Naked Wines Plc · LSE:WINE
Naked Wines — H1 FY2020 Earnings Presentation
49 slides from Naked Wines's earnings presentation, Nov 21, 2019
Slide 1: The start of a new chapter
The start of a new chapter Results for 26 weeks ended 30 September 2019 Winemaker: Adam Barton
Slide 2: Rowan Gormley, Group CEO
Rowan Gormley Group CEO Winemaker: Scott Kelley 2 2020 Half Year Results Presentation
Slide 3: Start of a new chapter…
Start of a new chapter… Foundations Growth Fulfilling the laid on track potential • Simple business - a pure play • Sales up, Repeat • The US - a $20bn online subscription retailer Contribution up addressable market • Clear focus - US market • Investment in growth up - • Model uniquely payback just
Slide 4: Foundations laid
Foundations laid Foundations laid Conclusion of a 2-year process • Huge US market opportunity – $20bn addressable market, growing, with high margins – Model uniquely configured to win • To take advantage of that opportunity we had to do 3 things 1. Simplify - Become a pure play online subscription r
Slide 5: A new team to deliver this potential
Foundations laid A new team to deliver this potential The changes Why? And why now? Why Nick? • John Walden • It takes one set of skills to grow • Right person to deliver on Chairman from 0-£200m and another to the potential take itDelivering to the next stage • Nick Devlin • Proven ability Firmly -
Slide 6: Trading for the half year broadly on track
Foundations laid Trading for the half year broadly on track Sales Repeat Adj up contribution EBIT up +16% +8% (£2m) to £88m to £19m to (£4m) 6 2020 Half Year Results Presentation
Slide 7: Total future value up year on year
Foundations laid Total future value up year on year • Total future value created up 24% • US performing strongly Total Future value created • Investment and payback slightly NCA £10.3m behind where we wanted to be Payback 3.8x – Sluggish UK & Australian Value £39.1m market NCA £7.9m • Repeat custome
Slide 8: Attracting super star winemakers
Foundations laid Attracting super star winemakers Patricia Benitez Daniel Baron • 12 years as winemaker • Former winemaker of of Pingus, Spain’s Silver Oak ($125 a most famous wine at bottle), Dominus £800 a bottle ($300) and Twomey ($50-70) • First wine for Naked arriving Autumn 2021 • Will make a
Slide 9: New partners recruited will deliver growth
Foundations laid New partners recruited will deliver growth New Existing 9 2020 Half Year Results Presentation
Slide 10: James Crawford, Group CFO
James Crawford Group CFO Winemaker: Matt Parish 10 2020 Half Year Results Presentation
Slide 11: Growth on track
Growth on track Foundations Growth Fulfilling the laid on track potential 11 2020 Half Year Results Presentation
Slide 12: Financial review
Growth on track Financial review Strongly Growth Disciplined capitalised strategy use for future on track of capital growth 12 2020 Half Year Results Presentation
Slide 13: Growth on track
Growth on track Growth on track Repeat Repeat Sales Investment contribution Payback customer sales retention +16% +8% +29% 3.8x +1% to £88m to £19m to £10m (0.2x) to 79% 13 2020 Half Year Results Presentation
Slide 14: Adjusted EBIT lower due to higher investments
Growth on track Adjusted EBIT lower due to higher investments Naked Wines Underlying EBIT 4 things to note (0.3) 1. 1 Contribution largely 2 generated by customers (1.7) 1.6 recruited in prior periods Lower contribution (2.3) 1 per customer 2. 2 Margin declines: 3 ‒ Investment in H119 Additional (3.
