REG - Naked Wines PLC - Half-year Results
18/11/2021 07:05
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RNS Number : 7577S Naked Wines PLC 18 November 2021
18 November 2021
Naked Wines plc
("Naked Wines" or "Group")
Half Year Results for the 26 weeks ending 27 September 2021
Disruptive business model continues to drive growth as the largest
direct-to-consumer wine business in the world with 947k Angels
Nick Devlin, Group Chief Executive, commented:
"We have a large long-term value creation opportunity driven by a disruptive
business model, an underpenetrated $25 billion total addressable market (TAM),
exceptional winemakers and wine, and a loyal customer base with attractive
unit economics and recurring revenues. Our disruptive business model connects
consumers directly with winemakers, stripping out the cost of traditional
sales and distribution and delivering consumers exclusive world-class wines at
fair prices and with a genuine connection to their maker.
I'm delighted by the progress we have made so far this year in further
strengthening our winemaker lineup and customer proposition. We are now
serving a global community of 947,000 members - an increase of 25% over the
last year - reflecting sustained consumer desire for an alternative to
traditional wine distribution.
I'd like to thank all our teams for their hard work in a challenging supply
environment for ensuring we are well stocked and prepared for what we
anticipate to be a record holiday season. We are focused on delivering an
incredible experience for our members and on continuing to invest to grow
Naked Wines and connect more wine drinkers to the world's best independent
winemakers."
Growth driven by sales increase and strong customer retention
● Total sales +6% on a constant currency basis(1) and +1% on a
reported basis vs H1'21 (+82% on a reported basis vs H1'20) to £159.3
million, driven by strong Repeat Customer sales retention(2) and growth in
Repeat Customer sales in key US segment
● Growth partially offset by a decline in New Customer sales(2), with
a tough comparison to the first half of 2021 which benefited from COVID-19
lockdowns
● Active Angel base (our subscription customers) now at 947k, a 25%
increase over H1'21
● Repeat Customer Contribution profit(2) of £41.3 million (+10% on a
reported basis), driven by a 21% increase in Repeat Customer sales on a
constant currency basis
● Repeat Customer Contribution margin(2) of 29% (-140 bps vs H1'21,
+270 bps vs H1'20) as we effectively managed headwinds from global supply
chain disruption
● Investment in New Customers(2) of £21.3 million, delivering a
5-year Forecast Payback(2) of 1.7x in a changing market environment as wine
consumers sought in-person experiences emerging from COVID-19 lockdowns
● Profit before tax of £1.3 million versus a loss of £8.9 million in
H1'21, and adjusted EBIT(2,3) of £1.2 million versus a loss of £3.2 million
in H1'21
● Closing cash balance of £57.1 million down from £85.1 million at
FY'21 as we invested in inventory availability for the customer base
Outlook
FY'22 guidance updated as follows:
● Total sales updated to £340 million to £355 million (£355 million
to £375 million previously), which equates to 2% to 7% sales growth at
constant currency, reflecting lower than anticipated Investment in New
Customers
● Investment in New Customers expected to be £35 million to £45
million (£40 million to £50 million previously), as we preserve cohort
quality
● Repeat Customer Contribution profit outlook unchanged at £85
million to £90 million, with the Repeat Customer Contribution margin expected
to be 100bps - 200bps below H1'22, driven by the supply chain and logistics
environment and higher inventory storage costs
● General and administrative costs outlook unchanged at £46 million
to £49 million
● Inventory balance of £127 million as of 27 September 2021 (£85
million as at 28 September 2020), well positioned for what we anticipate will
be our largest holiday season. Mindful of the challenges in restoring
availability over the last 12 months and continued supply chain disruption we
intend to run the business with higher inventory balances over the medium-term
to preserve availability for customers and ensure we do not constrain our
growth potential
Total Group Reported
H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
Total Sales £159.3m £157.1m £87.5m 1% 82%
Growth on a constant currency basis(1) 6% 91%
Gross profit £66.6m £61.9m £33.5m 8% 99%
Gross profit margin 42% 39% 38% +240bps +350bps
Contribution profit(2) £37.9m £33.7m £17.7m 13% 114%
Contribution profit margin 24% 21% 20% +230bps +360bps
Adj EBIT(2,3) £1.2m £(3.2)m £(4.5)m nm nm
Adj PBT/(LBT)(2,4) £1.7m £(2.7)m £(5.0)m nm nm
Profit/(loss) for the period £1.0m £(8.1)m £(5.4)m nm nm
KPIs H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
Repeat Customer sales £144.7m £124.9m £75.4m 16% 92%
Repeat Customer sales growth on a constant currency basis(1) 21% 101%
Repeat Customer sales retention 80% 95% 79% (1500)bps +110bps
Investment in New Customers £(21.3)m £(23.8)m £(10.7)m (11)% 99%
Active Angels (repeat customers) 947k 757k 553k 25% 71%
5-Year Forecast Payback 1.7x 3.9x 2.3x (2.2)x (0.6)x
Year-1 Payback(2) 101% 67% 66% 3,380bps 3,430bps
Standstill EBIT(2) £37.2m £27.4m £3.1m 36% 1,084%
Naked Wines plc will host an analyst and investor conference call at 2pm GMT /
9am ET / 6am PT on 18 November 2021. The briefing will be webcast using the
following link
https://webcasting.brrmedia.co.uk/broadcast/6183efc3c00c704181b76453.
Alternatively, it can be found on our website. A recording will also be made
available after the briefing on our results in the announcements section of
our investor website.
Notes:
1. Constant currency basis using current period FX for the translation of
the comparative period.
2. This is an alternative performance measure. See the 'Alternative
performance measures (APMs)' from page 34.
3. Adjusted EBIT is operating profit adjusted for amortisation of acquired
intangibles, acquisition costs, impairment of goodwill, restructuring costs
and fair value movement through the income statement on financial instruments
and revaluation of funding cash balances held.
4. Adjusted PBT/(LBT) is defined as Adjusted EBIT less net finance income
/ (charges).
For further information, please contact:
Naked Wines plc ir@nakedwines.com
Nick Devlin, Chief Executive Officer
Shawn Tabak, Chief Financial Officer
Investec (Joint Broker) Tel: 0207 597 5970
David Flin / Carlton Nelson / Ben Farrow
Jefferies (Joint Broker) Tel: 0207 029 8000
Ed Matthews / David Genis / Harry Clements
Instinctif Partners (PR Agency) Tel: 0207 457 2020 or 07931 598 593
Damian Reece / Guy Scarborough / Sarah Hourahane
About Naked Wines plc
Naked Wines connects everyday wine drinkers with the world's best independent
winemakers.
Why? Because this business model allows us to generate better economics for
everyone. Talented winemakers get the support, funding and freedom they need
to make the best wine possible, while wine drinkers who support them get much
better wine at more attractive prices than at traditional retail.
It's a unique business model. Naked Wines customers commit to a fixed
prepayment each month, which is applied towards their next purchase. Naked, in
turn, funds the production costs for winemakers, generating savings that are
passed back to its customers. It creates a virtuous circle that benefits both
wine drinkers and winemakers.
Our mission is to change the way the whole wine industry works for the better.
In the last year, we have served more than 945,000 members (who we call
Angels) across the US, UK and Australia, making us a leading player in the
fast-growing direct-to-consumer wine market.
Our Angels have direct access to 226 of the world's best independent
winemakers making over 1,500 quality wines in 20 different countries. We
collaborate with some of the world's best independent winemakers, such as Matt
Parish (Beringer, Stags' Leap) and eight-time Winemaker of the Year, Daryl
Groom (Penfolds Grange).
CHIEF EXECUTIVE REVIEW
Long-term opportunity to disrupt the wine industry
● We are disrupting a large category by delivering a better value
proposition for winemakers and consumers
● Our value proposition to Angels and winemakers continues to get even
stronger
● We are the largest DtC wine business in the world with 947k Angels
● The pace at which some of our wines sell out, and numbers of awards
that our wines won from prestigious international competitions is proof that
our disruptive business model is working
Winemaking may not be the "oldest profession" but it's certainly on the list.
Recent decades have seen a stream of improvements in viticultural practices;
the confirmation of the "new world" as a proven source of world class wine and
a more adventurous and knowledgeable wine consumer. However, change has been
harder to find in the way wine is sold.
The American wine industry, especially, remains familiar to an observer from
the 1930s. Access to distribution networks and brick and mortar points of sale
remains key in getting wine into consumers' hands. Consumers are left to fend
for themselves with little information about the wines they're buying, and are
asked to make choices about which wines they may like based on labels. The
traditional environment is not conducive to discovering a new wine, a new
varietal, or even a new winemaker. The results? Extreme consolidation in
production, high costs from a 3 tier distribution model and limited meaningful
consumer choice. In short, too many are paying too much for too little.
