REG - Naked Wines PLC - Half-year Report
15/12/2023 07:00
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RNS Number : 9102W Naked Wines PLC 15 December 2023
15 December 2023
Naked Wines plc
("Naked Wines" or "Group")
Half Year Results for the 26 weeks ended 2 October 2023
Doing what we said we would
Financial highlights:
● Total revenue £132.3m, (20)% at reported currency rates ((18)%
constant currency)
● Adjusted EBIT £2.2m, loss before tax £(9.7)m
● Net cash excluding lease liabilities of £2.8m, total available
liquidity of £48m
● G&A costs excluding adjusted items reduced by 27% (26%
reduction at constant currency) to align with reduced sales performance,
further cost reductions to come
● Inventory optimisation expected to deliver £40m-50m cash inflow
over next 18 months
Operational highlights:
● Business moving towards sustainable cash generation
● Continuing to drive toward sustainable profitability; reducing
costs
● Future inventory intake significantly reduced, purchases to end
FY25 £60m -70m below forecast COGS
● Repeat customers performing well with higher revenue per customer
in all markets
● Lower rates of cancellation in all markets, UK customer base
stabilised
● Rolling out testing at scale of revised new customer recruitment
model after successful initial results
Post period end:
● Customer order patterns over peak trading months are currently in
line with our forecasts
● Net cash as of the end of November improved versus the end of H1
at £7.1m, £53m total available liquidity
Group financial summary(1) H1'24 H1'23 H1'24 vs H1'23 Constant currency(2)
reported reported
Total revenue(3) £132.3m £165.8m (20)% (18)%
Total adjusted sales(3) £131.6m £165.8m (21)% (18)%
New £9.1m £13.4m (32)% (30)%
Repeat £121.8m £148.4m (18)% (16)%
Other £0.7m £4.0m (83)% (82)%
Investment in New Customers £(9.2)m £(11.7)m (21)% (19)%
Repeat Customer contribution £30.5m £42.2m (28)% (25)%
Other contribution £(0.5)m £(0.4)m 25% 67%
General and administrative costs(4) £(18.6)m £(25.5)m (27)% (26)%
Adjusted EBIT(5) £2.2m £4.6m (52)% (44)%
Adjusted items(5) £(10.9)m £(4.8)m 127% 163%
Operating loss £(8.7)m £(0.2)m n/m(6) n/m(6)
Net finance costs £(1.0)m £(0.1)m n/m(6) n/m(6)
Loss before tax £(9.7)m £(0.2)m n/m(6) n/m(6)
Net cash excluding lease liabilities £2.8m £22.9m
Net assets £88.8m £127.3m (30)% (30)%
Inventory (inc that under staged payments) £188.7m £209.5m (10)% (2)%
Notes:
1) In addition to statutory reporting, Naked Wines reports alternative
performance measures (APMs) which are not defined or specified under the
requirements of UK-adopted international accounting standards. 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.
2) Constant currency basis using current period FX rates for the translation
of the comparative period.
3) Refer to the reconciliation of reported performance to management adjusted
basis in the APM section at the end of this announcement for a reconciliation
of total revenue to total adjusted sales
4) Refer to the reconciliation of general and administrative (G&A) costs
in the APM section at the end of this announcement for a reconciliation of
G&A costs shown here to those reported in the income statement.
5) Refer to the reconciliation of reported performance to management adjusted
basis in the APM section at the end of this announcement for a reconciliation
of adjusted EBIT to operating loss (reported EBIT).
6) Year-on-year variance is not meaningful due to the denominator being
broadly around zero.
Operational KPIs H1'24 H1'23
5* customer service 92% 92%
Product availability 89% 81%
Buy it again 91% 91%
Net Promoter Score 66 57
Alternative performance measures H1'24 H1'23 H1'24 vs H1'23
Repeat Customer sales retention 72% 76% (400)bps
Repeat Customer contribution margin 25.0% 28.4% (340)bps
Active Angels in last 12 months 792k 934k (15)%
5-Year Forecast Payback(1) 1.5x 1.7x (0.2)x
Realised Year 1 Payback(2) 38% 46% (8)%
(1) Forecast payback includes estimated value from non-Angel subscribers
recruited in the period.
(2) Realised Year 1 Payback is the average of Year 1 Paybacks observed for
cohorts reaching their first anniversary in the last 12 months
Rowan Gormley, Executive Chairman, commented:
"We are moving towards a period of sustained cash generation. We have taken
out £3 million of cost with £10 million more to come and expect to generate
£40-50 million of cash from inventory over the next 18 months. In addition we
have made good progress with testing an enhanced customer proposition to
restore us to growth. I want to thank our people, our winemakers and our
customers for their support and reiterate our determination to make sure that
they are rewarded for it."
Guidance and outlook:
As announced in our trading update on 7 November and reflecting the outlook
for the US business unit, our view on headline FY24 metrics is as follows:
Guidance(1) FY23(2)
Sales trend (52 week comparable, constant currency) (12)% to (16)% (8)%
Investment in New Customers £23 - 26m £20.7m
Repeat Customer contribution £65 - 70m 84.8m
G&A costs including share based payments, excluding adjusted items £37 - 40m £42.6m
Adjusted EBIT (52 week comparable) £2 - 6m £16.3m
Net cash excluding lease liabilities (at year end) £0 - 15m £10.3m
We also anticipate incurring one-off cash costs of the order £5m in H2 to
drive inventory and cost reduction initiatives
1. This guidance is provided based on FX rates of 1 GBP = 1.24
USD and 1.74 AUD.
2. FY23 reported on a 52 week comparable basis.
Analyst and investor conference call
Naked Wines plc will host an analyst and investor conference call at 9am GMT /
4am ET / 1am PT on 15 December 2023. The briefing will be webcast using the
following link: https://brrmedia.news/WINE_HY (https://brrmedia.news/WINE_HY)
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 Half Year when prompted by the operator.
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
Rowan Gormley, Executive Chairman
James Crawford, Chief Financial Officer
Clara Melia / Catherine Miles
Investec (NOMAD & Joint Broker) Tel: 0207 597 5970
David Flin / Ben Farrow
Jefferies (Joint Broker) Tel: 0207 029 8000
Ed Matthews / 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 (who we call Angels)
commit to a fixed prepayment each month which goes towards their next
purchase. In turn. Naked 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 792,000 Angels in the US, UK
and Australia, making us a leading player in the fast-growing
direct-to-consumer wine market.
Our customers have direct access to 293 of the world's best independent
winemakers making over 2,000 quality wines in 22 different countries. We
collaborate with some of the world's best independent winemakers like Matt
Parish (Beringer, Stags' Leap) and eight-time Winemaker of the Year Daryl
Groom (Penfolds Grange).
Executive Chairman's review
As you may have read, I have moved to Executive Chairman from 7 November
following Nick Devlin stepping down as CEO. I'd like to thank Nick for his
leadership of Naked through the challenges of the COVID-19 pandemic and
getting a lot of the hard turnaround work done in the period that followed.
As I step into the executive role, the key questions on my mind are whether we
can be confident that Naked Wines
1. Will be cash generative?
2. Maintains a robust core of repeat customers post COVID?
3. Can be restored to PROFITABLE growth?
1. Will Naked be cash generative?
We are moving towards a period of sustained cash generation, and we have a net
cash position and almost £90 million of net assets at the half year which we
believe we can bring to bear to further improve liquidity and reduce covenant
constraints as we seek a replacement for our existing credit facility. We
have:
● Substantially completed negotiations with our suppliers to cut
commitments such that inventory spend is forecast to be £60 to 70 million
less than expected cost of goods sold in the next 18 months;
● Eliminated R&D spend and reduced operating G&A costs by
£3.1 million with over £10 million more to come from initiatives from across
the cost base;
● Stabilised the subscriber base in our UK market, and seen reduced
customer attrition in both the US and Australia; and
● Moved to testing at scale of an improved subscription recruitment
model.
However, we will continue to report a material uncertainty in our going
concern assessment as trading remains volatile and we still need to conclude
some supplier discussions, but I'm confident we have the headroom to weather
any plausible future scenario from here.
2. Do we maintain a robust core of repeat customers post COVID?
This is a fair question given the 16% decline in Repeat Customer sales in the
period.
However, I must repeat what we said at the full year results. New customer
acquisition is tough but our customers remain loyal and repeat customer KPIs
are robust. The key facts are:
1. Repeat sales (at constant currency) are down 16% and Active Angels at the
end of the period are down 15%. Looking at Active Angels within the six-month
period we're reporting, rather than the last 12 months used for our normal
KPI, we see that monthly sales per subscribed customer are actually UP in all
three markets, including the US, and by about 3% across the Group.
2. Customer attrition, which impacts sales retention, is at an all-time low of
33%
We still have a new business challenge but, whether we succeed or not in
rising to that challenge, I expect Naked Wines will remain profitable at the
adjusted EBIT level and become cash generative in the next 12 months. The key
dependency is on how well we can perform deploying Investment in New
Customers.
3. Can Naked be restored to PROFITABLE growth?
We are doing exactly what we said we would do.
Priority 1 - Ensure that we come through this stronger, by…
● Completing the negotiations with winemakers to allow us to get
inventory back in line by the end of FY25, generating £40 to 50 million of
cash
● Reducing costs across our fulfilment operations and G&A base to
ensure that we remain profitable even if we do not succeed in rebuilding new
customer acquisition to pre-pandemic levels
● Exploring options for a future credit facility which places fewer
constraints on us
Priority 2 - Restore Naked to profitable growth, by rebuilding new customer
acquisition to pre-pandemic levels
The good news is that a lot of good work has already been done. Between
placing fewer orders and our winemakers agreeing to cut their commitments we
expect to outlay £50 million less cash on inventory in FY24 than we did in
FY23, and a further £38 million less in FY25 versus FY24. In addition, costs
have come down substantially, with more to come.
