Gusbourne Regulatory News (GUS)

Gusbourne Plc

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

Results for the year ended 31 December 2018

The Board of Gusbourne Plc is pleased to announce its audited results for the year ended 31 December 2018.

Chairman's statement

Gusbourne has enjoyed another successful year of growth and development in 2018. The Gusbourne business was established fifteen 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 2018 our net revenue amounted to £1,261,000 (2017: £998,000), an increase of 26% 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 2018 include:

· Net revenue* of £1.26 million (2017: £1.0 million), an increase of 26%.

· Another successful grape harvest in 2018 with a record yield of high quality fruit.

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

· Further plantings planned in West Sussex in 2020.

· Fund raise in September 2018 of £3.7 million which has broadened the Company's investor base.

· Ongoing success in major wine competitions including "Best Sparkling Wine", Best Still Wine" and overall "Star of England" at the inaugural Harpers Wine Stars of England competition in May 2018.

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 for the business.

Andrew Weeber

Chairman

Chief Executive's review

The results for 2018 reflect another successful year of growth and development for the Group in line with our long term strategic development plans. Net revenue of £1,261,000 (2017: £998,000) was up 26% on the prior year and we have continued to widen our distribution channels both in the UK and overseas. I am delighted to report that Gusbourne is now distributed to fourteen countries around the world. We have invested further in an expanded sales and marketing team to continue to develop our markets and sales both in the UK and overseas in the coming years.

The Gusbourne sparkling wine products remain at the luxury end of the English sparkling wine market and we are committed to maintaining this premium position. The United States remains an important contributor to our export sales, with a number of prestigious awards for our sparkling wines.

In 2018 we enjoyed our first 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 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 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 mature vineyards with the first plantings dating back to 2004. Following the 2018 harvest, the most recent plantings in 2015 are now deemed to be mature and which will reach production maturity in 2019.

On 9 April 2019, the Group announced that it had entered into a new long term farm business tenancy in respect of an additional 73 acres of land adjacent to its existing vineyards in West Sussex. The Group intends to plant additional vines on 57 acres of this land in 2020, which are expected to start producing grapes in 2022. The lease has a term of 50 years from September 2019 and will increase the Group's vineyards in West Sussex to 136 acres, with a total acreage under vine, including the 152 acres in Kent, of 288 acres following the new plantings.

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

In May 2018, Gusbourne was awarded "Best Sparkling Wine", Best Still Wine" and overall "Star of England" at the inaugural Harpers Wine Stars of England competition.

At the Wine GB awards in July 2018 Gusbourne was awarded Gold medals for the Blanc de Blancs 2013, Pinot Noir 2016 and Guinevere 2014 and Silver medals for the Brut Reserve 2014 and Rose 2014. The Blanc de Blanc 2013 went on to win the trophy for most outstanding Blanc de Blancs and the Pinot Noir 2016 was awarded the trophy for most outstanding still red wine.

 In July 2018, the Nest, received a Gold medal from the 2018 IWC Cellar Door awards.

In August 2018 our Brut Reserve 2013 was awarded a Gold medal and the 'best in class' trophy at the Champagne and Sparkling Wine World Championships (CSWWC).

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;

· Planned increases in sales and marketing costs to support the ongoing development and growth of the business and the maintenance 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, the "Nest", 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 buildings, plant and machinery to keep pace with production growth

2018 harvest

The 2018 harvest at Gusbourne has provided another vintage of outstanding quality as well as record quantity.

Superb conditions throughout the growing season and in particular, during flowering in June and the warm, dry summer over the critical months of July and August resulted in the harvest commencing earlier than ever before. The grapes were wonderfully ripe, with optimum levels of natural sugar and acidity across all three varieties - Chardonnay, Pinot Noir and Pinot Meunier.

