REG - Virgin Wines UK PLC - Audited Annual Results
25/10/2023 07:00
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RNS Number : 1735R Virgin Wines UK PLC 25 October 2023
25 October 2023
Virgin Wines UK plc
("Virgin Wines", the "Company" or the "Group")
AUDITED ANNUAL RESULTS FOR THE PERIOD ENDED 30 JUNE 2023
Results in line with expectations; strategic initiatives on track
Virgin Wines UK plc (AIM: VINO), one of the UK's largest direct-to-consumer
online wine retailers, today announces its audited Annual Results for the
period ended 30 June 2023 ("FY23").
Financial highlights
· Revenue - Group revenue of £59.0m (FY22: £69.2m, FY19:
£42.3m), in line with expectations
o Impacted by previously reported one-off exceptional events including
Group's implementation of new Warehouse Management System ("WMS")
o WineBank scheme revenue of £35.3m (FY22: £38.5m, FY19: £19.4m)
· Adjusted EBITDA((1)) - FY23 £1.8m (FY22: £6.2m)
· Adjusted profit before tax((2)) - FY23 £0.6m (FY22: £5.2m)
· (Loss)/earnings per share - FY23 (1.1)p (FY22: earnings per share
7.8p)
· Cash - The Group's net cash balance at 30 June 2023 was £5.5m (1
July 2022: £7.7m), with no debt
· Inventory - 24% reduction in inventory, from £11m in December
2022 to £8.4m at year-end
· Gross Margins((3)) - FY23 29.6% (FY22: 31.4%), reflecting
inflationary pressures
o DTC (Direct To Consumer) product margins on repeat sales broadly flat at
40.5% (FY22: 41.0%)
FY23 FY22
audited audited
£m £m
Revenue 59.0 69.2
Adjusted EBITDA((1)) 1.8 6.2
Adjusted PBT((2)) 0.6 5.2
Operating (loss)/profit (0.7) 5.2
(Loss)/profit before tax (0.7) 5.1
(Loss)/profit for the period (0.6) 4.4
(1) Adjusted EBITDA is after adding back exceptional costs (FY23: £1.0m,
FY22: nil) and share-based payments (FY23: £0.3m, FY22: £0.1m).
(2) Adjusted profit before tax is after adding back exceptional costs and
share-based payments.
(3) Product margins exclude packaging and delivery costs.
Strategic highlights
· Disciplined approach to new customer acquisition drives returns
despite headwinds
o 91.5k new customers acquired in the Period
o Over 70% acquired through key partnership channel (FY22: 67.5%)
o Cost per recruit £11.99, one of the lowest recorded outside of COVID-19
years (FY22: £13.22)
o Conversion rate broadly consistent to FY22 levels, at 46.8% (FY22: 48.6%)
· Active customer base of 173k (FY22: 186k), with a record 133k
WineBank members (FY22: 130k)
o WineBank customer deposits at a seasonal high of £8m by year-end (FY19:
£4.5m)
o Customers on subscription schemes contributed 87% of DTC sales (FY22: 82%)
o WineBank cancellation rates at 17.3% by year-end following improvements in
H2 (FY22: 16.7%)
· Strong strategic partnerships drive advancements in commercial
channel and customer acquisition
o New partnerships agreed with WH Smith Travel, Saga, Go Outdoors and
OnTheMarket
o Commercial revenue contributed 11.6% of total FY23 sales (FY22: 10%)
· Significant progress made on ESG, including:
o Certified carbon neutral according to PAS 2060 standard for carbon
neutrality
o Reduced Scope 1 and 2 emissions by 24% and continued to reduce Scope 3
o Committed to science-based targets under the SBTi
o Became a member of the Sustainable Wine Roundtable and Harpers
Sustainability Charter
Current trading and outlook
· 12% increase in YOY sales achieved in Q1 2024, as conversion and
cancellation rates continue to improve. Sales through core repeat channels
were 15.5% ahead YOY.
· The commercial sales channel also continues to show positive YOY
growth, +8% post Period end.
· The strategic initiatives identified during the Group's Business
Review are expected to be introduced during Q2/Q3 2024 with the benefits
starting from H2 2024. This includes a new value proposition launching in late
October, alongside a premium Australian Wine Club, whilst a full creative
brand refresh will be rolled out over Q2/Q3 2024.
· New WMS now operating robustly with Q1 2024 operating variable cost
reduced by 9.4% YOY and a 15.5% YOY reduction in Q124 warehouse cost per case
against last year's highs. The Group sees potential for future productivity
benefits and increased efficiency, with its growth plans futureproofed.
· The business has carried out extensive planning for the peak
Christmas trading period, with operational preparation prioritised.
· As previously announced, the Board expects double-digit sales
growth in FY 2024, with EBITDA margin of c. 4-5% as inflationary pressures,
particularly on freight and glass, start to ease.
Jay Wright, Chief Executive Officer, said:
"FY23 has been a year affected by a number of challenges, from well-documented
macroeconomic headwinds to a number of one-off, exceptional issues, most
specifically relating to the implementation of our new Warehouse Management
System in H1. Despite this, we have continued to grow our WineBank membership,
maintain excellent discipline in our customer acquisition channel and deliver
a healthy balance sheet, remaining debt free with £5.5m cash reserves and
much reduced levels of stock.
"Our unique wines, market-leading propositions and best-in-class customer
service continue to support our base of loyal customers, and WineBank remains
a great way for them to spread the cost of enjoying high-quality wines.
Looking ahead, the implementation of a number of exciting new strategic
initiatives following the completion of our Business Review earlier in the
year will support our resilience, enhancing our ability to cater to a wider
range of customers. More broadly, we remain confident in our longer-term
prospects given the strength of the customer proposition and our proven
business model. Our continued focus on profit, generating cash and driving
efficiencies also positions us uniquely within the sector. These pillars will
remain consistent elements of our strategy moving forward."
Investor Meet Company
Virgin Wines has postponed its presentation on IMC scheduled for Friday 27
October due to unforeseen medical circumstances. The meeting will be
rearranged in due course and a date will be announced as soon as practicable.
- Ends -
Enquiries:
Virgin Wines UK plc Via Hudson Sandler
Jay Wright, CEO
Graeme Weir, CFO
Liberum Capital Limited
(Nominated Adviser and Sole Broker)
Edward Thomas
Dru Danford
John Fishley
Hudson Sandler
(Public Relations)
Alex Brennan
Dan de Belder
Charlotte Cobb
Harry Griffiths
Tel: +44 20 3100 2222
virginwines@hudsonsandler.com (mailto:virginwines@hudsonsandler.com)
Tel: +44 20 7796 4133
Notes to editors:
About Virgin Wines
Virgin Wines is one of the UK's largest direct-to-consumer online wine
retailers. It is an award-winning business which has a reputation for
supplying and curating high quality products, excellent levels of customer
service and innovative ways of retailing.
The Company, which is headquartered in Norwich, UK, was established in 2000 by
the Virgin Group and was subsequently acquired by Direct Wines in 2005 before
being bought out by the Virgin Wines management team, led by CEO Jay Wright
and CFO Graeme Weir, in 2013. It listed on the London Stock Exchange's
Alternative Investment Market (AIM) in 2021.
Virgin Wines has almost 700 wines and c. 150 spirits in its portfolio which it
sells to an active customer base of more than 170,000 members. It has
approximately 200 employees and more than 40 trusted winemaking partners and
suppliers around the world.
The Company drives the majority of its revenue though its fast-growing
WineBank subscription scheme, using a variety of marketing channels, as well
as through its Wine Advisor team, Wine Plan channel and Pay As You Go service.
Along with its extensive range of award-winning products, Virgin Wines was
delighted to be named Online Drinks Retailer of the Year for 2022 at last
year's Drinks Retailing Awards, as well as receiving the bronze award for
Contact Centre of the Year at the 2022 UK National Contact Centre Awards. In
addition, in 2023 the Group's Head of Buying, Sophie Lord, was also named
Buyer of the Year by Decanter magazine.
https://www.virginwinesplc.co.uk/ (https://www.virginwinesplc.co.uk/)
Chairman's Statement
Introduction
It has undoubtedly been a challenging year for the economy and as with many
other consumer-facing businesses, the Group continued to experience a number
of headwinds during the period, impacting the supply chain, costs and
underlying consumer demand. Despite this, Virgin Wines has demonstrated a high
level of resilience in 2023 that has been a testament to the Group's strategy
and its people.
The business' underlying fundamentals remain strong and continues to perform
robustly within the ecommerce segment of the drinks market. The shift in
attitudes and behaviours towards working from home has supported underlying
demand. Meanwhile, the quality and consistency of the product and one of the
leading customer propositions in the marketplace leave Virgin Wines well
positioned to overcome the current macroeconomic pressures.
Whilst our revenues and profits are down on the prior year, much of the growth
has been retained when compared with pre-pandemic levels. Our brand
personality and values are unchanged and remain critical to our success. I
would like to thank all our customers, suppliers, partners and, above all, our
colleagues for making this possible.
Strategy
During the year, the Board and senior leadership team held a comprehensive
strategy review where we evaluated the business' fundamental proposition and
considered various opportunities including consumer segmentation, product
range and geographical expansion.
The Group has started to implement the outcomes of the session, and benefits
will be realised from FY24. These include - but are not limited to - the
introduction of new premium and value ranges of wines, alongside an exit from
the over-supplied beer category. The Board is confident that these strategic
developments will solidify and enhance the Group's offer in order to continue
to capture wider demographics of customers.
Throughout the year more widely, the Group continued to make good strategic
progress against its wider strategic pillars. More detail on this is included
in the CEO Statement.
ESG
ESG remains an important driver of the business. It informs our culture,
strategy and stakeholder engagement. We are conscious of our responsibility to
the environment and the need to take this into account in all our business
practices. The Group remains committed to operating an ethical, transparent
business, delivering value for all stakeholders in line with its long-term
growth strategy.
During the year, the business took a number of important steps to drive its
sustainability, including obtaining respected accreditations as a Carbon
Neutral business under PAS 2060. We maintain a stable, experienced Board with
a shared vision for the Group's growth, and ambitions to realise meaningful
shareholder value into the future.
Outlook
While macroeconomic headwinds are expected to persist into FY24, compounded by
the additional alcohol duty increase implemented post period end, there are a
number of reasons to be excited at Virgin Wines and its opportunities for
further financial progress over coming years.
Looking ahead, the Board and I remain highly optimistic of Virgin Wines'
future growth prospects. There is encouraging, underlying consumer demand for
the Group's leading proposition. The business model remains robust with an
excellent in-house team driven to help the business grow through meaningful
strategic progress.
JOHN RISMAN
Chairman
Chief Executive's Review
Introduction
It is well-known that our sector experienced a year of persistent
macroeconomic challenges and inflationary pressures. At Virgin Wines, our
financial year 2023 also saw us overcome a number of internal issues which
impacted our performance particularly in the first half. This included the
previously reported operational difficulties which took place during the early
implementation of our new Warehouse Management System (WMS) during our peak
Christmas trading period in 2022. Following further investment and rigorous
testing, we are pleased to have resolved these issues, and our systems are now
better placed to support trading in line with our growth ambitions.
