Naked Wines Plc · LSE:WINE
Naked Wines — Majestic Wine — FY2018 Earnings Presentation
56 slides from Naked Wines's earnings presentation, Jun 14, 2018
Slide 1: 2017/2018 Full Year Results: Making Headway Despite Headwinds
2017/2018 Full Year Results 14 June 2018 MAKING HEADWAY DESPITE HEADWINDS
Slide 2: Disclaimer
Disclaimer • This Document comprises the written materials/slides for a presentation concerning Majestic Wine PLC (the “Company”) and its 2018 Full Year Results. • By reviewing this presentation you agree to be bound by the conditions set out below. • No reliance may be placed for any purposes whats
Slide 3: Making headway despite headwinds
Making headway despite headwinds: 1 2 2 3 Keep doing what Do it faster Do it better we’re doing 3
Slide 4: Making headway despite headwinds: keep doing what we're doing
Making headway despite headwinds: 1 2 2 3 Keep doing what we’re doing Faster Better We delivered profitable growth despite tough UK market i) Underlying revenue up 4.0% ii) Adjusted EBIT up £6.4m iii) KPIs heading the right way iv) 20% of Sales International, 45% of Sales Online The plan is working
Slide 5: Making headway despite headwinds: faster
Making headway despite headwinds 1 2 2 3 Keep doing what we’re doing Faster Better We plan to double our investment in new customer acquisition from £14m to £28m because: i) The potential investment pool is bigger than we thought ii) The returns are trending up, not down iii) We have good early indi
Slide 6: Making headway despite headwinds: better
Making headway despite headwinds 1 2 2 3 Keep doing what we’re doing Faster Better We don’t just want to grow faster – we want to do it better, by: i) Continuing to optimise our new customer investment ii) Removing unproductive work, so our people can focus on customers iii) Delivering a step change
Slide 7: Making headway: keep doing what we're doing
Making headway: 1 2 2 3 Keep doing what we’re doing Faster Better 7
Slide 8: Keep doing what we're doing
Keep doing what we’re doing What we said we’d do What we’ve done Deliver profitable growth Adjusted EBIT up 29% on FY17 (55% underlying) Deliver an increased ROI 4.7x Payback on customers recruited in the year vs 4.4x in FY17 We would focus on growth in year 3 of Now doubling new customer investment
Slide 9: Key drivers of performance in 2018
Key drivers of performance in 2018 Group Underlying Adjusted EBIT FY18 vs FY17 GBP m 20.0 18.0 1.3 (0.1) 16.0 4.9 14.0 12.0 10.0 18.2 8.0 9.0 (8.7) 6.0 11.8 4.0 2.0 0.0 FY17 UK Currency Naked got one Retail NW New Sum total of FY18 Impact year older: underlying sales customer everything else growth
Slide 10: 1. Retail top line growth offset by FX pressures
1. Retail top line growth offset by FX pressures Market average bottle price vs price with constant % margin GBP £6.4 Since 2015 average market bottle £6.2 prices should have Market average bottle gone up by 60p, price but actually only £6.0 increased by 21p Market price with constant % margin £5.8
Slide 11: 2. Naked got one year older..
2. Naked got one year older.. Naked Wines Repeat Customer Sales FY08-18 GBP m 140 Contribution from existing customers 120 grew by £6.9m in FY18 FY18 100 FY17 FY16 80 FY15 60 FY14 FY13 40 FY12 FY11 20 FY10 0 FY09 11
Slide 12: 3. Improved efficiency of New Customer Investments
3. Improved efficiency of New Customer Investments Naked Wines Payback FY17-FY18 by Monthly Cohort LTV/Acquisition Cost 3.5x 3.0x 9.5% 2.5x improvement in payback 2.0x after one year FY18 FY17 1.5x FY16 FY15 1.0x FY14 FY13 0.5x 0.0x Y1 Y2 Y3 Y4 Y5 Y6 12
Slide 13: Making headway: faster
Making headway: 1 2 2 3 Keep doing what we’re doing Faster Better 13
Slide 14: The investment pool is bigger
The investment pool is bigger Group Investment in New Customer Acquisition FY2013 25 – FY2019F GBP m In the last 2 years we have proven digital new 20 customer acquisition as a viable channel 4 We have early 15 We have grown indications of investment in Naked UK at success in around 15% on a like fo