Naked Wines solves these problems. Over the past 13 years, we have had one
mission: to disrupt the wine industry for the benefit of our customers,
winemakers and employees.
● We connect customers directly with the world's best independent
winemakers
● For winemakers, our scale, collective purchasing, funding and
long-term commitment means they can craft exceptional wines at substantially
lower costs
● Consumers enjoy access to exclusive wines, direct from their maker,
building a personal connection to their favourite brands
● And by stripping out the costs of marketing, selling &
distributing wine that typically exceed the cost of production for small
winemakers we offer consumers compelling value whilst generating attractive
margins
Today, we give 947k Angels access to world-class wine with authentic
experiences at fair prices. We provide 226 of the world's best winemakers the
opportunity to make their best wines, with security, autonomy and attractive
economics. In the past 12 months our total Active Angels increased by 190k
Angels, reflecting the appeal of the community we have created.
In the first half of FY'22, it has been gratifying to see many of our
winemakers get the credit they deserve. Our winemakers won awards at some of
the world's most prestigious wine competitions, including a record set of
awards at the Decanter World Wines Awards 2021, the world's largest and most
influential wine competition. Our winemakers won 33% of all platinum and 20%
of all gold medals won by American winemakers. Dave Harvey's story typifies
the impact of working with Naked. In just 4 years since launching his brand
Dave has opened his own production facility on the banks of the Columbia River
in Washington and was the only Washington based winemaker to win Gold in this
year's DWWAs. He won 2 Gold Medals, and better yet, whilst most Gold medal
winners cost consumers upwards of $30 a bottle our Angels can buy Dave's wines
for $9.99 and $12.99.
At the same time, we continued to make progress in assembling the world's best
independent winemakers, including contracts signed with:
● Ken Wright: Founding legend of Dundee Hills, in the Willamette
Valley. Ken is recognised as one of the world's best winemakers, with over 100
scores of >90 in Wine Spectator and Wine Enthusiast, and has had his wines
voted the best wine in the world
● Mitchell Masotti: Rising star behind the 100pt wines of Bevan
Cellars, whose debut Napa Cabernet sold out by 9:30am on its launch day
In Australia our team and members have championed the cause of independent
Aussie winemakers squeezed by Chinese tariffs on Aussie wine. During the first
half of the year our "Stop the Squeeze" campaign supported 11 winemakers with
over 280k bottles sold, delivering over A$2 million in additional revenue and
still selling.
I'm delighted with the progress we are making in all markets to continually
enhance our range and bring onboard top winemaking talent. Our ability to
empower talented winemakers to make their best wine, and make it available at
great value, is the foundation on which our disruptive model is built. As a
result, we have a loyal Angel base that are delighted by the wine, and the
engagement and authentic experiences that our winemakers provide.
The second highlight of the first half was the extremely strong levels of
retention amongst our Angel base. For any subscription model the most
important long-term metric is retention.
● Our sales retention for H1'22 of 80% was ahead of our expectations,
and despite a challenging H1'21 comparative of 95%, was also ahead of the 79%
delivered in H1'20
● Strong sales retention was built off a sustained improvement in
customer retention amongst our established cohorts that were acquired pre
COVID-19
This is a continuation of a theme we have seen repeatedly. Our enhancements to
the range and winemaker lineup, improvements in the customer experience and
additions of new products like "Never Miss Out" have driven consistent
increases in monthly revenue per member. At the same time as we have scaled
the business we have enhanced Repeat Contribution margins. The net impact is
that our latest payback expectations for our FY'17-FY'20 cohorts are 25%
higher than our initial payback projections. In short the model is working and
our investments are translating to a stronger business and improved customer
economics.
5 Year Forecast Payback Progression
Original Forecast(1) Latest Forecast(2) Payback to date
FY'17 2.0x 2.5x 2.7x
FY'18 2.1x 2.7x 2.3x
FY'19 1.8x 2.4x 1.7x
FY'20 2.6x 2.9x 1.5x
FY'21 3.0x 3.2x 1.0x
H1'22 n/a 1.7x 0.1x
(1 )Original forecast shows the expected payback in the year the cohort
originated. For earlier years (FY'17-FY'19) this figure represents the
originally reported 20 year payback, translated to a 5 year basis using
today's ratio of LTV between first 5 years and 20 years.
(2 )Latest forecast per H1'22 expectations.
Certainly COVID-19 has further accelerated the shift toward online wine models
and as such the growth profile of Naked Wines, but underlying that is a
differentiated consumer experience and a business with a consistent track
record of generating improved underlying customer economics and margins as it
grows.
I am confident that the migration of demand online in the wine category will
continue and today we can start to make some more confident assessments about
the new members we've acquired during the pandemic. Our COVID-19 cohorts have
shown themselves to be remarkably similar to those that came before in terms
of quality, albeit larger in size.
There will continue to be challenges and we will undoubtedly make some
mistakes (I detail a couple we have made in the last six months below), but I
believe we have a truly differentiated proposition for both winemakers and
consumers that can build substantial share in all our markets over the next
decade.
H1'22 Performance
● We reported sales of £159.3 million, +6% on a constant currency
basis and (+1% reported), driven by strong retention and demand from existing
members
● We continue to take share of the off-premise wine market and
effectively grow our US business
● Margin performance was slightly ahead of expectations despite cost
headwinds from a challenging global supply and logistics environment
● Despite operational action to mitigate impacts, wine availability
and delivery measures were below our targets for substantial parts of the
period, impacting customer experience and new customer growth
● We would have liked to invest more in New Customers and at a greater
payback but ultimately decided to constrain our growth investment due to
higher than anticipated new customer acquisition costs
In H1'22 we continued to grow our business and take market share. We grew both
our US and UK markets, driven by better than expected retention rates:
● Our active Angel base grew by 25% to 947k
● Repeat sales +21% vs H1'21, and +101% vs H1'20 on a constant
currency basis (+16% and +92% respectively on a reported basis)
● Our Repeat Customer Contribution profit grew by 10% and 112% over
the same periods on a reported basis
By any measure this is a strong performance after the exceptional demand
levels seen in FY'21.
In Australia our team have executed impressively through a period of continued
disruption, making great progress against a set of agreed actions to
strengthen the fundamental customer economics as a base for faster future
growth. I am delighted with the progress we have made, which is reflected in
the expansion of the Repeat Customer Contribution margin to 28% (+310bps) vs
prior year. Our business in Australia enters our peak trading season in great
shape and firmly back on track for long-term growth.
Turning to the USA specifically, here we have seen the greatest changes in
consumer behaviour as much of the country has embraced a chance to return to
somewhat of "life as normal". In the wine category that has played out with
traditional wineries reporting record revenues, boosted by extremely strong
winery visitation rates. Overall off-premise sales have been below levels seen
during the peak of the COVID-19 lockdowns in 2020, albeit they remain above
2019 levels.
Against this context I'm pleased to say our differentiated model has continued
to take market share, now at 1.1% versus 0.9% in the first six months of last
year and 0.6% two years ago (source: NielsenIQ - Total US Wine Data).
Naked Wines Share of US Off Premise Wine Market by Value, Source - NielsenIQ -
Total US Wine Data
Year Market share %
H1'20 0.63
H1'21 0.93
H1'22 1.09
A few challenges
Whilst I'm proud of the continued dedication of our teams globally and our
ability to deliver growth in all our markets it's only right to acknowledge
that there were a couple of things we could have done better in the period.
Firstly our payback on customer growth investment could have been higher. We
were surprised by the speed at which the consumer and marketing environment
changed, especially in the USA. This impacted us in a few ways:
● Some of the deals we signed in late 2020 and early 2021 did not meet
our returns expectations - we could have better anticipated this
● Some of our new channel investments did not translate from 2020
tests to 2021 investment at expected returns which led to some lower payback
investment
● The marketing environment on Facebook in particular became more
challenging, due to (1) rapid CPM inflation and (2) reduced targeting
effectiveness post iOS privacy changes
In aggregate we spent approximately £2 million to acquire new customers at
below our preferred payback. We of course cannot predict the future, or
eliminate all risk from the endeavour of scaling our growth investment, but we
can review when things go wrong and ensure we learn from the experience. We
have reviewed how we execute deals and made some changes internally to our
partnership between the Growth, Finance & Analytics teams as well as the
cadence of new channel testing. I would hope that in the same circumstances in
the future we could reduce the financial impact of being wrong.
