Virgin Wines Uk (LSE:VINO) — Introduction to Virgin Wines

0:02 Good afternoon, ladies and gentlemen, and welcome to the VIRGIN WINES UK PLC Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please simply just type in your question in the box and press send. The company may not be in a position to answer every question it receives during this meeting. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your

0:33 Investor Meet company dashboard, and we will notify you by e mail when they are ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, I would like to submit the following poll. And if you could give that your attention, I'd be most grateful. And I'd now like to hand over to Jay Wright, CEO and Graham Weir, CFO from VIRGIN WINES UK. Good afternoon to you both. Great. Good afternoon. Thank you very much, and and thank you to everybody for for attending today. It's it's great that we got the opportunity to talk to you about Virgin Wines. Just by way of introduction, we're one of the largest direct to consumer online wine retailers in The UK in a market with strong positive growth trends, especially in e commerce.

1:21 We have a unique sourcing model that helps drive both customer loyalty and high gross margins. We're profitable, resilient, yet fast growing and cash generative. And during 2020, we dispatched over 1,000,000 cases with revenue in excess of £70,000,000 and an EBITDA of £7,300,000 So just a little bit of background. I've been leading direct to consumer wine businesses for twenty three years now. I started running VIRGIN WINES back in 2008 when it was a subsidiary of Direct Wines. The remit of the time was to take a business that had lost £35,000,000 since its inception in 2000 and make it profitable. Alongside Graham, we achieved that taking the business to profit in our first year, which was FY o '9, and then built upon that profitability, increasing it over the coming years.

2:11 Having delivered significant shareholder value over that period, we completed an MBO of the business in 2013 backed by two private equity firms, Mobius and Connection Capital. We've subsequently focused on building the business by driving growth in our subscription schemes to the point where now nearly 73% of our core revenue comes from customers in our two key subscription channels. Our time with Mobius and Connection has seen us focused on long term sustainable profitability whilst maximizing retention and minimizing the lapse rate to a transformation of our customer base driven by the customer acquisition plan. This has given us the ideal platform to accelerate growth, which has been our key focus since FY 2019 and subsequently we've taken the business to the public markets.

2:59 So just a bit of a brief overview around the business. We have a reputation in the market for supplying premium wine using a sourcing model that takes vast amounts of rich data and analysis from our customers that allows us to blend wines to their exact taste profiles and their specific stylistic preferences. This is underpinned by low customer acquisition costs and a subscription model that boasts a 147,000 active members across a range of schemes, an annual reorder rate of 92% across our 120,000 WINES Bank customers giving very predictable levels of future revenue. For our financial year starting July 2019, we delivered revenue of $56,500,000 and an EBITDA of 4,400,000 Whilst our H1 performance in this financial year, so for the six months from July 2020 to the end of December twenty twenty one, we saw 54% growth year on year in revenue and $4,200,000 of EBITDA.

3:56 That's an additional $2,800,000 on top of the same six month period the previous year. So just moving on to the markets. And we sit within a very large $2,400,000,000 addressable market and have the good fortune to being positively influenced by two key but significant market trends. The first of those is premiumization. We've seen a continued increase in the price consumers willing to pay for bottle of wine as people drink a little less but want to drink better quality when they do. Wines priced over six pounds a bottle have increased from 15% of the market in 2012 to 12.3 sorry, to 44% in 2020. That's an increase from 3,900,000 consumers purchasing at that GBP 6 plus level in 2012 to GBP 12,300,000 in 2020.

4:46 With Virgin Wines being firmly placed in that GBP 6 plus level, this is naturally moving millions of potential customers into our space. We're also seeing a vast shift to online purchasing with consumers demand for the convenience of online shopping and home delivery accelerating at an ever increasing pace. Indeed, even prior to COVID, it was forecasted that by 2028, 53% of all retail sales would be online, up from 19% in 2019. We believe we've seen a structural shift in the way consumers shop over the past year and what was a trend has now become the chosen way to shop for many millions of people with Virgin Wines being ideally positioned to capitalize. With so much market share for us to capture within the DTC space, we're still only 10% of that sector and believe we can grow substantially within it, plus the trends in premiumization and the accelerated shift to buying online, not to mention the vast increase in popularity of subscription services.

5:46 We believe the most significant growth opportunity is right under on those with huge potential to grow within The UK and it's our ambition to double the size of the business over the next five years. So just moving on to our sourcing model. We have a unique way of sourcing wine that's absolutely key to our business model. Thanks to an extremely engaged customer base, we received many thousands of reviews and ratings for our wines. This bank of data is analyzed continually so that it informs our wine buying team on the exact stylistic preferences of our customers. So unlike other wine businesses, our buyers, who are also winemakers, work with wineries, estates, and bulk suppliers all around the world to blend wines that we know our customers are going to love, rather than buying wine off the peg made by someone with zero knowledge of their business where there's been no intervention from the internal buying team.

6:41 What this means is that we're part of the whole winemaking process from the start, working with our winemaking partners to choose and blend the ideal components for each wine. It means that rather than arriving at a beautiful winery, being wined and dined and then presented with a range of bottle product that we then pick from. We're choosing from all the individual vats or tanks of wine available, then blending them to achieve a toast profile that we know our customers will love because we're armed with all the data and information we need to do that. What this normally means is that we'll start with a base wine around 80% of really good quality but more entry level, then supercharge it with outstanding additional components. So we might pick a base Cabernet and then add some top quality o caged Cabernet from an outstanding vintage and some top class high end small batch Shiraz. And by expertly blending these high quality wines with the base product and pitching the residual sugar level just right, we can massively influence the taste profile while keeping costs really low.