Slide 15: Returns are trending up
Returns are trending up We invested £14m in FY18 in new customer acquisition £14m £66m We earned a payback of = Investment future 4.7x - added £66m of future value value this year We believe we can more than double this by: • Doubling the rate of £28m £132m+ Investment = investment future value • Im
Slide 16: Early signs the same tactics work in Majestic Retail
Early signs the same tactics work in Majestic Retail Over 100,000 new and reactivated customers in Majestic Retail over the past two years 16
Slide 17: Making headway: better
Making headway: 1 2 2 3 Keep doing what we’re doing Faster Better 17
Slide 18: Invest more efficiently
Invest more efficiently Group Underlying Adjusted EBIT FY18 vs FY17 GBP m 20.0 18.0 1.3 (0.1) 16.0 4.9 14.0 12.0 10.0 Last year we saved £1.3m in investment to deliver the same 18.2 8.0 9.0 (8.7) payback. This is an ongoing 6.0 11.8 discipline we expect to continue to deliver 4.0 2.0 0.0 FY17 UK Cur
Slide 19: Removing unproductive work
Removing unproductive work £1.8m unproductive work removed Pick and pack: through: Two warehouses - Improved combined to one availability - Automation - Shelving 19
Slide 20: This has allowed our people to focus on customers
This has allowed our people to focus on customers 70% Email Capture: 91% 5* service: 95% Availability: 60% 90% 89% 90% 50% 88% 85% 40% 87% 86% 80% 30% 85% 75% 20% 84% 83% 70% 10% 82% 81% 65% 0% 2016 1 2017 9 2018 7 2016 11 2016 21 2016 31 2016 41 2017 51 2017 19 2017 29 2017 39 2018 49 2017 1 2018 9
Slide 21: Franchise-Lite is working
Franchise-Lite is working Gross Profit Performance Partners vs Total Stores – 39 weeks since launch FY2018 % growth 1.5% We now have 43 Stores 1.0% on the Franchise-Lite Partner scheme who 0.5% are delivering a stronger performance 0.0% vs the rest of the store base -0.5% -1.0% -1.5% 1 2 3 Partner N
Slide 22: Majestic Commercial - the time has come
Majestic Commercial - the time has come The Proposition: 1. Targeting independent pubs, restaurants and companies 2. With the proposition - we will help you make more money from your wine list Three competitive advantages: Nationwide next day Data – we know what Training – Over 1,000 people delivery
Slide 23: Outlook
Outlook We expect the U.K. market to remain tough, but expect to hit FY19 market expectations because: 1. 2. 3. We are 20% of sales We had a investing in are head start growth international, 45% online 23
Slide 24: Financial Review
Financial Review 1 2 3 In a year where we paused for …and we choose We are a strong breath, we to invest it, business with delivered a big driving future capital to invest… step up in growth profitability 24
Slide 25: Financial Review
Financial Review 1 2 3 In a year where we paused for …and we choose We are a strong breath, we to invest it, business with delivered a big driving future capital to invest.. step up in growth profitability 25
Slide 26: We maintained sales growth but at a lower rate
We maintained sales growth but at a lower rate as we eliminated unproductive activity Underlying Sales Growth Naked Wines +11.3% Lay & Wheeler +0.2% Commercial -5.6% Retail +1.9% TOTAL +4.0% 26 %
Slide 27: Hence strong conversion to profits
Hence strong conversion to profits Drivers of Group PBT movement FY18 vs FY17, GBP m • +28bps business mix Predominantly Central: 14 • +39bps BU margin • Digital marketing improvement • IT 12 10 5.4 8 12.0 (1.5) 0.2 6 3.2 4 6.4 2 4.7 - Revenue growth Gross Margin Admin cost Increase in Financing cos
Slide 28: Group profit movement is driven by Naked Wines
Group profit movement is driven by Naked Wines… Group Adjusted EBIT 25 FY18 GBP m 20 0.1 (1.0) 7.4 15 10 11.7 18.2 5 - Adj EBIT FY17 Naked Central Other Adj EBIT FY18 28
Slide 29: ...which is a year older and spending less
