Naked Wines Plc · LSE:WINE
Naked Wines — FY2020 Earnings Presentation
56 slides from Naked Wines's earnings presentation, Jun 24, 2020
Slide 1: Delivering growth, opportunity accelerated
Delivering growth, opportunity accelerated FY20 Results Presentation 24 June 2020 Winemaker: Carmen Stevens, South Africa
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: Overview: Delivering growth, opportunity accelerated
Overview: Delivering growth, opportunity accelerated • FY20 results marginally ahead of expectations – 14% revenue growth • Significant improvement in sales retention and 20-year payback metrics driven by strong second half and COVID acceleration in final weeks of year – 83% sales retention – 4.9x 2
Slide 4: James Crawford, Group CFO
James Crawford Group CFO Winemaker: Tom Puyabert, Spain
Slide 5: A reshaped, well funded, asset-light group
A reshaped, well funded, asset-light group Net Asset Base (exc. Intangibles) (£m) Reduced asset base 100 • Divested of fixed assets: Majestic stores 80 • Reduced working capital 60 Net other assets Converts to cash 40 Net working capital Deferred consideration / • £55m cash on hand at year end 20 as
Slide 6: Business model delivering consistently
Business model delivering consistently Repeat Repeat customer Active Sales contribution sales Angels Investment Payback retention +14% +15% +2ppts +11% +20% +0.8x to £203m to £45.7m to 83% to 594k to £22.9m to 4.9x Future value generated £112m; +43% 6 Naked Wines plc 2020 Full Year Results Presentat
Slide 7: Largest market, USA, delivering fastest growth
Largest market, USA, delivering fastest growth • US market clear leader in both scale and growth FY20 SALES FY20 SALES GROWTH • Growth accelerated into H2 in main markets – Returned to growth in investment 39% 16% 20% – COVID acceleration late March • Maintained investment discipline in Australia 11
Slide 8: Repeat customer growth driving adj EBIT improvement
Repeat customer growth driving adj EBIT improvement NAKED WINES PLC FY20 vs FY19 (£m) 3.0 2.0 2.3 Growth in Repeat 1.0 Customers (3.8) Increased 0.0 contribution per Repeat 3.6 Customer (1.4) (1.0) (3.0) Increased (0.5) New Customer Change in (2.0) Investment Fixed Costs (3.0) FY19 FY20 EBIT EBIT 8
Slide 9: Repeat contribution growth driven by strong retention and investment payback
Repeat contribution growth driven by strong retention and investment payback REPEAT CUSTOMER CONTRIBUTION BY ACQUISITION COHORT (£m) 60.0 Investment in new customers 7.8 8.9 11.1 15.4 14.6 19.1 22.9 50.0 Year 1 payback 81% 109% 97% 79% 78% 67% 7.4 40.0 % contribution 5.1 FY20 retained in FY20 12.8 4
Slide 10: … translating to attractive paybacks
… translating to attractive paybacks Payback Age at 5 year 20 year Payback Cohort reporting date (Forecast) (Forecast) to date FY16 49-60 months 3.1x (actual) 6.3x 3.1x FY17 37-48 months 2.5x 5.2x 2.1x FY18 25-36 months 2.5x 5.1x 1.6x FY19 13-24 months 2.3x 4.4x 0.9x FY20 0-12 months 2.6x 4.9x 0.3x
Slide 11: Investment plans determined from payback
Investment plans determined from payback NEW CUSTOMER INVESTMENT AND PAYBACK Development during FY20 5.5x 24.0 22.9 23.0 5.0x Payback measured at FY20 FY Investment 22.0 4.9x 4.5x 21.0 4.2x £m 20.0 4.0x Goldilocks Payback measured at FY20 H1 3.8x payback range 19.0 3.7x 3.5x H1 payback was trending
Slide 12: Fixed costs below guidance
Fixed costs below guidance FIXED COSTS (£m) 30 30% 25 FY21 25% • FY20 growth at bottom end of guided range 20 20% – Phasing of new hires – Reduced variable 15 15% compensation • Will unwind into FY21 10 10% 5 5% 0 0% FY18 FY19 FY20 Fixed costs Fixed costs growth Sales growth 12 Naked Wines plc 2020
Slide 13: 60% growth in Standstill EBIT, 17% exc. COVID
60% growth in Standstill EBIT, 17% exc. COVID STANDSTILL EBIT (£m) • Standstill (SS) EBIT = EBIT excluding investment that drives growth • We have normalised for estimated COVID COVID impact (3.6) impact – Significant impact on this metric 5.1 2.8 10.1 as impacts all components of (0.5) calculation
Slide 14: Continuing business cash consumption is modest
Continuing business cash consumption is modest Total For the year ended (£m) FY18 FY19 FY20 FY18-20 Repeat contribution 33.8 39.8 45.7 120.0 New customer investment (14.0) (19.1) (22.9) (56.5) Fixed costs (18.3) (23.7) (24.2) (66.4) Adjusted EBIT 1.5 (3.0) (1.4) (2.9) Addback depreciation 0.4 0.6 1.
