Final Results

RNS Number : 9472A
Gusbourne PLC
07 June 2021
 

7 June 2021

 

Gusbourne Plc

 ("Gusbourne", the "Company" or the "Group")

Results for the year ended 31 December 2020

The Board of Gusbourne Plc (AIM: GUS) is pleased to announce its audited results for the year ended 31 December 2020.

2020 Highlights:

 

 

· Net revenue* up by 28% to £2.11m (2019: £1.65m)

· A five-year CAGR (compound annual growth rate) of 35% in net revenue (2019: 31%)

· Shift in distribution channel performance with Direct-to-Consumer sales (including online sales) representing 30% of net wine revenue, up from 20% in 2019 and International sales representing 33%, up from 19% in 2019. UK Trade sales at 37%, down from 61% in 2019

· Increase in gross profit margin to 58.3% from 55.5% in 2019

· Ongoing success in international wine competitions, receiving a further 40 medals in 2020 including fourteen gold medals, four trophies, and the Judges Selection Medal in the prestigious Texsom awards in the United States

 

*Net revenue represents Revenue after deducting excise duties

 

Chairman's statement

It would be impossible to reflect on our performance in 2020 without talking about the tragedy of COVID-19, a pandemic which also brought much of the hospitality industry to its knees and forced so many F&B businesses to face the most challenging trading conditions in modern times.

 

We were two months into the financial year when it became clear the ramifications of Coronavirus were going to be serious, and barely a month later before every hotel, restaurant and non-essential retailer in the UK had been ordered to close its doors, and we were under the same intense pressure as every other company to contain costs and furlough staff. We responded quickly to focus on Direct to Consumer sales, expanded our reach in the Off-Trade including the placement of our first exclusive product with a premium supermarket chain, and increased our International sales.

 

Our strategy delivered net revenues for the year of £2.,109,000 (2019: £1,653,000), an increase of 28% (2019: 31%) over the prior year, as we expanded our customer base both at home and overseas, and won over 40 industry awards in national and international competitions against some of the finest wine producers in the world. Other international highlights included significant export success in the Nordics, increased demand and recognition across Asia with plans to invest more into the region, and continued progress in the US which remains one of the largest opportunities ahead of us but where we are garnering increased recognition including winning the Judges Selection Medal in the prestigious Texsom awards.

 

Mid-year we entered into a £10.5 million asset-based lending facility with PNC Financial Services UK Ltd ("PNC"). The new facility has been used to provide additional liquidity and long-term working capital finance for the Company at a competitive rate. We will continue to work with PNC to ensure the Company makes best use of this facility, particularly as the value of our assets grow in line with expectations after another successful harvest. We expect to maintain our robust investment strategy into our vineyards, property, equipment and of course wine inventory including several new releases, some of which have already been launched to notable critical acclaim.

 

I am particularly pleased with the way the Company strove to support our On-Trade clients throughout the year, many of whom, like us, engaged with their customers in new ways including enhanced social media campaigns, direct marketing, and valued-added home delivery rather than in a face-to-face environment through which so many of our businesses ordinarily thrive. For Gusbourne, this resulted in a significant increase in Direct to Consumer (DTC) Sales, now representing 30% of net wine revenue compared to 20% in 2019. We plan to maintain our focus on DTC going forward as spending habits continue to reward businesses prepared to invest and innovate in this space.

 

We also took the opportunity to increase capacity at The Nest - the Company's retail, tour and wine tasting operation at our headquarters in Appledore, Kent - which will continue to be an essential means for us to connect with new visitors and customers post lockdown and thereafter. The Company's Customer Experience team have worked tirelessly to demonstrate the integrity and importance of The Nest as part of our long-term growth, and I am in no doubt that we should strive to replicate this approach at our other vineyards in West Sussex when it is prudent to do so. There's also more we can do to make certain Gusbourne provides the most luxurious visitor experience in the sector, and we will continue to explore ways of expanding the breadth and depth of our cellar door offerings in the years ahead.

 

As we emerge from a third UK lockdown, the Company is already seeing a return to more normalised trading conditions with DTC sales and future bookings for The Nest currently trading ahead of expectations.

 

Most importantly, I cannot tell you how proud I am of all our employees, not least Gusbourne's CEO and Chief Winemaker, Charlie Holland, who, along with the Executive Team, faced a testing year with unfailing calm and relentless application to deliver an outstanding set of financial results whilst also developing new products, distribution channels, and existing business revenue lines. My gratitude similarly extends to our loyal shareholders and wider board of directors who stood shoulder-to-shoulder with us throughout the pandemic, and of course to our growing army of customers who remain our most valued ambassadors worldwide.

 

Jim Ormonde

Chairman

 

 

Chief Executive's review

 

In spite of the challenges and disruption caused by the onset of the COVID-19 pandemic I am pleased to report that 2020 has been another year of successful performance for Gusbourne. Net revenues are up 28% on the prior year (2019: 31%) as we continue to widen our distribution channels and grow the Gusbourne brand both in the UK and overseas. These achievements are a testament to the resilience and tenacity of the Gusbourne team who have demonstrated great agility in adapting to a quickly changing environment.

 

The continued growth of our Direct to Consumer (DTC) sales has been particularly pleasing, representing 30% (2019: 20%) of the Group's net wine revenue. Online sales grew by c.400% (2019: c.200%) reflecting our ongoing investment in digital marketing through the creation of rich and engaging content, compelling wine offers and new and exciting product releases. We plan to invest further in our online and digital presence in the coming few years.

 

2020 marked our third full year of operations at The Nest, which provides Gusbourne's cellar door sales facilities, tours and wine tasting operations. Situated amongst our vineyards and winery operations in Kent this facility allows us to fully engage with our customers, encouraging them to enjoy the vineyards, visit the winery and taste our wines in a beautiful setting. We continue to improve and expand our offering, providing visitors with a unique and unforgettable experience.

 

International sales have continued to flourish representing 33% (2019: 19%) of net wine revenue. Gusbourne is now distributed to 21 countries around the world as we grow our global brand. Continued investment in sales and marketing has enabled us to develop and grow existing markets and expand into exciting new territories with significant growth potential.

 

Activities

Gusbourne's vintage English sparkling wines are positioned at the top tier of the English sparkling wine market and we are committed to maintaining that premium position, which reflects the quality of our products and their luxury status. We are one of England's most awarded producers and continue to win prestigious awards at some of the world's most discerning wine competitions.

 

The Gusbourne business was founded in 2004 by Andrew Weeber with the first vineyard plantings at Appledore in Kent. The first wines were released in 2010 to critical acclaim. Following additional vineyard plantings in 2013 and 2015 in both Kent and West Sussex, Gusbourne now has 231 acres of mature vineyards. The NEST visitor centre was opened next to the winery in Appledore in 2017, providing tours, tastings and a direct outlet for our wines.

 

Right from the beginning, Gusbourne's intention has always been to produce the finest English sparkling wines. Starting with carefully chosen sites, we use best practice in establishing and maintaining the vineyards and conduct green harvests to ensure we achieve the highest quality grapes for each vintage. A quest for excellence is at the heart of everything we do. We blind taste hundreds of samples before finalising our blends and even after the wines are bottled, they spend extended time on their lees to add depth and flavour. Once disgorged, extra cork ageing further enhances complexity. Our winemaking process remains traditional, but one that is open to innovation where appropriate. It takes four years to bring a vineyard into full production and a further four years to transform those grapes into Gusbourne's premium sparkling wine.

 

We also produce a limited quantity of premium vintage English still wines which have also won a number of prestigious international awards.

 

Recent awards

We have continued our success in major wine competitions winning over 46 medals at national and international competitions, where we are judged against some of the finest wines from around the world. Awards received during the year include:

 

· 4 gold medals and trophies for 'Best still red wine' and 'Best still rosé wine' at the UK-based Wine GB Awards in August 2020.

