Gusbourne Regulatory News (GUS)

Gusbourne Plc

(London-AIM: GUS) ("Gusbourne", the "Company" or the "Group")

Results for the year ended 31 December 2017.

The Board of Gusbourne Plc announces its audited results for the year ended 31 December 2017.

Highlights

· Revenue up by 56% to £998,000 (2016: £640,000)

· Export sales to 16 countries represented 25% of revenues (2016: 14%)

· Continuing success in international wine competitions including the IWSC award in 2017 for "English Wine Producer of the Year"

· A successful harvest in 2017 in terms of both yield and quality

· Announcement on 31 May 2018 of intention to raise new equity to support further growth and development of the Company

Andrew Weeber, Chairman, commented:

"2017 has been another successful year of growth as we work towards our long-term goals based on the production and sale of our premium sparkling wines. I am delighted with our export performance which represented 25% of our revenues in 2017."

Chairman's statement

2017 has been another successful year of growth for the Group. The Gusbourne business was established fourteen years ago in 2004 and has been selling its award-winning English sparkling wines since 2010. Revenue has continued to grow in line with product availability and in 2017 our revenue amounted to £998,000, an increase of 56 per cent (2016: 35%) over the prior year. Gusbourne remains one of England's premier sparkling wine businesses and is focused at the luxury end of the market.

Highlights of 2017 include:

· Revenue growth of 56% (2016: 35%).

· A successful harvest in September and October 2017 in terms of both yield and quality, which has added to our wine stocks for future sale. The harvest included the first fruit from the vines planted on our sites in 2015 and the second harvest from vines planted on our sites in 2014.

· Strong growth in exports which represented 25% of sales (2016: 14%). The Company now exports to 16 countries.

· Continued success in major international wine competitions, including being awarded the IWSC 'English Wine Producer of the Year' for 2017, the third time Gusbourne has received this award in the last five years.

· Gusbourne's cellar door operation (the "Nest") at Gusbourne's winery and estate in Kent opened for business in July 2017 and provides tours, wine tastings and event hosting to a growing number of visitors.

· Ongoing investment in the Group's growing asset base including vineyards, wine inventories, buildings, plant and machinery and the award winning Gusbourne brand.

I should like to express my sincere thanks for the dedicated efforts of our employees, our loyal customers as well as the support of our shareholders in helping the Group achieve another successful year of growth and development in the business.

Andrew Weeber

Chairman

Chief Executive's review

The results for 2017 reflect another successful year of growth and development for the Group in line with our long term strategic development plans. Revenue of £998,000 (2016: £640,000) is up 56% (2016: 35%) on the prior year and we continue to widen our distribution channels both in the UK and overseas. Exports were particularly strong and represented 25% (2016: 14%) of our revenues. This has been an area of significant focus over the last year and I am delighted to report that Gusbourne is now distributed to 16 countries around the world.

The Gusbourne sparkling wine products continue to remain at the luxury end of the English sparkling wine market and we are committed to maintaining this premium position. We are delighted that the quality of our products has also been recognised in the United States, an important contributor to our export sales, with a number of prestigious awards for our sparkling wines.

2017 also saw the launch of the Nest, Gusbourne's new cellar door and tasting room. Situated amongst our vineyards in Kent this new facility allows us to fully engage with our customers, encouraging them to enjoy the vineyards, visit the winery and taste the wines.

Activities

Gusbourne PLC ("the Company") is engaged, through its wholly owned subsidiary Gusbourne Estate Limited (together the "Group"), in the production and distribution of a range of high quality and award-winning English sparkling wines from grapes grown in its own vineyards in Kent and West Sussex. The majority of the Group's vineyards are located at its freehold estate at Appledore in Kent where the winery is also based. The Group now has a total of 231 acres of vineyards with the first plantings dating back to 2004 with the most recent plantings in 2015.

