Naked Wines Plc · LSE:WINE
Naked Wines — H1 FY2023 Earnings Presentation
49 slides from Naked Wines's earnings presentation, Dec 7, 2022
Slide 1: H1'23 Results Presentation
H1’23 Results Presentation Results for the 26 weeks ended 26 September 2022 Our Winemakers: Australia
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: New Zealand
Slide 4: On the agenda today
On the agenda today Pivot to Our Mission to Profitability H1’22 Results Disrupt the Highlights Wine Industry The Pivot to Profit H1’23 Results The long-term Highlights growth opportunity 4 Naked Wines plc 2023 Half Year Results Presentation
Slide 5: Naked exists to solve problems for winemakers & wine drinkers
Naked exists to solve problems for winemakers & wine drinkers CONSUMER WINEMAKER Value Exclusivity Autonomy Reward Quality / value Exclusive access to world Creative freedom Scale rapidly advantage class wines Own brand Access 934k Angels Satisfaction and Personalised Self employed High income poten
Slide 6: Pivot to profit delivers the mission in challenging conditions
Pivot to profit delivers the mission in challenging conditions Our mission: To connect everyday wine drinkers with the world’s best independent winemakers Secured liquidity: Increased Business Model Long Term Profitability: Robust: Opportunity: • Net cash & substantial • Marketing spend • Establishe
Slide 7: Financial Review
Financial Review James Crawford Group CFO Our Winemakers: New Zealand
Slide 8: Performance supporting change in approach
Performance supporting change in approach ● Solid revenue and Adj. EBIT performance shows benefits of international footprint ● Balance sheet supports strategy following covenant renegotiation ● Demonstrating ability to drive up value per order despite inflation ● Payback enhancement being delivered
Slide 9: H1'23 Trading is robust, demonstrates profit potential
H1’23 Trading is robust, demonstrates profit potential Group Sales Investment in New Customers General & Admin Costs Adjusted EBIT (£ million) (£ million) (£ million) (£ million) 165.8 159.3 21.3 4.6 25.5 18.8 11.7 1.2 H1'22 H1'23 H1'22 H1'23 H1'22 H1'23 H1'22 H1'23 Reported CCY Reported CCY Reporte
Slide 10: Destock to come with inventory well below COGS
Destock to come with inventory well below COGS Group inventory commitments (£m) End P8 FY23 £160 • H1’23 cash use due to inventory build £140 • Cash consumption expected during £120 H2’23 Uncommitted £100 • Future inventory commitments materially Commitments at P8'23 £80 lower than COGS 1 Indicative
Slide 11: Customer balances stable with reducing levels of withdrawals
Customer balances stable with reducing levels of withdrawals Total Angel balance (£m) and withdrawals (as a % of balance) £90 30% £80 25% £70 £60 20% £50 Opening Balance 15% £40 Monthly withdrawal L6M Withdrawal £30 10% £20 5% £10 £ 0% Mar 2018 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Jul 2018 Jul 2019 J
Slide 12: Repeat contribution margins protected with price increases
Repeat contribution margins protected with price increases FY’23E vs FY22 • Repeat contribution margins under pressure Average Repeat Order Value (AOV) +6% from inflation: ○ Logistics ○ Labour COGS per order +3% • Positive pricing and other actions drive higher gross margins to offset this Gross pro
Slide 13: Spend reduction restoring paybacks after pandemic scale-up
Spend reduction restoring paybacks after pandemic scale-up Rolling 3 month: New Customer Investment & Payback Pre-pandemic: 18 £14m p.a. 5.0x Fulfilment cost inflation and post- Run rate delivering c. 16 pandemic normalisation 4.5x of 2.25x payback behaviour reduces payback and 4.0x 14 viable spend
Slide 14: Notable lift in Q2 with lower CAC and higher forecast LTV
Notable lift in Q2 with lower CAC and higher forecast LTV Payback by month FY23 Q2 vs Q1 Payback 3.0x 2.5x 0.1x 1.9x 0.3x 2.0x 1.5x CY 1.5x PY 1.0x 0.5x 0.0x Apr/22 May/22 Jun/22 Jul/22 Aug/22 Sep/22 Q1 Cost per joiner LTV per joiner Q2 14 Naked Wines plc 2023 Half Year Results Presentation
Slide 15: Improved year on year LTV forecast visible in early data
Improved year on year LTV forecast visible in early data Group Cumulative sales/joiner Group Cumulative cont/joiner 50 14 40 12 10 30 8 20 6 4 10 2 0 0 30 Days 60 Days 90 Days 120 Days 30 Days 60 Days 90 Days 120 Days FY22 Sales per joiner FY23 Sales per joiner FY22 Cont per join er FY23 Cont per jo
Slide 16: Cost base configured for reduction in H2
Cost base configured for reduction in H2 G&A Costs (£m)1 30 25 • 32 roles removed during the first half 20 • Continuing to review costs with longer 15 lead times e.g. office expenditure 10 • Run rate supports lower H2 cost base 5 0 H1 23 H2 23 (Forecast) Note: 1) H2’23 is derived based on FY’23 G&A
Slide 17: Adj EBIT and StandStill EBIT should converge over next 18 months