7:44 Basically means we can produce better tasting wines for less cost, which can therefore demand a higher price and therefore generate greater margins, yet still rate at fantastic levels. This also means the vast majority of wine we sell are exclusive, so 93% by volume. And this has three key benefits. First, we control the exact blend and production so we can maximize the quality value ratio as well as the packaging, which is incredibly important. So we're in charge of all the product architecture, the MPD, the bottle shape, the weight, the label, the capsule, everything to try and make it perfect. Second, it means that our customers have to come back to us again and again to purchase the wines they love, creating loyalty and high reorder rates.

8:30 And third, it eliminates any kind of direct price comparison, meaning it's easier to better maintain and control margins. So really good example of how this creates loyalty and growth in practice is our black pig range, one of our most loved exclusive brands. In 2009, we created black pig Shiraz with our winemaking partner, Steve Grimley, out in Australia. This became a customer favorite to such an extent that we decided to extend the range to include a further six grape varieties. We then extended the range in 2,011 to include the slightly lower price selection, 16 Little Black Pigs. And then in 2017, we created a premium proposition, Black Pig the Prize, which retails at £19.99. The full range now comprises 19 different SKUs.

9:18 So a single wine that in its first year sold 14,000 bottles has developed into a multi tiered range that in the last twelve months has sold 783,000 bottles and delivered £5,700,000 of revenue.

9:33 The entire range also range at rates of 4.5 out of five, delivers incredible customer loyalty, high reorder rates and great gross margins. This is also a great example of the benefits of open source buying. We aren't tied or contracted to any winery or individual estate. What this means is that we can source the very best quality grapes from vintage to vintage. Grapes are an agricultural product and as such, we know that quality and price varies drastically from year to year, country to country, and region to region depending on the harvest. What this means is we can go wherever we want to make our wines, stylistically blend them to retain absolute consistency knowing we're maximizing quality, minimizing the cost, delivering maximum value to our customers and maximum margin to the business.

10:23 To show this in practice over the years, Blackpeak Shiraz has been made with grapes harvested from McLaren Vale, the Barossa Valley, the Clare Valley, and various other select locations over Southeast Australia as each year we find the very best source of quality grapes depending on the vintage and the harvest in different regions and then expertly blend the grapes to maintain stylistic consistency but maximize quality at the lowest possible price. So moving on to our customer acquisition model and obviously absolutely key to the business model is recruiting new customers. And to do this, we focus on five key criteria all in tandem. That's the right quantity at the right time, going to the right channel, at the right quality to maximize conversion rates, and at the right cost to ensure we're driving our return on investment and lifetime value.

11:16 It's a tried and tested model that we've refined over the years. Of particular note is our partner program, which is centered on creating relationships with other businesses that have large customer bases and similar demographic profiles. With WINES being so mass market, there's huge potential pool of partners that we can work with that gives this channel great growth potential as we increase our internal resource. This year, we'll recruit around 60,000 new customers through this channel at around an average of £12 each. So it has scale, delivers great value, good quality customers and has the scope with investment to be a much more substantial vehicle for customer acquisition. On top of this, digital marketing is also key in growing rapidly with more traditional methods such as PPC, SEO, retargeting, while still being important, almost being superseded by the likes of native advertising, programmatic, and digital TV.

12:13 We know how much money can be wasted in digital marketing, so we're incredibly disciplined around our processes, which is to test, learn, refine, and optimize before we scale. But we're really excited about the opportunities we have in this sphere and it's a key area of continued investment. The re recruitment of lapsed customers through both telemarketing and CRM campaigns also drive significant online ongoing volumes in a cost effective manner. So the marketing mix we employ, our discipline in testing and learning before scaling, and in particular, the reluctance to spend heavily on PPC, cost per thousand activity, inserts, off the page advertising and direct mail has kept our customer acquisition costs low with a proven and consistent ability over a number of years to recruit large numbers of new customers in the £12 to £16 per recruit level.

13:11 So there's no point in recruiting all these customers if we can't convert and retain them. One of our key differentiating factors is that we recognize that everyone isn't the same and different people want different things from their wine supplier.

13:25 That's why we don't think it's right to shoehorn everyone into a single scheme. And over the years, we've developed a variety of different ways that a whole range of different customers can engage with depending on what they want from their wine supplier. So the first of these is our wine bank scheme. We have a 118,000 customers currently on WINES Bank and they get spread the cost of buying wine by saving a chosen amount into their WINES Bank account each month. This defaults to £25, but it can be anything from £15 to a 100 pounds depending on people's buying habits. For every 5 pounds a customer saves, we give them an additional £1. We call this wine interest and it effectively pays a 20% interest rate on money the customer saves. In addition, customers also receive free express delivery standard, so your Amazon Prime model.

14:15 The beauty of the scheme is it allows customers to purchase whatever they want, whenever they want, but it also keeps them really engaged and really active with the regular monthly deposits and their monthly WINES Bank statements, watching the their the balances grow and their interest grow. The cancellation rate on WINES Bank is just over 15%, which is testament to its popularity and the value it delivers us. That's exceptionally low for a subscription scheme. At the moment, we're collecting around GBP 2,250,000 each month in regular deposits and hold anywhere between 4,000,000 and 5,500,000 of customer money in a ring fenced account at any time. So another more traditional program that we offer is our wine plan scheme and this is a service where customers auto ship to case every three months unless they tell us they prefer to skip.

15:05 It's a really convenient scheme for anyone who just wants their wine rack topping up with a great supply of wines every quarter and suits those who are really busy and just want the hassle taking out of their wine buying. Or for those who maybe don't know too much about wine, but want to go on a voyage of discovery experiencing wines that they may never have come across otherwise.

