REG - Naked Wines PLC - Full Year Results
19/09/2023 07:00
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RNS Number : 8464M Naked Wines PLC 19 September 2023
19 September 2023
Naked Wines plc
("Naked Wines" or "Group")
Full Year Results for the 53 weeks ending 3 April 2023
Foundations laid to focus on profitable growth and cash generation
Full year highlights:
● Total sales of £354m, +1% year-on-year (down 8% on a 52 week
comparable basis(1))
● Adjusted EBIT(2) of £17.4m, or £16.3m on a 52 week comparable
basis (FY22: £2.0m), ahead of guidance (£13-17m) due to lower new customer
investment
● Statutory loss before tax of -£15.0m (FY22: profit before tax
£2.9m) driven by non-cash goodwill impairment and inventory provision charges
● Inventory in line with prior guidance, £166m at year end (FY22:
£142m), net £10.3m provision (FY22: £nil)
● Net cash(2) (ex. lease liabilities) of £10.3m (FY22: £39.8m),
total available liquidity (cash and credit facility) of £49.1m (FY22:
£39.8m)
Strategic highlights
● Credit facility covenants revised to accommodate the destocking
process
● £10m p.a. of further cost savings identified, enhancing customers
lifetime value and profitability
● Foundations laid to make profitability sustainable, growth
investment opportunities developing
● Expect material cash generation across H2 of FY24 and FY25 as excess
stock is unwound
Reported 52 wk comp. FY23 vs FY22
Group Financial Summary (£m) FY23 FY22 FY23 Reported 52 wk comp.(1)
Total Sales(3) 354.0 350.3 343.7 1% (8)%
New 26.9 34.0 26.0 (21)% (29)%
Repeat 320.7 315.1 314.5 2% (6)%
New customer investment (21.4) (41.3) (20.7) (48)% (54)%
Repeat Customer contribution 86.5 86.2 84.8 -% (9)%
General & administrative(4) (48.0) (43.0) (48.0) 12%
Operating G&A (41.1) (38.9) (41.1) 6%
Share based payments (1.5) (1.1) (1.5) 36%
Marketing R&D (5.4) (3.0) (5.4) 80%
Adjusted EBIT 17.4 2.0 16.3 770% 7%
Adjusted items (31.6) (0.1) - n/a n/a
Profit/(loss) before tax (15.0) 2.9 (617)%
Net cash excluding lease liabilities 10.3 39.8 10.3
Nick Devlin, Group Chief Executive, commented:
"The trading environment is tough, but Naked remains highly resilient. We have
taken decisive action and have met the key goals in our "pivot to profit"
strategy. Our focus now is on delivering profitable growth.
We recognise that the environment is likely to remain tough and are
configuring the business to be profitable and cash generative despite
challenging conditions. A leaner and more focussed Naked will be best placed
to deliver for our customers and winemakers. I believe we can emerge from
these challenges a stronger business
I want to thank our teams and winemakers for their support and commitment over
the past year. Across the board they have embraced a program of rapid change
and laid the foundations for future profitable growth ahead"
Notes:
1) FY23: 53 weeks versus 52 weeks in the previous financial year: All
financial and non-financial information in this document relates to our 53
week financial period ended 3 April 2023, unless otherwise stated. Within this
announcement and the Chairman's statement, the Chief Executive's review and
the Financial review, we provide comparable 52 week constant currency
financial information to facilitate comparison with our prior financial
period, 52 weeks ended 28 March 2022. For reference, we call this 52 week
constant currency measure '52 week comparable' (or simply comparable) where it
is referred to in this document. See the reconciliation of reported results to
52 week comparable figures in the APM section at the end of this announcement.
Please note that whilst the 53 week results from which this statement has been
extracted have been audited, the 52 week comparable numbers in the underlying
financial statements are unaudited.
2) In addition to statutory reporting, Naked Wines reports alternative
performance measures (APMs) which are not defined or specified under the
requirements of International Financial Reporting Standards (IFRS). The Group
uses these APMs to improve the comparability of information between reporting
periods, by adjusting for certain items which impact upon IFRS measures, to
aid the user in understanding the activity taking place across the Group's
businesses. Definitions of the APMs used are given at the end of this
announcement.
3) Total Sales includes £6.4m (FY22: £1.2m) of Other sales, which includes
bulk wine disposals.
4) General & Administrative excludes adjusted items of £5.1m (FY22:
£0.1m).
Current Trading - Q1
FY24 has started off slower than expected, with Q1 revenue down 18% versus
prior year. This reduction is a combination of:
● Sales to new customers being 41% lower, the comparable period being
prior to our pivot to profitability and reduction in new customer investment;
and
● Sales to repeat customers being 15% lower, reflecting the smaller
customer base year on year
With revenue below our initial plan, we are marginally behind our destocking
plans but have taken steps to further reduce future purchase commitments while
continuing to manage costs tightly.
Guidance & Outlook
We expect full year revenue to decline 8% to 12% as the prior period
comparison eases in the second half of the year and the rate of decline in
customer base slows. Our current view on FY24 trends are shown below:
● Sales (52 week -8 to -12% (on constant currency)
comparable)
● New customer investment £23-27m
● Repeat customer contribution £72-£80m
● Operating G&A inc share based payments £37-£40m
● Marketing R&D Nil
● Adj EBIT £8-12m
● Inventory (YE) £145-£155m
● Net cash (YE) ex. lease liabilities £10-30m
This guidance is provided based on FX rates of 1 GBP = 1.24 USD and 1.74 AUD.
Naked Wines plc will host an analyst and investor conference call at 9am BST /
4am ET / 1am PT on 19 September 2023. The briefing will be webcast using the
following link: https://brrmedia.news/WINE_FY23
(https://brrmedia.news/WINE_FY23)
If you would like to ask a question, please dial, UK-Wide: +44 (0) 33 0551
0200 / UK Toll Free: 0808 109 0700 / USA Toll Free: 866 580 3963 - quote Naked
Wines Full Year when prompted by the operator.
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.
For further information, please contact:
Naked Wines plc IR@nakedwines.com
Nick Devlin, Chief Executive Officer
James Crawford, Chief Financial Officer
Chris MacDonald
Investec (NOMAD & Joint Broker) Tel: 0207 597 5970
David Flin / Carlton Nelson / Ben Farrow
Jefferies (Joint Broker) Tel: 0207 029 8000
Ed Matthews / Harry le May / Gill O'Driscoll
Instinctif (Financial PR) Tel: 07917 178 920 / 07931 598 593
Guy Scarborough / Damian Reece
About Naked Wines plc
Naked Wines connects everyday wine drinkers with the world's best independent
winemakers.
Why? Because we think it's a better deal for everyone. Talented winemakers get
the support, funding and freedom they need to make the best wine they've ever
made. The wine drinkers who support them get much better wine at much better
prices than traditional retail.
It's a unique business model. Naked Wines customers commit to a fixed
prepayment each month which goes 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
drinker and winemaker.
Our mission is to change the way the whole wine industry works for the better.
In the last financial year, we served more than 867,000 Angel members in the
US, UK and Australia, making us a leading player in the fast-growing
direct-to-consumer wine market.
Our customers (who we call Angel members) have direct access to 293 of the
world's best independent winemakers making over 1,800 quality wines
in 21 different countries. We collaborate with some of the world's best
independent winemakers like Matt Parish (Beringer, Stags' Leap) and 8-time
Winemaker of the Year Daryl Groom (Penfolds Grange).
Chairman's letter
Dear Shareholders
Firstly, an apology. The whole Board of Naked Wines regret that your support
and patience as shareholders, winemakers, Angels and employees has not been
rewarded. We are all determined to remedy that.
I am pleased to report that the management team have recognised the challenges
very clearly, acknowledge where different actions could have been taken and
are acting decisively to steer Naked through this period. They are highly
motivated and determined to ensure that all stakeholders are rewarded for
their support.
For those of you who I have not met, I founded Naked Wines 15 years ago, was
CEO for 12 years, and have rejoined the Board as non-Executive Chairman nine
weeks ago. I remain a shareholder owning 2.7% of the Company.
As I am new to the job, I have taken the opportunity to immerse myself in the
business and I thought it may be useful to share my first impressions…
1. Trading is tough. But Naked will come through it leaner and tougher,
2. The problems are fixable - and the management team have a good plan to
do so,
3. We are determined to ensure that shareholders are rewarded for their
patience.
1. Trading is tough. But Naked will come through it leaner and tougher
Make no mistake, trading conditions are tough. As you would expect, high
inflation, higher taxes on alcohol and falling disposable incomes has put
pressure on sales and costs. Combine that with multi-year production cycles
for wine and falling new customer acquisition and you have a perfect storm,
driving inventory build-up and pressure on cash, which has resulted in our
reporting a material uncertainty around our going concern (see note 3 for
further details).
That's the bad news. The good news is that the business has proved to be very
resilient even in these tough conditions. And the management team have taken
the steps necessary to ensure that we don't just survive - we come through
this as a leaner, tougher business, conditioned to do more with less and with
some battle scars that will remind us of hard learned lessons.
Specifically, the team have:
● Reduced costs to ensure that we are able to invest in growth AND
deliver a healthy level of profit;
● Reset volumes with our winemakers at a level where we can rebuild
growth; and
● Renegotiated our banking facilities to ensure that they are fit for
purpose.
2. The problems are fixable - and the team have a good plan to do so
With a clear plan on costs and inventory commitments, the team is able to
focus on our next challenge - to get sales growing again, so that we can
reward all stakeholders for their support.
The key finding here is that we do not have a general sales problem. Our
existing customers are resilient despite the tough conditions. In fact, the
attrition rate of existing customers, which is the number of Angels who have
cancelled as a proportion of the Angel count at the start of the year,
improved by 2% in this last year. What we do have is a new customer
acquisition problem.
The management team has a good plan to fix that, focused on generating higher
levels of new customer traffic and extending the number of ways we service our
customers to monetise that traffic more effectively. Early evidence from
testing these initiatives looks promising, but they need to be tested at scale
before we can draw conclusions.
3. We are determined to ensure that shareholders are rewarded for their
patience
While I think that the team's plan is a good one, success is not guaranteed.
This is not as gloomy as it sounds. If we can't improve our new customer
acquisition economics, then we still expect to have a profitable, cash
generative business, albeit smaller than the one we have today.
Obviously, we intend to do better than that, and remain convinced that Naked
has a set of competitive advantages which have the potential to give customers
and winemakers a better deal than they can get from anywhere else - and we
intend to fulfil that potential.
What we can promise you is that this will be done in a disciplined way to
ensure that the value created is realised.
To do that we have agreed to commit to…
● Limit general and administrative costs to around 11% of sales
● Maintain investment in new customer acquisition at £23 to £27
million per annum through to March 2026 - enough to rebuild growth, with
further growth to come from increased efficiency rather than increased spend
● Allocate capital in a rational way, including serious consideration
of share buy backs when the liquidity outlook improves
● Drawing a line under our overstock issues and allowing us to get
back to sustainable growth for key winemaker partners
I would like to thank David Stead, who has served as a non-Executive Director,
Chair of the Audit Committee and Chairman, for his many years of wise advice
and leadership.