Like many, we also experienced supply chain disruption. Specifically, our
ability to move wine and key non-wine materials such as glass into markets on
schedule was impacted, and we also experienced cost pressures in warehousing
and transport due to labour market constraints.
Whilst we have effectively managed the business to mitigate margin impacts we
have not been able to eliminate customer impact. It has taken us longer than
we anticipated to restore availability, which was 81% for H1'21, for our
customers to target levels in both the UK and US markets and this has impacted
our sales retention in these markets as key items have been out of stock. In
the UK, it has also meant we have had to constrain growth for some months to
preserve a minimum level of availability for our members. Looking forward, we
have restored availability to our target of 90% in the US and UK ahead of the
key holiday season.
Finally our customer experience has at times fallen short of the high
standards we set for ourselves in terms of delivery on-time and in-full. Too
many customers have experienced delays to delivery or substitution of items -
and for that we are sorry. Financially we know that any compromise to the
delivery experience of a new customer is especially costly.
We offset some of these challenges, increased availability of wine for our
customers and reduced our inventory risk profile by: i) remodeling our
distribution network in the US, moving from a central location in Napa to
smaller distributed warehouses closer to our distribution centres; ii)
increasing modes of transportation in all geographies, and; iii)
implementation of automation in our UK distribution centre.
We anticipate disruption to international shipping and supply chain cost
pressures to continue through at least the second half of this fiscal year,
and as such it is useful to give guidance on how we will manage them in the
medium term.
1. We recognise that it has taken us too long to restore availability
levels; and we intend to create additional buffer via our guidance of
increased levels of stock-holding in the medium term
2. Where possible, and where cost pressures appear temporary we have
sought to absorb them and mitigate via efficiencies from scale and savings
initiatives. To the extent that changes in our cost base are enduring, we have
the ability to manage margin mix and offset these additional costs, and will
take steps to do so
3. Strategically we benefit from an efficient end-to-end model with
advantaged pricing and fewer product touches vs competitors (especially 3 tier
models in the USA). As such, whilst never welcome, inflationary cost pressures
are on balance likely to widen, not reduce, the relative value for money
advantage we present to customers
Good progress against strategic pillars
All our teams have continued to do an incredible job of managing our growth
and the business, while investing against our strategy. We have increased our
investment in G&A, including product and engineering teams, to accelerate
our delivery against our three strategic pillars outlined at our FY'21
Results.
Enhance customer proposition to improve LTV
Quality Perception
We have made significant progress in enhancing the quality perception of
Naked. Our key brand metric around perceived quality improved year on year in
our brand tracking research, and is now at around a 10% premium to the market
in all of our markets.
During the period we were delighted to have the excellent quality of our wines
recognised through multiple prestigious international awards including the
Decanter World Wines Awards ("DWWA") 2021 where the Company's exclusive wines
received 162 medals.
It remains the most pleasing to receive awards voted by wine drinkers and we
were awarded the title of Best Wine Club in the USA Today Readers' Choice
Awards for the third straight year.
Scaling subscription products, adding further value
Our Never Miss Out and Wine Genie subscriptions help our Angels discover,
understand and reserve the best wines according to their unique preferences.
Our subscription products were a key area of success in FY'21, and this
success has continued throughout the first half of this year. During the
period we saw further growth in subscription customers, delivering incremental
revenue and profit.
Our Never Miss Out subscription is particularly popular with our mature
customers, giving them the opportunity to pre-order the next vintage of their
favourite wines, delivering enhanced value:
● Never Miss Out subscribers (341k) have 1.8 active subscriptions on
average
● Angels purchase outside of their usual wine orders and show higher
levels of retention
Our Wine Genie product, which curates a tailored case of wines for our
consumers, is also growing. With this subscription our website picks a case of
wine for a customer based on personal recommendations generated by our
proprietary algorithms. 18k customers are subscribed to Wine Genie and we've
seen encouraging signs of incremental value and uptake from traditionally
lower value customer segments. We intend to drive the adoption of Wine Genie
in the remainder of the year.
Leverage scale to enhance value creation
As Naked grows, we continue to leverage our increasing scale to enhance value
creation across the business:
Successful implementation of fulfilment network
We have remodeled our fulfilment network in the US, where we have eliminated
our main hub, with wines now delivered straight to one of our four fulfilment
centres before distribution. This delivers multiple advantages, including
additional capacity to support sustained growth, less network risk, faster
replenishment times, enhanced customer availability, and lower cost per case
at scale with one less building to operate. In the period we incurred around
$1.5m of additional cost related to the remodelling.
In the UK, we have rolled out new warehouse automation technology. Our UK pick
and pack warehousing has been fitted with new automation technology that
enables higher volume throughput and increases picking accuracy. This is a
critical initiative to enable us to deliver high levels of service as the
business continues to grow.
Good progress on key infrastructure projects
Our investment in our technology function has allowed us to progress a number
of infrastructure projects that will unlock future value and improve our
ability to operate efficiently at scale. In the period we integrated and
deployed a new CMS system and a new marketing platform. We are progressing on
target and cost with work to integrate NetSuite. We have made a vendor
selection for a new payments platform to support a broader set of customer
options and are on track for deployment in the second half of the year.
Broaden and enhance our go-to-market strategy
We see the opportunity to continue to drive customer value via an enhanced
customer proposition and through scale efficiency, which gives us an ideal
platform to increase our long-term investment in customer acquisition while
maintaining attractive returns. We are also improving our ability to win back
our customers through various channels.
Continuing to invest in marketing research and development
During the period we continued work to develop new direct response marketing
channels. We are currently exploring other marketing channels including TV,
audio, print, member referral, search engines, partnerships, email and
affiliate.
We have seen some positive early signs from this investment, such as direct
mail in the UK. We will continue to test and learn trends before deploying
spend through these channels. It is worth reiterating that we are still not
operating in 'normalised' market conditions, therefore we will continue
testing these new channels over time before deploying any significant
investment.
Encouraging initial results from brand marketing investment
During the period we saw encouraging early signs from our first phase of brand
marketing investment, which has been tested in our Australian market:
● We have identified clear opportunities to support long-term growth
via improving key brand metrics - notably awareness, brand comprehension and
the perception of wine quality. During the period we ran tests in Australia to
determine the impact of brand marketing on these key measures
● Australian brand awareness grew to 59% from 40%, surpassing
ecommerce competitors, with only the biggest of bottle shop competitors having
a higher brand awareness score
● This growth in awareness was accompanied by substantial improvements
in brand comprehension and quality perception
The positive results from the tests give us confidence in our strategy but we
know there is more to learn. The second wave of our testing in Australia is
underway, and we are planning for media deployment in the USA and UK in the
second half of FY'22.
So what does all this mean for Naked Wines?
The first half of FY'22 has seen Naked deliver healthy, retention led growth
after a step-change in scale in 2020. At the highest level the story is one of
three parts:
1. Our proposition for our members and our winemakers is stronger than
ever. That is reflected in our retention metrics, improving customer economics
and higher investment returns across our prior cohorts than we had previously
expected,
2. However, we've faced some specific challenges acquiring new members at
the efficiency we would like over the last six months, which will impact our
near term growth. We are still investing at 2x the rate we were in 2019 and
continue to see a clear path to sustained increases in investment in the years
to come, but will need to continue to innovate to do so,
3. The operational environment has been challenging: overall we have
handled the challenges presented well, but we are committed to taking steps to
ensure we fully insulate customers from the impact of disruption.
Our long term growth opportunity remains clear
● We deliver a differentiated proposition to winemakers and consumers
● Which generates attractive (and improving) customer economics
● We see a clear path to continue to improve our proposition and
customer economics further, and have invested in the capability required to do
that
● The evidence we are seeing shows us that the model is working even
better than we thought previously...
● ...with improving underlying economics meaning we are generating
better cohort investment returns than we originally anticipated
Our strategy is to maximise our growth, via increased investment in new
customer acquisition, subject to our ability to maintain attractive unit
economics. In the medium term, we expect to grow sales at c.20% p.a, and as
the business scales we see a clear path to an EBIT margin in excess of 10% at
mature scale. We believe this will maximise long-term value creation for all
our stakeholders.
I believe we have a truly differentiated proposition for both winemakers and
consumers that can build substantial share in all our markets over the next
decade. In short, we are excited about the opportunity ahead.
FINANCIAL REVIEW
Group performance
Naked Wines delivers a strong value proposition for both winemakers and
consumers. This value proposition is evident in the strong retention
characteristics of our Angel base, the quality of our winemakers, the
consistently high ratings of our wines from our Angels, and, as we saw in
H1'22, from external wine accolades. We expect the differentiation in our
value proposition to drive significant opportunity in a
largely-underpenetrated addressable market ($25 billion).
