Naked Wines Plc · LSE:WINE
Naked Wines — FY2023 Earnings Presentation
49 slides from Naked Wines's earnings presentation, Sep 19, 2023
Slide 1: FY23 Results Presentation
FY23 Results Presentation 19th September 2023
Slide 2: Disclaimer
Disclaimer This presentation (the “Presentation”) has been produced for discussion purposes only. The information contained in the Presentation is not intended for any other use. The Presentation is being made only to, and is only directed at, persons to whom it may lawfully be communicated (“releva
Slide 3: Introduction
Introduction Nick Devlin Group CEO Our Winemakers: Nicky & Peter Parish
Slide 4: Top four questions you might have
Top four questions you might have Are you going to run out We believe we’ve taken enough action on cost and inventory commitments to not of cash? only manage through our near-term period of low liquidity, but also come out as a leaner and tougher competitor Trading was below expectations during Q1.
Slide 5: Financial Review
Financial Review James Crawford Group CFO Our Winemakers: Carmen Stevens, Dominic Hentall and Benjamin Darnault
Slide 6: Where are we? The bad and the good
Where are we? The bad … & … the good We are profitable but not yet sustainably profitable Existing customers are performing well in terms of because we are not recruiting enough new subscribers. customer retention and revenue per customer To become so, may require us to be a smaller business Trading
Slide 7: Where are we? The bad and the good
Where are we? The bad … & … the good We are profitable but not yet sustainably profitable Existing customers are performing well in terms of because we are not recruiting enough new subscribers. customer retention and revenue per customer To become so, may require us to be a smaller business. Tradin
Slide 8: We are profitable, but not sustainably profitable
We are profitable, but not sustainably profitable: We delivered too much profit due to low levels of new customer investment Drivers of adjusted EBIT movement… 23.9 • Underspend in customer acquisition resulted in excess 0.1 profitability (8.0) (0.7) 1.1 17.4 (0.4) 16.3 (2.1) • Non-cash impairments
Slide 9: Existing customer performance is sound
Existing customer performance is sound Customer retention is improving… ...and revenue per customer has been growing Monthly attrition rate, 3 month average Revenue per Angel YoY Trend: Trailing 3 month 0% 20% 15% -2% 10% -4% 5% 0% -6% -5% -8% -10% -10% -15% -20% -12% -25% -14% -30% Jan-20 Jan-21 Ja
Slide 10: We are just not recruiting enough new Angels
We are just not recruiting enough new Angels Change in Angel base Cancels as a % 2,500 of Opening plus new Angels 53% 2,000 1,350 50% 828 1,500 44% 397 1,000 915 873 (1,027) (870) 707 592 (563) 500 0 FY21 New Angels Cancellations FY21 New Angels Cancellations FY22 New Angels Cancellations FY23 Openi
Slide 11: We have stabilised payback at proforma 1.9x once contracted savings are factored in
We have stabilised payback at proforma 1.9x once contracted savings are factored in Payback by HY as scoring at FY23 YE FY23 Reported Payback to Pro-forma Payback 3.5x 2.0x 3.0x 0.2x 1.9x 1.9x 2.5x 1.9x 2.0x 1.5x 1.8x 1.0x 1.8x 0.5x 1.7x 1.7x 0.0x FY18 - H1 FY18 - H2 FY19 - H1 FY19 - H2 FY20 - H1 FY
Slide 12: Where are we? The bad and the good
Where are we? The bad … & … the good We are profitable but not yet sustainably profitable Existing customers are performing well in terms of because we are not recruiting enough new subscribers. customer retention and revenue per customer To become so, may require us to be a smaller business. Tradin
Slide 13: FY24 guidance reflects trends and actions to deliver profit and cash
FY24 guidance reflects trends and actions to deliver profit and cash Moderate revenue decline… : • We expect revenue to decline 8% - 12%1 in FY24 • Driven by £23-27m of new customer investment • Generating a repeat contribution of £72-80m … combined with cost moderation… : • Underlying G&A costs (in
Slide 14: Costs are being aligned to revenue trends, securing profitability
Costs are being aligned to revenue trends, securing profitability Total G&A Costs by type 30.0 25.0 We reduced run rate costs across countries and at group: 20.0 15.0 • Reversed a climbing trend evident in late FY24 10.0 • Executing savings to offset material wage inflation 5.0 0.0 • Aiming to maint
Slide 15: Stock commitments are set to drive destock and cashflow