In accordance with our strict parameters in our quest to make only the best quality vintage wines from the highest quality grapes grown in our own vineyards, we green harvested a selected amount of fruit during the latter part of the growing season. Whilst this reduced the potential overall yield, it enabled the vines to enhance the ripening of their remaining clusters. This technique, known as a green harvest, ensures that we maintain the high quality of our grapes as well as looking after the long term health of our vineyards. Following the green harvest we are pleased to report that the 2018 harvest still managed to achieve record yields. The resulting wine production has added further to our inventory levels for sale in future years.

Results for the year

Net revenue for the year amounted to £1,261,000 (2017: £998,000), an increase of 26% 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.

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 17% in 2014 to 56% in the current year reflecting economies of scale in respect of the Group's increased production volumes. These production volumes are planned to increase in the coming years.

Gross profit margin for 2018 was 6% lower than in 2017, in line with management expectations, due to the wine sold in 2018 having a slightly higher cost of production resulting from planned increases in the direct costs of wine sold during the year.

It should be noted that the cost of sales relates to the wine sold in the current year which is primarily the wine produced from the 2013 harvest, and the benefit of economies of scale at gross margin level will continue, for some time, to trail current year sales.

Operating expenses of £2,246,000 (2017: £1,759,000), includes depreciation of £638,000 (2017: £479,000) and also includes planned increased expenditure on sales and marketing costs reflecting continuing investment in the development and growth of the business.

EBITDA** for the year was a loss of £782,000 (2017: £690,000). The operating loss for the year after depreciation and amortisation was £1,420,000 (2017: £1,169,000). The loss before tax was £1,767,000 (2017: £1,638,000) after net finance costs of £347,000 (2017: £469,000).

These losses continue to be in line with expectations and the long-term development strategy of the Group which is based on continuing sales growth of the Gusbourne wines, supported by increasing wine stocks, and is planned to provide a positive cashflow during the course of the next few years.

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. This expenditure includes the investment in the vineyards established in West Sussex and Kent in 2015. This investment in vineyards is reflected in capital expenditure during the year of £141,000 (2017: £86,000). Following the 2018 harvest all existing vineyards are now deemed to be mature and have been transferred to mature vineyards within property plant and equipment. this will result in a greater depreciation charge in future years.

In addition, the Group invested in additional plant and equipment for the vineyards and the winery amounting to £698,000 (2017: £589,000) and in buildings of £74,000 (2017: £1,090,000). Total assets at 31 December 2018 of £19,727,000 (2017: £17,466,000) include freehold land and buildings of £6,488,000 (2017: £6,539,000), vineyards of £3,289,000 (2017: £3,260,000), inventories of wine stocks amounting to £5,282,000 (2017: £3,484,000), and cash of £1,311,000 (2017: £1,464,000). Intangible assets of £1,007,000 (2017: £1,007,000) arose on the acquisition of the Gusbourne Estate business on 27 September 2013.

As noted above, our main operating assets continue to grow, which provides further asset backing for our investors as well as support for our planned future sales growth. In particular, the cost of inventories of wine stocks has increased by 51% during the course of the year reflecting a further successful harvest of grapes in 2018.

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.

The Group's net tangible assets at 31 December 2018 amounted to £13,303,000 (2017: £11,323,000) and represent 93% of total equity (2017: 92%). Net tangible assets per share at 31 December 2018 were 29.1 pence per share (2017: 28.8 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 continue growing until approximately four years after vineyard maturity. These additional four years, reflect the time it takes to transform our high quality grapes into Gusbourne's premium sparkling wine. 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 shareholder's equity, loans, finance leases, other borrowings and deep discount bonds. Loans, finance leases other borrowings and deep discount bonds at 31 December 2018 amount in total to £4,934,000 (2017: £4,778,000) and represent 34% of total equity (2017: 39%).

