Naked Wines Plc · LSE:WINE
Naked Wines — FY2019 Earnings Presentation
57 slides from Naked Wines's earnings presentation, Jun 13, 2019
Slide 1: A pivotal moment
A pivotal moment 2019 Full Year Results & Investor Presentation
Slide 2: Disclaimer
Disclaimer • This Document comprises the written materials/slides for a presentation concerning Majestic Wine Plc (the “Company” or the “Group”) and its 2019 Full Year Results results for the 52 weeks ended 1 April 2019. • By reviewing this presentation you agree to be bound by the conditions set ou
Slide 3: Important Context
Important Context • This is not our normal results presentation • As we plan to focus on Naked Wines (“Naked”) and exit Majestic Retail and Commercial (“Majestic”), we have split this presentation into two: • Part 1 - Selected overall Group reporting • Part 2 - Focus on Naked – Overview of FY19 trad
Slide 4: Part 1: Review of FY19 results
Part 1 Review of FY19 results 4 2019 Full Year Results & Investor Presentation
Slide 5: FY19 Results: Highlights and lowlights
FY19 Results: Highlights and lowlights Highlights Lowlights ü Revenue growth in all businesses ✘ Retail gross profit decline of £2m (gross margin decline of 110 bps to ü Naked driver of Group revenue 21.8%) acceleration ✘ Naked fixed cost growth of £2.9m to ü Naked repeat customer contribution £14.0
Slide 6: Naked continues to drive revenue growth
Naked continues to drive revenue growth FY19 Underlying Revenue Growth H1 FY19 H2 FY18 H1 FY18 Momentum Naked Wines 14.5% 14.0% + 11.6% 10.9% Lay & Wheeler 2.4% (9.4%) (7.9%) 8.9% Commercial 1.8% (2.0%) (7.9%) (3.4%) Retail 1.5% 1.9% 1.8% 2.0% TOTAL 5.8% 4.8% 3.7% 4.2% 6 2019 Full Year Results & Inv
Slide 7: EBIT decline from Naked investment and Retail reduced profits
EBIT decline from Naked investment and Retail reduced profits offsetting £6m increase in Naked repeat contribution Group underlying adjusted EBIT Higher rate of investment • Product mix More customers, better in future growth • Footfall investment quality • Subscription programmes Fixed cost: (5.0)
Slide 8: Fixed cost investment is aligned to the biggest opportunity
Fixed cost investment is aligned to the biggest opportunity Naked fixed costs by market (£m) 9 • Fixed cost growth of £2.9m, or 26%, to £14.0m was ahead of guidance for 10% - 15% growth 6 • We strengthened the team ahead of our plans around: – Global winemaker relations – US Strategic partnerships 3
Slide 9: Statutory loss due to £11m store impairment
Statutory loss due to £11m store impairment Group adjusted items (£m) 25 Drivers of impairment: • Slowing revenue 20 19.8 • Weaker margins 1.0 • Exclusion of web sales from store financials 15 • Reduced Freehold values 11.1 10 8.9 Restructuring Charges relating to retail estate 0.8 and group transfo
Slide 10: Net debt increased due to investment choices
Net debt increased due to investment choices Total Total £m FY19 FY18 YoY ● Investments ● Retail gross margin Adjusted EBIT 12.1 18.2 (6.1) D&A 1 6.8 6.5 0.3 Adjusted EBITDA 18.9 24.7 (5.8) ● Easter timing and Brexit build of £8m Working capital movement (10.0) 4.0 (14.0) ● Naked stock for growth of
Slide 11: Group performance summary
Group performance summary • Growth accelerated due to Naked • Fixed costs ahead of plan but tempering in FY20 • Retail growth but margin under pressure • Balance sheet supports continued growth investment 11 2019 Full Year Results & Investor Presentation
Slide 12: Part 2: Focus on Naked
Part 2 Focus on Naked 12 2019 Full Year Results & Investor Presentation
Slide 13: Sale process advanced
Sale process Firmly The advanced on track future 13 2019 Full Year Results & Investor Presentation
Slide 14: Sale process advanced
Sale process Firmly The advanced on track future 14 2019 Full Year Results & Investor Presentation
Slide 15: Majestic sale process – at an advanced stage