Finally, I would like to thank all of our people and our winemakers for their
hard work during a difficult time. I know it has been tough for you and we are
determined to make sure that your support is rewarded.
Rowan Gormley
Chairman
Chief Executive's review
It has been a challenging year for Naked Wines. Ultimately though I believe it
is one in which we have undertaken important work to stabilise the business
alongside work to lay the foundations for a future in which we deliver on our
ambition of profitable growth.
In October 2022 we took decisive action and laid out a plan to "pivot to
profit". That plan had three main elements:
1. Secure our credit facility to provide funding while we undertook a
change of path;
2. Demonstrate profitability; and
3. Develop a path to sustainable, profitable growth.
Our focus over most of FY23 has been primarily on the first two of these goals
to ensure Naked was on a more secure footing and demonstrate the underlying
profitability of the business. We have met the majority of the short-term
goals we laid out with our "pivot to profit" to create breathing space for the
business to address the core challenge of returning to profitable growth.
Despite much progress the trading environment remains challenging moving into
FY24 and as a result we are undertaking further actions to ensure we fully
right-size our stock levels and cost base.
We have much more to do. We have ambitious goals and in some areas our testing
has not yet unlocked the progress we need. Equally we recognise the consumer
environment remains uncertain and the global wine industry is challenged with
over-supply.
However, we are ready and motivated for the challenges ahead. We are
absolutely committed to returning Naked to profitable growth and recognise the
need for decisive action and tough near-term decisions to get us there. We
have a core business and membership base that even in a tough environment
remains incredibly robust. That platform creates options for Naked - and as a
team we are determined to use that to establish Naked's long-term potential in
a way which creates clear value for all our stakeholders.
Recent challenges
The past year has been one of the most volatile in Naked's history.
Specifically, we have been wrestling with three key challenges that we did not
anticipate when we laid out growth plans following the pandemic:
● Sustained high inflation at, or near to, double digits in our key
markets, especially impacting supply chain and fulfilment costs;
● The severity of Apple's privacy changes on our overall marketing
effectiveness; and
● The reversion of online penetration trends in the wine category: the
direct-to-consumer (DtC) wine market in the US has been in short-term volume
decline (versus long-term expansion of over 10% per annum).
As a consequence of these, and our failure to deliver our growth plans, we
created two new challenges for the business:
● We have too much stock. This has not only impacted short-term
liquidity, but has created real costs that are burdening our P&L and
investment metrics; and
● We have a supply chain built for growth and we are operating it
below capacity which has added substantial excess cost on a per order basis.
While it is important to acknowledge that we made mistakes in pursuit of
growth, it is more important that we are committed to ensuring that as we
rebuild a better business, we take the steps to learn from these and ensure
they cannot be repeated.
Decisive action taken
Reflecting these challenges, we moved decisively to address them and, in
October, announced our pivot to profit strategy. Since then, we have executed
at pace and with a willingness to confront tough decisions across our
business.
We have been able to make crucial progress to address these challenges:
● Renegotiated and subsequently revised further our credit facility
with improved covenant tests to underpin liquidity in downside scenarios;
● Renegotiated and reduced our wine purchasing commitments and
developed the capability to sell excess wine on the bulk market. We have done
this in an orderly fashion and whilst maintaining the support and engagement
of our winemakers which is a crucial part of our competitive advantage. As a
result, forward commitments are now below anticipated sell-through levels.
Consistent with the plans announced in October, stock levels ended the year at
£166 million and we confirm our guidance that our peak inventory point was in
October 2022 and that we expect to deliver cash generation from inventory
unwind from the second half of FY24; and
● Demonstrated improving trends in Angel fund withdrawals, reflecting
the underlying high loyalty and predictable revenue streams associated with
our established member base.
In addition, we have undertaken a series of measures to deliver on our
near-term goal of demonstrating Naked's ability to trade profitably. These
measures have resulted in adjusted EBIT of £17.4 million in FY23 (FY22: £2.0
million).
● We have reversed the trend of rising general and administrative
(G&A) costs, with costs falling in the second half of the year despite
high levels of inflation and have undertaken workforce reduction programmes
that have reduced non-customer service headcount by 12% during the year. As a
result, we are able to guide to flat operating G&A into FY24, despite
sustained inflationary pressure.
● We have reduced underperforming marketing spend and reconfirm that
there will be no additional expense classed as marketing R&D in FY24.
● We have identified ways to recover cost inflation through our
pricing and promotional strategy. FY23 saw higher levels of like-for-like
pricing increase that I would wish to see on a sustained basis, but our
ability to pass through increases whilst preserving retention rates reflects
the work we have done to build exclusive, quality winemaker brands with real
equity.
These are important steps forward but alone will not be sufficient to meet our
goals. Notably, given the new fiscal year has not started in line with
expectations, necessitating a harder look at plans, costs, and a challenge for
the team to return Naked to growth in FY24 whilst reinvesting more into growth
and delivering less profit next year as a result.
We are not fully satisfied with our achievements:
● We have not met our goals in terms of new member recruitment. Our
excess adjusted EBIT versus initial guidance reflects this and as a result we
start FY24 with a smaller member base than we aimed for. To make profits
sustainable we must increase new member recruitment and stabilise member
numbers heading into FY25.
● Payback levels have improved in each of the last three half-year
periods, and reached 1.7x in the second half of FY23, with LTV per member
acquired in FY23 25% higher than FY22. However, we aimed to deliver a greater
improvement as we cut marketing spend and we are disappointed that we have not
been able to find greater levels of attractive investment opportunity in the
last six months.
● As a result of our weaker performance we have recognised substantial
charges reflecting, amongst other things, impairment of goodwill and
provisioning of inventory we expect to be unable to sell before it risks
quality deterioration. As a result of these items we are reporting a statutory
loss before tax of £15.0 million (FY22: £2.9 million profit).
Looking forward
FY24 is a crucial year for Naked Wines. As a team we remain focused on
completing the job of rebuilding liquidity by delivering cash generation in
the second half of the year and underpinning the profitability we delivered
this year with additional cost focus. We have tracked below our plans in the
first part of FY24 and, as such, are taking further measures to restructure
our group buying and inventory plans to ensure we continue to meet cash
generation goals by the end of FY25.
Alongside a focus on inventory and costs, we must turn a greater share of
attention to the third goal of our pivot to profit strategy: the delivery of
sustainable, profitable growth. Our current challenges ultimately stem from
lower levels of member recruitment over the last 12 months and we are
committed to reversing this. Whilst I do not expect it to be easy, I believe
that Naked has the potential to combine a return to growth with profitability
and cash generation. To do so will require us to make progress in three key
areas.
1. Reset our cost base
Taking cost out of the business supports our ability to offer leading value
for money to consumers and will underpin our efforts to build sustainable
profitability. As we start to look ahead into the next financial year, we see
the possibility for considerable further cost reduction.
We moved G&A cost from growth to decline in the second half of FY23.
However, we acknowledge we have more to do in terms of efficiency. We have set
a goal of achieving £10 million of annual run rate cost reduction by the end
of FY24, on top of the elimination of the marketing R&D spend of £5.4
million in FY23. Our current focus is in our fulfilment operations, and we
have preliminary indications we may be able to achieve our savings goals from
this area alone.
A large component of this will be sourced from our warehousing where we have
made significant progress through RFP and renegotiation processes to create
commercial arrangements that better reflect the scale of the business today.
Additionally, as we move into FY25 and operate with substantially lower
absolute inventory levels, we will see further volume-based savings especially
in warehousing.
2. Increase our marketing efficiency
It is no secret that we would like to deliver higher levels of payback than we
have been able to in FY22 and FY23. Given an advantaged customer proposition
and a large TAM there is a clear question as to why we haven't been able to
sustain higher growth rates in Naked. There are many potential reasons for our
recent challenges:
● Consumer fundamentals have certainly been tough;
● The long-term secular tailwind of online migration has taken an
unprecedented pause (and even step back) in the last year;
● But equally, we should recognise that we may have underestimated the
scale of some of the barriers to moving consumers in our addressable market
online and into the Naked proposition.
We have identified two key barriers to adoption that we believe can be
removed, and are working through a structured testing plan to establish if we
can enhance marketing efficiency by doing so:
● The suitability of our "Angel Piggy Bank" model for all segments of
our addressable market; and
● The requirement of a subscription relationship to access best value
from our proposition.
In addition, we expect to see results in the year from our work to rebuild our
checkout experience and add to the range of payment options that we provide to
our customers in all markets.
Our testing programme in these areas commenced in October 2022 and we are
encouraged at this early stage by the results we are seeing. We believe we may
have uncovered a route to better serve younger wine drinkers which could both
expand the segments of the market we can actively target and support enhanced
payback in channels that drive a broad range of traffic such as our parcel
insert partnerships. We are currently focused on validating our initial
findings in different markets and testing at scale before we build these
benefits into our marketing plans.
It is worth noting that, while each is individually encouraging, if we can
deliver both cost reduction and enhanced marketing efficiency, we benefit from
a multiplier effect which would materially improve our chances of scaling
customer acquisition spend at attractive payback.
● Variable cost savings both reduce the cost of serving the first
order (lower CAC) and enhance margins on all ongoing orders (allowing us to
convert the progress we have made on gross margin to higher contribution
margins and LTVs).
● If we can much better monetise younger traffic that will also lift
aggregate cohort LTVs.
● The combination should increase payback, and in so doing, make more
investment opportunities viable to increase attractive marketing
opportunities, which was an area where we have been challenged in FY23.
3. Explore new ways to drive traffic
To return to growth will require us to leverage the improvements above to
deploy additional capital to drive qualified traffic to Naked and increase our
rate of new member additions. We are testing new strategies to invest in
content creation and to develop new campaign approaches to restore the
viability of investment in key paid digital channels. We believe that we have
the team and capabilities to translate higher allowable traffic cost into
higher levels of qualified traffic. However, we have not yet proven that we
can do that successfully in the current consumer and advertising environment.
As we start the year, this third part of our plan to deliver sustainable
profitability is a key area of focus.
What does that mean for our mid-term prospects?
We are at a place where we can reasonably lay out some scenarios that we see
as plausible for the Company over the coming years, and share what we need to
prove to deliver against these.
We continue to see Naked stabilising as a substantially larger, and
considerably more profitable, business than it was pre-pandemic. Under a
scenario where we are not able to find sufficient attractive investment
opportunities to return to growth, we would anticipate continued
profitability, a focus on cost reduction and strong cash conversion as we
unwind excess inventory.
However, the above doesn't reflect our ambition for the business. Our goals in
the new LTIP reflect a better sense of where we would aspire to see the
business in the coming years: delivering £60 million of free cash flow,
achieving £350 million of revenue with a 4% EBIT margin, and translating that
to significantly improved share price performance. To realise these goals
requires us to successfully extract the cost savings we have line of sight of,
enhance investment returns through our testing plan for the proposition, and
leverage that to increase investment levels to return Naked to at least single
digit top line growth in the next three years. Against a tough backdrop for
the category, this would position Naked as a profitable, growing and cash
generative business. A return to growth will also accelerate the timing at
which we can unwind the excess inventory on the balance sheet.
Most importantly though, after a period of high volatility we have the
opportunity to return focus to working to fulfil the long-term potential of
Naked to create long-term shareholder value by building a better alternative
for wine drinkers and winemakers.