Slide 15: Strong investment growth 29%, payback broadly on track at 3.8x
Growth on track Strong investment growth 29%, Payback broadly on track at 3.8x 15.0x £20-25m 25.0 • We grew investment slower than 13.0x US marketing error: expected due to sluggish trading Pause 20.0 in the UK and Australia 11.0x 9.0x Investment • US ahead on all KPIs 15.0 7.0x Payback New growth p
Slide 16: Consistent strong performance in most important market
Growth on track Consistent strong performance in most important market US performance Investment Payback Underlying Sales revenue retention growth +21% +0.2x +17% +1 ppt 16 2020 Half Year Results Presentation
Slide 17: Repeat customer contribution up 8%
Growth on track Repeat customer contribution up 8% Naked Wines Repeat Contribution 0.1 • Repeat customer sales +12% Fulfilment (0.5) 2 2.1 cost (0.1) • Two investments to improve 1 (0.2) savings Proactive Other customer value: Premiumisation refunds 19.2 1– Premiumisation: Higher value samples to en
Slide 18: Proactive refunds
Growth on track Proactive refunds Build customer confidence to try new wines Contribution per potential LTV enhancement customer Test Control 0 50 100 150 Days since refund 18 2020 Half Year Results Presentation
Slide 19: Fixed costs
Growth on track Fixed costs On track to 10% Guidance Naked Wines fixed costs growth by market 39% • H1 +10% on track to FY20 guidance • Growth aligned to opportunity 13% – US high growth 10% – Plc dropping 1% • Savings post Majestic sale c. £1m H1 H1 19 -5%20 p.a. initially through IT recharges AUS
Slide 20: FY20 Guidance
Growth on track FY20 Guidance New customer investment £20-25m Payback c.3.8 - 4.0x Year 1 payback (FY19 investment) 65-70% Repeat customer sales retention c.82% Repeat customer contribution margin 25-26% Fixed costs £24-26m Should deliver Standstill EBIT growing by c.10-15% vs FY19 (like for like ba
Slide 21: Financial review
Growth on track Financial review Strongly Growth Disciplined capitalised strategy use for future on track of capital growth 21 2020 Half Year Results Presentation
Slide 22: Disposals generating £111m
Growth on track Disposals generating £111m Future Transaction Value FY20 years Expected timing (£m) (£m) (£m) Lay & Wheeler 11 11 - Completed Oct 2019 MWWL - Initial 78 78 - End of CY 2019 - Calais contingent 5 - 5 Completion + 2 yrs - Loan note 12 - 12 Completion + 5 yrs - Property disposals 5 - 5
Slide 23: Business will have c. £50m of cash post initial completion(s)
Growth on track Business will have c. £50m of cash post initial completion(s) £m FY20 disposal proceeds 84 Net debt at closing (estimated) (32) Continuing business cash 52 23 2020 Half Year Results Presentation
Slide 24: Continuing investment in growth
Growth on track Continuing investment in growth Cash flow (£m) H1 20 H1 19 YoY Adjusted EBIT (3.8) (1.7) (2.1) • H1 always cash consuming due to working capital build up for Christmas Add back D&A 0.8 0.2 +0.6 • Stepped up growth investments in Adjusted EBITDA (3.0) (1.5) (1.5) customer acquisition
Slide 25: Financial review
Growth on track Financial review Strongly Growth Disciplined capitalised strategy use for future on track of capital growth 25 2020 Half Year Results Presentation
Slide 26: Priorities for uses of capital remain unchanged …
Growth on track Priorities for uses of capital remain unchanged … Current guidance on cash utilisation shows significant cash available Healthy Balance 1 Sheet Will use disposal proceeds to extinguish debt 2 Invest • 29% growth in new customer investment. for growth • Current run rate is approxi
Slide 27: Nick Devlin, Group COO
Nick Devlin Group COO Winemaker: Stephen Millier 27 2020 Half Year Results Presentation
Slide 28: Fulfilling the potential
Fulfilling the potential Foundations Growth Fulfilling the laid on track potential 28 2020 Half Year Results Presentation
Slide 29: The US opportunity
Fulfilling the potential The US Guiding Me opportunity principles 29 2020 Half Year Results Presentation
Slide 30: Background
Fulfilling the potential Background • Former Management consultant for OC&C Management Consultants • Joined Naked wines 4 years ago – Head of Continuous Improvement in the UK – President of USA operations for last 2 years – Promoted to Group COO and appointed to the Board in June 2019 • Overseen the
Slide 31: The US opportunity
Fulfilling the potential The US Guiding Me opportunity principles 31 2020 Half Year Results Presentation
Slide 32: The US opportunity $20bn
Fulfilling the potential The US opportunity $20bn Structural Established addressable cost / quality leadership market advantage position US DTC wine market is $3bn We are to wine what Netflix is Unique and established model and has doubled over the last to movies 7 years • As a winery, we can sell d
Slide 33: Large and growing addressable market
Fulfilling the potential Large and growing addressable market Growth in value ($ billion) Average price per bottle ($) Source: 2019 Direct to Consumer Wine Shipping Report. See www.shipcompliant.com/dtcreport19 for more information. 33 2020 Half Year Results Presentation
Slide 34: We have favourable economics
Fulfilling the potential We have favourable economics We are NOT a wine retailer. Like Netflix, we produce original content, so... 1 2 3 We are regulated We access 3 levels We own as a winery of GP our brands We can access 96% of US We can beat our Customers become loyal to wine drinking population
Slide 35: And an established leadership position
Fulfilling the potential And an established leadership position Nakedwines.com Nakedwines.com voted as the is the market leader in Pennsylvania - the #1 US wine club by USA Today most recent major state to open for DTC Winery % sales NAKEDWINES.COM INC 11.0% WINE INSIDERS 8.6% LAITHWAITES 5.4% WOLF
Slide 36: Guiding principles
Fulfilling the potential The US Guiding Me opportunity principles 36 2020 Half Year Results Presentation
Slide 37: Guiding principles
Fulfilling the potential Guiding principles What stays the same? What will change? • Our mission – connecting every-day wine drinkers • We think we can grow faster to talented and passionate winemakers • We think we can deepen our • Core belief – we maximise shareholder value by defensive moat disru
Slide 38: Deepening defensive moat
Fulfilling the potential Deepening defensive moat Projects completed this year Restructured US supply chain Customer powered pricing Next day - 48.3% of shipments 2nd day - 50.1% of shipments 3rd day - 1.6% of shipments Auto-reorder Restructure will Signed c.15k Angels deliver $1m of cost savings p.
