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WINE Naked Wines Plc

55.10
-2.40 (-4.17%)
Last Updated: 14:25:26
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Naked Wines Plc LSE:WINE London Ordinary Share GB00B021F836 ORD 7.5P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -2.40 -4.17% 55.10 55.10 57.30 55.10 55.10 55.10 100,345 14:25:26
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Wine,brandy & Brandy Spirits 354.05M -17.41M -0.2353 -2.34 40.78M

Majestic Wine PLC Half Year Results (2874X)

23/11/2017 7:00am

UK Regulatory


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TIDMWINE

RNS Number : 2874X

Majestic Wine PLC

23 November 2017

For Immediate Release 23 November 2017

Majestic Wine PLC

("Majestic" or the "Group")

Half Year Results for the 26 weeks ended 2 October 2017

Ready to accelerate growth

-- Adjusted PBT(2) up GBP6.7m to GBP6.8m from breakeven in H1 2017. Statutory PBT GBP3.1m (H1 2017: GBP4.4m loss)

   --      Naked Wines profitable in all three geographic markets 
   --      Majestic Retail growing profitably, despite a tough market 

-- Sales up 5.7%, (4.2% underlying) on track to hit GBP500m sales target by 2019 and current market expectations(3)

   --      Interim dividend increased by 33.3% to 2.0p per share (H1 2017: 1.5p) 
 
                     H1 2018   H1 2017   % YoY  Underlying 
                                                       (4) 
                     GBP'000   GBP'000               % YoY 
------------------  --------  --------  ------  ---------- 
Revenue              217,361   205,640   +5.7%       +4.2% 
Adjusted EBIT(1)       7,337       700      NM          NM 
Adjusted PBT(2)        6,771        51      NM 
Profit/(loss) 
 before tax            3,079   (4,404) 
Basic EPS               2.4p    (6.1p) 
Adjusted EPS            7.9p      0.7p      NM 
Dividend per 
 share                  2.0p      1.5p  +33.3% 
Free Cash Flow(5)      3,565     2,832  +25.9% 
Reported net 
 (debt)             (25,640)  (25,090)   +2.2% 
------------------  --------  --------  ------  ---------- 
 

Rowan Gormley, Group Chief Executive, commented:

"The plan is on track.

Two years in and profits are growing, our foundation is solid and we are ready to accelerate growth. We have the opportunities to invest in new customers and a team excited to focus on what they do best. It's time to put our foot on the gas.

In this half, Naked Wines has demonstrated the quality of its model, people and management, by achieving profitability in all three geographical markets. It has become a disciplined business committed to continuous improvement.

The focus on empowering our wonderful store teams in Majestic Retail has finally borne fruit, with improved staff engagement flowing through into improved customer engagement, which means improved loyalty and retention.

The team have worked like demons and I am dead proud of every one of them."

Outlook:

We expect full year results to be in line with current market expectations. Looking further out, we aim to increase the rate of sales growth in the medium term, by steadily increasing our investment in new customer acquisition.

-------------------------------------------------------------------------------------------------------------------------------------------------

Majestic Wine PLC will host an analyst and investor briefing on Thursday 23 November 2017 at 8.45am at the offices of Instinctif, 65 Gresham Street, London, EC2V 7NQ. To attend please contact Gabby Clinkard on the details below.

A webcast will be made available after the meeting on our investor website: http://majesticwineplc.co.uk/investor-centre/results-centre/

Press Images are available on: http://majesticwineplc.co.uk/media-centre/images-logos/

-----------------------------------------------------------------------------------------------------------------------------------------------------

Notes:

(1) Adjusted EBIT is operating profit adjusted for amortisation of acquired intangibles, acquisition costs, share based payment charges, restructuring costs, net fair value movement through P&L on financial instruments and adjusting en primeur results to reflect profits on orders rather than on wine fulfilment

(2) Adjusted PBT is defined as Adjusted EBIT less net finance charges

(3) Analyst consensus estimates can be found on www.majesticwineplc.co.uk

(4) Underlying movement (a) includes en primeur revenues in year of order not year of fulfilment (b) is calculated using constant FX rates for translation of the comparative period and (c ) IT costs reallocated to PLC (A reconciliation between Reported and Underlying results by segment for H1 2017 is included in the Additional unaudited information)

(5) Free cash flow is defined as cash generated from operations less capital expenditure and excluding cash Adjusted items

A summary of adjustment and underlying calculations are shown in the additional unaudited information at the end of this document.