· 2 gold medals and 'Best in Class' at the London-based Champagne and Sparkling Wine World Championships in December 2020

· A Platinum medal and 'Judges Selection Medal' awarded the prestigious Texsom based in the US held in February 2020

· 2 gold medals at the Japan Wine Awards in Tokyo held in February 2020

· A gold medal at the Global Pinot Noir Masters held in London during May 2020

· A gold medal at the Asian Sparkling Masters in Hong Kong held in June 2020

· A gold medal at the Global Sparkling Wine Masters held in London during June 2020

· A gold medal at the Global Rosé Masters held in London during June 2020

 

Group vision and growth strategy

The Group's vision is to continue to produce premium quality vintage wines from grapes grown in its own vineyards and to promote Gusbourne as a luxury brand which is reflected by the premium quality and premium market positioning of its products.

 

The Group's growth strategy is to:

 

· Support the continuing strong growth in DTC sales with online sales and marketing investment, and offline with planned further investment in Gusbourne's cellar door operations in Kent and potential new investment in a West Sussex cellar door operation. These operations enable us to meet our customers in person and showcase our operations and products on site, whilst promoting a closer and more direct relationship with our customers which is a strategic objective of our growth strategy.

· Invest in the further growth of UK Trade and International sales

· Maintain and further develop the Gusbourne's brands luxury status and ensure that the Group's premium quality and premium market positioning of its products are maintained as a key part of this growth strategy.

· Continue to innovate in all areas of the business including planned new product development in respect of Gusbourne's vintage premium wines.

 

  2020 Harvest

  The 2020 harvest at Gusbourne has continued the precedent set in recent years, with yet another vintage of outstanding high quality and record quantity. Conditions throughout the growing season were generally good, in particular during flowering in June and the critical ripening months of July and August.

 

  The 2020 harvest started in September and produced near perfect ripeness with excellent balance between natural sugar levels and acidity across all three grape varieties - Chardonnay, Pinot Noir and Meunier.

 

  In accordance with our strict parameters to only produce the best wines, rigorous selection of the best fruit from our self-imposed detailed-focussed techniques in the vineyards, the team began choosing the best quality fruit during the green harvest towards the latter part of the growing season. This was followed by rigorously selecting only the finest fruit from each vine during harvest, which ultimately ensured that all of the grapes, which were chosen for pressing, were suitably rich, ripe and pure. Desired levels of natural sugar and acidity were present across all three of the grape varieties that Gusbourne grow - Chardonnay, Pinot Noir and Pinot Meunier. Despite less favourable weather conditions towards the end of the year the team were able to pick a healthy and ripe crop.

 

  The resulting wine production has added further to our inventory levels for sale in future years. Early indications of the resulting wine quality are high.

 

 

  Results for the year

  Net revenue for the year amounted to £2,109,000 (2019: £1,653,000), an increase of 28% over the prior year. This reflects continuing like for like growth in the sale of Gusbourne wines since 2013 and a 5-year compound annual growth rate of 35%.

 

  Gross profit represents net revenue less cost of sales (cost of wine sold and direct selling costs). Over the last 5 years the gross profit margin has increased from 31% in 2015 to 58% in 2020 (2019: 56%) reflecting economies of scale in respect of the Group's increased production volumes and a shift in distribution mix more recently to DTC sales.

 

  It should be noted that the cost of sales relating to the wine sold in the current year is primarily the cost of wine produced from the 2015 and 2016 harvests when production levels were lower, and the benefit of the production economies of scale at gross margin level will continue for some time to trail current year sales.

 

  Operating expenses of £3,198,000 (2019: £2,902,000), included depreciation of £647,000 (2019: £699,000) as well as planned increased expenditure on sales and marketing costs of £1,478,000 reflecting continuing investment in the growth of the business and its sales beyond the current financial year. Sales and marketing costs, which are largely discretionary, continue to represent a relatively high proportion of net revenues during this planned growth phase of the business.

 

  Adjusted EBITDA (profit from operations/(loss from operations) before fair value movement in biological produce, interest, tax, depreciation and amortisation) for the year was a loss of £1,321,000 (2019: £1,285,000). The operating loss for the year after depreciation and amortisation was £2,189,000 (2019: £2,156,000). The loss before tax was £3,066,000 (2019: £2,601,000) after net finance costs of £877,000 (2019: £445,000).

 

  These losses continue to be in line with expectations and the long-term growth strategy of the Group which is based on continuing sales growth of Gusbourne wines, supported by sales and marketing expenditure and increasing wine stocks whilst maintaining Gusbourne's premium quality and premium market positioning in the market. This is planned to provide a positive cashflow during the course of the next few years.

 

  Balance Sheet

  The Group's balance sheet reflects ongoing investment in the growth of the Group's business.

 

  The production of premium quality wine from new vineyards is, by its very nature, a long-term project of at least ten years. It takes around two years to select and prepare optimal vineyard sites and order the appropriate vines for planting. It takes a further four years from planting to bring a vineyard into   full production and a further four years to transform these grapes into Gusbourne's premium sparkling   wine. This requires capital expenditure on vineyards and related property, plant and equipment as well as significant working capital to support inventories over the long production cycle.

 

  Total assets at 31 December 2020 of £24,294,000 (2019: £23,507,000) include freehold land and buildings of £6,263,000 (2019: £6,383,000), 231 acres of mature vineyards at £3,004,000 (2019: £3,144,000), plant, machinery and motor vehicles of £1,476,000 (2019: £1,604,000) and right of use assets of £2,022,000 (2019: £2,068,000). Note these are carried at cost, less depreciation where applicable, and do not reflect any potential upside from valuation adjustments.

 

  The carrying value of inventories of wine stocks at 31 December 2020 at cost amounted to £9,325,000 (2019: £7,463,000). These inventories represent wine in its various stages of production from wine in tank from the last harvest to the finished products which take around four years to produce from the time of harvest. These additional four years reflect the time it takes to transform our high quality grapes into Gusbourne's premium sparkling wine. An important point to note is that these wine inventories already include the wine (at its various stages of production) to support sales planned for the next four years. The anticipated underlying surplus of net realisable value over the cost of these wine inventories, which is not reflected in these accounts will become an increasingly significant factor of the Group's asset base as these inventories continue to grow.

 

  Intangible assets of £1,007,000 (2019: £1,007,000) arose on the acquisition of the Gusbourne Estate business on 27 September 2013. Intangible assets, which includes the Gusbourne brand itself, remain unimpaired at their historical amount and in accordance with the relevant accounting standards. No account has been taken with regards to any potential fair value uplift that may be appropriate.

 

 

  Financing

  The Group's activities are financed by shareholder's equity and debt which comprises loans, lease liabilities, other borrowings and deep discount bonds. At 31 December 2020 debt amounted to £14,397,000 (2019: £10,561,000). Excluding the impact of IFRS 16 and the resulting right of use asset and lease liability, debt amounted to £12,289,000 (2019: £8,405,000).

 

  On 1 June 2020, Gusbourne announced that its subsidiary Gusbourne Estate Limited entered into an agreement with PNC Business Credit, a trading style of PNC Financial Services UK Ltd, for up to £10.5m of asset-based lending facilities (the "PNC Facilities"). The PNC Facilities are primarily used to finance the Group's working capital, which consists largely of inventories.

 

 

  The PNC Facilities are provided on a revolving basis over a minimum period of 5 years and allow flexible drawdown and repayments in line with the Company's working capital requirements. The interest rate is at the annual rate of 3 per cent over the Bank of England Base Rate. The facilities are secured by way of first priority charges over the Company's inventory, receivables and freehold property as well as an all assets debenture.

