REG - Naked Wines PLC - Final Results
23/06/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220623:nRSW9274Pa&default-theme=true
RNS Number : 9274P Naked Wines PLC 23 June 2022
23 June 2022
Naked Wines plc
("Naked Wines" or "Group")
Full Year Results for the 52 weeks ending 28 March 2022
Strong execution in the face of external headwinds
Responsible growth driven by sustained repeat customer demand; increases in
winemakers and Active Angels consolidate step-change gains made last year
● Total sales increased 5% YoY on a constant currency basis(1) (+3% on
a reported basis) to £350.3 million
● On a two-year basis vs FY20, group sales increased 78% on a constant
currency basis vs continuing operations (73% reported)
● Repeat Customer sales retention(2) of 80% (FY21: 88%), reflecting
the continued resonance of our proposition
● Active Angel base (our subscription customers) grew to 964,000, a 9%
increase over FY21
● Repeat Customer Contribution profit(2) of £86.2 million vs £84.9
million last year driven by a 13% increase in Repeat Customer sales on a
constant currency basis (1)
● Investment in New Customers(2) of £41.3 million, delivering a
5-Year Forecast Payback(2) of 1.5x, as we continued to invest into the
significant growth opportunity while managing through the challenging market
environment
● Adjusted EBIT(2,3) of £2.0 million vs a loss of £1.5 million in
FY21
● Closing cash balance of £40 million (FY21: £85 million), and
increased inventory assets of £142 million (FY21: £76 million)
Nick Devlin, Group Chief Executive, commented:
"Naked Wines started from the simple idea that there was a better alternative
to the traditional wine industry model, and that by connecting wine drinkers
directly to world-class independent winemakers you could deliver a win for
both winemakers and drinkers. In FY22 we are delivering on that idea at scale;
we connected 964,000 Active Angel members to 266 incredibly talented
independent winemakers; offering consumers a direct connection to where their
wine comes from and access to high quality wine at affordable prices.
Our unique model offers a win for both winemakers and consumers and generates
attractive and well-proven unit economics. In the past year we moderated
investment responsibly as we navigated inflationary challenges. In that
context, I'm pleased with the substantial growth in sales to repeat members
supported by sales retention above our expectations for the year at 80% and
our ability to deliver profitability.
Looking ahead Naked Wines is well positioned to continue to grow amidst a
changing consumer environment. Our enhanced scale, attractive unit economics
and healthy balance sheet allow us to continue to invest for growth. At the
same time we will not pursue growth at any cost, and our guidance is that we
intend to trade the business at or around breakeven this year. We believe this
is the responsible balance to strike in FY23, mindful of the levels of
macro-economic uncertainty but also of the opportunities we see ahead and the
potential for disruptive models like ours to gain traction in tough times as
consumers revaluate their purchasing choices. Additionally we will focus on
steps to ensure our contribution economics support sustainable growth and on
striking an effective balance of quality and volume. I believe these steps
will best enable us to increase customer lifetime value and therefore over the
mid-term maximise our ability to deliver attractive, sustainable growth"
Outlook
Given the current macroeconomic environment, which has greater uncertainty, we
expect to manage to on or around a break-even adjusted EBITDA (excluding
share-based compensation and non-cash charges). Additionally, given this
uncertainty, we provide the following guidance and will update as the year
progresses:
● Total Group sales expected to be in the range of £345 million to
£375 million (-4% to +4% on a constant currency basis). This sales guidance
is based on a USD/GBP exchange rate of 1.299. Furthermore, we expect
year-on-year sales growth to accelerate throughout the year.(5)
● Investment in New Customer acquisition expected to be in the range
of £30 million to £40 million, as we maintain our disciplined approach to
investment spending.
● Repeat Customer Contribution profit is expected to be in the range
of £83 million to £93 million.
● General and administrative costs are expected to be in the range of
£45 million to £48 million. Additionally we expect to invest £5 million in
Marketing R&D and incur £4 million of share-based compensation charges.
● We entered into a $60 million credit facility shortly after the year
end which includes covenant commitments.
Total Group As reported (unless otherwise stated)
FY22 FY21 FY20 FY22 vs FY21 % FY22 vs FY20 %
£ million £ million £ million
Total Sales 350.3 340.2 202.9 +3% +73%
Growth on a constant currency basis(1) (not reported) +5% +78%
Gross profit 141.7 135.5 77.6 +5% +83%
Gross profit margin 40% 40% 38% +60bps +220bps
Contribution profit(2) 79.1 77.2 42.6 +2% +86%
Contribution profit margin 23% 23% 21% (10)bps +160bps
Adjusted EBIT(2,3) 2.0 (1.5) (2.4) nm nm
Adjusted PBT/(LBT)(2,4) 3.0 (0.5) (2.9) nm nm
Profit/(loss) for the period 2.9 (10.7) (5.4) nm nm
KPIs FY22 FY21 FY20 FY22 vs FY21 % FY22 vs FY20 %
Repeat Customer sales £315.1m £283.9m £173.7m +11% +81%
Repeat Customer sales growth on a constant currency basis(1) +13% +86%
Repeat Customer sales retention 80% 88% 83% (800)bps (300)bps
Investment in New Customers £(41.3)m £(50.0)m £(23.5)m (17)% +76%
Active Angels (Repeat customers) 964k 886k 580k +9% +66%
5-Year Forecast Payback 1.5x 2.6x 2.6x (1.1)x (1.1)x
Year-1 Payback(2) 68% 82% 67% (1,400)bps +100bps
Standstill EBIT(2) £21.2m £39.3m £9.6m (46)% +121%
---------------------------------------------------------------------------------------------------------------------------
Naked Wines plc will host an analyst and investor conference call at 2pm BST /
9am ET / 6am PT on 23 June 2022. The conference call will be webcast at the
following link
(https://stream.brrmedia.co.uk/broadcast/628dff93c0824e09ecec2fec) .
Alternatively, the webcast link can be found in the Financial Calendar section
of our IR website: https://www.nakedwinesplc.co.uk/investors/
(https://www.nakedwinesplc.co.uk/investors/) . A recording will also be made
available after the briefing on our results in the announcements section of
our investor website.
--------------------------------------------------------------------------------------------------------------------------Notes:
1. Constant currency basis using the current year's period exchange
rates for the translation of the comparative period in the previous year.
2. In addition to statutory reporting, Naked Wines reports alternative
performance measures (APMs) which are not defined or specified under the
requirements of International Financial Reporting Standards (IFRS). The Group
uses these APMs to improve the comparability of information between reporting
periods, by adjusting for certain items which impact upon IFRS measures, to
aid the user in understanding the activity taking place across the Group's
businesses. Definitions of the APMs used are given at the end of this
announcement.
3. Adjusted EBIT is operating profit adjusted for amortisation of
acquired intangibles, acquisition costs, impairment of goodwill, restructuring
costs and fair value movement through the income statement on financial
instruments and revaluation of funding cash balances held.
4. Adjusted PBT/(LBT) is defined as Adjusted EBIT less net finance
income / (charges).
5. Please note that FY23 is a 53-week year (occurs every seven years)
given 4-4-5 retail fiscal calendar, which contributes approximately £5
million of sales or two percentage points of growth.
For further information, please contact:
Naked Wines plc
Nick Devlin, Chief Executive
Officer
ir@nakedwines.com
Shawn Tabak, Chief Financial Officer
Investec (Joint Broker)
David Flin / Carlton Nelson / Ben Farrow
Tel: 0207 597 5970
Jefferies (Joint Broker)
Ed Matthews / David Genis / Harry Clements
Tel: 0207 029 8000
About Naked Wines plc
Naked Wines connects everyday wine drinkers with the world's best independent
winemakers.
Why? Because we think it's a better deal for everyone. Talented winemakers get
the support, funding and freedom they need to make the best wine they've ever
made. The wine drinkers who support them get much better wine at much better
prices than traditional retail.
It's a unique business model. Naked Wines customers commit to a fixed
prepayment each month which goes towards their next purchase. Naked in turn
funds the production costs for winemakers, generating savings that are passed
back to its customers. It creates a virtuous circle that benefits both wine
drinker and winemaker.
Our mission is to change the way the whole wine industry works for the better.
In the last year, we have served more than 960,000 Angel members in the US, UK
and Australia, making us a leading player in the fast-growing
direct-to-consumer wine market.
Our customers (who we call Angels) have direct access to 266 of the world's
best independent winemakers making over 2,500 quality wines in 20 different
countries. We collaborate with some of the world's best independent winemakers
like Matt Parish (Beringer, Stags' Leap) and eight time Winemaker of the Year
Daryl Groom (Penfolds Grange).
Chairman's letter
Charting a course to responsible, sustainable growth
With a market ripe for disruption and our greater scale achieved over the past
few years, this is a moment to be bold, but also thoughtful.
Darryl Rawlings
Chairman
This letter marks my first year since assuming the role of Chairman of Naked
in August 2021.
Over the course of the past two years, Naked has thrived despite market and
business challenges. Our team executed with diligence and drove substantial
growth in both Active Angels and Winemakers from FY19-21, increasing our scale
and giving us greater resources to invest in growth. In FY22, we consolidated
these gains with incremental growth that, while below the expectations set out
at the beginning of the year, further raised the platform on which we will
execute against our large future growth opportunity.
In my role as Chairman, I'm aware that this is a key moment in determining how
we utilise our platform to achieve our ambitions. Like any other business
emerging from the pandemic, we must candidly revisit our goals, how we do
business and how we apply the learnings of the past two years to best achieve
our opportunities. For Naked's business, the team recognises that consumer
behaviours will evolve and that we also must execute with discipline amid
lingering challenges ranging from supply chain disruptions, recessionary
economic conditions and global conflict.
Despite external unpredictability, there is significant good news for Naked:
our central opportunity to disrupt the wine industry is as strong and
realisable as ever. We estimate a $25 billion(1) market opportunity and we
have plenty of opportunities to grow in all our markets, especially the
largest, the US.
With a market ripe for disruption and our greater scale achieved over the past
few years, this is a moment to be bold, but also thoughtful. To achieve our
ambitions, we cannot just grow for growth's sake; rather, we must chart a
course for responsible, sustainable growth.
That starts with ensuring we fully appreciate our underlying strength and how
best to optimise it in preparation for growth. The core of Naked's business,
and our opportunity, is our value proposition to winemakers and to Angels. We
are delivering to a high standard today, but it's management's assessment that
we have much to improve upon and the Board agrees.
With a sharp focus on the quality and value of our customers, winemaker
partners and the products we deliver, we believe we will be in the best
position to drive intrinsic value creation for all of our stakeholders.
Unit economics matter in a consumer-driven business and over time Naked has
proven its economic model. As the CEO of a US consumer-facing
technology-driven company as well as Chairman of Naked, I greatly value
Naked's strong orientation to operating in a data-driven manner. Culturally
and financially, this is very important to driving sustainable growth.
The team recognises that as we grow and consumer behaviours evolve, so must
we. This starts with a sharper focus on driving improvement in the lifetime
value (LTV) of our now 964,000 Active Angels. Naked has doubled its revenue
over the past several years and has a large addressable market. We want to
optimise the value we derive from that market; to do so you will see us adjust
our go-to-market strategies toward driving higher LTV. Nick's report covers
these strategies in more detail; in the big picture they are designed to drive
spending efficiencies and better results in both new customer acquisition and
driving repeat order activity and "winbacks" of former members returning to
Naked.
