Naked Wines Plc · LSE:WINE
Naked Wines — H1 2022 Earnings Presentation
53 slides from Naked Wines's earnings presentation, Nov 18, 2021
Slide 1: H1'22 Results Presentation
H1’22 Results Disruptive business model continues Presentation Results for the 26 weeks to drive growth at the largest DtC ended 27 September 2021 wine business in the world 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 Our Mission to The Long-Term H1’22 Results Disrupt the Growth Highlights Wine Industry Opportunity 4 Naked Wines plc 2022 Half Year Results Presentation
Slide 5: A unique value proposition for both winemaker and consumer
A unique value proposition for both winemaker and consumer CONSUMER WINEMAKER Value Exclusivity Autonomy Reward Quality / value Exclusive access to world Creative freedom Scale rapidly advantage class wines Own brand Access 947k Angels Satisfaction and Personalised Self employed High income potentia
Slide 6: Differentiated model with a virtuous circle
Differentiated model with a 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 947k the data enables them to make The larger the Angel base the more active better wine cash we recei
Slide 7: The world's largest DtC wine business
The world’s largest DtC wine business Total Active Angels, 2014-2021 Repeat Contribution, H1’16-22 (£ million) 1,000,000 41.3 900,000 +27% 800,000 +23% CAGR 35.6 CAGR 700,000 600,000 500,000 18.5 16.6 400,000 15.0 11.5 9.9 300,000 200,000 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Jun-21 H1'16
Slide 8: Just getting started with Global TAM of $25bn
Just getting started with Global TAM of $25bn Commenced shipment to Kentucky in 2021, Excl. states cannot sell to1 Alabama license pending, together add an additional ~$0.3bn $20bn TAM Wine <$10 a bottle Launched: 2012 Those who buy wine regularly Those interested in wine £2bn TAM A$2bn TAM Launched
Slide 9: The model in action – accelerating creation of leading winemaker brands
The model in action – accelerating creation of leading winemaker brands • Silver Oak winemaker building his own iconic Napa brand • Over 400k bottles commissioned from vintages ‘19 - ‘21 • Debut Francophone Cabernet was Naked’s best subscribed pre-sale ever with over $600,000 presold • Long-term sou
Slide 10: Financial Review
Financial Review Shawn Tabak Group CFO Our Winemakers: New Zealand
Slide 11: H1'22 financials at a glance
H1’22 financials at a glance Group Sales Repeat Customer Investment in Adjusted EBIT (£ million) Contribution profit New Customers (£ million) (£ million) (£ million) 6% CCY £5.7m 23.8 82% 157.1 159.3 112% 99% 21.3 1.2 41.3 37.4 87.5 (3.2) 19.5 10.7 (4.5) H1'20 H1'21 H1'22 H1'201 H1'21 H1'22 H1'201
Slide 12: H1'22 cost base
H1’22 cost base Gross profit Fulfilment costs Advertising costs General and (£ million) (£ million) (£ million) administrative costs (£ million)1 66.6 99% 61.9 82% 103% 20.1 40% 18.8 17.9 16.8 28.2 28.7 13.4 33.5 15.8 8.8 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 Gross
Slide 13: KPIs – New Customers
KPIs – New Customers 2 YOY H1’20 H1’21 H1’22 Change New Customer • Loss attributable to sales to New Customers; represents loss on trial £1.9m £3.7m £3.4m +79% purchase, increasing due to the higher number of first orders in the Contribution loss period Advertising costs £8.8m £20.1m £17.9m +103% •
Slide 14: KPIs – Repeat Customers
KPIs – Repeat Customers 2 YOY H1’20 H1’21 H1’22 Change Repeat £75.4m £124.9m £144.7m +92% • Growth driven by strong retention and growing customer base Customer sales Repeat Customer • Increase highlights the recurring revenue and cash flow generation in £19.5m £37.4m £41.3m +112% business Contribut
Slide 15: Strong retention across cohorts
Strong retention across cohorts Repeat customer H1 contribution by acquisition cohort (£ million) % Contribution retained in FY21 Investment in new customers 21.3 H1’22 • Emerging from lockdown, customer retention Year 0 payback 12% FY21 262% remains strong while order frequency has normalised FY20
Slide 16: Margin rates ahead of expectations despite cost pressures
Margin rates ahead of expectations despite cost pressures Repeat customer contribution margin bridge (H1’20 to H1’22) 1.1% (0.5)% (0.6)% 0.9% 28.5% 1.7% Scale Includes US Geographic efficiencies distribution mix impact 25.9% network where US has remodel and higher increases in fulfilment transport a
Slide 17: Segmental overview: H1'22 sales
Segmental overview: H1’22 sales Total US UK Australia (£ million) (£ million) (£ million) (£ million) -1% CCY 7% CCY 62.4 82% 89% 90% 46% 22.8 22.5 157.1 159.3 57.8 76.5 74.4 15.4 87.5 32.8 39.3 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 H1'20 H1'21 H1'22 As a % of total sales As a % of t
Slide 18: Segmental overview: H1'22 financials