Gusbourne Wines

Gusbourne is dedicated to the production of premium sparkling wines from grapes grown exclusively in its own vineyards. Our processes, both in establishing and maintaining the vineyards and in making wine, continue to follow the rigorous principles of careful site selection and attention to detail in all aspects of viticulture and wine production. An integral part of the Group's approach is to age its traditional method sparkling wines for as long as is necessary for the wines to meet optimum maturity. The average production cycle for the wines is four years from harvest to sale.

Recent awards

2017 was another year of success for Gusbourne at international wine competitions resulting in 36 medals including 8 gold medals and 2 trophies. Our flagship wine, the Gusbourne Blanc de Blancs 2013, was particularly successful, achieving gold medals in 5 different competitions.

In the United States, Gusbourne became the first English wine to win a double Gold medal at the TEXSOM awards in March 2017 (one of the most influential wine competitions in the United States) for the Gusbourne Blanc de Blancs 2013 and Gusbourne Brut Reserve 2013 which also won the Best in Class trophy.

In May 2017, Gusbourne won another double Gold at the International Wine Challenge as well as a double Gold at the International Wine and Spirits Competition (IWSC) for the Gusbourne Blanc de Blancs 2012 and Gusbourne Blanc de Blancs 2013. In May 2017 Gusbourne was also awarded a Platinum medal at the Decanter World Wine Awards ("DWWA") 2017 for the Gusbourne Pinot Noir 2015, claiming consecutive Best English Red Wine trophies.

The 2017 awards season culminated with Gusbourne winning the trophy for 'English Wine Producer of the Year' by the IWSC. This is the third time Gusbourne has been awarded this trophy in the past five years.

In May 2018, Gusbourne was awarded 4 titles at the inaugural Harper's Wine Stars of England competition including 'Best Sparkling Wine', 'Best Still Wine', 'Best Design' and overall 'Star of England'. The Gusbourne Sparkling Rosé 2014 also won a gold medal at the Drinks Business Global Rosé Masters competition.

Development strategy

Meeting growing customer demand for the Gusbourne wines requires careful long-term planning and key elements of the Group's development strategy include:

· Continuing to produce wines of exceptional quality from grapes grown in our own vineyards;

· The ongoing development and evolution of the award winning Gusbourne brand;

· The further development of the Company's distribution channels, including the promotion of exports as a significant contributor to sales;

· The promotion of the Company's cellar door operation at the Company's winery in Kent. This allows visitors to enjoy vineyard and winery tours and taste our award-winning wines and also helps to promote a closer and more direct relationship with our customers; and

· The investment in additional plant and machinery to keep pace with production growth.

2017 harvest

Our 2017 harvest took place during September and October, with favourable growing conditions resulting in our earliest ever start date. The quality of the grapes was excellent, with optimum levels of natural sugar and acidity, both of which met our own exacting quality standards. The high quality of grapes harvested in the year bodes well for 2017 becoming another great vintage for Gusbourne. Yield volumes were good and in line with expectations and the resulting wine production has added further to our inventory levels for sale in future years.

Results for the year

Revenue for the year amounted to £998,000 (2016: £640,000), an increase of 56% over the prior year. Whilst these sales continue to reflect limited stock availability at this time, they do represent a consecutive like for like growth in the sale of Gusbourne wines since 2013. Administrative expenses of £1,759,000 (2016: £1,385,000), including depreciation of £479,000 (2016: £357,000) reflect continuing investment in the development and growth of the business and the Gusbourne brand in particular.

EBITDA for the year was a loss of £690,000 (2016: £802,000). The operating loss for the year after depreciation and amortisation was £1,169,000 (2016: £1,159,000). The loss before tax was £1,638,000 (2016: £1,528,000) after net finance costs of £469,000 (2016: £369,000).

These planned losses continue to be in line with expectations and the long-term development strategy of the Group.

Balance Sheet

The changes in the Group's balance sheet during the year reflect expenditure on the ongoing investment in, and development of, the Group's business, net of income from wine sales. This expenditure includes the ongoing investment in the vineyards established in West Sussex and Kent between 2014 and 2015. This investment in vineyards is reflected in capital expenditure during the year of £86,000 (2016: £338,000).