The steps we have taken so far mean that we can be confident in our
foundations. Under either of the scenarios outlined, we see a business that
will be profitable and cash generative, with the potential to generate tens of
millions in cash as we unwind the excess stock on the balance sheet over the
next 24 to 36 months. In any scenario, as a management team we are entirely
committed to delivering value for all our stakeholders.
As a result of the foundations laid over the past six months, we are well
placed to win in a tough market. At this stage in Naked's development we
believe we are close to delivering something we have not achieved before, with
the potential for cash generative profitable growth over the coming years.
Together, as a leadership team, as a company, and as a community of Angels and
winemakers, we are excited about the years ahead.
Nick Devlin
Chief Executive Officer
Financial review
Overview
In July 2022 I was asked to return to the CFO role. At this time it was clear
to both Nick and I that we should not, in the near term at least, continue to
aggressively target growth. LTVs had fallen as cost inflation worked its way
into the supply chain reducing order profitability. Coupled with a reduction
in marketing efficiency as the pandemic tailwinds reversed, paybacks were
dropping. The original plans for FY23 contemplated investment in additional
G&A and, as a result, the Group was forecast to be less profitable
year-on-year, despite seeing little or no growth. Naked had been built with a
view to delivering profits in the event we weren't investing to grow, and it
was clear to us that we could and should deliver that.
We quickly pivoted, reducing poor performing marketing investments,
eliminating plans to hire and undertaking changes to our organisational
structure to better align costs with our revenue trajectory. We have focused
on recruiting fewer but higher quality Angels as it became clear that a
portion of our pandemic recruitment was low quality. We have also focused on
providing great wine and service to our existing Angels to maximise the
revenue opportunity they represent. As a result, while reported profit before
tax shows a loss of £15.0 million, after recognising material provisioning
against our excess inventory and an impairment of goodwill, adjusted EBIT -
which we consider to be reflective of the underlying profitability of the
business - increased to £17.4 million. While total reported revenue was
marginally up, revenue on a comparable 52 week basis declined by 8% as a
result of the changes we have made in strategy and the consequent reductions
in customer recruitment and Angel numbers.
As reported 52 week comparable
FY23 FY22 YoY % FY23 FY22 YoY %
£m £m £m £m
Revenue 354.0 350.3 1% 343.7 373.2 (8)%
Cost of sales (205.7) (208.6) (1)% (181.7) (219.8) (17)%
Gross profit pre inventory provision(3) 148.3 141.7 5% 162.0 153.4 6%
Inventory provision (10.3) - n/a - - n/a
Gross profit 138.1 141.7 (3)% 162.0 153.4 6%
Contribution(1) 69.9 79.1 (12)% 81.2 85.4 (5)%
Advertising costs (17.7) (34.1) (48)% (17.0) (37.1) (54)%
General & administrative costs (53.1) (43.1) 23% (48.0) (44.8) 7%
Analysed as:
Operating general and administrative costs(2) (41.1) (38.9) 6% (41.1) (40.4) 2%
Marketing R&D
Share based payments (5.4) (3.0) 80% (5.4) (3.3) 64%
Software as a Service costs(3) (1.5) (1.1) 36% (1.5) (1.1) 36%
Restructuring costs(3) (2.3) - n/a - - n/a
Other adjusted items(3) (1.5) - n/a - - n/a
(1.3) (0.1) n/a - - n/a
(53.1) (43.1) 23% (48.0) (44.8) 7%
Impairments (18.2) - n/a - - n/a
Profit on disposal of asset held for sale(3) 4.8 - n/a - - n/a
Operating (loss)/profit (14.3) 1.9 (853)% 16.3 3.5 366%
Analysed as:
Adjusted EBIT 17.4 2.0 770%
Adjusted items (31.6) (0.1) n/a
Operating (loss)/profit (14.3) 1.9 (853)%
Note 1. Contribution is calculated as gross profit less fulfilment costs per
the Income statement. 2. Refer to the table in the APM section at the end of
this announcement for a reconciliation of G&A costs to those reported in
the Income statement. 3. Refer to note 5 Adjusted items for further details.
At the outset of the year, we were operating with an excess level of stock and
future stock commitments which consumed cash. We have been working with our
winemakers and supply chain partners to balance our own liquidity requirements
with the support and purchases they rely on, by continuing to fund and
purchase some stock as we simultaneously seek to unwind this position in an
orderly fashion. We closed the year with £165.7 million of inventory (net of
a £10.3 million provisioning charge), £39.5 million of cash and cash
equivalents and £10.3 million of net cash excluding lease liabilities. Our
rate of cash consumption has slowed with £45.3 million of net cash excluding
lease liabilities* consumed during FY22, £16.9 million during the first half
of FY23 and £12.6 million during the second half of FY23. See reconciliation
of net cash excluding lease liabilities in the APM section at the end of this
announcement.
Our credit facility, which we renegotiated during the year to reflect the
pivot to profit strategy and ensure accessibility in the event of a downturn,
remained accessible on the same terms following the takeover of Silicon Valley
Bank by First Citizens Bank. Subsequent to year end we agreed a further
amendment to this facility in light of the more challenging current trading
conditions to enable us to incur further costs, should we need to, in order to
reduce inventory commitments and operating expenses further.
Our FY23 performance was achieved against a difficult market backdrop due to
increased inflationary pressure within our supply chain and low consumer
confidence. These challenges are continuing into FY24 and trading in the early
part of the year has been slower than we had planned. As a result we are
continuing to review our inventory intake commitments to ensure we remain on
track to reduce stock levels and further reviewing our cost structure. We are
executing against a range of opportunities to drive cost out of our fulfilment
operations while continuing to expand our customer recruitment strategy to
penetrate the considerable addressable market that we operate in. In the
near-term we will take a more aggressive approach to payback decisions
focusing more heavily on cash returns while we plot a pathway back to revenue
growth.
* Net cash excluding lease liabilities is a change in naming convention only
from net cash as previously used by management. The calculation of this
measure remains consistent with previous disclosures (see the APM section at
the end of this announcement).
FY23 basis of comparison
FY23 has been a 53 week year, which we use periodically to allow our trading
periods to always align to weeks of the year. Exchange rate movements have
also been substantial, with the average USD translation rate for revenues of
1.206 in FY23 versus 1.368 in FY22. To add further complexity, we have made
some disposals of excess inventory as bulk commercial sales which have not
been undertaken at scale previously.
Given these complexities, we offer two comparators to provide insight into the
trading trends in the business:
1. Reported to reported, as shown on the face of the financial statements,
and
2. Comparable 52 week basis with all foreign currency balances translated
at FY23 rates, the impact of week 53 removed and provisioned inventory sales
removed and reported net within adjusted items. See note 5 Adjusted items for
further information.
The key drivers of the difference between these measures are as follows:
FY23 FY22
Sales EBIT Sales EBIT
£m £m £m £m
Reported 354.0 (14.3) 350.3 1.9
Adjusted items (3.1) 31.6 - 0.1
Adjusted 350.9 17.4 350.3 2.0
Less: 53rd week (7.2) (1.1)(1) - -
Translation to FY23 FX rates - - 22.9 1.5
52 Weeks comparable 343.7 16.3 373.2 3.5
Note 1: The EBIT impact of the 53rd week of £1.1 million is at a contribution
level and does not include an apportionment of fixed costs borne across the
financial year.
Drivers of Group P&L performance
In FY23 our total sales grew by 1% to £354.0 million. On a comparable 52 week
basis this was an 8% decline. This reflects:
● Lower sales to new customers as a result of reduced levels of
investment; and
● An Active Angel number decline to 867,000, a 10% decrease compared
to FY22.
Our revised strategy has moved us in the direction of higher quality customers
as evidenced by the 52 week comparable drop in sales to repeat customers being
a more moderate 6% decline.
Repeat Customer contribution of £86.5 million is marginally ahead on a 53
week basis and reduced by 9% on a 52 week comparable basis. This trend is
driven by a reduction in Repeat Customer sales due to lower Angel numbers and
a reduction in Repeat Customer contribution margins which have moved from
27.7% in FY22 to 27.0% in FY23. This reduction reflects increased
transportation and warehousing costs not being fully offset by our price
increases, in particular in the UK and Australian markets.
Our investment in the acquisition of new customers in the year fell 48% to
£21.4 million on a 53 week basis (down 54% on a 52 week basis) as part of our
shift in strategy. By focusing the lower spend on the best returning
investments we improved our 5-Year Forecast Payback to 1.7x, up from 1.5x
reported last year. This higher quality recruitment is supported by higher
first order price points resulting in a 29% decline in New Customer sales on a
52 week basis.
Operating G&A costs were £41.1 million (see reconciliation of G&A
costs in the APM section at the end of this announcement for further details),
an increase of 2% on a 52 week comparable basis. During the year, in light of
the focus on profitability and significant inflation being seen in salaries,
we undertook a restructuring program seeking to generate improved efficiency
and reduce our total staffing expense. The effect of this is only fully
reflected during FY24 with the final steps having completed in March 2023.
We invested £5.4 million into our marketing R&D program in the year
(FY22: £3.0 million), experimenting with above the line advertising in our UK
and US markets to drive enhanced brand awareness and earlier stage
consideration of Naked for new customers. Whilst these initiatives showed
early promise, they were not generating material payback levels and have been
paused while we focus on driving profitability and reducing cash consumption.
Any future above the line spending will be included in our overall marketing
costs and payback calculations.
Share based payment charges (excluding associated social security costs) for
the year totalled £1.6 million, increased from £1.3 million in FY22 because
of the awards of options made under the "transition scheme" announced during
the year.
The net of the above factors results in adjusted EBIT of £17.4 million, or
£16.3 million on a 52 week comparable basis. The increase versus FY22 can be
summarised as:
£m
FY22 adjusted EBIT 3.5
Reduced Investment in New Customers 23.9
Change in Repeat Customer contribution (8.0)
Change in other contribution 0.1
Increase in G&A costs (0.7)
Increase in share based payment charge (0.4)
Increased marketing R&D spend (2.1)
52 week adjusted EBIT 16.3
Plus: week 53 impact 1.1
FY23 adjusted EBIT 17.4
Reported operating loss of £14.3 million reflects the impact of £31.6
million of costs across a range of adjusted items. Refer to note 5 Adjusted
items for further details. These are adjusted as they are either material
one-time charges we do not expect to be repeated or they are non-trading
related. We feel that treating them as adjusted items provides clarity of
these non-recurring events and also a more comparable view of business trading
performance. The key components of these items are:
£m
Right-sizing of US inventory (14.0)
Impairment of goodwill, property, plant and equipment and right-of-use assets (18.2)
Restructuring costs (1.5)
Gain on sale of ex-Majestic store 4.8
Amortisation of acquired intangibles (1.3)
Interchange fee litigation settlement 0.7
Software as a Service investments (2.3)
Revaluation of FX contracts 0.1
Interest charges totalled £0.8 million in the year, being the net of interest
earned on cash balances and the Majestic Wine disposal vendor loan note, and
charges relating to the asset backed lending arrangement with Silicon Valley
Bank and interest on IFRS 16 leases.