We are also focusing on quality across our range of products as we continue to
introduce new relationships with well-known winemakers. This report highlights
some of the exciting new wines we'll be bringing to our Angels this coming
year and beyond.
To an extent, our focus on quality relative to quantity informs the
preliminary trading outlook we've provided for FY23. That said, we are
confident that our approach will be in service to our objective of continuous
commercial improvement that delivers a larger, and also more valuable,
customer base over time.
Underneath the tweaks Nick, Shawn and their teams are making to the business
model, our Board is taking fundamental steps to better position Naked to
capture our largest opportunity in the US. Not only is our TAM larger in the
US, our business model is tailor-made for that market. American consumers
appreciate doing business with sustainable, responsible companies that can
improve their lives by delivering higher quality experiences at lower cost and
we believe wine is one of the dwindling number of large markets in the US that
have yet to be significantly disrupted. Nearly a century after Prohibition in
the US, the legal structure around the drinks industry affords ample room to
distributors to benefit from economic inefficiencies in the transportation,
sale and delivery of wine.
Driving intrinsic value creation for all stakeholders
We aim to dramatically close that gap. Achieving it will bring great benefits
to shareholders but achieving it responsibly will bring even greater benefits
to all of Naked's stakeholders. Our report outlines our substantial
achievements in sustainability and I'm proud to represent a company with
Naked's track record.
Governance is also a critical component of growing responsibly. Naked's
regular refresh of its Board ensures we mix continuity with fresh opinion and
insight. I want to thank David Stead and Katrina Cliffe for their outstanding
work and contributions as non-Executive Directors over the past five and three
years, respectively. I'm also greatly looking forward to partnering with our
incoming independent Directors Deidre Runnette and Melanie Allen. Deidre and
Melanie will bring deep experience in their fields to the Board and
additionally their first hand experience enabling companies to successfully
scale in the US market will be of great value to Naked at this stage of our
development.
In Katrina's final year with Naked, she has spearheaded a very important
initiative in our responsible growth strategy. In her remuneration report she
outlines our new Long-Term Incentive Plan (LTIP), designed to align equity
compensation not just with financial performance but with the intrinsic value
Naked creates as a corporation. The Board has observed that our prior LTIP did
not optimally incentivise the interests of our people and those we hoped to
recruit to the company. Our new approach is more aligned with US practice,
with a central focus on intrinsic value creation, which we will now be
measuring annually and our equity incentive structure will be aligned
accordingly.
Achieving our goals, responsibly
Our Board and team are energised entering FY23. The opportunity ahead is
tremendous and we have a stronger foundation and greater scale to go after it.
But how we go after it is as important as our business execution. Naked is
committed to building a responsible, sustainable growth company, one with a
strong focus on data-driven strategies, improving unit economics, aligned and
properly incentivised people and smart capital allocation. With a sharp focus
on the quality and value of our customers, winemaker partners and the products
we deliver, we believe we will be in the best position to drive intrinsic
value creation for all of our stakeholders.
Darryl Rawlings
Chairman
1. Source: internal research 2020
Chief Executive's review
Strong execution in the face of external headwinds
Naked navigated a dynamic consumer environment and inflationary pressures well
in FY22 and consolidated the step change achieved in FY21.
Nick Devlin
Chief Executive Officer (CEO)
In the past year we have:
● Consolidated last year's step change in scale and delivered 5% growth
against challenging COVID-19 boosted comparatives on a constant currency
basis (3% reported).
● Increased Active Angels to 964,000 from 886,000 in the prior
year.
● Achieved sales retention of 80%, well above our guidance for the year
of mid-70s, as our differentiated model resonates with our members.
● Invested in reinforcing the technology infrastructure of the business to
support our rapid growth and establish the platform for the years to come.
● Made significant progress against key areas of strategy to enhance
our customer proposition.
Successful execution in a challenging environment
Over the last year, our teams have executed effectively to enable Naked to
navigate a dynamic consumer environment and inflationary pressure to deliver a
year which has seen Naked consolidate the rapid gains made during the pandemic
and reinforce our platform for future growth.
Throughout the year we have been pleased to see the extent to which sales
retention rates have exceeded our expectations. At Naked, sales retention is
the analogue to same-store sales in a traditional retail business and looks at
like-for-like repeat revenue on a constant set of Angels who were members
throughout the comparison period. We envisaged a fall in retention given the
"excess" frequency and order values generated during the pandemic highs of
FY21. Whilst our achieved retention rate of 80% trails the 83% recorded in
FY20, our last pre-pandemic comparison, it exceeded our expectations of a
result in the mid-70s and reflects the extent to which Angels have discovered
something better than the old way of approaching wine. In any recurring
revenue business the retention rate is of the utmost importance and the
results achieved this year reflect the sustained hard work of our teams and
our continued investment in the range and customer experience.
The corollary to the high retention rate is the continued positive development
of the returns on maturing cohorts. As business metrics stabilise it is
instructive to look at the latest payback estimates for these cohorts.
● All cohorts up to and including FY21 have "paid back", i.e.
payback >1x
● Realised returns remain well ahead of initial projections for
FY17-19 cohorts
● Our expected 5-year return for FY16 through FY21 is 2.6x, materially
ahead of our target range of 1.8 - 2.2x
Cohort Age at Latest 5 year (forecast) Original forecast Payback to date
reporting date
FY16 73-84 months 3.1x (actual) 3.1x 3.8x
FY17 61-72 months 2.5x (actual) 2.0x 2.8x
FY18 49-60 months 2.7x 2.1x 2.5x
FY19 37-48 months 2.3x 1.8x 1.9x
FY20 25-36 months 2.6x 2.6x 1.6x
FY21 13-24 months 2.6x 3.0x 1.2x
FY22 0-12 months 1.5x - 0.3x
The challenges of the year
Whilst there is much that I am pleased with in how we have navigated an
economic and consumer environment during FY22 that was the most challenging
that I have seen in my time with Naked, it is equally clear from the table
above that we have fallen short of our payback goals this year. Whilst in time
I believe we may realise better than the initial projection of 1.5x, this
result is still one we are disappointed with, and therefore it is worth
explaining the reasons for the results we achieved and the actions we are
taking to address this.
The primary challenge we have faced has been one of volatility, with consumer
sentiment and behaviour evolving rapidly as markets emerged from
COVID-influenced restrictions at different rates and then in the latter part
of the financial year as consumers began to feel the impact of inflationary
pressures on household budgets.
At Naked our investment model is based on our ability to make upfront
investments to acquire New Customers and then to convert those new customers
into satisfied and loyal long-tenure members. That is the real-world version
of our payback calculation: investment upfront to generate a forecastable and
predictable stream of cash flows over the following five years. It is fair to
say that the level of volatility observed, as well as the impact of cost
pressure on Repeat Contribution margins, have provided a stern test of our
ability to forecast mid-term returns.
There are elements of how we have handled this where we could have done
better. In particular, we might have been quicker to acknowledge that the
combined inflationary pressures we saw were likely to endure, at least for the
mid-term, and as such could have accelerated measures to mitigate their impact
on customer LTV. Whilst those measures are now underway, for example through
"winback" initiatives, the reduction in margins we saw in FY22 is currently
flowing through our models and impacting our projected payback levels.
That said, throughout the year our marketing teams have operated with good
discipline in their investment decisions and we have rationally pulled back
spend at times where marketing inflation has rendered some channels
unattractive for periods of time. The shape of our payback in FY22 reflects
this, with clear action taken through the year to respond to lower than
targeted returns and an improved run-rate at the end of the year, with our key
US market returning to its long-term payback range in the 4th quarter.
Continuing to strengthen our points of difference
Near term operational challenges are always to be expected, even if the
specifics are hard to foresee. I am pleased to say that we have maintained our
focus this past year on delivering against our strategy to strengthen the
consumer and winemaker proposition at Naked to best capture our long-term
growth opportunity.
Enhancing our consumer proposition
We have made substantial progress against our key goals for the customer
proposition over the last 12 months.
Nowhere is this more clear than in our range of wines and winemakers
At Naked our driving motivation is to create a model that is a win for both
customers and winemakers. We believe that in creating a direct route to the
consumer for world-class independent winemakers, we are best able to create
value for our members.
Over the last year I have been delighted to welcome to Naked a number of
leading winemakers from around the world that reflect the excitement in the
winemaking community for the unique proposition Naked can offer. To share a
few highlights:
● Rudy von Strasser chose to move exclusively to working with Naked,
allowing us to share his multi-award winning Diamond Mountain cabernets with
our members in the US
● Biodynamic producers Kaufmann Wines - rated as one of Germany's rising
stars are an especially exciting addition. Kaufmann offered their Riesling at
a special price to include as part of our Ahr Valley rescue case (see our
community good causes further below) and this formed the beginning of a
flourishing relationship with more wines subsequently added to the Naked UK
range and a US listing to follow
● This autumn we will release the debut Naked project from Willamette
Valley icon Ken Wright - attracting one of the founding fathers of the Oregon
Pinot Noir scene to make an exclusive project for Angels is further testimony
to the growing appeal of our platform
We are focused on expanding the diversity of choice we offer Angels in all our
markets, through an increased range of styles that deliver the value we're
known for while also building a more complete offering at Luxury price points.
These aren't new initiatives, however, when done with authenticity the
development of winemaker partnerships takes time, and I'm delighted to see the
dividends of much hard work being reflected in our performance over the past
12 months.
In Australia we saw average order values increase alongside gross margin
enhancement as we saw the benefits of a full review of our range. In the US an
expanded selection of Luxury wines offered in our holiday quarter saw bottles
sold at price points over $25 per bottle increase by 110% versus
the prior year.
We have long known that the Naked model has an acute ability to disrupt the
Luxury part of the wine market, where the disconnect between production cost
and retail price is most pronounced. The benefits to Naked as we show an
ability to grow volume in these areas are multiple:
● An ability to invest in Luxury projects further enhances our
appeal to winemakers
● Angels benefit through an expanded set of choices, especially for
special occasions and longer-term cellaring, whilst also able to enjoy
substantial savings vs like quality wines
● As we encourage more of our Angels to shop at these price points, we
develop a powerful lever to expand share of wallet and enhance LTV
● Increasing average bottle prices also offers us contribution margin
efficiency as we more effectively leverage the fixed costs associated with
distribution of our wines
Of course, I firmly believe the best wine is the wine that you have yet to
make. As I look ahead, I'm especially excited at a series of projects we are
working on with Matt Parish to showcase some of the leading vineyard
sites in Napa through an exclusive AVA designate series.
Gaining important recognition for our quality
Coincident with upleveling our range of wines, we've also set out to enhance
our quality perception and I am pleased to say that we have made substantial
progress this year. At Naked we track our brand perception in all our markets.
Our latest set of results shows marked improvements for our key quality
indicator - the belief Naked 'sells high quality wine'. Equally we are seeing
improvements in brand comprehension and strengthening of our association with
the support of independent winemakers.