In addition, the Group invested in additional plant and equipment for the vineyards and the winery amounting to £607,000 (2016: £364,000) and in buildings of £1,090,000 (2016: £414,000). Total assets at 31 December 2017 of £17,466,000 (2016: £14,621,000) include freehold land and buildings of £6,539,000 (2016: £5,543,000), vineyards of £3,260,000 (2016: £3,256,000), inventories of wine stocks amounting to £3,484,000 (2016: £2,247,000), and £1,464,000 of cash (2016: £1,123,000). Intangible assets of £1,007,000 (2016: £1,007,000) arose on the acquisition of the Gusbourne Estate business on 27 September 2013.

The Group's net tangible assets at 31 December 2017 amount to £11,323,000 (2016: £6,825,000) and represent 92% of total equity (2016: 87%). Net tangible assets per share at 31 December 2017 were 28.8 pence per share (2016: 28.9 pence per share). It is important to note that these net tangible assets figures do not necessarily reflect underlying asset values, in particular in respect of the Group's inventories, which are reported at the lower of cost and net realisable value. These inventories are expected to grow significantly until the Group reaches full production maturity, bearing in mind the long production cycle in relation to sparkling wine and related vineyard establishment. The anticipated underlying surplus of net realisable value over cost of these wine inventories, which is not reflected in these accounts and in the net tangible assets per share quoted above, will become an increasingly significant factor of the Group's asset base as the inventories continue to grow.

Financing

The Group's activities are financed by shareholders equity, loans, other borrowings and convertible bonds. Loans, other borrowings and convertible bonds at 31 December 2017 amount in total to £4,778,000 (2016: £6,537,000) and represent 39% of total equity (2016: 83%).

On 29 June 2017, the Company completed an Open Offer with existing shareholders, which was underwritten by the Company's principal shareholder Lord Ashcroft KCMG PC, to raise proceeds of £4.2m (before expenses). The Company simultaneously announced a short-term loan from Lord Ashcroft KCMG PC of £1,000,000 which was offset against Lord Ashcroft KCMG PC's subscription under the Open Offer. The proceeds from this loan and the Open Offer were applied towards working capital and capital expenditure in line with the Company's long-term strategic plan.

On 29 June 2017 the Company also announced that the Share Capital Reduction to subdivide each of the Company's existing Ordinary shares of 50p each into one Ordinary share of 1 pence and one Deferred share of 49 pence, was now effective.

On 30 June 2017, the Company announced a Conversion Offer to Bondholders to apply to convert their Bonds into new Ordinary shares in the Company at the Issue Price of 40p. On 1 August 2017, the Company announced that it had received final acceptances in respect of 5,136,662 Conversion Offer Shares, which represents a conversion of approximately 46 per cent of the outstanding Bonds and a Conversion Value of approximately £2.05 million, improving the strength of the Company's balance sheet through reduced borrowings. Following the admission on 2 August 2017, the Company has 39,366,984 Ordinary 1p shares trading on AIM.

On 31 May 2018, the Company announced that it is intended to arrange a subscription of new Ordinary shares in the Company with Lord Ashcroft KCMG PC and other investors, which is expected to proceed by 31 July 2018 (the Subscription). The proceeds from the Subscription will continue to be applied towards working capital and capital expenditure in line with the Company's long-term strategic plan.

In order to meet immediate working capital requirements, the Company entered into an agreement on 31 May 2018 with Lord Ashcroft KCMG PC to receive an unsecured loan of £1,000,000 (the "Loan Agreement") which is intended to be repaid in full, through conversion into new Ordinary shares as part of the Subscription, when it concludes. The loan carries interest for a period of 3 months following the date of the loan agreement at the rate of 7% per annum above the base rate as varied from time to time by Barclays Bank plc, and thereafter at 10% per annum.

Under the terms of the Loan Agreement, if the Subscription does not proceed, or if the subscription price is not agreed between the Company and Lord Ashcroft by 31 July 2018, the loan and interest will become repayable on demand subject to such repayment not being in breach of the Company's existing banking facilities or if such repayment caused the Company to be unable to meet its creditors as they fall due.