The Group's statutory effective tax rate (ETR) of (15.9)% is substantially
driven by the distortionary impact of the non-tax recoverable impairment
charge reported in the year and the net impact of changes to deferred tax
recognition. Current tax of £4.6 million was driven by profitable trading in
the US and Australia, including the impact of material non-deductible
temporary timing differences in the US relating to the US inventory provision
and US 'unicap' inventory tax adjustments, partially offset by corresponding
deferred tax credits as set out above.
52 week comparable
FY23 FY22 YoY
£m £m
New Customer sales 26.0 36.5 (29)%
Investment in New Customers (20.7) (44.6) (54)%
Repeat Customer sales 314.5 335.4 (6)%
Repeat Customer contribution 84.8 92.8 (9)%
Repeat Customer contribution margin 27.0% 27.7%
Other revenue 3.2 1.3 146%
Other contribution 0.2 0.1 100%
KPIs
Repeat Customer sales retention 78% 80% (200)bps
Active Angels 867,000 964,000 (10)%
5-Year Forecast Payback 1.7x 1.5x 0.2x
Year 1 Payback 39% 68% (29)%
Standstill EBIT (5.8) 21.2 (27.0)
See the APM section at the end of this announcement for definitions of
alternative performance measures and reconciliations to statutory reported
figures.
New and repeat customers and our subscription KPIs
Note: commentary in this subsection is given on a comparable 52 week basis.
New customers
Investment in New Customers was £20.7 million compared to £44.6 million in
FY22. This halving of investment reflects the change in strategy implemented
during the year to improve paybacks versus FY22 levels (currently forecast at
1.4x) and drive profitability in preference to growth.
We have reduced spending in all our markets and most channels, and increased
prices to new customers as we know this drives higher quality recruitment. Our
largest decrease was in the UK, where we saw a significant deterioration in
customer quality. Our reduction has meant increasing our promotional offer
prices significantly, while advertising spend has focused on the most
efficient areas, and given an increased average price for first orders, the
reduction in New Customer sales is less severe than the reduction in
investment, albeit still significant.
In the US market, we have moved the majority of our first order offers to
12-bottle cases to increase prices and sell additional inventory. The US is
also the most advanced in testing our new recruitment journey, which has
provided additional support to New Customer sales. As a consequence of these
changes, our revenues from new customers reduced by 29%.
Our 5-Year Forecast Payback, which is the ratio of projected future Repeat
Customer contribution we expect to earn from new customers recruited in the
year, over the investment spend related to acquiring those new customers, was
1.7x (FY22: 1.5x reported). This was achieved due to higher forecast LTVs as
we have focused on higher quality customers, with the cost of each recruited
Angel flat year-on-year.
We would like to be investing more in new customer recruitment, but our
current marketing mechanics and market conditions don't support this while
driving acceptable payback. We have accepted payback lower than our 2x target
during the year for two reasons:
● Our reducing scale leads, in the near-term, to lower efficiency in
our fulfilment operations which contain a significant level of fixed costs. As
such the marginal cost of each incremental order we generate is significantly
lower and the profitability higher, and we consider it rational to drive these
incremental orders; and
● With significant amounts of excess inventory, the cash profile of
each order we generate is higher than the contribution of the order (which is
the basis of our payback calculations). For as long as we are reducing
inventory, this effect means cash paybacks are significantly higher than our
payback measure suggests.
Repeat customers
Repeat Customer sales were £314.5 million, a 6% decrease. With Angel numbers
reducing as a result of the lower level of recruitment, this represents an
increase of 4.3% in sales per Active Angel.
To support repeat revenues, we have continued to drive our "Never Miss Out",
"Wine Genie" and "Fine Wine Club'' propositions, with over 25% of our Angel
subscribers having adopted an average of 1.7 of these each. Our Repeat
Customer sales retention, which is the proportion of sales made to customers
who met our definition of "repeat' last year and placed orders again this
year, was 78% (FY22: 80%). Sales retention can be separated into customer
retention and the change in sales per Angel year-on-year. The reduction we
have seen this year is due to early FY22 having high rates of purchase due to
the tail end of the COVID-19 pandemic, which were not sustained into the
following year leading to a reduction in sales per retained Angel and
consequently lower sales retention.
Our Repeat Customer sales performance reflects the lower-than-average rate of
retention in the US, with contribution trends better than revenue as we have
been able to realise price increases offsetting inflating fulfilment costs and
lower volume throughput. In the UK, Repeat Customer sales have been driven by
a well-executed promotional strategy and higher fulfilment effectiveness
year-on-year. In Australia, trends have mirrored the US and UK, albeit lagged
slightly due to seasonality and the timing of COVID.
However, significant increases in fulfilment costs due to price inflation and
under-utilisation of committed capacity, have substantially eroded
contribution margins, despite price increases being introduced.
Repeat Customer contribution margins have decreased in the year from 27.7% to
27.0%. The majority of this is due to fulfilment cost increases in the UK and
Australian markets not being fully recovered through price. In our largest
market, the US, we achieved a 0.5% improvement in our contribution margin
supported by price and mix improvements ahead of cost inflation.
Our Year 1 Payback for the year, which is the contribution realised in this
financial year from repeat customers recruited in the prior financial year,
divided by the investment made in the prior year recruiting those customers,
was 39% (FY22: 68%) reflecting the high acquisition costs and low expected
LTVs and payback from our FY22 customer recruitment.
Standstill EBIT is our measure of the adjusted EBIT which we would report if
we had invested, at latest reported economics, in new customers to only
replenish Repeat Customer contribution lost to attrition. In the year, our
Standstill EBIT was £(5.8) million. This metric remains negative due to the
very low Year 1 Payback we are recording from the FY22 recruitment. With
paybacks improving we expect this metric to improve and converge towards
adjusted EBIT through FY25. The calculation of Standstill EBIT can be found in
the APM section at the end of this announcement.
Other revenue and contribution
Other revenue and contribution in the US reflect commercial disposals of
excess inventory at above cost. Disposals below cost are combined with
provisioning charges and shown as adjusted items.
Detailed analysis of each geographic segment and a full reconciliation of
reported results to 52 week comparable figures can be found in the APM section
at the end of this announcement.
KPI review
As the business has matured and our focus has shifted to profitable growth, we
intend to undertake a review of our KPIs and APMs during FY24 with the goal of
simplifying the explanation of the business drivers and ensuring they are the
most relevant measures to determine success against our plans.
Balance sheet and cashflow
During the year our goals changed to focus on profitability at the expense of
growth. Achieving this meant a reduction in Investment in New Customers and a
consequent reduction in revenues versus prior plans. As a result, the Group
has consumed less inventory than would previously have been forecast,
requiring cash consumption to fund higher levels of stock. To mitigate this,
during the year we reduced the stock intake we had originally agreed with our
winemakers by £15 million, the majority of the reduction being in the US
division where we have the longest supply chain.
During the year the Group's net cash excluding lease liabilities balance
reduced by £29.5 million. The drivers of this are:
£m
Operating loss (14.3)
Add back: depreciation and amortisation 4.3
Add back: other non-cash charges 7.8
Add back: impairments 18.2
Change in inventory (28.8)
Change in payables (14.5)
Change in Angel funds and other deferred income (6.2)
Other working capital movements 3.5
Operating cash flow (30.0)
Tax and net interest paid (3.2)
Capital expenditure (1.5)
Proceeds from sale of investment property 5.6
Lease liabilities paid (1.3)
Net movement in net cash excluding lease liabilities (30.4)
Opening net cash excluding lease liabilities 39.8
Net movement in net cash excluding lease liabilities (30.4)
FX 0.9
Closing net cash excluding lease liabilities 10.3
The Group generates over 50% of its revenues from international operations. As
a result, the year-end balance sheet is subject to the impact of changes in
exchange rates as well as underlying movements. As shown in the table below,
additional inventory, reducing Angel deposits (due to fewer Angels) and lower
outstanding payables balances (due to less stock purchases) all contributed to
the cash usage in the year.
Impact in the year
Key balance sheet Items (£m) FY22 FX adj Non-cash inventory provision Underlying FY23
Movement
Net cash excluding lease liabilities 39.8 0.9 - (30.4) 10.3
Inventory 142.4 4.8 (10.3) 28.8 165.7
Angel funds and other deferred income (76.0) (1.5) - 6.2 (71.3)
Trade and other payables* (54.6) (1.4) - 13.6 (42.4)
* Excludes current tax liabilities
We expect to continue reducing the level of inventory on hand over the next 24
months, rebuilding our cash reserves. Our future inventory intake commitments
have reduced from £223 million at the end of FY22 to £162 million at the end
of FY23, with reductions achieved in all of our markets.
The Group's policy is to test for the existence of excess capital bi-annually
as we update our forecasts for the business. Should it be determined that we
have excess capital, available investment opportunities will be compared to
expected returns from repurchasing the Company's shares and capital allocated
to the highest returning opportunities. At present we do not believe the
business has excess capital and no returns of capital, either as dividends or
through other mechanics, are planned at this time.
Failure and acquisition of Silicon Valley Bank (SVB)
One of the Group's banking partners, SVB, was closed by regulators on 10 March
2023. SVB provided 50% of the Group's credit facility with the other 50%
coming from Bridge Bank. The operations of SVB, including the Group's credit
facility, were transferred to First Citizens Bank on 28 March 2023. This event
did not impact our day-to-day operations and no loss has occurred to the Group
because of the failure of SVB. We have also not seen any change in the level
of withdrawals made from our Angel fund because of the failure of SVB.
Recent trading and outlook
Trading in the first quarter of FY24 has been significantly slower
year-on-year with total revenues 18% lower than the comparable period in FY23.
This reduction is a combination of:
● Sales to new customers being 41% lower, the comparable period being
prior to our pivot to profitability and reduction in new customer investment;
and
● Sales to repeat customers being 15% lower, reflecting the smaller
customer base year-on-year.
We have provided updated guidance for FY24 at the start of this announcement.
This guidance reflects a balanced view of current trends in the business as
seen in the first quarter, expected cost improvements and inventory commitment
reductions we will deliver during the year. Our primary goal is to invest in
new customers to stabilise and then grow our repeat customer revenues. We
believe this requires an investment level of around £27 million, albeit
recent improvements in our customer attrition trends could reduce this. As we
continue to operate below this run rate, we expect to see repeat customer
revenues continue to decline during FY24, however the rate of decline is
expected to reduce considerably during the year. With new customer investment
targeted to be £23 to £27 million, revenue trends from new customers should
begin to stabilise during the year as the comparator periods begin to include
the prior year reductions in investment levels. In aggregate we now believe
total revenues are likely to decline by 8 to 12% in the year.
Repeat Customer contribution margins remain under pressure, especially in the
UK where we will continue to face underutilisation of warehouse capacity into
early FY25. Group-wide, we will continue to realise benefit from our FY23
price increases in FY24, as well as assessing opportunities to continue to
increase prices and support margins while retaining strong value credentials.
We have line of sight of £10 million of fulfilment cost savings that will
predominantly be reflected in Repeat Customer contribution margins. We expect
to see the full impact of these in FY25 and will provide further updates on
our progress towards these important initiatives during our half-year
reporting. The net of these movements is expected to be a Repeat Customer
contribution margin that is relatively consistent with FY23, delivering Repeat
Customer contribution of £72 to £80 million.