When it comes to rebuilding growth, there are three elements to consider:
1. Naked has been testing a number of improvements to our new customer
proposition since October last year, seeking improved payback and helping us
access a wider demographic. Right now, it looks like at least one of the ideas
is a winner, and we are testing at scale in all three markets over the peak
season. We will have more to tell you on this next year once we have reviewed
test data over an extended period;
2. The work on costs has a compound benefit. In addition to the direct benefit
from the cost reduction, lower fulfilment costs mean higher contribution and
therefore higher LTVs. In turn this increases the payback of all marketing
and makes it easier to find new customers due to increased viability of
previously marginal investments; and
3. Some of this is cyclical. For example, we recruit most of our new customers
by partnering with other companies who have matching customer profiles. These
companies are typically 25 to 30% down post COVID, which in turn means that
the flow of their customers to us is down as well. This trend may recover over
time but we're not relying on it doing so.
In our last report, we mentioned that we were working within some internally
imposed guardrails, with the goal of making Naked a simpler, more stable and
easier to manage business. These are:
● A mid-term planning assumption of 5% sales growth from FY25
onwards reflecting a base level that we need to create sustained value;
● A hard link between scale and G&A levels consistent with a
business achieving at least 5% EBIT margins implying long-term G&A being
set around 11% of sales;
● Group Inventory levels to be back at the appropriate level by the
end of FY25 - targeting £115 to 130 million - and an ongoing link to member
base size embedded in future inventory commitments policy;
● Maintaining consistent annual new customer investment, at around
£25 million per year
○ Near-term allocation to maximise cash performance
○ Future years to drive growth from improving quality and
retention versus increasing investment levels; and
● When cash levels are restored to a level that removes any
uncertainty around going concern we will test any investments against the
value available from buying back company shares provided the share price is
lower than NPV.
I want to emphasise that this philosophy will continue.
And finally, I want to thank all of our customers, people, winemakers,
suppliers and shareholders for your continued support through this challenging
period. It has been painful, and there is more to come before we can repay
that support, but we are turning the corner and it will be worth it.
We are all determined to make sure that you are rewarded for your patience and
your support.
Rowan Gormley
Executive Chairman
Financial Review
Introduction
Our performance in the first half of the year clearly shows the level of
challenge in the business but, when analysed further, reduces this to the
single critical challenge of new customer recruitment and, in several areas,
demonstrates that our remediation plans are showing progress.
First, the headline numbers which don't yet reflect the impact of our
remediation plans.
Revenues in the period declined in all markets, and by -18% in aggregate at
constant currency (-20% at actual currency). At constant currency, this
reduction is driven by a 16% reduction in Repeat Customer sales, in turn
driven by a 15% decline in the member base. Profitability at the adjusted EBIT
level declined by £2.4 million to £2.2 million, driven as follows:
H1'23 adjusted EBIT £4.6m
Reduction in Repeat Customer contribution £(11.7)m
Reduction in Investment in New Customers £2.5m
Change in other contribution £(0.1)m
Reduction in G&A £3.1m
Elimination of R&D investment £3.8m
H1'24 adjusted EBIT £2.2m
We incurred a net additional £10.9 million of costs (H1'23: £4.8 million)
recognised as adjusted items, the largest of these being an £11.5 million
impairment of assets, £10.8 million of which is in the US business as a
result of the lower than forecast trading in that territory meaning cash flow
forecasts do not support the full asset base we hold for that business unit.
Summing the adjusted EBIT, adjusted items and an interest charge of £1.0
million results in a loss before tax for the period of £9.7 million (H1'23:
loss of £0.2 million).
Our net cash position (excluding lease liabilities) decreased to £2.8 million
(H1'23: £22.9 million) as net working capital continued to increase, but
inventory levels have now stabilised and are forecast to reduce from here.
Operating cash outflow of £3.6 million was significantly reduced versus the
£22.8 million outflow in the comparable period in FY23.
So what are the other positives?
As Rowan has stated, our immediate goal is to stabilise the business, starting
with customer numbers and then translate that to a stable revenue base. If we
align the right level of costs and inventory intake behind that we will have a
profitable business that generates cash sustainably. While we have not yet
reached that position, we can see signs of this emerging in the first half
performance.
Per Angel, our revenues in each market increased and our rate of customer
attrition declined. Taken together, these data points show that to stabilise
the revenue line it is a matter of recruiting more new customers.
Our pivot to profitability significantly reduced our level of investment in
new customer acquisition and we are not currently generating enough new
customers to replenish those lost to cancellations. However, we are slowly
rebuilding the level of productive spend, with our investment levels flat in
the second quarter following a 50% decline in the first quarter where the
comparator period was prior to the pivot to profit. In the UK, where we first
started the process of reducing spend, we have seen a stable membership base
over recent months. This point remains in the future for the US and Australian
businesses but the UK example demonstrates that we are on the right
trajectory, it will just take time. Recent developments to how we recruit
customers will drive improvements in the payback on these investments and,
over time, the trend in the size of the customer base.
Our Repeat Customer contribution margins have reduced in the first half versus
the prior year, driven by a combination of underlying reduction in all markets
and a mix shift towards the lower margin UK market where sales trends are
strongest. While not yet visible in the reported numbers, revised warehousing
arrangements in both the UK and US and, in time, lower inventory holding
levels are expected to drive a reversal in this trend in FY25.
Our operating G&A costs* were 15% lower in the half versus the prior year,
showing the impact of the measures we have taken to reduce spending. These
measures will continue to support profitability in the Group going forwards.
Our net cash balance (excluding lease liabilities) closed at £2.8 million
(with the full £45 million capacity of our credit facility remaining
available to us beyond this). This reduced by £7.1 million during the half, a
slowdown in cash consumption versus the same period in the prior year when we
consumed £18.6 million of cash. While we would like to be generating cash we
are now seeing the reduction in the trend of cash consumption and as we
continue to reduce inventory we see cash generation in sight.
Inventory is the biggest driver of our cash position. At the end of H1'24 we
held £188.7 million, below the £209.5 million of H1'23, again showing that,
with the changes to intake we have agreed with winemakers, we are managing our
inventory purchasing to the lower level of sales we are generating despite the
majority of this inventory having been committed in prior years. Looking
forwards we see intake £60 to 70 million below forecast COGS over the next 18
months underpinning the future cash generation that we are targeting.
* Refer to the reconciliation of general and administrative costs in the APM
section at the end of this announcement.
New and repeat customers and our subscription KPIs
Group financial summary * H1'24 H1'23 H1'24 vs H1'23 Constant currency(1)
New customers
New Customer sales £9.1m £13.4m (32)% (30)%
Investment in New Customers £(9.2)m £(11.7)m (21)% (19)%
5-Year Forecast Payback 1.5x 1.7x (0.2)x (0.2)x
Realised Year 1 Payback 38% 46% (8)% (8)%
Repeat customers
Repeat Customer sales £121.8m £148.4m (18)% (16)%
Repeat Customer contribution £30.5m £42.2m (28)% (25)%
Repeat Customer contribution margin 25.0% 28.4% (340)bps (330)bps
Sales retention 72% 76% (400)bps (400)bps
Active Angels 792k 934k (15)% (15)%
Other
Other revenue £0.7m £4.0m (83)% (82)%
Other contribution £(0.5)m £(0.4)m 25% 67%
* see glossary at the end of this announcement for definitions of APMs
disclosed in this table.
New customers
Investment in New Customers was £9.2 million compared to £11.7 million in
H1'23. The reduction is entirely attributable to the first quarter, the period
prior to the shift in strategy executed in the prior year. In the second
quarter, we invested at the same level as FY23 and in line with our
"guardrail" intention of £25 million per year.
5-Year Forecast Payback of 1.5x (H1'23: 1.7x) has reduced year-on-year due to:
● Accepting certain activities with low 5-year LTV payback but higher
near-term cash payback through liquidation of excess inventory and improved
utilisation of operational capacity;
● Testing new digital creative at scale, where we are achieving breakeven
economics, positive short-term cash returns and broader brand awareness; and
● Testing, in addition to the promising improvements to our customer
proposition that Rowan referenced, a broader recruitment approach with no
requirement to subscribe to receive a discounted first order. This approach
has shown to generate a higher rate of first time purchases (and therefore
near-term cash) but lower long-term value due to the lower level of subsequent
repeat purchases.
We saw an improvement in our ability to invest productively via social media
towards the end of the half, with 39% of our total investment in new customers
being placed in this channel during the reported period.
Our Year 1 Payback number remains low as it reflects the actual payback on
investments made in the period H2'22 and H1'23, the majority of which is
before our pivot to profit and higher returns. This lagging indicator is
expected to improve as we report on the higher payback spend after H1'23.
Repeat customers
Repeat Customer sales were £121.8 million, an 18% decrease on the prior year
(16% decrease at constant currency). With Angel numbers reducing, this
decrease masks an improvement of 3% in monthly sales per subscribed Angel. Our
sales retention metric shows a reduction to 72% for the period compared to 76%
in the same period of FY23. This reduction is the net of a four percentage
point improvement in member retention rates year-on-year but a reduction of 14
percentage points in the rate of increase of revenue per retained Angel.
Alongside the reduction in sales, 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 period from 28.4%
to 25.0%. Of this movement, 210 bps is due to lower underlying gross margins,
in particular in the US business as we discounted to move excess inventory and
60 bps due to a mix shift towards the UK business. The remainder is a function
of our fulfilment costs increasing as a % of revenue, which will improve in
FY25 as we move into revised warehouse contracts and begin to reduce inventory
level. We have not seen the activation uplift we targeted from US discounting
and believe this was due to suboptimal execution. We will continue to
experiment with different approaches to drive cash from inventory during the
final quarter.
Other revenue and contribution
Other revenue and contribution reported within adjusted EBIT represents sales
of bulk wine and disposals of cased goods on secondary markets to reduce
inventories. Disposals in this category are of products that were not
provisioned at the end of FY23. Any sales and contribution arising from
provisioned items are reported net within adjusted items. We have been unable
to dispose of the same levels of bulk inventory as in the comparator period
with conditions in the key US market materially worsening during the half. We
are continuing to develop a range of opportunities to dispose of excess
inventory through commercial partnerships.