For further information, please contact:

 
 Majestic Wine PLC                        Tel: 01923 298 200 
  Rowan Gormley, Chief Executive 
  Officer 
  James Crawford, Chief Financial          Tel: 07891 206239 
  Officer                                  gabby.clinkard@majestic.co.uk 
  Gabriella Clinkard, Public & Investor 
  Relations 
 Investec (NOMAD & Joint Broker)           Tel: 0207 597 5970 
  Garry Levin / David Flin / David 
  Anderson / Carlton Nelson 
  Liberum (Joint Broker)                   Tel: 020 3100 2222 
   Peter Tracey / Richard Bootle 
 Instinctif Partners (PR Agency)          Tel: 0207 457 2020 
  Damian Reece / George Yeomans            or 07931 598 593 
 

About Majestic Wine PLC:

Majestic Wine PLC is a leading wine specialist, operating in four separate divisions, each with the fundamental goal of delivering sustained growth in shareholder value by doing the right thing for the Group's customers, suppliers and people:

--Majestic Retail - The UK's largest specialist wine retailer, with 210 branches in the UK and 2 in France. We help people find the wines they will love through over 1000 highly trained, specialist store team members. Reported sales for the year ended 3 April 2017 were GBP262.2m.

--Naked Wines - Funds independent winemakers to make exclusive wines at preferential prices which we pass onto customers. Naked Wines currently has 177 winemakers in 16 countries and 371,000 Mature Angels (Customers). Reported sales for the full year ended 3 April 2017 were GBP144.3m.

--Majestic Commercial - A specialist on-trade supplier who aims to support businesses to make their wine lists more profitable, with the unique advantage of running their supply chain through Majestic Retail stores. Reported sales for the year ended 3 April 2017 were GBP46.6m.

--Lay and Wheeler - A specialist fine wine merchant. Lay & Wheeler aims to be a trusted guide for people who love fine wine, supplying the world's finest wines with a personal service. Reported sales for the year ended 3 April 2017 were GBP12.3m.

Chief Executive's Review

We are ready to accelerate growth.

Two years into our three year transformation plan, I am pleased to report that:

   1.    Profits are up, 
   2.    We have a solid foundation for growth, and, 
   3.    We have increased our opportunities to invest in new customer acquisition 
   1.    Profits up 

Adjusted EBIT is up GBP6.6m to GBP7.3m. Reported PBT is back in the black at GBP3.1m vs a GBP4.4m loss in H1 2017. This was driven by Naked Wines achieving profitability in all three geographical markets, and continued profitable sales growth in Majestic Retail.

 
                  H1 FY 2018                 H1 FY 2017 
                 -------------------------  -------------------- 
                     Sales   Adjusted EBIT      Sales   Adjusted 
                   GBP'000         GBP'000    GBP'000       EBIT 
                                                         GBP'000 
---------------  ---------  --------------  ---------  --------- 
 Naked Wines        67,794           4,720     58,980    (2,775) 
---------------  ---------  --------------  ---------  --------- 
 Majestic 
  Retail           120,640           4,592    117,880      3,459 
---------------  ---------  --------------  ---------  --------- 
 Commercial         22,636           1,033     23,430      1,623 
---------------  ---------  --------------  ---------  --------- 
 Lay & Wheeler       6,291             392      5,350        276 
---------------  ---------  --------------  ---------  --------- 
 Central Costs           -         (3,400)          -    (1,883) 
---------------  ---------  --------------  ---------  --------- 
 Total             217,361           7,337    205,640        700 
---------------  ---------  --------------  ---------  --------- 
 

A reconciliation between Reported and Underlying results by segment for H1 2017 is included in the additional unaudited information at the end of this document.