Adj EBIT and StandStill EBIT should converge over next 18 months Standstill EBIT vs. Adjusted EBIT FY19 – FY24F Pandemic influenced KPIs 45 ● SS EBIT = Expected Adj EBIT 40 with flat repeat contribution 35 30 ● Deterioration reflective of FY22 Pivot to Profit aligns investment returns 25 Adj. EBIT t
Slide 18: Reiterating FY23 and FY24 guidance
Reiterating FY23 and FY24 guidance • We expect to deliver FY23 revenue of £340-360m, representing growth at constant currency levels of –9 to – 4% • Targeting investment in new customer acquisition between £20-24m in the full year - will only invest if economics are attractive • General & Administra
Slide 19: Long term opportunity
Long term opportunity Nick Devlin Group CEO Winemaker: Carmen Stevens, South Africa
Slide 20: Naked retains long-term competitive differentiation in wine DtC
Naked retains long-term competitive differentiation in wine DtC Large & Attractive Markets Scale Advantaged DtC Position Superior Customer Deep Winemaker Proposition Relationships Generating Highly Valuable & Loyal Member Base Exclusive Brands Large Proprietary Data Sets 20 Naked Wines plc 2023 Half
Slide 21: US market is main driver of group profitability
US market is main driver of group profitability Naked H1'23 Revenue share by geography Naked H1’23 Adj. EBIT by geography (£m) 13.1% 15 10 5 0 51.4% -5 35.5% -10 -15 USA UK Australia USA UK Australia Central 21 Naked Wines plc 2023 Half Year Results Presentation
Slide 22: Scale advantage enhanced as pandemic share gains sustained
Scale advantage enhanced as pandemic share gains sustained Naked volume share of US DTC market1 25% 20% 15% 10% 5% 0% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD US scale translates into long-term competitive advantage in production, distribution and operations vs competition 1) SOVOS DtC
Slide 23: Long-term supply relationships continue to deliver value
Long-term supply relationships continue to deliver value Unit volume and tenure across ten largest winemakers 140% 120% • Top 10 winemakers globally are established relationships 100% (10-year avg.) 80% 60% • Average top winemaker volume growth vs pre- 40% pandemic of 80% 20% 0% • Scale benefiting w
Slide 24: Exclusive brands & own production gives pricing power
Exclusive brands & own production gives pricing power [Image] [Image] [Image] Vertically integrated Exclusive brands Ownership of sales channels production model Building brand equity within Supporting product and Cutting out the our Angels with no price package design savings middle-man comparison
Slide 25: The equity of our exclusive brands increasingly evident
The equity of our exclusive brands increasingly evident Case Study, Growth of Matt Parish Napa Valley Cabernet Sauvignon1 2019 2020 2021 2022 Sales, $k $846k $1,125k $2,539k $2,577K ASP, $ $22 $22.91 $24.88 $27.72 BIA%2 96% 95% 97% 97% One example of many successes within our exclusive brand offerin
Slide 26: Further improving our margin structure in the US
Further improving our margin structure in the US Change in Prices vs Bespoke ASP / bottle (US) 10% 9% • Price increases (~7%) 8% 7% • Free Shipping threshold 6% increased (~3% impact) 5% 4% • Customer behaviour unchanged 3% – Activation 2% – Cancellation 1% – Product Mix 0% -1% APR MAY JUN JUL AUG S
Slide 27: Better range & proposition support revenue per Angel
Better range & proposition support revenue per Angel Repeat Revenue per Active Angel (£m) 180 New Braintree payment system 5% 160 CAGR 140 120 Subscription self service 100 80 60 Global Fine Wine Club Rollout 40 20 0 H1'17 H1'18 H1'19 H1'20 H1'21 H1'22 H1'23 Customer & Industry Recognition 27 Naked
Slide 28: Long term opportunity
2 c 3 £ ° jek jek (eo) Long term
Slide 29: Our aim is to rebuild marketing pipeline to return to growth
Our aim is to rebuild marketing pipeline to return to growth We see two potential scenarios for the next two years: Higher near-term profits Profits & Return to Growth Moderate investment due to growth outlook; Higher investment at attractive returns; delivering higher profit, delayed return to retu
Slide 30: Q&A
Q&A
Slide 31: Appendices
naked: Appendices
Slide 32: A unique model driving our fundamental virtuous circle
A unique model driving our fundamental virtuous circle We use this money to back Our subscribers (Angels) independent winemakers to generate a stream of cash 1 2 make wine exclusively for us; and product data 934k the data enables them to make The larger the Angel base the more active better wine ca
Slide 33: Income statement shows growth in revenue and adj. EBIT
Income statement shows growth in revenue and adj. EBIT £m HY22 HY23 YoY% • Revenue +4% vs HY22 to £165.8 million driven Total sales 159.3 165.8 4% by 15% growth in the US Cost of sales (92.7) (93.4) 1% • Total sales (3)% on a constant currency basis vs Gross profit 66.6 72.4 9% H1’22 Gross profit ma