Total sales grew 6% on a constant currency basis (+1% reported basis), driven
by strong retention of our loyal customer base. In the US segment, which is
our largest market opportunity, sales increased 7% on a constant currency
basis over H1'21 (down 3% on a reported basis).
Our Angel subscriber base increased to 947k Active Angels, a 25% increase over
H1'21 and a 71% increase over H1'20. In H1'22 we saw strong retention from
both i) the large cohort of customers we acquired in FY'21, and ii) cohorts
acquired in previous years.
Repeat Customer Contribution profit was £41.3 million, a 10% increase over
H1'21, driven by a 21% increase in Repeat Customer sales on a constant
currency basis, and the strong retention characteristics of our consumer base.
Repeat Customer Contribution profit increased 112% (on a reported basis) over
H1'20 highlighting the continued benefits of scale across the business.
Sales retention was 80%, above our expectations even as order frequency, which
increased in H1'21 due to COVID-19 lockdowns, returned to normalised levels.
In H1'22, Naked Wines experienced challenges around the global supply chain,
including higher transportation and logistics costs. While we mitigated the
impact of these challenges, we have seen some cost inflation, which put
pressure on margins in H1'22. We expect this trend to continue in the second
half of the year.
We invested £21.3 million in New Customers in H1'22 (H1'21: £23.8 million)
delivering a 5-year Forecast Payback on this investment of 1.7x (H1'21: 3.9x).
H1'22 presented a changing market environment in our US segment as wine
consumers sought experiences that had not been possible in the prior 12 months
due to COVID-19 lockdowns. Additionally, customer acquisition costs increased
in the period.
Adjusted EBIT was £1.2 million as Repeat Customer Contribution profit funded
investments in growth.
H1'22 H1'21 H1'20 H1'22 vs H1'21% H1'22 vs H1'20 %
Total sales £159.3m £157.1m £87.5m 1% 82%
Sales growth on a constant currency basis(1)
6% 91%
Cost of sales £(92.7)m £(95.2)m £(54.0)m (3)% 72%
Gross profit £66.6m £61.9m £33.5m 8% 99%
Gross profit margin 42% 39% 38% +240bps +350bps
Fulfilment costs £(28.7)m £(28.2)m £(15.8)m 2% 82%
% of total sales 18% 18% 18% (10)bps +5bps
Contribution profit £37.9m £33.7m £17.7m 13% 114%
Contribution profit margin 24% 21% 20% +230bps +360bps
Advertising costs £(17.9)m £(20.1)m £(8.8)m (11)% 103%
% of total sales 11% 13% 10% (160)bps +120bps
General and administrative costs(2) £(18.8)m £(16.8)m £(13.4)m 12% 40%
% of total sales 12% 11% 15% +110bps (350)bps
Adjusted EBIT £1.2m £(3.2)m £(4.5)m nm nm
Finance income / (charges) £0.5m £0.5m £(0.5)m - nm
Adjusted profit /(loss) before tax £1.7m £(2.7)m £(5.0)m nm nm
( )
(1 )Constant currency basis using current period FX for the translation of the
comparative period.
(2 )General and administrative costs reported here are as per the income
statement excluding £0.7m of acquisition related amortisation costs, offset
by £0.2m of fair value adjustments relating to open FX contracts and £0.1m
of PLC company foreign exchange revaluations (see note 4 for further
information on these items).
H1'22 performance
The Group delivered sales of £159.3 million, an increase of 6% on a constant
currency basis, or 1% on a reported basis over H1'21, driven by growth in
active Angels and Repeat Customer sales due to our high retention business
model. This increase was partially offset by a decrease in New Customer sales
of 52% on a constant currency basis over H1'21, due to the significant
increase in new customers last year as the company invested into the low
customer acquisition cost environment during COVID-19 related lockdowns.
Gross profit was £66.6 million, with a gross profit margin of 42%, a 240
basis point increase over H1'21, driven by higher mix of repeat versus new
business in the period and an improvement in the Australian gross margin.
Fulfilment costs were £28.7 million, remaining flat at 18% of total sales. In
the period we remodeled our US distribution network, which included
approximately $1.5 million of cost to transport inventory in our legacy Napa
warehouse to 4 distributed warehouses which are closer to our distribution
centres and our customers. We also saw increases in transportation and
logistics rates and costs, which we partially offset with operating
efficiencies and new modes of transportation.
Contribution profit was £37.9 million, with a Contribution profit margin of
24%, a 230 basis point increase over H1'21, driven by Gross profit margin
increases discussed above.
Advertising costs were £17.9 million, representing 11% of total sales, a 160
basis point decrease over H1'21, driven by the higher marketing spend during
the pandemic in the prior year and offset by higher customer acquisition
costs, predominantly in the US.
Total general and administrative costs were £18.8 million, representing 12%
of total sales, a 110 basis point increase over H1'21 primarily driven by
investments in our strategic initiatives, and a 350 basis point decrease over
H1'20 driven by growth in the business.
Adjusted EBIT profit was £1.2 million, and adjusted profit before tax was
£1.7million.
H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
New Customer sales £14.6m £32.2m £12.1m (55)% 21%
New Customer sales growth on a constant currency basis(1) (52)% 26%
New Customer Contribution loss £(3.4)m £(3.7)m £(1.9)m (8)% 79%
Advertising costs £(17.9)m £(20.1)m £(8.8)m (11)% 103%
Investment in New Customers £(21.3)m £(23.8)m £(10.7)m (11)% 99%
Repeat Customer sales £144.7m £124.9m £75.4m 16% 92%
Repeat Customer sales growth on a constant currency basis(1) 21% 101%
Repeat Customer Contribution profit £41.3m £37.4m £19.5m 10% 112%
Repeat Customer Contribution margin 29% 30% 26% (140)bps +270bps
KPIs
Repeat Customer sales retention 80% 95% 79% (1,500)bps +110bps
Active Angels (repeat customers) 947k 757k 553k 25% 71%
5-Year Forecast Payback 1.7x 3.9x 2.3x (2.2)x (0.6)x
Year-1 Payback 101% 67% 66% +3,380bps +3,430bps
Standstill EBIT £37.2m £27.4m £3.1m 36% 1,084%
( )
(1) Constant currency basis using current period FX for the translation of
the comparative period.
New and Repeat Customer breakdown
New Customers
Investment in New Customers was £21.3 million, including New Customer
Contribution loss of £3.4 million and advertising costs of £17.9 million.
5-year Forecast Payback was 1.7x. We had approximately £2 million of
investment below our expected payback levels as the market environment shifted
sooner than we had expected coming out of the COVID-19 lockdown periods.
Additionally, increases in digital marketing acquisition costs (mainly
Facebook) and the impact of iOS changes added pressure to our forecasted
payback metric. As a result, we invested less than we would have liked to in
new customers in H1'22.
Repeat Customers
Repeat Customer sales were £144.7 million, an increase of 21% on a constant
currency basis, or 16% on a reported basis over H1'21, driven by the growing
customer base and higher than expected sales retention. In H1'21, order
frequency increased in-line with COVID-19 lockdown measures whilst customer
retention increased. As we have emerged from lockdown restrictions, customer
retention has continued to be strong while order frequency has normalised.
Our subscription offerings, Never Miss Out (341k annual subscriptions) and
Wine Genie (18k subscriptions) continue to add further value for our Angels.
Never Miss Out subscriptions continued to increase customer lifetime value,
driven by strong retention and an increase in wallet share for customers that
are subscribed. On average, Never Miss Out customers have 1.8 active
subscriptions.
Repeat Customer sales retention was 80%, a decrease over H1'21 reflecting the
strong comparative as order frequency and retention increased during the
COVID-19 lockdowns. We had 947k active Angels at the end of H1'22, a 25%
increase over H1'21.
Repeat Customer Contribution profit was £41.3 million, a 10% increase over
H1'21 and a 112% increase over H1'20, driven by the higher Angel base and the
strong retention characteristics of our consumer base. Repeat Customer
Contribution margin was 29%, a 140 basis point decrease over H1'21, driven by
higher storage, transportation and logistics costs in the US and the UK,
non-recurring costs for the US distribution network remodel, and partially
offset by a higher gross margin in Australia. Repeat Customer Contribution
margin increased 270 basis points over H1'20 driven by the geographic mix
shift with significant growth in our higher-margin US business.
Adjusted EBIT profit of £1.2 million equals Repeat Customer Contribution
profit of £41.3 million, less Investment in New Customers of £21.3 million
and general and administrative costs of £18.8 million.
US Segment
Total US sales were £74.4 million in H1'22, a 7% increase on a constant
currency basis over H1'21 (a 3% decrease on a reported basis).