 

  On completion on 1 June 2020, approximately £4.6m of the PNC Facilities was drawn down by Gusbourne Estate Limited with approximately £2.1m being used to repay the existing secured Barclays bank facilities in full, £1.3m was used to part repay the existing short term loans to Franove Holdings Limited and a company controlled by Lord Ashcroft KCMG PC. The balance of £1.2m was used for working capital. Following further drawdowns during the year, the group had £3.7m of unused facilities at 31 December 2020.

 

  Of the £1.3m drawdown at completion to part repay existing short-term loans, £0.8m was used to part repay a short-term loan of £1.25m received on 23 December 2019 from Franove Holdings Limited. £0.5m was used to part repay a short-term loan of £2.0m received on 31 May 2019 from a company controlled by Lord Ashcroft.

 

  Following these repayments Franove Holdings Limited agreed to extend the repayment date of its outstanding loan of £0.5m to 15 August 2021, at the same 15% rate of interest, with the loan becoming secured behind PNC at the same ranking as the existing outstanding deep discount bonds issued by the Company. Gusbourne Estate Limited has also agreed with Franove that in the event it seeks to repay its loans (excluding its PNC facilities) further, the repayment of the Franove Holdings Limited loan will take priority.

 

  The remaining Lord Ashcroft loan of £1.7m was refinanced, by a company controlled by him, with a new deep discount bond maturing on 15 August 2021 and with a coupon of 15% per annum rolled quarterly and secured behind PNC at the same ranking as the existing outstanding bonds issued by the Company.

 

 

  Going concern

  The directors have considered the cash available from committed facilities to continue operations for at least 12 months from the date these financial statements were approved and in addition, whether any of its key covenants may be breached during this period in assessing whether the going concern assumption is appropriate.

 

  In coming to their conclusion, the directors have considered the Group's profit and cash flow plans for the coming period, and in the light of the residual uncertainty due to COVID-19 have run various downside "stress test" scenarios. These scenarios assess the continuing potential impact of COVID-19 on the Group over the next 12 months and in particular on the Group's sales through its key distribution channels. These stress tests indicate the Group can withstand any ongoing adverse impact on revenues and cashflow for at least the next 12 months but only if the short-term loan and deep discounted bonds are refinanced or deferred.

 

  While initial forecasts are based on board-approved budgets, the Group has considered a scenario in which forecast revenues are restricted to those achieved in the year ended 31 December 2020 when the business was impacted by Covid-19 on UK on-trade and off-trade sales channels. Under this scenario the directors have modelled the impact certain cost mitigation actions, in relation to variable and discretionary costs and believe that there are sufficient cost savings which could be achieved from sales and marketing, administrative, winery and vineyard costs to enable the Group to continue as a going concern for the next 12 months.

 

  In these stress test scenarios, the directors assessed the Group's potential cash requirements together with the availability of undrawn funds from the Group's £10.5m asset-based lending facility, of which £2.4m is undrawn on the date on which these financial statements were approved. The stress test scenarios show that the Group does not require more funds than the current undrawn facilities, assuming that the short-term loan and deep discounted bonds will be refinanced or deferred. Furthermore, the scenarios that the Group remains in compliance with its key monthly covenant tests which commenced on 31 December 2020.

 

  Under these significant stress test scenarios, the Group could withstand a material and prolonged adverse impact on revenues, in line with those in 2020 and continue to operate within the available lending facilities. In each of the stress test scenarios, the directors have assumed that the short-term loan and deep discounted bonds will be refinanced or deferred.  

 

  The directors have also assessed the ability of the Group to repay its short-term loan and deep discounted bonds (£0.5m and £5.1m respectively at 31 December 2020) which are due for repayment on 15 August 2021. The total amount due on 15 August 2021 to satisfy these obligations will amount to £6.1m. Of this amount £1.5m is due to directors of the Group, £3.8m is due to the major shareholder of the Group and £0.8m due to third parties. The directors believe that the Group will be able to raise further equity and/or debt funds to repay or refinance this short term debt as well as providing additional funds for the further development of the Group. The Group has shown an ability in the past to raise capital and/or debt funds, and it believes that it will be able to raise such funds in the future. Furthermore, those directors and the major shareholder who hold over 85% of this short term debt obligation have confirmed in writing in June 2021 that they do not intend to call their debt should doing so cause the Group to be unable to satisfy its creditors as they fall due.

 

  However, there is no guarantee that the Group will be able to raise further equity and/or debt funds to repay or refinance this short term debt. The Group does not currently have sufficient cash or other financing available to settle this obligation and has no contractual agreement that would enable the Group to refinance or defer payment of the short-term loan and deep discounted bonds.

 

  This condition indicates the existence of a material uncertainty as at the date of approval of these financial statements, which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

 

 

  Current trading and outlook

  The Company experienced a slower than normal start to trading in the first three months of the year as a result of ongoing COVID-19 lockdown restrictions on UK trade sales in particular. However it is pleasing to note that our continuing growth in Direct to Consumer and International sales have continued to mitigate this impact on overall sales. With the gradual reopening of hospitality, the Group remains confident about future sales growth and remains excited about its future prospects as the business continues to focus on its strategic growth plans. The achievement of the Group's long-term growth strategy will depend on the raising of further equity and/or debt funds to achieve those goals.

 

  On the production side, both vineyard and winery operations continued to work through the various lockdowns with appropriate safety protocols. The Group furloughed a number of staff members, particularly in the sales function and various steps were taken to reduce costs. We are pleased to report that all staff have now returned from furlough and are now focussed on delivering the Group's business targets.

 

  Finally, I would like to thank all our dedicated and hard working employees for their outstanding response to the challenges over the past year. Their energy, focus, and creativity has been impressive to witness and provides me with great confidence for the future.

 

Charlie Holland

Chief Executive

 

 

 

 

Key Performance Indicators

Net revenue and adjusted EBITDA - 5 year summary

 

Years ended 31 December

2016

£'000

2017

£'000

2018

£'000

2019

£'000

2020

£'000

 

Net revenue*

 

640

 

998

 

1,261

 

1,653

 

2,109

Cost of sales

(423)

(381)

(560)

(735)

(879)

Gross profit

217

617

701

918

1,230

Sales and marketing expenses

(345)

(560)

(914)

(1,389)

(1,478)

Administration expenses **

(683)

(720)

(694)

(814)

(1,073)

Adjusted EBITDA (loss)/profit***

(811)

(663)

(907)

(1,285)

(1,321)

Fair value movement in biological produce

9

(27)

125

(172)

(221)

EBITDA****

(802)

(690)

(782)

(1,457)

(1,542)

Gross profit %

33.9%

61.8%

55.6%

55.5%

58.3%

Net revenue annual growth %

35.3%

55.9%

26.4%

31.1%

27.6%

Net revenue 5 year CAGR

 

30.7%  34.8%

* Net revenue represents Revenue after deducting excise duties

** Excluding depreciation

** Adjusted EBITDA means profit from operations/(loss from operations) before fair value movement in biological produce, interest, tax, depreciation and amortisation

**** EBITDA means profit from operations/(loss from operations) before interest, tax, depreciation and amortisation.

 

Net revenue by distribution channel - 5 year summary

 

Years ended 31 December

2016

£'000

2017

£'000

2018

£'000

2019

£'000

2020

£'000

 

Net revenue in £'000

Direct to Consumer (DTC)

55

74

144

299

586

UK Trade

498

607

827

934

721

International

87

251

179

292

634

Net wine sales

640

932

1,150

1,525

1,941

Other Income

-

66

111

128

168

Total net revenue

640

998

1,261

1,653

2,109

Percentages of net wine sales

Direct to Consumer (DTC)