Slide 39: If we can deploy the capital …
Fulfilling the potential If we can deploy the capital … Current trajectory Deploy excess capital Sales trajectory +10% - 15% p.a. +20% p.a. SS EBIT % at maturity c.10% c.10% Cash utilisation £10-15m £40m • Illustrative example showing what the business is capable of at different levels of investment
Slide 40: In case you were wondering...
Fulfilling the potential In case you were wondering... 1. Will you throw good money after bad? No. We will remain committed to rational and profitable growth investment. Where we see evidence of falling returns, as we have in UK in H1, we will pull back spend. 2. Are you going to do something stupid
Slide 41: Summary
Summary Foundations Growth Fulfilling the laid on track potential • Simple business - a pure play • Sales up, Repeat Contribution • The US - a $20bn online subscription retailer up addressable market • Clear focus - US market • Investment in growth up - • Model uniquely payback just behind target co
Slide 42: Q&A
Q&A Winemaker: Sam Plunkett 42 2020 Half Year Results Presentation
Slide 43: Appendices
Appendices Winemaker: Katie Jones 43 2020 Half Year Results Presentation
Slide 44: Business unit details: Naked Wines
Business unit details: Naked Wines Underlying HY20 HY19 YoY % £m £m Revenue 87.5 77.3 13.2% Gross profit 33.5 30.5 9.9% Gross margin 38.3% 39.4% (120 bps) Distribution costs (15.8) (13.2) 20.1% Administrative costs (16.8) (14.0) 19.8% Adjusted EBIT 0.9 3.3 (73.6%) Central costs (4.8) (5.0) (5.4%) To
Slide 45: Business unit details: Naked revenue by geography
Business unit details: Naked revenue by geography Underlying HY20 HY19 YoY % £m £m UK 32.8 29.7 10.3% US 39.3 33.6 16.9% Australia 15.4 14.0 10.3% Total revenue 87.5 77.3 13.2% Revenue by customer group: New customers 12.1 10.2 19.0% Repeat customers 75.4 67.1 12.3% 45 2020 Half Year Results Present
Slide 46: FY19 standstill EBIT calc
FY19 standstill EBIT calc FY19 PF Ca lculation Components Rep orted Repeat contribution 39.8 Retention 81% Contribution attrition 7.6 Year 1 payback 78% Spend needed to replenish (9.6) Fixed costs: Naked (14.0) Fixed costs: Plc (9.6) Total fixed costs (23.6) Sta nd still E BIT: Repeat contribution 3
Slide 47: 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, fair value movement through the Income Statement on financial instruments
Slide 48: Glossary of terms (continued)
Glossary of terms (continued) Investment measures Investment in new The contribution earned from sales to new customers. customers (also referred to as new customer contribution) Lifetime payback The ratio of the future contribution we expect to earn from the customers recruited this year to the inv
Slide 49: Glossary of terms (continued)
Glossary of terms (continued) Definitions Contribution A profit measure between gross profit and EBIT, calculated as gross profit less the costs of fulfilling and servicing (e.g. c redit card fees, delivery costs, customer facing staff costs) and marketing expenses. We often split contribution into