Despite these headwinds, the Group delivered results for the year in line with
expectations. We also continued to see positive momentum on a number of our
core strategic initiatives, including an ongoing focus on low-cost,
disciplined new customer acquisition, driving the strength and loyalty of our
key WineBank customer base and delivering a number of new strategic
partnerships in both our acquisition and Commercial channels.
Meanwhile, the fundamental Virgin Wines business model remains highly
relevant, and we continue to be well positioned in the sector, expecting to
benefit considerably as trading conditions start to improve. Demand for our
uniquely sourced, high-quality offering and market-leading expertise remains
strong, our customers remain loyal, and we look forward to realising the
benefits from the implementation of several new initiatives over the coming
months following our recent Business Review.
I am always inspired by the talent and resilience of my colleagues who have
remained unwaveringly positive throughout this challenging year. Despite the
pressures that the current climate has placed on them both personally and
professionally, the enthusiasm, dedication, and energy that they possess and
the optimism they display day-in, day-out, is an inspiration to work
alongside. I am hugely proud to work with such outstanding people and
delighted that we have been able to retain our unique culture in such volatile
and uncertain times.
This all supports our ongoing optimism in our opportunities for future growth
into FY24 and beyond.
Business overview
During the year we delivered revenues of £59m, a 14.5% decrease on the prior
year but still a 39% increase on the last pre-covid year. We also achieved an
adjusted EBITDA of £1.8m, a decrease from £6.2m the previous year.
There were a number of contributory factors to the FY23 financial performance
with significant cost increases across the supply chain, a Virgin brand
directive to restrain from direct marketing activity during the mourning
period following the passing of the Queen in September '22, as well as the
well-documented issues we experienced with the implementation of the new
Warehouse Management System.
In addition, the Consumer Confidence Index fell to record lows during the past
12 months, driven by an especially challenging macro- economic landscape
following significant increases in interest rates, the spiralling costs of
energy, generationally high levels of inflation and war in Ukraine.
Nonetheless, we are pleased to have been able to mitigate a number of these
headwinds. Our disciplined approach to customer acquisition has ensured the
marketing cost of recruiting new customers has decreased 9% YOY, our
open-source buying model has allowed us to concentrate on sourcing wines with
the best quality/value ratios, whilst utilising UK bottling has allowed us to
minimise freight costs. Well executed margin discipline through the sales
channels ensured our gross margins for repeat sales to existing customers
achieved 40.5%*, just a slight dip from 41% the previous year.
In addition, our balance sheet remained strong during the year, ending with
net cash of £5.5m, £8m of WineBank customer deposits and no debt.
Strategic progress
We continued to focus strongly on delivering against our core strategic
pillars during FY23. These are:
· Acquiring large numbers of high-quality, new customers, at a low
cost per recruit.
· Driving membership growth onto our WineBank scheme.
· Maximising gross margins through our DTC channels.
· Optimising working capital to maximise free cash flow.
· Maintaining strict control of costs in a highly inflationary
environment.
These pillars have supported the Group's growth and profitability for many
years, and we continue to focus on these core pillars to deliver long-term,
sustainable growth in both revenue and profitability.
New customer acquisition
During FY23 we were pleased to acquire more than 91k new customers, taking us
to a total active customer base of 173k. Our marketing cost per recruit was
just £11.99, a decrease on FY22 of 9% and one of the lowest levels we have
reported outside the Covid affected years (FY22: £13.22). This remains
industry- leading and is testament to our disciplined approach to new customer
acquisition.
Strategic partnerships
We continued to focus on driving new partnerships with brands where we have
complementary product categories, a similar demographic profile and where we
believe our proposition and offers would be well suited. During the year, new
partnerships developed included those with WHSmith Travel, Saga, Go Outdoors
and On The Market amongst many others. These have supported both our new
customer acquisition and the development of our Commercial business.
We have a strong pipeline of further partnerships into next year and look
forward to continuing to introduce our exclusive high- quality wines to new
customers around the UK over the coming months and years.
Subscription schemes
Our flagship subscription scheme, WineBank, continued to grow over the year,
achieving a seasonal high of £8m in customer deposits by year-end. The scheme
enables customers to spread the cost of buying wine by saving money each month
and in turn earning 20% 'interest' on the money they save to then spend on
wine. This has been particularly popular as many consumers find the
convenience of saving smaller amounts regularly an effective way of budgeting
for their wine purchases.
Despite a challenging environment, the resilience of the scheme was
highlighted by the membership growing 2.3% over the year to 133k (FY22: 130k)
while cancellation rates only ticked up marginally to 17.3% (FY22: 16.7%).
It is also pleasing to see much of the growth realised during the Covid
lockdown periods has been maintained with the WineBank membership 52% higher
than prior to that period.
The cash from the WineBank scheme is ring-fenced, held in a separate account
and is not used to help fund the business or for working capital, and
therefore not included in the Group's stated net cash position.
The business also operates two quarterly wine plan schemes, Discovery Club and
justREDS. This year has been particularly challenging for these types of
service as the cost-of-living crisis has intensified and put more pressure on
traditional continuity programmes. This has encouraged us to focus further on
WineBank where customers have the ability to make smaller, regular payments
and have the flexibility to purchase whatever they want, whenever they want
with the benefit of free express delivery and their 20% 'interest'.
Wine Advisors
Our 43-strong Wine Advisor team continues to offer a personal and highly
valued one-to-one service to over 50k customers, delivering the highest levels
of customer engagement alongside the highest average order values and the
highest average spend per annum of any group of customers. The team delivers
an exceptional service, ensuring every wine purchased is perfectly suited to
their customers' tastes and that their personal client base receives the
'inside track' on new wines and special discoveries that they may have
otherwise missed. Our Wine Advisors also handle any service queries that may
occur, meaning they handle customers' entire relationship with Virgin Wines.
This focus on delivering an unbeatable customer experience remains core to our
proposition.
Conversion and cancellation rates
As previously reported, the conversion and cancellation rates fluctuated over
the course of the year. Given the pressure put on consumer spending over H123,
alongside the system issues over the Christmas period, we saw a downturn in
the conversion rate of new customers during the first half of the year which
then largely recovered over the second half. The 12-month rolling conversion
rate for FY22 was 48.8% and while we saw it bottom out in December '22, it has
subsequently been on a consistent monthly upward trend, finishing the year at
46.8%.
Similarly, we had seen the 12-month rolling WineBank cancellation rate tick
upwards over the first half of the year. It started in July '22 at 17.8%
before peaking in December '22. By June '23 we had seen the rate reduce down
to 17.3%, again showing a positive trend throughout H223.
Gross margins
We have seen substantial cost increases across the business over the past 12
months, several of which have placed direct pressure on gross margins. In
particular, the rising cost of energy, coupled with the effects of the war in
Ukraine, led to exceptional increases in the cost of glass and the bottling of
wine. Freight costs, both over sea and land, increased at varying degrees of
severity depending on the region globally, as did packaging. All these factors
had the effect of increasing the cost price of a bottle of wine without
positively influencing the quality in any way.
The business worked hard to mitigate the effects of these wherever possible,
whether that be reducing bottle weights, shipping by tank into the UK or
focusing more heavily than ever on countries and regions that were able to
deliver the best quality/value ratios.
Our ability to curate our own case configurations also helped deliver the
flexibility to couple great quality wines with value for money pricing, whilst
managing the gross margins across the individual channels of the business.
The result of these factors was a reduction in statutory gross margin from
31.4% to 29.6%. Another contributory factor was the continued success of the
Commercial channel, where gross margins are lower due to the wholesale element
of a significant proportion of the revenue. With this being a larger
proportion of the overall sales year-on-year, it has a negative effect on the
overall gross margin of the business.
Working capital and free cash flow
At the start of our financial year, we took the decision to bring stock into
the UK early for the peak Christmas trading period due to the continued issues
within the supply chain and the sporadic, but extensive, delays we were still
experiencing from shippers and transporters globally, along with blockages in
UK ports. This increased our stock holding and, coupled with weaker than
planned trading over the peak period, resulted in us carrying higher than
desired levels of working capital into H2. We worked hard over H223 to
positively effect this and stock reduced by 24% over the final six months of
the year from £11m to £8.4m.
The introduction of the new Warehouse Management System increased our capital
expenditure this year. However, the business still ended FY23 debt free and
with £5.5m of cash on the balance sheet, in addition to £8m in WineBank
deposits.
Cost control
In addition to the pressure on gross margins through the escalation of input
costs, we have also seen the impact of the inflationary environment on several
additional areas. Of particular note is the annual increase in the National
Living Wage, more general wage inflation across the business, and increases in
the cost of packaging and courier charges, all of which inflate our
operational costs or our fixed overhead.
In an increasingly heavily taxed environment, we have also seen dramatic
increases over the last two years in the waste levy charged to businesses on
all carboard and plastic packaging, glass and metal imported into the UK.
Since FY21 this has increased by 211%, equating to £283k of additional cost
in FY23.
Wine sourcing model
Uniquely, we continue to source our wines from a large network of trusted
long-term winemaking partners and suppliers across the globe using a data
driven, customer focused, open-source supply model. This means that we can
focus our efforts on sourcing from countries and regions across the globe that
deliver the best quality grapes for each individual vintage, while maintaining
the flexibility to ensure we can blend, and deliver, the very best value wines
to our customers.
96% of the wines we sell by volume are exclusive to Virgin Wines. This control
of the winemaking process ensures we have the ability to blend our wines
ourselves, matching the precise stylistic qualities and taste profiles that we
know our loyal customers are looking for - this is achieved through the
constant use of extensive data and clever analytics from tens of thousands of
customer reviews.
We believe that our unique model differentiates Virgin Wines for both our
customers and investors, ensuring working capital can be minimised,
quality/value ratios can be maximised whilst delivering the most advantageous
gross margins. This sourcing model is key in supporting the resilience of our
business and the strength of our investment case.
Our culture, values and people
At Virgin Wines, the welfare, support and development of our people is a
priority. As a business that has always prided itself on placing its values
and culture at its very centre, we continue to adapt how we achieve that in an
ever-changing working environment.
Within our workplace we aim to create a fun and informal environment but
combine that with the highest of standards and exemplary levels of
professionalism. We also aim to be a supportive and inclusive business where
our team members are proud to work.
Over the past year we have completed an externally managed employee engagement
survey to understand what we are doing well and where we can improve. We have
created an environment that encourages hybrid working and flexibility,
however, with that the needs and expectations of our people have also changed,
and it was helpful to understand the various thoughts of our team in detail
through an anonymous, in-depth survey.
The introduction of our Employee Assistance Programme has been well received
and used extensively. The service allows all employees to access a range of
free services and support documents from one-to- one counselling to advice on
finances, health, and personal welfare. We have also introduced a new HR
system that that allows us to have a consistent and thorough onboarding
service, instant access to policies and self-management of annual leave. It is
also the central hub for access to the Employee Assistance Programme.
A welcoming and inclusive environment for all is paramount and we continue to
deliver a range of initiatives to promote this. This year we have carried out
an external inclusivity survey while a large number of employees have
completed an LGBTQ+ Awareness Training course with a certificate awarded
recognising the continued professional development of individuals on the
topic.