US Adjusted EBIT was £3.7 million, and includes Repeat Customer Contribution
profit of £23.0 million, Investment in New Customers of £13.4 million, and
general and administrative costs of £5.9 million.
Our US segment continued to take market share in the off-premise wine market,
driven by strong Repeat Customer sales constant currency growth of 28%. Repeat
Customer contribution profit was £23.0 million, a 9% increase over H1'21 and
a 140% increase over H1'20.
Repeat Customer contribution margin decreased 260 basis points over H1'21 to
34% driven by the US distribution network remodel, and higher storage,
transportation and logistics costs. Repeat Customer contribution margin
increased 490 basis points over H1'20 driven by scale efficiencies in the
business.
Investment in New Customers was £13.4 million, a 12% decrease over H1'21 and
a 120% increase over H1'20. We invested less in New customers in H1'22 than we
would have liked given the market conditions.
Foreign exchange rates offset reported growth in the US segment as the average
monthly rate for H1'22 was USD/GBP 1.39, a 10% increase over H1'21.
US H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
Total sales £74.4m £76.5m £39.3m (3)% 89%
Total sales (at constant currency)(1) 7% 109%
Investment in New Customers £(13.4)m £(15.3)m £(6.1)m (12)% 120%
Repeat Customer Contribution profit £23.0m £21.2m £9.6m 9% 140%
Repeat Customer Contribution margin 34% 37% 29% (260)bps +490bps
Adjusted EBIT £3.7m £0.2m £(1.0)m 1,750% 470%
( )
(1) Constant currency basis using current period FX for the translation of
the comparative period.
UK Segment
Total UK sales were £62.4 million in H1'22, a 8% increase over H1'21.
UK Adjusted EBIT was £3.9 million and includes Repeat Customer Contribution
profit of £12.8 million, Investment in New Customers of £5.7 million and
general and administrative costs of £3.2 million.
Our UK segment has the highest retention rate in the group. Repeat Customer
contribution profit was £12.8 million, a 10% increase over H1'21 and a 94%
increase over H1'20.
Repeat Customer contribution margin decreased 150 basis points over H1'21
driven by higher fulfilment costs. Repeat Customer Contribution margin was
broadly unchanged versus H1'20.
Investment in New Customers was £5.7 million, 2% increase over H1'21 and a
97% increase over H1'20.
UK H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
Total sales £62.4m £57.8m £32.8m 8% 90%
Investment in New Customers (5.7) (5.6) (2.9) 2% 97%
Repeat Customer Contribution profit 12.8 11.6 6.6 10% 94%
Repeat Customer Contribution margin 22% 24% 22% (150)bps (30)bps
Adjusted EBIT 3.9 3.7 1.7 5% 129%
Australia Segment
Total Australia sales were £22.5 million in H1'22, a 1% decrease on a
constant currency basis over H1'21 (decrease of 1% on a reported basis).
Adjusted EBIT was £1.6 million in the Australia segment, and includes Repeat
Customer Contribution profit of £5.5 million, Investment in New Customers of
£2.2 million, and general and administrative costs of £1.7 million.
Repeat Customer contribution margin increased 280 basis points over H1'21
driven by gross margin improvements.
Foreign exchange rates did not have a material impact in the Australia segment
as the average monthly rate for H1'22 was AUD/GBP 1.85, a 0.1% reduction over
H1'21.
Australia H1'22 H1'21 H1'20 H1'22 vs H1'21 % H1'22 vs H1'20 %
Total sales £22.5m £22.8m £15.4m (1)% 46%
Total sales (constant currency)(1) (1)% 48%
Investment in New Customers £(2.2)m £(2.9)m £(1.7)m (24)% 29%
Repeat Customer Contribution profit £5.5m £4.6m £3.3m 20% 67%
Repeat Customer Contribution margin 28% 25% 25% +280bps +310bps
Adjusted EBIT £1.6m £0.4m £0.3m 300% 433%
(1) Constant currency basis using current period FX for the translation of
the comparative period.
Standstill EBIT
Our calculated Standstill EBIT, the Adjusted EBIT that would have been
reported if we had only invested in New Customers to replenish the current
customer base rather than for growth, increased 36% to £37.2 million (£27.4
million in H1'21). This increase is predominantly driven by a £24.2 million
increase in Repeat Customer Contribution profit in the last 12 months.
Financing costs and taxes
Interest income was £0.5 million in H1'22, flat compared to the prior year
period. This income is derived from our cash held on deposit with a range of
banks and the non-cash amortised interest income on the loan note created as
part of the disposal of the Majestic business.
The total tax charge of £0.3 million amounts to an effective tax rate of
23.3%. This is made up of a £1.4 million corporation tax charge in respect
of the overseas companies, offset by a £1.1 million deferred tax credit, with
future changes in the UK tax rate and US inventory movements accounting for
the bulk of the impact.
Cash and cash flow drivers
Cash at 27 September 2021 was £57.1 million, versus £76.3 million at H1'21
and £85.1 million at FY'21.
Inventory at 27 September 2021 was £127.1 million compared to £84.9 million
at 28 September 2020 as we increased availability over the course of H1'22.
We continue to allocate capital to support growth, including investments in
customer acquisition, as well as in our customer proposition and our
go-to-market strategy. Our investment in inventory drives availability for our
customers, enabling us to satisfy demand during our growth journey and enables
us to meet our strategic objectives around enhancing the customer proposition.
Given the investment opportunities we see before us, we think the best
utilisation of capital is to reinvest in the business. We are not proposing
any distributions or returns of capital to shareholders at this time.
We utilised £26.5 million of free cash flow during H1'22, with an adjusted
EBIT profit of £1.2 million and a net working capital outflow of £28.9
million. This net working capital outflow was driven by an increase in
inventory holdings of £51.2 million, offset by increases in Angel funds and
other deferred income of £6.8 million and trade and other payables of £15.3
million.
Adjusted items
Adjusted items totalled £0.4 million in the period, down from £6.2 million
in H1'21. This was made of £0.7 million amortisation of acquired intangibles,
a £0.2 million fair value gain on foreign exchange contracts and associated
unrealised foreign currency inventory and a £0.1 million foreign currency
gain on plc company currency bank balances.
The biggest driver of the year-over-year change was a £4.0 million charge in
H1'21 reflecting a write down of the fair value of the deferred contingent
consideration receivable for the Majestic Calais stores agreed as part of the
disposal of the Majestic business. The amortisation of acquired intangibles
was £1.1 million less than in H1'21 as the customer lists acquired by Naked
in 2015 fully amortised during the first period of H1'22.
Independent review report to Naked Wines plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks ended 27
September 2021 which comprises the income statement, statement of
comprehensive income, the statement of changes in equity, the balance sheet,
the cash flow statement and related notes 1 to 7. We have read the other
information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the AIM Rules of the London
Stock Exchange.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks ended 27 September 2021 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the AIM Rules of the London Stock
Exchange.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Financial Reporting Council. Our work has been undertaken so
that we might state to the company those matters we are required to state to
it in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
17 November 2021
Unaudited consolidated income statement
For the period 26 weeks to 27 September 2021
Note 26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
£'000 £'000 £'000
Revenue 3 159,328 157,098 340,226
Cost of sales (92,735) (95,220) (204,732)
Gross profit 66,593 61,878 135,494
Fulfilment costs (28,699) (28,228) (58,294)
Advertising costs (17,894) (20,071) (42,334)
General and administrative costs (19,216) (18,925) (42,675)
Fair value loss arising on deferred contingent consideration, net of 4 - (4,043) (3,868)
settlement
Operating profit/(loss) 784 (9,389) (11,677)
Net finance income 527 497 1,002
Profit/(loss) before tax 1,311 (8,892) (10,675)
Analysed as:
Adjusted profit/(loss) before tax 1,740 (2,684) (514)
Adjusted items: 4
- Non-cash charges relating to acquisitions (690) (1,823) (3,646)
- Other adjusted items 261 (4,385) (6,515)
Profit/(loss) before tax 1,311 (8,892) (10,675)
Tax 5 (306) 830 635
Profit/(loss) for the period 1,005 (8,062) (10,040)
Earnings/(loss) per share 6
Basic earnings/(loss) 1.4p (11.1p) (13.8p)
Diluted earnings/(loss) 1.4p (11.1p) (13.8p)
Unaudited consolidated statement of comprehensive income
For the period 26 weeks to 27 September 2021
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
£'000 £'000 £'000
Profit/(loss) for the period 1,005 (8,062) (10,040)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (437) 342 (1,282)
Other comprehensive (loss)/income (437) 342 (1,282)
Total comprehensive income/(loss) for the period 568 (7,720) (11,322)
The total comprehensive income for the period and the prior periods is wholly
attributable to the equity holders of the parent company, Naked Wines plc.