8.6%

7.9%

12.5%

19.6%

30.2%

UK Trade

77.8%

65.1%

71.9%

61.2%

37.1%

International

13.6%

26.9%

15.6%

19.1%

32.7%

Total

100.0%

100.0%

100.0%

100.0%

100.0%

 

Balance Sheet assets* - 5 year summary

 

Years ended 31 December

 

2016

£'000

2017

£'000

2018

£'000

2019

£'000

2020

£'000

Assets

Freehold land and buildings

5,543

6,539

6,488

6,383

6,263

Right of use assets**

-

-

-

2,068

2,022

Vineyards

3,256

3,260

3,289

3,144

3,004

Plant, machinery and other equipment

1,131

1,431

1,757

1,636

1,504

Other receivables

 

  97   

90                                              38

Total non current assets

9,930

11,230

11,631

13,321

12,831

Inventories

2,247

3,484

5,282

7,463

9,325

Trade and other receivables

314

281

496

707

869

Trade and other payables

(252)

(358)

(483)

(752)

(769)

Working capital

2,309

3,407

5,295

7,418

9,425

Total operating assets

12,239

14,637

16,926

20,739

22,256

Cash

1,123

1,464

1,311

1,009

262

Goodwill

1,007

1,007

1,007

1,007

1,007

Total assets

14,369

17,108

19,244

22,755

23,525

               

 

* Net of trade and other payables

** per IFRS 16

 

Balance Sheet liabilities and equity*

Years ended 31 December

2016

£'000

2017

£'000

2018

£'000

2019

£'000

2020

£'000

 

Debt

PNC Business Credit (Asset finance facilities)

-  -

-

-  6,613

Other bank debt

2,342

2,256

2,173

2,058

-

Deep discount bonds

4,195

2,522

2,761

3,001

5,132

Short term debt

-

-

-

3,379

544

Lease liabilities**

-

-

-

2,123

2,108

Total debt

6,537

4,778

4,934

10,561

14,397

Equity

7,832

12,330

14,310

12,194

9,128

Total liabilities and equity

14,369

17,108

19,244

22,755

23,525

               

* Excluding trade and other payables

** per IFRS 16

 

Annual General Meeting

The Company's annual report and accounts for the year ended 31 December 2020 will be posted to shareholders on Monday 7 June 2021, together with notice of the Annual General Meeting to be held at 11am on Wednesday 30 June 2021 at the offices of Fieldfisher LLP at Riverbank House, 2 Swan Lane, London EC4R 3TT.

Enquiries:

Gusbourne Plc

Charlie Holland    +44 (0)12 3375 8666

Canaccord Genuity Limited (Nomad and Joint Broker)

Bobbie Hilliam   +44 (0)20 7523 8000

Georgina McCooke

Panmure Gordon (UK) Limited (Joint Broker)   

Oliver Cardigan  + 44 (0)20 7886 2500

Hugh Rich

Joanna Langley

Note: This and other press releases are available at the Company's website: www.gusbourneplc.com

Note to Editors

 

Gusbourne produces and distributes a range of high quality and award winning vintage English sparkling wines from grapes grown in its own vineyards in Kent and West Sussex.

 

The Gusbourne business was founded by Andrew Weeber in 2004 with the first vineyard plantings at Appledore in Kent. The first wines were released in 2010 to critical acclaim. Following additional vineyard plantings in 2013 and 2015 in both Kent and West Sussex, Gusbourne now has 231 acres of mature vineyards. The NEST visitor centre was opened next to the winery in Appledore in 2017, providing tours, tastings and a direct outlet for our wines.

 

Right from the beginning, Gusbourne's intention has always been to produce the finest English sparkling wines. Starting with carefully chosen sites, we use best practice in establishing and maintaining the vineyards and conduct green harvests to ensure we achieve the highest quality grapes for each vintage. A quest for excellence is at the heart of everything we do. We blind taste hundreds of samples before finalising our blends and even after the wines are bottled, they spend extended time on their lees to add depth and flavour. Once disgorged, extra cork ageing further enhances complexity. Our winemaking process remains traditional, but one that is open to innovation where appropriate. It takes four years to bring a vineyard into full production and a further four years to transform those grapes into Gusbourne's premium sparkling wine.

 

We are one of England's most awarded wine producers. Highlights include:

 

· Three times winner of the International Wine & Spirits Challenge (IWSC) English Wine Producer of the Year, having won the award in 2013, 2015 and 2017- a unique achievement

· Highest rated English sparkling wine by the Wine Enthusiast in 2020

· Trophy for best English Still Red Wine at Wine GB awards for past 3 years

· Best in Class trophies at the Champagne & Sparkling World Championships in both 2018 and 2019

· 'Best English Sparkling Wine' as well as overall 'IWC China Champion Sparkling Wine 2019' at the International Wine Challenge held in Shanghai

 

Consolidated statement of comprehensive income for the year ended 31 December 2020

 

 

 

 

 

Year ended

Year ended

 

31 December

31 December

 

2020

2019

Note

£'000

£'000

Revenue

 

2,294

1,845

Excise duties

 

(185)

(192)

Net revenue

 

2,109

1,653

 

 

 

 

Cost of sales

 

(879)

(735)

 

 

 

 

Gross profit

 

1,230

918

 

 

 

 

Fair value movement in biological produce

 

(221)

(172)

 

 

 

 

Administrative expenses

 

(3,198)

(2,902)

 

 

 

 

Loss from operations

 

(2,189)

(2,156)

Finance expenses

 

(877)

(445)

 

 

 

 

Loss before tax

 

(3,066)

(2,601)

Tax expense

 

-

-

 

 

 

 

Loss and total comprehensive for the year attributable to owners of the parent

 

(3,066)

(2,601)

 

 

 

 

Loss per share attributable to the ordinary equity holders of the parent:

 

 

 

Basic (pence)

4

(6.60)

(5.67)

Diluted (pence)

4

(6.60)

(5.67)

 

Consolidated statement of financial position at 31 December 2020

 

 

 

Note

31 December

2020

£'000

31 December

2019

£'000

Assets

 

 

 

Non-current assets

 

 

 

Intangibles

 

1,007

1,007

Property, plant and equipment

5

12,793

13,231

Other receivables

 

38

90

 

 

13,838

14,328

Current assets

 

 

 

Biological Produce

6

-

-

Inventories

7

9,325

7,463

Trade and other receivables

 

869

707

Cash and cash equivalents

 

262

1,009

 

 

10,456

9,179

Total assets

 

24,294

23,507

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

(769)

(752)

Loans and borrowings

8

(5,676)

(3,379)

Lease liabilities

9

(92)

(123)

 

 

(6,537)

(4,254)

Non-current liabilities

 

 

 

Loans and borrowings

8

(6,613)

(5,026)

Lease liabilities

9

(2,016)

(2,033)

 

 

(8,629)

(7,059)

Total liabilities

 

(15,166)

(11,313)

 

 

 

 

Net assets

 

9,128

12,194

 

Issued capital and reserves attributable to owners of the parent

Share capital

10

12,048

12,048

Share premium

 

10,915

10,915

Merger reserve

 

(13)

(13)

Retained earnings

 

(13,822)

(10,756)

Total equity

 

9,128

12,194

   

Consolidated statement of cash flows for the year ended 31 December 2020

 

 

 

 

Note

31 December

2020

£'000

31 December

2019

£'000

Cash flows from operating activities

 

 

 

Loss for the year before tax

 

(3,066)

(2,601)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

5

647

699

Finance expense

 

877

445

Fair value movement in biological produce

6

221

172

(Increase) in trade and other receivables

 

(143)

(209)

Increase in inventories

 

(1,978)

(2,220)

Increase in trade and other payables

 

17

269

Cash outflow from operations

 

(3,425)

(3,445)

 

 

 

 

Investing activities

 

 

 