15:23 We currently have around 29,000 members across a variety of wine plan schemes. And then there is our pay as you go scheme. We know not everyone wants to be on a subscription service. So if customers just want to dip in and out when they please, that's also fine. It's a great way to introduce customers to the business, to build trust and engagement, and hopefully at some point upgrade them onto one of our subscription programs. But if people would prefer to just stay as a pay as you go customer, that's absolutely fine. They still have full access to our entire range of wines, beers, spirits. So moving on to enter the customer communication channels and all these customers that sit in these three different pots in our wine plan, wine bank or pay as you go pots are all marketed to through a variety of different sales channels.

16:12 The largest is email with well over £20,000,000 of sales per annum through that channel and sitting alongside this is our website where customers can come and shop whenever they want. The key about both these channels is that they're highly personalized and targeted. Our website alone has 28 different version versions that customers will see depending on their overall spend, their tastes, the bottle price they buy at, what style of wines they prefer, as well as everyone having an individually tailored carousel of wines uniquely delivered based on people's preferences.

16:45 This is also there's also a continual focus on conversion rate optimization, AB testing, UX, and the optimization of every customer journey. We also have a team of 40 wine advisers who personally look after around 40,000 customers between them and give them a truly bespoke personal service for the entirety of their relationship with Virgin Wines. This is a highly valued service by our members and it increases loyalty, minimizes churn, and maximizes revenue per customer per annum. The job of the Wine Advisor is to look after every need of their customers on a one to one basis by being their personal sommelier and to advise on every aspect of that customer's wine requirements whether that be ordering, different information they might require or something service focused.

17:31 We also use text messaging tactically to supercharge individual campaigns. And in normal circumstances, we have a comprehensive program of events and tastings all around The UK, which certainly we can't do at the moment, but we're really looking forward to getting back out and seeing our customers again as soon as we can.

17:50 So two new channels that we that we start in 2015 were our corporate sales and and gift channels, and both have grown to be substantial contributors to revenue and net contribution over the past few years. The corporate market is extremely buoyant for us with a high demand from other businesses to find ways to capture new customers, to incentivize their existing customers or to reward their staff. And wine, champagne, spirits and hampers are a great way to do that. Sales for the first six months of this financial year totaled 3,300,000 equal to our full FY 2019 revenue and not far behind last year's total annual sales. The online gift market is also in a period of significant growth, whether it be birthdays, anniversaries, congratulation gifts or Father's Day, we have a wonderfully curated and beautifully packaged range.

18:43 Again, it fits perfectly into our core competencies around product sourcing, NPD, fulfillment and delivery. Revenue for the first six months of this financial year was 3,900,000 already nearly $1,000,000 up on FY twenty twenty's full twelve month total. We're also the first business to go to market with a wine advent calendar five years ago. This has now grown into being a $1,000,000 plus campaign in its own right each year and now includes three different wine calendars alongside gin and beer versions.

19:15 We've also recently started to sell a range of beers and spirits following huge growth of the craft sectors of both product categories in The UK. Following extensive research, it became apparent there was demand for both spirits and beers across our existing customer base. And given we already have the infrastructure in place to be able to manage these categories with minimal additional resource, It seemed like an obvious way to increase customers' total wallet spend with us and drive average revenue per customer up from existing levels. Having dipped our toe in the water in FY twenty to gauge demand, we've begun to invest more heavily in its growth and sales for the first six months of this financial year were over 300% up and more than the whole of the previous financial year, giving us great confidence to continue to push these new product categories.

20:02 It's also our intention to replicate our exclusive product sourcing model into these two product areas as well for all the same reasons as already explained around that quality value ratio, repeat custom and the ability to avoid price comparison and therefore undermine margins. And we launched 11 exclusive beers, 15 exclusive spirits in the run up to Christmas. So I'd just like to hand over to Graham now who'll talk to you a bit about the operational side of our business and some of our financials. Thanks, Jay. Jay's talked about our our wine sourcing model that allows us to deliver consistently good gross margins and also our low cost of customer acquisition.

20:44 The third pillar in delivering our profitability is excellent customer service and low fulfillment costs. The current fulfillment costs for the business around £8 per case. This includes our warehouse pick and pack cost, our delivery cost to the customer, our customer services department, packaging, and card fees, and we try to keep this cost completely variable based on volumes. We back this up with great service levels. 99% of all orders received by 4PM are dispatched the same day for delivery to the customer, and this is complemented by very low breakage rates and picking errors within our warehouse operation. We operate with an in house customer services team.

21:31 We believe calls should be answered by a person and not by a machine, and great customer service is part of our company DNA and, we believe, crucial for long term customer retention.

21:43 The heavy lifting in on operational capabilities has been executed over the last few years. We now have a fully scalable operation to enable us to deliver the future growth plans of the business. The business was migrated to a new IT platform in late twenty sixteen with high built in resilience, and we've had virtually no unplanned downtime since that migration. We've since added Salesforce to give us a single view of all our customer contacts. During the first lockdown, just twelve months ago now, we were able to relocate a 140 of our office based staff to home working within a forty eight hour period with no loss of capability, and our warehouse operations have remained open throughout.

22:32 At the same time, a number of our competitors were either closing or restricting the the services they were offering their clients.

22:40 We've just increased our warehouse capacity by adding a further 50,000 square feet of warehousing in September last year to the 56,000 we already had, in effect, doubling our capacity. The business now has the infrastructure in place to deliver our future growth plans.

23:03 We have a profitable and cash generative business model. Pre COVID, the business was on track to deliver double digit growth for our f y twenty period. This was accelerated further by the impact of the first lockdown. And as a result in f y twenty, we saw revenue up 33% to 56,600,000. Our new recruits were up 43,000, 63%, and we ended the year with an extra 29,000 subscribers in our main membership schemes. And as a result, our EBITDA increased to 4,800,000.

23:40 We are continuing to see strong year on year growth in the first six months of our FY '21 period to December. Year on year sales were up 55% to 40,600,000. Our EBITDA was 4,500,000 for the first half with a net margin of over 10%.