Unaudited consolidated statement of changes in equity
For the period 26 weeks to 27 September 2021
Share capital Share premium Capital reserve - own shares Capital redemption reserve Currency translation reserve Retained earnings Total shareholders' funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 30 March 2020 5,466 21,162 (17) 363 1,381 85,224 113,579
Loss for the period - - - - - (8,062) (8,062)
Other comprehensive income for the period - - - - 342 - 342
Total comprehensive loss for the period - - - - 342 (8,062) (7,720)
Shares issued 19 - - - - (19) -
Transfer of shares to employee benefit trust account - - 17 - - (17) -
Credit to equity for equity-settled share based payments - - - - - 461 461
Deferred tax on share based payment - - - - - 102 102
At 28 September 2020 5,485 21,162 - 363 1,723 77,689 106,422
Loss for the period - - - - - (1,978) (1,978)
Other comprehensive losses for the period - - - - (1,624) - (1,624)
Total comprehensive loss for the period - - - - (1,624) (1,978) (3,602)
Shares issued 2 - - - - (2) -
Credit to equity for equity-settled share based payments - - - - - 316 316
Deferred tax on share based payment - - - - - 229 229
At 29 March 2021 5,487 21,162 - 363 99 76,254 103,365
Profit for the period - - - - - 1,005 1,005
Other comprehensive losses for the period - - - - (437) - (437)
Total comprehensive income for the period - - - - (437) 1,005 568
Shares issued 21 - - - - (21) -
Credit to equity for equity-settled share based payments - - - - - 968 968
At 27 September 2021 5,508 21,162 - 363 (338) 78,206 104,901
Unaudited consolidated balance sheet
As at 27 September 2021
27 Sep 2021 28 Sep 2020 29 Mar 2021
Note £'000 £'000 £'000
Non-current assets
Goodwill and intangible assets 33,111 34,205 33,982
Property, plant and equipment 1,874 1,297 1,452
Right of use assets 2,968 3,373 2,780
Investment property 832 877 855
Deferred tax assets 4,757 3,107 3,993
Other receivables 9,996 9,413 9,520
53,538 52,272 52,582
Current assets
Inventories 127,133 84,917 76,130
Trade and other receivables 6,188 7,084 7,168
Financial instruments at fair value - 352 41
Cash and cash equivalents 7 57,125 76,383 85,148
190,446 168,736 168,487
Total assets 243,984 221,008 221,069
Current liabilities
Trade and other payables (56,049) (47,495) (40,757)
Deferred Angel and other income (76,392) (61,102) (69,902)
Lease liabilities (837) (749) (645)
Provisions (1,594) (1,407) (1,570)
Bond financing (23) (78) (30)
Current tax liabilities (281) - -
Financial instruments at fair value (906) - (1,405)
(136,082) (110,831) (114,309)
Non-current liabilities
Provisions (245) (326) (393)
Lease liabilities (2,285) (2,711) (2,231)
Deferred tax liabilities (471) (718) (771)
(3,001) (3,755) (3,395)
Total liabilities (139,083) (114,586) (117,704)
Net assets 104,901 106,422 103,365
Shareholders' funds
Called-up share capital 5,508 5,485 5,487
Share premium 21,162 21,162 21,162
Capital redemption reserve 363 363 363
Currency translation reserve (338) 1,723 99
Retained earnings 78,206 77,689 76,254
Equity shareholders' funds 104,901 106,422 103,365
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 "Interim Financial Reporting";
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first 26
weeks of the year); and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
By order of the Board
Shawn Tabak
Chief Financial Officer
17 November 2021
Unaudited consolidated cash flow statement
For the period 26 weeks to 27 September 2021
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
Note
£'000 £'000 £'000
Cash generated by operating activities
Cash (used)/generated by operations 7 (25,430) 21,777 34,207
UK income tax received - 274 274
Overseas income tax paid (733) (515) (880)
Net cash (used)/generated by operating activities (26,163) 21,536 33,601
Cash flows from investing activities
Interest received, including interest received on the vendor loan note 99 116 559
Purchase of property, plant and equipment (698) (464) (845)
Purchase of intangible fixed assets (24) (102) (1,824)
Proceeds received on settlement of deferred contingent consideration - - 175
Proceeds from sale of asset held for resale - 953 953
Net cash (used in)/from investing activities (623) 503 (982)
Cash flows from financing activities
Interest paid (including lease interest) (47) - (116)
Repayments of principal under lease liabilities (374) (567) (904)
Repayment of borrowings (7) (6) (54)
Net cash used in financing activities (430) (573) (1,074)
Net (decrease)/increase in cash (27,216) 21,466 31,545
Cash and cash equivalents at beginning of year 85,148 54,736 54,736
Effect of foreign exchange rate changes (807) 181 (1,133)
Cash and cash equivalents at end of period 57,125 76,383 85,148
7
Notes to the unaudited financial statements
1. General information
Naked Wines plc is a public limited company ("Company") and is incorporated in
the United Kingdom under the Companies Act 2006. The Company's ordinary
shares are traded on the Alternative Investment Market ("AIM").
The registered office is The Union Building, 51-59 Rose Lane, Norwich, NR1
1BY. The Group's principal activity is the online retailing of wines, beers
and spirits. The Company's principal activity is to act as a holding company
for its subsidiaries.
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with
the International Financial Reporting Standards and International Accounting
Standards as issued by the International Accounting Standards Board (IASB) and
Interpretations (collectively IFRSs). The financial statements have also been
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and the accounting policies
set out in the annual report for the year ended 29 March 2021.
The information for the year ended 29 March 2021 does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006. A copy of the
statutory accounts for that year has been delivered to the Registrar of
Companies. The auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditors drew attention by way
of emphasis without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The condensed set of financial statements included in this interim report has
been prepared in accordance with International Accounting Standard 34 "Interim
Financial Reporting". The condensed financial statements are not statutory
accounts. The financial reporting period represents the 26 week period to 27
September 2021 and the prior period, 26 weeks to 28 September 2020.
Going concern
The Directors have, at the time of approving the interim financial statements,
a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. The
Group has continued to experience current trading in line with its
expectations during the course of the 26 weeks to 27 September 2021.
These forecasts and the analysis demonstrate that the Group's cash reserves
are sufficient for the Group to meet its obligations as they fall due for a
forecast period of at least twelve months beyond the date of the signing of
these financial statements. These cash forecasts include the impact of
managing inventory levels, anticipated one off cash inflows and further
mitigating actions including discretionary spend, should they be
necessitated.
The Directors' have considered the uncertainty relating to these future
actions within the going concern assessment and performed sensitivity analyses
to model the impact of possible adverse trends. The impact of adverse trends
would be mitigated by actions undertaken as noted above.
Based on the results of the assessment, the Directors have continued to adopt
the going concern basis of accounting in preparing the financial statements.
3. Segmental reporting
IFRS 8 requires operating segments to be determined based on the Group's
internal reporting to the Chief Operating Decision Maker (CODM). The CODM has
been determined to be the Executive Directors of the Company. This is on the
basis that the Executive Directors have primary responsibility for the
allocation of resources between segments and the assessment of performance of
the segments.
In line with the information presented to the Executive Directors of the
Company, the Group presents its segmental analysis based on the three
geographic locations in which the Group operates. Performance of these
operating segments is assessed on revenue, adjusted EBIT (being operating
profit excluding any adjusted items) and adjusted PBT (being profit before tax
excluding adjusted items), as well as analysing the business between New
Customer and Repeat Customer lines of business.
These are the financial performance measures that are reported to the CODM,
along with other operational performance measures, and are considered to be
useful measures of the underlying trading performance of the segments.
Adjusted items are not allocated to the operating segments as this reflects
how they are reported to the CODM.
The table below sets out the basis on which the performance of the business is
presented to the CODM. The CODM considers that, as a single route to market
and solely consumer facing business in three geographically and economically
diverse locations, the business comprises three operating segments. The Group
reports revenue from external customers as a single product group being wine
and associated beverages.
Costs relating to global Group functions are not allocated to the operating
segments for the purposes of assessing segmental performance and consequently
global costs are presented separately. This is consistent with the
presentation of those functions to the CODM.
Revenues are attributed to the countries from which they are earned. The Group
is not reliant on a major customer or group of customers.
The Group is subject to seasonal fluctuations resulting in varying profits
over the full year period. The Group experiences increased sales in the
third quarter which covers the holiday period, accounting for c.40% of total
sales compared to c.20% in each of the other quarters.