We continue to support a range of charities, including Bright Start in South
Africa that aims to give children from impoverished backgrounds a chance of a
quality education, Growing Well, a specialist mental health charity that
champions recovery through outdoor activity in two Cumbrian market gardens,
and The Drinks Trust that aims to safeguard the drinks industry community as a
whole.
We also understand the importance of responsible drinking and the dangers of
alcohol abuse. As such we continue to actively promote to our customers the
importance of enjoying alcohol in moderation and we continue to drive our
unique messaging that 'Drinking is only fun when you don't overdo it'.
Progress on sustainability
As well as delivering on our commercial ambitions we understand that it is our
responsibility to have a positive impact on our planet. Both the Board of
Directors and our Senior Management are committed to minimising our
environmental impact through product innovation, targeted operational
initiatives and collaboration with our stakeholders. We are also committed to
operating in a transparent manner and ensuring our products are sourced
through a visibly ethical supply chain.
I am delighted to say this year has been one of positive progress for the
business with several landmark achievements and new initiatives.
In particular, we were delighted to be officially certified as carbon neutral
in October '22 to the PAS 2060 standard for carbon neutrality. PAS 2060 is an
internationally recognised standard and one of few officially verified routes
to achieving this status. Whilst this is an excellent first step on our
sustainability journey, we had also targeted to reduce our Scope 1 and 2
emissions by 25% in FY23 and through a variety of initiatives, including the
major project of installing LED lighting across our premises, we are pleased
to have beaten that target.
One of the ways we have been able to drive down our greenhouse gas emissions
in recent years has been the ever-increasing amount of wine that we bottle in
the UK. This is one of the most significant ways we can positively affect our
GHG emissions, and we achieve this by shipping in tank and then using
Greencroft Bottling, itself a BRC Grade AA+ facility, to bottle the wine for
us at its state-of-the- art bottling plant just outside Durham. This is a
substantially more environmentally friendly way to import wine for several
reasons, but specifically due to the lower weight involved, with no glass
being shipped, and also because of the reduced amount of space it takes to
ship bulk liquid compared to bottled product. In the last 12 months we used
Greencroft to bottle 39.8% of our wines compared to 28% the year before,
delivering a material benefit on our GHG emissions.
We have also become a member of the Sustainable Wine Roundtable, an
industry-wide initiative that is committed to delivering best practice across
the wine industry, including a commitment to reducing bottle weights to
minimise the amount of glass used across the sector.
In addition to our environmental impact efforts, we have also reviewed and
improved our supplier due diligence process. We have undertaken a supplier
review to ensure all partners are acting in a sustainably responsible manner
and with values that align with ours. We are also introducing a company-wide
sustainable procurement policy.
Moving forwards our key initiatives include shifting our focus away from
offsetting and towards insetting. By generating real change within our own
value chain, we will lower our GHG emissions and contribute to the creation of
carbon reduction solutions for the wine industry as a whole.
Our focus on insetting will go beyond carbon emissions, however, and we will
pay attention to other areas that put our environmental future at risk. We're
in the process of conducting our first double-materiality assessment, so we
can discover where our stakeholder priorities lie, and ensure we're focusing
on the environmental issues that are most important to all of us.
Business Review
We have completed our Business Review, which has identified several strategic
initiatives that we are planning to start implementing over Q224. We believe
these will either add further credibility to the existing Virgin Wines
offering or allow growth into an area of the market where the business is
currently under-represented.
These initiatives are aimed at enhancing our trading with a wider range of
consumers, as well as refining and refreshing the appeal of the core business.
We expect these to predominantly benefit trading from H224 onwards. This
includes a new value proposition, Warehouse Wines, launching in late October,
alongside a premium Australian Wine Club, Five O'clock Somewhere (5OS). In
addition, the Board remains open to exploring future opportunities for growth,
including strategic partnerships or geographical expansion.
Outlook
As previously announced, the Board expects double digit sales growth in FY24,
alongside EBITDA margin of circa 4% - 5% as inflationary pressures,
particularly on freight and glass, start to ease. This will be supported by
the elimination of the previously reported one-off factors that negatively
affected this year's performance, alongside the development of the Group's new
strategic initiatives and a return to operational efficiency.
I am pleased to report that we have finished our Q1 period with year-on-year
revenue growth of 12%, with the ongoing loyalty of our existing customer base
particularly encouraging to see. In addition, both new customer conversion
rates and WineBank cancellation rates continue to trend positively from our
year-end position and revenue through our core repeat sales channels are up
15% up year-on-year. Customer acquisition continues to be the most challenging
area of the business, however, we continue to see encouraging year-on-year
growth through our Commercial channel.
We remain confident in the long-term prospects of the business given the
strength of the customer proposition and proven business model. We look
forward to pushing further forward in both our financial and operational
progress in the months and years ahead.
JAY WRIGHT
Chief Executive Officer
Financial Review
Business summary
The financial performance for FY23 was affected by several factors impacting
both revenue and cost, the most significant being the disruption caused by the
launch of the new Warehouse Management System in late Q1 FY23. This drove an
additional £1m in operational costs which are categorised as exceptional in
FY23 due their scale and one-off nature. The negative impact on revenue and
net contribution is not included in exceptional costs. With the WMS now
performing as expected the Group is in a position to start to deliver the
planned benefits in efficiency and customer service.
High inflation driven by food and energy costs, hikes in interest rates
particularly in 2023 calendar year and the unwinding of any remaining Covid
impact resulted in much tougher underlying market conditions in FY23. Despite
these headwinds many of the core fundamentals of the Virgin Wines model were
unchanged. The disciplined approach to new customer acquisition delivering new
recruits at a marketing cost of only £11.99 per recruit (FY22: £13.22), with
70% of the new recruits joining via the partnership model, up from 67% in
FY22. The conversion of new recruits into active customers recovered strongly
in H2, finishing the year at 46.8% (FY22: 48.6%). Despite a drop in order
frequency WineBank customers continue to be the main source of repeat revenue.
The scheme membership increased again in the year to 133k (FY22: 130k) with
membership cancellation from the active base edging up only marginally from
16.7% to 17.3% and WineBank deposits grew to £8.0m from £7.4m in FY22 which
should reflect pent up demand and future Group revenue.
The Group remains debt free and in a strong position to benefit from
improvements in consumer confidence.
Loss/profit before tax
Loss before tax for FY23 was £0.6m compared to a profit of £4.4m in FY22.
After adjusting for exceptional costs and share based payments profit before
tax was £0.6m, (FY22: £5.2m). The Group does not propose to pay a dividend.
Adjusted EBITDA
Given the trading challenges in FY23, adjusted EBITDA was lower at £1.8m,
down from £6.2m in FY22. As a percentage of revenue, the adjusted EBITDA
margin was 3.0% compared to 9.0% in FY22. The adjusted EBITDA for FY23 is
calculated after adding back exceptional costs of £1.0m (FY22: nil), share
based payments of £0.3m (FY22: £0.1m) and depreciation/amortisation to the
reported operating loss of £0.7m. Adjusted EBITDA is not a statutory
reporting measure but is included as an additional performance measure
consistent with previous reporting.
Exceptional costs
The reported results include £1m of exceptional items (FY22: nil). The
exceptional items relate solely to additional costs incurred as a result of
operational issues following the implementation of a new Warehouse Management
System. Impacts related to the loss of revenue due to early Christmas cut off
have not been included in exceptional costs. The Board is satisfied that the
additional costs incurred are non recurring in scale and nature. Significant
progress has been made throughout the second half of FY23 to improve the
system stability and performance. Along with enhanced staff training and
experience the system is now operating as planned.
Revenue
Reported revenue for the 52-week period to 30 June 2023 fell by £10.2m
(14.7%) to £59m (FY22: £69.2m). The revenue was impacted by the exceptional
events referred to in the business summary and by the challenging trading
environment throughout FY23. Commercial revenues were unchanged at £6.9m. The
proportion of repeat revenue from subscription customers, WineBank and Wine
Plan increased to 87% from 82% in FY22, with the revenue contribution from non
subscription (PAYG) customers continuing to fall.
Gross margin
Reported gross margin for the 52-week period to 30 June 2023 declined by 186
basis points to 29.6%, (FY22: 31.4%). This reflected a full year of lower
margins on recruitment activity that started back in H2 of FY22 and the impact
of inflationary pressure on dry good input costs in what remains a highly
competitive pricing landscape. Gross profit in these Financial Statements is
stated as revenue less wine cost, packaging, and carrier delivery costs. UK
Duty, inbound packaging, and freight costs are included in the wine cost.
Direct to consumer (DTC) product margins on repeat sales held up well despite
the cost pressures, achieving 40.5% compared to 41.0% in FY22. Product margins
exclude packaging and delivery costs.
Operating expenses
Operating expenses excluding exceptional costs increased by £0.2m to £15.7m,
(FY22: £15.5m). Selling and distribution expenses fell due to lower volumes
in FY23. However, administration expenses increased, reflecting inflationary
cost pressures and ongoing investment in future growth opportunities. Energy
and waste levy costs increased sharply, and the business continued to invest
in IT development and staff retention.
Finance income and expense
Finance income relates to interest received on company cash deposits and
increased by £0.13m to £0.16m, (FY22: £0.03) as interest rates increased
during FY23. Finance expenses increased slightly to £0.17m (FY22: £0.13m)
due to the increased cost of borrowing on right of use assets. The charge in
financial statements for both years relates solely to the interest charge on
right of use assets and the adoption of IFRS 16 for leases.
Further details are available in notes 11 and 12 of the Financial Statements.
Amortisation and depreciation
Amortisation and depreciation increased to £1.2m in FY23 from £0.9m in FY22
as the Group continued to invest in IT developments and the new WMS which went
live in the year.
Impairment review
At the reporting date the Directors tested goodwill for impairment in
accordance with the requirements of IAS 36 Impairment of Assets. The total
carrying amount of the Group's single cash-generating unit was compared to its
estimated value in use. No impairment was identified. For further details see
note 15.
Taxation
The tax credit in the Financial Statements for FY23 is £0.14m, tax charge
(FY22: £0.7m). The tax credit relates to the loss for the period. This
resulted in an increase in the deferred tax asset and has no cash impact. The
deferred taxes have been measured using the tax rate of 25% (FY22: 25%).
Earnings Per Share (EPS)
The Group reported loss for the year equates to a loss per share of 1.1p. This
compares to earnings per share of 7.8p in FY22. The diluted loss per share is
1.1p, FY22 diluted earnings per share 7.8p. The weighted average number of
shares in issue for FY23 was 55.8m, FY22 55.8m (see note 14 of the Financial
Statements for more details).
Cash and working capital
The Group end of year cash balance for FY23 was £13.5m (FY22: £15.1m). These
balances include cash deposits from WineBank customers of FY23 £8.0m, (FY22:
£7.4m). The WineBank customer deposits are not used to fund working capital
and are kept in a ring- fenced client account separate from Group cash. Net of
WineBank customer deposits and the deferred payments the net cash position was
year end £5.5m, (FY22: £7.7m). The Group funded investment in capital
projects of £0.9m in FY23, (FY22: £1.0m). As signposted in our Interim
Report, as supply chain risks reduced, in H2 the Group commenced a programme
to reduce inventory levels. As a result inventories fell from a peak of
£11.0m by the year end in December 2022 by £2.6m to £8.4m, (FY22: £8.7m).