Segmental trends
Segmental report * H1'24 H1'23 H1'24 vs H1'23 Constant currency(1)
US segment
Total sales £63.2m £85.2m (26)% (23)%
New Customer sales £5.3m £9.0m (41)% (39)%
Repeat Customer sales £57.2m £72.2m (21)% (18)%
Other revenue £0.7m £4.0m (83)% (82)%
Investment in New Customers £(6.0)m £(7.9)m (24)% (23)%
Repeat Customer contribution £17.4m £24.8m (30)% (28)%
Repeat Customer cont. % 30.4% 34.3% (390)bps (390)bps
Other contribution £(0.5)m £(0.4)m 25% 67%
General and administrative costs(1) £(5.7)m £(6.5)m (12)% (10)%
Adjusted EBIT £5.3m £10.0m (47)% (44)%
UK segment
Total sales £52.4m £58.8m (11)% (11)%
New Customer sales £2.3m £2.7m (15)% (15)%
Repeat Customer sales £50.1m £56.1m (11)% (11)%
Investment in New Customers £(2.0)m £(1.6)m 25% 25%
Repeat Customer contribution £9.4m £11.7m (20)% (20)%
Repeat Customer cont. % 18.8% 20.9% (210)bps (210)bps
General and administrative costs £(3.1)m £(3.7)m (16)% (16)%
Adjusted EBIT £4.3m £6.3m (32)% (32)%
Australia segment
Total sales £16.0m £21.8m (27)% (19)%
New Customer sales £1.5m £1.7m (12)% (6)%
Repeat Customer sales £14.6m £20.1m (27)% (20)%
Investment in New Customers £(1.3)m £(2.1)m (38)% (35)%
Repeat Customer contribution £3.6m £5.6m (36)% (29)%
Repeat Customer cont. % 24.7% 27.9% (320)bps (320)bps
General and administrative costs £(1.6)m £(1.7)m (6)% 0%
Adjusted EBIT £0.8m £1.8m (56)% (50)%
Central G&A £(8.2)m £(13.5)m (39)% (39)%
* See glossary at the end of this announcement for definitions of APMs
disclosed in this table.
1 Refer to the reconciliation of G&A costs at the end of this document for
reconciliation of this figure to G&A costs reported on the face of the
income statement.
Commentary on segments uses constant currency trends, given these are
reflective of the local performance.
US
The US segment saw substantial declines in New and Repeat Customer sales as we
continued to reduce the level of Investment in New Customers due to weaker
payback levels than targeted. Within the repeat customer base, the lower level
of members and a slowing rate of increase in revenue per member led to Repeat
Customer sales falling 18%. Repeat Customer contribution fell by 28% as
margins were reduced due to excess storage costs for cased wine and some deep
discounting at the end of the half year that failed to deliver significant
incremental spend per member.
Other revenue and contribution in the US segment represents sales of bulk wine
that was not provided in FY23. A similar level of sales were made of provided
wine, with these sales reported as adjusted items.
G&A excluding adjusted items in the US, as presented in the table above,
reduced by 10% reflecting lower headcount year-on-year following restructuring
during FY23, reduction in variable compensation accruals and the elimination
of £0.5 million of R&D marketing spend versus the prior year. These
G&A costs include £0.6 million of legal costs associated with the
settlement of employee legal claims, which were resolved shortly after the end
of the half year. The Company anticipates reimbursement of a proportion of
these costs during the second half.
UK
The UK segment showed the most encouraging trends in the Group albeit still
with continued reductions in sales to new and repeat customers. Investment in
New Customers increased in the half as we began to build an improved pipeline
of marketing opportunities. Sales to new customers do not show the same uplift
due to:
● Lower first order values on customers acquired through investments
made in digital channels, where we have started to see viable spend
opportunities after an extended period where this was not the case; and
● Acceptance of some lower payback activities year-on-year given payback
headroom available (the UK having previously delivered the highest paybacks in
the Group).
The repeat sales reduction was driven by reduced customer numbers, with
improvements during the half as the size of the membership base stabilised.
Margins were reduced year-on-year due to higher warehousing costs as we
underutilised the committed capacity. This will resolve in FY25 as the UK
business moves onto a new warehousing contract and partner.
G&A costs excluding adjusted items, as presented in the table above, in
the UK reduced by 16% year-on-year reflecting action taken to reduce headcount
in FY23 and reduced outlook for variable compensation.
Australia
Australia saw a 35% reduction in Investment in New Customers versus the prior
year. New Customer sales, however, only fell by 6% due to a new customer
proposition being tested with no membership requirement to secure advantageous
pricing, resulting in higher conversion of traffic to first orders but lower
levels of new recruits.
The decline in Repeat Customer sales reflected the reduction in the size of
the member base, with margins reducing due to high levels of inflation in the
fulfilment system, in particular final mile delivery.
G&A costs excluding adjusted items, as presented in the table above,
remained flat in the period with some cost efficiencies offsetting expenses
relating to a study evaluating potential fulfilment network savings which was
ultimately terminated, and increased technology operating costs.
Cash flow
Management of the Group's cash position remains a priority across the business
as we continue to manage the implications of excess inventory. We are striving
to balance this with continued efforts to drive profitability, at times
sacrificing cash generative orders to ensure discipline around investment
decisions.
The Group consumed £7.1 million of cash during the period, an £11.5 million
reduction versus the same period in FY23, consisting of:
H1'24 H1'23
£m £m
Operating loss (8.7) (0.2)
Add back: depreciation and amortisation 1.6 2.0
Add back: impairment charges 11.5 -
Add back: other non-cash charges (0.7) 2.7
Change in inventory (19.8) (50.9)
Change in payables 3.8 18.5
Change in Angel funds and other deferred income 8.5 3.6
Other working capital movements 0.2 1.5
Operating cash flow (3.6) (22.8)
Tax and net interest paid (1.9) (0.4)
Capital expenditure (0.6) (0.6)
Proceeds from property held for sale - 5.6
Lease liabilities paid (1.0) (0.4)
Movement in net cash excluding lease liabilities (7.1) (18.6)
The significant reduction in operating cash consumption demonstrates the
progress we have made on our inventory intake challenge as well as the impact
of improving retention on our Angel funds balance. While inventory levels are
comparable year-on-year on a constant currency basis, we have a clear line of
sight of pending reductions with total future commitments having been reduced
by £30 million since the beginning of the year to £131 million. Over the
next 18 months almost half of our non-duty COGS will be delivered by inventory
we have already paid for.
Our Angel fund balance, which typically grows on a per Angel basis during the
first half of the year as customers save towards the holiday season, totalled
£72 million, an 11% reduction versus the same point of FY23 (4% at constant
currency). This is a significantly lower reduction than the reduction in the
number of Angels, reflecting the shift towards longer tenure customers who
typically hold a higher balance and continued low rates of customer attrition.
We do expect to see an acceleration in the reduction of this balance as we
recruit more new customers onto membership types that do not require Angel
funding of accounts. However, testing has shown that the cash generated from
sales to these customers means the overall net cash impact of the different
membership type is negligible after three to six months.
Cash and going concern assessment
Our forecasts show Group net cash levels stabilising in the near-term despite
the reduced revenue outlook communicated in November 2023, which has slowed
our destocking plans. In the medium-term we remain on track for a significant
reduction in inventory, and commensurate increase in net cash levels, over the
coming 18 months from the date of reporting these results. While this takes
place, the Group maintains an asset backed lending (ABL) facility with Silicon
Valley Bank, a division of First Citizens Bank, for downside liquidity
availability and day-to-day cash management. As of the end of H1'24 this
facility provided access to £45 million of liquidity over and above our net
cash excluding lease liabilities balance of £2.8 million.
As a result of this ongoing reliance on the Group's ABL credit facility and
the requirement to achieve the credit facility covenant outcomes in a period
of continued volatile trading, the scope for different outcomes to those
expected from our planned actions and the need for continued support from a
range of suppliers in the delivery of these planned actions, we continue to
report a material uncertainty around our going concern assessment. In the
meantime we have met all performance covenant requirements to date.
We are considering the options for replacing our existing credit facility.
Having sought expert advice on the current debt market and considering the
strength of the balance sheet we believe there may be an opportunity to secure
a similar-sized facility that has less limitation on utilisation and more
flexible covenants resulting in fewer restrictions on the actions we can take
to reduce inventory and drive our broader change agenda.
Recent trading and outlook
Since we gave an update on trading patterns on 7 November, performance has
been satisfactory. November and December are critical trading months given the
high levels of sales in advance of the holidays. Customer order volumes in
November and December to date have been consistent with our forecast. Net cash
(excluding lease liabilities) at the end of November was £7.1m, up from
£2.8m at the half year reporting point.
James Crawford
Chief Financial Officer
Independent review report to Naked Wines plc
Conclusion
We have been engaged by Naked Wines plc ("the Company") to review the
condensed consolidated interim financial statements in the half-yearly report
for the 26 weeks ended 2 October 2023 which comprises the condensed
consolidated income statement, condensed consolidated statement of
comprehensive income, condensed consolidated statement of changes in equity,
condensed consolidated balance sheet, the condensed consolidated statement of
cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated interim financial statements in the
half-yearly report for the 26 weeks ended 2 October 2023 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and the AIM Rules.
Material uncertainty related to going concern
We draw attention to note 4 to the condensed consolidated interim financial
statements which indicates that a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going concern.
The directors' baseline case forecast, and their severe but plausible downside
scenario forecast indicate that the covenants will be met throughout the going
concern period. However, the headroom on the severe but plausible downside
scenario forecast is limited and actual financial performance has been adverse
to budget in recent financial periods. Factoring in the potential reoccurrence
of this variance into the severe but plausible downside scenario would result
in a covenant breach. In addition, the Group's ability to continue to generate
sufficient cash flows and complete the planned actions with external
stakeholders in the forecasted period continues to give rise to uncertainty
over the Group's ability to meet its covenants in the going concern period.