Elimination of marketing R&D spend will generate a £5 million cost saving
year-on-year. Our operating G&A base should be slightly lower year-on-year
despite inflationary salary adjustments having been made. In the event we see
revenue and Repeat Customer contribution at the low end of our guided range we
would expect to pursue cost savings in variable compensation and other areas
of discretionary spending.
The net of all this would be an expected adjusted EBIT of £8 to £12 million
for the year, with the lower end underpinned by cost actions as required.
Through additional reductions in stock intake we continue to target closing
inventory of approximately £145 to £155 million at the end of FY24,
delivering cash generation in the second half of the year and closing net cash
excluding lease liabilities of £10 to £30 million.
Liquidity and going concern
With trading performance in the first quarter below expectations we have
undertaken a comprehensive reforecast process for the year, resulting in a
delay to the publication of these results. As at the date of publication we
are trading broadly in line with this revised forecast. The reforecast process
resulted in a revised baseline outlook as described above, in which the Group
would expect to comfortably meet all borrowing covenants over the next 12
months and retain significant headroom to the cash balances required to run
the business. As such the Directors feel the going concern treatment remains
appropriate.
In assessing our going concern position the Board also reviewed a downside
scenario with adverse trends to the baseline. This downside scenario, which
forecasts a sales decline for the year of 17%, also shows the Group meeting
all borrowing covenants and having sufficient liquidity to operate the
business. To increase headroom to the adjusted EBITDA covenant in our
borrowing agreement in this downside scenario we have agreed with our banking
syndicate that certain costs associated with reducing inventory levels and
operating costs would be excluded from our covenant calculations, as well as
measuring covenant EBITDA on a rolling 12-month basis from the beginning of
FY25 to provide additional flexibility as to when certain costs were
incurred. The Board recognises that this cash flow forecast relies on:
● Trading performance which is currently volatile and impacted by the
challenging macroeconomic environment;
● The delivery of a number of cash and cost improvement actions which
will, in part, require the cooperation of strategic suppliers; and
● Access to a forecast level of borrowing from the Group's asset
backed lending facility.
As a result, there remains a risk that a combination of these assumptions
could result in a reduction in actual cash flows which would result in the
business being unable to meet its covenant commitments. As such these
factors give rise to a material uncertainty that may cast significant doubt
over the going concern assumption of the financial statements. Refer to note
3 for further details.
James Crawford
Chief Financial Officer
Group income statement
For the 53 weeks ended 3 April 2023
Continuing operations 53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
Note £'000 £'000
Revenue 354,045 350,263
Cost of sales (205,739) (208,542)
Gross profit pre inventory provision 148,306 141,721
Inventory provision (10,254) -
Gross profit 138,052 141,721
Fulfilment costs (68,159) (62,601)
Advertising costs (17,690) (34,131)
General and administrative costs (53,092) (43,085)
Impairment of goodwill, property, plant and equipment and right-of-use assets (18,183) -
Profit on disposal of asset classified as held for sale 4,814 -
Operating (loss)/profit (14,258) 1,904
Analysed as:
Adjusted EBIT 17,365 1,995
Adjusted items: 5
- Non-cash charges relating to acquisitions (1,293) (1,321)
- Right-sizing of US inventory (13,964) -
- Impairment of goodwill, property, plant and equipment (18,183) -
and right-of-use assets
- Other adjusted items 1,817 1,230
Operating (loss)/profit (14,258) 1,904
Finance costs (2,217) (111)
Finance income 1,455 1,080
(Loss)/profit before tax (15,020) 2,873
Tax 6 (2,393) (490)
(Loss)/profit for the year (17,413) 2,383
(Loss)/earnings per share 7
Basic (23.6)p 3.3p
Diluted (23.6)p 3.2p
Group balance sheet
As at 3 April 2023
3 April 2023 28 March 2022
£'000 £'000
Non-current assets
Goodwill and intangible assets 14,938 33,516
Property, plant and equipment 2,757 2,544
Right-of-use assets 5,374 3,370
Deferred tax assets 7,328 5,402
Other receivables 10,711 10,114
41,108 54,946
Current assets
Inventories 165,666 142,444
Trade and other receivables 5,610 9,161
Financial instruments at fair value 30 324
Cash and cash equivalents 39,474 39,846
210,780 191,775
Assets classified as held for sale - 810
210,780 192,585
Current liabilities
Trade and other payables (42,427) (54,621)
Current tax liabilities (1,836) -
Angel funds and other deferred income (71,314) (76,003)
Lease liabilities (2,030) (991)
Provisions (1,709) (2,011)
Bond financing (35) (35)
Financial instruments at fair value (290) (476)
(119,641) (134,137)
Net current assets 91,139 58,448
Total assets less current liabilities 132,247 113,394
Non-current liabilities
Provisions (14) (122)
Lease liabilities (3,821) (2,576)
Borrowings (29,131) -
Deferred tax liabilities (603) (813)
(33,569) (3,511)
Net assets 98,678 109,883
Equity
Share capital 5,550 5,508
Share premium 21,162 21,162
Capital redemption reserve 363 363
Currency translation reserve 7,930 3,183
Retained earnings 63,673 79,667
Total equity 98,678 109,883
Group cash flow statement
For the year ended 3 April 2023
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
Note £'000 £'000
Operating activities
Net cash flows used in operations 8 (29,981) (40,929)
Overseas income tax paid (2,020) (2,189)
(32,001) (43,118)
Investing activities
Interest received, including interest received on the vendor loan note 737 486
Purchase of property, plant and equipment (1,478) (1,681)
Purchase of intangible assets - (253)
Proceeds on disposal of property, plant and equipment 11 7
Proceeds from sale of asset held for resale 5,624 -
4,894 (1,441)
Financing activities
Interest paid (1,719) (6)
Lease interest paid (233) (105)
Repayments of principal under lease liabilities 8 (1,299) (845)
Debt issuance costs paid 8 (791) -
Movement in customer funded bonds 8 - 5
Drawdown of borrowings 8 30,464 -
26,422 (951)
Net decrease in cash 8 (685) (45,510)
Cash and cash equivalents at the beginning of the year 8 39,846 85,148
Effect of foreign exchange rate changes 8 313 208
Cash and cash equivalents at the end of the year 8 39,474 39,846
Notes to the financial statements
1. General Information
Naked Wines plc, (the Company) is a public limited company and is limited by
shares. It is incorporated in the United Kingdom under the Companies Act
2006 and is registered in England and Wales. The Company is the ultimate
controlling party of the Naked Group and its ordinary shares are traded on the
Alternative Investment Market (AIM).
The Company's registered address and principal place of business is The Union
Building, 51-59 Rose Lane, Norwich, NR1 1BY. The Group's principal activity
is the direct-to-consumer retailing of wine. The Company's principal activity
is to act as a holding company for its subsidiaries.
2. Basis of accounting
The financial information set out above does not constitute statutory accounts
within the meaning of section 435(1) and (2) of the Companies Act 2006 nor
contain sufficient information to comply with the disclosure requirements of
International Financial Standards (IFRS) but are derived from those
statements.
The consolidated financial statements comprise the financial statements of the
Group as at 3 April 2023 and are presented in GBP and all values are rounded
to the nearest thousand (£'000), except when otherwise indicated.
The auditor has reported on the underlying accounts from which this financial
information has been drawn and their report is unqualified, did not draw
attention to any matters by way of emphasis and did not contain any statements
under section 498 (2) or (3) of the Companies Act 2006 but did include a
section highlighting a material uncertainty that may cast significant doubt on
the Group and Company's ability to continue as a going concern. Further
details are provided in the going concern section of this announcement.
The financial statements of Naked Wines plc for the year ended 3 April 2023
were authorised for issue by the Board of Directors on 18 September 2023 and
the balance sheet was signed on behalf of the Board by James Crawford, Chief
Financial Officer.
The Group's financial reporting year represents the 53 weeks to 3 April 2023
and the prior financial year, 52 weeks to 28 March 2022.
3. Going concern
Background and context
Like many online retail businesses, Naked Wines has been severely impacted by
COVID-19, rising inflation and falling consumer confidence. Lockdowns in all
markets saw customers moving online which generated significant revenue growth
for the Group and required significant investment in both operational capacity
and inventory.
Naked Wines emerged from the COVID-19 pandemic almost double the size of
pre-pandemic levels. However, expectations of the level of ongoing new
customer acquisition have not been met and the level of business performance
has been below the Directors' expectations. In particular, the number of new
customers acquired and the return on investment in new customers have been
below expectations which in turn has led to a fall in the repeat customer
base. These changes have led to reduced expectations of the future sales and
cash flow for the Company versus previously prepared financial plans.
In response to these challenging macroeconomic conditions, Naked changed
strategy to "pivot to profit", (refer to the Chief Executive's review for
further details) focusing on short-term profit generation over long-term
customer expansion and with a recognised near-term increase in cash investment
in inventory.
Alongside this pivot to profit, the Company commenced a comprehensive review
of the business which included a suite of further actions:
● Removing unnecessary costs from the business that had been
introduced to support a business with significantly higher growth levels;
● Identifying several operational savings and cost efficiencies
across the Group;
● Undertaking a project to remove excess inventory from the business
whilst continuing to support independent winemakers; and
● Piloting and trialling new customer propositions.
These actions are ongoing, with progress already being made to remove
unnecessary costs and identify efficiencies. Achievement of the Group's
forecasts will, in part, require the alignment and cooperation of strategic
suppliers in order to achieve the Board's planned outcomes. If the outcome of
these key strategic initiatives is not as anticipated by the Board, subsequent
performance may be significantly different to that set out in the Company's
financial plans.
Borrowing facilities
The Group has an asset backed lending (ABL) facility of up to $60 million and
as at the year-end $36.75 million (FY22: $nil) had been drawn down. The Group
met all its credit facility covenant requirements in the current financial
year, despite the material uncertainty noted regarding going concern in the
FY22 Annual Report and Accounts relating to the Group's ABL credit facility
profit covenant.
Following the Group's renegotiation of its senior secured lending facility
covenants in October 2022 which addressed the underlying cause of the material
uncertainty, the Group has three principal negative pledge covenant
commitments, defined within the credit facility. These covenants, in effect
for periods starting after 26 September 2022 for the remaining duration of the
agreement to 30 March 2025, relate to:
1) A facility defined minimum balance sheet current asset to current
liability ratio test;
2) A facility defined minimum qualified cash balance of $20 million to be
held by loan parties with the lender group at all times; and
3) A facility defined measure of EBITDA business profitability.
As set out more fully in note 9 Events after the balance sheet date, on 22
August 2023 the Group concluded a further amendment to its credit facility,
moving the facility defined adjusted EBITDA covenant threshold from a trailing
three to a trailing 12-month basis from the beginning of FY25 as well as
increasing the size and specificity of the non-recurring expense add back in
the calculation of the facility defined adjusted EBITDA measure.