Trade and other payables reduced in FY23 to £14.2m from £15.4m in FY22
reflecting the slowdown in purchasing activity in the latter part of H2 FY23.
The Group has cash reserves, no borrowing, ring-fenced client funds and can
continue to deploy working capital to achieve future growth plans and manage
any downside financial risk.
GRAEME WEIR
Chief Financial Officer
Consolidated Statement of Comprehensive Income
for the 52-week period ended 30 June 2023
Note 30 June 2023 1 July 2022
£'000 £'000
Revenue 5 58,998 69,152
Cost of sales (41,560) (47,429)
Gross profit 17,438 21,723
Administrative expenses before exceptional items (5,981) (4,356)
Administrative expenses before exceptional items (5,981) (4,356)
Exceptional items 6 (990) -
Administrative expenses (6,971) (4,356)
Selling and distribution costs (11,189) (12,166)
Operating (loss)/profit 7 (722) 5,201
Finance income 11 159 31
Finance costs 12 (174) (134)
(Loss)/profit before taxation (737) 5,098
Taxation credit/(expense) 13 143 (747)
(Loss)/profit for the financial period and total comprehensive (594) 4,351
(expense)/income
Basic and diluted (loss)/earnings per share (pence) 14 (1.1) 7.8
The results for the periods shown above are derived entirely from continuing
activities.
The Group has no other comprehensive income or expense other than the
(loss)/profit above and therefore no separate statement of other comprehensive
income has been presented.
Consolidated Statement of Financial Position
as at 30 June 2023
30 June 1 July
2023 2022
Company number 13169238 Note £'000 £'000
ASSETS
Non-current assets
Intangible assets 15 11,350 11,113
Property, plant and equipment 16 402 400
Right of use assets 17 2,870 3,262
Deferred tax asset 18 496 428
Total non-current assets 15,118 15,203
Current assets
Inventories 19 8,367 8,653
Trade and other receivables 20 2,615 2,477
Derivative financial instruments 24 - 16
Cash and cash equivalents 21 13,514 15,070
Total current assets 24,496 26,216
Total assets 39,614 41,419
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables 22 (14,206) (15,451)
Derivative financial instruments 24 (12) -
Lease liability 17 (521) (456)
Total current liabilities (14,739) (15,907)
Non-current liabilities
Provisions 23 (321) (290)
Lease liability 17 (2,732) (3,149)
Total non-current liabilities (3,053) (3,439)
Total liabilities (17,792) (19,346)
Net assets 21,822 22,073
Equity
Share capital 25 558 558
Share premium 11,989 11,989
Own share reserve - (36)
Merger reserve 65 65
Share based payment reserve 402 95
Retained earnings 8,808 9,402
Total equity 21,822 22,073
The Financial Statements on pages 77 to 104 were approved by the Board of
Directors and authorised for issue on 25 October 2023. They were signed on its
behalf by:
Jay Wright
Chief Executive Officer
The notes on pages 81 to 104 of the Annual Report 2023 form part of these
Financial Statements.
Consolidated Statement of Changes in Equity
for the 52-week period ended 30 June 2023
Share capital Share premium Own share reserve Merger reserve Share based payment reserve Retained earnings Total Shareholders' funds
£'000 £'000 £'000 £'000 £'000 £'000 £'000
3 July 2021 558 11,989 (36) 65 - 5,051 17,627
Profit for the financial period - - - - - 4,351 4,351
Total comprehensive income for the period - - - - - 4,351 4,351
Share-based payments (note 10) - - - - 95 - 95
Total transactions with owners recognised in equity - - - - 95 - 95
1 July 2022 558 11,989 (36) 65 95 9,402 22,073
2 July 2022 558 11,989 (36) 65 95 9,402 22,073
Loss for the financial period - - - - - (594) (594)
Total comprehensive income for the period - - - - - (594) (594)
Share-based payments (note 10) - - - - 307 - 307
Own shares distributed - - 36 - - - 36
Total transactions with owners recognised in equity - - 36 - 307 - 343
30 June 2023 558 11,989 - 65 402 8,808 21,822
The notes on pages 81 to 104 of the Annual Report 2023 form part of these
Financial Statements.
Consolidated Statement of Cash Flows
for the 52-week period ended 30 June 2023
30 June 1 July
2023 2022
£'000 £'000
Cash flows from operating activities Note
(Loss)/profit before taxation (737) 5,098
Adjustments for:
Depreciation and amortisation 7 1,195 963
Share-based payment expense 10 307 95
Own shares distributed 25 36 -
Net finance costs 11, 12 15 103
Increase in trade and other receivables (122) (941)
Decrease/(increase) in inventories 286 (1,414)
Decrease in trade and other payables (1,126) (2,928)
Net cash (used in)/generated from operating activities (146) 976
Cash flows from investing activities
Interest received 11 159 31
Disposal of intangible fixed assets 15 35 -
Purchase of intangible and tangible fixed assets 15, 16 (968) (969)
Net cash used in investing activities (774) (938)
Cash flows from financing activities
Payment of lease liabilities 17 (462) (494)
Payment of lease interest 12 (174) (134)
Net cash used in financing activities (636) (628)
Net (decrease)/increase in cash and cash equivalents (1,556) (590)
Cash and cash equivalents at beginning of period 15,070 15,660
Cash and cash equivalents at end of period 13,514 15,070
Cash and cash equivalents comprise:
Cash at bank and in hand 13,514 15,070
The notes on pages 81 to 104 of the Annual Report 2023 form part of these
Financial Statements.
Notes Forming Part of the Financial Statements
for the 52-week period ended 30 June 2023
1. General information
The principal activity of the Group is import and distribution of wine.
The Company was incorporated on 1 February 2021 in the United Kingdom and is a
public company limited by shares registered in England and Wales. The
registered office is 37-41 Roman Way Industrial Estate, Longridge Road,
Ribbleton, Preston, Lancashire, United Kingdom, PR2 5BD. The registered
company number is 13169238.
2. Accounting policies
This note provides a list of the significant accounting policies adopted in
the preparation of these consolidated Financial Statements to the extent that
they have not already been disclosed in the other notes above. These policies
have been consistently applied to all the years presented, unless otherwise
stated. The Financial Statements are for the Group consisting of Virgin Wines
UK plc and its subsidiaries.
Basis of preparation
On 31 December 2020, IFRS as adopted by the European Union at that date were
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK endorsement Board.
The Group transitioned to the UK- adopted International Accounting Standards
in the Group Financial Statements on 1 July 2021. This change constitutes a
change in accounting framework. However, there is no impact on recognition,
measurement or disclosure in the periods reported as a result of the change in
framework. The Group Financial Statements have been prepared in accordance
with UK-adopted International Accounting Standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under these
standards.
The financial information set out in this announcement does not constitute the
Group's financial statements for the period ended 30 June 2023 as defined by
Section 434 of the Companies Act. This financial information should be read
in conjunction with the financial statements of the Group for the period ended
1 July 2022 (the "Prior year financial statements"), which are available from
the Registrar of Companies. The Prior year financial statements were prepared
in accordance with UK adopted international accounting standards and the
applicable legal requirements of the Companies Act 2006. The auditors,
PricewaterhouseCoopers LLP, reported on those accounts and their report was
unqualified, did not contain an emphasis of matter paragraph and did not
contain any statement under Section 498 (2) or (3) of the Companies Act 2006.
Accounting reference date
UK company law permits a company to draw up Financial Statements to a date
seven days either side of its accounting reference date. For operational
reasons the Company has adopted an accounting period of 52 weeks, and as a
result of this, the exact year-end was 30 June 2023 (2022: 1 July 2022).
Historical cost convention
The Financial Statements have been prepared on a historical cost basis except
for certain financial assets and liabilities (including derivative
instruments), measured at fair value through the income statement.
New standards, interpretations and amendments issued not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued that are effective in future accounting periods that
the group has decided not to adopt early.
The following standards were in issue but have not come into effect:
Amendments to
· IFRS 17 and IFRS 4, 'Insurance contracts', deferral of IFRS 9, as
amended in June 2020 - effective for the year ending 30 June 2024
· IAS 1, Presentation of Financial Statements' on classification of
liabilities - effective for the year ending 30 June 2024
· IAS 1, Practice statement 2 and IAS 8 (narrow scope) - effective
for the year ending 30 June 2024
· IAS 12- deferred tax related to assets and liabilities arising from
a single transaction - effective for the year ending 30 June 2024
· IFRS 17, 'Insurance contracts' - effective for the year ending 30
June 2024
The Directors anticipate that the adoption of planned standards and
interpretations in future periods will not have a material impact on the
Financial Statements of the Group.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Strategic
Report and the Directors' Report, which also describes the financial position
of the Group. The Group's financial risk management objectives and its
exposure to credit risk and liquidity risk are set out in note 24.
During the period the Group met its day-to-day working capital requirements
through its trading activities. The Group's forecasts and projections, taking
account of a severe but plausible change in trading performance, show that the
Group should be able to operate using cash generated from operations, and that
no additional borrowing facilities will be required.
Having assessed the principal risks, the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing its consolidated
Financial Statements.
Basis of consolidation
The Financial Statements consolidate the financial information of the Group
and companies controlled by the Group (its subsidiaries) at each reporting
date.
Control is achieved where the Company has the power to govern the financial
and operating policies of an investee entity, has the rights to variable
returns from its involvement with the investee and has the ability to use its
power to affect its returns. The results of subsidiaries acquired or sold are
included in the financial information from the effective date of acquisition
or up to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the results of acquired subsidiaries to bring their
accounting policies into line with those used by the Group.
All intra-Group transactions, balances, income and expenses are eliminated on
consolidation.
The Financial Statements of all Group companies are adjusted, where necessary,
to ensure the use of consistent accounting policies.
Employee Benefit Trust
The assets and liabilities of the Employee Benefit Trust (EBT) have been
included in the consolidated financial statements. Any assets held by the EBT
cease to be recognised on the Consolidated Statement of Financial Position
when the assets vest unconditionally in identified beneficiaries.
The costs of purchasing own shares held by the EBT are shown as a deduction
against equity. The proceeds from the sale of own shares held increase equity.
Neither the purchase nor sale of own shares leads to a gain or loss being
recognised in the Consolidated Statement of Comprehensive Income.
Revenue recognition
Revenue from contracts with customers contains one performance obligation,
unless it is a WineBank sale, in which case there are two performance
obligations and this is described separately further below. The single
performance obligation is the supply of goods. The transaction price is fully
allocated to the single performance obligation for non-WineBank sales. The
Group recognises revenue at a point in time when the single performance
obligation is satisfied. The performance obligation is satisfied when control
is passed to the customer. Control is deemed to pass to the customer upon
delivery of the goods.
Revenue is recognised at the transaction price of the sale of goods, net of
discounts and excluding value added tax, in the ordinary course of business.
The Group uses its accumulated historical experience to estimate the level of
returns on a portfolio level using the expected value method. Credit terms are
only provided to corporate customers, and the average days are 60.
WineBank
Amounts deposited by customers for WineBank are initially reported as a
liability in the Statement of Financial Position. On registering as a WineBank
customer, subscription customers agree to lodge a regular monthly sum into
their WineBank account. These sums accumulate in the customer account and
build a balance to use against their next purchase from the Group.