These events and conditions, along with the other matters explained in note 4,
constitute a material uncertainty that may cast significant doubt on the
Group's ability to continue as a going concern.
Our conclusion is not modified in respect of this matter.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly report and consider whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed consolidated interim financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
The directors have prepared the condensed consolidated interim financial
statements on the going concern basis. As stated above, they have concluded
that a material uncertainty related to going concern exists.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half-yearly
report in accordance with the AIM Rules.
As disclosed in note 2, the annual financial statements of the Group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed consolidated interim
financial statements included in the half-yearly report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed consolidated interim financial statements, the
directors are responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Group or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
consolidated interim financial statements in the half-yearly report based on
our review. Our conclusion, including our conclusions relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.
Matthew Radwell
for and on behalf of KPMG LLP
Chartered Accountants
20 Station Road
Cambridge
CB1 2JD
Date: 14 December 2023
Condensed consolidated income statement
For the 26 weeks ended 2 October 2023
Continuing operations 26 weeks ended 2 October 2023 26 weeks ended
26 September 2022
Note £'000 £'000
Revenue 5 132,339 165,775
Cost of sales (78,939) (93,342)
Fulfilment costs(1) (25,764) (32,319)
Gross profit pre inventory provision and winemaker cancellation costs(1) 27,636 40,114
Movement in inventory provision and winemaker cancellation costs 6 1,327 (7,908)
Gross profit(1) 28,963 32,206
Advertising costs (7,440) (10,036)
General and administrative costs (18,732) (27,148)
Impairment of non-current assets 6/7 (11,539) -
Profit on disposal of asset classified as held for sale 6 - 4,814
Operating loss(2) (8,748) (164)
Finance costs (2,329) (565)
Finance income 1,333 514
Loss before tax (9,744) (215)
Tax 8 (1,930) (258)
Loss for the period (11,674) (473)
Loss per share 9
Basic (15.8p) (0.6p)
Diluted (15.8p) (0.6p)
1. The Directors have reviewed their application of IAS1 Presentation
of Financial Statements and have elected to disclose fulfilment costs within
gross profit, which were previously recognised below gross profit.
Comparatives have also been re-presented and there is no impact on the loss
for the period.
2. Operating loss analysed as:
26 weeks ended 2 October 2023 26 weeks ended
26 September 2022
£'000 £'000
Adjusted EBIT 5 2,159 4,609
Adjusted items: 6
Non-cash charges relating to acquisitions - (631)
Right-sizing of US inventory 774 (7,908)
Impairment of non-current assets (11,539) -
Profit on disposal of asset classified as held for sale - 4,814
Other net adjusted items (142) (1,048)
Operating loss (8,748) (164)
The notes to the condensed consolidated interim financial statements following
the primary statements are an integral part of these condensed consolidated
interim financial statements.
Condensed consolidated statement of comprehensive income
For the 26 weeks ended 2 October 2023
26 weeks ended 2 October 2023 26 weeks ended
26 September 2022
£'000 £'000
Loss for the period (11,674) (473)
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translation of foreign operations 1,115 17,714
Tax on items that may be subsequently reclassified to the income statement - (546)
Other comprehensive income for the period 1,115 17,168
The total comprehensive (loss)/profit for the period (10,559) 16,695
The total comprehensive income for the period and the prior period is wholly
attributable to the equity holders of the parent company, Naked Wines plc.
The notes to the condensed consolidated interim financial statements following
the primary statements are an integral part of these condensed consolidated
interim financial statements.
Condensed consolidated statement of changes in equity
For the 26 weeks ended 2 October 2023
Share capital Share premium Capital redemption reserve Currency translation reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000 £'000
At 28 March 2022 5,508 21,162 363 3,183 79,667 109,883
Loss for the period - - - - (473) (473)
Other comprehensive income/(loss) for the period - - - 17,714 (546) 17,168
The total comprehensive income/(loss) for the period - - - 17,714 (1,019) 16,695
Shares issued 42 - - - (42) -
Credit to equity for equity-settled share based payments - - - - 740 740
At 26 September 2022 5,550 21,162 363 20,897 79,346 127,318
At 3 April 2023 5,550 21,162 363 7,930 63,673 98,678
Loss for the period - - - - (11,674) (11,674)
Other comprehensive income for the period - - - 1,115 - 1,115
The total comprehensive income/(loss) for the period - - - 1,115 (11,674) (10,559)
Credit to equity for equity-settled share based payments - - - - 664 664
Deferred tax on share based payments - - - - (32) (32)
At 2 October 2023 5,550 21,162 363 9,045 52,631 88,751
he notes to the condensed consolidated interim financial statements following
the primary statements are an integral part of these condensed consolidated
interim financial statements.
Condensed consolidated balance sheet
As at 2 October 2023
2 October 2023 3 April 2023
Note £'000 £'000
Non-current assets
Goodwill and intangible assets 7 5,859 14,938
Property, plant and equipment 2,936 2,757
Right-of-use assets 2,436 5,374
Deferred tax assets 5,410 7,328
Other receivables 11,252 10,711
27,893 41,108
Current assets
Inventory staged payments to winemakers(1) 26,918 27,217
Inventories(1) 161,750 138,449
Trade and other receivables 5,393 5,610
Financial instruments at fair value - 30
Cash and cash equivalents 10 33,768 39,474
227,829 210,780
Current liabilities
Trade and other payables (46,752) (42,427)
Current tax liabilities (1,943) (1,836)
Angel funds and other deferred income (80,245) (71,314)
Lease liabilities 10 (1,561) (2,030)
Provisions (1,584) (1,709)
Other loans 10 (1,000) -
Bond financing (35) (35)
Financial instruments at fair value (156) (290)
(133,276) (119,641)
Net current assets 94,553 91,139
Total assets less current liabilities 122,446 132,247
Non-current liabilities
Provisions - (14)
Lease liabilities 10 (3,772) (3,821)
Borrowings 10 (29,923) (29,131)
Deferred tax liabilities - (603)
(33,695) (33,569)
Net assets 88,751 98,678
Equity
Share capital 5,550 5,550
Share premium 21,162 21,162
Capital redemption reserve 363 363
Currency translation reserve 9,045 7,930
Retained earnings 52,631 63,673
Total equity 88,751 98,678
1. The Directors have reviewed the disclosure of staged payments to
winemakers in respect of inventory and have elected to disclose the amounts
separately on the face of the balance sheet. Comparatives have also been
re-presented. The amounts were previously aggregated within inventory.
There is no impact on net assets or equity.
The notes to the condensed consolidated interim financial statements following
the primary statements are an integral part of these condensed consolidated
interim financial statements.
The condensed consolidated interim financial statements have been prepared in
accordance with International Accounting Standard 34 Interim Financial
Reporting, as adopted for use in the UK.
By order of the Board
James Crawford
Chief Financial Officer
14 December 2023
Condensed consolidated statement of cash flows
For the 26 weeks ended 2 October 2023
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
Note £'000 £'000
Operating activities
Net cash flows used in operations 10 (3,580) (22,751)
Overseas income tax paid (511) (59)
Net cash (used in) operating activities (4,091) (22,810)
Investing activities
Interest received, including interest received on the vendor loan note 247 36
Purchase of property, plant and equipment (647) (595)
Net proceeds on disposal of property, plant and equipment 39 10
Proceeds from sale of asset held for resale - 5,624
Net cash (used in)/from investing activities (361) 5,075
Financing activities
Interest paid (1,479) (348)
Lease interest paid (179) (70)
Repayments of principal under lease liabilities (999) (441)
Debt issuance costs paid - (768)
Loan advance from supplier 1,000 -
Drawdown of credit facility - 19,468
Net cash (used in)/from financing activities (1,657) 17,841
Net (decrease)/increase in cash (6,109) 106
Cash and cash equivalents at the beginning of the period 39,474 39,846
Effect of foreign exchange rate changes 403 1,670
Cash and cash equivalents at the end of the period 10 33,768 41,622
The notes to the condensed consolidated interim financial statements following
the primary statements are an integral part of these condensed consolidated
interim financial statements.
Notes to the condensed consolidated interim 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 preparation
The annual financial statements of the Group are prepared in accordance with
UK-adopted international accounting standards.
These condensed consolidated interim financial statements have been prepared
applying the accounting policies set out in the Annual Report and Accounts for
the 53 weeks ended 3 April 2023.
The auditor's report on those accounts was not qualified and did not contain
statements under section 498(2) or (3) of the Companies Act 2006. However,
it did include a reference to a material uncertainty related to going concern
being a matter to which the auditor drew attention by way of emphasis without
qualifying the auditor's report.
The condensed consolidated interim financial statements included in this
report have been prepared in accordance with International Accounting Standard
34 Interim Financial Reporting, as adopted for use in the UK. The
condensed consolidated interim financial statements are not statutory
accounts. The financial reporting period represents the 26 weeks ended 2
October 2023 and the prior period, 26 weeks ended 26 September 2022 and are
presented in GBP which is the Group's functional currency, and all values are
rounded to the nearest thousand (£'000), except when otherwise indicated.
The new accounting standards that came into effect in the current accounting
period beginning 4 April 2023, noted below, do not introduce any new
disclosures that are explicitly required in the condensed consolidated interim
financial statements.
● Amendments to IFRS 17
● Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice
Statement 2)
● Definition of Accounting Estimates (Amendments to IAS 8)
● Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
● International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) -
Application of the
exception and disclosure of that fact
● International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12) -
other disclosure
requirements
3. Significant estimates
Goodwill and non-current asset carrying value
During the period, future trading expectations, in particular with respect to
the Group's US trading segment, have been revised downwards to realign
previously anticipated growth in key performance metrics with more recently
observed stable period-on-period performance KPIs in the market, most
relevantly revenue per Angel and the rate of Angel attrition. Revision to
future trading forecasts has resulted in a downward impact on the value in use
calculation used to evaluate the carrying value of goodwill and other
non-current assets in the Group's goodwill impairment assessment.