...which is a year older and spending less Naked Wines Adjusted EBIT FY18 10 m GBP 9 0.8 8 (0.2) 7 2.4 6 5 8.7 4 4.4 3 2 1 1.3 0 FY17 Adj. EBIT Growth in Angels Increased Change in Change in Fixed FY18 Adj. EBIT Contribution investment Costs Angel 29
Slide 30: Retail profit stable due to significant cost elimination
Retail profit stable due to significant cost elimination Majestic Retail Adjusted EBIT FY18 15 GBP m C.£4m of cost efficiencies offset 15 inflation, National Fulfilment costs & other increases 14 1.1 (1.4) 14 0.05 0.3 13 13.3 13.3 13 12 FY17 Adj EBIT Sales Growth Bought in Cost efficencies Other cos
Slide 31: Retail sales slowed due to lower retention
Retail sales slowed due to lower retention Retail Repeat Customer Sales Retention Retail Sales growth FY13-18 FY13-18 % GBP m 100.0% 320 310 95.0% 300 90.0% 290 280 85.0% 270 80.0% 260 250 75.0% Jul-16 Jan-14 Jun-14 Mar-13 Apr-15 Feb-16 Mar-18 Aug-13 Nov-14 Sep-15 Dec-16 May-17 Oct-17 2013 2014 2015
Slide 32: Financial Review
Financial Review 1 2 3 In a year where we paused for …and we choose We are a strong breath, we to invest it, business with delivered a big driving future capital to invest.. step up in growth profitability 32
Slide 33: Strong cash flow, Net Debt below target
Strong cash flow, Net Debt below target FY18 FY17 YoY £m £m % Adjusted EBIT 18.2 14.1 29.1% Addback D&A* 6.5 6.9 -2.9% Net debt Adjusted EBITDA 24.7 21.0 18.7% • 0.35x Adj EBITDA • Below 0.5x target Capital expenditure (3.8) (3.5) 8.5% Dividend • 5.2p Final Working capital movement 4.0 (11.3) NM • 7
Slide 34: Naked robustly profitable
Naked robustly profitable Sales Adj EBIT Adj EBIT £m £m % UK 66.6 5.2 7.8% USA 61.5 2.8 4.5% Australia 28.0 0.7 2.5% Total Naked Wines 156.1 8.7 5.6% Addback growth spend 3.7 Zero growth Adj EBIT 12.4 7.9% Note: “Steady State EBITDA”, that we have reported previously, differs from this calculation b
Slide 35: Financial Review
Financial Review 1 2 3 In a year where we paused for We are a strong …and we choose breath, we business with to invest it, delivered a big capital to driving future step up in invest… growth profitability 35
Slide 36: We are stepping up investment
We are stepping up investment Group Investment in New Customer Acquisition FY2013 25 – FY2019F GBP m 20 Targeting FY19 spend 15 of £19m+ 10 5 - 2013 2014 2015 2016 2017 2018 2019 UK base International Digital Retail Forecast 36 £5 – 8m increase
Slide 37: Customers recruited in FY18 are forecast to deliver a 4.7x payback
Customers recruited in FY18 are forecast to deliver a 4.7x payback Cumulative Payback (LTV/Acquisition cost) FY18 and FY17 cohorts Payback Forecast: FY18: 4.7x 1.8 FY17: 4.4x 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 P0 P12 P24 FY18 FY17 37
Slide 38: Sales uplift may be muted by headwinds
Sales uplift may be muted by headwinds FX rates UK Market “The UK market will be tough, and sales and margins will be under pressure BUT we are on track to achieve FY19 market expectations despite the market” Recent FX rates could reduce sales growth by 1-2% Fine Wine Vintages Commercial sales reten
Slide 39: But.... Potential signs of life in:
But…. Potential signs of life in: Cost Drivers: Sales Drivers: £1.8m of unproductive Transformation plan work removed through bearing fruit: shelving, automation, - Franchise-Lite stores improved availability - Product improvements Consolidation of Majestic Doubling investment in Retail and Naked UK
Slide 40: Financial Summary
Financial Summary 1 2 3 In a year where we paused for …and we choose We are a strong breath, we to invest it, business with delivered a big driving future capital to invest.. step up in growth profitability 40
Slide 41: Outlook
Outlook We expect the U.K. market to remain tough, but expect to hit FY19 market expectations because: 1. 2. 3. We are 20% of our We had a investing in business is head start growth international & 45% online 41
Slide 42: Questions?
MajesticWinepic QUESTIONS?
