent the day discussing with media and discussing investors and shareholders, And as Rob demonstrated today, you know, we have seen strong growth strong growth in on trade direct to consumer international. It's been offset by some one off challenges in the off trade, and, you know, we are unhappy about that. We don't like that, but that's a reality that we've been working with. And please, you know, look to the underlying bits of this business.

58:24 Our brand, the highest brand awareness and penetration, amazing brand metrics. We now have a thousand acres and the biggest owner of vineyards in this, in this country, and we have the broadest distribution base with opportunity for growth. My personal belief in our vision and our mission, at CHAPEL DOWN is undiminished. And, clearly, I've been, decided to make a very personal driven decision today to leave the business. I believe that that will be best taken forward under fresh leadership. But rest assured, I will continue to lead this business into h one twenty five. I will work with Martin and the board on my successor, and we remain as confident as ever in the long term ambition to be the leading and most celebrated winemaker.

59:10 We have total belief in the long term opportunity for English sparkling wine. On that note, I'm gonna close. I'm sure I will, be talking to you all again very shortly, and, I wish you all a a happy evening. Thanks. Thank you very much for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order 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'd like to thank you for attending today's presentation, and good afternoon to you all.