Segmental overview: H1’22 financials Repeat Customer Contribution profit (£ million) US UK Aus. Repeat Customer Contribution profit 23.0 12.8 140% 21.2 94% 67% 4.6 5.5 • Increase in US margin from H1’20 11.6 highlights scale efficiencies 3.3 6.6 • Australia margin increase driven by gross 9.6 margin
Slide 19: Standstill EBIT (L12M)
Standstill EBIT (L12M) £m H1’20 H1’21 H1’22 Repeat Customer sales 162.9 223.2 303.7 Repeat Customer Contribution profit 41.5 64.6 88.8 Sales retention 81% 90% 82% Repeat Customer Contribution lost to attrition 7.9 6.2 16.3 Year-1 Payback (from PY cohort) 66.3% 66.8% 100.6% Spend to replenish lost Re
Slide 20: Working capital and cash flow
Working capital and cash flow Key Balance Sheet amounts (£m) H1’20 H1’21 H1’22 Closing cash balance 85.1 76.3 57.1 • Cash position of £57m Working capital • Investing in inventory to mitigate supply chain Inventory 81.4 84.9 127.1 disruption - £42m increase vs. H1’21 Other current assets 8.5 7.1 6.2
Slide 21: FY22 guidance update
FY22 guidance update • Total sales of £340 million - £355 million compared to £355 million - £375 million previously, reflecting lower than anticipated Investment in New Customers – Growth of 2% to 7% on a constant currency basis • Investment in New Customers expected to be £35 million to £45 millio
Slide 22: Strategy
Strategy Nick Devlin Group CEO Winemaker: Carmen Stevens, South Africa
Slide 23: H1'22 – Highlights
H1’22 – Highlights 3 Key #s from today Key Numbers Strategic Highlights Challenges So What? 23 Naked Wines plc 2022 Half Year Results Presentation
Slide 24: 3 numbers from today's results that matter for long term opportunity
3 numbers from today’s results that matter for long term opportunity Enhancements to our proposition are driving better than 1 anticipated retention rates in long-tenure members 2 …consequently, our investment returns are consistently better than we estimated 3 We are gaining share of our key US mar
Slide 25: Long tenure member retention shows signs of enduring improvement
1 Long tenure member retention shows signs of enduring improvement; COVID-19 cohorts reverting to FY20 norms Change in Retention Rates, vs 2 Year Ago, Naked US1 30% 25% 20% Pre-COVID-19 cohorts • Trend of improved retention 15% rates in cohorts acquired pre- pandemic continued in H1 10% • Clear sign
Slide 26: Proven track record of improving margins and revenue per member
1 Proven track record of improving margins and revenue per member Revenue per Mature Angel per month FY15 - FY21 Repeat Contribution Margin FY15 – H1’22 Index FY15 100 29.8% 28.5% 25.9% 26.5% 24.7% 25.2% +7% 22.6% 24.4% CAGR FY1 5 FY1 6 FY1 7 FY1 8 FY1 9 FY2 0 FY2 1 H12 2 • Consistent increase: posi
Slide 27: Improving underlying metrics result in elevated paybacks
2 Improving underlying metrics result in substantially elevated paybacks vs our initial in-year estimates 1 5-Year Payback; Initial Cohort Estimate and H1’22 Estimate vs Actuals 3.5 X +6% 3 X X +11% X X 2.5 X +30% X +28% X +32% 2 X X 1.5 FY17 FY18 FY19 FY20 FY21 X Original Forecast X Latest Forecast
Slide 28: Share gain momentum in key US market continues
3 Share gain momentum in key US market continues as economy reopens Naked USA Value Share of Off Premise Wine Market, Source – Nielsen Off Premise Data • Naked gaining share in key US market through COVID-19 and re-opening periods 1.1% • Penetration of market remains low; and well below 0.9% levels
Slide 29: H1'22 – Highlights
H1’22 – Highlights Key Numbers Strategic Highlights Challenges So What? • Enhance Customer Proposition • Leverage Scale • Broaden & Enhance Go to Market 29 Naked Wines plc 2022 Half Year Results Presentation
Slide 30: Awards strategy driving quality perception gains
Enhance Customer Proposition: Awards strategy driving quality perception gains Brand Tracker, Naked Wines Quality Perception vs Market Average Naked Premium to Market Average, Wine Quality +11% Record set of awards at the Decanter World Wines Awards 2021, the world’s largest and most influential win
Slide 31: DWWA – Dave Harvey showcases power of Naked platform
Enhance Customer Proposition: DWWA – Dave Harvey showcases power of Naked platform Dave’s brand >70k cases 2016: Dave 2017: Rave reviews Feb ‘19: San Francisco Oct ‘20: First releases goes for debut wines: Wine Chronicle from the winery independent! signs 3 year contract Double Gold Winner snapped u
Slide 32: Subscription products adding further value
Enhance Customer Proposition: Subscription products adding further value Helping our Angels discover & reserve the best wine for them 1.8 active 18,000 341,000 Never Miss Out Wine Genie Never Miss Out subscriptions per Annual subscriptions Annual subscriptions in place Never Miss Out customer in pla
Slide 33: Attracting super star winemakers for our Angels
Enhance Customer Proposition: Attracting super star winemakers for our Angels Ken Wright US Megan & Ryan Glaab US Andrew & Jamie Pike Australia 33 Naked Wines plc 2022 Half Year Results Presentation