On 5 September 2018, Gusbourne announced that it had raised approximately £3.7 million by way of an issue of 6,221,699 new ordinary shares at a price of 60 pence per share. In addition, 6,221,699 warrants have been issued on a 1 for 1 basis to subscribers of these new shares, at an exercise price of 60p. These warrants can be exercised at any time up to 30 September 2019. As at 31 December 2018 83,000 of the Warrants issued have been exercised by Warrantholders.

Lord Ashcroft KCMG PC subscribed for £2,702,517 representing 4,504,510 new ordinary shares, of which £1,000,000 together with accrued interest was satisfied through the repayment of the shareholder loan, in full, which was provided to the Company on 31 May 2018.

The Group's bank loan of £2,025,000 which was due for repayment in September 2018 has been extended for a further 3 years until November 2021 on similar terms.

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.

Current trading and outlook

The growing season in 2019 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. Record yields from the 2018 harvest have allowed us to significantly increase our wine stocks for future sales.

Current trading is in line with expectations and the Company continues to make steady progress in line with its long term strategic plans.

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.

Charlie Holland

CEO

Key Performance Indicators

* Net revenue represents Revenue after deducting excise duties

** 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 2018 will be posted to shareholders on Wednesday 5 June 2019, together with notice of the Annual General Meeting to be held at 12pm on 28 June 2019 at the offices of Fieldfisher LLP at Riverbank House, 2 Swan Lane, London, EC4R 3TT.

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 which will increase to 288 acres following the planting of an additional 57 acres in 2020.

Consolidated statement of comprehensive income for the year ended 31 December 2018

Consolidated statement of financial position at 31 December 2018

Consolidated statement of cash flows for the year ended 31 December 2018

*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.

The short-term loan of £1,000,000 received in the year ended 31 December 2018 was used as part settlement of monies due under the share subscription which completed on 11 September 2018.

Consolidated statement of changes in equity for the year ended 31 December 2018

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 2018 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 2018 or the year ended 31 December 2017, but is derived from those accounts. The Group's statutory accounts for 31 December 2017 have been delivered to the Registrar of Companies and those for 31 December 2018 will be delivered following the Company's Annual General Meeting. The Auditor's reports on both the 31 December 2017 and 31 December 2018 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.

Prior period adjustment

Revenue for the year ended 31 December 2017 has been restated to reflect the inclusion of excise duties as excise duties are an obligation of the Group on sale. Following this reclassification there is no impact on the Group's loss for the year or the Group's net assets.

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.

In order to meet immediate working capital requirements, the Company (the "Borrower") entered into an agreement on 31 May 2019 with a company controlled by Lord Ashcroft KCMG PC (the "Lender") to receive an unsecured loan facility of up to £2,000,000 (the "Loan Agreement") which is repayable on 31 October 2019. The loan facility may be drawn down in amounts of no less than £250,000. The loan carries interest on the principal amount outstanding from time to time at the rate of 10% per annum and at 15% per annum in the event of default. To the extent that the Lender chooses, in its sole discretion to exercise any warrants it holds in the Borrower, the amount to be subscribed pursuant to such exercise ("the Subscription Amount") will be deemed to be satisfied to the extent of the amount outstanding in respect of the Loan and the amount of accrued but unpaid interest at the time of exercise or, if such amount is greater, to the extent of the Subscription Amount.

Under the terms of the Loan Agreement, should the loan not be repaid on 31 October 2019, the loan 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 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 from investors and debt providers to support the Group's investment in vineyards, winery capacity, and stocks of wine including marketing and brand development, in line with its development strategy. In the event that further funding could not be obtained, from investors or debt providers, Lord Ashcroft KCMG PC has confirmed that his current intention would be to provide further funding by way of debt or equity funding for a period of at least 12 months from the approval of the financial statements, on terms or at prices to be agreed.

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:

· IFRS 9 Financial Instruments

· IFRS 15 Revenue from Contracts with Customers

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 recognising provisions based on expected credit losses has been introduced which replaces the incurred loss impairment model used in IAS 39.