The Group annually tests whether goodwill has suffered any impairment or more
frequently where indicators of impairment exist in between these annual
tests. At the half year such indications existed, and the Group undertook an
impairment assessment as part of its half-year reporting procedures.
Determining whether goodwill and other non-current assets are impaired
requires an estimation of the recoverable amount of the asset derived from the
cash generating unit (CGU) to which the goodwill and the non-current assets
have been allocated, measured as the higher of value in use or fair value less
cost of disposal. The value in use calculation requires an estimate of the
present value of future cash flows expected to arise from the CGU, by applying
an appropriate discount rate to the timing and amount of future cash flows.
Management is required to make judgements regarding the timing and amount of
future cash flows applicable to the CGU based on current budgets and
forecasts, and then into perpetuity, taking into account growth rates and
expected changes to sales and operating costs.
Management estimates the appropriate discount rate using pre-tax rates that
reflect current market assessments of the time value of money and the risks
specific to the individual CGU.
The Group's impairment test at the balance sheet date results in a partial
impairment of goodwill and other non-current assets, see note 7 Impairment of
non-current assets for further details of results of this assessment. The
Directors note the period-on-period decline in value in use, in particular in
the US segment, and highlight the key assumptions driving the impairment
assessment as set out above as a key source of estimate uncertainty with
regard to the continuing carrying value of goodwill. The Directors also
highlight that as a result of the decline in headroom above carrying value in
the year resulting in the impairment charge reported, should the key
assumptions used to calculate the value in use of goodwill move adversely in a
future period, there is a risk that carrying value of goodwill may become
further impaired, see note 7 Impairment of non-current assets for calculated
sensitivity analysis.
Inventory valuation and impairment provision
An implication of the Group's pivot to profit strategy announced in the
previous financial year and also as a result of ongoing trading pressure, in
particular in the Group's US segment, is the reassessment by the Directors of
required inventory holding levels and future buying commitments. As a result
of this review, a number of winemakers, brands and products were delisted, and
plans made to exit certain quantities of inventory at less than historic cost.
On the basis of this evaluation, the Group holds a provision of £9.7 million
in its US segment at the balance sheet date against delisted winemakers and
for the disposal of bulk wine where anticipated proceeds are less than
carrying value. In addition, the Group also holds a further inventory
provision of £0.9 million across its UK and Australian segments against
specifically identified wines where net realisable value is estimated to be
less than cost. On the basis of the forecast prepared for the evaluation of
going concern of the Group, the Directors anticipate that the remaining cost
of inventory held at the balance sheet date will be profitably realised.
A number of critical judgements have been made in the calculation of the US
segment inventory provision analysis including:
● estimates of the likely use before expiry of wine approaching the
end of its prime marketing life;
● planned evolution of range and winemaker portfolio;
● cannibalisation and absorption of wine volumes across the Naked
range; and
● realisable value of bulk wine in the open market.
The Directors highlight that in the event that their estimates prove to be
inaccurate, the magnitude of the inventory write off could change. A
sensitivity assumption that is readily quantifiable is the average expiry life
of wine. Management have prepared their estimated wine marketing expiry date
from the experience of the life cycle of wine over time in the Naked US market
and examination of customer feedback of wines as they age from first release.
However, if every wine's expected expiry date was reduced by six months, the
amount of wine expiring, and hence requiring write off, within the Group's
forward review period would increase by £3 million. Reducing this assumption
by a further six months to 12 months in total would increase the write-off by
a further £3 million.
4. Going concern
Position adopted at year end 3 April 2023
The Group's financial statements for the year ended 3 April 2023 were signed
on 18 September 2023. Those financial statements were prepared on the basis
that the Group was a going concern although there was a material uncertainty
in respect of going concern. In arriving at this conclusion, the Directors had
reviewed the Group's updated cash flow forecasts along with severe but
plausible downsides and a reverse stress test. Having considered these
forecasts, sensitivities and mitigating actions, and having regard to the
risks, uncertainties and challenges in recent trading and the macroeconomic
environment, the Directors concluded that a material uncertainty existed with
regards to going concern. This material uncertainty related 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 Asset Backed Lending (ABL) facility in order to meet
its minimum cash covenant in the going concern period.
Update to position
Subsequent to the issue of the FY23 financial statements and the update to
guidance provided at that time on 19 September 2023, trading in the UK and
Australian markets in the second quarter was broadly in line with the
forecasts supporting the prior issued guidance, and at a Group level cash
balances remain close to the forecasts, reflecting the Group's ability to
continue to move inventory intake to reflect demand outlook. However, trading
in the US during the second quarter and subsequently in October was weaker
than anticipated. In particular, expectations of year-on-year revenue per
Angel growth from repeat customers were not met, along with associated repeat
contribution margins being below forecast. Despite this, the Group remained
within the parameters of its previous severe but plausible downside scenario.
As disclosed as an event after the balance sheet date in the FY23 financial
statements, on 22 August 2023 the Group also concluded a further amendment to
its credit facility, moving the facility defined adjusted EBITDA covenant
threshold from a trailing three-month basis to an ongoing trailing 12-month
basis from the beginning of FY25. The first revised measurement period will be
for the covenant reporting period ending June 2024. The amendment also
increases the size and specificity of the non-recurring expense add-back in
the calculation of the facility defined adjusted EBITDA measure.
Base case forecast
In response to the decline in trading performance of the US business since the
last forecast, and in order to assess the appropriateness of the going concern
assumption, the Directors reviewed, and revised downwards, their previously
prepared baseline forecast to reflect and anticipate the emerging trading
across the Group, in particular in the US. The Directors considered (i) the
cash requirements of the business to pursue its intended strategy, (ii) the
funding available to the Group from its existing cash reserves and the ABL
facility and (iii) potential variations in cash requirements taking into
account severe but plausible downside scenarios.
In particular, the Directors' revised baseline forecast reflected:
● The latest number of repeat customers in all markets at the
balance sheet date;
● A conservatively higher customer acquisition cost in the outlook
period based on recent trends;
● A downward revised revenue per Angel outlook versus the previous
forecast but in line with recent history; and
● The impact of the testing at scale of the revised new customer
recruitment model on revenue, gross margin, associated variable cost forecasts
and customer deferred revenue balances.
This updated forecast formed the basis of the revised market guidance, issued
on 7 November 2023.
Under this base case scenario, the Group has sufficient liquidity and
profitability to meet its ABL credit facility covenant commitments for a
period of more than 12 months from the date of signing these interim financial
statements.
Severe but plausible downside forecast
The Directors note that in recent times the Group has revised its revenue and
profit outlook downwards multiple times but as set out above, believe that
their current baseline forecast now represents a conservative view of future
trading prospects.
Nevertheless, the Directors have also considered several severe but plausible
changes in assumptions and have combined them into a single severe but
plausible downside scenario:
- The observed value uplift seen in testing of the revised new customer
recruitment model does not endure over time and in FY25 these customers are no
more valuable than Angel customers;
- Despite a mix towards more long-tenured Angels in the Angel base, FY25
repeat revenue per Angel remains flat year-on-year;
- 50% of the US and UK fulfilment cost savings contracted and forecast
into the base case in FY24 and FY25 are not realised;
- The automatic reduction to nil of variable compensation in FY25 in the
downside scenario.
Together, these downside assumptions result in a 5% reduction in repeat sales
and a 10% reduction in repeat contribution in FY25, allowing for a
conservative FY24 sales and margin assumption. In this scenario, all banking
covenants continue to be met. Facility defined adjusted EBITDA covenant
compliance is at its narrowest across the second and third quarter of FY25
with the point of narrowest covenant compliance occurring in December 2024
with a credit facility defined EBITDA covenant figure of £5.2 million, after
factoring in the elimination of variable compensation costs due to
underperformance. This shows cover of 1.3x to the covenant before restoring to
1.6x by year end. Headroom above the credit facility minimum cash covenant is
greater than £12 million across the forecast period to the end of FY25.
However, the Directors acknowledge that during the course of the first half of
FY24, performance was adverse to forecast on some but not all trading metrics.
Factoring in the potential recurrence of this variance into the severe but
plausible scenario outlined above would result in a covenant breach. The
Directors note in particular the limited facility defined adjusted EBITDA
covenant headroom in the second and third quarter of FY25, and that a decline
in the severe but plausible downside scenario contribution in the first half
of FY25 of approximately 7%results in a breach of the facility defined
adjusted EBITDA covenant in September 2024. The Group continues to
remain compliant with its minimum cash covenant requirement across this
period in this scenario.
Reverse stress test
An additional reverse stress test was also performed, being a downside
scenario deliberately engineered to identify the point at which a covenant
breaks, based on a total sales decline rather than a contribution decline in
the scenario above. This reverse stress test assumes an additional reduction
in repeat customer purchase frequency versus the severe but plausible downside
scenario, resulting in a total sales decline in FY25 of 2% below the severe
but plausible downside scenario, highlighting further the narrow headroom
between a severe but plausible downside scenario and a reverse stress test
covenant breach. In this reverse stress test scenario, the Group is not able
to meet its facility defined adjusted EBITDA covenant in December 2024.
Recognising these risks, the Directors have commenced mitigating cost saving
actions, most significantly including an initiative targeting general and
administrative (G&A) cost savings well in excess of those included in the
forecasts. The Directors have indicated an intent to run the business with
G&A costs below 11% of revenue, which would indicate an additional
year-on-year cost reduction of around £5 million and which would support
increased EBITDA. The Directors also note that the level of new customer
investment in FY25 in all scenarios remains broadly flat and which is, at
constant currency, £2 million above the FY24 anticipated level of new
customer investment and a total of £5 million higher than the FY23 achieved
level of new customer investment. As such, they would expect to be able to
reduce lower-returning investments in the case of a worst-case scenario,
whilst minimising the on-going impact on future investment return.