26 weeks to 27 September 2021
Naked Wines Naked Wines Naked Wines Unallocated Total
USA
UK
Australia
£'000 £'000 £'000 £'000 £'000
New customer sales 7,158 4,635 2,834 - 14,627
Repeat customer sales 67,188 57,772 19,741 - 144,701
Total revenue 74,346 62,407 22,575 - 159,328
New Customer Contribution loss (1,273) (1,644) (476) - (3,393)
Advertising costs (12,104) (4,040) (1,750) - (17,894)
Investment in New Customers (13,377) (5,684) (2,226) - (21,287)
Repeat Customer Contribution profit 23,022 12,746 5,519 - 41,287
9,645 7,062 3,293 - 20,000
General and administrative costs (5,902) (3,225) (1,676) (7,984) (18,787)
Adjusted EBIT 3,743 3,837 1,617 (7,984) 1,213
Finance income - - - 574 574
Finance charges (37) (4) (6) - (47)
Adjusted profit/(loss) before tax 3,706 3,833 1,611 (7,410) 1,740
Adjusted items:
- Non cash items relating to acquisitions - - - (690) (690)
- Other adjusted items - - - 261 261
Profit/(loss) before tax 3,706 3,833 1,611 (7,839) 1,311
Depreciation 456 122 112 26 716
Amortisation 1 - - 894 895
Segmental reporting for the 26 weeks to 27 September 2021 (continued)
Geographical analysis USA UK Australia Total
£'000 £'000 £'000 £'000
Revenue 74,346 62,407 22,575 159,328
Non-current assets excluding deferred current assets 792 47,939 50 48,781
Segmental reporting for the 26 weeks to 28 September 2020 *
In line with the information presented to the Executive Directors of the
Company, the Group now presents its segmental analysis based on the three
geographic locations in which the Group operates rather than one operating
segment which it was previously based on and therefore prior year comparatives
are stated on a consistent basis.
Naked Wines USA Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
New customer sales 18,935 8,763 4,562 - 32,260
Repeat customer sales 57,576 48,987 18,275 - 124,838
Total revenue 76,511 57,750 22,837 - 157,098
New Customer Contribution loss (1,424) (1,712) (644) - (3,780)
Advertising costs (13,886) (3,916) (2,269) - (20,071)
Investment in New Customers (15,310) (5,628) (2,913) - (23,851)
Repeat Customer Contribution profit 21,179 11,650 4,601 - 37,430
5,869 6,022 1,688 - 13,579
General and administrative costs (5,744) (2,281) (1,321) (7,414) (16,760)
Adjusted EBIT 125 3,741 367 (7,414) (3,181)
Finance income 10 - - 557 567
Finance charges (48) (13) (9) - (70)
Adjusted profit/(loss) before tax 87 3,728 358 (6,857) (2,684)
Adjusted items:
- Non cash items relating to acquisitions - - - (1,823) (1,823)
- Other adjusted items - - - (4,385) (4,385)
Profit/(loss) before tax 87 3,728 358 (13,065) (8,892)
Depreciation 442 206 101 25 774
Amortisation - - - 1,891 1,891
Geographical analysis USA UK Australia Total
£'000 £'000 £'000 £'000
Revenue 76,511 57,750 22,837 157,098
Non-current assets excluding deferred current assets 3,910 44,667 588 49,165
* The allocation of variable costs has been changed from nine litres
of wine to a hybrid basis of allocation which better reflects the correct
allocation of variable costs between nine litre equivalent and six bottle
cases which became a larger part of the business in the second half of the
prior year. This has impacted on the allocation between New and Repeat
contribution and prior year comparatives are stated on a consistent basis.
Segmental reporting for the 52 weeks to 29 March 2021
Naked Wines USA Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
New customer sales 31,908 17,303 7,160 - 56,371
Repeat customer sales 129,797 115,755 38,303 - 283,855
Total revenue 161,705 133,058 45,463 - 340,226
New Customer Contribution loss (3,275) (3,585) (852) - (7,712)
Advertising costs (30,163) (7,529) (4,642) - (42,334)
Investment in New Customers (33,438) (11,114) (5,494) - (50,046)
Repeat Customer Contribution profit 47,870 27,301 9,741 - 84,912
14,432 16,187 4,247 - 34,866
General and administrative costs (12,445) (5,279) (3,303) (15,355) (36,382)
Adjusted EBIT 1,987 10,908 944 (15,355) (1,516)
Finance income 10 - - 1,108 1,118
Finance charges (85) (14) (17) - (116)
Adjusted profit/(loss) before tax 1,912 10,894 927 (14,247) (514)
Adjusted items:
- Non cash items relating to acquisitions - - - (3,646) (3,646)
- Other adjusted items - - - (6,515) (6,515)
Profit/(loss) before tax 1,912 10,894 927 (24,408) (10,675)
Depreciation 859 315 227 49 1,450
Amortisation 1 - - 3,837 3,838
Geographical analysis USA UK Australia Total
£'000 £'000 £'000 £'000
Revenue 161,705 133,058 45,463 340,226
Non-current assets excluding deferred current assets 3,516 44,597 476 48,589
4. Adjusted items
The Directors believe that adjusted profit before tax measure provide
additional useful information for shareholders on underlying trends and
performance. These measures are used for performance analysis. Adjusted profit
is not defined by IFRS and therefore may not be directly comparable with other
companies' adjusted profit measures. It is not intended to be a substitute
for, or superior to IFRS measurements of profit.
The adjustments made to reported profit before tax are:
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
£'000 £'000 £'000
Non-cash charges relating to acquisitions
Amortisation of acquired intangibles (690) (1,823) (3,646)
(690) (1,823) (3,646)
Other adjusted items
Loss arising on settlement of deferred contingent - (4,043) (3,868)
consideration, net of settlement
Fair value movement through P&L on foreign 227 (43) (1,966)
exchange contracts and associated unrealised foreign
currency inventory
Foreign exchange movements on plc company 34 (299) (681)
currency bank balances
261 (4,385) (6,515)
Total adjusted items (429) (6,208) (10,161)
Amortisation of acquired intangibles
These items reflect costs of customer acquisition from prior to the purchase
of the Naked Wines business in 2015. In order to reflect the cost of current
New Customer acquisition in its adjusted PBT, the Group includes the expenses
of all ongoing customer acquisitions in its adjusted profit measures but
removes the amortisation cost of those customers acquired before acquisition
by Naked Wines plc.
Fair value loss arising on deferred contingent consideration, net of
settlement in prior periods
During the year ended 29 March 2021, the Directors were approached by CF
Bacchus Holdco Limited, the holder of the deferred contingent consideration
obligation issued as part of the disposal of the Majestic business. In the
light of restrictions on travel and as a result of the new duty-free
allowances which came into force on 1 January 2021, the Directors accepted an
offer of £175,000 in full settlement of the Group's deferred contingent
consideration in respect of the disposal of Majestic's French retail business.
This settlement was received on 19 March 2021. The deferred contingent
consideration was valued in the books at £4,043,000 at the end of the
previous year and a fair value adjustment was taken at during the first half
of 2020 bringing the value down to £nil. After proceeds of £175,000 were
received, a loss of £3,868,000 was taken to the Income Statement and
disclosed in adjusted items.
Fair value movement on foreign exchange contracts and associated unrealised
foreign currency inventory
We commit in advance to buying foreign currency to purchase wine in order to
mitigate exchange rate fluctuations. International accounting standards
require us to mark the value of these contracts to market. As this may
fluctuate materially we adjust this and associated foreign currency inventory
revaluation out as to better reflect our trading profitability.
Foreign exchange movements on plc company currency bank accounts
The Group holds net cash on its balance sheet and this includes sums of
foreign currency which it will deploy to fund its US and Australian
businesses. At each balance sheet date, the FX revaluation of foreign currency
balances held in the Company were reported as adjusted items so as not to
distort the picture of the underlying business cost base.
5. Tax
Tax for the 26 week period is charged at an effective tax rate of 23.3% (26
weeks to 28 Sep 2020: 9.3%) representing the best estimate of the Group's
expected annual effective tax rate, applied to the profit before tax of the
period.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares in
issue of the Company, excluding 130,868 shares (Sep 2020: 191,707) held by
the Naked Wines plc Share Incentive Plan Trust (which have been treated as
dilutive share based payment awards).
The dilutive effect of share options is calculated by adjusting the weighted
average number of ordinary shares in issue to assume conversion of all
dilutive potential ordinary shares. All outstanding share based payment
award grants have been included in the dilutive earnings per share calculation
as they are potentially dilutive at the period end.