IFRS 9 has had a negligible impact on the Group which has arisen from an expected credit loss on the Group's trade receivables of £3,000. The Group has chosen not to restate comparatives on adoption of IFRS 9 due to the negligible nature of this expected loss.

IFRS 15 Revenue from Contracts with Customers

The Group Adopted IFRS 15 with a transition date of 1 January 2018. IFRS 15 has had no impact on the Group's loss for the year or the Group's net assets as the reporting date. The Directors have also assessed the impact of IFRS 15 on the prior period and concluded that there was no impact on either the Group's loss for the year or the Group's net assets.

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 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. These leases have a remaining life of 44 years. On the 9 April 2019, the Group entered into a separate long term farm business tenancy with a term of 50 years from September 2019 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.£1.3m will be recognised on adoption of IFRS 16 though has not finalised the transition option at this point. 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.

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.

Revenue for the year ended 31 December 2017 has been reclassified to reflect the above treatment of excise duties. Following this reclassification there is no impact on the Group's loss for the year or the Group's assets.

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 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. 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 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 charged to the consolidated statement of comprehensive income 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 £88,000 (2017: £74,000) in respect of operating leases was capitalised as part of inventories.

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.

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 the greater of value in use and 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.

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

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:

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 2018 in respect of trade receivables is £213,000 (2017: £165,000) and due to the prompt payment cycle of these trade receivables, the expected credit loss is negligible at £3,000.

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 £1,767,000 (December 2017: £1,638,000) and Ordinary shares 38,265,254 (December 2017: 31,169,077) of 1 pence each, being the weighted average number of shares in issue during the year.

Gusbourne PLC has Warrants to subscribe for 8,175,216 Ordinary shares of 1 pence each in issue. Of these Warrants, 6,138,699 are exercisable at any time by the Warrant holder with an exercise price of 60 pence per share until 30 September 2019. The remaining 2,036,517 Warrants are also exercisable at any time by the Warrant Holder, with an exercise price of 75 pence per share until 31 July 2021. These warrants have not been included in the calculation of diluted earnings per share as they are antidilutive for the periods presented.

5 Property, plant and equipment

Within property, plant and equipment are assets with a carrying value of £79,000 (2017: £131,000) held under finance leases.

During the year £1,004,000 (2017: £695,000) 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 2018 harvest is £2,300 per tonne (2017: £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 £132,000 (2017: £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 £132,000 (2017: £102,000) in the fair value of the grapes harvested in the year.

A fair value gain of £125,000 (2017: £27,000 loss) 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 £449,000 (December 2017: £334,000) was transferred to cost of sales.

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

8 Loans and borrowings

The Company entered into an arrangement on 31 May 2018 with Lord Ashcroft KCMG PC to receive a short term unsecured loan of £1,000,000. The loan carried 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 10% per annum. The short-term loan was repaid in full, with accrued interest, on 5 September 2018 as part consideration for Lord Ashcroft KCPMG PC's subscription for 4,504,510 new ordinary shares at £2.7 million.

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 November 2021. It is secured by way of a fixed charge over the Group's land and buildings at Appledore, Kent, shown at a cost of £5,390,000 (2017: £5,390,000) within property, plant and equipment and a floating charge over all other property and undertakings.

Other bank loans of £68,000 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.

The redemption amount of the deep discount bonds is £3,390,000, redeemable on 15 August 2021. Accrued discount of £239,000 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 5 September 2018 Gusbourne PLC issued, for cash, 6,221,699 new ordinary shares of 1 pence each at a price of 60 pence per share. These shares were fully subscribed and paid up. Furthermore, 6,221,699 Warrants were issued on a 1 for 1 basis to subscribers of new shares, at an exercise price of 60p per share. The exercise of these Warrants will be no later than 30 September 2019.

On 24 October 2018 the Company issued 75,000 new ordinary shares of 1p each pursuant to an exercise of Warrants. All Warrants were exercised at 60p per share.