While stock commitments are set to drive destock and cashflow Wine intake vs. COGS1 (inverted) bi-annually2 140 We are delivering on our destocking plan: 120 • Reduced intake through rephasing and renegotiating 100 arrangements with winemakers Millions 80 • Liquidating excess inventory through bulk
Slide 16: Where are we? The bad and the good
Where are we? The bad … & … the good We are profitable but not yet sustainably profitable Existing customers are performing well in terms of because we are not recruiting enough new subscribers. customer retention and revenue per customer To become so, may require us to be a smaller business. Tradin
Slide 17: Of the £96m stock build since FY20, £41m is overstock
Of the £96m stock build since FY20, £41m is overstock 200 180 41 166 160 -10 140 17 120 48 100 80 70 60 £41m of the inventory build is overstock, the rest is a function of 40 growth and building a luxury range in the USA 20 0 FY20 Closing Growth Luxury WIP Overstock Provision FY23 Closing Inventory
Slide 18: This overstock has consumed the cash generated in FY20/21
This overstock has consumed the cash generated in FY20/21 Inventory build (£m) 250.0 200.0 £96m of inventory build, since 150.0 2020, financed by: 100.0 ● Angel funds: £29m 50.0 ● Payables: £12m ● Cash: £55m 0.0 (50.0) (100.0) (150.0) Large accumulation of cash in FY21 Mar-20 Mar-21 Mar-22 Mar-23 du
Slide 19: Baseline and downside scenarios forecast destock and liquidity improvements
Both our baseline and downside scenarios forecast destock and liquidity improvements over the next 12 months Group inventory balance (£m) 225 • Inventory reduction will 200 generate cash 175 150 • Anticipate substantial increase in liquidity during H2’24 and 125 FY25 100 75 • Destock plan strikes ba
Slide 20: Angel funds and ABL are stable while we work through excess stock
Angel funds and ABL are stable while we work through excess stock Credit facility secure with revised covenants: Angel balances remain predictable, with low withdrawals: • Facility transferred with SVB sale to First Citizens Total Angel balance (£m) and withdrawals (as a % of balance) • Amended in S
Slide 21: In Summary…
In Summary… • Trading is tough - Especially new customer recruitment - Positive trends in subscriber retention and spending patterns • We have taken, and continue to take actions necessary to: - To cut costs - To cut commitments - To address our funding • We have a profitable and cash generative bus
Slide 22: FY24 Outlook and beyond
FY24 Outlook and beyond Nick Devlin Group CEO
Slide 23: The Next Stage
The Next Stage Profitable Growth Profit Growth 2008-23 2023 2024 onwards 23 Naked Wines plc 2023 Full Year Results Presentation
Slide 24: We expect to be profitable and cash generative, despite trading conditions
Summary: We expect to be profitable and cash generative, despite trading conditions Why? We’ve taken steps We don’t have a sales needed to “right-size” £10m of savings from problem, we have a new inventory against SG&A & Variable costs customer problem conservative demand already secured plan This d
Slide 25: Commitments: inventory levels back in line by end of FY25
Commitments: We are committed to ensuring inventory levels back in line by end of FY25 Commitments & Inventory Reduction • Inventory intake and commitment reduction on schedule from “Pivot to Profit” plan • However, more aggressive action required given: – Q1 trading below our initial plan – Global
Slide 26: Costs: £10m target for FY25 cost savings secured
Costs: £10m target for FY25 cost savings secured; opportunity to deliver further savings being pursued Secured to Cost Base Opportunity Size of Prize Date Supply Chain UK Warehouse £3m (FY25) 100% One-time costs of delivery in FY24; savings begin April 2024 US 3PL £6m 50% Revised contract structure
Slide 27: Guardrails to ensure we don't repeat our mistakes
Guardrails: We’ve put in place a series of guardrails to ensure we don’t repeat our mistakes ● Base mid-term around planning assumption of 5% sales growth from FY25 onwards - a base level that we need to create sustained value Distil key lessons of ● Create a hard link between scale & SG&A levels co
Slide 28: Guardrails will deliver profits and cash generation
Guardrails: Guardrails will deliver profits and cash generation whether or not we can fix our customer acquisition problem FY24-26 New customer acquisition Cumulative Implied Payback FY26 Sales FY26 EBIT assumption Operating Cashflow Structurally harder than pre- 1.5 - 1.75x ~£280-300m ~£10m ~£70m C
Slide 29: Sales: how big is the new customer acquisition problem?
