TIDMWINE
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 GBP350.3 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 GBP86.2 million vs
GBP84.9 million last year driven by a 13% increase in Repeat
Customer sales on a constant currency basis (1)
-- Investment in New Customers(2) of GBP41.3 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 GBP2.0 million vs a loss of GBP1.5 million in FY21
-- Closing cash balance of GBP40 million (FY21: GBP85 million),
and increased inventory assets of GBP142 million (FY21: GBP76
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 GBP345
million to GBP375 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 GBP30 million to GBP40 million, as we maintain our
disciplined approach to investment spending.
-- Repeat Customer Contribution profit is expected to be in the
range of GBP83 million to GBP93 million.
-- General and administrative costs are expected to be in the
range of GBP45 million to GBP48 million. Additionally we expect to
invest GBP5 million in Marketing R&D and incur GBP4 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 FY22 vs
GBP million GBP million GBP million FY21 % FY20 %
--------------
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 FY22 vs
FY21 % FY20 %
Repeat Customer sales GBP315.1m GBP283.9m GBP173.7m +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 GBP(41.3)m GBP(50.0)m GBP(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) GBP21.2m GBP39.3m GBP9.6m (46)% +121%
----------- ----------- ----------- ----------- ---------
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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 . Alternatively, the
webcast link can be found in the Financial Calendar section of our
IR website: 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 GBP5 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 Original Payback
reporting (forecast) forecast to date
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 GBP1.5 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
GBP600,000 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
GBP86.2 million, a GBP1.3 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
GBP million GBP million GBP 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%
--------------------------- ------------ ------------ ------------ -------- -------
Flat to
% of total sales 10% 12% 10% (270)bps 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%
--------------------------- ------------ ------------ ------------ -------- -------
Flat to
Finance income/(costs) 1.0 1.0 (0.5) 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 GBP(1.3) million of acquisition related
amortisation costs, GBP1.1 million of fair value adjustments
relating to open FX contracts and GBP0.1 million of plc foreign
exchange revaluations General and administrative costs reported
here include GBP3.0 million of Marketing R&D and GBP1.1 million
of share-based compensation.
2.This is an alternative performance measure (see
definitions).
We invested GBP41.3 million in acquiring New Customers in FY22
(FY21: GBP50.0 million, FY20: GBP23.5 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 GBP2.0 million (FY21: GBP(1.5) million),
driven by strong Repeat Customer sales and expense control.
Solid FY22 performance
The Group delivered total sales of GBP350.3 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 GBP315.1 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 GBP141.7 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 GBP62.6 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 GBP79.1 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 GBP34.1 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 GBP43.0
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 GBP3.0 million in Marketing R&D primarily related to
testing opportunities to increase the awareness, quality perception
and trust in our brand.
Alternative performance measures FY22 FY21 YoY
(see definitions) GBP million GBP 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
GBP1.2m (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 GBP0.1
million (FY21: nil) relating to the non core disposal of wine
volumes to maintain optimal inventory.
Adjusted EBIT was GBP2.0 million (FY21: GBP(1.5) million loss),
reflecting Repeat Customer Contribution profit of GBP86.2 million
and other contribution of GBP0.1 million, less Investment in New
Customers of GBP41.3 million and general and administrative costs
of GBP43.0 million.
The statutory profit before tax of GBP2.9 million (FY21:
GBP(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 GBP41.3 million in FY22 compared
to GBP50.0 million in FY21. Our FY22 investment spend reflects New
Customer Contribution loss of GBP7.2 million and advertising costs
of GBP34.1 million. This compares to New Customer Contribution loss
of GBP7.7 million and advertising costs of GBP42.3 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 GBP315.1 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 GBP86.2 million in FY22,
a GBP1.3 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
--------------------------------------------- --------
GBP 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 GBP157.4 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 GBP8.6 million, reflecting a Repeat
Customer Contribution profit of GBP46.6 million and other
contribution of GBP0.1 million, less Investment in New Customers of
GBP23.2 million and general and administrative costs of GBP14.9
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
-------------------------------------------------------
GBP 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 GBP147.0 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 GBP8.1 million, reflecting Repeat
Customer Contribution profit of GBP28.2 million less Investment in
New Customers of GBP13.5 million and general and administrative
costs of GBP6.6 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
------------------------------------------- -------
GBP 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 GBP45.9 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 GBP2.9 million in FY22 reflecting
Repeat Customer Contribution profit of GBP11.3 million less
Investment in New Customers of GBP4.6 million and general and
administrative costs of GBP3.8 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
GBP21.2 million in FY22 (FY21: GBP39.3 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 GBP1.0 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 GBP0.5 million in FY22, reflecting an
effective tax rate of 17.1%. This is made up of a GBP2.0 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 GBP39.8 million compared to
GBP85.1 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 GBP61.2
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 GBP43.6 million of free cash flow,
primarily driven by an increase in inventory holdings of GBP61.2
million, offset by cash inflow of GBP3.6 million and GBP12.9
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 GBP5 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 GBP345
million to GBP375 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 GBP30 million to GBP40 million, as we maintain our
disciplined approach to investment spending.