Amounts deposited by WineBank customers are reported within the Group cash
balance but are held separate to Group funds. WineBank deposits are not used
to fund the working capital of the business. WineBank customers can cancel
their WineBank account at any time and may request to receive their money back
immediately with no penalty whatsoever.
Using funds deposited through the WineBank scheme entitles account holders to
benefit from an extra discount on the Group's website prices. This discount
represents a 'material right' under IFRS 15 Revenue from Contracts with
Customers when customers spend their WineBank cash balance but not the
associated interest. The material right performance obligation is calculated
on a portfolio basis taking into account inactive customers and expected
future cash receipts which reduce the portfolio value of the material right.
The material right provision is included within contract liabilities and
deferred until the customer uses the discount on a future order.
Orders placed through the WineBank scheme also contain the same performance
obligation as for other sales, as described above. The transaction price
allocated to this performance obligation is the remaining amount after
allocating the element to the material right, and is recognised upon delivery
to the customer.
Finance costs
Finance costs on financial liabilities are recognised in the profit and loss
account over the term of such instruments at a constant rate on the carrying
amount. Issue costs relating to financial instruments are recognised in the
income statement over the term of the debt at a constant rate over the
instrument's life.
Interest on leases is calculated based on the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases in the Group, the lessee's incremental borrowing rate is used (see
lease accounting policy).
Taxation
Tax on the profit or loss for the year comprises current and deferred tax.
Tax is recognised in the Consolidated Statement of Comprehensive Income except
to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates and laws enacted or substantively enacted at the reporting
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of goodwill, the initial recognition of
assets or liabilities that affect neither accounting nor taxable profit other
than in a business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates and laws enacted or substantively enacted at the reporting
date. A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which the asset
can be utilised.
The carrying amounts of deferred tax assets are reviewed at each reporting
date.
Foreign currencies
Functional and presentational currency
Items included in the Financial Statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (the functional currency). The functional currency of the
Group is Pounds Sterling. The Financial Statements have been rounded to
thousands.
Transactions and balances
Transactions denominated in foreign currencies are translated into the
functional currency at the exchange rates prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated at quoted rates of exchange ruling at the balance sheet date.
Exchange profits and losses arising from current trading are included in
operating profit.
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings and businesses,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets and liabilities acquired is capitalised.
The goodwill in the consolidated financial statements represents the goodwill
recognised in the predecessor holding company Financial Statements at the
original carrying value.
Goodwill is not amortised but is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units (or groups of cash-generating units) expected to
benefit from the synergies of the combination. Cash- generating units to which
goodwill has been allocated are tested for impairment annually, or more
frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying
amount of the unit, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other
assets of the unit pro rata on the basis of the carrying amount of each asset
in the unit. An impairment loss recognised for goodwill is not reversed in a
subsequent period.
Intangible assets
Computer software is stated at cost less accumulated amortisation and
impairment losses. Software is amortised over its estimate useful life, of
between five and eight years, on a straight line basis.
Where factors, such as technological advancement or changes in market prices,
indicate that residual value or useful life have changed, the residual value,
useful life or amortisation rate are amended prospectively to reflect the new
circumstances.
Property, plant and equipment
Property, plant and equipment are stated at historic purchase cost less
accumulated depreciation and impairment losses. Cost includes the original
purchase price of the asset and the costs attributable to bringing the asset
to its working condition for its intended use.
Depreciation is calculated so as to write off the cost of an asset, less its
estimated residual value, over the useful economic life of that asset as
follows:
· Leasehold Property - over the life of the lease
· Fixtures and fittings - 33.33% per annum
· Computer hardware and warehouse equipment - 33.33% per annum
Assets classified as 'work in progress' are not depreciated as such assets are
not currently available for (or in) use. Once in use, assets will be re-
categorised and depreciated at the rate appropriate to their classification.
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the net sale proceeds and the carrying
amount of the asset and is recognised in the Statement of Comprehensive
Income.
Impairment of non-financial assets (excluding goodwill)
At each reporting date, the Group reviews the carrying amounts of its tangible
and intangible assets to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in comprehensive income.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in profit or loss to
the extent that it eliminates the impairment loss which has been recognised
for the asset in prior years.
Leases
A contract, or a portion of a contract, is accounted as a lease when it
conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following criteria:
· There is an identified asset;
· The Group obtains substantially all the economic benefits from use
of the asset; and
· The Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights.
If the supplier does have those rights, the contract is not identified as
giving rise to a lease. In determining whether the Group obtains substantially
all the economic benefits from use of the asset, the Group considers only the
economic benefits that arise from use of the asset. In determining whether the
Group has the right to direct use of the asset, the Group considers whether it
directs how and for what purpose the asset is used throughout the period of
use. If the contract or portion of a contract does not satisfy these criteria,
the Group applies other applicable IFRS rather than IFRS 16.
The group leases various offices, warehouses and equipment. Rental contracts
are typically made for fixed periods of five to ten years, but may have
extension options as detailed in note 16.
Contracts may contain both lease and non-lease components. The group allocates
the consideration in the contract to the lease and non-lease components based
on their relative stand-alone prices.
Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any
covenants other than the security interests in the leased assets that are held
by the lessor. Leased assets may not be used as security for borrowing
purposes.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
· fixed payments (including in-substance fixed payments), less any
lease incentives receivable;
· variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement date;
· amounts expected to be payable by the group under residual value
guarantees;
· the exercise price of a purchase option if the group is reasonably
certain to exercise that option; and
· payments of penalties for terminating the lease, if the lease term
reflects the group exercising that option.
Lease payments to be made under reasonably certain extension options are also
included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be readily determined, which is generally the case
for leases in the group, the lessee's incremental borrowing rate is used,
being the rate that the individual lessee would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset
in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
· where possible, uses recent third-party financing received by the
individual lessee as a starting point, adjusted to reflect changes in
financing conditions since third party financing was received;
· uses a build-up approach that starts with a risk-free interest rate
adjusted for credit risk for leases held by Virgin Wines UK plc, which does
not have recent third-party financing; and
· makes adjustments specific to the lease, for example term and
security.
If a readily observable amortising loan rate is available to the individual
lessee (through recent financing or market data) which has a similar payment
profile to the lease, then the group entities use that rate as a starting
point to determine the incremental borrowing rate.
The Group is exposed to potential future increases in variable lease payments
based on an index or rate, which are not included in the lease liability until
they take effect. When adjustments to lease payments based on an index or rate
take effect, the lease liability is reassessed and adjusted against the
right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance
cost is charged to profit or loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance of the liability
for each period.
The Group has elected not to recognise right of use assets and lease
liabilities for leases of low-value assets and short-term leases. The Group
recognises the lease payments associated with these leases as an expense on a
straight-line basis over the lease term.
Inventory
Inventories are valued at the lower of cost and net realisable value on a FIFO
basis. Cost comprises purchase price plus associated freight and duty costs
for imported goods. Inventories are regularly assessed for evidence of
impairment. Where such evidence is identified, a provision is recognised to
reduce the value of inventories to its selling price after incurring any
future costs to sell.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and with banks, as well as any
deposits made with financial institutions with a maturity period of less than
three months from the date of deposit. Cash and cash equivalents also includes
amounts received from WineBank customers which are not restricted and as such
are presented as cash and cash equivalents.
Financial instruments
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument and
are measured initially at fair value adjusted by transactions costs, except
for those carried at fair value through profit or loss which are measured
initially at fair value. Subsequent measurement of financial assets and
financial liabilities are described below.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and all
substantial risks and rewards are transferred. A financial liability is
derecognised when it is extinguished, discharged, cancelled or expires.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified
into the following categories upon initial recognition:
· financial assets at amortised cost; and
· financial assets/liabilities held at fair value through profit or
loss (FVTPL).
Financial assets at amortised cost
Financial assets at amortised cost are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active market. After
initial recognition, these are measured at amortised cost using the effective
interest method, less provision for impairment. Discounting is omitted where
the effect of discounting is immaterial. The Group's cash and cash
equivalents, trade and most other receivables fall into this category of
financial instruments.
The Group recognises a loss allowance for expected credit losses (ECL) on
financial assets that are measured at amortised cost. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit
risk since initial recognition of the respective financial instrument.
The Group always recognises lifetime ECL on trade receivables. The expected
credit losses on these financial assets are estimated using a provision matrix
based on the Group's historical credit loss experience, adjusted for factors
that are specific to the debtors, general economic conditions and an
assessment of both the current as well as the forecast direction of conditions
at the reporting date, including time value of money where appropriate.
All income and expenses relating to financial assets that are recognised in
the Consolidated Statement of Comprehensive Income are presented within
finance costs or finance income, except for impairment of trade receivables
which is presented within other administrative expenses.
Classification and subsequent measurement of financial liabilities
The Group's financial liabilities include trade and other payables, accruals
and contract liabilities, loans and borrowings and derivative financial
instruments.
Financial liabilities are measured at amortised cost using the effective
interest method, except for financial liabilities held for trading or
designated at FVTPL, that are carried at fair value with gains or losses
recognised in the Consolidated Statement of Comprehensive Income.
All interest-related charges and, if applicable, changes in an instrument's
fair value that are reported in Consolidated Statement of Comprehensive Income
are included within finance costs or finance income.
Derivative financial liabilities
Derivatives are initially recognised at fair value at the date a derivative is
entered into and are subsequently remeasured to their fair value at each
reporting date. A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is recognised
as a financial liability. The resulting gain or loss is recognised in the
Consolidated Statement of Comprehensive Income immediately. A derivative is
presented as a non-current asset or non-current liability if the Group has an
unconditional right to defer payment beyond 12 months. Otherwise derivatives
are presented as current assets or liabilities.
Exceptional items
The Company presents certain items as "exceptional" on the face of the
Consolidated Statement of Comprehensive Income account in arriving at
operating profit. These are items which in management's judgement need to be
disclosed separately by virtue of their size, nature and occurrence.
Employee benefits
The Group provides a range of benefits to employees, including annual bonus
arrangements, paid holiday arrangements and defined contribution pension
plans.
(i) Short-term benefits
Short-term benefits, including holiday pay and other similar non-monetary
benefits, are recognised as an expense in the period in which the service is
received.
(ii) Defined contribution pension plans
The Group operates a number of country-specific defined contribution plans for
its employees. A defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity. Once the contributions
have been paid the Group has no further payment obligations. The contributions
are recognised as an expense when they are due. Amounts not paid are shown in
accruals in the balance sheet. The assets of the plan are held separately from
the Group in independently administered funds.
(iii) Share-based payments
A transaction is accounted for as a share-based payment where the Group
receives services for employees, Directors or third parties and pays for these
in shares or similar equity instruments.
The Group makes equity-settled share-based payments to certain employees and
Directors. Equity-settled share-based schemes are measured at fair value
(excluding the effect of non-market-based vesting conditions) at the date of
grant, measured by use of an appropriate valuation model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the period services are
received, based on the Group's estimate of shares that will eventually vest.
Share options are forfeited when an employee ceases to be employed by the
Group unless determined to be a 'Good Leaver'. A 'Good Leaver' is a
participant who ceases employment by reason of death, injury, ill-health or
disability.