Whilst we strongly believe that the greatest validation possible for our wines
is found in the 32.6 million reviews on the Naked platform, we have set out
over the last year to increase the level of 3rd party recognition for our
wines primarily as a way to shape the perception of Naked in the market at
large. I am delighted, although not surprised, with the results:
Decanter wine awards: 226 wines entered by our US business with 163 Bronze+
winners, including two platinum awards; 75 wines entered by our UK business
with 54 Bronze+ awards and 13 Bronze+ awards from our Australian business
International Wine & Spirits Competition awards: 150 wines entered by our
US business with 123 Bronze+ winners; 125 wines entered by our UK business
with 102 Bronze+ winners
International Wine Challenge awards: 36 wines entered by our UK business with
34 award winners
Time and again, and in the most competitive of international awards, the
pattern is clear. Naked's unique model lets winemakers focus on what they do
best - making world-class wine - and does so in a way that strips out
unnecessary costs. That translates into consistent success when their wines
are blind tasted against those of their peers.
Improving our go-to-market strategy
The challenges in the digital marketing environment in the past 12 months have
been well documented and extensively discussed. This has been a period of time
where two elements have been important for Naked:
1. Diversity - we diversify investment across an array of customer acquisition
channels, including unique direct partnerships with third parties to
distribute physical vouchers
2. Discipline - we have demonstrated, including in the past financial year,
that when markets occasionally get irrational, we will hold back capital. We
will continue to do so in the future
Alongside our efforts in paid marketing channels we have begun to test a
number of remarketing strategies in the 2nd half of the year. We believe that
these strategies have the ability to scale substantially, and over time to
represent up to 40% of total new membership additions. The results to date
have been encouraging and give us confidence we can scale these initiatives in
FY23:
● A proven ability to "winback" material numbers of former members, via a
mixture of free and paid channels. The benefits are twofold. The cost of
acquisition is substantially lower, and by leveraging our machine learning
models to predict likely value of former members, we have been able to achieve
consistently higher LTV on winback Angels versus first-time recruits
● Proof of concept of our ability to effectively remarket to leads we
have generated via paid marketing who have not converted. We believe the
ability here even extends to leads that we generated a relatively long time
ago - which means we have an extensive lead pool, available at little or no
cost, that we have not extensively exploited to date
In the final quarter of FY22 our aggregate remarketing efforts represented 34%
of members acquired, an increase from 18% in the prior year. The traction
achieved here, led by our US market, played a key part in returning payback in
Q4 to our long-term payback range. We believe an increasing allocation of
resources to support remarketing can yield further improvements in the year
ahead.
Building with sustainability at our core
In all aspects we believe that building a sustainable business that looks to
have a positive impact on the communities it operates in is not just the right
thing to do: it's also good business. In the past year I've been delighted to
see us make progress on a number of dimensions as well as continuing to
support our teams and winemakers in giving back to their communities.
As a wine company, we are acutely aware of our reliance on the planet to
produce the products we sell and our role in ensuring that it is sustainable
for the long term. This year we have focused on a number of initiatives to
reduce the carbon footprint of Naked:
● We have saved 673 tonnes of CO(2) through the introduction of
lighter-weight glass bottles. Working directly with winemakers, we see their
passion for finding ways to reduce the environmental impact of our industry in
ways that have no impact on consumer enjoyment. Our ability to connect
winemaker and consumer directly and explain the benefits of packaging
innovation has enabled us to move rapidly in this area
● Another area of innovation over the past year has been the development
of a range of premium boxed wines, initially launched in our UK market. Six of
our leading wines have been made available in 2.25L box formats to date, with
over 12,000 Angels choosing a boxed wine in FY22
The size and strength of the Naked Angel community also gives us a unique
opportunity to amplify good causes and have a positive social impact. In total
in FY22 Naked raised over £1.5 million for good causes. Among my personal
highlights:
● The AHR Germany campaign, where our UK business sold 3,000 cases of a
six bottle German wine 'rescue case' with all profits donated to the German
Wine Institute-backed Ahr Valley relief fund
● Partnering Californian winemaker Macario Montoya in his Latino
Winemakers Foundation, which focuses on mentoring and advancing the careers of
Latino winemakers
Our Carmen's Kids 2022 appeal to provide daily nutritious meals to hungry
children in South Africa's poorest communities launched on 6 May, and once
again our Angels have shown how generous they are in supporting this charity.
This year we have raised over £600,000 to feed more than 27,300 children.
The next horizon for growth
When I became CEO of Naked in January 2020, I inherited a great business with
a unique consumer and winemaker proposition and compelling unit economics.
However, Naked had been a capital constrained company and was sub-scale as a
result. Looking back, our internal ambition at the time was to double the size
of the business over a five-year time horizon.
At the end of FY22, Naked by our own metrics is 183% the size it was back in
January 2020 (rolling 12 month constant currency sales). Undoubtedly, external
factors beyond anything we contemplated at that point have played a part in
the speed of that growth, but equally the ability to scale rapidly reflects
the underlying strength of the Naked model, the resonance of the proposition
and the quality of the winemakers we have brought on board. As we now start to
see signs emerging of a post pandemic landscape - both for consumers and for
the online wine market - now is the right time to outline our beliefs for the
next five years for Naked Wines.
Those beliefs start with an affirmation of what we know and have proven over
time. Today Naked is the world's #1 direct-to-consumer (DtC) wine business,
connecting 964,000 customers directly to over 260 world-class winemakers. This
direct connection is core to our differentiation. It enables us to put great
wines in the hands of consumers without costly multi-level retail
infrastructure, not only saving them money but affording them the powerful
emotional benefits of discovery and proximity to the vintner.
For winemakers, Naked's model offers a distinct combination of autonomy,
reward and scale. We're good for their businesses, and we help them build
stronger relationships with the consumers of their product.
In this way we are not only differentiating our company, we are leading a
transformation of the wine industry. The powerful economics of our model lower
production costs, enable the sharing of scale benefits and disintermediate
traditional retail distribution.
These are enormous wins for both winemakers and consumers. Of course, our
shareholders are positioned to win as well. Our attractive unit economics are
proven, and we think we can make them better. And we believe we are still in
the early stages of our growth, with a $25 billion TAM in our targeted markets
in which we have only a 2% penetration today. Our ability to increase that
penetration is further supported by consumer behavioural trends, which favour
migration to online purchasing and access to products of localised provenance.
If "farm to table" has helped characterise consumer preferences in the dining
trade, then Naked is providing a "vine to glass" model for consumers who want
to discover great wines and feel closer to the artists who craft them, but
without the premium cost often associated with local provenance.
We also believe that the key elements of competitive differentiation are
substantially strengthened:
● We continue to grow our network of relationships with the world's best
winemakers, and to deepen those relationships.
● Our continuing revenue growth reinforces our scale advantages in
production and distribution.
● We have a great opportunity to more fully utilise 13 years of
proprietary data around customer behaviour, LTV and wine preferences, for the
mutual benefit of our winemakers, our Angels and our Company.
● Our $60 million credit facility signed after the year end on 31 March
provides us with additional balance sheet strength and flexibility.
Over the next five years we see the opportunity to double the size of Naked
again through a sustained focus on enhancing the differentiation of our
proposition for consumers and winemakers.
By continuing to capture share of our $25 billion TAM, we can create
substantial value for all our stakeholders. And we can do that by staying true
to the approach that has brought us this far: disciplined investment in growth
supported by a clearly differentiated model that offers a unique win-win for
winemakers and wine drinkers.
The next opportunities we will focus on
As I recall from a distant past as an undergraduate historian, there is a
danger to outlining five-year plans; the future has a habit of unfolding
differently to how you imagine. However, there are a number of key parts to
our thinking around the future opportunity for Naked that we can share with
confidence.
One guiding thought is to recognise that the path to our goal will not be
linear. In FY23 our focus will be on laying the foundation for our next five
years and ensuring that Naked is robustly set up for sustainable growth. There
are three important objectives as part of the first horizon of our long-term
plan:
1. Ensure our contribution economics support sustainable growth
We've been clear that as a management team we believe in the power of sharing
the benefits of scale - with our customers and our winemakers - as a method to
create long-term value. However, it is important to be clear that this is not
the same as a belief that (i) prices need never increase nor indeed that (ii)
a scaling business should not be able to realise some improvement in margins.
Instead it reflects our philosophy that when presented with a choice, we are
minded to favour the path of sharing gains with all stakeholders over that
of maximising short-term returns.
The past year has seen sustained inflationary pressure impact our sourcing,
our supply chain and our overhead base. In response to that, we are taking
measures to ensure that our contribution economics are appropriate to convert
customer lifetime revenue to lifetime value at a rate that supports our growth
ambitions. In doing this, the Naked model offers a number of advantages. It is
helpful to outline them briefly here in turn:
1. Vertically integrated production model = high control over products and
input costs
2. Exclusive brands and products = no direct consumer price comparison
3. Efficient DtC model = well positioned to minimise inflationary impact
4. Measurable consumer surplus = room to sustainably take price
5. Ownership of sales channels = scope to drive margins via range and price
point mix
These are precisely the characteristics that have allowed our Australian
division to increase Repeat Customer Contribution margin from 24% in FY20 to
28% in FY22 (and 30% in the final quarter of FY22). This was achieved with no
impact on our sales retention rates in Australia and without compromising on
the consumer surplus we believe we should offer in all parts of our range.
Indeed, in October 2021 we promoted the leader of our Australian team, Alicia
Kennedy, to the new role of Chief Operating Officer (COO) for the Group - and
in that capacity Alicia will be working with our teams in the UK and US as we
roll out the successful learnings to those markets.
2. Set the right balance between quality and volume
All aspects of Naked have seen tremendous growth over the past two years since
FY20.
● Active Angels (+66%)
● New Customer Investment (+76%)
● Repeat Customer Contribution profit (+86%)
● And all our markets
While the level of growth achieved has been impressive, it's important that we
consistently challenge ourselves with a view to the most efficient and value
creating way to generate sustainable long-term growth.
In parts of our business over the last 12 months we haven't got the balance
quite right. We have driven volume of new members at the expense of quality
and in the UK in particular have allowed our market positioning to shift to
become the lowest price online player - which is not consistent with our
ambition to be the world's leading quality online wine platform. Some of the
impact of this can be seen in our payback outcome reported for FY22 cohorts.
Whilst the payback of 1.5x is in part a factor of short-term cost pressures,
we would likely have fallen slightly short of our desired return range in any
event.
We have commenced work to retest our formula for customer acquisition to
reflect the changes we have seen in competitor and consumer environments as
well as in our own cost base. We expect that the result of those changes,
which will be most apparent in the UK, will be:
● A short-term reduction in New Customer Investment
● Improved margins on New Customer sales (reflecting a reduction in
subsidy of initial orders)
● Increased payback as we orientate the business towards higher
quality, sustainable growth
● A reduction in FY23 revenue growth rate, driven primarily by New
Customer revenue
We will accompany this work with the steps to enhance repeat contribution
margins outlined above to fully exploit the potential from repositioning
towards a higher quality customer mix.