The Group's bank loan of £2,025,000 is due for repayment in full in September 2018. While discussions with the bank are ongoing, as at the date of signing the financial statements, no extension to the loan agreement or refinancing had been agreed.

In the event that the bank was not prepared to refinance this secured debt, or if further funding could not be obtained, Lord Ashcroft KCMG PC has confirmed that he would be prepared to provide secured debt funding for a period of at least 12 months to replace Gusbourne PLC's secured bank debt on terms to be agreed.

The achievement of the Group's long-term development strategy will depend on the raising of further equity and/or debt funds to achieve those goals. The production of premium quality wine from new vineyards is, by its very nature, a long-term project. It takes four years to bring a vineyard into full production and a further four years to transform these grapes into Gusbourne's premium sparkling wine. Additional funding will be sought by the Company over the coming few years to fund ongoing growth in the Company's operations and asset base, in line with its development strategy.

Outlook

The growing season in 2018 has started slightly later than last year, due to a cold start to the year, but warm spring weather has led to strong even growth and high potential fruitfulness. The vines will remain subject to the normal seasonal climatic and disease risks throughout the remaining part of the growing season.

Good yields from the 2017 harvest have allowed us to significantly increase our wine stocks for future sales. The Company continues to make steady progress in line with its long term strategic plans and looks forward to reporting further progress in the current year.

Finally, I would like to thank all our employees for their hard work, dedication, and attention to detail in applying their considerable skills and talents to the production and sale of our award-winning wines.

Key Performance Indicators

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

Annual General Meeting

The Company's annual report and accounts for the year ended 31 December 2017 will be posted to shareholders on Wednesday 6 June 2018, together with notice of the Annual General Meeting to be held at 2pm on 29 June 2018 at the offices of Cenkos Securities PLC at 6.7.8 Tokenhouse Yard, London EC2R 7AS.

Enquiries:

Gusbourne Plc

Andrew Weeber/Charlie Holland +44 (0)12 3375 8666

Cenkos Securities plc

Nicholas Wells/Callum Davidson +44 (0)20 7397 8920

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

Note to Editors

Gusbourne PLC ("the Company") is engaged, through its wholly owned subsidiary Gusbourne Estate Limited (together the "Group"), in the production and distribution of a range of high quality and award-winning English sparkling wines from grapes grown in its own vineyards in Kent and West Sussex. The majority of the Group's vineyards are located at its freehold estate at Appledore in Kent where the winery is also based. The Group has a total of 231 acres of vineyards.

Consolidated statement of comprehensive income for the year ended 31 December 2017

Consolidated statement of financial position at 31 December 2017

Consolidated statement of cash flows for the year ended 31 December 2017

*Non-cash transaction

The short-term loan of £1,000,000 received in the year ended 31 December 2017 was used as part settlement of monies due under the share subscription which completed on 29 June 2017.

Consolidated statement of changes in equity for the year ended 31 December 2016

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 2017 comprise the Company and its subsidiaries (together referred to as the "Group").

Basis of preparation

The financial information does not constitute the Group's statutory accounts for either the year ended 31 December 2017 or the year ended 31 December 2016, but is derived from those accounts. The Group's statutory accounts for 31 December 2016 have been delivered to the Registrar of Companies and those for 31 December 2017 will be delivered following the Company's Annual General Meeting. The Auditor's reports on both the 31 December 2016 and 31 December 2017 accounts were unqualified, did not draw attention to any matters by way of an emphasis and did not contain any statement under Section 498 of the Companies Act 2006.

The Group's consolidated financial statements and the Company's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the EU ("IFRS").

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 believe the Group to be a going concern on the basis that it has sufficient cash to continue operations for at least 12 months from the date these financial statements were approved.