Effective from 27 March 2023, the Group's credit facility was acquired as part
of the loan portfolio purchased by First Citizens Bank & Trust Company as
part of their acquisition of Silicon Valley Bridge Bank, N.A, previously
Silicon Valley Bank. The Directors have received written confirmation from
First Citizens Bank & Trust Company that First Citizens Bank has assumed
all the liabilities and obligations of Silicon Valley Bridge Bank, formerly
Silicon Valley Bank, associated with this facility. The administrative agent
and issuing lender for the facility is now Silicon Valley Bank, a division of
First Citizens Bank & Trust Company. As a result of the sale and purchase
agreement of Silicon Valley Bridge Bank to First Citizens Bank and the
confirmation of the transfer of all the liabilities and obligations in
relation to the Company's credit facility to First Citizens Bank, the
Directors have a reasonable expectation that the Group's lending facility
provides the security of funding necessary to support its going concern
assumptions.
Base case
In assessing the appropriateness of the going concern assumption, the Board
has considered (i) the cash requirements of the business to pursue its
intended strategy, (ii) the funding available to the Group from existing cash
reserves and ABL facility and (iii) potential variations in the cash
requirements of the Group taking into account severe but plausible downside
scenarios that appropriately reflect the current uncertain macroeconomic
outlook and post year-end trading.
The Directors have prepared cash flow forecasts extending for more than 12
months from the date of the approval of these financial statements to assess
the liquidity of the Group. The first of these forecasts, prepared ahead of
the end of the financial year in the final quarter of FY23, was based on
expectations formed by trading experience at the time and anticipated future
trends. It also included cost savings and efficiencies that the Group is
already benefiting from, as well as additional cost and cash savings expected
to be implemented over the going concern period including working capital
improvements. Under this base case scenario (the "Original Baseline"), the
Group had sufficient liquidity over this period and meets its credit facility
covenant commitments.
Trading in the first quarter of FY24, beginning in April 2023, was below
expectations with total revenues 18% lower than the comparable period in FY23.
This reduction was a combination of:
● Sales to new customers being 41% lower, the comparable period
being prior to our pivot to profit and reduction in new customer investment;
and
● Sales to repeat customers being 15% lower, reflecting the smaller
customer base year-on-year.
As a result, management revised its original plan for FY24 and FY25. This
revised plan (the "Revised Baseline") took into account emerging trends in new
customer acquisition and the rate of growth of revenue per Angel, partially
offset by an improvement in mature Angel attrition and resulted in lower
forecasts for sales, profitability and cash flow generation versus the
original plan for FY24 and FY25.
Sensitivities and reverse stress test
The Directors have considered several downside scenarios against both the
Original Baseline and the Revised Baseline. The scenarios applied to the
Original Baseline are:
● Increased year-on-year repeat customer attrition of between 10%
and 30% (based on the level, by market, of the worst experienced attrition
rate over a three-month period in recent history);
● Sustained lower level of new customer acquisition spend resulting
in 15% year-on-year decline in Investment in New Customers; and
● A decline in repeat customer activation of 10% versus the Original
Baseline.
The Directors also prepared a further severe but plausible downside customer
activation scenario modelling the impact of a 10% decline in repeat customer
activation versus the Revised Baseline.
Under each downside scenario individually the forecasts show all covenant
requirements being met. In the most severe downside scenario, being the 10%
repeat customer activation downside versus the Revised Baseline, the most
sensitive covenant was the $20 million minimum cash requirement where headroom
fell to £4 million, rising to £10 million with application of a contingency
plan (see below), in excess of this covenant requirement at the lowest point
of the forecast.
A reverse stress test of the Revised Baseline downside scenario was also
performed, being the downside scenario deliberately engineered to identify the
point at which a covenant breaks. This reverse stress test shows that an
additional 2% reduction in repeat customer activation (beyond the 10% severe
but plausible downside scenario noted above) results in the Group not meeting
its minimum cash covenant, reflecting the relatively high degree of
sensitivity over downside modelling in this scenario.
The Directors have identified a contingency plan to improve cash generation
should evidence of this downside scenario become apparent, including further
working capital management and promotional sales and margin opportunities.
Management believes that together, these actions add an additional
2% headroom between the severe but plausible downside scenario and reverse
stress test. The modelled breach in the reverse stress test, including the
identified additional mitigation, occurs 17 months after the balance sheet
date in the second quarter of FY25.
In addition to the trading sensitivity disclosed above, compliance with the
minimum cash covenant is reliant on being able to continue to access the
anticipated level of the Group's ABL facility, where the level of available
credit (the 'facility borrowing base') is determined by the level and carrying
value of the Group's US inventory. The Directors highlight the key source of
estimation uncertainty over inventory valuation and also the requirement to
maintain the existing level of supplier waivers (to include wine held at their
facilities within the facility borrowing base calculation) in order to support
the Group's forecast available credit. Together, these factors give rise to
additional uncertainty over the level of the ABL facility available to be
drawn down across the forecast period.
Given experienced trading volatility and the macroeconomic conditions
increasing the uncertainty over future forecasts, the Directors note that
forecast variances of more than 4% outside of the currently severe but
plausible downside scenario would result in a breach of the Company's minimum
cash holding covenant and whilst the Company's credit provider has proven to
be responsive to accommodating the needs of the business, any further covenant
amendments, should they be required, will be subject to negotiation.
This assessment is linked to a robust assessment of the principal risks facing
the Group and the reverse stress test reflects the potential impact of these
risks being realised.
Summary
After considering the forecasts, sensitivities and mitigating actions
available and having regard to the risks, uncertainties and challenges in
recent trading and the macroeconomic environment, the Directors note that a
material uncertainty exists that may cast significant doubt over the Group's
ability to continue as a going concern and therefore, it may not be able to
realise its assets and discharge its liabilities in the normal course of
business.
The material uncertainty with regards to going concern relates to the Group's
ability to generate sufficient future cash flows while trading in a volatile
environment, successful completion of planned actions and maintaining access
to the forecast level of ABL facility in order to meet its minimum cash
covenant in the going concern period.
The financial statements have been prepared on a going concern basis, whilst
noting the material uncertainty above.
4. Segmental reporting
IFRS 8 Operating segments requires operating segments to be determined based
on the Group's internal reporting to the Chief Operating Decision Maker
(CODM). The Board has determined that the Executive Directors of the Company
are the CODM of the business. This is on the basis that they 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 and adjusted
EBIT (being operating profit excluding any 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 allocated in accordance with 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, this
being principally wine and some spirits.
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.
53 weeks ended 3 April 2023 Naked Wines US Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue 171,035 137,192 45,818 - 354,045
Revenue associated with the US inventory impairment (3,110) - - - (3,110)
Total adjusted sales (1) 167,925 137,192 45,818 - 350,935
Analysed as:
New Customer sales 17,180 6,400 3,312 - 26,892
Repeat Customer sales 147,448 130,792 42,506 - 320,746
Other revenue 3,297 - - - 3,297
Total adjusted sales (1) 167,925 137,192 45,818 - 350,935
Investment in New Customers (15,057) (3,417) (2,937) - (21,411)
Repeat Customer contribution 50,314 24,990 11,196 - 86,500
Other contribution 255 - - - 255
Total contribution after advertising costs(2) 35,512 21,573 8,259 - 65,344
General and administrative costs(3) (12,830) (6,896) (3,561) (24,692) (47,979)
Adjusted EBIT 22,682 14,677 4,698 (24,692) 17,365
Adjusted items (see note 5):
Non-cash items relating to - - - (1,293) (1,293)
acquisitions
Right-sizing of US inventory (13,964) - - - (13,964)
Impairment of goodwill, property, plant and equipment and right-of-use assets - - - (18,183) (18,183)
Other adjusted items - - - 1,817 1,817
Operating profit/(loss) 8,718 14,677 4,698 (42,351) (14,258)
Finance costs (2,155) (36) (24) (2) (2,217)
Finance income 342 - - 1,113 1,455
Profit/(loss) before tax 6,905 14,641 4,674 (41,240) (15,020)
Tax (2,275) (1,482) (1,396) 2,760 (2,393)
Profit/(loss) for the year 4,630 13,159 3,278 (38,480) (17,413)
Depreciation 1,897 353 225 38 2,513
Amortisation 1 - - 1,785 1,786
Impairment - - - 18,183 18,183
Total assets 146,629 47,626 23,139 251,888
34,494
Total liabilities 93,275 41,127 13,731 5,077 153,210
53 weeks ended 3 April 2023 US UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 171,035 137,192 45,818 354,045
Non-current assets excluding deferred tax assets 7,710 26,070 - 33,780
1. Total adjusted sales are calculated as revenue excluding revenue
associated with the right-sizing of US inventory as analysed in note 5
Adjusted items.
2. Contribution after advertising costs is calculated as gross profit,
less fulfilment and advertising costs, excluding transactions associated with
the right-sizing of US inventory included in contribution (details in note 5
Adjusted items).
3. Refer to the table in the APM section at the end of this
announcement for a reconciliation of G&A costs to those reported in the
income statement.
52 weeks ended 28 March 2022 Naked Wines US Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue
New Customer sales 17,556 11,342 5,137 - 34,035
Repeat Customer sales 138,665 135,617 40,777 - 315,059
Other revenue 1,169 - - - 1,169
157,390 146,959 45,914 - 350,263
Investment in New Customers (23,225) (13,495) (4,583) - (41,303)
Repeat Customer contribution 46,648 28,225 11,342 - 86,215
Other contribution 77 - - - 77
23,500 14,730 6,759 - 44,989
General and administrative costs(1) (14,939) (6,614) (3,879) (17,562) (42,994)
Adjusted EBIT 8,561 8,116 2,880 (17,562) 1,995
Adjusted items (see note 5):
Non-cash items relating to acquisitions - - - (1,321) (1,321)
Other adjusted items - - - 1,230 1,230
Operating profit/(loss) 8,561 8,116 2,880 (17,653) 1,904
Finance costs (91) (9) (11) - (111)
Finance income - 1 - 1,079 1,080
Profit/(loss) before tax 8,470 8,108 2,869 (16,574) 2,873
Tax (1,384) (568) (326) 1,788 (490)
Profit/(loss) for the year 7,086 7,540 2,543 (14,786) 2,383
Depreciation 1,113 264 230 50 1,657
Amortisation 1 - - 1,900 1,901
Total assets 122,278 41,622 24,912 58,719 247,531
Total liabilities 63,495 45,203 20,126 8,824 137,648
52 weeks ended 28 March 2022 US UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 157,390 146,959 45,914 350,263
Non-current assets excluding deferred tax assets 4,919 44,261 364 49,544
1. Refer to the table in the APM section at the end of this
announcement for a reconciliation of G&A costs to those reported in the
income statement.
5 Adjusted items
The Directors believe that adjusted EBIT provides additional useful
information for shareholders on trends and performance. These measures are
used for performance analysis. Adjusted EBIT 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.