3. Increase investment in translating traffic to LTV
The only sustainable way to build a high growth business is to be able to
convert traffic effectively to customer lifetime value. In FY23 you will see
us shift a balance of our new customer marketing investment further into our
customer acquisition funnel, most notably lead conversion and initial trials.
For a business like Naked, converting purchase intent is lower cost and
therefore payback accretive than, for instance, further increasing paid
marketing to drive additional traffic. This is of course not a new reality,
and in truth I believe we have underinvested here in recent years. In FY23 we
intend to set about correcting that!
We believe we have three areas in which we can effectively allocate our
resources to capture these benefits and therefore strengthen Naked's
underlying economics.
The first of these will be investing more in our teams that focus on
Conversion Rate Optimisation (CRO). CRO has been a consistently impactful
value creation lever for Naked, but we believe that we have the opportunity to
accelerate the rate at which we deliver value in this area. Under the
leadership of our new Chief Operating Officer (COO), we are increasing
investment in our Product teams in this area and taking a more coordinated
global approach to our CRO roadmap. In the last six months we have seen
encouraging results in our improved ability to match our initial conversion
funnel experience and New Customer offer to different types of traffic, and
this is one of the areas we believe can support our objectives to drive
sustainable growth.
Our second area in which we are increasing investment and applying a
coordinated global approach is the challenge of converting initial trial of
the Angel model to ongoing loyal members. In a model with high Repeat Customer
sales retention of 80%, the impact of better conversion to second order is
highly leveraged. Equally, for a business with a unique consumer proposition
and an exclusive product range, new members have different needs from our
long-term Angel members. We believe a coordinated effort that looks at the
requirements from a wine, digital product and marketing communications
perspective for Angels in their first 90 days can yield a meaningful
improvement. The impact on our cohort economics, and thus our ability to
invest sustainably in growth, is substantial. Improving second purchase rates
by 10% should drive a 3ppts improvement in cohort IRR. Why are we confident in
our ability to achieve this? Put simply, this is the single area in which our
underinvestment is most stark! To date we have had no dedicated resources
aligned to this part of the journey, so we start with a relatively clean slate
and a rich set of hypotheses to test.
The third part of our focus on sustainable growth economics is a continuation
of work we have begun this year to better monetise the leads we already have
in our business. As Naked has aged, we have amassed a large and valuable pool
of leads, both (i) former members, who we have shown remain highly engaged and
often willing to rejoin, and (ii) prospects we have details for who have never
yet tried our wine. In FY22 we have made substantial progress in building
effective and repeatable marketing campaigns to better realise value from
these lead pools; however, I expect we will be able to make further progress
here in the year ahead. To do so we will be allocating more internal resources
to content generation and remarketing and ensuring that our internal
incentives reward value creation via remarketing as effectively as the
investment to acquire first-time new members.
Future prospects
We have built Naked into the world's #1 DtC wine business, connecting 964,000
customers to over 260 world class winemakers. Over the course of the two and a
half years since we took the decision to dispose of our UK retail assets to
focus on the growth of Naked globally, we have nearly doubled the size of
Naked Wines.
At a time when consumers and winemakers around the globe are facing a
challenging economic outlook, I believe Naked is more relevant than ever. Our
differentiated model is a win for winemakers, offering them a path to scale,
financial security and the platform to build the leading wine brands of the
future. For consumers, our mission to strip out the unnecessary and non
value-adding layers of intermediary and offer direct access to world-class
wine has never been more relevant.
I'm more motivated than ever to build a better alternative to "wine as usual".
Nick Devlin
Chief Executive
Financial review
Consolidated the step change achieved last year to deliver continued growth in
winemakers and Active Angels in FY22, as well as positive Adjusted EBIT
Naked Wines delivered another solid year in FY22, building on the scale we've
implemented throughout the business and despite difficult comparisons to FY21.
We are better positioned than ever to capture the tremendous opportunity
ahead of us, with continued enhancements to our overall value proposition and
planned investments in customer acquisition.
Shawn Tabak
Chief Financial Officer (CFO)
Group performance
Naked Wines continues to disrupt the wine industry with its superior value
proposition for both winemakers and consumers. We've come a long way in
building what today is a pre-eminent online wine marketplace. And we still
have significant opportunity to grow and scale the business by capturing more
of our estimated $25 billion total addressable market (TAM). We aim to do so
by investing intelligently in customer acquisition and our value proposition,
persistently employing a data-driven focus on unit economics.
In FY22, Naked Wines continued to increase sales on top of significant
acceleration in the business in the prior year. Repeat Customer sales
increased 13% over FY21 on a constant currency basis, driven by strong sales
retention of 80% and execution in the business.
Our loyal Angel base continues to enhance our appeal to top winemaking talent.
And as we've grown (78% constant currency sales growth comparing FY22 to
FY20), we've been able to add even more talented winemakers producing
beautiful wines that continue to improve and enhance the customer value
proposition.
Our Angel subscriber base increased to 964,000 Active Angels, a 9% increase
over FY21. Repeat Customer Contribution profit(2) was £86.2 million, a £1.3
million increase over FY21, driven by the increase in Repeat Customer sales
and offset by a decrease in our Repeat Customer Contribution margin driven by
disruption in the global supply chain and increases in logistics and
transportation costs.
FY22 FY21 FY20 YoY 2YoY
£ million £ million £ million var var
Total sales 350.3 340.2 202.9 +3% +73%
Constant currency growth +5% +78%
Cost of sales (208.6) (204.7) (125.3) +2% +66%
Gross profit 141.7 135.5 77.6 +5% +83%
Gross profit margin 40% 40% 38% 60bps 220bps
Fulfilment costs (62.6) (58.3) (35.0) +7% +79%
% of total sales 18% 17% 17% 70bps 60bps
Contribution profit (2) 79.1 77.2 42.6 +2% +86%
Contribution profit margin 23% 23% 21% (10)bps 160bps
Advertising costs (34.1) (42.3) (19.8) (19)% +72%
% of total sales 10% 12% 10% (270)bps Flat to FY20
General and administrative costs(1) (43.0) (36.4) (25.2) +18% +71%
% of total sales 12% 11% 12% 160bps (10)bps
Adjusted EBIT (2) 2.0 (1.5) (2.4) +233% +183%
Finance income/(costs) 1.0 1.0 (0.5) Flat to FY21 N/A
Adjusted profit/(loss) before tax (2) 3.0 (0.5) (2.9) N/A N/A
Adjusted items (0.1) (10.2) (2.5) N/A N/A
Profit/(loss) before tax (2) 2.9 (10.7) (5.4) N/A N/A
1 General and administrative costs reported here are as per the income
statement excluding £(1.3) million of acquisition related amortisation costs,
£1.1 million of fair value adjustments relating to open FX contracts and
£0.1 million of plc foreign exchange revaluations General and administrative
costs reported here include £3.0 million of Marketing R&D and £1.1
million of share-based compensation.
2.This is an alternative performance measure (see definitions).
We invested £41.3 million in acquiring New Customers in FY22 (FY21: £50.0
million, FY20: £23.5 million), lower than in FY21, when we increased
investment spending to capture the decrease in acquisition costs during
COVID-19 lockdowns. FY22 Investment in New Customers was 76% higher than FY20.
This year's investment delivered a 5-Year Forecast Payback of 1.5x (FY21:
2.6x, original forecast 3.0x), reflecting both the effects of easing
lockdowns in our markets and a challenging consumer environment, and higher
performance marketing and logistics and transportation costs.
Adjusted EBIT was £2.0 million (FY21: £(1.5) million), driven by strong
Repeat Customer sales and expense control.
Solid FY22 performance
The Group delivered total sales of £350.3 million, an increase of 5% over
FY21 on a constant currency basis (+3% on a reported basis). This year-on-year
increase was driven by strong retention and demand from existing members, as
Repeat Customer sales increased 13% on a constant currency basis to £315.1
million. This was partially offset by an expected decrease in New Customer
sales of 38% on a constant currency basis compared to the high-volume
environment seen during the height of the pandemic in FY21. On a two-year
stacked basis, Group sales increased 78% over FY20 on a constant currency
basis (+73% on a reported basis).
Gross profit was £141.7 million for the full financial year, with a gross
profit margin of 40%, a 60 basis point increase over the prior year, driven by
a higher mix of Repeat versus New Customer sales in the current year compared
to the prior year and improvement in Australian gross margins.
Fulfilment costs were £62.6 million for FY22, representing 18% of total
sales, a 70 basis point increase over the prior year. This increase was
primarily driven by increased logistics and transportation costs. During the
year, we implemented automation in our UK distribution centre and remodelled
our US distribution network. The latter resulted in additional cost of
approximately $1.5 million to transport inventory from our legacy Napa
warehouse to four warehouses that are closer to both our distribution centres
and our customers.
Contribution profit was £79.1 million for the full financial year, with a
Contribution profit margin of 23%. This is approximately flat to FY21, as
fulfilment cost headwinds were offset by a higher mix of Repeat versus New
Customer sales in the current year compared to the prior year. Where possible,
we have sought to mitigate or absorb cost pressures through efficiencies from
scale and cost savings initiatives.
Advertising costs were £34.1 million in FY22, representing 10% of total
sales, a 270 basis point decrease over the prior year. Advertising costs
predominantly relate to the acquisition of New Customers. This spend was lower
than initially planned as we responded to the lower 5-Year Forecast Payback of
customer cohorts.
Total general and administrative costs in FY22 were £43.0 million,
representing 12% of total sales, a 160 basis point increase over the prior
year primarily driven by a step up in technology-related costs to improve the
customer experience and to support the significant growth in the business over
the past two years, as well as anticipated future growth. Total general and
administrative costs as a percent of sales was flat to FY20. We invested
£3.0 million in Marketing R&D primarily related to testing opportunities
to increase the awareness, quality perception and trust in our brand.
Alternative performance measures (see definitions) FY22 FY21 YoY
£ million £ million var
New Customer sales(1) 34.0 56.4 (40)%
New Customer Contribution loss(2) (7.2) (7.7) (6)%
Advertising costs (34.1) (42.3) (19)%
Investment in New Customers (41.3) (50.0) (17)%
Repeat Customer sales(1) 315.1 283.9 +11%
Constant currency growth +13%
Repeat Customer Contribution profit(2) 86.2 84.9 +2%
Repeat Customer Contribution margin 27.4% 29.9% (250)bps
Key performance indicators (KPIs)
Repeat Customer sales retention 80% 88% (800)bps
Active Angels 964k 886k +9%
5-Year Forecast Payback 1.5x 2.6x (1.1)x
Year 1 Payback 68% 82% (1,400)bps
Standstill EBIT 21.2 39.3 (18.1)
1 Total sales = New sales + Repeat sales + other revenue of £1.2m (FY21: nil)
relating to the non core disposal of wine volumes to maintain optimal
inventory.
2 Total Contribution profit = New Customer Contribution loss + Repeat Customer
Contribution profit + other contribution of £0.1 million (FY21: nil) relating
to the non core disposal of wine volumes to maintain optimal inventory.
Adjusted EBIT was £2.0 million (FY21: £(1.5) million loss), reflecting
Repeat Customer Contribution profit of £86.2 million and other contribution
of £0.1 million, less Investment in New Customers of £41.3 million and
general and administrative costs of £43.0 million.