On 31 May 2018, the Company announced that it is intended to arrange a subscription of new Ordinary shares in the Company with Lord Ashcroft KCMG PC and other investors, which is expected to proceed by 31 July 2018 (the Subscription). The proceeds from the Subscription will continue to be applied towards working capital and capital expenditure in line with the Company's long-term strategic plan.

In order to meet immediate working capital requirements, the Company entered into an agreement on 31 May 2018 with Lord Ashcroft KCMG PC to receive an unsecured loan of £1,000,000 (the "Loan Agreement" which is intended to be repaid in full, through conversion into new Ordinary shares as part of the Subscription, when it concludes. The loan carries interest for a period of 3 months following the date of the loan agreement at the rate of 7% per annum above the base rate as varied from time to time by Barclays Bank plc, and thereafter at 10% per annum.

Under the terms of the Loan Agreement, if the Subscription does not proceed, or if the subscription price is not agreed between the Company and Lord Ashcroft by 31 July 2018, the loan and interest will become repayable on demand subject to such repayment not being in breach of the Company's existing banking facilities or if such repayment caused the Company to be unable to meet its creditors as they fall due.

The Group's bank loan of £2,025,000 is due for repayment in full in September 2018. While discussions with the bank are ongoing, as at the date of signing these financial statements, no extension to the loan agreement or refinancing had been agreed.

In the event that the bank was not prepared to refinance this secured debt, or if further funding could not be obtained, Lord Ashcroft KCMG PC has confirmed that he would be prepared to provide secured debt funding for a period of at least 12 months to replace Gusbourne PLC's secured bank debt on terms to be agreed.

The Director's note that the achievement of the Group's long term development strategy will depend on the raising of further equity and/or debt funds to achieve those goals. The production of premium quality wine from new vineyards is, by its very nature a long term project. It takes four years to bring a vineyard into full production and, an average of four years to transform these grapes into the Group's premium sparkling wine.

Additional funding will be sought by the Group over the coming few years to invest in vineyards, winery capacity, and stocks of wine as well as brand development, in line with its development strategy. The Directors believe that future fundraisings will be successful to aid the future growth of the business and have prepared the financial statements on a going concern basis.

New accounting standards and changes to existing accounting standards

i. New standards and interpretations adopted in the current year:

The IASB has issued no new standards, amendments to published standards and interpretations to existing standards with effective dates on or prior to 1 January 2017 which have a material effect on the Group, although an amendment to IAS 7 Statement of Cash Flows has resulted in a reconciliation of liabilities.

ii. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group:

· IFRS 16 Leases

· IFRS 9 Financial Instruments

· IFRS 15 Revenue from Contracts with Customers

· IFRS 2 (amended) Classification and Measurement of Share

The only standards which are anticipated to be significant or relevant to the Group are:

IFRS 15 Revenue from Contracts with Customers

The Group has assessed its current revenue recognition policy under IFRS 15. Based on existing terms of sale, the Group does not currently foresee any significant change to the timing of revenue recognition on sales under IFRS 15.

IFRS 16 Leases

The Group has entered into a number of long term leases in respect of land and buildings in West Sussex. The Group has planted vineyards on the leased land. The leases have a remaining life of 45 years. The Group has assessed the leases under IFRS 16 and expects an impact as the right of use assets and lease liabilities will come onto the consolidated statement of financial position for the first time in respect of its current operating leases. The Group have performed a quantitative assessment based on the current leases in place and envisage that a right of use asset and associated lease liability of c.£0.9m will be recognised on adoption of IFRS 16. The Group does not currently expect any material impact on profit before tax, however, it is noted that the expense will be split between depreciation and the interest expense.

IFRS 9 Financial Instruments

IFRS 9 "Financial instruments" is designed to simplify the classification and measurement of financial assets and financial liabilities. IFRS 9 defines three measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss.

Classification depends on the entity's business model and the contractual cash flow of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. A new model for recognizing provisions based on expected credit losses has been introduced which replaces the incurred loss impairment model used in IAS 39. Given the financial instruments currently in place, the Group does not expect the adoption of IFRS 9 to have a material impact on the Group financial statements. The Company has a loan to the 100% owned subsidiary, which is the main operating entity.