In the year, the adjustments made to operating profit are:
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£'000 £'000
Non-cash charges relating to acquisitions - amortisation of acquired (1,293) (1,321)
intangibles
US inventory provision (10,254) -
US cancellation of winemaker contracts (527) -
Sale of US inventory - contribution loss (see glossary of definitions in the (2,360) -
APM section at the end of this announcement)
Right-sizing of US inventory included in contribution (13,141) -
Disposal of US inventory - charitable donations (823) -
Right-sizing of US inventory (13,964) -
Impairment of goodwill, property, plant and equipment and right-of-use assets (18,183) -
Profit on disposal of asset classified as held for sale 4,814 -
structuring costs (1,522) -
Software as a Service costs incurred in the implementation of new ERP platform (2,347) -
Legal settlement for Payment card Interchange fees 740 -
Fair value movement through the income statement on foreign exchange contracts 132 1,091
and associated unrealised foreign currency inventory
Foreign exchange movements on plc company bank balances - 139
Other adjusted items 1,817 1,230
Total adjusted items (31,623) (91)
Amortisation of acquired intangibles
These items reflect costs of customer acquisition from prior to the purchase
of the Naked Wines business. In order to reflect the cost of current new
customer acquisition in its adjusted EBIT, 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.
Right-sizing of US inventory
As a result of the Group's pivot to profit strategy in the current financial
year, management has engaged in a rigorous review of inventory holdings and
concluded that in the US business unit, as a result of the revision to future
sales and growth forecasts, an inventory right-sizing exercise was required.
On the basis of this evaluation, the Group has recorded a charge of £14.0
million in the year in order to allow the US business to consolidate its
inventory holdings around wine and winemakers core to the Group's mission to
connect everyday wine drinkers with the world's best independent winemakers.
As a result of this decision, a number of winemakers, brands and products have
been delisted, winemaker commitments cancelled, and plans made to exit certain
quantities of inventory at less than historic cost. Where inventory that has
been sold on the secondary market as part this right-sizing exercise for less
than historic cost of goods, these transactions are reported net within
adjusted items as part of adjusted performance measures and are disclosed as
sale of US inventory - contribution loss.
Right-sizing of US inventory continued
Management considers these provisions and charges to be one-off in nature as
amounts relate to purchases made on the back of continued expected growth
following the COVID-19 pandemic and based on the Group's previous strategy of
customer acquisition. As a result of the strategic shift from customer
acquisition to short-term profitability and cash generation, this impairment
charge forms part of the one-off exercise undertaken in the year to better
align purchasing and inventory management going forwards whilst still ensuring
the Group holds sufficient inventory to meet customer demand.
Management has concluded it is appropriate to include the inventory impairment
within adjusted items to provide a more consistent basis with the comparative
adjusted EBIT alternative performance measure.
Impairment of goodwill, property, plant and equipment and right-of-use-assets
As a result of the Company's decision to focus on short-term profitability and
cash generation over long-term growth, an impairment of £18.2 million has
been recognised in the FY23 income statement. This represents a partial
impairment of the goodwill allocated to the US business and a full impairment
of the goodwill, property, plant and equipment and right-of-use assets in the
Australian business.
Profit on disposal of asset classified as held for sale
In May 2022, the sale of the asset classified as held for sale was
completed. The profit arising on the sale is the difference between the
proceeds of £5.85 million less commissions and costs of £0.2 million and the
carrying value of the asset of £0.8 million.
Restructuring costs
The Group undertook a restructuring program in FY23 seeking to generate
improved efficiency and reduce costs. Following this review, one-off
termination payments and associated costs were incurred in the US and the UK.
Software as a Service cost
During the year, the Group incurred upfront configuration and implementation
costs relating to the development of a new ERP system. Under the change of
accounting policy, these costs are reported as incurred in the income
statement. As material non-recurring expenditure, the costs relating to the
configuration of the ERP platform have been disclosed as an adjusted item.
Legal settlement in relation to Payment card Interchange fees
Naked Wines were part of a class action group that brought proceedings against
Visa and Mastercard for engaging in anti-competitive conduct in relation to
arrangements for setting and implementing multilateral Payment card
Interchange fees. This amount is net of costs and is in full and final
settlement of the claim.
Fair value movement on foreign exchange contracts and associated unrealised
foreign currency inventory
We commit in advance to buying foreign currency to purchase wine to mitigate
exchange rate fluctuations. International accounting standards require us to
mark the value of these contracts to market. As this may materially fluctuate,
we adjust this, and associated foreign currency inventory revaluation, as to
better reflect our trading profitability.
Foreign exchange movements on plc company bank accounts
In the prior year, the parent company held foreign currency cash balances,
which it used to fund its US and Australian businesses. The revaluation of the
foreign currency balances held were reported as adjusted items so as not to
distort the picture of the underlying business cost base.
6 Tax
(a) Tax charge
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£'000 £'000
Current tax
UK tax - 4
Overseas tax (4,198) (2,011)
Adjustment in respect of prior periods (377) 27
Current tax charge (4,575) (1,980)
Deferred tax
Origination and reversal of temporary differences 1,085 1,077
Adjustment in respect of prior periods 560 64
Effect of change in tax rate on prior period balances 537 349
Deferred tax credit 2,182 1,490
Total tax charge for the year (2,393) (490)
(b) Tax reconciliation
The tax charge for the year differs from the standard rate of corporation tax
in the UK of 19% (2022: 19%). The reasons for this are detailed below:
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£'000 £'000
(Loss)/profit before tax (15,020) 2,873
Tax charge at the standard UK corporation tax rate of 19% (2022: 19%) 2,854 (546)
Adjustments in respect of prior periods 183 91
Disallowable expenditure (1,926) (485)
Overseas income tax at higher rates (588) (44)
Income not taxable - 12
Fixed asset differences 60 -
Change in unrecognised deferred tax assets (3,054) 475
Share based payments (138) 141
Change in tax rate on prior period deferred tax balances 263 (134)
Foreign exchange (47) -
Total tax charge (2,393) (490)
Effective tax rate (15.9)% 17.1%
Deferred tax balances have been calculated to the substantively enacted rate
at which they are expected to reverse.
The chancellor has confirmed an increase in the corporation tax rate from 19%
to 25% with effect from 1 April 2023 which received Royal Assent on 10 July
2021.
7 (Loss)/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 220,137 (2022: 145,557) shares held by the
Naked Wines plc Share Incentive Plan Trust and the Naked Wines Employee
Benefit Trust (which have been treated as dilutive share based payment
awards).
The dilutive effect of share based payment awards is calculated by adjusting
the weighted average number of ordinary shares in issue to assume conversion
of all dilutive potential ordinary shares. Share awards granted over 3,382,710
(2022: nil) ordinary shares have been excluded from the calculation as they
are anti-dilutive. All other outstanding share awards have been included in
the calculation as they are potentially dilutive at the year end.
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
(Loss)/earnings per share
Basic (loss)/earnings per share (23.6)p 3.3p
Diluted (loss)/earnings per share (23.6)p 3.2p
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
(Loss)/earnings for the purpose of basic earnings per share calculation (17,413) 2,383
(£'000)
Weighted average number of ordinary shares used as the denominator in 73,663,498 73,172,727
calculating basic earnings per share
Dilutive potential ordinary shares:
Employee share awards 520,030 1,803,937
Weighted average number of ordinary shares and potential ordinary shares used 74,183,528 74,976,664
as the denominator in calculating diluted earnings per share
74,004,135 73,439,132
Total number of shares in issue
As noted above, the denominator for the purposes of calculating both basic and
diluted earnings per share has been adjusted to exclude the shares held by the
Naked Wines plc Share Incentive Plan Trust and the Naked Wines Employee
Benefit Trust.
If all the Company's share awards had vested at 100%, the Company would have
77,370,058 issued shares.
There have been no transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of authorisation of
these financial statements.
8 Notes to the cash flow statement
(a) Reconciliation of profit to cash flows from operations
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£'000 £'000
Cash flows from operations
Operating (loss)/profit (14,258) 1,904
Add back/(deduct):
Depreciation and amortisation 4,299 3,558
Impairment of goodwill, property, plant and equipment and right-of-use assets 18,183 -
Loss on disposal of fixed assets 327 18
Intangible assets previously capitalised under former accounting 253 -
policy
Profit on sale of asset held for resale (4,814) -
Fair value movement on foreign exchange contracts 109 (1,212)
US segment inventory provision 10,254 -
Share based payment charges 1,604 1,311
Operating cash flows before movements in working capital 15,957 5,579
Increase in inventories(1) (28,770) (61,174)
(Decrease)/increase in Angel funds and other deferred income (6,193) 3,582
Decrease/(increase) in trade and other receivables 3,501 (1,779)
(Decrease)/increase in trade and other payables (14,476) 12,863
Net cash flows used in operations (29,981) (40,929)
1. Increase in inventories is calculated as the GBP movement in the
balance sheet of £23.3 million (FY23 inventory of £165.7 million less FY22
inventory of £142.4 million), plus the non-cash inventory provision of £10.3
million and after adjusting for FX of £4.8 million.
(b) Cash and cash equivalents
3 April 2023 28 March 2022
£'000 £'000
Cash and cash equivalents 39,474 39,846
(c) Analysis of movement in net cash and changes in liabilities arising from
financing activities
28 March 2022 Cash flows Non-cash movements(1) 3 April 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents 39,846 (685) 313 39,474
Borrowings:
Borrowings, net of issuance costs - (29,673) 542 (29,131)
Customer funded bond (35) - - (35)
Lease liabilities (3,567) 1,299 (3,583) (5,851)
Net liabilities arising from financing activities (3,602) (28,374) (3,041) (35,017)
Total net cash/(borrowings) 36,244 (29,059) (2,728) 4,457
1. Non-cash movements relate to lease additions and foreign exchange
movements.
9 Events after the balance sheet date
On 22 August 2023, the Directors concluded an amendment to the principal
covenant obligations of the Group's asset backed lending facility. This
amendment moves the facility defined adjusted EBITDA covenant commitment
threshold from a trailing three to a trailing 12-month basis from the
beginning of FY25 and increases the size and specificity of the non-recurring
expense add-back in the calculation of the facility defined adjusted EBITDA
covenant commitment. The amendment also documented as a post-close completion
obligation the inclusion of the Group's Australian businesses as loan parties
to the agreement. These revised covenant obligations come into effect for
periods beginning after 2 October 2023.
The introduction of the revised covenant commitments has no financial effect
on the operation of the credit facility. However, the Directors believe that
the revised profit covenant test provides the Company with greater latitude in
the unwind of the Group's excess inventory and management of its operating
cost base.
There were no other events after the balance sheet date that had a material
impact on the financial position and performance of the Group.
Glossary of definitions, alternative performance measures (APMs)
and key performance indicators (KPIs)
Definitions
5* customer service The percentage of feedback ratings received by our Customer Happiness teams Customer experience KPI
that expressed 5* satisfaction on a scale of 1 to 5.
5-Year Forecast Payback The ratio of projected future Repeat Customer contribution we expect to earn Investment measure
from the new customers recruited in the year, divided by the Investment in New
Customers. We forecast contribution at a customer level using a machine
learning algorithm that 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.
As this is an undiscounted forward-looking estimate it cannot be reconciled
back to reported financial results.
5-Year Lifetime Value (LTV) The future Repeat Customer contribution we expect to earn from customers Investment measure
recruited in a discrete period of time. We calculate this future contribution
using a machine learning 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 machine learning
algorithms then predict the future (lifetime) value of that customer.
Active Angel An Angel that is an active subscriber who has placed an order in the past 12
months.
Adjusted EBIT Operating profit adjusted for amortisation of acquired intangibles, APM
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 and any items that are either material one-time
charges we do not expect to be repeated or are non-trading related. A
reconciliation to operating profit can be found on the face of the Group
income statement.