24:01 Our new recruits were up 26%, and the active customer base grew by 33%. We've also seen positive trends from the COVID period recruits in terms of their conversion, retention, and repeat spend rates. The uplift during the COVID lockdown has given us the opportunity to now grow from a higher starting base and increase our investment in new customer acquisition and digital marketing. The underlying assumptions we have in our forecast model are based on historical norms for customer conversion, retention, repeat sales, and average order values with sales growth on average in the mid teens.

24:46 We will continue to drive up our EBITDA margins. This will be achieved by, improvements in gross margin through sales mix and the decline in our fixed cost percentage of sales, whilst we continue to invest heavily in new customer acquisition and marketing.

25:04 With a relatively modest CapEx requirement, business cash conversion is really strong, and our average cash conversion over the last three years was just over 100%. Post IPO, the business is currently debt free and operates without any borrowing facility.

25:25 VIRGIN WINES is a business built on solid foundations, and our future profitability is underpinned by a very loyal and profitable customer base with high year on year retention rates from the historical cohorts dating back to before 2010. One of the one of the KPIs that we look at in the business is what we call our terminal value, and this assumes that without further recruitment activity and based on the current sales retention rates, the closing base at f y twenty should generate a further 204,000,000 in revenue and 46,000,000 in net contribution over the next five years, and this will underpin the future profitability of the business.

26:11 Repeat sales retention rates are typically over 90%, and these jump to a 112% in f y twenty. Our forecast five year payback for recruits in f y eighteen and f y nineteen are 3.7 times and 4.5 times the initial investment cost. And our long term average payback on cohorts is four times after five years, increasing to 5.8 times over ten years. We're continuing to see positive trends across the business. The impact of COVID has accelerated these trends that were already apparent within the business, and we have seen great trends across the whole of 2020 both in terms of revenue and customer base growth.

27:02 The active customer base increasing by 41,000 from January to December 2020. We are closely monitoring these new customers who joined in 2020 and, in particular, those we recruited between March and June during the first lockdown. And just to give you an example of this, of 23,000 WINES Bank customers that we recruited between March and June, 58.8% of them have now converted, and this is higher than the normal five year average of 54%. We're seeing similar trends from our pay as you go customers who have got a conversion rate of 51 compared to a normal five year conversion rate of 36%. We're also seeing positive trends in the number of repeat orders, average gross profit, and of and average order values from our new customers and from existing customers.

28:01 Great. Thanks, Graham. So just really in in summary, we have positive market trends behind us with premiumization, the growth in online, and the rising popularity of subscription schemes all working in our favor. It's our ambition to double the size of the business within the next five years whilst driving EBITDA margin to 10% of revenue, and this means delivering mid teens annual growth rate. To achieve this growth plan, we haven't materially changed any of the assumptions or key levers in the business. We understand the impact that COVID's had in our business, so we're basing our conversion rates, our lapse rates, our sales retention rates, and our customer retention rates on pre COVID historical performance and what we already know we can achieve.

28:48 We believe this is a very prudent approach. The key driver of future growth is the planned increase in the customer base. We had a period of cautious investment in customer acquisition between FY twenty seventeen and FY twenty nineteen as we went through a customer based transformation, but accelerated that at the start of FY 'twenty with immediate and positive results. This has led to us planning a more aggressive customer acquisition plan, which is focused on building further on the channels where we already have proven success and gain the majority of our recruits through such as our partnership channel and digital marketing. We know there's significant headroom through increasing resource in our partnerships team and we plan to deliver 50% more recruits through that channel by FY twenty twenty three with little to no impact on the average cost per acquisition.

29:36 There are thousands of partners we can work with that we get to engage with, so we're increasing our internal results in that area to ensure we have the capacity to capture that opportunity. We've also planned to invest more heavily in our digital marketing to take advantage of the many opportunities in that sector, which we believe we're only scratching the surface of right now. And we've increased our planned average customer acquisition costs over the next three years, knowing that as we recruit more customers, the incremental costs will likely go up with 1,500,000 budgets allocated to recruit 100,000 customers this year, then moving to 2,500,000 to acquire 150,000 customers by FY twenty three. So that moves the average cost per acquisition from £15 to £16.50.

30:22 On top of that, we'll continue to expand our craft beer and spirits offering to increase average revenue per annum from our existing members whilst also attracting new customers. We will also continue to build our corporate channel and our gift business where we believe there's a there's substantial headroom for future growth. As you've heard, we have the infrastructure to manage this growth from an operational perspective and a robust IT platform that was built specifically for our requirements. Naturally, we're looking at other opportunities to grow in the future with potential for tactical acquisitions or expansion into other territories and utilizing our buying model and expertise in NPD to move into the supply of unique home crafted brands into the on and off trade retail sectors, all opportunities for us to explore and consider.

31:11 But right now, our focus is on investing in customer acquisition, building the customer base, allowing those customers to deliver market leading lifetime values in a proven back end model that consistently delivers profits and capturing significantly increased share of what's a very large UK market. Jay, Graham, thank you very much indeed for that presentation. Ladies and gentlemen, just while the company take a few moments to review the investor questions already submitted today, and I would encourage you to continue to submit your questions. Please do that using the Q and A tab situated on the right hand corner of your screen. But I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard. We will send you an e mail to notify you also when that's ready for your review. I'd also like to remind you that feedback is incredibly important to the company.

32:04 Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Jay Graham, obviously, had the opportunity to pre submit questions. I know what you have those in front of you. Perhaps I could hand over to you to address those and then perhaps look at the questions that have come in during the live event. And when you do come around to those, could I ask you to read out the question and give a response where it's appropriate to do so? Thanks once again. Yeah. No problem. So we've had a few questions come through to us in advance of the presentation. So thank you to those of you who've sent questions through. So we'll try and answer through a few of those now. I know there's quite a lot of questions that have come in during the presentation as well. So we'll we'll we'll aim to get through as many of those as we can over the course of the next twenty five minutes.