Management are still undertaking a full assessment but do not expect there to be any material impact as, in line with the future long term profitability of the Company, there is currently no reason to expect a loss from this loan.

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

Revenue from the sales of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment.

These criteria are considered to be met when the goods are delivered to the buyer. Where the buyer has a right of return, revenue is recognised in the year where the goods are delivered less an appropriate provision for returns based on past experience.

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

Financial assets

Loans and receivables

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.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being 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.

Convertible deep discount bonds

Convertible deep discount bonds are redeemable at their nominal price at maturity. The bonds may be converted into the Company's shares at the holders' option into a fixed number of shares and are therefore classified as compound financial instruments in accordance with the requirements of IAS 32. The debt element is calculated as the present value of future cash flows assuming the bonds are redeemed on the redemption date, discounted at the market rate for an equivalent debt instrument with no option to convert to equity. The difference between the cash payable on maturity and the present value of the debt element is recognised within equity. The discount is charged over the life of the bond to the statement of comprehensive income and included within finance expenses.

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 are accounted for as a derivative financial liability measured on inception at fair value through profit or loss. Details of Warrants are shown in note 9.

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:

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. Prior to harvest the costs of growing the grapes are carried forward in inventory. Upon harvest the grapes become agricultural produce and 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 PPE 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 operating lease rentals, 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

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are capitalised as part of inventory on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. During the year £74,000 (2016: £74,000) in respect of operating leases was capitalised as part of inventory.

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.

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. Refer to note 6 which provides information on sensitivity analysis around this.

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 an impairment.

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

Convertible debt

Deep discount bonds

Trade receivables

Cash and cash equivalents

Finance leases

Trade and other payables

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:

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. Trade receivable balances are monitored on an ongoing basis to ensure that the Group's bad debts are kept to a minimum. The maximum credit risk exposure at 31 December 2017 in respect of trade receivables is £165,000 (2016: £120,000).

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 £10,000.

4 Loss per share

Basic earnings per Ordinary share are based on a loss of £1,638,000 (December 2016: £1,528,000) and Ordinary shares 31,169,077 (December 2016: 23,639,762) of 1 pence each (December 2016: 50 pence each), being the weighted average number of shares in issue during the year. There is no adjustment to be made for diluted earnings per ordinary share.

5 Property, plant and equipment

Within property, plant and equipment are assets with a carrying value of £131,000 (2016: £191,000) held under finance leases.

During the year £695,000 (2016: £698,000) of vineyard establishment costs were transferred to mature vineyards at cost.

6 Biological produce

The fair value of biological produce was:


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 2017 harvest is £2,300 per tonne (2016: £2,000 per tonne).

A 10% increase in the estimated market price of grapes to £2,530 per tonne would result in an increase of £102,000 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 £102,000 in the fair value of the grapes harvested in the year.

A fair value loss of £27,000 (2016: £9,000 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

During the year £334,000 (December 2016: £381,000) was transferred to cost of sales.

Prior to harvest, the costs of growing the grapes are included in inventory.

8 Loans and borrowings

The bank loan of £2,025,000 carries interest at an annual rate of 3% over Barclays Bank plc base rate and is due for repayment in full in September 2018. It is secured by way of a fixed charge over the Group's land and buildings at Appledore, Kent, shown at a cost of £6,325,000 (2016: £5,390,000) within property, plant and equipment and a floating charge over all other property and undertakings.

Other bank loans of £102,000 carry a fixed interest rate of 6% per annum secured against certain items of plant and equipment. This loan is repayable via monthly instalments over 5 years from January 2016.

On 2 September 2016 the Company issued a deep discount bond totalling £4,073,034. The bond is secured by a fixed charge over the Group's land and buildings at Appledore, Kent. The bond is redeemable on 15 August 2021 and attracts a coupon rate of 9% per annum which is rolled up annually. The redemption amount of the deep discount bonds at the time they were issued was £6,266,868.