A negative diluted EPS equals a negative basic EPS as it would have an
anti-dilutive effect if the dilutive shares are included in the calculation.
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
Earnings/(loss) per share
Basic earnings/(loss) per share 1.4p (11.1p) (13.8p)
Diluted earnings/(loss) per share 1.4p (11.1p) (13.8p)
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
Weighted average number of shares in issue 73,090,926 72,833,756 72,896,800
Dilutive potential ordinary shares:
Employee share options 1,340,545 1,091,984 1,496,174
Weighted average number of shares for the purpose of diluted earnings per 74,431,471 73,925,740 74,392,974
share
Total number of shares in issue 73,439,132 73,138,446 73,161,485
If the Company's share option schemes had vested at 100% the Company would
have 75,316,108 (Sep 2020: 74,948,561) issued shares.
7. Notes to the cash flow statement
26 weeks to 26 weeks to 52 weeks to
27 Sep 2021
28 Sep 2020
29 Mar 2021
£'000 £'000 £'000
Cash generated/(used) by operations
Operating profit/(loss) 784 (9,389) (11,677)
Add back:
- Depreciation and amortisation 1,611 2,665 5,288
- Loss on disposal of fixed assets 15 128 51
- Loss arising on settlement of deferred - 4,043 3,868
contingent consideration
- Fair value movement on foreign (458) 43 1,760
exchange contracts
- Share based payment charges 969 464 777
Operating cash flows before movements in working capital 2,921 (2,046) 67
Increase in inventories (50,968) (14,902) (8,984)
Increase in customer funds in deferred income 6,795 17,553 28,244
Decrease/(Increase) in trade and other receivables 613 (583) (1,445)
Decrease in trade and other payables 15,209 21,755 16,325
Net cash (used)/generated by operating activities (25,430) 21,777 34,207
27 Sep 2021 28 Sep 2020 29 Mar 2021
£'000 £'000 £'000
Cash and cash equivalents 57,125 76,383 85,148
52 weeks to Cash flows Non-cash movements 26 weeks to
29 Mar 2021
27 Sep 2021
£'000 £'000 £'000 £'000
Cash and cash equivalents 85,148 (27,215) (808) 57,125
Borrowings - customer funded bond (30) 7 - (23)
Borrowings - IFRS 16 lease liabilities (2,876) 374 (620) (3,122)
Gross borrowings (2,906) 381 (620) (3,145)
Total net funds/(borrowings) 82,242 (26,834) (1,428) 53,980
Definitions and Customer experience KPIs
Definitions
Angel A customer who deposits funds into their Angel account each month to spend on
the wines on our website.
CAGR Compound annual growth rate. The year-on-year growth rate required for a
number of years for a value to grow from its beginning balance to its ending
balance.
Company, Naked or Naked Wines Naked Wines plc
Contribution A profit measure between gross profit and EBIT, calculated as gross profit
less the costs of fulfilling and servicing (e.g. credit card fees, delivery
costs, customer-facing staff costs) and marketing expenses. We often split
contribution into that from new and repeat customers as they can have
different levels of profitability.
DtC Direct to Consumer
Group Naked Wines plc and its subsidiary undertakings
LTIP Long Term Incentive Plan
Marketing R&D Expenditure focused on researching and testing new marketing channels and
creative approaches, with the aim of opening up significant new growth
investment opportunities.
New Customer A customer who, at the time of purchase, does not meet our definition of a
repeat customer; for example, because they are brand new, were previously a
Repeat Customer and have stopped subscribing with us at some point or cannot
be identified as a Repeat Customer.
New Customer sales Revenues derived from transactions with customers who meet our definition of a
new customer.
Repeat Customer A customer ('Angel') who has subscribed and made their first monthly
subscription payment.
Repeat Customer sales These are the revenues derived from orders placed by customers meeting our
definition of a repeat customer at the time of ordering.
SIP Share Incentive Plan
Standstill EBIT The adjusted EBIT that would be reported if Investment in New Customers was
reduced to the level needed to just replenish the current customer base.
Total Addressable Market (TAM) TAM represents the available market which Naked sees as a revenue opportunity
which it could serve.
Customer experience KPIs
Product availability % of targeted range available on websites as indicated by our inventory
reporting.
Wine quality - "Buy it again ratings" % of "Yes" scores in the last 12 months as recorded by websites/ apps.
5* customer service The number of service ratings scoring 5* (out of 5) as a % of total ratings in
the last 12 months as recorded by websites/apps/telephone feedback.
Alternative performance measures (APMs)
EBIT Operating profit as disclosed in the Group income statement.
Adjusted EBIT Operating profit adjusted for amortisation of acquired intangibles,
acquisition costs, impairment of goodwill, restructuring costs and fair value
movement through the income statement on financial instruments and revaluation
of funding cash balances held.
EBITDA EBIT plus depreciation and amortisation.
Adjusted EBITDA Adjusted EBIT plus depreciation and amortisation, but excluding any
depreciation or amortisation costs included in our adjusted items e.g.
amortisation of acquired intangibles.
Adjusted PBT Adjusted EBIT adjusted for net finance income
Free cash flow Cash generated by operating activities less capital expenditure and before
adjusted items and tax.
A reconciliation of this metric is provided below.
Net cash The amount of cash we are holding less debt at period end.
Investment Measures
Investment in New Customers The Investment in New Customers during the period, including contribution
profit/loss from New Customer sales and advertising costs.
New Customer Contribution loss The contribution earned from sales to New Customers.
5-Year Forecast Payback The ratio of projected future Repeat Customer Contribution profit we expect to
earn from the new customers recruited in the period divided by the Investment
in New Customers. We forecast contribution at a customer level using a Machine
Learning algorithm which weighs several characteristics including
demographics, interactions and transactions forecast over a five-year horizon.
This is then aggregated to a monthly, then annual, cohort level for reporting
purposes.
5-Year Lifetime Value The future Repeat Customer Contribution profit we expect to earn from
customers recruited in a discrete period of time. We calculate this future
contribution using a Machine Learning (ML) model. Collecting data for a number
of key customer characteristics including retention, order frequency and order
value along with customer demographics and non-transactional data, the ML
algorithms then predict the future (lifetime) value of that customer.
Repeat Customer Contribution profit The profit attributable to sales meeting the definition of sales to repeat
customers after fulfilment and service costs.
Repeat Customer The ratio of sales made to customers who met our definition of "Repeat" last
year that were realised again this year. Using our website data, the
sales retention population who were subscribers in the prior year are identified and their
sales in the current year then assessed. This is done for each month and
summed to calculate the full year retention.
Year 1 Payback This short-term payback measure shows the actual return in this financial year
of our investment in the prior year.
Unaudited additional information
Free cash flow reconciliation
26 weeks to 26 weeks to
27 Sep 2021
28 Sep 2020
£m £m
Adjusted EBIT 1.2 (3.2)
Add back depreciation and amortisation (excludes adjusted amortisation of 0.9 1.0
acquired intangibles)
Add back IFRS 2 charges 1.0 0.5
Adjusted EBITDA 3.1 (1.7)
Inventories (51.2) (14.9)
Deferred Income 6.8 17.6
Trade and other receivables 0.6 (0.6)
Trade and other payables 15.3 21.4
Repayments of principal under lease liabilities (0.4) (0.6)
Working capital movement (28.9) 22.9
Pre-tax operating cash flow (25.8) 21.2
Capital expenditure (0.7) (0.6)
Pre-tax operating cash flow / "Free cash flow" (26.5) 20.6
Reconciliation to statutory cash flow statement
Free cash flow (26.5) 20.6
Capital expenditure 0.7 0.6
Repayments of principal under lease liabilities 0.4 0.6
Net cash (used)/generated by operating activities (25.4) 21.8
12 month rolling standstill EBIT calculation
27 Sep 2021 28 Sep 2020(1)
£m £m
Standstill EBIT is calculated as
Repeat Customer Contribution profit (a) 88.8 64.6
Less: replenishment spend (e) (16.2) (9.3)
Less: General and administrative costs(2) (35.4) (27.9)
37.2 27.4
(a) Repeat Customer Contribution profit 88.8 64.6
(b) Repeat Customer sales retention 82% 90%
(c) Repeat Customer Contribution profit lost to attrition (a x (1-b)) 16.3 6.2
(d) Year 1 Payback 101% 67%
(e) Spend to replenish lost Repeat Customer Contribution profit (c/d) 16.2 9.3
1. The basis of the cost allocation was updated during the second half of the
prior year and prior year comparatives are stated on a consistent basis.
2. General and administrative costs exclude adjusted items and marketing
R&D spend.
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