32:59 The first question that we had was was what is the growth opportunity for Virgin Wines post lockdown? And are they gonna be more of a similar trend? Will there be similar trends for online shopping to continue to grow with the same momentum post lockdown? So taking that in two in two stages, as mentioned, our our key focus is on investing more heavily in what we already do. So our focus is on The UK market and investing more aggressively in marketing customer acquisition. We can do that more aggressively due to the increased levels of profits that we're making. We're a self funded business, so we invest all of our profits back into back into growth. And now that we're debt free post IPO, that means we can invest much more heavily than ever before in growing the business.

33:47 And so as well as customer acquisition and digital marketing, we also have a number of additional growth channels with our b to b business that's growing really fast at the moment and significant opportunity for us with beers and spirits and the continued development of our of our gift business. So so loads of areas for us to us to invest in and grow over the course of next few years. In terms of what does the online shopping growth look like and how we're gonna perform within that as we as we come out of lockdown, I guess the the question on everyone's lips at the moment and the big unknown and if we all have crystal crystal balls, I guess we'd all be we'd all be looking at this with great interest. But but we need to wait and see what consumer behavior looks like. But we believe there's been a structural shift in the way that people buy over the course of the last the last twelve months.

34:39 So so we're we're very positive around the fact that people who've come online, who've had a great experience, hopefully, people who've bought offers over that period have have loved the product, enjoyed the service, feel they're getting great quality, great value, and will continue to enjoy that moving forward. And I think one of things I always say is that if you if people try it's no different to any new customer that we get. Anyone who tries us for the first time will have bought wine from somewhere else before that. And our job is to convince them that the quality they get, the value they get, the service that they get is better than what they were getting before. And that's that that that's our that's our complete focus. And I hope that's the same for customers who've come in over the last twelve months as it has been for customers who came in prior to that. But as restaurants and and bars and pubs open, I know we're all, myself included, is looking forward to getting back to like, having a pint at the pub again and a glass of wine. But only 15% of wine is consumed in the on trade.

35:38 So so I think that whilst 85% of wine that's consumed is consumed at people's homes And everywhere you can buy wine from from an off off trade perspective has been open still whether it be supermarkets, off licenses, majestic, our online competitors. All those places have still been open right the way through lockdown period. So I'm not sure it's as big a factor for us as some industries where retail has been shut and that's been their their their competitors. And and I think the other thing that maybe people aren't taking into account too much at the moment is that the everyone's looking forward to having friends and family backgrounds to their backgrounds to their their their homes again and entertaining at at their their house. And and and again, I'm sure that over the course of the next few months, as we're all able to socialize in our own home environments again, there'll be good opportunities for us to grow as that happens. So, you know, as as everyone, we're we're all we're all looking looking forward to seeing how the market develops over the course of the next the next few months and years.

36:43 One that a couple of people have have asked about, which which we often get asked about is the differences between virgin wines and naked wines. So just sort of picking that up. We we may look similar from the outside, but actually completely different businesses with completely different business models. We're completely focused on growing both our revenue and our profit than we always have been. We have a very wide range of different consumer propositions ideal for a wide range of different wine drinkers as you've as you've heard. We buy wine very differently using customer reviews to blend wine specifically to their stylistic preferences and being able to use the whole of the wine world to be able to deliver that year after year.

37:29 And we have an extensive very extensive range of wines over 600 as well as 300 spirits, 120 beers, a full gifting range, and a thriving b to b business. So so lots of very different points of points of difference, I think, between the two the two companies. Graham, there was a question regarding the company is. It says the company has made little profit in the past, and is the listing on the stock market opportunistic to take advantage of one off profits from the 2020 lockdown year when it did make profits? Perhaps you'd like to just answer that one. Thank you for that one. That's well, a a bouncer rather than a nice half volley.

38:15 Yeah. I think I think the premise of the that question is actually fundamentally wrong in that I think as Jay mentioned in his presentation, the business has actually been profitable since 2009 and consistently profitable. And I think in terms of our EBITDA margin as a percentage of sales, we're actually sector leading. And just to sort of give an example of that in terms of our our position for our f y twenty year end, where we did 56,500,000 and delivered 4,800,000 EBITDA and a 3,600,000 a 3,700,000 operating profit. We've just recently seen, figures for LatheWain's or Direct WINES Holdings who are one of our biggest competitors in the in The UK, and they've reported a 2,000,000 operating profit on 362,000,000 revenue.

39:16 So I think our profit record stands up really well. But I would also add to that is it's not just about profit. It's also about shareholder value. When Direct WINES bought Virgin Wines in 2005 for a pound, The business at that point had lost in excess of 30,000,000 in its first five years of operation. When Jay and I took over the running of the business in in in 2009, The business has been profitable since then. We were able to repay all the funding that Direct WINES had invested in the business. And, also, we obviously when we did the management buyout, they made a substantial profit on their initial £1 investment at that time.

40:06 And, obviously, since late twenty thirteen, the business has been owned by private equity and the management team. And since then, obviously, we've continued to grow the business. We've been consistently profitable every year. And, obviously, throughout the IPO process and, obviously, you've just finished, obviously, our our investors, our private equity investors have made ex exceptionally good returns on their initial investment in in the business, and we want to continue to do that for our new shareholders going forward. Great. Thank you, Graham. So another one that's can we because could I give a concise two to three line of pitch roughly as to why you should allocate your capital and invest in Virgin Wines?