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, 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.

Accrued discount of £381,000 has been charged to the statement of comprehensive income during the year.

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

9 Share capital

On 29 June 2017 each Ordinary share of 50 pence each in the capital of the Company was divided into one Ordinary share of 1 pence and one Deferred share of 49 pence. The Ordinary shares of 1 pence each have the same rights as the previous Ordinary shares of 50 pence each. The Deferred shares of 49 pence each have no rights attached to them.

On 29 June 2017 Gusbourne PLC issued, for cash, 10,506,560 ordinary shares of 1 pence each at a price of 40 pence per share. These shares were fully subscribed and paid up.

On 25 July 2017 Gusbourne PLC issued 42,000 new Ordinary shares of 1 pence each in the Company to Charlie Holland, Chief Executive Officer and 42,000 new Ordinary shares of 1 pence each to Jon Pollard, Chief Operating Officer.

On 1 August 2017 Gusbourne PLC announced it received final acceptances in respect of 5,136,662 Conversion Offer Shares and issued Ordinary shares of 1 pence each at a price of 40 pence per share.

Gusbourne PLC has Warrants to subscribe for 2,036,517 Ordinary shares of 1 pence each in issue. The Warrants are exercisable at any time by the Warrantholder with an exercise price of 75 pence per share. 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 2017 amount to 2,036,517 Ordinary shares of 1 pence each.

10 Related party transactions

SUSD Limited ("SUSD") provided architectural and project management services to the Group during the year amounting to £nil (December 2016 - £31,300). There was no balance due to SUSD as at 31 December 2017 (December 2016 - £nil). Lord Ashcroft KCMG PC, the Company's ultimate controlling party, is also the ultimate controlling party of SUSD.

Deacon Street Partners Limited (formerly Anne 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 in total £139,923 (December 2016 - £108,000). Of this, £nil was in relation to directors fees (December 2016 - £10,000) and £139,923 relates to management services (December 2016 - £98,000). There was £18,000 due to Deacon Street Partners Limited as at 31 December 2017 (December 2016 - £nil).

Devonshire Club 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 Devonshire Club Limited. During the year the Company sold wine to the Devonshire Club Limited amounting to £10,534 (December 2016 - £25,918). A balance due from the Devonshire Club Limited of £1,254 (2016: £3,138) is shown within trade receivables.

On 2 September 2016 the convertible deep discount bond was redeemed in full and security was discharged. The redemption price of the bonds was £1,755,000 and was satisfied by the payment, in cash to Mr Andrew Weeber, of £1,155,000 and the subscription by Mr Weeber in new deep discount bonds amounting to £600,000.

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, 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.

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

Deep Discount Bonds

Warrants

On 25 July 2017 Gusbourne PLC issued 42,000 new Ordinary shares of 1 pence each in the Company to Charlie Holland, Chief Executive Officer and 42,000 new Ordinary shares of 1 pence each to Jon Pollard, Chief Operating Officer.

On 6 June 2017 a short-term loan from Lord Ashcroft KCMG PC of £1,000,000 was received, which was offset against Lord Ashcroft KCMG PC's subscription under the Open Offer which completed on 29 June 2017.

11 Subsequent events

On 31 May 2018, the Company announced that it is intended to arrange a subscription of new Ordinary shares in the Company with Lord Ashcroft KCMG PC and other investors, which is expected to proceed by 31 July 2018 (the Subscription). The proceeds from the Subscription will continue to be applied towards working capital and capital expenditure in line with the Company's long-term strategic plan.

In order to meet immediate working capital requirements, the Company entered into an agreement on 31 May 2018 with Lord Ashcroft KCMG PC to receive an unsecured loan of £1,000,000 (the "Loan Agreement") which is intended to be repaid in full, through conversion into new Ordinary shares

as part of the Subscription, when it concludes. The loan carries interest for a period of 3 months following the date of the loan agreement at the rate of 7% per annum above the base rate as varied from time to time by Barclays Bank plc, and thereafter at 10% per annum.