Majestic sale process – at an advanced stage • Our goal is to... – Focus on Naked; and – Exit Majestic • We now believe that a sale of Majestic, rather than the merger of both businesses, is the best way to maximise value for our shareholders • We are currently in an advanced sale process • With mul
Slide 16: Firmly on track
Sale process Firmly The advanced on track future • Contribution up, EBIT down • Payback on target at 4x • Underlying KPIs all stable or improving • Rate of new customer investment accelerating 16 2019 Full Year Results & Investor Presentation
Slide 17: Doing what we said we would do
Doing what we said we would do Repeat Investment customer in new contribution customers EBIT up up down +18% +£5m (£1.9m) to £19m to £6.7m to £40m Note: Sales were up 14.5%, but as this is not a priority KPI. We report it for information and to support P&L forecasting. Repeat customer contribution i
Slide 18: US is now our biggest and fastest growing market
US is now our biggest and fastest growing market – measured by contribution Naked repeat customer contribution • Repeat customer contribution AUS grew 18% to £39.8m • And has grown 2.4x since Majestic acquired Naked US UK FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 18 2019 Full Year Results & Investor P
Slide 19: US biggest & fastest growth business – measured by revenue
US biggest & fastest growth business – measured by revenue Naked revenue by market (FY19 vs FY18 £m) 100 80 +21% +8% 60 40 +16% 20 FY FY FY FY FY FY 18 19 18 19 18 19 0 USA UK Australia 19 2019 Full Year Results & Investor Presentation
Slide 20: Adjusted EBIT fell as repeat contribution growth offset by investment
Adjusted EBIT fell as growth in repeat customer contribution was offset by increased investment Naked Wines Underlying EBIT 16 14 1 2.0 3 things to note 12 2 (5.0) -5.1 1. The cost of these 4.0 customers was largely 10 Increased contribution 3 incurred in previous 8 per customer Increased (2.9) -2.9
Slide 21: Underlying KPIs solid
Underlying KPIs solid Repeat New customer customer sales investment Payback on target at retention +£5m 4x 81% to £19m (H1: 78%) (H2: 83%) 21 2019 Full Year Results & Investor Presentation
Slide 22: New customer quality is improving
New customer quality is improving Naked cumulative contribution per joining Angel (FY19 by cohort tenure) Month after month, 2019 cohorts are delivering more contribution than prior years FY19 FY18 +6% average contribution per joining Angel MONTH 1 2 3 4 5 6 7 8 9 10 11 12 22 2019 Full Year Results
Slide 23: Repeat sales retention is stable and margins are rising
Repeat sales retention is stable and margins are rising Naked repeat customer sales retention: Naked repeat customer contribution margin monthly and rolling 12m 120% 28% 100% 24% 80% 20% 60% 16% FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 3 factors impacting retention • Mix - increased ne
Slide 24: Operating KPIs remain strong
Operating KPIs remain strong 91% 91% 91% 90% 90% 90% FY FY FY FY FY FY 18 19 18 19 18 19 Wine quality Product Proportion of 5-star (buy it again) availability service ratings 24 2019 Full Year Results & Investor Presentation
Slide 25: We have invested heavily in improving service levels
We have invested heavily in improving service levels • Four distribution centers strategically located in New York, Florida, Missouri and California • Capability to deliver to majority of US population within 48 hours Next day - 48.3% of shipments • Supports margin improvement 2nd day - 50.1% of shi
Slide 26: And we continue to build the winemaker pipeline
And we continue to build the winemaker pipeline Edgard Carter Made Sena, Chile’s most iconic wine (£100 per bottle in the UK) Jorge Gutierrez Maker of the iconic Montes Alpha “M” Simon ‘Sorby’ Adams Penelope Gadd-Coster Former Chief Winemaker at Yalumba, Director of winemaking for US operations crea
Slide 27: The future
Sale process Firmly The advanced on track future • What the new Naked Wines Plc will look like • How we plan to grow it from there 27 2019 Full Year Results & Investor Presentation
Slide 28: What does the future Naked Wines Plc look like?