Adjusted EBITDA Adjusted EBIT plus depreciation and amortisation, but excluding any APM
depreciation or amortisation costs included in our adjusted items e.g.
amortisation of acquired intangibles.
AGM Annual General Meeting
Angel A customer who deposits funds into their 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). We often split contribution into that
from new and repeat customers as they can have different levels of
profitability. A reconciliation of operating profit to contribution is shown
in note 4 Segmental reporting.
DtC Direct-to-Consumer
EBIT Operating profit as disclosed in the Group income statement. APM
EBITDA EBIT plus depreciation and amortisation.
Free cash flow Cash generated by operating activities less capital expenditure and before APM
adjusted items and tax. A reconciliation of this metric is provided in the
APM section at the end of this announcement.
Group Naked Wines plc and its subsidiary undertakings
Investment in New Customers The amount we have invested in acquiring new customers during the year Investment measure
including contribution profit/loss from New Customer sales and advertising
costs. Please note that we have updated the description of this term to
elaborate on its components, however the underlying calculation has not
changed.
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.
Net cash excluding lease liabilities The amount of cash we are holding less borrowings at year end excluding lease APM
liabilities.
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. A reconciliation of total sales to New Customer sales is shown
in note 4 Segmental reporting.
Other revenue Revenue from stock optimisation activities.
Other contribution The profit or loss attributable to sales meeting the definition of other Investment measure
revenue.
Product availability The average percentage of products we have defined as core to the portfolio Customer experience KPI
that is available to our customers throughout the year.
Repeat customer A customer (Angel) who has subscribed and made their first monthly
subscription payment.
Repeat Customer contribution The profit attributable to sales meeting the definition of Repeat Customer Investment measure
sales after fulfilment and service costs. A reconciliation of adjusted EBIT to
Repeat Customer contribution is shown in note 4 Segmental reporting.
Repeat Customer contribution margin Repeat Customer contribution as a percentage of Repeat Customer sales. Investment measure
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. A reconciliation of
total sales to Repeat Customer sales is shown in note 4 Segmental reporting.
Repeat Customer sales retention The proportion of sales made to customers who met our definition of "repeat" Investment measure
last year and who placed orders again this year, calculated on a monthly basis
and summed to calculate the full year retention.
SIP Share Incentive Plan
Standstill EBIT The adjusted EBIT that would be reported if Investment in New Customers was Investment measure
reduced to the level needed only to replenish the portion of the customer base
that was lost to attrition during the period. A calculation of this metric is
provided in the APM section at the end of this announcement.
Total addressable market (TAM) TAM represents the available market which Naked sees as a revenue opportunity
which it could serve.
Wine quality - The percentage of "Yes" scores given by customers in the year indicating that Customer experience KPI
"Buy it again" ratings the customer would buy the product again.
Year 1 Payback A short-term payback measure showing the actual return in this financial year Investment measure
of our investment in the prior year.
Alternative performance measures (APMs)
Reconciliation of reported results to 52 week comparable figures
FY23 FY22
Reported Adjusted items Adjusted 53rd week 52 week comparable Reported Adjusted items Adjusted Constant FX Comp-
arable
£m £m £m £m £m £m £m £m £m £m
Sales Group
New Customer sales 26.9 - 26.9 (0.9) 26.0 34.0 - 34.0 2.5 36.5
Repeat Customer sales 320.7 - 320.7 (6.2) 314.5 315.1 - 315.1 20.3 335.4
Other revenue 6.4 (3.1) 3.3 (0.1) 3.2 1.2 - 1.2 0.1 1.3
354.0 (3.1) 350.9 (7.2) 343.7 350.3 - 350.3 22.9 373.2
Naked Wines US
New Customer sales 17.2 - 17.2 (0.4) 16.8 17.6 - 17.6 2.2 19.8
Repeat Customer sales 147.4 - 147.4 (3.3) 144.1 138.7 - 138.7 18.3 157.0
Other revenue 6.4 (3.1) 3.3 (0.1) 3.2 1.2 - 1.2 0.1 1.3
171.0 (3.1) 167.9 (3.8) 164.1 157.5 - 157.5 20.6 178.1
Naked Wines UK
New Customer sales 6.4 - 6.4 (0.4) 6.0 11.3 - 11.3 - 11.3
Repeat Customer sales 130.8 - 130.8 (1.6) 129.2 135.6 - 135.6 - 135.6
137.2 - 137.2 (2.0) 135.2 146.9 - 146.9 - 146.9
Naked Wines Australia
New Customer sales 3.3 - 3.3 (0.1) 3.2 5.1 - 5.1 0.3 5.4
Repeat Customer sales 42.5 - 42.5 (1.3) 41.2 40.8 - 40.8 2.0 42.8
45.8 - 45.8 (1.4) 44.4 45.9 - 45.9 2.3 48.2
Contribution after advertising costs Group
Investment in New Customers (21.4) - (21.4) 0.7 (20.7) (41.3) - (41.3) (3.3) (44.6)
Repeat Customer contribution 86.5 - 86.5 (1.7) 84.8 86.2 - 86.2 6.6 92.8
Repeat contribution margin (%) 27% - 27% - 27% 27% - 27% - 28%
Other contribution (12.9) 13.2 0.3 (0.1) 0.2 0.1 - 0.1 - 0.1
52.2 13.2 65.4 (1.1) 64.3 45.0 - 45.0 3.3 48.3
Naked Wines US
Investment in New Customers (15.1) - (15.1) 0.7 (14.4) (23.2) - (23.2) (3.1) (26.3)
Repeat Customer contribution 50.3 - 50.3 (1.2) 49.1 46.6 - 46.6 6.1 52.7
Repeat contribution margin (%) 34% - 34% - 34% 34% - 34% - 34%
Other contribution (12.9) 13.2 0.3 (0.1) 0.2 0.1 - 0.1 - 0.1
22.3 13.2 35.5 (0.6) 34.9 23.5 - 23.5 3.0 26.5
Naked Wines UK
Investment in New Customers (3.4) - (3.4) - (3.4) (13.5) - (13.5) - (13.5)
Repeat Customer contribution 25.0 - 25.0 (0.1) 24.9 28.2 - 28.2 - 28.2
Repeat contribution margin (%) 19% - 19% - 19% 21% - 21% - 21%
21.6 - 21.6 (0.1) 21.5 14.7 - 14.7 - 14.7
Naked Wines Australia
Investment in New Customers (2.9) - (2.9) - (2.9) (4.6) - (4.6) (0.2) (4.8)
Repeat Customer contribution 11.2 - 11.2 (0.4) 10.8 11.3 - 11.3 0.6 11.9
Repeat contribution margin (%) 26% - 26% - 26% 28% - 28% - 28%
8.3 - 8.3 (0.4) 7.9 6.7 - 6.7 0.4 7.1
General and administrative Naked Wines US (13.6) 0.8 (12.8) - (12.8) (14.9) - (14.9) (1.6) (16.5)
Naked Wines UK (6.9) - (6.9) - (6.9) (6.6) - (6.6) - (6.6)
Naked Wines Australia (3.6) - (3.6) - (3.6) (3.9) - (3.9) (0.2) (4.1)
Unallocated (28.9) 4.2 (24.7) - (24.7) (17.7) 0.1 (17.6) - (17.6)
Group (53.1) 5.0 (48.0) - (48.0) (43.1) 0.1 (43.0) (1.8) (44.8)
Other costs Profit on sale of property 4.8 (4.8) - - - - - - - -
Impairment (18.2) 18.2 - - - - - - - -
EBIT Naked Wines US 8.7 14.0 22.7 (0.6) 22.1 8.6 - 8.6 1.4 10.0
Naked Wines UK 14.7 - 14.7 (0.1) 14.6 8.1 - 8.1 - 8.1
Naked Wines Australia 4.7 - 4.7 (0.4) 4.3 2.9 - 2.9 0.1 3.0
Unallocated (42.4) 17.6 (24.7) - (24.7) (17.7) 0.1 (17.6) - (17.6)
Group (14.3) 31.6 17.4 (1.1) 16.3 1.9 0.1 2.0 1.5 3.5
General and administrative costs reconciliation
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£m £m
G&A costs per income statement (53.1) (43.1)
Add back/(deduct) adjusted items:
Amortisation of acquired intangibles 1.3 1.3
Disposal of US inventory - charitable donations 0.8 -
Restructuring costs 1.5 -
Software as a Service costs 2.3 -
Legal settlement for Payment card Interchange fees (0.7) -
Fair value movement on open foreign exchange contracts (0.1) (1.1)
Plc company foreign exchange revaluations - (0.1)
G&A costs per note 4 Segmental reporting (48.0) (43.0)
Add back marketing R&D spend 5.4 3.0
G&A costs per the calculation of the APM Standstill EBIT (42.6) (40.0)
Add back share based payment charges including social security costs 1.5 1.1
Operating G&A costs (41.1) (38.9)
Free cash flow
53 weeks ended 52 weeks ended
3 April 2023 28 March 2022
£m £m
Adjusted EBIT 17.4 2.0
Add back depreciation and amortisation (excludes adjusted amortisation of 3.3 2.3
acquired intangibles)
Adjusted EBITDA 20.7 4.3
Intangible assets previously capitalised under former accounting policy 0.3 -
Add back share based payment charges 1.6 1.3
Cash flows before movements in working capital 22.6 5.6
Working capital movement
Inventories (29.4) (61.2)
Angel Funds and other deferred income (6.2) 3.6
Trade and other receivables 3.5 (1.8)
Trade and other payables (14.5) 12.9
Repayments of principal under lease liabilities (1.3) (0.8)
Working capital movement (47.9) (47.3)
Pre-tax operating cash flow (25.3) (41.7)
Capital expenditure (1.5) (1.9)
Free cash flow (26.8) (43.6)
Reconciliation to statutory cash flow statement
Free cash flow (26.8) (43.6)
Cash adjusted items (6.0) -
Capital expenditure 1.5 1.9
Repayments of principal under lease liabilities 1.3 0.8
Net cash flows from operating activities (30.0) (40.9)
Net cash excluding lease liabilities
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£m £m
Cash and cash equivalents 39.5 39.8
Borrowings:
Credit facility net of issuance costs (29.2) -
Customer funded bond - -
Net cash excluding lease liabilities 10.3 39.8
Standstill EBIT
53 weeks ended 52 weeks ended
3 April 2023
28 March 2022
£m £m
Standstill EBIT is calculated as:
Repeat Customer contribution (a) 86.5 86.2
Less: replenishment spend (e) (49.7) (25.0)
Less: G&A costs(1) (42.6) (40.0)
(5.8) 21.2
(a) Repeat Customer contribution 86.5 86.2
(b) Repeat Customer sales retention 77.6% 80.4%
(c) Repeat Customer contribution lost to attrition (a x (1-b)) 19.4 16.9
(d) Year 1 Payback 39.0% 67.5%
(e) Spend to replenish lost Repeat Customer contribution (c/d) 49.7 25.0
1. Refer to general and administrative costs reconciliation above.
Adjusted items and marketing R&D spend included within G&A costs are
excluded in the calculation of the Standstill EBIT due to these costs being
one-off or non-recurring transactions.
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