40:57 I guess I'm hope I'm hoping that I've done a good thirty minute pitch on on why to invest in virgin wines. But but to summarize, I guess, in a few points, I'll point you towards our our low cost of customer acquisition, driving high levels of lifetime value, our market leading sales retention and customer retention rates, the aggressive growth strategy which is self funded by the profits we make alongside the thriving b2b business and fast growing beer, spirit and gift product categories, all of which together delivers the highest percentage of profit on revenue by a significant distance in our market. So I guess there's a there's a very, very quick the elevator pitch for you if that's a if that's what it's called these days. So what else have we got? Few questions about the market.

41:49 I've been asked if we could explain what share of the market we've got. I think I mentioned we've got 10% of the direct to consumer market. So it's a there's a 2,400,000,000 addressable market. The direct to consumer market within that is about 780,000,000. We have around 10% of of that market. What do we think we can we could we can grow our our market share too? Well, The d to d d to c sector is is forecasted to grow at around about 10% per annum, and our ambition is to grow it grow it at mid teens. And therefore, I think you can see just by those numbers that our our aim is to capture substantial amounts of existing market share as well as organically from the from the growth in online.

42:40 And then the other one is just around have one around what are our main who are our main competitors and and what's their market share. And it's quite interesting. I think the the the main players in the I mean, there's four main players in the market. Graham's talked about LatheWaits a minute ago, but there's Nate we talked about Naked Wines. So three of so ourselves, Naked Wines, LatheWaits. And then the Wine Society, Those four businesses between them account for over 60% of the market, so it's pretty dominated by by those four businesses. And then there's a large number of much smaller players over and above that as well. So that's what the sort of market looks like. In terms of Brexit, we've got asked a question about whether does Brexit present any material logistical or financial challenges as regards importing wine from EU countries?

43:31 Again, Graham, you're the you're the Brexit expert on this, so maybe you'd like to pick that one up. Yes. We've we've had the opportunity of doing lots of Brexit planning over the last sort of four years. I think we we very much see Brexit as business as usual. We our business is slightly new world centric anyway, roughly sort of 40% in favor of new world wines. And, obviously, what we're being asked to do now for bringing wines in from Europe is effectively what we've been doing all along in terms of bringing wines in from the rest of the world. So we're very familiar with the paperwork. We've we've worked with extremely professional freight forwarders, and and, obviously, we we haven't really seen any particular issues resulting from the exits at the at the end of last year. And we we are seeing some increases in freight prices coming through, I think, because the hauliers themselves are obviously having some additional costs involved with with with their with their business.

44:43 We think they're manageable overall. The the freight element of a bottle of wine that we sell is relatively low overall. So, therefore, there will be some impact, but it'll be relatively minor in terms of our overall cost structure. We also are seeing some benefit from the fact that the pound has actually improved recently against the euro, particularly. And, obviously, that's helped us with our our our cost of of the underlying cost of wine itself. We also, obviously, prepared in advance for for Brexit, so we brought in around two months extra worth of of European wines in November and December 2020 that we had extra buffer stock in place for the early part of of 2021.

45:33 And, again, we're just continuing to to top that up. We've increased our our lead times on European wines by a few weeks as well just to give ourselves extra buffer when we bring things in. So it is a change. It's a big change, obviously, for the country overall. But, again, we're just used to this type of thing. And as far as we are concerned, it's it's very much business as usual, we just get on with it. Yeah. I think probably ships being stuck in the Suez Canal is a bigger problem at the moment, aren't they? Is there is Brexit in terms of trying to get get things into the is The UK, but there we go. These these awesome ones. If there's any Australian wine stuck behind that big ship. Yeah. Exactly. Okay. So and I mean, loads of questions coming in, so thank you all very much for for being so interactive with this. It's that that's great. There's another one here, Graham, just around whether what our approach to capital expenditure is in investing in the business and the operations. So I don't if you wanna pick that one up as well.

46:37 Yeah. I think I think I touched on briefly the fact that the business is is is very cash generative and and and it always sort of has been. And it also has a relatively light CapEx requirement overall. So over the last three years, our average CapEx spend has been below 350 k per annum. That that doesn't mean we won't invest. We will continue to invest in areas where we think we can improve the business overall, particularly around IT. Obviously, we know the IT landscape is is always changing and functionality needs to be enhanced. So we will continue to invest in IT as as we need. We have our own internal IT developers as well, and, obviously, they do quite a lot of our of our development work for us. We continually look at our warehouse operations to see if we can improve efficiency around that. And, obviously, with the signing the new lease last September on our new warehouse, effectively, that's doubled our capacity.

47:42 We're doing some fit out continuing fit out of that at the moment. We'll continue to invest in in in the warehousing capacity to make sure that's as efficient as we possibly can. And we also continue to invest in new product development. Again, we've been very successful in recent years in developing new products within our gift range and our own unique products within within our wine range and now within beers and spirits. And, obviously, we're gonna continue to invest within that as well. Great. Thank you, Graham. Right. Looking through these questions. Sorry. There's lots to get through, so I'll do my best to be as sort of as of as accurate but brief as we can. There's a question here. Says, very interesting presentation. How it looked how do we look to accelerate and increase our D2C market share?

48:34 And do we look to do this organically? Or the remainder of the market fragmented enough to enable you to grow through M and A? I think as I sort of mentioned, I think our main aim right now is to invest more heavily and aggressively in customer acquisition and then using all those other areas such as beer, spirits, corporate, and and gift to grow the business. But I don't think we'd ever say never to anything. And if great opportunities arose in any of those sectors to grow the business, then then, obviously, we'd look at them all on their own merits. So so so so yeah. I think sort of organically, first and foremost, with the with increased investment, and then we'd look at other opportunities as they as they arise.

49:22 There's a couple of questions that have come in around the relationship with Visa being phrased in various different ways, but the fundamental bit is that it's really about the relationship of the business with the VIRGIN brand and how and how that and how that works. And so we have the brands under license from from the VIRGIN group. We we have a twenty five year license on that. That that that runs out in 2029. We we pay a small amount, very small percentage of revenue for the benefit of using using the brand that we're not. We can't disclose that. We've got confidentiality agreements around around that, but it's a small it's a small amount of revenue that we spend.