Naked Wines

Naked Wines is now profitable in all three geographical markets. We've made particular progress in the USA (our largest market) where sales were up 9.9% and Adjusted EBIT increased by GBP5.2m, from a loss this time last year.

So what has driven the profit improvement in all three of Naked Wines geographies?

The biggest single factor has been growth in the customer base, which in turn has driven growth in contribution from Mature Angels by GBP3.8m, a 33.3% increase from H1 2017.

In addition, investment in New Customer Acquisition has fallen by GBP3.2m (40.3%) from H1 2017, of which we estimate GBP1.3m is due to timing and will reverse in H2 2018.

It is important to note that the growth in contribution from Mature Angels is consistent with the pattern of the last 5 years, despite the cut in marketing investment in New Customer Acquisition. This is because we were able to improve efficiency of our marketing investment through our ongoing test and learn programme.

Majestic Retail

The transformation of Majestic Retail is now flowing through to profit. The investments made to improve our customer proposition and the capabilities of the business are delivering higher sales while one-off transformation and double-running costs are now coming out. (Read on for more detail)

Majestic Commercial

As we stated in our results announcements, we intend to restore Majestic Commercial to growth from 2018 onwards. Our first priority has got to be the much bigger Retail business. As a result, adjusted EBIT fell 36.4% from H1 2017 to GBP1.0m.

Lay and Wheeler

The new management team at Lay & Wheeler continue to delight us with ongoing growth in sales and profits, showing what great leadership can achieve in a 160 year old business.

   2.    Solid Foundations 

We are coming to the end of the heavy lifting part of the Majestic Retail transformation plan.

The big projects are on time and on budget. This calendar year alone we have...

- Launched a new website, improving customer interaction and functionality, delivering better performance

- Completed the majority of store refits,

- Dramatically improved stock availability, and,

- Given our stores the customer data tools they need to build customer engagement and retention.

There are still more projects to come over the next 12 months - a new EPOS system and Accounting Systems.

More importantly, we now feel like we are getting real traction with the transformation plan at a fundamental level.

For the past two years, we've been saying that sales growth was heading in the right direction but customer retention and team retention haven't improved as much as we hoped. We finally feel like we are achieving real and sustained change, by empowering store managers to be entrepreneurs, rather than a traditional retail command and control environment.

This has largely been driven by our Franchise-Lite project, which we kicked off in earnest six months ago. There is still more work to do to fully tap the potential of this in our stores, but already some of our KPIs are moving in the right direction.

 
 Group           Definition            Majestic     Naked        Commercial   Lay & 
  KPI                                   Retail       Wines                     Wheeler 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 Repeat          % of repeat 
  customer        customers from         64.5%        70.1%        74.6%        96.0% 
  retention       12 months ago 
                  that are still         (H1 2017:    (H1 2017:    (H1 2017:    (H1 2017: 
                  repeat customers,      68.4%)       67.8%)       76.3%)(1)    93.2%) 
                  as measured 
                  from our customer 
                  databases 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 Product         % of targeted 
  availability    range available        84.3%        87.5%        87.2%        N/A 
                  in stores / 
                  on websites            (H1 2017:    (H1 2017:    (H1 2017: 
                  as indicated           78.3%)       83.6%)       85.0%) 
                  by our inventory 
                  reporting 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 Proportion      % of service 
  of 5-star       ratings scoring        88.6%        90.2%        87.9%        N/A 
  service         5* in last 2 
  ratings         months as recorded     (H1 2017:    (H1 2017:    (H1 2017:    (H1 2017: 
                  by websites            86.6%)       90.0%)       N/A)         92.1%) 
                  / apps / telephone 
                  feedback 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 Wine quality    % of "Yes" scores 
  (Buy it         in the last            89.4%        90.9% 
  Again           12 months as 
  Ratings)        recorded by            (H1 2017:    (H1 2017:    N/A          N/A 
                  websites / apps        90.9%)       91.0%) 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 Team retention  % of key staff 
                  (e.g. store            81.1%        84.3%        60.4%        100.0% 
                  managers) as 
                  of 12 months           (H1 2017:    (H1 2017:    (H1 2017:    (H1 2017: 
                  ago still working      77.0%)       90.0%)       75.0%)       81.0%) 
                  per payroll 
                  records 
---------------  -------------------  ------------  -----------  -----------  ----------- 
 