Other material assumptions reflected in the above scenarios
In addition to the trading downside risk set out above, the Directors draw
attention to projects currently in progress to maintain future working capital
requirements and the ongoing requirement for cooperation from external
stakeholders. This includes, most significantly, the work the Group is
currently undertaking with its winemakers to realign future inventory intake
commitments and inbound destinations to accelerate the Group's destocking
process. At the time of writing, these initiatives are ongoing, so management
has incorporated these uncertainties into the medium-term forecast.
Access to the Group's Asset Backed Lending Facility
The Directors also draw attention to their ongoing need to continue to access
the anticipated level of the Group's ABL facility to the end of the third
quarter of FY25, in order to support the Group's forecast available credit.
This is determined by the level and carrying value of the Group's US
inventory, in turn determined by (amongst other factors) the US secondary
market prices for bulk and bottled wine, as well as maintenance of the
existing level of supplier waivers (to include wine held at their facilities
within the facility borrowing base calculation).
The Directors highlight that by the end of the third quarter of FY25, their
base case and severe but plausible downside forecasts show the Group holding
the facility required minimum cash and usual operating cash requirements with
no drawdown on the facility and, as such, the uncertainty around the
anticipated level of the Group's ABL facility falls away at this point. The
Directors also note that, at this point, the ABL facility then provides the
Group with an additional source of working capital in excess of daily and
facility covenant needs.
Notwithstanding the potential for medium-term improvements in the Group's cash
position, delivery of required plans and the several factors influencing the
level of availability of the Group's ABL facility give rise to additional
uncertainties which might impact on the Group's forecast cash flows over the
forecast period.
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 the
continued existence of a material uncertainty over the assumption of going
concern, which may cast doubt over the Group's ability to continue as a going
concern, and therefore its ability to realise its assets and discharge its
liabilities in the normal course of business.
The material uncertainty continues to reflect the factors disclosed in the
FY23 going concern assessment. These factors are the Group's ability to
generate sufficient future cash flows while trading in a volatile environment,
successful completion of planned initiatives to optimise working capital
requirements and the continued reliance on external stakeholders in order to
achieve these objectives, and maintaining access to the forecast level of
credit in the ABL facility. These factors together are necessary for the Group
to meet its credit facility covenant requirements in the going concern period,
of more than 12 months from the date of the signing of these condensed
consolidated interim financial statements.
These condensed consolidated interim financial statements have been prepared
on a going concern basis, whilst noting the material uncertainty above.
5. 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.
All revenue is recognised at a single point in time when it is probable that
the economic benefits will flow to the Group and the revenue can be reliably
measured. Specific to the Group, the performance obligations of the Group
are deemed to be fulfilled when the product is delivered to our customer or
Angel, typically within one to three days following dispatch, which is when
the customer obtains control of their purchase and there is reasonable
certainty regarding the recovery of the consideration.
Included within Angel funds and other deferred income is deferred income of
£6.3 million (3 April 2023: £3.5 million). These balances represent value
of funds received in advance, but the order is yet to be fulfilled or
delivered. This will be recognised as revenue when the order is fulfilled or
delivered, which is expected to occur over the next six months.
The Group is subject to seasonal fluctuations resulting in varying profits
over the full year period. The Group experiences increased sales in the
third quarter which covers the holiday period, accounting for around 40% of
total revenue compared to around 20% in each of the other quarters.
26 weeks ended 2 October 2023 Naked Wines US Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue 63,924 52,372 16,043 - 132,339
Revenue associated with the US FY23 inventory impairment (707) - - - (707)
Total adjusted sales (1) 63,217 52,372 16,043 - 131,632
Analysed as:
New Customer sales 5,336 2,313 1,462 - 9,111
Repeat Customer sales 57,172 50,059 14,581 - 121,812
Other revenue 709 - - - 709
Total adjusted sales (1) 63,217 52,372 16,043 - 131,632
Investment in New Customers (5,953) (2,036) (1,258) - (9,247)
Repeat Customer contribution 17,448 9,384 3,632 - 30,464
Other contribution (468) - - - (468)
Total contribution after advertising costs(2) 11,027 7,348 2,374 - 20,749
General and administrative costs(3) (5,749) (3,070) (1,607) (8,164) (18,590)
Adjusted EBIT 5,278 4,278 767 (8,164) 2,159
Adjusted items:
Right-sizing of US inventory 774 - - - 774
Impairment of non-current assets (10,842) - (696) - (11,539)
Other adjusted items - - - (142) (142)
Operating (loss)/profit (4,790) 4,278 71 (8,306) (8,748)
Finance costs (2,292) (14) (21) (2) (2,329)
Finance income 792 - - 541 1,333
(Loss)/profit before tax (6,290) 4,264 50 (7,767) (9,744)
Tax (2,068) 306 (169) - (1,930)
(Loss)/profit for the period (8,398) 4,570 (119) (7,767) (11,674)
Depreciation 1,235 127 112 57 1,531
Amortisation - - - 100 100
Impairments 10,842 - 696 - 11,539
Total assets 147,571 60,246 24,901 23,004 255,722
Total liabilities 93,753 54,568 15,131 3,519 166,971
26 weeks ended 2 October 2023 US UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 63,924 52,372 16,043 132,339
Non-current assets excluding deferred tax assets 5,248 17,234 - 22,482
1. Total adjusted sales are calculated as revenue excluding revenue
associated with the right-sizing of US inventory as analysed in note 6
Adjusted items.
2. Contribution after advertising costs is calculated as gross profit
(£28,963k) less advertising costs (£7,440k), excluding transactions
associated with the right-sizing of US inventory included in contribution
(£774k) (details in note 6 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.
26 weeks ended 26 September 2022 Naked Wines US Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue 85,209 58,808 21,758 - 165,775
Revenue associated with the US FY23 inventory impairment - - - - -
Total adjusted sales(1) 85,209 58,808 21,758 - 165,775
Analysed as:
New Customer sales 8,989 2,666 1,698 - 13,353
Repeat Customer sales 72,238 56,142 20,060 - 148,440
Other revenue 3,982 - - - 3,982
Total adjusted sales (1) 85,209 58,808 21,758 - 165,775
Investment in New Customers (7,938) (1,632) (2,148) - (11,718)
Repeat Customer contribution 24,840 11,719 5,601 - 42,160
Other contribution (364) - - - (364)
Total contribution after advertising costs(2) 16,538 10,087 3,453 - 30,078
General and administrative costs(3) (6,513) (3,738) (1,675) (13,543) (25,469)
Adjusted EBIT 10,025 6,349 1,778 (13,543) 4,609
Adjusted items:
Non-cash items relating to acquisitions - - - (631) (631)
Right-sizing of US inventory (7,908) - - - (7,908)
Profit on disposal of asset classified as - - - 4,814 4,814
held for sale
Other net adjusted items - - - (1,048) (1,048)
Operating profit/(loss) 2,117 6,349 1,778 (10,408) (164)
Finance costs (549) (14) (2) - (565)
Finance income - - - 514 514
Profit/(loss) before tax 1,568 6,335 1,776 (9,894) (215)
Tax (169) (884) (297) 1,092 (258)
Profit/(loss) for the period 1,399 5,451 1,479 (8,802) (473)
Depreciation 777 127 118 - 1,022
Amortisation 1 - - 1,022 1,023
Impairments - - - - -
Total assets 171,341 63,509 30,043 57,708 322,601
Total liabilities 100,376 60,550 23,676 10,681 195,283
26 weeks ended 26 September 2022 US UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 85,209 58,808 21,758 165,775
Non-current assets excluding deferred tax assets 4,014 50,126 283 54,423
1. Total adjusted sales are calculated as revenue excluding revenue
associated with the right-sizing of US inventory as analysed in note 6
Adjusted items.
2. Contribution after advertising costs is calculated as gross profit
(£32,206k) less advertising costs (£10,036k), excluding transactions
associated with the right-sizing of US inventory included in contribution
(£7,908k) (details in note 6 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.
6. Adjusted items
The Directors believe that the adjusted EBIT measure provides additional
useful information for shareholders on trends and performance. 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.
The adjustments made to reported operating profit are:
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
£'000 £'000
Non-cash charges relating to acquisitions - amortisation of acquired - (631)
intangibles
Movement in the US inventory provision created as part of FY23 1,327 (7,545)
adjusted items
US cancellation of winemaker contracts - (363)
1,327 (7,908)
Disposal of US inventory provided for as part of FY23 adjusted (553) -
items - contribution loss reported within gross profit before
inventory provision
Right-sizing of US inventory included in contribution 774 (7,908)
Impairment of non-current assets (11,539) -
Profit on disposal of asset classified as held for sale - 4,814
Restructuring costs 36 (1,174)
Software as a Service costs incurred in the implementation of new (248) (1,435)
ERP platform
Fair value movement through the income statement on foreign 70 1,551
exchange contracts and associated unrealised foreign currency
inventory
Foreign exchange movements on plc company currency bank - 10
balances
Other net adjusted items (142) (1,048)
Total adjusted items (10,907) (4,773)
Amortisation of acquired intangibles
These items reflect costs of customer acquisition from prior to the purchase
of the Naked Wines business. 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. These acquired assets were fully amortised as at the end of FY23
and do not appear in the income statement for the period 26 weeks ended 2
October 2023.
Right-sizing of US inventory
As a result of management's US inventory right-sizing exercise strategy
commencing in the prior financial year, the Group recorded a net credit of
£0.8 million in the 26 weeks ended 2 October 2023 (£7.9 million charge in
the 26 weeks ended 26 September 2022), reflecting the release and utilisation
of the inventory provision created in the prior financial year and a
contribution loss where inventory that was provided against that has been sold
on the secondary market as part this right-sizing exercise for less than
historic cost of goods.
In FY23 management considered these provisions and charges to be one-off in
nature as amounts relate to purchases made on the basis 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
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.
Right-sizing of US inventory (continued)
Management concluded it is appropriate to include the inventory provisions and
charges created in the prior period within adjusted items to provide a more
consistent basis with the comparative adjusted EBIT alternative performance
measure.
In the 26 weeks ended 2 October 2023, any further inventory provisions made
are reported as part of trading performance.