50:07 And we have a great relationship with the Virgin business where we we have great amounts of cooperation within the wider Virgin business. We work really closely with Virgin Media, Virgin Money, Virgin Atlantic, Virgin Holidays, etcetera, etcetera. And and so we're we're really, you know, we're really we're really grateful for the opportunities that that network gives us, and we have a fantastic relationship with the Virgin management team as well. And I think as Graham, like, sort of expanded on a bit more, the the Virgin Wines business was disposed off by the Virgin Group for a pound back in 2005 because it was probably quite a big problem for them at that point given loss making. I think they're really proud of what's happened with Virgin Wines since then and the amount of very of of a huge customer advocacy that we have.

50:56 And I hope we do a great a great job for Virgin Group in terms of fulfilling kind of brand values that we that we live and breathe around, you know, great great customer service, great quality, fantastic value disrupting the market to try and make to try and make it, you know, customers have a better experience all the time, and that's what we're trying to do. So so I will very much be to continue, obviously, working under the VIRGIN brand for the for for many years to come. Graham, there's a question around what was the main reason behind this listing on the London Stock Exchange as opposed to remaining private. So, again, I think we've got some good reasons for why we chose to go down this route. Perhaps you wanna expand on those?

51:41 Yes. We obviously, our after the NBO in November 2013, we obviously had PE investors, two separate ones, company called Connection Capital and one called Mobius. And we we had decided about twelve months ago or a little bit earlier that, obviously, we needed to do a form of of exit or refinancing that we intended to start in in mid sort of twenty twenty. And initially, we looked at a at a traditional sort of m and a approach. But very early on in the process, Mobius, who were our main shareholder, came to us and said, basically, they were really keen to remain a shareholder in the business going forward, but they weren't in a position to invest new funds and suggested we look at the IPO route as a as a way of exiting connection capital and and, obviously, creating a new way for the business to be financed going forward. So as soon as Jay and I sort of looked at the option around that and discussed it with advisers, initially, we thought it was a a fantastic opportunity for the business overall to be debt free going forward.

53:05 I think we were concerned that if we'd gone down a a secondary PE route, the business would have been extremely highly geared, which may have restricted what we were able to do going forward. So we like the idea of having a business that was completely debt free. We like the idea of broadening the shareholder base of of the business as well, particularly because we've we've got a lot of really exceptional staff, and we were really keen to have the opportunity to extend shareholding within our within our own staff. But, also, we know we had a lot of customers within the business who also would have been keen to invest in the business going forward. So it just was a well, as soon as we'd learned about it, we just thought it was a fantastic opportunity.

53:52 And we thought, based on the size of the business, that AIM was the right market for us at at this point based on size and current profitability levels of the business. Brilliant. Thank you, Graham. Quick one on the low on on the no low alcohol category growing rapidly. Is this something we'll be addressing? Very much so. It's it's it's something we've already addressed. We've got we have got, albeit, not a huge, but a reasonable low no range. And it's and and and and actually, particularly with the with our movement into beer and spirits, it actually makes us being able to offer really, really good no low alcohol products in those two categories.

54:38 It'd be a bit easy because no low alcohol gin in particular and beers are are fantastic, and there's some and there's some brilliant tasting wonderful products in that particular category. It is still more difficult to get fantastic wine to taste like wine at that low low level. It's not at the at the eight, nine so so lower alcohol level, 89%, which is where we're really focusing on with the wines. It's it's very possible to make great wine at that level. It's more it's more difficult at the low low range, but we are working really hard with a whole range of of people to be able to do more of that, and we see it very much as a growth area as well. So, yeah, thank you for that question. Clarifying remarks on my expectation for customer recruitment this year.

55:23 You said I I think you said you hope to recruit 60,000 f y twenty one, but that feels a bit low. You're right. 60,000 through our partnership team in f y twenty one. The overall aim is for a 100,000 customers this year. And, obviously, you know, if we could if we can beat that number, we'll be working hard to do it. But a 100,000 is our aim for this year with 60,000 coming from the partnership team. So just to just to clarify that. Graham, maybe we'll just to just to talk about around our dividend policy and what we might hope to do in the medium term on that. Yeah. I I think I've I've just to clarify, I sort of short term objective at the moment is to is to invest in future growth.

56:11 So we we have no plans to to actually create an immediate dividend policy. But I think I've already said, obviously, the business is cash is extremely cash generative. And, obviously, as we go forward and grow in scale and we increase our profitability, then, obviously, it's something that we will be reviewing with our advisers, and we will come forward with a with a policy in in due course. But I think, certainly, for the for the immediate future, we want to really focus on on finding areas where we can reinvest to grow the business strong quickly quickly and increase our overall profitability. Thanks, Graham. There's one here regarding, have we considered more active use of influencer or celebrity partnership marketing to b to c client base as part of our digital marketing platform?

57:02 Yeah. We've used we've used influencer marketing for both our discovery club scheme and for our and for our advent calendar campaign really successfully over the course of the last twelve months. I think we've gotta be really careful who we who we wanna use as influencers for that. I think there's a there's a lot of there's a of people out there who everyone's trying to be an influencer these days or a celebrity partner of some sort. So so I think we wanna be really careful about who we who we tie up with. But we've actually got a great initiative on the go with which has been recently in the press with Phil Tophamal, which we're doing some work with. Tough as Tipples, which will be something which we're looking forward to to sort of building all over this next year. But, yep, it's an area which, for sure, we'll we'll continue to explore.