Sales: So how big is the new customer acquisition problem? The bad … & … the good ● We are not recruiting enough new members to ● Improving member retention rates mean that the maintain our member base gap to close is shrinking ● Payback levels have fallen vs pre-pandemic in key ● Our plans to resto
Slide 30: What are we going to do about it
What are we going to do about it: We are not waiting around for the economy to recover Optimising current Increase TAM Reducing variable costs & Channels covering COGS inflation We are taking steps to increase TAM We are taking steps to: and customer quality by expanding We are cutting variable cost
Slide 31: What have we learned from this?
What have we learned from this? We thought Covid changed the world, and To prevent this from happening again, we have didn’t have a contingency introduced new guardrails outlined today in case we were wrong We followed sales down, We have right sized our cost base and our commitments, rather than ge
Slide 32: Personally committed to making this work
Personally committed to making this work I have led Naked through a period of rapid growth and subsequent volatility - I am personally committed to resolving our current challenges and seeing Naked realise it’s potential: • High degree of confidence that we can rapidly rebuild to a profitable and ca
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Slide 34: Appendices
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Slide 35: Income statement shows growth in revenue and adj. EBIT
Income statement shows growth in revenue and adj. EBIT As reported 52 week comparable FY23 FY22 YoY FY23 FY22 YoY £m £m % £m £m % Revenue 354.0 350.3 1% 343.7 373.2 -8% Cost of sales (205.7) (208.6) -1% (181.7) (219.8) -17% Gross profit pre inventory provision 148.3 141.7 5% 162.0 153.4 6% Inventory
Slide 36: Payback progression
Payback progression 36 Naked Wines plc 2023 Full Year Results Presentation
Slide 37: Contribution to adjusted EBIT bridge
Contribution to adjusted EBIT bridge 100.0 90.0 86.5 0.3 80.0 70.0 (21.4) 60.0 50.0 40.0 30.0 20.0 (42.6) 17.4 (5.4) 10.0 0.0 Repeat Customer Other Contribution Investment in General & R&D Spend Adjusted EBIT Contribution Profit New Customers Administrative Expenses 37 Naked Wines plc 2023 Full Year
Slide 38: Sales retention
Sales retention Sales Retention components over time 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Retained Angel retention Growth in sales per Retained Angel Sales Retention 38 Naked Wines plc 2023 Full Year Results Presentation
Slide 39: Contribution by cohort
Contribution by cohort NW Group Contribution by Cohort 100.0 90.0 11.6 80.0 7.4 28.9 70.0 17.6 60.0 35.1 50.0 7.6 20.1 23.6 40.0 5.3 13.1 12.0 4.1 10.5 30.0 11.5 9.0 5.2 12.5 7.7 8.4 7.4 6.3 20.0 4.0 11.1 8.9 5.9 7.0 6.6 5.0 8.2 5.3 2.8 10.0 6.4 4.6 10.0 7.5 5.3 5.1 4.3 5.9 4.8 3.8 6.5 5.2 4.2 4.0 3
Slide 40: Investment trend has been downwards, most notably in digital channels