(1) This was incorrectly stated as 85.7% in the H1 2017 results announcement.

What has not worked

We like to tell you the things that haven't worked so you don't have to waste your time looking for them.

Firstly, Majestic Commercial is still in a holding pattern while we focus on the much larger Majestic Retail business. Last year, we said we would turn to it in earnest in 2018 and that remains the case. We thank the team there for their patience and hard work in the interim.

Secondly, Retail Customer Retention has fallen. We are confident that with Team Retention and Customer Engagement moving in the right direction, we will see an improvement in this KPI.

   3.    We have the investment opportunities to grow 

We have restored Return on Investment (ROI) in Naked Wines to 98% (H1 2017: 48%) through disciplined investment in new customer acquisition and reduced investment in under-performing direct mail in the USA.

We intend to revert to growing investment in New Customer Acquisition. Over the last five years this has grown on average by around 20% a year (with H1 2017 being an outlier) and we believe that we can continue to grow investment at that rate, or higher, in the future from the level established this year.

Although it is apparent that the opportunities for growth appear to be strongest in;

   -      Naked Wines rather than Majestic Retail, 
   -      Digital rather than traditional channels, and, 
   -      The USA rather than the UK, 

...it is important to note that we will invest wherever we see the best risk/return ratio, and are agnostic about where we can achieve that.

   4.    Summary and Outlook 

We are ready to put our foot on the gas and accelerate growth.

Two and a half years ago I said the reason I became Group CEO was because I saw the chance to grow shareholder value by driving growth in Naked Wines and restoring Majestic Retail's entrepreneurial spirit.

To get to this point we have had to do a lot of heavy lifting - unglamorous projects that don't get seen by our customers or investors, but build a solid platform for the growth phase.

Now, we have the investment opportunities to grow and a management team who can now focus on what they do best.

Naked Wines has demonstrated the quality of its model, people and management, by doubling sales since the acquisition and achieving profitability in all three geographical markets. It has become a disciplined business committed to continuous improvement.

The focus on empowering the wonderful people in Retail has finally borne fruit, with improved staff engagement flowing through into improved customer engagement, which means improved loyalty and retention.

We expect full year results to be in line with current market expectations. Looking further out, we aim to increase the rate of sales growth in the medium term, by steadily increasing our investment in new customer acquisition.

Rowan Gormley

Group Chief Executive

23 November 2017

Financial Review

   1.    Group Trading Overview: Sales growth converting to profitability 

Sales growth has translated strongly into profitability. Growing sales and gross margin improvement as our mix shifts towards the USA have driven the majority of our profit growth. We have also removed inefficiencies as the transformation projects in Majestic Retail are coming to an end and we eliminated underperforming marketing spend in Naked Wines. Sales growth of 5.7% was driven by a 4.2% underlying increase and 1.2% of currency translation improvements due to the weakening of sterling against the US dollar in particular. Due to the elimination of duplicated costs and inefficient investments this sales growth translated into Adjusted EBIT of GBP7.3m, up from GBP0.7m in H1 2017. Retranslating the prior period performance to current exchange rates adds an additional GBP0.3m to our underlying growth in adjusted EBIT, bringing total growth in this measure to GBP6.9m, predominantly due to the revised currency translation impact on the prior period's losses in the USA. Finance charges have reduced by GBP0.1m (12.8%) reflecting the lower average debt balance over the course of the period resulting in Adjusted PBT of GBP6.8m (H1 2017: GBP0.1m).