57:55 Mark, I'm not sure time wise how we're doing. It's 12:59. What am I allowed to to do? Sir, you you may you may take us as whatever time. I'm obviously mindful that perhaps you might have other meetings today and investors might have other meetings, but feel free to to take as much time as you need to. Okay. So well, so I'm trying I I know we can answer some of these questions at the event. So if I try to do another five minutes, is that okay? And then we can move on. Absolutely. And and we'll present back to you any questions that you didn't get around to, so no problem. Okay. That's great. So right. What else have I got here? There's one around what we would see the size conservatively in terms of millions, I'm assuming, of revenue with our craft beer sales. Do we think we can achieve them?

58:47 I guess there's a bit of a how long is a piece of string around this. Well, I think we see we we see both the spirit and the beer markets of being extremely substantial. I mean, the gin market in The UK alone is now over £1,000,000,000. So so I I don't think it would be it it would be unwise just to not set our sights quite quite highly around this. What I would say is I don't I don't really wanna put a number on it because I think it's difficult to put numbers on things when you're only in the very sort of embryonic stages of launching something. What I would say is we're very ambitious in terms of our plans around it and and that we're and that we will be investing quite heavily in the expansion of both of those two product areas moving forwards and that we see an an awful lot of growth opportunity there. What we don't want is to do anything and then just be an ancillary to what we do. If we're going into something, we wanna do it brilliantly.

59:43 We wanna be the best at what we do, and we'll absolutely be taking that approach to to the craft beer into the spirit markets. And and, yeah, I'd like Virgin Wines to end up being a complete composite one stop shop for everyone's drinks requirements. Everyone's drink needs, and that includes the low mo market as well as referenced before. So, you know, wine, beer, spirits, gifts, b two b, low mo, the whole the whole lot, and and that's very much our our aim. Hope that answers the question without giving you a number. What else have we got on here? There's one that says, do you believe less aggressive customer acquisition strategy in FY seventeen to nineteen enhanced payback in that period? And what tends to be the impact on payback when you acquire customers more aggressively. I mean, the the the reason for that was because we were actually just going through a transformation period of the sorry. The the the less aggressive strategy was around We were moving our our our customer base from being more sort of wine plan focused into being one much more focused on on our wine bank scheme.

1:00:51 Lots of customer insight went into driving that and and our wine bank scheme has been incredibly popular. Like I mentioned, the the cancellation rates have only been 15% on WINES Bank, which which which is extraordinary. So so I think people love being on it. And so on the back of that, we started to transform the business into being a much more heavily WINES Bank focused business than WINES Plan. That was really why we went through the less aggressive customer acquisition strategy at that point. And then when you've proved, obviously, that concept improved, it's working really well. You could put the accelerator down and really drive for growth again. So that that was the reason behind that. I think that I've tried to explain that in terms of customer acquisition overall, we have we take a very disciplined approach to it. So we don't just pile a lot of money into an area in the hope that we'll bring more customers in and in the hope that they will deliver similar lifetime values. You know, we test, we learn, and we optimize, and then we scale. And and in all of the areas that we go about customer acquisition, we we make sure that we can deliver the payback of the levels that we want to before we scale and before you can impact that too much. So so now hence, the the very clear direction of building our partnership team and bringing in many thousands more customers through that tried and tested approach and being very clear around the test strategy that we've got around digital marketing and making sure that we can we can understand how customers behave in the long term before spending millions

1:02:23 of pounds on bringing customers who who may not behave in a similar fashion. So so that's the that's the strategy around customer acquisition. Jay, may maybe I could just jump in. Obviously, you've you've had a very intensive session with q and a. I mean, you've had quite a quite a lot of questions come in. And, of course, thank you to everybody that has submitted those questions. What I would propose, Jay, because I know investor feedback is important and perhaps, you know, what what we should do is if I could ask you for a few closing remarks. When the session is finished, I'll send you all the Q and A for you to review anyway so you guys can address any questions from investors where it's appropriate. As I say, so if I could just hand back to you for a few closing remarks, I'll then direct investors to provide you feedback, and then we'll terminate the session. Okay.

1:03:08 Yeah. Thanks, Mark. And well, I guess, first of all, thank you to everybody who's taken time out of their day to day to come and listen to us talk about VIRGIN WINES. I think the thing that we haven't really talked much about at all because is is the people in the business and the team and what we do and and and the reason that we do what we do. And we're very we're very culture focused in the business. We actually love what we do. I do this because I absolutely love it. I get up every day and look forward to working and look forward to being part of the team and look forward to hopefully giving our customers great service. And we have something called our brand DNA, and it it sort of details all of the different things that are that are vital to our business around the culture, the val our values, our behaviors. But right at the center of that is our purpose, and and our purpose is to make people's life more enjoyable. And that's what we get up every day and that's why we go about doing what we do. And we don't do what we do to to send emails or to have meetings or even to sell wine or beers or spirits. We do it to make people's life more enjoyable. And we hope that when that big red box turns up on people's doorsteps, it's part of the really good part of their of their day that we look forward to. And I hope that when people consume the wines and the beers and the spirits they buy from us, it's part of the social part of their life, part of the good part of their life, and that we're we're able to play a really positive part in that. So, you know, and we've just got the most fantastic team of people around us who care and are so committed and are desperately keen to create something here, which is which is a legacy for us in the years to

1:04:39 come because we believe we've got an incredible opportunity to dominate drinks retailing here in The UK, and that's our aim. And I hope that with with your support, we can go on and do that. Jay, what a great way to end. Thank you very much to both Jay and to Graham for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback? If you access this meeting from our website, the feedback page will appear. But if you access this meeting via the link sent to you via email, you'll simply be asked to log back in to then provide your feedback. And if you could spend a little bit of time, I'm sure the company will be very grateful. On behalf of Jay and Graham and the management team at VIRGIN WINES, we'd like to thank you for attending today's presentation. That now concludes today's session. Good afternoon, and have a good weekend.