The statutory profit before tax of £2.9 million (FY21: £(10.7) million loss)
was driven by:
● Adjusted trading performance as set out above, plus net finance
income
● Fair value adjustments to open foreign exchange contracts and plc
foreign currency balances; and
● The amortisation of acquired intangible assets
New and Repeat Customer breakdown
In FY21 we saw extraordinary circumstances driven by lockdown restrictions
related to the pandemic, which drove lower acquisition costs in FY21 as well
as a spike in customer demand and higher order frequency as people remained at
home at levels never seen before. Due to this dynamic, year-over-year
comparisons for FY22 relative to FY21 reflect normalisation of customer
behaviours coming out of the height of the pandemic. Overall the business has
grown substantially from pre-Covid levels and we continued to grow
the business in FY22.
New Customers
Investment in New Customers was £41.3 million in FY22 compared to £50.0
million in FY21. Our FY22 investment spend reflects New Customer Contribution
loss of £7.2 million and advertising costs of £34.1 million. This compares
to New Customer Contribution loss of £7.7 million and advertising costs of
£42.3 million in FY21. In FY22, we decreased our advertising
spend to account for the lower payback of New Customer cohorts.
Our 5-Year Forecast Payback was 1.5x in FY22, below our prior year 5-Year
Forecast Payback of 2.6x, primarily driven by changes in the consumer
environment as well as the inflationary pressures noted.
We utilise a number of diverse marketing channels, which provides us with
flexibility in adjusting channel priorities based on market conditions and
shifts in consumer behaviour. Our offline voucher channel remains a strong
channel, with over 800 partners globally. Our online channels, including
social, search and affiliates, represent growth opportunities as we optimise
our unit economics for these channels, including strategies to improve the
conversion of customers from website traffic to first purchase, as well as the
early life retention of customers. We expect to continue to invest in
Marketing R&D, including testing to understand the impact of brand
investments; we expect that brand investments will increase the awareness,
quality perception and trust in the brand, thereby enhancing the effectiveness
and efficiency of performance marketing investments.
Repeat Customers
Repeat Customer sales were £315.1 million, a 13% increase on a constant
currency basis over the prior year (+11% on a reported basis). We continue to
enhance our customer proposition with a broader range, and by adding more
talented winemakers who are making beautiful wines.
We saw an increase in our subscription offers Never Miss Out to 366,000 annual
subscriptions (FY21: 295,000) and Wine Genie to 18,000 subscriptions (FY21:
17,000), which continue to add further value for our Angels. On average, Never
Miss Out customers have 1.9 active subscriptions. These subscriptions increase
customer lifetime value, and we continue to review further enhancements to
these and to roll them out at greater scale.
Repeat Customer sales retention was 80% in FY22 (FY21: 88%), a decrease over
the prior year reflecting the strong comparative to the higher order frequency
and lower cancellations experienced during COVID-19 lockdowns last year.
Repeat Customer Contribution profit was £86.2 million in FY22, a £1.3
million increase over the prior year. Repeat Customer Contribution margin was
27%, a 250 basis point decrease compared to the prior year driven by higher
storage, transportation and logistics costs in the US and the UK, as well as
non-recurring costs for the US distribution network remodel, offset by a
higher gross margin in Australia.
US segment
£ million FY22 FY21 YoY %
Total sales(1) 157.4 161.7 (3)%
Constant currency growth +2%
Repeat Customer sales 138.7 129.8 +7%
Constant currency growth +11%
Investment in New Customers (23.2) (33.4) (31)%
Repeat Customer Contribution profit 46.6 47.9 (3)%
Repeat Customer Contribution margin 34% 37% (330)bps
Adjusted EBIT 8.6 2.0 +330%
1 Total sales = New sales + Repeat sales + other revenue.
Total US sales were £157.4 million in FY22, a 2% increase over the prior year
on a constant currency basis (3% decrease on a reported basis). The
year-over-year increase on a constant currency basis was driven by an increase
in Repeat Customer sales of 11% on a constant currency basis (+7% increase on
a reported basis), partially offset by a decrease in New Customer sales as a
result of lower investment spend on New Customers during the year.
US Adjusted EBIT was £8.6 million, reflecting a Repeat Customer Contribution
profit of £46.6 million and other contribution of £0.1 million, less
Investment in New Customers of £23.2 million and general and administrative
costs of £14.9 million.
US Repeat Customer Contribution margin was 34%, the highest in the Group,
driven by the three-tier distribution model in the US market, which drives up
prices. The margin decreased 330 basis points over the prior year, driven by
higher storage, transportation and logistics costs, as well as the US
distribution network remodel.
Foreign exchange rates offset reported growth in the US segment, as the
average monthly rate for FY22 was USD/GBP 1.368, a 5% increase over FY21.
UK segment
£ million FY22 FY21 YoY %
Total sales 147.0 133.1 +10%
Repeat Customer sales 135.6 115.8 +17%
Investment in New Customers (13.5) (11.1) +22%
Repeat Customer Contribution profit 28.2 27.3 +3%
Repeat Customer Contribution margin 21% 24% (280)bps
Adjusted EBIT 8.1 10.9 (26)%
Total UK sales were £147.0 million in FY22, representing growth of 10%
compared to FY21 driven by an increase in Repeat Customer sales of 17%,
partially offset by a decrease in New Customer sales.
UK Adjusted EBIT in FY22 was £8.1 million, reflecting Repeat Customer
Contribution profit of £28.2 million less Investment in New Customers of
£13.5 million and general and administrative costs of £6.6 million.
UK Repeat Customer Contribution margin was 21%, a 280 basis point decrease
over the prior year driven by higher transportation and logistics costs.
The UK segment is our most mature business and, therefore, has the highest
sales retention among the Group.
Australia segment
£ million FY22 FY21 YoY %
Total sales 45.9 45.5 +1%
Constant currency growth +2%
Repeat Customer sales 40.8 38.3 +7%
Constant currency growth 8%
Investment in New Customers (4.6) (5.5) (16)%
Repeat Customer Contribution profit 11.3 9.7 +16%
Repeat Customer Contribution margin 28% 25% +240bps
Adjusted EBIT 2.9 0.9 +222%
Total Australia sales were £45.9 million in FY22, representing growth of 2%
over FY21 on a constant currency basis (1% increase on a reported basis), also
driven by an increase in Repeat Customer sales, partially offset by a decrease
in New Customer sales.
Australia Adjusted EBIT was £2.9 million in FY22 reflecting Repeat Customer
Contribution profit of £11.3 million less Investment in New Customers of
£4.6 million and general and administrative costs of £3.8 million.
Australia Repeat Customer Contribution margin was 28%, a 240 basis point
increase over the prior year, driven by gross margin improvements. The
improvements in gross margin were driven by price increases across the range
as well as through rationalisation of the wine in the portfolio.
Foreign exchange rates did not have a material impact in the Australia
segment, as the average monthly rate for FY22 was AUD/GBP 1.850, a modest 1%
increase over FY21.
Standstill EBIT
Standstill EBIT, the Adjusted EBIT which we would report if we had invested in
New Customers to replenish the current customer base only, rather than for
both replenishment and growth, was £21.2 million in FY22 (FY21: £39.3
million). This metric can help investors understand the steady state EBIT that
the business would generate if we chose not to invest for growth and is
indicative of the cash generation profile of the business. Additionally, this
metric is an estimate based on KPIs that drive long-term value. As a result of
the pandemic, some of these KPIs have deviated from their long-term averages.
As a result, we have provided a pro-forma Standstill EBIT which uses
three-year trailing averages for these KPIs.
Financing costs and taxes
Net finance income was £1.0 million in FY22, similar to the prior year. This
income was derived principally from the non-cash amortised interest income on
the loan note created as part of the disposal of the Majestic business
in 2019 and from cash held on deposit with a range of banks.
Tax charges totalled £0.5 million in FY22, reflecting an effective tax rate
of 17.1%. This is made up of a £2.0 million current tax charge, made up
almost exclusively by corporate tax borne in our US and Australian markets,
offset by a deferred tax credit largely driven by the recognition of a
deferred tax asset of previous capital losses expected to crystallise in the
next financial year.
Cash and cash flow drivers
Cash at 28 March 2022 totalled £39.8 million compared to £85.1 million at
the end of FY21. We employ a balanced capital allocation strategy, prioritised
by maintaining sufficient cash and liquidity to operate the business, given
the seasonality in our inventory purchasing cycle and our sales. We balance
this with investing in strategic growth, where we see compelling opportunities
at attractive returns in excess of our weighted average cost of capital (WACC)
and internal hurdle rate. We would expect to return any excess capital beyond
those priorities to shareholders.
Growth investments are geared towards customer acquisition, our customer
proposition and our go-to-market strategy, as well as investing in inventory
to increase product availability and deliver on our growth plans and key
strategic objectives. Given the investments we plan to make in the growth
opportunities we see before us in the coming year, we are not anticipating any
distributions or returns of excess capital to shareholders at this time.
Given the challenges presented by supply chain disruptions combined with the
higher demand seen in FY21, we invested £61.2 million of cash in FY22 to grow
our inventory in order to maintain product availability and ensure an
excellent customer experience for our Angels. We will continue to run the
business at a higher inventory level as needed to support our anticipated
growth, while carefully managing levels to demand.
On 31 March 2022, we raised a $60 million credit facility with a syndicate of
banks. Under the facility we may borrow against our US inventory. Borrowings
bear interest between Secured Overnight Financing Rate (SOFR) +325bps and
+375bps. On completion of the facility, the Group drew, and continues to draw,
$21 million consistent with the facility cash deposit covenant.
In FY22, we utilised £43.6 million of free cash flow, primarily driven by an
increase in inventory holdings of £61.2 million, offset by cash inflow of
£3.6 million and £12.9 million from increases in deferred income and trade
payables, respectively.
Outlook
There are a few themes that are relevant to our FY23 guidance. First, we have
seen and continue to expect a measure of enduring inflationary pressure in all
markets. Second, consumer sentiment has been impacted by inflation and the
geopolitical environment, which we expect to continue to some measure. And
finally, as we shift our UK business toward a more premium offering, we expect
to invest approximately £5 million less in Investment in New Customers with
relatively flat year-on-year sales in that segment as we reposition the
customer base toward higher quality revenue.
Given the current macroeconomic environment, which has greater uncertainty, we
expect to manage to on or around a break-even adjusted EBITDA (excluding
share-based compensation and non-cash charges). Additionally, given this
uncertainty, we provide the following guidance and will update as the year
progresses:
● Total Group sales expected to be in the range of £345 million to
£375 million (-4% to +4% on a constant currency basis). This sales guidance
is based on a USD/GBP exchange rate of 1.299. Furthermore, we expect
year-on-year sales growth to accelerate throughout the year.(1)
● Investment in New Customer acquisition expected to be in the range of
£30 million to £40 million, as we maintain our disciplined approach to
investment spending.
● Repeat Customer Contribution profit is expected to be in the range of
£83 million to £93 million.
● General and administrative costs are expected to be in the range of
£45 million to £48 million. Additionally we expect to invest £5 million
in Marketing R&D and incur £4 million of share-based compensation.