Purchases of property, plant and equipment, excluding vineyard establishment

5

(254)

(339)

Sale of property, plant and equipment

 

-

11

Net cash from investing activities

 

(254)

(328)

 

 

 

 

Financing activities

 

 

 

Capital loan repayments

 

(3,253)

(34)

New loans issued

 

6,796

3,250

Repayment of lease liabilities

 

(142)

(125)

Interest paid

 

(281)

(90)

Loan issue costs

 

(188)

(15)

Issue of ordinary shares

10

-

485

Net cash from financing activities

 

2,932

3,471

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

(747)

(302)

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

1,009

1,311

 

 

 

 

Cash and cash equivalents at the end of the year

 

262

1,009

 

Consolidated statement of changes in equity for the year ended 31 December 2020

 

 

 

 

 

Share capital

£'000

 

 

 

Share premium

£'000

 

 

 

Merger reserve

£'000

 

 

 

Retained earnings

£'000

Total attributable toequity holdersof

parent

£'000

1 January 2019

12,040

10,438

(13)

(8,155)

14,310

Comprehensive loss for the year

-

-

-

(2,601)

(2,601)

Contributions by and distributions to owners:

 

 

 

 

 

Share issue

8

477

-

-

485

Share issue expenses

-

(36)

-

-

(36)

31 December 2019

12,048

10,915

(13)

(10,756)

12,194

 

1 January 2020

12,048

10,915

(13)

(10,756)

12,194

Comprehensive loss for the year

-

-

-

(3,066)

(3,066)

12,048

10,915

(13)

(13,822)

9,128

 

 

1  Accounting policies

 

Gusbourne PLC (the "Company") is a company incorporated and domiciled in the United Kingdom and quoted on the London Stock Exchange's AIM market. The consolidated financial statements of the Group for the year ended 31 December 2020 comprise the Company and its subsidiaries (together referred to as the "Group").

 

Basis of preparation

The financial information does not constitute the Group's financial statements for the years ended 31 December 2019 or 31 December 2020 but is derived from those financial statements.  Financial statements for the year ended 31 December 2019 have been delivered to the Registrar of Companies and those for the year ended 31 December 2020 will be delivered following the Company's Annual General Meeting.  The auditors' reports on both the 31 December 2019 and 31 December 2020 financial statements were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006. The report for the year ended 31 December 2020 did include a paragraph drawing attention to the material uncertainty as regards the ability of the entity to continue as a going concern. The opinion was not modified in respect of this matter.

The Group's consolidated financial statements and the Company's financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group's financial statements.

The financial statements are presented in pounds sterling. They have been prepared on the historical cost basis except that biological produce is stated at fair value.

 

Going concern

 

The directors have considered the cash available from committed facilities to continue operations for at least 12 months from the date these financial statements were approved and in addition, whether any of its key covenants may be breached during this period in assessing whether the going concern assumption is appropriate.

 

In coming to their conclusion, the directors have considered the Group's profit and cash flow plans for the coming period, and in the light of the residual uncertainty due to COVID-19 have run various downside "stress test" scenarios. These scenarios assess the continuing potential impact of COVID-19 on the Group over the next 12 months and in particular on the Group's sales through its key distribution channels. These stress tests indicate the Group can withstand any ongoing adverse impact on revenues and cashflow for at least the next 12 months but only if the short-term loan and deep discounted bonds are refinanced or deferred.

 

While initial forecasts are based on board-approved budgets, the Group has considered a scenario in which forecast revenues are restricted to those achieved in the year ended 31 December 2020 when the business was impacted by Covid-19 on UK on-trade and off-trade sales channels. Under this scenario the directors have modelled the impact certain cost mitigation actions, in relation to variable and discretionary costs and believe that there are sufficient cost savings which could be achieved from sales and marketing, administrative, winery and vineyard costs to enable the Group to continue as a going concern for the next 12 months.

 

In these stress test scenarios, the directors assessed the Group's potential cash requirements together with the availability of undrawn funds from the Group's £10.5m asset-based lending facility, of which £2.4m is undrawn on the date on which these financial statements were approved. The stress test scenarios show that the Group does not require more funds than the current undrawn facilities, assuming that the short-term loan and deep discounted bonds will be refinanced or deferred. Furthermore, the scenarios that the Group remains in compliance with its key monthly covenant tests which commenced on 31 December 2020.

 

Under these significant stress test scenarios, the Group could withstand a material and prolonged adverse impact on revenues, in line with those in 2020 and continue to operate within the available lending facilities. In each of the stress test scenarios, the directors have assumed that the short-term loan and deep discounted bonds will be refinanced or deferred.

 

The directors have also assessed the ability of the Group to repay its short-term loan and deep discounted bonds (£0.5m and £5.1m respectively at 31 December 2020) which are due for repayment on 15 August 2021. The total amount due on 15 August 2021 to satisfy these obligations will amount to £6.1m. Of this amount £1.5m is due to directors of the Group, £3.8m is due to the major shareholder of the Group and £0.8m due to third parties. The directors believes that the Group will be able to raise further equity and/or debt funds to repay or refinance this short term debt as well as providing additional funds for the further development of the Group. The Group has shown an ability in the past to raise capital and/or debt funds, and it believes that it will be able to raise such funds in the future. Furthermore, those directors and major shareholder who hold over 85% of this short term debt obligation have confirmed in writing in June 2021 that they do not intend to call their debt should doing so cause the Group to be unable to satisfy its creditors as they fall due.

 

However, there is no guarantee that the Group will be able to raise further equity and/or debt funds to repay or refinance this short term debt. The Group does not currently have sufficient cash or other financing available to settle this obligation and has no contractual agreement that would enable the Group to refinance or defer payment of the short-term loan of and deep discounted bonds.

 

This condition indicates the existence of a material uncertainty as at the date of approval of these financial statements, which may cast significant doubt on the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would be required should the going concern basis of preparation no longer be appropriate.

 

IFRS 16 Leases

 

The Group has entered into a number of long term leases in respect of land and buildings in West Sussex on which the Group has planted vineyards. The leases have a remaining life of 42 and 49 years. During the year ended 31 December 2019, the Group had assessed the leases under IFRS 16 and a right of use asset and lease liability were recognised in the consolidated statement of financial position for the first time in respect of its current operating leases. The Group having reviewed its leases, decided to account for IFRS 16 on the modified retrospective approach using a single discount rate for leases with similar characteristics.

 

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case The Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

 

Right-of-use assets are initially measured at the amount of the lease liability.

 

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the leases. When the Group revises its estimate of the term of any lease (because, for example, it reassesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

 

Basis of consolidation

 

The Group's financial statements consolidate the financial statements of the Company and its subsidiary undertakings. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities and the ability to use its power over the investee to affect the amounts of the Group's returns and which generally accompanies interest of more than one half of the voting rights. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The results of any subsidiaries sold or acquired are included in the Group income statement up to, or from, the date control passes. Intra-Group sales and profits are eliminated fully on consolidation.

 

On acquisition of a subsidiary, all of the subsidiary's separable, identifiable assets and liabilities existing at the date of acquisition are recorded at their fair values reflecting their condition at that date. On disposal of a subsidiary, the consideration received is compared with the carrying cost at the date of disposal and the gain or loss is recognised in the income statement. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Subsidiaries' results are amended where necessary to ensure consistency with the policies adopted by the Group.

 

Revenue

 

The majority of the group's revenue is derived from selling goods with revenue recognised at a point in time when control of the goods has transferred to the customer. This is generally when the goods are delivered to the customer. However, for export sales, control might also be transferred when the goods are dispatched by the Group or delivered either to the port of departure or port of arrival, depending on specific terms of the contract with a customer. There is limited judgement needed in identifying the point control passes: once physical delivery of the products to the agreed location has occurred, the group no longer has physical possession, usually will have a present right to payment and retains none of the significant risks and rewards of the goods in question.