Slide 15: Current trading (to end P2) showing continued acceleration
Current trading (to end P2) showing continued acceleration New Investment Repeat Total customer in new customer Sales sales customers sales +81% +256% +115% +50% Note: Growth rates are in comparison to end P2 YoY. We are providing a one-off update on current trading as a result of the COVID pandemic
Slide 16: Cost guidance
Cost guidance 1. Not providing full FY21 guidance due to COVID-19 2. £3m R&D fund – Supports marketing channel expansion – Reported centrally, excluded from payback calculations – Any “production” spend reported in new customer contribution 3. £28m - £30m fixed costs (exc. R&D) – £4m - £6m uplift ye
Slide 17: Nick Devlin, Group CEO
Nick Devlin Group CEO Winemaker: Eddy Naim, Lebanon
Slide 18: COVID-19 Update, Growth Opportunity, Areas of Strategic Focus
COVID-19 THE AREAS OF UPDATE GROWTH STRATEGIC OPPORTUNITY FOCUS 18 Naked Wines plc 2020 Full Year Results Presentation
Slide 19: COVID-19 update
COVID-19 UPDATE COVID-19 update People first Driving scale Early signs positive Medium term upside • Focus on staff, • Driving increased • New members • COVID-19 customers & sales early in Q1 performing as accelerated trends winemakers forecasted to online • Robust infrastructure • Giving back to sc
Slide 20: Looking after our people and communities
COVID-19 UPDATE Looking after our people and communities • Safeguarding our employees and supply chain: – Social distancing in warehouses – Teams and customer service working from home – Achieved with minimal impact to customer experience • Giving back & supporting our communities: – UK: 23,000 meal
Slide 21: Early signs from new cohorts encouraging
COVID-19 UPDATE Early signs from new cohorts encouraging • Too early to be definitive but ‘no red flags’ on cohort quality • Early indicators show: – No elevated cancel rates – Higher rates of repurchase in early months – Higher early contribution per joining Angel • Remain prudent in outlook as we
Slide 22: Well positioned for the long term
COVID-19 UPDATE Well positioned for the long term Demand Supply Marketing Naked well positioned with strong balance sheet to take advantage of • At home drinking likely to • COVID-19 restrictions will • Lower CPCs / CPMs as investment continue taking share from limit On-Premise venues weakened playe
Slide 23: COVID-19 Update, Growth Opportunity, Areas of Strategic Focus
COVID-19 THE AREAS OF UPDATE GROWTH STRATEGIC OPPORTUNITY FOCUS 23 Naked Wines plc 2020 Full Year Results Presentation
Slide 24: Naked serves a TAM of $20bn in the US
THE GROWTH OPPORTUNITY Naked serves a TAM of $20bn in the US Large addressable market Naked in the fastest growing sector1 US WINE MARKET CHANNEL SHARE US Direct to Consumer (‘DTC’) Market value ($bn) 6.0 US Market 5.0 Total US Off-premise wine $40bn 4.0 3.0 Naked Addressable $20bn 2.0 1.0 0.0 2011
Slide 25: COVID is accelerating shift towards online
THE GROWTH OPPORTUNITY COVID is accelerating shift towards online 20 years of channel shift in 1 month Increased pace of channel migration will accelerate Naked growth US WINE MARKET CHANNEL SHARE • US wine market has lagged other US retail categories and UK in pace of online migration • Unfamiliari
Slide 26: We have an advantaged model vs competitors
THE GROWTH OPPORTUNITY We have an advantaged model vs competitors Advantaged Positioned to be Substantial barriers direct model online winner to entry • Access to >90% of US • No physical legacy • Category leading US wine drinking population distribution network • Rich customer operating at scale •
Slide 27: Which translates into better products . . .