-- Repeat Customer Contribution profit is expected to be in the
range of GBP83 million to GBP93 million.
-- General and administrative costs are expected to be in the
range of GBP45 million to GBP48 million. Additionally we expect to
invest GBP5 million in Marketing R&D and incur GBP4 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 GBP5 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 GBP30 million of mitigation of
downside risk, which is set against a maximum cash requirement of
up to GBP10 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
Year ended Year ended
28 March 29 March
Continuing operations 2022 2021
Note GBP'000 GBP'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 5 - (3,868)
------------------------------------ ---- ---------- ----------
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
GBP'000 GBP'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 29 March
2022 2021
Note GBP'000 GBP'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
(GBP'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 GBP30 million of mitigation of
downside risk, which is set against a maximum cash requirement of
up to GBP10 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 Naked
2022 Naked Wines Naked
Wines USA UK Wines Australia Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 GBP1,321,000 of acquisition related amortisation costs,
GBP1,091,000 of fair value adjustments relating to open foreign
exchange contracts and GBP139,000 of PLC company foreign exchange
revaluations.
Year ended 28 March
2022 USA UK Australia Total
GBP'000 GBP'000 GBP'000 GBP'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
Naked Wines Wines Naked Wines
USA UK Australia Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'000 GBP'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 GBP3,646,000 of acquisition related amortisation costs,
GBP1,966,000 of fair value adjustments relating to open foreign
exchange contracts and GBP681,000 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 29 March
28 March 2022 2021
GBP'000 GBP'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
consideration net of settlement - (3,868)
Fair value movement through the income
statement
on foreign exchange contracts and associated
unrealised foreign currency inventory 1,091 (1,966)
Foreign exchange movements on plc company
currency bank balances 139 (681)
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
GBP175,000 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
GBP4,043,000 at 30 March 2020, and after proceeds of GBP175,000
were received, a loss of GBP3,868,000 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 29 March
2022 2021
GBP'000 GBP'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 29 March
2022 2021
GBP'000 GBP'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 29 March
2022 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 29 March
2022 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 share 74,976,664 74,392,974
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 29 March
2022 2021
GBP'000 GBP'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
consideration net of settlement - 3,868
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
GBP'000 GBP'000
-------------------------- ------------- -------------
Cash and cash equivalents 39,846 85,148
--------------------------- ------------- -------------
(c) Analysis of movement in net cash
Non-cash 28 March
29 March 2021 Cash flows movements 2022
GBP'000 GBP'000 GBP'000 GBP'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 GBP0.4 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 GBP5,850,000 were
received on 5 May 2022, with estimated costs and commissions of
GBP200,000 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 plc
Naked Wines
==================== ======================================================
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 These are the revenues derived from orders
sales 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 TAM represents the available market which
Market (TAM) 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 % of "Yes" scores in the last 12 months as
it again" ratings 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 The Investment in New Customers during the
Customers year, including contribution profit/loss
from New Customer sales and advertising costs.
========================= ====================================================
New Customer Contribution The contribution earned from sales to New
loss Customers.
========================= ====================================================
5-Year Forecast The ratio of projected future repeat contribution
Payback 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 The profit attributable to sales meeting
Contribution profit the definition of sales to Repeat Customers
after fulfilment and service costs.
========================= ====================================================
Repeat Customer The proportion of sales made to customers
sales retention who met our definition of "Repeat" last year
that were realised again this year from the
same customers. Using 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
GBPm GBPm
--------------------------------------------- -------------- --------------
Adjusted EBIT 2.0 (1.5)
Add back depreciation and amortisation
(excludes adjusted amortisation of acquired
intangibles) 2.3 1.7
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 29 March 28 March
2022 2021 2022
GBPm GBPm GBPm
------------------------------------ ---------- ---------- ------------
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 GBP1.3 million
amortisation, GBP1.1 million fair value adjustments, GBP0.1 million
adjustment for foreign exchange revaluations and GBP3.0 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.
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END
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