1 Please note that FY23 is a 53-week year (occurs every seven years given our
4-4-5 retail fiscal calendar), which adds approximately £5 million of sales
or two percentage points of growth
Going concern
In assessing the appropriateness of the going concern assumption, the Board
has considered (i) the cash requirements of the business to pursue its
intended strategy, (ii) the funding available to the Group from existing cash
reserves and from our Asset Backed Lending facility (ABL) and (iii) potential
variations in the cash requirements of the Group taking into account severe
yet plausible downside scenarios that appropriately reflect the current
uncertain macroeconomic outlook.
The Group entered into an Asset Backed Lending facility on 31 March 2022 which
provides up to $60 million of additional borrowing secured against the stock
holding of the US business.
Management has prepared cash flow forecasts extending for 12 months from the
date of this report to assess the base case liquidity of the Group. Under this
base case scenario the Group has sufficient liquidity over this time period,
although it is the intention to draw a minimum amount to meet conditions of
the facility itself around a minimum cash holding.
Under a downside scenario where New Customer investment declines by 10% and
therefore the Group acquires fewer New Customers, the Group would retain
liquidity and again would not require funding from the ABL. It should be noted
that under this scenario cash reserves would be reduced increasingly
throughout the evaluation period. However, management has multiple available
levers to improve cash generation should evidence of this downside scenario
become apparent.
The Board has also reviewed the potential impact of other reasonably plausible
downside scenarios. In particular, should Repeat sales show a progressive
deterioration versus our expectations (-5% in Q2, -7.5% in Q3, -10% in Q4 of
FY23 and -10% in Q1 of FY24), cash reserves would be further reduced. If no
management actions were taken, additional sources of funding would be required
in Q4 of FY23 and Q1 of FY24. However, management has multiple available
levers to improve cash generation should evidence of this downside scenario
become apparent, as discussed further below.
The ABL is subject to three covenants: a current ratio test, minimum cash held
at a bank within the syndicate, and a minimum quarterly Repeat Customer
Contribution profit test. The Repeat Customer Contribution profit covenant is
with reference to an absolute level, rather than a ratio. Consequently, it is
most sensitive to macroeconomic factors and, under a downside scenario, there
is a risk that the Company could breach this covenant, with headroom versus
the covenant most limited in Q1, Q2 and Q4 of FY23.
Management has assessed covenant compliance over the next 12 months based on a
detailed forecast model that projects an income statement, balance sheet, and
cash flow statement based on key drivers of the business including, inter
alia, assumptions on New Customers, customer retention/attrition by tenure,
order frequency, average order value, gross margin and fulfilment costs per
order. Sensitivity analysis was also performed on this base case forecast.
Under the base case, the forecast model projects that all covenants will be
met over the next 12 months. A downside scenario resulting in a 7.5% to 20%
sensitivity against the base case forecast for Repeat Customer sales could
result in a breach of this covenant. When taking into account actual trading
results to date which are below forecast, a downside scenario of 3.7% against
forecast would result in a breach of this covenant at June 2022 and as a
result of the sensitivity in the downside scenario, management have identified
a material uncertainty on meeting this covenant. Under certain downside
scenarios there is uncertainty over covenant compliance in future quarters.
In the case of a breach of this covenant, management would approach the bank
and request a waiver for this covenant breach. However, the Board cannot
predict with certainty how the banks would respond.
Even under a severe downside scenario, management have identified multiple
additional levers that would conserve cash without access to the ABL. These
levers include the deferral or reduction of incoming inventory purchases, the
disposal of unbottled wine on the bulk wine market, the reduction of capital
expenditure, the renegotiation of supplier terms, the reduction of
discretionary marketing investment and reductions of general and
administrative expense. It is the view of the Board that, together, these
levers offer in excess of £30 million of mitigation of downside risk, which
is set against a maximum cash requirement of up to £10 million under a severe
downside scenario.
On this basis the Board believes it is appropriate to prepare the financial
statements on a going concern basis. However, this material uncertainty may
cast significant doubt on the Group's ability to continue as a going concern
and therefore to realise its assets and discharge its liabilities in the
normal course of business.
Shawn Tabak
Chief Financial Officer
Group income statement
For the year ended 28 March 2022
Continuing operations Year ended Year ended
28 March 2022
29 March 2021
Note £'000 £'000
Revenue 350,263 340,226
Cost of sales (208,542) (204,732)
Gross profit 141,721 135,494
Fulfilment costs (62,601) (58,294)
Advertising costs (34,131) (42,334)
General and administrative costs (43,085) (42,675)
Fair value loss arising on deferred contingent consideration net of settlement - (3,868)
5
Operating profit/(loss) 1,904 (11,677)
Finance costs (111) (116)
Finance income 1,080 1,118
Profit/(loss) before tax 2,873 (10,675)
Analysed as:
Adjusted profit/(loss) before tax 2,964 (514)
Adjusted items: 5
- Non-cash charges relating to acquisitions (1,321) (3,646)
- Other adjusted items 1,230 (6,515)
Profit/(loss) before tax 2,873 (10,675)
Tax 6 (490) 635
Profit/(loss) for the period 2,383 (10,040)
Earnings/(loss) per share 7
Basic 3.3p (13.8p)
Diluted 3.2p (13.8p)
Balance sheet
As at 28 March 2022
28 March 2022 29 March 2021
£'000 £'000
Non-current assets
Goodwill and intangible fixed assets 33,516 33,982
Property, plant and equipment 2,544 1,452
Right-of-use assets 3,370 2,780
Investment property - 855
Deferred tax assets 5,402 3,993
Other receivables 10,114 9,520
54,946 52,582
Current assets
Inventories 142,444 76,130
Trade and other receivables 9,161 7,168
Financial instruments at fair value 324 41
Cash and cash equivalents 39,846 85,148
191,775 168,487
Assets classified as held for sale 810 -
192,585 168,487
Total assets 247,531 221,069
Current liabilities
Trade and other payables (54,621) (40,757)
Deferred Angel and other income (76,003) (69,902)
Lease liabilities (991) (645)
Provisions (2,011) (1,570)
Bond financing (35) (30)
Financial instruments at fair value (476) (1,405)
(134,137) (114,309)
Non-current liabilities
Provisions (122) (393)
Lease liabilities (2,576) (2,231)
Deferred tax liabilities (813) (771)
(3,511) (3,395)
Total liabilities (137,648) (117,704)
Net assets 109,883 103,365
Equity
Share capital 5,508 5,487
Share premium 21,162 21,162
Capital redemption reserve 363 363
Currency translation reserve 3,183 99
Retained earnings 79,667 76,254
Total equity 109,883 103,365
Group cash flow statement
For the year ended 28 March 2022
Year ended Year ended
28 March 2022
29 March 2021
Note £'000 £'000
Cash flows from operating activities
Cash (used in)/generated by operations 8 (40,929) 34,207
UK income tax received - 274
Overseas income tax paid (2,189) (880)
Net cash (used in)/generated by operating activities (43,118) 33,601
Investing activities
Interest received, including interest received on the vendor loan note 486 559
Purchase of property, plant and equipment (1,681) (845)
Purchase of intangible fixed assets (253) (1,824)
Proceeds on disposal of property, plant and equipment 7 -
Proceeds received on settlement of deferred contingent consideration - 175
Proceeds from sale of asset held for resale - 953
Net cash used in investing activities (1,441) (982)
Financing activities
Interest paid (including lease interest) (111) (116)
Repayments of principal under lease liabilities (845) (904)
Movement in customer funded bonds 5 (54)
Net cash used in financing activities (951) (1,074)
Net (decrease)/increase in cash (45,510) 31,545
Cash and cash equivalents at the beginning of the year 85,148 54,736
Effect of foreign exchange rate changes 208 (1,133)
Cash and cash equivalents at the end of the year 8 39,846 85,148
Notes to the financial statements
1. General Information
Naked Wines plc (the Company) is a public limited company and is incorporated
in the United Kingdom under the Companies Act 2006 and is registered in
England and Wales. The Company is the ultimate controlling party of the Naked
Group and its ordinary shares are traded on the Alternative Investment Market
(AIM).
The Company's registered address is The Union Building, 51-59 Rose Lane,
Norwich, NR1 1BY. The Group's principal activity is the direct to consumer
retailing of wine.
2. Basis of accounting
The financial information set out above does not constitute statutory accounts
within the meaning of section 435(1) and (2) of the Companies Act 2006 nor
contain sufficient information to comply with the disclosure requirements of
International Financial Standards (IFRS) but are derived from those
statements.
The consolidated financial statements comprise the financial statements of the
Group as at 28 March 2022 and are presented in UK Sterling and all values are
rounded to the nearest thousand (£'000), except when otherwise indicated.
The auditors have reported on the underlying accounts from which this
financial information has been drawn and their report is unqualified and did
not contain any statements under section 498 (2) or (3) of the Companies Act
2006 but did include a section highlighting a material uncertainty that may
cast significant doubt on the Group and Company's ability to continue as a
going concern. Further detail is provided within the Going Concern section of
this announcement.
The financial statements of Naked Wines plc for the year ended 28 March 2022
were authorised for issue by the Board of Directors on 23 June 2022 and the
balance sheet was signed on behalf of the Board by Shawn Tabak, Chief
Financial Officer.
The Group's financial reporting year represents the 52 weeks to 28 March 2022
and the prior financial year, 52 weeks to 29 March 2021.
3. Going concern
In assessing the appropriateness of the going concern assumption, the Board
has considered (i) the cash requirements of the business to pursue its
intended strategy, (ii) the funding available to the Group from existing cash
reserves and from our Asset Backed Lending facility (ABL) and (iii) potential
variations in the cash requirements of the Group taking into account severe
yet plausible downside scenarios that appropriately reflect the current
uncertain macroeconomic outlook.
The Group entered into an Asset Backed Lending facility on 31 March 2022 which
provides up to $60 million of additional borrowing secured against the stock
holding of the US business.
Management has prepared cash flow forecasts extending for 12 months from the
date of this report to assess the base case liquidity of the Group. Under this
base case scenario the Group has sufficient liquidity over this time period,
although it is the intention to draw a minimum amount to meet conditions of
the facility itself around a minimum cash holding.
Under a downside scenario where New Customer investment declines by 10% and
therefore the Group acquires fewer New Customers, the Group would retain
liquidity and again would not require funding from the ABL. It should be noted
that under this scenario cash reserves would be reduced increasingly
throughout the evaluation period. However, management has multiple available
levers to improve cash generation should evidence of this downside scenario
become apparent.
The Board has also reviewed the potential impact of other reasonably plausible
downside scenarios. In particular, should Repeat sales show a progressive
deterioration versus our expectations (-5% in Q2, -7.5% in Q3, -10% in Q4 of
FY23 and -10% in Q1 of FY24), cash reserves would be further reduced. If no
management actions were taken, additional sources of funding would be required
in Q4 of FY23 and Q1 of FY24. However, management has multiple available
levers to improve cash generation should evidence of this downside scenario
become apparent, as discussed further below.