THE GROWTH OPPORTUNITY Which translates into better products . . . NAKED PRICING VS VIVINO MARKET AVERAGE (red wine) Average $80 price $60 Naked provides better value by offering a lower price at each quality level The price differential widens at $40 Average price on Vivino higher price points $20
Slide 28: . . . and market share
THE GROWTH OPPORTUNITY . . . and market share NAKED’S US VOLUME SHARE OF DTC WINE MARKET • Naked is #1 DTC Wine company in USA • Gaining share 2019 to 2020...with further 17.0% share gain during COVID-19 14.5% • Naked shipped 1 in 6 bottles shipped DTC 12.9% in March 2020 • Naked accounted for 30% o
Slide 29: COVID-19 Update, Growth Opportunity, Areas of Strategic Focus
COVID-19 THE AREAS OF UPDATE GROWTH STRATEGIC OPPORTUNITY FOCUS 29 Naked Wines plc 2020 Full Year Results Presentation
Slide 30: There are 3 pillars to our growth plan
AREAS OF STRATEGIC FOCUS There are 3 pillars to our growth plan 1 Improve proposition to increase LTV IMPROVE ECONOMICS Improved economics 2 Harness scale efficiency help unlock new channels to drive LTV NEW CHANNELS 3 Unlock new investment channels 30 Naked Wines plc 2020 Full Year Results Presenta
Slide 31: Enhancing the core proposition in 2020
AREAS OF STRATEGIC FOCUS Enhancing the core proposition in 2020 Optimising new Enhanced Improved shipping and customer proposition subscriptions delivery experience Testing: Optimizing: 2020 projects include: • Initial wine curation • Customer experience • Increasing customer choice • Proposition cl
Slide 32: Early testing of ‘Never Miss Out’ & 7-day fulfillment
AREAS OF STRATEGIC FOCUS Early testing of ‘Never Miss Out’ & 7-day fulfillment Value in increasing speed to customer of first order Never Miss Out Naked USA has a 15% average category leading uptake rate fulfilment capability Moving to 7-day a week picking model will 100k active smooth actual time s
Slide 33: Delivering our goal to recruit world’s best winemakers
AREAS OF STRATEGIC FOCUS Delivering our goal to recruit world’s best winemakers Winemaker: Winemaker: Winemaker: Winemaker: Jesse Katz, USA Josh Pfeiffer, Australia Tom Rinaldi, USA Jennifer Buck, France 33 Naked Wines plc 2020 Full Year Results Presentation
Slide 34: There are 3 pillars to our growth plan
AREAS OF STRATEGIC FOCUS There are 3 pillars to our growth plan 1 Improve proposition to increase LTV IMPROVE ECONOMICS Improved economics 2 Harness scale efficiency help unlock new channels to drive LTV NEW CHANNELS 3 Unlock new investment channels 34 Naked Wines plc 2020 Full Year Results Presenta
Slide 35: Naked ops configured for scale efficiency
AREAS OF STRATEGIC FOCUS Naked ops configured for scale efficiency Negotiated leverage Warehouse efficiency Storage efficiency Customer service • Warehouse / 3PL • Fixed site rent leverage • Faster stock turn • Critical mass for contracts efficient teams • Improved labor • Lower warehouse • Final mi
Slide 36: L2M has provided a snapshot of ‘Naked at scale’ in the USA
AREAS OF STRATEGIC FOCUS L2M has provided a snapshot of ‘Naked at scale’ in the USA USA FIXED COST / SALES (%) USA FULFILMENT COSTS / ORDER ($) 2.6% 18% FY20 COVID FY20 COVID (April / May 20) (April / May 20) • Rapid growth in demand has offered a snapshot of potential for scale to transform US econ
Slide 37: Savings unlock payback and growth upside
AREAS OF STRATEGIC FOCUS Savings unlock payback and growth upside Naked USA: PAYBACK IMPACT OF VARIABLE COST / ORDER SAVINGS Range of 1.3x improvement seen during COVID period to date 0.9x 0.7x 0.6x 0.5x • Variable savings drive payback via 0.3x lower CAC and increased LTV 0.3x 1.3x 0.2x • Savings l
Slide 38: There are 3 pillars to our growth plan
AREAS OF STRATEGIC FOCUS There are 3 pillars to our growth plan 1 Improve proposition to increase LTV IMPROVE ECONOMICS Improved economics 2 Harness scale efficiency help unlock new channels to drive LTV NEW CHANNELS 3 Unlock new investment channels 38 Naked Wines plc 2020 Full Year Results Presenta
Slide 39: Substantial headroom for increased investment
AREAS OF STRATEGIC FOCUS Substantial headroom for increased investment SELECTED USA DTC LEADERS MARKETING INVESTMENT 1 • We are currently subscale in customer acquisition vs US peers $308m • Massive headroom in US but also scope for growth in UK / Australia • When capital constrained, we deployed $1
Slide 40: And multiple direct response channels to add
AREAS OF STRATEGIC FOCUS And multiple direct response channels to add Naked Peers Partner Insert Marketing Facebook, Google Value / size of the channel Strategic Partnerships Paid Influencer Affiliate Direct Mail DR TV Native, Display, Podcast, Outdoor, Print Media, YouTube, Lead Gen 40 Naked Wines