The Group has discretion to recover the employer's National Insurance
liability from the employee. For the current active schemes the company has
chosen to do so.
Merger reserve
The merger reserve was created during FY21 as a result of the share for share
exchange under which Virgin Wines UK plc became the parent undertaking prior
to the IPO. Under merger accounting principles, the assets and liabilities of
the subsidiaries were consolidated at book value in the Group Financial
Statements and the consolidated reserves of the Group were adjusted to reflect
the statutory share capital, share premium and other reserves of the Company
as if it had always existed, with the difference presented as the merger
reserve.
Retained earnings
Retained earnings includes all current and prior period retained profits and
losses, including foreign currency translation differences arising from the
translation of Financial Statements of the Group's foreign entities.
All transactions with owners of the parent are recorded separately within
equity.
Dividends are recognised when approved by the Group's shareholders or, in the
case of interim dividends, when the dividend has been paid.
Section 479c Companies Act 2006 Audit exemption
The subsidiaries Virgin Wine Online Limited (registered number 03800762) and
Virgin Wines Holding Company Limited (registered number 07970057) are exempt
from the requirements of the Act relating to the audit of accounts under
section 479A of the Companies Act 2006.
3. Judgements in applying accounting policies and key sources of
estimation uncertainty
In preparing these Financial Statements, the Directors have made the following
key judgements and estimates:
Goodwill impairment assessment (note 15)
At each reporting date, the Group tests goodwill for impairment in accordance
with the requirements of IAS 36. The recoverable amount of the Group's single
cash-generating unit (CGU) is determined by calculating its value in use. The
value-in-use calculation requires the Group to estimate the future cash flows
expected to arise from the single CGU and to use a suitable discount rate in
order to calculate their present value. The value in use is then compared to
the total of the relevant assets and liabilities of the CGU. See note 15 for
details of the test for impairment and the relevant key assumptions.
Assessment of carrying values of plc company investments and amounts due from
Group undertakings
In relation to the plc company's investments in subsidiaries, the Directors
are required to assess whether there are any indicators of impairment at each
reporting date. All relevant potential indicators are considered, including
the performance of the underlying trading subsidiary and the results of the
Group's impairment assessment performed as at the same date as described
above. The Directors exercise their judgement in determining whether any such
indicators exist. Where an indicator of impairment is identified in relation
to the company's investments or intercompany receivable balances, a full
impairment review is performed. The Directors performed their assessment and
concluded that no impairment indicators existed at 30 June 2023 and, as such,
a full impairment review over the company's investments in subsidiaries and
intercompany receivables was not performed.
In relation to the amounts due from Group undertakings, the Directors are
required to assess their carrying amount for any impairment using the expected
credit losses ("ECL") model. As set out in note 5 to the Company Financial
Statements, the amounts owed by Group undertakings are unsecured, interest
free and repayable on demand. Consistent with the ECL model, the Directors
have assessed the carrying amount for impairment on the assumption that
repayment of the amounts were demanded at the reporting date. The Directors,
having determined that the borrower had insufficient highly liquid resources
at the reporting date, considered the expected manner of recovery and recovery
period of these loans (the company's 'recovery scenarios'). The Directors
determined that the only non-trivial recovery scenario would be realised by
way of a dividend distribution by the Group's trading subsidiary, Virgin Wine
Online Limited. The Directors, amongst other factors, considered the ability
and intent of the subsidiary to make such a distribution if required, and
ultimately determined that any reduction in the carrying amount of these
receivables would be inconsequential to the company's financial statements. On
that basis, no ECL provision has been recognised.
Sources of estimation uncertainty
The Group has considered other estimates and assumptions that, whilst not
deemed to represent a significant risk of material adjustment, do represent
important estimates at 30 June 2023 and are disclosed accordingly. The
valuation of the material right provision is disclosed as an other estimate in
the current year.
4. Segmental reporting
IFRS 8 requires operating segments to be determined based on the Group's
internal reporting to the Chief Operating Decision Maker (CODM). The CODM has
been determined to be the Board as it is primarily responsible for the
allocation of resources to segments and the assessment of performance of the
segments.
The level of aggregation of results reported to and assessed by the CODM
supports that there are not operating segments smaller than the business as a
whole, there is only one operating segment, which comprises all of the
operations of the Group. Performance of this operating segment is assessed on
revenue and Adjusted EBITDA (being operating profit excluding any adjusted
items). 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 segment.
Adjusted items are not allocated to the operating segment as this reflects how
they are reported to the Board.
5. Revenue
The Directors have considered the requirement of IFRS 15 with regards to
disaggregation of revenue and do not consider this to be required as the Group
has only one operating segment which is the sale of alcohol.
There is one geographical market being the UK, all revenue streams having
similar recognition policies and whilst the Group provides services,
Management do not believe such analysis would provide meaningful information
for users of the Financial Statements.
There were no major customers that individually accounted for more than 10% of
total revenues (2022: no customers).
6. Exceptional items
Exceptional items relate to additional labour costs (£687k), goodwill
compensation given to customers (£97k) and other incremental costs (£206k)
due to operational issues following the implementation of the new Warehouse
Management System. These costs are deemed exceptional due to their size and
non recurring nature (2022: £nil).
7. Operating (loss)/profit
Operating (loss)/profit is stated after charging/(crediting):
30 June 1 July
2023 2022
£'000 £'000
Inventory charged to cost of sales 37,548 43,060
Depreciation (note 16) 232 139
Depreciation of right of use asset (note 17) 501 502
Staff costs (note 8) 8,192 7,660
Share based payments (note 10) 307 89
Movement in inventory provision (98) 38
Intangible asset amortisation (note 15) 462 322
Low value and short-term rentals excluded from right of use asset 70 51
Auditors' remuneration:
- for the audit of the Group and parent company Financial Statements 219 187
- non audit fees (tax compliance services) 13 11
8. Staff costs
30 June 1 July
2023 2022
£'000 £'000
Staff costs (including directors) consist of:
Wages and salaries 6,948 6,477
Social security costs 790 707
Other pension costs 454 476
8,192 7,660
The amount recognised in the Consolidated Statement of Comprehensive Income as
an expense in relation to the Group's defined contribution schemes is
£454,000 (2022: £476,000).
The monthly average number of employees (including directors) during the
period was as follows:
30 June 1 July
2023 2023
By function Number Number
Sales 164 164
Management and administrative 36 36
200 200
The majority of employees are eligible to join the defined contribution
pension plan.
9. Key management personnel
30 June 1 July
2023 2022
£'000 £'000
Short-term employee benefits 675 669
Post employment benefits 24 31
699 700
During the period, retirement benefits were accruing to two directors (2022:
two) in respect of defined contribution pension schemes. Key management
personnel include only the Directors and as such no further disclosures in
respect of compensation are given.
Additional analysis can be found in the Remuneration Committee report.
10. Share-based payments
In the 52-week period ended 30 June 2023 the Group operated an equity-settled
share-based payment plan as described below. The charge in the period
attributed to the plan was £307,000 (2022: £89,000).
The total amount recognised in relation to share based payments is £402,000
(2022: £95,000).
Under the Virgin Wines UK plc Long-Term Incentive Plan, the Group gives
performance share awards (PSA) and restricted share awards (RSA) to Directors
and senior staff subject to the achievement of a pre-agreed revenue and net
profit figure for the financial year of the Group, three
financial years subsequent to the date of the award. These shares vest after
the delivery of the audited revenue and profit figure for the relevant
financial period has been announced.
Awards are granted under the plan for no consideration and carry no dividend
or voting rights. Awards are exercisable at the nominal share value of £0.01.
Awards are forfeited if the employee leaves the Group before the awards vest,
except under circumstances where the employee is considered a 'Good Leaver'.
30 June 2023 1 July 2022
Grant date Vesting Date
Share price at Number of share options Share price at Number of share options
grant grant
PSA Share Awards
6 December 2021 1 November 2024 193p 696,393
6 December 2022 6 December 2025 70p 1,606,003 -
1,606,003 696,393
RSA Share Awards
6 December 2021 1 November 2024 193p 87,058
6 December 2022 6 December 2023 70p 204,654 -
6 December 2022 6 December 2024 70p 204,654 -
6 December 2022 6 December 2025 70p 275,949 -
685,257 87,058
Number of Shares Number of Shares
30 June 1 July
2023 2022
Outstanding at start of period 1,204,217 433,288
Granted during the period 2,291,260 783,451
Lapsed during the period (305,451) -
Forfeitures in the period (378,381) (12,522)
Outstanding at end of period 2,811,645 1,204,217
The awards outstanding at 30 June 2023 have a weighted average remaining
contractual life of 1.9 years (2022: 2.0 years).
The fair value at grant date was determined with reference to the share price
at grant date, as there are no market-based performance conditions and the
expected dividend yield is 0%. Therefore there was no separate option pricing
model used to determine the fair value of the awards.
11. Finance income
30 June 1 July
2023 2022
£'000 £'000
Bank interest 159 31
12. Finance costs
30 June 1 July
2023 2022
£'000 £'000
Interest payable for lease liabilities 174 134
13. Taxation
30 June 1 July
2023 2022
£'000 £'000
Analysis of charge for the period
Current tax
Adjustment in respect of prior period 75 -
Charge for the year - 75
Total current tax 75 75
Deferred tax
Origination and reversal of timing differences 165 857
Adjustment in respect of prior period (97) (82)
Effect of changes in tax rates - (103)
Total deferred tax 68 672
Tax charge on profit on ordinary activities 143 747
Factors that may affect future tax charges:
On 3 March 2021, the 2021 UK Budget announced an increase to the corporation
tax rate from 19% to 25% effective from April 2023. This was substantively
enacted on 24 May 2021.
Deferred taxes at the balance sheet date have therefore been measured using
the effective tax rate (25%).
The tax assessed for the period is higher (2022: lower) than the standard rate
of corporation tax in the UK applied to profit before tax. The differences are
explained below:
30 June 1 July
2023 2022
£'000 £'000
(Loss)/profit before tax (737) 5,098
(Loss)/profit before tax at the standard rate of corporation tax in the UK of (184) 969
25% (period ended 1 July 2022 - 19%)
Effects of:
Expenses not deductible for tax purposes 77 -
Tax rate change - (103)
Adjustment in respect of prior period 22 (82)
Other permanent differences (58) (37)
Total tax (credit)/charge for the period (143) 747
For further information on deferred tax balances see note 18.
14. Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings
attributable to equity shareholders by the weighted average number of ordinary
shares in issue during the period.
At 30 June the total number of potentially dilutive shares issued under the
Virgin Wines UK plc long term incentive plan was 2,811,645
(2022: 1,204,217). Due to the contingent nature of options under the long term
incentive scheme, these share have no dilutive effect on the loss per share.
The calculation of basic profit per share is based on the following data:
Statutory EPS
30 June 1 July
2023 2022
Earnings (£'000)
(Loss)/profit after tax (594) 4,351
Dividend attributed to preference shareholders - -
(Loss)/earnings for the purpose of basic earnings per share (594) 4,351
Number of shares
Adjusted average number of shares for the purposes of basic earnings per share 55,837,560 55,837,560
Adjusted average number of shares for the purposes of diluted earnings per 55,837,560 55,945374
share
Basic and diluted (loss)/earnings per ordinary share (pence) (1.1) 7.8
Adjusted EPS
The calculation of adjusted earnings per share is based on the after tax
adjusted operating profit after adding back certain costs as detailed in the
table below. Adjusted earnings per share figures are given to exclude the
effects of exceptional items and pre restructuring finance costs, all net of
taxation, and are considered to show the underlying performance of the Group.