Investment trend has been downwards, most notably in digital channels New Investment £m by spend type FY22 & FY23 New Investment (£m) YoY Investment by Channel (£m) 50.0 50 25 45.0 45 40.0 6.8 40 20 35.0 35 30.0 30 15 25.0 25 FY22 20.0 37.8 3.7 20 10 FY23 15.0 15 10.0 10 5 17.8 5.0 5 0.0 0 0 FY22 FY
Slide 41: Standstill EBIT
Standstill EBIT FY22 to FY23 SS EBIT bridge 25.0 21.2 0.3 20.0 15.0 10.0 5.0 0.0 (24.7) (5.0) (2.6) (5.8) (10.0) FY22 SS EBIT Repeat Contribution Replenishment costs General & FY23 SS EBIT Administrative Costs 41 Naked Wines plc 2023 Full Year Results Presentation
Slide 42: Country Segmental Data - US
Country Segmental Data - US US Segment (£m) 52- week comparable FY23 FY22 YoY% New Customer sales 16.8 19.8 -15% Repeat Customer sales 144.1 157.0 -8% Other Revenue 3.2 1.3 146% Total Sales 164.1 178.1 -8% Investment in new customers (14.4) (26.3) -45% Repeat Customer Contribution profit 49.1 52.7 -
Slide 43: Country Segmental Data - UK
Country Segmental Data - UK UK Segment (£m) 52- week comparable FY23 FY22 YoY% New Customer sales 6.0 11.3 -47% Repeat Customer sales 129.2 135.6 -5% Total Sales 135.2 146.9 -8% Investment in new customers (3.4) (13.5) -75% Repeat Customer Contribution profit 24.9 28.2 -12% Repeat Customer Contribut
Slide 44: Country Segmental Data - Australia
Country Segmental Data - Australia Australia Segment (£m) 52- week comparable FY23 FY22 YoY% New Customer sales 3.2 5.4 -41% Repeat Customer sales 41.2 42.8 -4% Total Sales 44.4 48.2 -8% Investment in new customers (2.9) (4.8) -40% Repeat Customer Contribution profit 10.8 11.9 -9% Repeat Customer Co
Slide 45: Country Segmental Data - Central
Country Segmental Data - Central Central (£m) 52- week comparable FY23 FY22 YoY% General and administrative costs (24.7) (17.6) 37% Adjusted EBIT (24.7) (17.6) 37% 45 Naked Wines plc 2023 Full Year Results Presentation
Slide 46: Glossary of terms
Glossary of terms Alternative performance measures Adjusted EBIT Operating profit adjusted for amortisation of acquired intangibles, acquisition costs, impairment of goodwill, restructuring costs, fair value movement through the income statement on financial instruments and revaluation of funding ca
Slide 47: Glossary of terms (continued)
Glossary of terms (continued) Investment measures 5-Year Forecast Payback The ratio of projected future Repeat Customer contribution we expect to earn from the new customers recruited in the year, divided by the Investment in New Customers. We forecast contribution at a customer level using a machin
Slide 48: Glossary of terms (continued)
Glossary of terms (continued) Customer experience KPIs 5* customer service The percentage of feedback ratings received by our Customer Happiness teams that expressed 5* satisfaction on a scale of 1 to 5. Product availability The average percentage of products we have defined as core to the portfolio
Slide 49: Glossary of terms (continued)
Glossary of terms (continued) Definitions AGM Annual General Meeting Angel A customer who deposits funds into their account each month to spend on the wines on our website. CAGR Compound annual growth rate. The year-on-year growth rate required for a number of years for a value to grow from its begi