 

All of the Group's revenue is derived from fixed price contracts and therefore the amount of revenue to be earned from each contract is determined by reference to those fixed prices.

 

For all contracts there is a fixed unit price for each product sold. Therefore, there is no judgement involved allocating the contract price to each unit ordered in such contracts (it is the number of units multiplied by the fixed unit price for each product sold). Where a customer orders more than one product line, the Group is able to determine the split of the total contract price between each product line by reference to each product's standalone selling prices (all product lines are capable of being, and are, sold separately).

 

Revenue from vineyard tours and tastings is recognised on the date on which the tour or tasting takes place.

 

Net revenue is revenue less excise duties. The Group incurs excise duties in the United Kingdom and is a production tax which becomes payable once the Group's products are removed from bonded premises and are not directly related to the value of revenue. It is not included as a separate item on invoices issued to customers. Where a customer fails to pay for the Group's products the Group cannot reclaim the excise duty. The Group therefore recognises excise duty as a cost of the Group.

 

Government grants

Government grants are recognised against expenses in the period in which they are intended to compensate. Grants are only recognised when there is reasonable assurance that any conditions attached to the grant will be complied with and that the grant will be received

 

Financial assets

Debt instruments at amortised cost

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The financial assets meet the SPPI test and are held in a 'hold to collect' business model and therefore classified at amortised cost.

 

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for trade receivables. The historical loss rates are adjusted for current and forward looking information relevant to the Group's customers.

 

For trade receivables, which are reported net, such expected credit losses are recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision

 

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

 

Financial liabilities

Borrowings

Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the loan. They are subsequently measured at amortised cost with interest charged to the statement of comprehensive income based on the effective interest rate of the borrowings.

 

Deep discount bonds

Deep discount bonds are redeemable at their nominal price at maturity. The discount is charged over the life of the bond to the statement of comprehensive income and included within finance expenses.

 

Warrants

Warrants issued to shareholders as part of an equity fund raise are accounted for as equity instruments. Details of Warrants are shown in note 10.

 

Trade and other payables

Comprises trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

 

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability.

 

The Group's ordinary shares are classified as equity instruments.

 

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

 

· the initial recognition of goodwill;

 

· the initial recognition of an asset or liability in a transaction which is not a business combination and at  the time of the transaction affects neither accounting or taxable profit; and

 

· investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

 

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

 

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/ (recovered).

 

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

 

 

· the same taxable group company; or

· different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

 

 

Intangible Assets

Goodwill

 

Goodwill arises where a business is acquired and a higher amount is paid for that business than the fair value of the assets and liabilities acquired. Transaction costs attributable to acquisitions are expensed to the income statement.

 

Goodwill is recognised as an asset in the statement of financial position and is not amortised but is subject to an annual impairment review. Impairment occurs when the carrying value of goodwill is greater than the recoverable amount which is the higher of the value in use and fair value less disposal costs. The present value of the estimated future cash flows from the separately identifiable assets, termed a 'cash generating unit' is used to determine the fair value less cost of disposal to calculate the recoverable amount. The Group prepares and approves formal long term business plans for its operations which are used in these calculations.

 

Brand

 

Brand names acquired as part of acquisitions of businesses are capitalised separately from goodwill as intangible assets if their value can be measured reliably on initial recognition and it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group.

 

Brand names have been assessed as having an indefinite life and are not amortised but are subject to an annual impairment review. Impairment occurs when the carrying value of the brand name is greater than the present value of the estimated future cash flows.

 

Property, plant and equipment

 

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

 

Freehold land is not depreciated.

 

Vineyard establishment represents the expenditure incurred to plant and maintain new vineyards until the vines reach productivity. Once the vineyards are productive the accumulated cost is transferred to mature vineyards and depreciated over the expected useful economic life of the vineyard. Vineyard establishment is not depreciated.

 

Depreciation is provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Freehold buildings 4% per annum straight line

Plant, machinery and motor vehicles 5-25% per annum straight line

Computer equipment 33% per annum straight line

Mature vineyards 4% per annum straight line

The carrying value of property, plant and equipment is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

 

Biological assets and produce

Agricultural produce is accounted for under IAS 41 Agriculture. Harvesting of the grape crop is ordinarily carried out in October. The grapes are therefore measured at fair value less costs to sell in accordance with IAS 41 with any fair value gain or loss shown in the consolidated statement of comprehensive income. The fair value of grapes is determined by reference to estimated market prices at the time of harvest. Generally there is no readily obtainable market price for the Group's grapes because they are not sold on the open market, therefore management set the values based on their experience and knowledge of the sector including past purchase transactions. This measurement of fair value less costs to sell is the deemed cost of the grapes that is transferred into inventory upon harvest.

Under IAS 41, the agricultural produce is also valued at the end of each reporting period, with any fair value gain or loss shown in the consolidated statement of comprehensive income. Bearer plants are accounted for under IAS 16 and are held at cost.

Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs, including depreciation on right of use assets and interest on lease liabilities, incurred in bringing the inventories to their present location and condition. Grapes grown in the Group's vineyards are included in inventory at fair value less costs to sell at the point of harvest which is the deemed cost for the grapes.

Weighted average cost is used to determine the cost of ordinarily interchangeable items.

 

Leased assets

All leases are accounted for by recognising a right-of-use asset and a lease liability except for leases of low value assets and leases with an expected full term of 12 months or less.

Lease liabilities are measured at the present value of the unpaid contractual payments over the expected lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used.

On initial recognition, the carrying value of the lease liability also includes amounts expected to be payable under any residual value guarantee; the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to exercise that option; and any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for lease payments made at or before commencement of the lease and initial direct costs incurred.

Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at a revised discount rate that is implicit in the lease for the remainder of the lease term. The carrying value of lease liabilities is similarly revised if any variable element of future lease payments dependent on a rate or index is revised. In both cases, an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining lease term.

Right-of-use assets are reviewed regularly to ensure that the useful economic life of the asset is still appropriate based on the usage of the asset. Where the asset has reduced in value the Group considers the situation on an asset-by-asset basis and either treats the reduction as an acceleration of depreciation or as an impairment under IAS 36 'Impairment of Assets'. An acceleration of depreciation occurs in those cases where there is no opportunity or intention to utilise the asset before the end of the lease.

 

2  Critical accounting policies

 

Estimates and judgements

The Group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year relate are set out below.

 

There were no areas of judgement in the year. Where estimates and assumptions have been used these are outlined below.

 

Fair value of biological produce

The Group's biological produce is measured at fair value less costs to sell at the point of harvest. The fair value of grapes is determined by reference to estimated market prices at the time of harvest. Generally there is no readily obtainable market price for the Group's grapes because they are not sold on the open market, therefore management set the values based on their experience and knowledge of the sector including past purchase transactions.

Impairment reviews

The Group is required to test annually whether goodwill and brand names have suffered any impairment. The recoverable amount is determined based on fair value less costs of disposal calculations, which requires the estimation of the value and timing of future cash flows and the determination of a discount rate to calculate the present value of the cash flows. Management does not believe that any reasonably possible change in a key assumption would result in impairment.

 

Fair value measurement

A number of assets and liabilities included in the Group's financial statements require measurement at, and/or disclosure of, fair value.

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

• Level 1: Quoted prices in active markets for identical items (unadjusted)

• Level 2: Observable direct or indirect inputs other than Level 1 inputs

• Level   3: Unobservable inputs (i.e. not derived from market data).

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.

• Biological Produce (Note 6)

For more detailed information in relation to the fair value measurement of the items above, please refer to the applicable notes.