30 June 1 July
2023 2022
Earnings (£'000)
(Loss)/earnings for the purpose of basic earnings per share (594) 4,351
Exceptional items 990 -
Tax effect of above (248) -
Earnings for the purpose of adjusted earnings per share 148 4,351
Number of shares
Adjusted average number of shares for the purposes of basic earnings per share 55,837,560 55,837,560
Adjusted average number of shares for the purposes of diluted earnings per 58,649,205 55,945,374
share
Basic earnings per ordinary share (pence) 0.3 7.8
Diluted earnings per ordinary share (pence) 0.25 7.8
15. Intangible assets
Goodwill Software Total
£'000 £'000 £'000
Cost
At 3 July 2021 9,623 2,188 11,811
Additions - 593 593
At July 2022 9,623 2,781 12,404
Additions - 734 734
Disposals - (35) (35)
30 June 2023 9,623 3,480 13,103
Accumulated amortisation and impairment
At 3 July 2021 - 969 969
Amortisation charge - 322 322
At 1 July 2022 - 1,291 1,291
Amortisation charge - 462 462
30 June 2023 - 1,753 1,753
Net book value
30 June 2023 9,623 1,727 11,350
1 July 2022 9,623 1,490 11,113
Included within Software is £0.4m (2022: £0.6m) net book value in relation
to development of the Mantiki core IT platform, which has a remaining
amortisation period of two (2022: three) years and £0.6m (2022: £0.2m) in
relation to development of the Korber Warehouse Management System, which has a
remaining amortisation period of four years (2022: five years).
Included in Software is £0.7m (2022: £0.5m) of internally generated asset.
Amortisation is charged to administrative expenses in the consolidated
statement of comprehensive income. Software is amortised over its estimated
useful economic life.
The Group is required to test, on an annual basis, whether goodwill has
suffered any impairment. The recoverable amount is determined based on value
in use calculations. The use of this method requires the estimation of future
cash flows and the determination of a discount rate in order to calculate the
present value of the cash flows.
The goodwill figure has been derived from the acquisition of 100% of the share
capital of Virgin Wine Online Limited by Virgin Wines Holding Company Limited
in 2013 and as such there is only one cash-generating unit.
The Group has estimated the value in use of the business as a cash generating
unit based on a discounted cashflow model which adjusts for risks associated
with the assets. The discount rate applied is a pre-tax rate of 13.8% (2022:
11.5%)
The forecasts for the business are based over a five-year projection period,
use past experience and apply a forecast annual growth rate. The key
assumptions used in the discounting cashflow were the sales and EBITDA figures
(based on board approved plans), the future growth rate (including long-term
growth rate of 2%) and the discount rate.
The Directors have assessed the sensitivity of the impairment test to
reasonably possible changes in the key assumptions described above, and noted
that sufficient headroom existed in all cases.
16. Property, plant and equipment
Leasehold property Computer hardware & warehouse equipment Fixtures & fittings Total
£'000 £'000 £'000 £'000
Cost
At 3 July 2021 20 631 277 928
Additions - 268 108 376
At 1 July 2022 20 899 385 1,304
Additions - 81 153 234
At 30 June 2023 20 980 538 1,538
Accumulated depreciation
At 3 July 2021 20 516 229 765
Charge for the period - 96 43 139
At 1 July 2022 20 612 272 904
Charge for the period - 138 94 232
At 30 June 2023 20 750 366 1,136
Net book value
At 30 June 2023 - 230 172 402
At 1 July 2022 - 287 113 400
Depreciation is charged to administrative expenses in the consolidated
statement of comprehensive income.
17. Right of use assets
The Group leases a number of properties across the UK, in Norwich, Preston and
Bolton.
On 14 June 2022 the Group extended the lease on its offices in Norwich to 24
September 2032. The lease has a break clause on 24 September 2026 and on 24
September 2030.
The Group entered into a lease for a warehouse in Preston on 19 October 2016
under a ten-year lease term ending on 18 October 2026. The Group sometimes
negotiates break clauses in its property leases. The factors considered in
deciding to negotiate a break clause include:
· the length of the lease term and,
· whether the location represents a new area of operations for the
group. The Preston Warehouse lease has a second break clause on 18 October
2024.
The Group entered into a lease for a bulk storage facility in Bolton on 1
September 2020 under a ten-year lease term ending on 31 August 2030. The first
break clause in is on 31 August 2026.
For all of the property leases, the periodic rent is fixed over the lease
term.
The Group also leases certain items of plant and equipment. Leases of plant
and equipment comprise fixed payments over the lease terms. The full
retrospective approach was adopted to calculate the cost of the right-of-use
asset.
Leasehold property Computer hardware & warehouse equipment Total
£'000 £'000 £'000
Cost
At 3 July 2021 4,202 104 4,306
Additions 858 39 897
At 1 July 2022 5,060 143 5,203
Additions - 109 109
At 30 June 2023 5,060 252 5,312
Accumulated depreciation
At 3 July 2021 1,415 24 1,439
Charge for the period 476 26 502
At 1 July 2022 1,891 50 1,941
Charge for the period 466 35 501
At 30 June 2023 2,357 85 2,442
Net book value
At 30 June 2023 2,703 167 2,870
At 1 July 2022 3,169 93 3,262
Lease liability
Computer hardware & warehouse equipment Total
Leasehold property
£'000 £'000 £'000
At 3 July 2021 3,120 82 3,202
Additions 858 39 897
Interest expense 130 4 134
Lease payments (599) (29) (628)
At 2 July 2022 3,509 96 3,605
Additions - 109 109
Interest expense 169 5 174
Lease payments (596) (39) (635)
At 30 June 2023 3,082 171 3,253
18. Deferred tax
30 June 1 July
2023 2022
£'000 £'000
Brought forward 428 1,100
Utilisation through income statement 68 (672)
Carried forward 496 428
The balance comprises temporary differences attributable to:
Fixed asset differences Other timing differences Tax losses Total
£'000 £'000 £'000 £'000
Deferred tax asset at 3 July 2021 593 15 492 1,100
Recognised in the period through income statement (175) (5) (492) (672)
Deferred tax asset at 2 July 2022 418 10 - 428
Recognised in the period through income statement (323) 10 381 68
Deferred tax asset at 30 June 2023 95 20 381 496
The Directors consider that sufficient future taxable profits will be
available and as such deferred tax assets have been recognised in full for
Virgin Wine Online Limited and Virgin Wines UK plc.
A deferred tax asset has been recognised on losses in Virgin Wines Holding
Company Limited to the extent to which the losses can be utilised through
group relief. The deferred tax asset not recognised in Virgin Wines Holding
Company is £0.9m (2022: £0.9m).
The deferred tax asset is expected to be utilised in more than one year.
Deferred tax is calculated based on the expected tax rate in force when the
timing differences reverse of 25% (2022: 25%).
19. Inventories
30 June 1 July
2023 2022
£'000 £'000
Finished goods for resale 8,367 8,653
There is no difference between the replacement cost of stocks and carrying
value (1 July 2022: £nil). Inventories are stated after provision for
impairment of £195,000 (2022: £293,000).
20. Trade and other receivables
30 June 1 July
2023 2022
£'000 £'000
Amounts falling due within one year:
Gross carrying amount - trade receivables 821 946
Loss allowance (7) (13)
Net carrying amount - trade receivables 814 933
Prepayments 1,582 1,331
Other receivables 219 213
2,615 2,477
Trade receivables are considered past due once they have passed their
contracted due date. Trade receivables and contract assets are assessed for
impairment based upon the expected credit losses model.
The Group applies the IFRS 9 Simplified Approach to measuring expected credit
losses using a lifetime expected credit loss provision for trade receivables
and contract assets. To measure expected credit losses on a collective basis,
trade receivables and contract assets are grouped based on similar credit risk
and aging. The contract assets have similar risk characteristics to the trade
receivables for similar types of contracts.
The expected loss rates are based on the Group's historical credit losses
experienced over the three years prior to the period end. The historical loss
rates are then adjusted for current and forward-looking information on
macroeconomic factors affecting the Group's customers.
The average credit period on sales is 30 days after the invoice has been
issued. No interest is charged on outstanding trade receivables.
At 30 June 2023 there were two (1 July 2022: three) customers who owed in
excess of 10% of the total trade debtor balance. These customers were
operating within their agreed credit terms and the Directors do not foresee an
increased credit risk associated with these customers. As such no provision
for impairment has been recognised on these balances.
Trade receivables and contract assets are written off where there is no
reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to
engage in a repayment plan with the Group, and a failure to make contractual
payments for a period of greater than 60 days past due. There are no amounts
outstanding on financial assets that were written off during the reporting
period and which are still subject to enforcement activity. Impairment losses
on trade receivables and contract assets are presented as net impairment
losses within operating profit. Subsequent recoveries of amounts previously
written off are credited against the same line item.
Other receivables relates to uncleared sales receipts from customers,
processed in the normal course of business. The maturity analysis of trade
receivables and other debtors is shown below:
30 June 2023 1 July 2022
Gross Provision Net Gross Provision Net
£'000 £'000 £'000 £'000 £'000 £'000
Trade receivables and other debtors
Not yet due 776 - 776 823 - 823
Overdue 45 (7) 38 123 (13) 110
821 (7) 814 946 (13) 933
Movements in the impairment allowance for trade receivables and contract
assets are as follows:
30 June 1 July
2023 2022
£'000 £'000
Opening provision for impairment of trade receivables and contract assets 13 13
Recovered provided debt 5 -
Increase during the period (10) -
Write off of provided debt (1) -
Carried forward 7 13
21. Cash and cash equivalents
Included in Cash and cash equivalents is a balance of £8.0m (1 July 2022:
£7.4m) relating to advance payments received from WineBank customers. The
corresponding creditor to customers is included in contract liabilities.
£3.1m of the cash balance is held on 95 day notice (2022: £2.0m) at a
preferential interest rate of 4.75% (1 July 2022: 1.45%).
22. Trade and other payables
30 June 1 July 2022 Restated
2023 £'000
£'000
Trade payables 2,227 2,810
Taxation and social security 1,581 2,928
Contract liabilities 8,721 8,091
Accruals and other creditors 1,677 1,622
14,206 15,451
The Directors consider the fair value of creditors to be equal to the book
value given their short-term nature. Contract liabilities includes a £0.5m
material rights provision related to WineBank (FY22: £0.4m).
Trade and other payables at 1 July 2022 have been restated to reclassify the
WineBank material right provision of £0.4m from accruals and other creditors
to contract liabilities. This balance was previously included in accruals and
other creditors. However, the Directors have concluded its nature is more in
line with contract liabilities. The overall balance on Trade and other
payables has remained unchanged.
23. Provisions
Leasehold dilapidation provision
30 June 1 July
2023 2022
£'000 £'000
Brought forward 290 275
Charged in income statement 31 15
Carried forward 321 290
Leasehold dilapidations relate to the estimated cost of returning a leasehold
property to its original state at the end of the lease as a result of general
'wear and tear'. The cost is recognised as an expense in the Consolidated
Statement of Comprehensive Income and accrued for over the term of the lease,
on the basis that the 'wear and tear' increases over the period of the lease.