What does the future Naked Wines Plc look like? Solid core Strong And we business embedded aim to go growth faster 2019 Stand Investing at >2x rate still1 EBIT required for £16m Stand still EBIT 1. See Appendix slide 51 for an illustration of the stand still EBIT calculation. 28 2019 Full Year Resul
Slide 29: The core business is solid
The core business is solid . . . Naked: Stand still EBIT (FY14 vs FY19 £m) 20 • Stand still EBIT has grown steadily to £16m in 2019 15 16 14 14 • Stand still EBIT calculates EBIT 10 after allowing for the cost of 10 replenishing attrition, measured 5 by sales rather than customers 0 -1 3 • NOTE: fro
Slide 30: Driven by growing repeat customer contribution
. . . driven by growing repeat customer contribution Naked Group contribution by cohort 50 45 40 5.0 35 3.9 30 11.0 25 4.9 11.8 20 3.8 10.5 8.5 15 7.8 2.7 9.4 6.0 10 7.1 6.2 5.6 4.5 5 1.4 5.0 4.0 3.3 4.0 3.6 2.8 0 3.0 2.6 2.3 1.9 FY14 FY15 FY16 FY17 FY18 FY19 FY13 FY14 FY15 FY16 FY17 FY18 FY19 30 20
Slide 31: Which has been driven by increased investment
… which has been driven by increased investment 22% CAGR 19.1 The bulk of the return on FY19 investment will 14.6 14.0 come through in FY20 10.3 8.1 7.0 FY14 FY15 FY16 FY17 FY18 FY19 31 2019 Full Year Results & Investor Presentation
Slide 32: Approach to capital allocation
Approach to capital allocation We want to be So we will ... Capital efficient • Priorities for capital allocation are: • Healthy balance sheet • Growth • Return surplus cash to shareholders High growth • We will maximise investment in new customers, even if that reduces short term EBIT • We test hun
Slide 33: We aim to grow faster and be more efficient
We aim to grow faster and be more efficient New customer investment IT, AI, data science capability • Expect to maintain organic +15% • Automation - reducing costs by growth in new customer investment automating manual tasks • And to grow digital marketing faster • Optimisation - reducing “friction”
Slide 34: 2020 Naked Wines Plc pro-forma
2020 Naked Wines Plc pro-forma Note £m FY19 FY20 • Repeat customer contribution Repeat contribution 39.8 46.4 will largely come from customers New customer investment (19.1) (26.1) already acquired Fixed costs (14.0) (14.0) • Expect £9.5m central costs in EBIT 6.7 6.3 FY20 reflecting: Plc costs (6.0
Slide 35: 2020 Naked Wines Plc stand still EBIT
2020 Naked Wines Plc stand still EBIT £m FY19 FY20 Note Repeat contribution 39.8 46.4 • Repeat customer contribution will largely come from customers New customer investment (9.6) (11.3) already acquired Fixed costs (14.0) (14.0) EBIT 16.2 21.1 • Expect £9.5m central costs in FY20 reflecting: Plc co
Slide 36: If you want to extrapolate longer term
If you want to extrapolate longer term Naked Group contribution by cohort 50 7.0 8.1 10.3 14.6 14.0 19.1 26.0 • We generated £40m of 45 Investment 70% contribution from repeat 40 78% 13.4 customers last year 5.0 35 3.9 • We are targeting investing 30 11.0 4.9 £26m per year in FY20 25 11.8 20 8.5 10.
Slide 37: Balancing the Board composition towards the US market
Balancing the Board composition towards the US market - our biggest growth opportunity John Walden Katrina Cliffe Nick Devlin Chairman Elect Non Executive Director Chief Operating Officer • Previously CEO of Argos • American Express • 3 years at Naked • US native • NED at Homeserve • Led the growth
Slide 38: Our future is Naked
Our future is Naked On track A simple Clear focus for business growth • One brand Profitable growth by • We have a solid core • One model going: business • Faster - max investment • At our current rate of • One team at target returns investment we double it • Properly resourced profitably • Smarter
Slide 39: Q&A
Q&A
Slide 40: Appendices
ay, naked:—~ Appendices
Slide 41: Appendices
Appendices 1 Additional FY19 performance information – Group Summary – Business unit P&Ls 2 Guidance and forecasting – Subscription economics – Stand still and pro forma illustration – Guidance 3 Additional material – IFRS16 41 2019 Full Year Results & Investor Presentation
Slide 42: Group Summary
Group Summary £m unless otherwise stated FY19 FY18 YoY • Naked revenue growth accelerated to 14.5% (FY18: 11.3%); US particularly strong up Reported revenue 506.1 476.1 6.3% 21.0% Group underlying revenue 505.1 477.5 5.8% • Majestic Retail underlying revenue growth of Adjusted EBIT 12.1 18.1 (32.9)%