Impairment of non-current assets
Please refer to note 7 Impairment of non-current assets for details.
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 and as such is reported in the
prior year comparative figures only.
Restructuring costs
In the previous financial year, the Group undertook a restructuring program
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 previous financial year and the 26 weeks ended 2 October 2023, 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.
Fair value movement on foreign exchange contracts and associated unrealised
foreign currency inventory
The Group commits in advance to buying foreign currency to purchase wine to
mitigate exchange rate fluctuations. UK-adopted international accounting
standards require us to mark the value of these contracts to market at each
balance sheet date. 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 26 weeks ended 26 September 2022, 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. No material foreign currency balances were held at the
balance sheet date and as such no similar adjustment is reported as an
adjusted item in the current year.
7. Impairment of non-current assets
a) Management have determined that indicators of impairment existed at
the balance sheet date and as such an impairment review has been performed. As
a result of this review, the carrying value of assets held in Naked Wines US
and Naked Wines Australia have been reduced to their recoverable amount
through recognition of an impairment charge of £11.5 million against
goodwill, other intangibles, property, plant and equipment and right-of-use
assets. This charge is recognised within adjusted items in the income
statement and is analysed by segment and asset type as set out below:
Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Total CGU value in use *
£'000 £'000 £'000 £'000 £'000 £'000
Naked Wines US 8,128 1,034 - 1,681 10,843 64,753
Naked Wines UK - - - - - 52,709
Naked Wines Australia - - 11 685 696 (447)
8,128 1,034 11 2,366 11,539 117,015
* The value in use of each CGU is calculated after a full allocation of
corporate costs necessarily incurred to generate the cash inflows of the
operating business units and in accordance with IAS36 Impairment of assets.
Key assumptions
Cash flow assumptions
The primary determinants of cash flow are expected sales and the cost of sales
of those goods, the level of expenditure on the acquisition of new customers
and other associated costs which relate to the cash flows of the operating
business units.
During the 26 weeks ended 2 October 2023 future trading expectations, in
particular with respect to the Company's US trading segment, have been revised
downwards to realign previously anticipated growth in key performance metrics
with more recently observed stable KPI performance metrics in the market, most
notably revenue per Angel and the rate of Angel attrition.
The impact of the changes in future trading expectations versus previous
forecast estimates, along with adverse movement in the discount rate driven by
the external interest rate environment, has given rise to a reduction in value
in use in the US, resulting in the reported additional impairment charge. The
value in use in Australia has improved since the year end, however, is still
insufficient to support the carrying value of non-current assets and an
additional impairment charge has been recorded at the half year due to an
increase in the carrying value, principally due to the extension of an IFRS16
lease, leading to an increased ROU asset carrying value.
The cash flows used in the value in use calculation are pre-tax cash flows
based on the latest management forecasts in respect of the following five
years, the first 12 months of which being the latest Board approved forecasts
and which aligns with the forecast used in the preparation of the going
concern analysis, as set out in accounting policy note 4 Going concern,
amended only to align with the requirements of IAS 36 Impairment of Assets. An
estimate of capital expenditure required to maintain these cash flows is also
made.
Discount rate and long-term growth rate assumptions
The pre-tax discount rate and terminal growth rates used are as set out below:
2 October 2023 3 April 2023
Discount rate Terminal growth rate Discount rate Terminal growth rate
Naked Wines US 18.2% 1.0% 17.3% 1.0%
Naked Wines UK 18.8% 2.0% 17.9% 1.0%
Naked Wines Australia 20.1% 1.0% 19.1% 1.0%
The long-term growth rate assumptions used are not considered to be higher
than the long-term industry average. These rates have been reviewed in the 26
weeks ended 2 October 2023 and have been revised for the UK segment to more
accurately reflect current business performance expectations, market assumed
long-term inflation and industry growth assumptions. Management recognise that
a long-term growth rate of 1% is below that which a stable business would
expect however, the Directors believe that this is an appropriate level for
the US and Australian businesses at the present time. The Directors will
reassess the long-term growth rate applied in each market in future periods as
the actions currently being undertaken translate into a more stable trading
performance.
The discount rate applied to the cash flows of each market is calculated using
a pre-tax rate based on the weighted average cost of capital (WACC) which
would be anticipated for a market participant investing in each of the Group's
markets. Management believe it is appropriate to use a country specific
pre-tax WACC for the testing of the Naked Wines goodwill and intangible assets
based on the difference in the observed risk-free rate between the US and
other industrialised economies and their different headline corporate income
tax rates. The Group has considered the impact of the current economic climate
in determining the appropriate discount rate to use in impairment testing.
Sensitivity to further impairment charges
The key assumptions used in the recoverable amount estimates are the discount
rates applied and the forecast cash flows.
The Group has performed a sensitivity analysis for the UK segment and the
table below sets out the level at which, independently, fluctuations in the
key assumptions result in the carrying value of these assets being equal to
the segment recoverable amount, defined as its value in use:
2 October 2023 3 April 2023
Breakeven discount rate Breakeven cash flow sensitivity Breakeven discount rate Breakeven cash flow sensitivity
Naked Wines UK 295.8% (88.6)% 223.1% (71.9)%
The Directors believe that the carrying value of the US segment's remaining
right-of-use assets and property, plant and equipment represent their expected
recoverable amount as they have an intrinsic value as part of the core trading
business. As such, any plausible adverse movement in key assumptions would
not be expected to result in further impairments.
No sensitivities have been performed for the Australia segment as the goodwill
allocated to this CGU, as well as the carrying value of property, plant and
equipment and right-of-use assets, has been fully impaired.
See also note 3 Significant estimates, drawing attention to the assessment of
the valuation of goodwill and other non-current assets as a key source of
estimation uncertainty.
Note also that consistent with the operating segments of the business, being
the three geographical markets in which the Group operates, the Directors
recognise these operating segments as the cash generating units of the
business.
b) Reconciliation of the carrying amount of goodwill, other intangibles,
property, plant and equipment and right-of-use assets
Goodwill Other intangible assets Property, plant and equipment Right-of-use assets Total
£'000 £'000 £'000 £'000 £'000
Cost
At 3 April 2023 31,541 28,487 5,652 9,237 74,917
Additions - - 647 527 1,174
Disposals - - (230) (435) (665)
Foreign currency 497 - 120 127 744
At 2 October 2023 32,038 28,487 6,189 9,456 76,170
Accumulated amortisation, depreciation and impairments
At 3 April 2023 (17,737) (27,353) (2,895) (3,863) (51,848)
Charge for the year - (100) (472) (1,059) (1,631)
Impairments (8,128) (1,034) (11) (2,366) (11,539)
Disposals - - 177 323 500
Foreign currency (314) - (52) (55) (421)
At 2 October 2023 (26,179) (28,487) (3,253) (7,020) (64,939)
Net book value
At 2 October 2023 5,859 - 2,936 2,436 11,231
At 3 April 2023 13,804 1,134 2,757 5,374 23,069
8. Tax
Tax for the 26 weeks ended 2 October 2023 is charged at an effective tax rate
of (19.8)% (26 weeks ended 26 September 2022: (120.0)%) representing the best
estimate of the Group's expected annual effective tax rate, applied to the
profit before tax of the period. The statutory effective tax rate of (19.8)%
is substantially driven by the distortionary impact of the non-tax recoverable
impairment charge and the net impact of changes to deferred tax asset
recognition.
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
£'000 £'000
Current tax (544) (2,026)
Deferred tax
Change in UK deferred tax asset recognition 429 -
Change in US deferred tax asset recognition (1,768) -
Other deferred tax movements (47) 1,768
(1,386) 1,768
Total tax charge for the period (1,930) (258)
Unrecognised deferred tax assets are re-assessed at each reporting date and
are considered for the probability that future taxable profits would be
available against which such losses can be used. Projections of taxable
profits are based on the Group's Board approved forecasts which are the same
as the projections used for going concern. These forecasts are then
projected forwards, on a risk adjusted basis, for a further two financial
years to a total of five financial years using the forecasts, before
discounting, prepared as part of the Group's goodwill and non-current asset
impairment assessments. In concluding on the recognition of the deferred tax
asset, the Board have taken into consideration the material uncertainty over
going concern (see note 4 Going concern). The assessment period for
recognition of deferred tax assets is determined by the period over which the
asset is expected to unwind or, for recognition of brought forward losses, has
been limited to the forecast period set out above as management believes
profit forecasts beyond this time frame carry with them a high degree of
forecast uncertainty.
The forecasts show that it is more likely than not that future profits will be
available against which £9.7 million of the brought forward losses in the UK
can be offset. Therefore, in the 26 weeks ended 2 October 2023, a total
deferred tax asset of £2.4 million has been recognised, an increase of £0.4
million since the year end. Deferred tax on losses of £13.7 million (53 weeks
ended 3 April 2023: £16.7 million) have not been recognised in these
financial statements, of which £11.6 million relates to pre-April 2017 losses
in the UK on the basis that there is insufficient evidence of suitable future
taxable profits against which to recover any deferred tax asset created.
In addition, the Group has not recognised deferred tax assets of £3.6 million
(53 weeks ended 3 April 2023: £1.8 million) on inventory provisions in the US
and has not recognised £0.6 million (53 weeks ended 3 April 2023: £0.6
million) of deferred tax assets in Australia due to uncertainty over future
profits being available against which these deferred tax assets can be
recovered.
9. Loss per share
Basic loss 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 180,161 shares (26 September 2022: 233,227
shares) held by the Naked Wines plc Share Incentive Plan Trust.
The diluted loss per share is the same as the basic loss per share in the
current and comparative periods as the inclusion of any potential ordinary
shares in the diluted loss per share calculation would be anti-dilutive.