The main uncertainty relates to estimating the cost that will be incurred at
the end of the lease.
Maturity analysis for provisions
Dilapidation provisions are expected to mature at the end of the lease term as
follows:
30 June 1 July
2023 2022
£'000 £'000
October 2026 254 248
August 2030 67 42
321 290
24. Financial instruments and financial risk management
The principal financial instruments used by the Group, from which financial
instrument risk arises, are as follows:
· trade and other receivables;
· cash and cash equivalents;
· trade and other payables; and
· lease liabilities.
The existence of these financial instruments exposes the Group to the
following financial risks:
· credit risk;
· liquidity risk;
· foreign currency risk; and
· capital management.
The Group's financial instruments may be analysed as follows:
30 June 1 July 2022 Restated
2023 £'000
£'000
Trade and other receivables 1,033 1,146
Cash and cash equivalents 13,514 15,070
Financial assets measured at amortised cost 14,547 16,216
Derivative financial assets measured at fair value through profit or loss - 16
Financial assets measured at fair value through comprehensive income - 16
Derivative financial liabilities measured at fair value through profit or loss (12) -
Financial liabilities measured at fair value through comprehensive income (12) -
Trade and other payables, excluding non-financial liabilities (3,904) (4,432)
Lease liabilities (3,253) (3,605)
Financial liabilities measured at amortised cost (7,157) (8,037)
Financial assets which are debt measured at amortised cost comprise trade
receivables, other debtors and cash and cash equivalents.
Financial assets measured at fair value through comprehensive income represent
the Group's derivative financial instruments, being foreign exchange forward
contracts.
Financial liabilities measured at amortised cost comprise trade payables,
accruals and other creditors, lease liabilities and loans and borrowings.
Trade and other payables, excluding non-financial liabilities at 1 July 2022
has been restated to exclude £0.4m of material right provision (see note 22).
Credit risk
The Group's maximum exposure to credit risk is limited to the carrying amount
of the financial assets recognised at the reporting date, as summarised below:
30 June 1 July
2023 2022
£'000 £'000
Financial assets measured at amortised cost 14,547 16,216
Financial assets measured at fair value through comprehensive income - 16
The Group's cash and cash equivalents are all held on deposit with leading
international banks and hence the Directors consider the credit risk
associated with such balances to be low.
The Group provides credit to customers in the normal course of business. The
principal credit risk therefore arises from the Group's trade receivables. In
order to manage credit risk the Directors set credit limits for corporate
customers based on a combination of payment history, credit references and a
financial review of the business. Credit limits are reviewed on a regular
basis in conjunction with debtor ageing and payment history. Historic credit
losses of the Group have been negligible as referenced in note 20.
Details of the trade receivables impairment policy can be found in note 20.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
amount of funding required for growth. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Group manages its cash and borrowing requirements through preparation of
annual cash flow forecasts reflecting known commitments and anticipated
projects in order to maximise interest income and minimise interest expense,
whilst ensuring that the Group has sufficient liquid resources to meet the
operating needs of the Group. Borrowing facilities are arranged as necessary
to finance requirements.
The following table shows the maturities of gross undiscounted cash flows of
financial liabilities as at 30 June 2023:
Carrying amount Contractual cash flows
£'000 £'000 <1 year 1-5 years >5 years
£'000 £'000 £'000
Non-derivative financial liabilities:
Trade and other payables 3,904 3,904 3,904 - -
Lease liabilities 3,253 3,872 675 2,096 1,101
7,157 7,776 4,579 2,096 1,101
Derivative financial liabilities:
Foreign currency forwards
(Inflow) (1,376) (1,376) - -
Outflow 1,364 1,364 - -
(12) (12) (12) - -
Total 7,145 7,764 4,567 2,096 1,101
Contractual maturities of financial liabilities as at 1 July 2022 are as
follows:
Carrying amount Contractual cash flows <1 year 1-5 years >5 years
£'000 £'000 £'000 £'000 £'000
Non-derivative financial liabilities:
Trade and other payables - Restated 4,432 4,432 4,432 - -
Lease liabilities 3,605 4,384 629 2,284 1,471
8,037 8,816 5,061 2,284 1,471
Derivative financial liabilities: Foreign currency forwards
(Inflow)
(1,463) (1,463) - -
Outflow 1,447 1,447 - -
(16) (16) (16) - -
Total 8,021 8,800 5,045 2,284 1,471
Trade and other payables, excluding non-financial liabilities at 1 July 2022
has been restated to exclude £0.4m of material right provision (see note 22).
Foreign currency risk
Foreign exchange risk is the risk that movements in exchange rates affect the
profitability of the business. The Group purchases goods from overseas
suppliers and is invoiced in currencies other than GBP. It is therefore
exposed to movements in the GBP exchange rate against the currencies in which
suppliers invoice the Group. The Group monitors exchange rate movements
closely and ensures adequate funds are maintained in appropriate currencies to
meet known liabilities.
The Group enters into forward foreign currency contracts to mitigate the
exchange rate risk for certain foreign currency payables. At 30 June 2023, the
outstanding contracts all mature within 6 months (2022: 6 months) of the
period end. The Group is committed to buy Euro and Australian Dollars (2022:
Euro, Australian Dollars and US Dollars) with a Sterling value of £1.38m
(2022: £1.44m).
The forward currency contracts are measured at fair value, by reference to the
spot rate. This is a level 1 valuation in that the spot rate is a directly
observable input.
The Group's exposure to foreign currency risk at the end of the respective
reporting period was as follows:
30 June 1 July
2023 2022
£'000 £'000
AUS EUR 128 - 197 -
USD - 140
Total 128 337
Liabilities include the monetary assets and liabilities of subsidiaries
denominated in foreign currency.
The Group is exposed to foreign currency risk on the relationship between the
functional currencies of Group companies and the other currencies in which the
Group's material assets and liabilities are denominated. The table below
summarises the effect on reserves had the functional currencies of the Group
weakened or strengthened against these other currencies, with all other
variables held constant.
30 June 1 July
2023 2022
£'000 £'000
Loss on 10% strengthening of functional currency (104) (103)
Gain on 10% weakening of functional currency 128 126
Capital risk management
The Group's capital management objectives are:
· to ensure the Group's ability to continue as a going concern so
that it can continue to provide returns for shareholders and benefits for
other stakeholders; and
· to provide an adequate return to shareholders by pricing products
and services commensurate with the level of risk.
To meet these objectives, the Group reviews the budgets and forecasts on a
regular basis to ensure there is sufficient capital to meet the needs of the
Group.
The capital structure of the Group consists of shareholders' equity as set out
in the Consolidated Statement of Changes in Equity. All working capital
requirements are financed from existing cash resources.
30 June 1 July
2023 2022
£'000 £'000
Net cash 10,261 11,465
Equity 21,822 22,073
25. Share capital
30 June 1 July
2023 2022
£'000 £'000
Authorised, Allotted, called up and fully paid
55,837,560 (2022: 55,837,560) ordinary shares of £0.01 each 558 558
Virgin Wines UK plc was incorporated on 1 February 2021 with authorised,
allocated and fully paid share capital of 5,000,000 Ordinary Shares of £0.01
each.
Prior to the transaction referred to in the next paragraph, the previous
ultimate parent undertaking, Virgin Wines Holding Company Limited, issued
1,604,900 new shares to existing shareholders. These shares form part of the
share capital of Virgin Wines Holding Company Limited which was subject to the
transaction referred to below.
On 2 March 2021 the Group underwent a reorganisation in which Virgin Wines UK
plc became the ultimate parent undertaking of the Group. As part of the
reorganisation 6,615,413 new Ordinary Shares of £0.01 each were created.
The new shares were fully paid and will rank pari passu in all respects with
the existing Ordinary Shares, including the right to receive all dividends and
other distributions.
£0.98m of costs in relation to the issue of new shares have been charged to
the share premium account. Nil (2022: 3,660,100) Ordinary Shares of £0.01 are
held within the Group by the Employee Benefit Trust.
The Directors have not approved and interim dividend and do not recommend the
payment of a final dividend (2022: nil).
26. Analysis and reconciliation of net cash
This section sets out an analysis of the movements in net cash, which includes
cash and cash equivalents and liabilities arising from financing activities.
3 July Other non-cash 1 July
2021 New Leases changes Cashflow 2022
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 15,660 - - (590) 15,070
Lease liabilities (3,202) (897) (134) 628 (3,605)
Net cash 12,458 (897) (134) 38 11,465
Decrease in cash in the period (590)
New leases (897)
Lease interest (134)
Lease payments 628
Movement in net cash in the period (993)
Net cash at 2 July 2021 12,458
At 1 July 2022 11,465
2 July Other non-cash 30 June
2022 New Leases changes Cashflow 2023
£'000 £'000 £'000 £'000 £'000
Cash at bank and in hand 15,070 - - (1,556) 13,514
Lease liabilities (3,605) (109) (174) 635 (3,253)
Net cash 11,465 (109) (174) (921) 10,261
Decrease in cash in the period (1,556)
New leases (109)
Lease interest (174)
Lease payments 635
Movement in net cash in the period (1,204)
Net cash at 1 July 2022 11,465
At 30 June 2023 10,261
27. Related Party disclosures
During the period ended 30 June 2023, sales of £800,654 (2022: £618,367)
were made by Virgin Wines UK plc to Virgin Wine Online Limited. These have
been eliminated on consolidation.
Balances between the Company and its subsidiaries, which are related parties,
have been eliminated on consolidation. Details of remuneration of key
management personnel can be found in note 8.
During the period the Group paid £47,203 (2022: £41,397) in monitoring fees
and expenses to Gresham House Asset Management Limited. At 30 June 2023
£3,900 (2022: £4,500) was due to Gresham House Asset management Limited.
Gresham House Asset Management Limited has significant influence over the
Group by virtue of their appointment of a board member.
During the period sales of £nil (2022: £1,221) were made to Gresham House
Asset Management Limited.
During the period sales of £24,405 (2022: £20,499) were made to LKB
Enterprises Limited. At 30 June 2023 £4,695 (2022: £3,440) remaining
outstanding from LKB Enterprises Limited, a company in which Virgin Wines UK
plc's CEO's wife has significant control.
28. Ultimate parent undertaking
In the opinion of the Directors, there is no single controlling party.
29. Events after the end of the reporting period
There have been no matters arising after the balance sheet date that would
require disclosure in the Financial Statements.
30. Capital commitments and contingent liabilities
There are no capital commitments and no contingent liabilities not provided in
the Financial Statements for the period ended and as at 30 June 2023 (1 July
2022: £0.3m commitment for new Warehouse Management System).
The Group has a bank guarantee in place of £0.1m in relation to the operation
of its bonded warehouses.
31. Nature of each reserve
Share premium
Amount subscribed for share capital in excess of nominal value.
Own shares reserve
Shares held within the EBT (Employee Benefits Trust).
Merger reserve
The difference between the nominal value of shares issued in exchange for the
book value of assets acquired.
Share-based payment reserve
The movements on share based payments.
Retained earnings
All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.
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