Slide 43: Business Unit Detail: Naked Wines
Business Unit Detail: Naked Wines Underlying FY19 FY18 YoY % £'000 £'000 Revenue 178,438 155,885 14.5% Gross profit 68,470 55,305 23.8% Gross margin 38% 35% +289 bps Distribution costs (30,057) (24,239) 24.0% Administrative costs (31,757) (22,491) 41.2% Adjusted EBIT 6,656 8,574 (22.4%) 43 2019 Full
Slide 44: Business Unit Detail: Naked revenue by geography
Business Unit Detail: Naked revenue by geography Underlying FY19 FY18 YoY % £m £m UK 71.8 66.5 8% US 75.6 62.6 21% Australia 31.0 26.8 16% Total revenue 178.4 155.9 15% 44 2019 Full Year Results & Investor Presentation
Slide 45: Business Unit Detail: Majestic Retail
Business Unit Detail: Majestic Retail Underlying FY19 FY18 YoY % £’000 £’000 Revenue 267,664 263,764 1.5% Gross profit 58,463 60,423 (3.2%) Gross margin 21.8% 22.9% (107 bps) Distribution costs (31,239) (30,385) 2.8% Administrative costs (15,891) (16,689) (4.8%) Adjusted EBIT 11,333 13,349 (15.1%) 4
Slide 46: Business Unit Detail: Majestic Commercial
Business Unit Detail: Majestic Commercial Underlying FY19 FY18 YoY % £’000 £’000 Revenue 44,132 43,360 1.8% Gross profit 7,949 7,694 3.3% Gross margin 18.0% 17.7% 27 bps Distribution costs (3,160) (3,059) 3.3% Administrative costs (2,277) (2,200) 3.5% Adjusted EBIT 2,512 2,435 3.2% 46 2019 Full Year
Slide 47: Business Unit Detail: Lay & Wheeler
Business Unit Detail: Lay & Wheeler Underlying FY19 FY18 YoY % £’000 £’000 Revenue 14,896 14,549 2.4% Gross profit 4,234 4,042 4.8% Gross margin 28.4% 27.8% 64 bps Distribution costs (1,156) (1,198) (3.5%) Administrative costs (1,927) (1,907) 1.0% Adjusted EBIT 1,151 937 22.8% 47 2019 Full Year Resu
Slide 48: Plc costs & Group
Plc costs & Group Underlying FY19 FY18 YoY % £’000 £’000 Administrative costs (9,614) (7,208) 33.4% Adjusted EBIT (9,614) (7,208) 33.4% Group Revenue 505,130 477,558 5.8% Gross profit 139,116 127,464 9.1% Gross margin 27.5% 26.7% +85 bps Distribution costs (65,612) (58,882) 11.4% Administrative cost
Slide 49: Reminder: subscription customer cash flows
Reminder: Acquiring subscription customers generates a predictable stream of cash flows for years to come The simplest way to 2 understand Naked is… 1. For every £1 we spend 1 acquiring new customers 3 2. We make around £0.70- 2 £1 in contribution the Payback = Total contribution expected from a fol
Slide 50: Stand still and pro-forma illustration
Stand still and pro-forma illustration Stand still EBIT calculates EBIT after allowing for the cost of replenishing attrition, measured by sales rather than customers Calculation Components FY19 FY19 PF FY20 PF Calculation Repeat contribution 39.8 46.4 FY20 = (39.8 x 83%) + (19.1 x 70%) Retention 81
Slide 51: Stand still EBIT example
Stand still EBIT example Stand still EBIT calculates EBIT after allowing for the cost of replenishing attrition, measured by sales rather than customers Naked Group Contribution by Cohort Calculation Components FY19 7.0 8.1 10.3 14.6 14.0 19.1 26.0 Repeat contribution 39.8 50 Investment Retention 81
Slide 52: Naked and Plc Guidance Update
Naked and Plc Guidance Update FY19 Actual FY20 Medium-term New customer investment (£19m) +£7m +15% - 20% pa New customer contribution margin (75%) (80%) Variable New to Repeat conversion 183% 170-190% 160-190% Repeat sales retention 81% 82-84% 80-85% Repeat contribution margin 26% 26% Assume flat P
Slide 53: IFRS 16
IFRS 16 • Bring leases onto balance sheet as “Right of use asset” and associated liability • We are using the modified retrospective transition approach – Opening ROU assets = liabilities – Expected to be £55m - £65m • FY20 impact of current leases1 – EBITDA increases by c.£11m – EBIT increases by c
Slide 54: Payback at 4.0x and may move up
Payback at 4.0x and may move up Measurement Investment year Year end +12 mths +24 mths FY17 4.5 4.9 4.5 FY18 4.5 4.6 FY19 4.0 • FY19 payback forecast inline with 4.0x target, and likely to increase – No Easter in FY19 means sales per new customer will be lower than model expects – Focus on quality m
Slide 55: 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 56: 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 future contribution we expect to earn from the customers recruited this year to the inv
Slide 57: 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. credit card fees, delivery costs, customer facing staff costs) and marketing expenses. We often split contribution into t