 

3  Financial instruments - risk management

 

The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

 

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

 

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

Bank loans

Deep discount bonds

Other loans

Trade receivables

Cash and cash equivalents

Finance leases

Trade and other payables

In addition, at the Company level: Intercompany loans.

The carrying amounts are a reasonable estimate of fair values because of the short maturity of such instruments or their interest bearing nature.

 

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The liquidity risk of the Group is managed centrally by the group treasury function. Budgets are set and agreed by the board in advance, enabling the Group's cash requirements to be anticipated.

The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:

 

 

 

 

 

At 31 December 2019

 

 

Upto3 months

£'000

 

Between 3and12 months

£'000

 

Between 1 and2years

£'000

 

Between 2and5 years

£'000

 

 

Over 5 years

£'000

 

 

 

Total

£'000

Trade and other payables

 

436

 

250

 

-

 

-

 

-

 

686

Other borrowings

12

15

6

-

 

33

Loans and borrowings

2,190

1,539

2,082

-

-

5,811

Deep discount bonds

-

-

3,390

-

-

3,390

Lease liabilities

25

75

100

298

4,185

4,683

Total

2,663

1,879

5,578

298

4,185

14,603

 

 

 

 

At 31 December 2020

 

 

Upto3 months

£'000

 

Between 3and12 months

£'000

 

Between 1 and2years

£'000

 

Between 2and5 years

£'000

 

 

Over 5 years

£'000

 

 

 

Total

£'000

Trade and other payables

 

426

 

288

 

-

 

-

 

-

 

714

Loans and borrowings

51

748

205

7,126

-

8,130

Deep discount bonds

-

5,458

-

-

-

5,458

Lease liabilities

25

75

101

297

4,086

4,584

Total

502

6,569

306

7,423

4,086

18,886

 

Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares and increase or decrease debt.

Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions and the risk of default by these institutions. The Group reviews the creditworthiness of such financial institutions on a regular basis to satisfy itself that such risks are mitigated. The Group's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of the cash and cash equivalents as shown in the consolidated statement of financial position.

Credit risk also arises from credit exposure to trade customers included in trade and other receivables.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. The expected loss rates are based on the Group's historical credit losses experienced over the three-year period to the period end. Trade receivable balances are monitored on an ongoing basis to ensure that the Group's bad debts are kept to a minimum. The maximum trade credit risk exposure at 31 December 2020 in respect of trade receivables is £213,000 (2019: £317,000) and due to the prompt payment cycle of these trade receivables, the expected credit loss is negligible at £31,000 (2019: £13,000).

Interest rate risk

The Group's main debt is exposed to interest rate fluctuations. The Group considers that the risk is not significant in the context of its business plans. Should there be a 0.5% increase in the bank's lending rate, the finance charge in the statement of comprehensive income would increase by £34,000.

 

 

 

 

4  Loss per share

Basic earnings per ordinary share are based on a loss of £3,066,000 (December 2019: £2,601,000) and ordinary shares 46,478,619 (December 2019: 45,848,874) of 1 pence each, being the weighted average number of shares in issue during the year.

 

 

 

Loss

£'000

Weighted average numberof

shares

 

Loss per Ordinary share pence

Year ended 31 December 2020

(3,066)

46,478,619

(6.60)

Year ended 31 December 2019

(2,601)

45,848,874

(5.67)

 

 

Diluted earnings per share are based on a loss of £3,606,000 and ordinary shares of 46,478,619 and no dilutive warrant options.

 

 

Loss

£'000

Diluted numberof

shares

Loss per Ordinary share pence

Year ended 31 December 2020

(3,066)

46,478,619

(6.60)

Year ended 31 December 2019

(2,601)

45,848,874

(5.67)

 

5  Property, plant and equipment

 

 

Freehold
Land and
Buildings

£'000

Plant,
machinery
and motor
vehicles

£'000

 

 

Right of use asset
£'000

Mature Vineyards

£'000

Computer
equipment

£'000

Total

£'000

Cost

 

 

 

 

 

 

At 1 January 2019

6,866

2,911

 

-

3,637

84

13,498

Additions - adoption of IFRS 16

-

-

 

 

1,488

-

-

1,488

Additions

22

310

626

-

7

965

Disposals

-

(23)

-

-

(1)

(24)

At 31 December 2019

6,888

3,198

 

2,114

3,637

90

15,927

 

 

 

 

 

 

 

At 1 January 2020

6,888

3,198

 

2,114

3,637

90

15,927

Additions

8

234

-

-

12

254

Disposals

-

-

-

-

-

-

At 31 December 2020

6,896

3,432

 

2,114

3,637

102

16,181

 

 

 

 

 

Freehold land and buildings

£'000

 Plant, Machinery and motor Vehicles

£'000

 

 

Right of use asset
£'000

Mature vineyards £'000

Computer equipment

£'000

 

Total

£'000

Accumulated depreciation

 

 

 

 

 

 

At 1 January 2019

378

1,195

 

-

348

43

1,964

Depreciation charge for the year

127

412

 

46

145

15

745

Depreciation on disposals

-

(13)

 

-

-

-

(13)

At 31 December 2019

505

1,594

 

46

493

58

2,696

 

 

 

 

 

 

 

At 1 January 2020

505

1,594

 

46

493

58

2,696

Depreciation charge for the year

128

362

 

46

140

16

692

Depreciation on disposals

-

-

 

-

-

-

-

At 31 December 2020

633

1,956

 

92

633

74

3,388

 

 

 

 

 

 

 

Net book value

 

 

 

 

 

 

At 31 December 2019

6,383

1,604

 

2,068

3,144

 

32

13,231

At 31 December 2020

6,263

1,476

 

2,022

3,004

28

12,793

               

 

Within property, plant and equipment are assets with a carrying value of £nil (2019: £27,000) held under finance leases.

 

Right of use assets comprise land leases on which vines have been planted and property leases from which vineyard operations are carried out. These assets have been created under IFRS 16 - Leases.

 

 

6  Biological produce

 

The fair value of biological produce was:

 

 

 

December

2020

£'000

December

2019

£'000

At 1 January

-

-

Crop growing costs

1,421

1,510

Fair value of grapes harvested and transferred to inventory

(1,200)

(1,338)

Fair value movement in biological produce

)

(172)

At 31 December

-

-

 

The fair value of grapes harvested is determined by reference to estimated market prices less cost to sell at the time of harvest. The estimated market price for grapes used in respect of the 2020 harvest is £2,300 per tonne (2019: £2,300 per tonne).

 

A 10% increase in the estimated market price of grapes to £2,530 per tonne would result in an increase of £126,000 (2019: £134,000) in the fair value of the grapes harvested in the year. A 10% decrease in the estimated market price of grapes to £2,070 per tonne would result in a decrease of £126,000 (2019: £134,000) in the fair value of the grapes harvested in the year.

 

A fair value loss of £221,000 (2019: £172,000 gain) was recorded during the year and included within the consolidated statement of comprehensive income. This measurement of fair value less costs to sell is the deemed cost of the grapes that is transferred into inventory upon harvest.

 

 

7  Inventories

 

 

December

2020

£'000

December

2019

£'000

Finished goods

687

440

Work in progress

8,638

7,023

Total inventories

9,325

7,463

 

During the year £649,000 (December 2019: £547,000) was transferred to cost of sales.

 

8  Loans and borrowings

 

 

 

December

2020

£'000

December

2019

£'000

Current liabilities:

 

 

Bank loans

-

34

Other loans

544

3,345

Deep Discount Bonds

5,132

-

 

5,676

3,379

 

 

 

Non-current liabilities

 

 

6,796

2,025

(183)

-

Deep Discount Bonds

-

3,001

Total loans and borrowings

6,613

5,026

 

The bank loan of £6,613,000 shown above is net of transaction costs of £183,000 which are being amortised over the life of the loan.