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
Loss per share
Basic loss per share (15.8p) (0.6p)
Diluted loss per share (15.8p) (0.6p)
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
£'000 £'000
Loss for the period (11,674) (473)
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
Weighted average number of shares in issue 73,770,908 73,469,797
Dilutive potential ordinary shares:
Employee share options - -
Weighted average number of shares for the purpose of diluted earnings per 73,770,908 73,469,797
share
Total number of shares in issue 74,004,135 74,004,135
If the Company's share option schemes had vested at 100% the Company would
have 74,624,159 (26 September 2022: 78,114,778) issued shares.
10. Notes to the cash flow statement
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
Note £'000 £'000
Cash flows from operating activities
Loss for the period (11,674) (473)
Adjustments for:
Depreciation and amortisation 1,631 2,045
Impairment of non-current assets 7 11,539 -
Loss on disposal of fixed assets 1 53
Intangible assets previously capitalised under former - 249
accounting policy
Profit on sale of asset held for resale - (4,814)
Net finance costs 996 51
Fair value movement on foreign exchange contracts (70) (1,551)
Inventory provision movement (1,327) 7,545
Share based payment charges 664 740
Tax expense 1,930 258
Cash flows before movements in working capital 3,690 4,103
Increase in inventories (19,842) (50,578)
Increase in customer funds in deferred income 8,515 3,643
Decrease trade and other receivables 235 1,534
Increase trade and other payables 3,822 18,547
Net cash flows used in operating activities (3,580) (22,751)
3 April 2023 Cash flows Non-cash movements 2 October 2023
£'000 £'000 £'000 £'000
Cash and cash equivalents 39,474 (6,109) 403 33,768
Borrowings:
Credit facility net of issuance costs (29,131) - (792) (29,923)
Other loans - (1,000) - (1,000)
Customer funded bond (35) - - (35)
Lease liabilities (5,851) 999 (481) (5,333)
(35,017) (1) (1,273) (36,291)
Total net cash/(borrowings) 4,457 (6,110) (870) (2,523)
28 March 2022 Cash flows Non-cash movements 26 September 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents 39,846 106 1,670 41,622
Borrowings:
Credit facility net of issuance costs - (18,700) (25) (18,725)
Customer funded bond (35) - - (35)
Lease liabilities (3,567) 441 (767) (3,893)
(3,602) (18,259) (792) (22,653)
Total net cash/(borrowings) 36,244 (18,153) 878 18,969
11. Borrowings
On 31 March 2022, the Group entered into a 36-month senior secured credit
facility with Silicon Valley Bank as administrative agent and issuing lender
for up to $60 million of credit based on the inventory held by Nakedwines.com
Inc. The facility is secured against the assets of the Group.
The Group has three substantive financial condition covenants in relation to
this credit facility.
a) A facility defined minimum balance sheet current ratio test;
b) A facility defined minimum qualified cash balance of $20 million to
be held by loan parties at all times;
c) A facility defined adjusted EBITDA profit test.
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, see note 12 Events after the balance sheet date. 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.
The Group has met all of its covenant conditions in all periods up to and
including the reporting date.
12. Events after the balance sheet date
As set out in note 11 Borrowings, on 22 August 2023 the Group concluded an
amendment to its asset backed lending facility with Silicon Valley Bank which
also documented as a post-close completion obligation the inclusion of the
Group's Australian businesses as loan parties to the agreement. This
post-close obligation was completed on 26 October 2023 and the Group's
Australian businesses are now part of the credit facility loan 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 non-current assets, 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.
Company, Naked or Naked Wines Naked Wines plc
Contribution Gross profit as disclosed in the Group income statement. 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 5 Segmental reporting.
EBIT Operating profit as disclosed in the Group income statement. APM
EBITDA EBIT plus depreciation and amortisation. APM
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.
Definitions
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 5 Segmental reporting.
Other revenue Revenue from stock optimisation activities.
Other contribution The contribution 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.
Realised Year 1 Payback A payback measure based on the average of Year 1 Paybacks observed for cohorts Investment measure
reaching their first anniversary in the last twelve months
Repeat customer A customer (Angel) who has subscribed and made their first monthly
subscription payment.
Repeat Customer contribution The contribution attributable to sales meeting the definition of Repeat Investment measure
Customer sales. A reconciliation of adjusted EBIT to Repeat Customer
contribution is shown in note 5 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 5 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.
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 performance to management adjusted basis
26 weeks ended 2 October 2023 26 weeks ended 26 September 2022
Reported Adjusted items Adjusted Reported Adjusted items Adjusted FX At constant currency
£m £m £m £m £m £m £m £m
Sales Group
New Customer sales 9.1 - 9.1 13.4 - 13.4 (0.4) 13.0
Repeat Customer sales 121.8 - 121.8 148.4 - 148.4 (4.1) 144.3
Other revenue 1.4 (0.7) 0.7 4.0 - 4.0 (0.1) 3.9
132.3 (0.7) 131.6 165.8 - 165.8 (4.6) 161.2
Naked Wines US
New Customer sales 5.3 - 5.3 9.0 - 9.0 (0.3) 8.7
Repeat Customer sales 57.2 - 57.2 72.2 - 72.2 (2.3) 69.9
Other revenue 1.4 (0.7) 0.7 4.0 - 4.0 (0.1) 3.9
63.9 (0.7) 63.2 85.2 - 85.2 (2.7) 82.5
Naked Wines UK
New Customer sales 2.3 - 2.3 2.7 - 2.7 - 2.7
Repeat Customer sales 50.1 - 50.1 56.1 - 56.1 - 56.1
52.4 - 52.4 58.8 - 58.8 - 58.8
Naked Wines Australia
New Customer sales 1.5 - 1.5 1.7 - 1.7 (0.1) 1.6
Repeat Customer sales 14.6 - 14.6 20.1 - 20.1 (1.8) 18.3
16.0 - 16.0 21.8 - 21.8 (1.9) 19.9
Contribution after advertising costs Group
Investment in New Customers (9.2) - (9.2) (11.7) - (11.7) 0.3 (11.4)
Repeat Customer contribution 30.5 - 30.5 42.2 - 42.2 (1.4) 40.8
Repeat contribution margin (%) 25% - 25% 28% - 28% - 28%
Other contribution 0.3 (0.8) (0.5) (0.4) - (0.4) 0.1 (0.3)
21.5 (0.8) 20.7 30.1 - 30.1 (1.0) 29.1
Naked Wines US
Investment in New Customers (6.0) - (6.0) (7.9) - (7.9) 0.1 (7.8)
Repeat Customer contribution 17.4 - 17.4 24.8 - 24.8 (0.8) 24.0
Repeat contribution margin (%) 30% - 30% 34% - 34% - 34%
Other contribution 0.3 (0.8) (0.5) (0.4) - (0.4) 0.1 (0.3)
11.8 (0.8) 11.0 16.5 - 16.5 (0.6) 15.9
Naked Wines UK
Investment in New Customers (2.0) - (2.0) (1.6) - (1.6) - (1.6)
Repeat Customer contribution 9.4 - 9.4 11.7 - 11.7 - 11.7
Repeat contribution margin (%) 19% - 19% 21% - 21% - 21%
7.3 - 7.3 10.1 - 10.1 - 10.1
Naked Wines Australia
Investment in New Customers (1.3) - (1.3) (2.1) - (2.1) 0.1 (2.0)
Repeat Customer contribution 3.6 - 3.6 5.6 - 5.6 (0.5) 5.1
Repeat contribution margin (%) 25% - 25% 28% - 28% - 28%
2.4 - 2.4 3.5 - 3.5 (0.4) 3.1
General and administrative Naked Wines US (5.6) (0.1) (5.7) (6.5) - (6.5) 0.2 (6.3)
Naked Wines UK (3.1) - (3.1) (3.7) - (3.7) - (3.7)
Naked Wines Australia (1.6) - (1.6) (1.7) - (1.7) 0.1 (1.6)
Unallocated (8.4) 0.2 (8.2) (15.2) 1.7 (13.5) - (13.5)
Group (18.7) 0.1 (18.6) (27.1) 1.7 (25.5) 0.3 (25.2)
Other items Profit on sale of property - - - 4.8 (4.8) - - -
Impairment (11.5) 11.5 - - - - - -
EBIT Naked Wines US 6.1 (0.8) 5.3 2.1 7.9 10.0 (0.5) 9.5
Naked Wines UK 4.3 - 4.3 6.3 - 6.3 - 6.3
Naked Wines Australia 0.8 - 0.8 1.8 - 1.8 (0.2) 1.6
Unallocated (19.9) 11.7 (8.2) (10.4) (3.1) (13.5) - (13.5)
Group (8.7) 10.9 2.2 (0.2) 4.8 4.6 (0.7) 3.9
Repeat contribution margin
Naked Wines US Naked Wines UK Naked Wines Australia Group
26 weeks ended 2 October 2023
Repeat Customer sales £m 57.2 50.1 14.6 121.8
Repeat Customer contribution £m 17.4 9.4 3.6 30.5
Repeat contribution margin % 30.4% 18.8% 24.7% 25.0%
26 weeks ended 26 September 2022
Repeat Customer sales £m 72.2 56.1 20.1 148.4
Repeat Customer contribution £m 24.8 11.7 5.6 42.2
Repeat contribution margin % 34.3% 20.9% 27.9% 28.4%
General and administrative costs reconciliation
26 weeks ended 26 weeks ended
2 October 2023
26 September 2022
£m £m
G&A costs per income statement (18.7) (27.1)
Add back adjusted items:
Amortisation of acquired intangibles - 0.6
Restructuring costs - 1.2
Software as a Service costs 0.2 1.4
Fair value movement on open foreign exchange contracts (0.1) (1.6)
G&A costs per segmental reporting in note 5 (18.6) (25.5)
Add back marketing R&D spend - 3.8
Add back share based payment costs 0.7 0.7
Operating G&A costs (17.9) (21.0)
Net cash excluding lease liabilities
2 October 2023 26 September 2022
£m £m
Cash and cash equivalents 33.8 41.6
Borrowings and other loans:
Credit facility net of issuance costs (29.9) (18.7)
Other loans (1.0) -
Customer funded bond - -
Total net cash excluding lease liabilities 2.8 22.9
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