Slide 34: Adj EBIT 4x higher vs. last year
Adj EBIT 4x higher vs. last year Adjusted EBIT bridge (cons. Fx) (H1’22 to H1’23) 16 14 11.5 12 10 (2.5) (0.4) 8 6 4.6 4 (5.8) 2 0.6 1.2 4.8 0 (0.9) (0.2) -2 -4 (8.7) -6 IT FX t n n s ts IT t e T EB en tio tio o EB os al nc PB j es t m u u AC j it c po s ina 3 Ad trib trib Ad ro f dis r, f 1'2 '22 I
Slide 35: 5-Year Forecast Payback progression
5-Year Forecast Payback progression Pre-pandemic cohorts performing very strongly FY21 and FY22 cohort values reducing vs. original expectation Notes: 1. Latest forecast per FY23 HY expectations. 2. Shown at constant FX. 3. 5-year forecast payback introduced in FY20. Initial value for FY17-19 calcul
Slide 36: Inventory has grown disproportionately to revenues
Inventory has grown disproportionately to revenues Naked Wines plc – Assets & Liabilities by category (£m) 350 300 250 • Inventory as a share of total 200 assets approaching two thirds Trade Payables 150 Angel Funds • Destocking program will 100 Oth er assets address this, converting 50 Cash invento
Slide 37: Renegotiated credit facility supports growth
Renegotiated credit facility supports growth Supports a long-term capital structure where the seasonal working capital 1 cycle is not equity funded Renegotiated credit facility supports £64m in available liquidity Provides flexibility as we align our supply and demand outlooks 2 and undertake a nece
Slide 38: We have restored LTV in line with long-term averages
We have restored LTV in line with long-term averages R3M LTV (Indexed to Apr18) Very strong early pandemic cohorts LTVs stable over the long-term with some We overestimated seasonal variation quality of new Actions to restore LTV members in 2021 give us a platform to seek return to sustainable growt
Slide 39: Year 1 Payback is already moving upward
Year 1 Payback is already moving upward 5Yr Payback vs 1Yr Payback 3.5x 3.0x • Year 1 payback is a lagging indicator: It reports actual payback 2.5x on prior year investment 2.0x • As 5 Year Payback forecast improves, we see 1 Year Payback 1.5x R12M Payba ck begin to improve R12M Yr1 Payba ck 1.0x •
Slide 40: Customer cohort behaviours remain predictable
Customer cohort behaviours remain predictable NW Group HY Contribution by Cohort FY13 50.0 0.0 45.0 2.7 FY14 1.8 Year 1 64% 40.0 FY15 Year 2 74% 0.0 10.0 Year 3 82% 35.0 FY16 21.3 Year 4 85% 8.1 30.0 FY17 Year 5 88% Year 6 89% 25.0 13.3 FY18 10.3 Year 7 91% 20.0 0.0 1.3 Year 8 91% 7.3 FY19 0.0 0.7 Y
Slide 41: Sales retention is consistent with pre-pandemic trends
Sales retention is consistent with pre-pandemic trends Sales retention by Angel tenure 100% 90% Strong indication that sales retention is normalising: 80% • Trends by tenure generally improving excluding 70% year 2 (Covid recruits) 60% FY18-20 H1 Avg. 50% • H1’23 declines driven by lower sales per A
Slide 42: Action taken to reduce G&A
Action taken to reduce G&A G&A Costs (£m)1 30 16% 14% • In 2021 we grew in anticipation of sustained faster 25 growth that did not happen. 12% 20 10% • We reset our cost base in Q2, with full impact of 15 8% evident in H2’23 6% 10 • Necessary step to reset the organisation and 4% 5 prepare for susta
Slide 43: Low quality investments in FY22 have impacted SS EBIT
Low quality investments in FY22 have impacted SS EBIT As Reported As Reported FY22 H1’23 (L12M) Standstill EBIT Bridge Repeat Contribution £86.2m £89.7m 2.5 21.2 G&A -£40.0m -£51.6m (3.0) Spend to replenish due to attrition -£25.0m -£43.1m Standstill EBIT £21.2m -£5.0m (13.9) Replenishment spend cal
Slide 44: Guidance & Outlook
Guidance & Outlook KPI FY23 guidance3 FY24 guidance As announced in our Operational and Financial Update in Revenue £340m - 360m - October, we have reshaped our plans to deliver profitability at a Revenue growth (CCY) -9% to -4% - sustainable level. Our plans also offer us the flexibility to choose
Slide 45: How we calculate our key metrics
How we calculate our key metrics 45 Naked Wines plc 2023 Half 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 and fair value movement through the income statement on financial instruments and revaluation of funding
Slide 47: Glossary of terms (continued)
Glossary of terms (continued) Investment measures 5-Year Forecast Payback The ratio of projected future Repeat Customer Contribution profit we expect to earn from the new customers recruited in the year over 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) 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 e
Slide 49: Glossary of terms (continued)
Glossary of terms (continued) Customer experience KPIs Product availability % of targeted range available on websites as indicated by our inventory reporting Wine quality – ‘Buy it again ratings’ % of “Yes” scores in the last 12 months as recorded by websites/apps Service ratings – ‘5* customer serv