Slide 34: Naked community in action
Enhance Customer Proposition: Naked community in action 10,000 Angels 11 Winemakers A$5m fund 34 Naked Wines plc 2022 Half Year Results Presentation
Slide 35: Operational improvements to support scale
Leverage Scale: Operational improvements to support scale US Network Remodeled to Support Growth • Single long-term storage to distributed model • Multiple benefits: – Shorter replenishment cycle = better availability – Lower per sq ft costs outside CA – Eliminate a “multiple touch” on products – Re
Slide 36: Encouraging signs from Australian initial brand awareness testing
Broaden & Enhance Go to Market Strategy: Encouraging signs from Australian initial brand awareness testing Recap Believe we can add brand investment to proven direct response spend • Interim goals to move the dial on brand metrics – awareness, understanding of proposition, quality perception and pur
Slide 37: H1'22 – Challenges
H1’22 – Challenges Key Numbers Strategic Highlights Challenges So What? • Growth Investment Performance • Supply Chain Disruption • On time delivery 37 Naked Wines plc 2022 Half Year Results Presentation
Slide 38: Three things we would have liked to have done better
Three things we would have liked to have done better Customer Acquisition Supply Chain Disruption Customer Service Customer acquisition Global supply chain Delivery success rates What volumes lower than we disruption impacted below our targets driven expected in H1, with supply & availability by ope
Slide 39: A few executional factors impacted payback in the period
A few executional factors impacted payback in the period Facebook challenges Consumer Environment Cost Headwinds 2 Normalised faster than Cost Pressure + US main challenges: expected in Spring in US Network Remodel = higher variable costs vs FY21 • Impacted new channel • Drives higher CAC via first
Slide 40: Availability challenges resolved ahead of peak holiday quarter
Availability challenges resolved ahead of peak holiday quarter Availability Rate by Market • Availability in key US and UK markets is 100% good ahead of key peak trading 95% period… 90% • …But levels consistently below 90% in 85% the UK and USA over last 12 months 80% • Disruption to supply chain ha
Slide 41: H1'22 – Implications for the future
H1’22 – Implications for the future Key Numbers Strategic Highlights Challenges So What? 41 Naked Wines plc 2022 Half Year Results Presentation
Slide 42: Medium term opportunity
Medium term opportunity • Naked well positioned for medium-term growth – Significant market opportunity (TAM) – Strong value proposition for winemakers and consumers Winemaker Economics Community – Underlying economics & retention improving Appeal Enhanced Strengthened – Traction from investment in
Slide 43: In summary
In summary Our Mission to The Long-Term H1’22 Results Disrupt the Growth Highlights Wine Industry Opportunity • Disruptive model benefitting winemaker • Sustained retention led growth • Large & underpenetrated TAM and consumer • Improving retention and economics as • Largest DtC player: scale advant
Slide 44: Q&A
Q&A
Slide 45: Appendices
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Slide 46: Income statement
Income statement £m HY20 HY21 HY22 2YoY% • Revenue +82% vs HY20 to £159.3 million driven Total sales 87.5 157.1 159.3 82% by 89% growth in the US Cost of sales (54.0) (95.2) (92.7) 72% • Total sales +6% on a constant currency basis vs Gross profit 33.5 61.9 66.6 99% H1’22 Gross profit margin 38% 39%
Slide 47: Bridging contribution to Adjusted EBIT
Bridging contribution to Adjusted EBIT H1’22 (£ million) (21.3) 41.3 (18.8) 1.2 Repeat Customer Investment in General and Adjusted EBIT Contribution profit New Customers administrative costs 47 Naked Wines plc 2022 Half Year Results Presentation
Slide 48: 5-Year Forecast Payback progression
5-Year Forecast Payback progression 5-Year Payback Forecast Age at Original Payback Cohort reporting date Latest forecast 1 forecast 2 to date FY16 67-78 months 3.1x (actual) 3.1x (actual) 3.7x FY17 55-66 months 2.5x 2.0x 2.7x FY18 43-54 months 2.7x 2.1x 2.3x FY19 31-42 months 2.4x 1.8x 1.7x FY20 19
Slide 49: 5-year Forecast Payback Reconciliation
5-year Forecast Payback Reconciliation LTV Ratio % of 5-Year Payback Latest Original 20-Year Original 5-Year 20-Year LTV in Original from 20-Year Cohort Forecast1 Forecast2 first 5 years3 20 Year4 Forecast5 FY17 4.4x 45% 2.0x 5.7x FY18 4.7x 45% 2.1x 6.1x FY19 4.0x 45% 1.8x 5.3x FY20 4.9x 2.6x 6.0x F
Slide 50: 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 51: 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 52: 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 53: 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