On 12 November 2018 Gusbourne PLC issued 5,000 new ordinary shares of 1p each pursuant to an exercise of Warrants. All Warrants were exercised at 60p per share.

On 7 December 2018 Gusbourne PLC issued 3,000 new ordinary shares of 1p each pursuant to an exercise of Warrants. All Warrants were exercised at 60p per share.

Gusbourne PLC has Warrants to subscribe for 8,175,216 Ordinary shares of 1 pence each in issue. Of these Warrants, 6,138,699 are exercisable at any time by the Warrant holder with an exercise price of 60 pence per share until 30 September 2019. The remaining 2,036,517 Warrants are also exercisable at any time by the Warrant Holder, with an exercise price of 75 pence per share until 31 July 2021.

Unexercised Warrants as at 31 December 2018 amount to 8,175,216 Ordinary Shares of 1 pence each.

10 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 in total £78,107 (December 2017 - £139,923). Of this £78,107 relates to management services (December 2017 - £139,923). There was £18,000 due to Deacon Street Partners Limited as at 31 December 2018 (December 2017 - £23,907).

Devonshire Club Limited, a company connected with Lord Ashcroft KCMG PC, purchased wine from the Group amounting to £10,131 (2017 - £10,534). A balance due from Devonshire Club Limited of £2,219 (2017 - £1,254) is shown within trade receivables.

On 18 June 2018, the Company lent £50,000 to an executive director to assist with a house purchase in the vicinity of the Group's vineyard and winery operations in Kent. The loan is interest free and repayable by instalments from July 2019 with full repayment due by May 2024. A balance of £50,000 was outstanding as at 31 December 2018.

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.

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

Deep Discount Bonds

Warrants

The warrants exercisable at 75 pence each are exercisable at any time until 31 July 2021.

On 5 September 2018, the Company issued, for cash, 6,221,699 new ordinary shares of 1 pence each with 6,221,699 separable warrants to subscribe for 1 pence Ordinary shares at an exercise price of 60 pence each.

Details of related parties who subscribed for warrants are shown in the table below:-

Warrants exercisable at 60 pence each

The Company entered into an arrangement on 31 May 2018 with Lord Ashcroft KCMG PC to receive a short term unsecured loan of £1,000,000. The loan carried 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 10% per annum. The short-term loan was repaid in full, with accrued interest, on 5 September 2018 as part consideration for Lord Ashcroft KCPMG PC's subscription for 4,504,510 new ordinary shares at £2.7 million.

11 Subsequent events

On 9 April 2019, the Group announced that it had entered into a new long term farm business tenancy in respect of an additional 73 acres of land adjacent to its existing vineyards in West Sussex. The Company intends to plant additional vines on 57 acres of this land in 2020, which are expected to start producing grapes in 2022. The lease has a term of 50 years from September 2019 and will increase the Company's vineyards in West Sussex to 136 acres, with the total acreage under vine, including the 152 acres in Kent, of 288 acres following the new plantings.

In order to meet immediate working capital requirements, the Company (the "Borrower") entered into an agreement on 31 May 2019 with a company controlled by Lord Ashcroft KCMG PC (the "Lender") to receive an unsecured loan facility of up to £2,000,000 (the "Loan Agreement") which is repayable on 31 October 2019. The loan facility may be drawn down in amounts of no less than £250,000. The loan carries interest on the principal amount outstanding from time to time at the rate of 10% per annum and at 15% per annum in the event of default. To the extent that the Lender chooses, in its sole discretion to exercise any warrants it holds in the Borrower, the amount to be subscribed pursuant to such exercise ("the Subscription Amount") will be deemed to be satisfied to the extent of the amount outstanding in respect of the Loan and the amount of accrued but unpaid interest at the time of exercise or, if such amount is greater, to the extent of the Subscription Amount.

Under the terms of the Loan Agreement, should the loan not be repaid on 31 October 2019, the loan 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.