The ABL is subject to three covenants: a current ratio test, minimum cash held
at a bank within the syndicate, and a minimum quarterly Repeat Customer
Contribution profit test. The Repeat Customer Contribution profit covenant is
with reference to an absolute level, rather than a ratio. Consequently, it is
most sensitive to macroeconomic factors and, under a downside scenario, there
is a risk that the Company could breach this covenant, with headroom versus
the covenant most limited in Q1, Q2 and Q4 of FY23.
Management has assessed covenant compliance over the next 12 months based on a
detailed forecast model that projects an income statement, balance sheet, and
cash flow statement based on key drivers of the business including, inter
alia, assumptions on New Customers, customer retention/attrition by tenure,
order frequency, average order value, gross margin and fulfilment costs per
order. Sensitivity analysis was also performed on this base case forecast.
Under the base case, the forecast model projects that all covenants will be
met over the next 12 months. A downside scenario resulting in a 7.5% to 20%
sensitivity against the base case forecast for Repeat Customer sales could
result in a breach of this covenant. When taking into account actual trading
results to date which are below forecast, a downside scenario of 3.7% against
forecast would result in a breach of this covenant at June 2022 and as a
result of the sensitivity in the downside scenario, management have identified
a material uncertainty on meeting this covenant. Under certain downside
scenarios there is uncertainty over covenant compliance in future quarters.
In the case of a breach of this covenant, management would approach the bank
and request a waiver for this covenant breach. However, the Board cannot
predict with certainty how the banks would respond.
Even under a severe downside scenario, management have identified multiple
additional levers that would conserve cash without access to the ABL. These
levers include the deferral or reduction of incoming inventory purchases, the
disposal of unbottled wine on the bulk wine market, the reduction of capital
expenditure, the renegotiation of supplier terms, the reduction of
discretionary marketing investment and reductions of general and
administrative expense. It is the view of the Board that, together, these
levers offer in excess of £30 million of mitigation of downside risk, which
is set against a maximum cash requirement of up to £10 million under a severe
downside scenario.
On this basis the Board believes it is appropriate to prepare the financial
statements on a going concern basis. However, this material uncertainty may
cast significant doubt on the Group's ability to continue as a going concern
and therefore to realise its assets and discharge its liabilities in the
normal course of business.
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 Board has
determined that the Executive Directors of the Company are the CODM of the
business. This is on the basis that they have primary responsibility for the
allocation of resources between segments and the assessment of performance of
the segments. In line with the information presented to the Executive
Directors of the Company, the Group presents its segmental analysis based on
the three geographic locations in which the Group operates.
Performance of these operating segments is assessed on revenue, adjusted EBIT
(being operating profit excluding any adjusted items) and adjusted PBT (being
profit before tax excluding any adjusted items), as well as analysing the
business between New Customer and Repeat Customer lines of business.
These are the financial performance measures that are reported to the CODM,
along with other operational performance measures, and are considered to be
useful measures of the underlying trading performance of the segments.
Adjusted items are not allocated to the operating segments as this reflects
how they are reported to the CODM.
The table below sets out the basis on which the performance of the business is
presented to the CODM. The CODM considers that, as a single route to market
and solely consumer-facing business in three geographically and economically
diverse locations, the business comprises three operating segments. The
Group reports revenue from external customers as a single product group, this
being wine and associated beverages.
Costs relating to global Group functions are not allocated to the operating
segments for the purposes of assessing segmental performance and consequently
global costs are presented separately. This is consistent with the
presentation of those functions to the CODM.
Revenues are attributed to the countries from which they are earned. The Group
is not reliant on a major customer or group of customers.
Year ended 28 March 2022 Naked Wines USA Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue
New Customer sales 17,556 11,342 5,137 - 34,035
Repeat Customer sales 138,665 135,617 40,777 - 315,059
Other revenue 1,169 - - - 1,169
157,390 146,959 45,914 - 350,263
New Customer Contribution loss (2,097) (4,135) (940) - (7,172)
Advertising costs (21,128) (9,360) (3,643) - (34,131)
Investment in New Customers (23,225) (13,495) (4,583) - (41,303)
Repeat Customer Contribution profit 46,648 28,225 11,342 - 86,215
Other contribution 77 - - - 77
23,500 14,730 6,759 - 44,989
General and administrative costs(1) (14,939) (6,614) (3,879) (17,562) (42,994)
Adjusted EBIT 8,561 8,116 2,880 (17,562) 1,995
Finance costs (91) (9) (11) - (111)
Finance income - 1 - 1,079 1,080
Adjusted profit/(loss) before tax 8,470 8,108 2,869 (16,483) 2,964
Adjusted items:
Non-cash items relating to acquisitions - - - (1,321) (1,321)
Other adjusted items - - - 1,230 1,230
Profit/(loss) before tax 8,470 8,108 2,869 (16,574) 2,873
Depreciation 1,113 264 230 50 1,657
Amortisation 1 - - 1,900 1,901
Total assets 122,278 41,622 24,912 58,719 247,531
Total liabilities 63,495 45,203 20,126 8,824 137,648
1. General and administrative costs - Per income statement excluding
£1,321,000 of acquisition related amortisation costs, £1,091,000 of fair
value adjustments relating to open foreign exchange contracts and £139,000 of
PLC company foreign exchange revaluations.
Year ended 28 March 2022 USA UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 157,390 146,959 45,914 350,263
Non-current assets excluding deferred current assets 4,919 44,261 364 49,544
Year ended 29 March 2021 Naked Wines USA Naked Wines UK Naked Wines Australia Unallocated Total
£'000 £'000 £'000 £'000 £'000
Revenue
New Customer sales 31,908 17,303 7,160 - 56,371
Repeat Customer sales 129,797 115,755 38,303 - 283,855
161,705 133,058 45,463 - 340,226
New Customer Contribution loss (3,275) (3,585) (852) - (7,712)
Advertising costs (30,163) (7,529) (4,642) - (42,334)
Investment in New Customers (33,438) (11,114) (5,494) - (50,046)
Repeat Customer Contribution profit 47,870 27,301 9,741 - 84,912
14,432 16,187 4,247 - 34,866
General and administrative costs(1) (12,445) (5,279) (3,303) (15,355) (36,382)
Adjusted EBIT 1,987 10,908 944 (15,355) (1,516)
Finance costs (85) (14) (17) - (116)
Finance income 10 - - 1,108 1,118
Adjusted profit/(loss) before tax 1,912 10,894 927 (14,247) (514)
Adjusted items:
Non-cash items relating to acquisitions - - - (3,646) (3,646)
Other adjusted items - - - (6,515) (6,515)
Profit/(loss) before tax 1,912 10,894 927 (24,408) (10,675)
Depreciation 859 315 227 49 1,450
Amortisation 1 - - 3,837 3,838
Total assets 64,689 25,699 20,386 110,295 221,069
Total liabilities 55,283 39,394 16,408 6,619 117,704
Year ended 29 March 2021 USA UK Australia Total
£'000 £'000 £'000 £'000
Geographical analysis
Revenue 161,705 133,058 45,463 340,226
Non-current assets excluding deferred current assets 3,516 44,597 476 48,589
1. General and administrative costs - Per income statement excluding
£3,646,000 of acquisition related amortisation costs, £1,966,000 of fair
value adjustments relating to open foreign exchange contracts and £681,000 of
PLC company foreign exchange revaluations.
5 Adjusted items
The Directors believe that adjusted profit/(loss) before tax provides
additional useful information for shareholders on trends and performance.
These measures are used for performance analysis. Adjusted profit is not
defined by IFRS and therefore may not be directly comparable with other
companies' adjusted profit measures. It is not intended to be a substitute
for, or superior to, IFRS measurements of profit.
In the year, the adjustments made to reported profit before tax are:
Year ended Year ended
28 March 2022
29 March 2021
£'000 £'000
Non-cash charges relating to acquisitions
Amortisation of acquired intangibles (1,321) (3,646)
(1,321) (3,646)
Other adjusted items
Fair value loss arising on deferred contingent - (3,868)
consideration net of settlement
Fair value movement through the income statement 1,091 (1,966)
on foreign exchange contracts and associated
unrealised foreign currency inventory
Foreign exchange movements on plc company 139 (681)
currency bank balances
1,230 (6,515)
Total adjusted items (91) (10,161)
Amortisation of acquired intangibles
These items reflect costs of customer acquisition from prior to the purchase
of the Naked Wines business. In order to reflect the cost of current New
Customer acquisition in its adjusted profit before tax, the Group includes the
expenses of all ongoing customer acquisitions in its adjusted profit measures
but removes the amortisation cost of those customers acquired before
acquisition by Naked Wines plc.
Fair value loss arising on deferred contingent consideration net of settlement
During the year ended 29 March 2021, the Directors were approached by CF
Bacchus Holdco Limited, the holder of the deferred contingent consideration
obligation issued as part of the disposal of the Majestic business. In the
light of restrictions on travel and as a result of the new duty-free
allowances which came into force on 1 January 2021, the Directors accepted an
offer of £175,000 in full settlement of the Group's deferred contingent
consideration in respect of the disposal of Majestic's French retail business.
This settlement was received on 19 March 2021. The deferred contingent
consideration was valued in the books at £4,043,000 at 30 March 2020, and
after proceeds of £175,000 were received, a loss of £3,868,000 was taken to
the income statement and disclosed in adjusted items.
Fair value movement on foreign exchange contracts and associated unrealised
foreign currency inventory
We commit in advance to buying foreign currency to purchase wine in order to
mitigate exchange rate fluctuations. International accounting standards
require us to mark the value of these contracts to market at year end. As this
may fluctuate materially we adjust this and associated foreign currency
inventory revaluation out as to better reflect trading profitability.
Foreign exchange movements on funding currency bank accounts
The Group holds net cash on its balance sheet and this includes sums of
foreign currency which it will deploy to fund its US and Australian
businesses. The revaluation of foreign currency balances held in the Group are
reported as adjusted items so as not to distort the picture of the underlying
business cost base.
6 Tax
(a) Tax charge
Year ended Year ended
28 March 2022
29 March 2021
£'000 £'000
Current income tax
UK income tax 4 1
Overseas income tax (2,011) (547)
Adjustment in respect of prior periods 27 176
Current income tax charge (1,980) (370)
Deferred tax
Origination and reversal of temporary differences 1,077 1,464
Adjustment in respect of prior periods 64 (459)
Effect of change in tax rate on prior period balances 349 -
Total deferred tax credit 1,490 1,005
Total income tax (charge)/credit for the year (490) 635
(b) Tax reconciliation
The tax charge/(credit) for the year differs from the standard rate of
corporation tax in the UK of 19% (2021: 19%). The reasons for this are
detailed below:
Year ended Year ended
28 March 2022
29 March 2021
£'000 £'000
Profit/(loss) before tax 2,873 (10,675)
Tax (charge)/credit at the standard UK corporation tax rate of 19% (2021: 19%) (546) 2,028
Adjustments in respect of prior periods 91 (283)
Overseas income tax at higher rates (44) (66)
Disallowable expenditure (485) (82)
Income not taxable 12 212
Deferred tax not previously recognised 475 (1,606)
Share based payments 141 138
Change in tax rate on prior period deferred tax balances (134) -
Foreign exchange - 294
Total income tax (charge)/credit (490) 635
Effective tax rate 17.1% 5.9%
Deferred tax balances have been calculated at the substantively enacted rate
at which they are expected to reverse.