 

On 1 June 2020 Gusbourne Estate Ltd entered into an agreement with PNC Business Credit for up to £10,500,000 of asset-based lending facilities. The PNC facilities are provided on a revolving basis over a minimum period of 5 years and allow flexible drawdown and repayments in line with the Company's working capital requirements. The interest rate is at the annual rate of 3 per cent over the Bank of England Base Rate. The facilities are secured by way of first priority charges over the Company's inventory, receivables and freehold property as well as an all assets debenture.

 

On completion approximately £4.6m of the PNC Facilities was drawn down by Gusbourne Estate Limited with approximately £2.1m being used to repay the existing secured Barclays bank facilities in full and £1.3m used to part repay existing short term loans. The balance of £1.2m was drawn down for working capital purposes.

 

Of the £1.3m drawdown at completion to part repay existing short-term loans, £0.8m was used to part repay a short-term loan of £1.25m received on 23 December 2019 from Franove Holdings Limited. £0.5m was used to part repay a short-term loan of £2.0m received on 31 May 2019 from a company controlled by Lord Ashcroft. Following these repayments Franove Holdings Limited has agreed to extend the repayment date of its outstanding loan of £0.5m to 15 August 2021, at the same 15% rate of interest, with the loan becoming secured behind PNC at the same ranking as the existing outstanding deep discount bonds issued by the Company. Gusbourne Estate Limited has also agreed with Franove that in the event it seeks to repay its loans (excluding its PNC facilities) further, the repayment of the Franove Holdings Limited loan will take priority.

 

The remaining Lord Ashcroft loan of £1.7m has been refinanced, by a company controlled by him, with a new deep discount bond maturing on 15 August 2021 and with a coupon of 15% per annum rolled quarterly and secured behind PNC at the same ranking as the existing outstanding bonds issued by the Company.

 

An analysis of the maturity of loans and borrowings is given below:

 

 

December

2020

£'000

December

2019

£'000

Bank and other loans:

 

 

Within 1 year

544

3,379

1-2 years

-

2,025

2-5 years

6,613

-

 

 

 

Deep Discount Bonds:

 

 

Within 1 year

5,132

-

1-2 years

-

3,001

2-5 years

-

-

 

 

 

9  Lease liability

 

During the period the Group accounted for six leases under IFRS 16. The lease contracts provide for payments to increase each year by inflation or at a fixed rate and on others to be reset periodically to market rental rates. The leases also have provisions for early termination. The weighted average Incremental Borrowing Rate used to calculate the lease liability was 4.25%.

 

 

 

 

Land

£'000

Plant, machinery andmotor vehicles

£'000

 

 

 

Total

£'000

Net carrying value - 1 January 2020

2,123

33

2,156

Additions

-

-

-

Interest

85

9

94

Payments

(100)

(42)

(142)

Net carrying value - 31 December 2020

2,108

-

2,108

 

 

 

December

2020

£'000

December

2019

£'000

The lease payments under long term leases liabilities fall due as follows:

 

 

Current lease liabilities

92

123

Non current lease liabilities

2,016

2,033

Total liabilities

2,108

2,156

 

During the period an interest charge of £85,000 (2019: £87,000) arose on the lease liability in respect of land leases. This interest cost has been added to growing crop costs on the basis that the lease liability solely relates to the production of grapes.

The Groups leases include break clauses. On a case-by-case basis, The Group will consider whether the absence of a break clause exposes the Group to excessive risk. Typically factors considered in deciding to negotiate a break clause include:

• The length of the lease term;

• The economic stability of the environment in which the property is located; and

• Whether the location represents a new area of operations for the Group.

At both 31 December 2020 and 2019 the carrying amounts of lease liabilities are not reduced by the amount of payments that would be avoided from exercising break clauses because on both dates it was considered reasonably certain that the Group would not exercise its right to exercise any right to break the lease.

 

10  Share capital

 

 

 

Deferred shares of 49p each

Ordinary shares of 1p each

 

 

 

Number

Number

£'000

Issued and fully paid

 

 

 

 

At 1 January 2019

 

23,639,762

45,671,683

12,040

Issued for cash during the year

 

-

806,936

  8

At 31 December 2019

 

23,639,762

46,478,619

12,048

Issued for cash during the year

 

-

-

-

At 31 December 2020

 

23,639,762

46,478,619

12,048

 

The Deferred shares of 49 pence each have no rights attached to them.

 

Gusbourne PLC has Warrants to subscribe for 2,036,517 Ordinary shares of 1 pence each in issue. These Warrants are exercisable at any time by the Warrant Holder, with an exercise price of 75 pence per share until 31 July 2021. The Warrants are accounted for as a derivative financial liability measured on inception at fair value through profit or loss. On inception, the fair value of the warrants was deemed to be £nil and thus no fair value was recognised.

 

Unexercised Warrants as at 31 December 2020 amount to 2,036,517 Ordinary Shares of 1 pence each.

 

 

11  Related party transactions

 

Deacon Street Partners Limited is considered a related party by virtue of the fact that Lord Ashcroft KCMG PC, the Company's ultimate controlling party, is also the ultimate controlling party of Deacon Street Partners Limited. During the year Deacon Street Partners Limited charged the Company £70,000 (December 2019 - £84,000) in relation to management services. There was £21,000 due to Deacon Street Partners Limited as at 31 December 2020 (December 2019 - £84,000).

 

Devonshire Club Limited is considered a related party by virtue of the fact that Lord Ashcroft KCMG PC, the Company's ultimate controlling party, was also the ultimate controlling party of Devonshire Club Limited. During the year the Company sold wine to Devonshire Club Limited amounting to £nil (December 2019 - £4,537). No amounts were due from Devonshire Club Limited at the year end (2019: £nil).

 

On 18 June 2018, the company lent £50,000 to a director as an interest free loan, repayable by instalments from July 2019. The loan will be repaid in full by May 2024. The balance due from the director as at 31 December 2020 was £44,000 (December 2019 - £47,500).

 

On 2 September 2016, the Company issued deep discount bonds with a subscription price of £4,073,034 together with 2,036,517 separable warrants to subscribe for Ordinary shares at an exercise price of 75 pence per share. On 30 June 2017 the Company offered Bondholders the opportunity to convert their bonds into new Ordinary shares at an Issue price of 40p. The company announced, on 1 August 2017, that it received final acceptances of 5,136,662 Conversion Offer Shares, raising £2,055,000 and resulting in a reduction of the final redemption amount of the deep discount bonds to £3,390,000. During the year further bonds were issued resulting in the final redemption amount of all deep discount bonds increasing to £5,455,000.

 

Details of related parties who subscribed for the deep discount bonds and warrants are shown in the table below:

 

Deep discount bonds

 

 

 

 

 

 

 

 

 

 

Name

 

Balance as at 31 December

2018

Accrued discount

to 31 December

2019

 

Balance as at 31 December

2019

Subscription

 price as at

 1 June

2020

Accrued discount

to 31 December

2020

 

Balance as at 31 December

2020

Lord Ashcroft KCMG PC

1,383,306

120,037

1,503,343

1,729,349

282,620

3,515,312

A Weeber

751,935

65,249

817,184

-

65,421

882,605

 

2,135,241

185,286

2,320,527

1,729,349

348,041

4,397,917

 

 

Warrants exercisable at 75 pence each

 

 

 

 

 

 

Name

Held as at 31 December

2020

Number

Held as at 31 December

2019

Number

Lord Ashcroft KCMG PC

1,311,517

1,311,517

A Weeber

300,000

300,000

I Robinson

50,000

50,000

Lord Arbuthnot PC

5,000

5,000

M Paul

5,000

5,000

M Clapp

5,000

5,000

 

1,676,517

1,676,517

           

 

 

 

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