Slide 41: Proprietary customer LTV modelling is a key capability
AREAS OF STRATEGIC FOCUS Proprietary customer LTV modelling is a key capability Naked Customer Valuation Performance We have . . . Partner 1 • Refined our investment approach Rapidly identifies high • Improved early warning systems Partner 2 quality audiences allowing us to bid more • Developed effe
Slide 42: Significant investment potential
AREAS OF STRATEGIC FOCUS Significant investment potential Capital allocation policy unchanged 1. Maintain a healthy balance sheet • Cash reserves are a strategic advantage 2. Invest in growth in a disciplined way • Significant headroom and opportunity to 3. Return funds in excess of those needed acc
Slide 43: In Summary
In Summary • Differentiated proposition delivering superior value to customers • Clear and proven investment strategy • Large US market opportunity • COVID-19 has amplified favorable trends supporting our business • Strong balance sheet to pursue opportunities for faster growth Naked ideally placed
Slide 44: Q&A
Q&A Winemaker: Johan Kruger, South Africa
Slide 45: Appendices
Appendices Winemaker: Charles & Ruth Simpson, France
Slide 46: Presentational updates
Presentational updates 1. Including 5-year paybacks as well as 20-year paybacks 2. Adjusted EBIT definition will INCLUDE Share based payment charges in future (c. £1m p.a. cost) 3. Focusing on reported growth measures - Underlying movements to be commented only if material 46 Naked Wines plc 2020 Fu
Slide 47: Income Statement
Income Statement £m FY20 FY19 YoY % New customers Revenue 29.2 25.5 14.6% Contribution (22.9) (19.1) 20.0% Repeat customers Revenue 173.7 152.9 13.6% Contribution 45.7 39.8 14.7% Fixed costs (24.2) (23.7) 2.3% Adjusted EBIT (1.4) (3.0) (51.6%) Finance charges (0.5) (0.8) (36.7%) Adjusted loss before
Slide 48: Summary balance sheet and Free Cash Flow drivers
Summary balance sheet and Free Cash Flow drivers For the year ended (£m) FY18 FY19 FY20 Non-current assets 45.7 41.9 59.7 - Intangibles 42.7 39.1 36.0 - Others 3.0 2.8 23.5 Non-Current Liabilities (14.8) (22.6) (5.8) Working capital Inventory 41.7 56.1 69.9 Other current assets 6.5 6.2 5.4 Customer
Slide 49: Revenue by geography
Revenue by geography Underlying £m FY20 FY19 YoY % UK 80.0 71.8 11.4% US 90.9 75.7 20.2% Australia 32.0 31.0 3.4% Total revenue 202.9 178.4 13.7% Revenue by customer group: New customers 29.2 25.5 14.6% Repeat customers 173.7 152.9 13.6% 49 Naked Wines plc 2020 Full Year Results Presentation
Slide 50: Standstill EBIT
Standstill EBIT £m FY18 FY19 FY20 Repeat contribution 33.8 39.8 45.7 Sales Retention 83.2% 80.7% 83.3% Repeat contribution lost to attrition 5.7 7.7 7.6 Year 1 payback (from PY cohort) 81.2% 78.0% 67.0% Spend to replenish lost repeat contribution 7.0 9.8 11.4 SS EBIT is calculated as Repeat contribu
Slide 51: Payback
Payback HISTORIC PAYBACK STABILITY Initial Latest Cohort payback forecast forecast Change FY17 4.5x 5.2x +0.7x FY18 4.6x 5.1x +0.5x FY19 4.0x 4.4x +0.4x 51 Naked Wines plc 2020 Full Year Results Presentation
Slide 52: IFRS16 impact
IFRS16 impact Continuing operations Loss on Depreciation disposal Finance Net lease Total of lease charges payments £’000 £’000 £’000 £’000 £’000 Cost of sales 234 - - (246) (12) Distribution costs 306 8 - (332) (18) Administrative expenses 623 - - (685) (62) Operating loss/(profit) 1,163 8 - (1,263
Slide 53: Glossary of terms
Glossary of terms Alternative performance measures Adjusted EBIT Operating profit adjusted for amortisation of acquired intangibles, acquisition costs, share based payment charges, impairment of goodwill, restructuring costs and fair value movement through the income statement on financial instrumen
Slide 54: Glossary of terms (continued)
Glossary of terms (continued) Investment measures Investment in new customers The contribution earned from sales to new customers. (also referred to as new customer contribution) Lifetime Payback The ratio of the Lifetime value (see below) of the customers recruited this year to the investment we ma
Slide 55: Glossary of terms (continued)
Glossary of terms (continued) Definitions Angel A customer who deposits funds into their Angel 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 beginning balance to its
Slide 56: Glossary of terms (continued)
Glossary of terms (continued) Operational KPIs Product availability % of targeted range available on websites as indicated by our inventory reporting. Wine quality – “Buy it % of “Yes” scores in the last 12 months as recorded by websites/ apps again ratings” Service ratings – “5* The number of servi