The chancellor has confirmed an increase in the corporation tax rate from 19%
to 25% with effect from 1 April 2023 which received Royal Assent on 10 July
2021.
7 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
ordinary shareholders by the weighted average number of ordinary shares in
issue of the Company, excluding 145,557 (2021: 146,814) shares held by the
Naked Wines plc Share Incentive Plan Trust (which have been treated as
dilutive share based payment awards).
The dilutive effect of share based payment awards is calculated by adjusting
the weighted average number of ordinary shares in issue to assume conversion
of all dilutive potential ordinary shares. All outstanding share based
payment award grants have been included in the dilutive earnings per share
calculation as they are potentially dilutive at the year end.
A negative diluted EPS equals a negative basic EPS as it would have an
anti-dilutive effect if the dilutive shares are included in the calculation.
Year ended Year ended
28 March 2022
29 March 2021
Earnings/(loss) per share
Basic earnings/(loss) per share 3.3p (13.8p)
Diluted earnings/(loss) per share 3.2p (13.8p)
Year ended Year ended
28 March 2022
29 March 2021
Weighted average number of shares in issue 73,172,727 72,896,800
Dilutive potential ordinary shares:
Employee share awards 1,803,937 1,496,174
Weighted average number of shares for the purpose of diluted earnings per 74,976,664 74,392,974
share
Total number of shares in issue 73,439,132 73,161,485
If all the Company's share schemes had vested at 100%, the Company would have
74,983,864 issued shares.
8 Notes to the cash flow statement
(a) Reconciliation of profit to cash (used in)/generated by operations
Year ended Year ended
28 March 2022
29 March 2021
£'000 £'000
Cash flows from operations
Operating profit/(loss) 1,904 (11,677)
Add back:
Depreciation and amortisation 3,558 5,288
Loss on disposal of fixed assets 18 51
Fair value loss arising on deferred contingent - 3,868
consideration net of settlement
Fair value movement on foreign exchange contracts (1,212) 1,760
Share based payment charges 1,311 777
Operating cash flows before movements in working capital 5,579 67
Increase in inventories (61,174) (8,984)
Increase in customer funds in deferred income 3,582 28,244
Increase in trade and other receivables (1,779) (1,445)
Decrease in trade and other payables 12,863 16,325
Net cash flows from operating activities (40,929) 34,207
(b) Cash and cash equivalents
28 March 2022 29 March 2021
£'000 £'000
Cash and cash equivalents 39,846 85,148
(c) Analysis of movement in net cash
29 March 2021 Cash flows Non-cash movements 28 March 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents 85,148 (45,510) 208 39,846
Borrowings - customer bond finance (30) (5) - (35)
Borrowings - IFRS 16 lease liabilities (2,876) (845) 154 (3,567)
Gross borrowings (2,906) (850) 154 (3,602)
Total net cash/(borrowings) 82,242 (46,360) 362 36,244
9 Events after the balance sheet date
On 31 March 2022, the Group entered into a 36-month senior secured credit
facility with Silicon Valley Bank as administrative agent and issuing lender
for up to $60 million of credit based on the inventory held by Nakedwines.com
Inc. The facility is secured against the assets of the Group. Interest payable
on this facility is calculated on a margin above the Secured Overnight
Financing Rate (SOFR) with a commitment fee on undrawn funds. As an indicative
impact of its financial effect, using a representative current SOFR rate which
cannot be predicted in the future and average facility margins which may not
be representative of actual final applicable margins, a representative $10
million of drawdown for 12 months would amount to a total interest and
commitment fee payable of approximately £0.4 million.
On 12 November 2021, the Directors received an offer for the purchase of the
asset held on the Company's books as an investment property. The sale was
completed and proceeds of £5,850,000 were received on 5 May 2022, with
estimated costs and commissions of £200,000 and before tax.
There were no other events after the balance sheet date that had a material
impact on the financial position and performance of the Group.
Definitions and Customer experience KPIs
Definitions
Angel A customer who deposits funds into their account each month to spend on the
wines on our website.
Active Angel An Angel that has placed an order in the last 12 months.
CAGR Compound annual growth rate. The year-on-year growth rate required for a
number of years for a value to grow from its beginning balance to its ending
balance.
Company, Naked or Naked Wines Naked Wines plc
Contribution A profit measure between gross profit and EBIT, calculated as gross profit
less the costs of fulfilling and servicing (e.g. credit card fees, delivery
costs, customer facing staff costs). We often split contribution into that
from new and repeat customers as they can have different levels of
profitability.
DtC Direct to consumer
Group Naked Wines plc and its subsidiary undertakings
LTIP Long Term Incentive Plan
Marketing R&D Expenditure focused on researching and testing new marketing channels and
creative approaches, with the aim of opening up significant new growth
investment opportunities.
New Customer A customer who, at the time of purchase, does not meet our definition of a
repeat customer; for example, because they are brand new, were previously a
Repeat Customer and have stopped subscribing with us at some point or cannot
be identified as a Repeat Customer.
New Customer sales Revenues derived from transactions with customers who meet our definition of a
New Customer. A reconciliation of total sales to New Customer sales is shown
in note 4 Segmental reporting.
Repeat Customer A customer (Angel) who has subscribed and made their first monthly
subscription payment.
Repeat Customer sales These are the revenues derived from orders placed by customers meeting our
definition of a Repeat Customer at the time of ordering. A reconciliation of
total sales to Repeat Customer sales is shown in note 4 Segmental reporting.
SIP Share Incentive Plan
Total Addressable Market (TAM) TAM represents the available market which Naked sees as a revenue opportunity
that it could serve.
Customer experience KPIs
Product availability % of targeted range available on websites as indicated by our inventory
reporting.
Wine quality - "Buy it again" ratings % of "Yes" scores in the last 12 months as recorded by websites/ apps
5* customer service The number of service ratings scoring 5* (out of 5) as a % of total ratings in
the last 12 months as recorded by websites/apps/telephone feedback.
Alternative performance measures (APMs) and Investment measures
Alternative performance measures
EBIT Operating profit as disclosed in the Group income statement.
Adjusted EBIT Operating profit adjusted for amortisation of acquired intangibles,
acquisition costs, impairment of goodwill, restructuring costs and fair value
movement through the income statement on financial instruments and revaluation
of funding cash balances held.
EBITDA EBIT plus depreciation and amortisation
Adjusted EBITDA Adjusted EBIT plus share-based compensation charges, non-cash charges,
depreciation and amortisation, but excluding any depreciation or amortisation
costs included in our adjusted items (e.g. amortisation of acquired
intangibles).
Adjusted PBT Adjusted EBIT less net finance income
Free cash flow Cash generated by operating activities less capital expenditure and before
adjusted items and tax.
A reconciliation of this metric is provided below.
Net cash The amount of cash held less debt at year end.
Investment measures
Investment in New Customers The Investment in New Customers during the year, including contribution
profit/loss from New Customer sales and advertising costs.
New Customer Contribution loss The contribution earned from sales to New Customers.
5-Year Forecast Payback The ratio of projected future repeat contribution we expect to earn from the
New Customers recruited in the year divided by the Investment in New
Customers. We forecast contribution at a customer level using a Machine
Learning (ML) model which weighs several key characteristics including
retention, order frequency and order value, along with customer demographics
and non-transactional data. The ML algorithms then predict transactions
forecast over a five-year horizon. This is then aggregated to a monthly, then
annual, cohort level for reporting purposes.
Lifetime Value/LTV The future Repeat Customer Contribution profit we expect to earn from
customers recruited in a discrete period of time. We calculate this future
contribution using a Machine Learning (ML) model. Collecting data for a number
of key customer characteristics, including retention, order frequency and
order value, along with customer demographics and non-transactional data, the
ML algorithms then predict the future (lifetime) value of that customer over a
five-year horizon.
Repeat Customer Contribution profit The profit attributable to sales meeting the definition of sales to Repeat
Customers after fulfilment and service costs.
Repeat Customer The proportion of sales made to customers who met our definition of "Repeat"
last year that were realised again this year from the same customers. Using
sales retention our website data, the population who were subscribers in the prior year are
identified and their sales in the current year then assessed. This is done for
each month and summed to calculate the full year retention.
Standstill EBIT The adjusted EBIT that would be reported if Investment in New Customers was
reduced to the level needed to just replenish the current customer base.
A reconciliation of this metric is provided below.
Year 1 Payback This short-term payback measure shows the actual return in this financial year
of our investment in the prior year.
Free cash flow
Year ended Year ended
28 March 2022 29 March 2021
£m £m
Adjusted EBIT 2.0 (1.5)
Add back depreciation and amortisation (excludes adjusted amortisation of 2.3 1.7
acquired intangibles)
Add back IFRS 2 charges 1.3 0.8
Adjusted EBITDA 5.6 1.0
Working capital movement
Inventories (61.2) (9.2)
Deferred income 3.6 28.2
Trade and other receivables (1.8) (1.4)
Trade and other payables 12.9 15.6
Repayments of principal under lease liabilities (0.8) (0.9)
Working capital movement (47.3) 32.3
Pre-tax operating cash flow (41.7) 33.3
Capital expenditure (1.9) (2.7)
Free cash flow (43.6) 30.6
Reconciliation to statutory cash flow statement
Free cash flow (43.6) 30.6
Capital expenditure 1.9 2.7
Repayments of principal under lease liabilities 0.8 0.9
Net cash (used in)/generated by operations (40.9) 34.2
Standstill EBIT Pro forma(2)
Year ended Year ended Year ended
28 March 2022 29 March 2021 28 March 2022
£m £m £m
Standstill EBIT is calculated as:
Repeat Customer Contribution profit (a) 86.2 84.9 86.2
Less: replenishment spend (e) (25.0) (12.2) (19.2)
Less: General and administrative costs(1) (40.0) (33.4) (40.0)
21.2 39.3 27.0
(a) Repeat Customer Contribution profit 86.2 84.9 86.2
(b) Repeat Customer sales retention 80.4% 88.2% 84.0%
(c) Repeat Customer Contribution profit lost to attrition (a x (1-b)) 16.9 10.0 13.8
(d) Year 1 Payback 67.5% 82.0% 72.2%
(e) Spend to replenish lost repeat contribution (c/d) 25.0 12.2 19.2
1. General and administrative costs exclude £1.3 million amortisation,
£1.1 million fair value adjustments, £0.1 million adjustment for foreign
exchange revaluations and £3.0 million Marketing R&D spend.
2. In response to feedback from shareholders, we report here an
additional standstill EBIT calculation which uses a trailing three-year simple
average for sales retention and Year 1 Payback. This is in response to the
more than usual changes in these metrics due to the pandemic-related
lockdowns.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR PPUQGQUPPUWWRecent news on Naked Wines
See all newsREG - Naked Wines PLC - Director/PDMR Shareholding
AnnouncementREG - Naked Wines PLC - Pre-Close Trading Update
AnnouncementREG - Naked Wines PLC - Holding(s) in Company
AnnouncementREG - Naked Wines PLC - Holding(s) in Company
AnnouncementREG - Naked Wines PLC - Holding(s) in Company
Announcement