Slide 43: Appendices
MajesticWinepic APPENDICES 43
Slide 44: 2017/18 Results Summary
2017/18 Results Summary Reported Underlying(4) % YoY FY2018 FY2017 FY2018 FY2017 Underlying 52 52 52 weeks 53 weeks weeks weeks Revenue £m 476.1 465.4 477.7 459.5 +4.0% Adjusted EBIT £m 18.2 14.1 18.2 11.8 +54.5% Adjusted PBT £m 17.2 12.9 17.2 10.5 +63.0% Adjusted EPS p 23.9p 17.7p Profit/(Loss) bef
Slide 45: Group structure
Group structure Market size £2.2bn £17bn £2.0bn £0.7bn (UK) (Global) Reported Sales for the year to £263.8m £156.1m £43.4m £14.5m April 2018 +1.9% +11.3% -5.6% +0.2% Underlying sales growth Adjusted EBIT £13.3m £8.7m £2.4m £0.9m Proposition We help people find wines Making luxury wines We help busin
Slide 46: Business Unit Detail: Majestic Retail
Business Unit Detail: Majestic Retail Underlying FY FY 2017/2018 2016/2017 52 weeks YoY % 52 weeks £’000 £’000 Revenue 263,754 258,877 1.9% Gross Profit 60,420 60,430 0.0% Gross Margin 22.9% 23.3% -0.4% Distribution costs (30,384) (28,783) 5.6% Admin Costs (16,687) (18,348) -9.1% Adjusted EBIT 13,34
Slide 47: Business Unit Detail: Naked Wines
Business Unit Detail: Naked Wines Underlying FY FY 2017/2018 2016/2017 YoY % 52 weeks 52 weeks £’000 £’000 Revenue 156,059 140,220 11.3% Gross profit 55,236 47,363 16.6% Gross Margin 35.4% 33.8% 1.6% Distribution costs (24,165) (22,321) 8.3% Administrative costs (22,405) (23,750) -5.7% Adjusted EBIT
Slide 48: Business Unit Detail: Majestic Commercial
Business Unit Detail: Majestic Commercial Underlying FY FY 2017/2018 2016/2017 YoY % 52 weeks 52 weeks £’000 £’000 Revenue 43,360 45,933 -5.6% Gross profit 7,694 7,841 -1.9% Gross Margin 17.7% 17.1% 0.7% Distribution Costs (3,059) (3,155) -3.0% Admin Costs (2,200) (2,292) -4.0% Adjusted EBIT 2,435 2
Slide 49: Business Unit Detail: Lay & Wheeler
Business Unit Detail: Lay & Wheeler Underlying FY FY 2017/2018 2016/2017 52 weeks YoY % 52 weeks £’000 £’000 Revenue 14,549 14,521 0.2% Gross Profit 4,042 3,847 5.1% Gross Margin 31.2% 31.8% -0.7% Distribution Costs (1,198) (1,059) 13.0% Admin Costs (1,907) (1,841) 3.6% Adjusted EBIT 937 946 -1.0% 4
Slide 50: Central costs & Group
Central costs & Group Underlying FY FY 2017/2018 2016/2017 YoY % 52 weeks 52 weeks £’000 £’000 Central costs Administrative costs (7,208) (6,166) 16.9% Adjusted EBIT (7,208) (6,166) 16.9% Group Revenue 477,721 459,551 4.0% Gross profit 127,391 119,481 6.6% Gross Margin 26.7% 26.0% 0.7% Distribution
Slide 51: Glossary
Glossary Definitions 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) and marketing expenses. We often split Contribution into that from New and Repe
Slide 52: Glossary (cont.)
Glossary (cont.) Alternative Performance Measures Underlying a) includes En primeur revenues in year of order not year of fulfilment; (b) is calculated using constant FX rates for translation (c) restates the prior year to a 52 week period comparable to the current year. Adjusted EBIT Operating prof
Slide 53: Revised Naked Wines measurement and forecasting
Revised Naked Wines measurement and forecasting 53
Slide 54: Naked Wines Business Split Reconciliation
Naked Wines Business Split Reconciliation As presented Move immature As presented at April 17th CMD final results New Customers Sales 31.9 (10.3) 21.6 Contribution (13.0) (1.0) (14.0) Repeat Customers Sales 124.2 10.3 134.5 Contribution 32.8 1.0 33.8 Fixed Costs (11.1) (11.1) Adj EBIT 8.7 8.7 54
Slide 55: Five year Naked Wines history
Five year Naked Wines history New Customers Repeat Customers (First and “other” transactions) (Sales since sign-up) Sales Contrib. Margin % Sales Contrib. Margin % Fixed Costs FY14 15 (7) -48% 45 7 16% (8) FY15 21 (8) -39% 66 14 21% (10) FY16 22 (10) -48% 90 21 24% (11) FY17 26 (15) -57% 114 27 24%
Slide 56: Forecasting Example
Forecasting Example New Business Mature Angels (First and “other” transactions) (Sales since sign-up) Sales Contrib. Margin % Sales Contrib. Margin % Fixed Costs FY15 21 (8) -39% 66 14 21% (10) 3 2 1 5 6 Calculate Guidance 10-20% Retention Calculate based on Guidance based on growth, (900)bps ~85% m