We continue to incur significant non-cash charges relating to the Naked Wines acquisition amounting to GBP3.9m, which we eliminate from our adjusted profit measures as they are non-cash and do not reflect the trading performance of the business. We also adjust a net GBP0.2m credit relating to share based payments and mark to market on FX contracts, both of which are non-cash and considered to distort trading performance due to volatility in either share price or exchange rate. After recognising these items we reported Profit before Tax for the period of GBP3.1m (H1 2017: GBP4.4m loss)

The GBP6.9m improvement in the underlying Adjusted EBIT has been generated by a combination of levers:

   --     Gross profit from sales growth    GBP2.3m 
   --     Gross margin improvement          GBP2.4m 
   --     Marketing phasing                            GBP1.3m 
   --     Cost movement                                 GBP0.9m 

We expect sales growth and cost efficiency to continue into H2 2018. The Group gross margin improvement is driven in equal parts by business unit mix and underlying improvement in Naked Wines gross margins. The latter will cease as the mix of New Customer to Mature Angel sales rebalances in H2 2018. Combining these continuing trends with a step up in marketing investment in H2 year on year we remain comfortable with market expectations.

In reviewing business unit performance the Board uses a constant currency presentation to enable accurate understanding of local dynamics, and separately tracks the impact to the group of currency translation versus the constant rate presentation. Furthermore, prior year underlying measures for Central Costs are adjusted within each business unit to include certain IT costs which were previously reported as part of Naked Wines and Majestic Retail in H1 2017. A schedule reconciling the reported H1 2017 results to the underlying version is included in the additional unaudited information at the end of this document and the business unit commentary that follows in this financial review is on that basis unless otherwise stated.

2. Naked Wines: Sustained growth in Mature Angels and efficient recruitment restores ROI and demonstrates innate profitability

We segment the Naked Wines business into two groups of customers - New Customer Acquisition and the Mature Angel customer base. The GBP7.3m increase in Adjusted EBIT can be attributed to (i) a GBP3.8m increase in Mature Angel Contribution (gross profit less fulfilment costs), (ii) a reduction of GBP3.2m in the total costs relating to New Customer Acquisition (gross profit less fulfilment costs and marketing), and (iii) a reduction of GBP0.3m in our administration cost base as we stabilised the team and reduced the level of Naked Wines shared overhead.

Looking down the income statement for the business, underlying sales growth of 10.9% to GBP67.8m vs H1 2017 was driven by:

-- Mature Angel sales growing 22.7%. We grew our closing Mature Angel numbers by 15.6% compared to the prior period, more of whom are in the higher spending US market

-- Sales to new customers declining 23.4% as we eliminated investment in recruitment marketing in channels and partners that were not delivering a return

This sales performance means that the revenues generated out of Naked Wines in the last 12 months are double the level reported when the business was acquired in April 2015.

Gross margin improved by 250bps, a combination of the smaller proportion of low margin sales to new customers, and an improvement of over 100bps in the average gross margin on Mature Angel sales, driven by mix shift to the USA and a reduction in the use of sales agents to trigger orders following a review of their performance. The combination of sales increase, margin improvement and increased efficiency in our fulfilment operations resulted in contribution from Mature Angels increasing by GBP3.8m.

Marketing spend for New Customer Acquisition reduced by 46.3% compared to H1 2017. This resulted in a 10.6% reduction in the number of new Mature Angels coming into the business, but a significant reduction in the cost per new Mature Angel.

We measure the performance of Naked Wines on the amount we have invested in growing the base of Mature Angels and the return on that investment (ROI) which is measured as the recurring contribution per Mature Angel divided by the cost of acquiring each Mature Angel. The amount of spend directed at growth in Mature Angels was reduced to GBP0.5m this year vs GBP1.9m in H1 2017. However the ROI on this investment was 98% compared to 48% in H1 2017. The product of growth spend and ROI is the amount of contribution added in the period to the next year's results, and stands at GBP0.5m this year vs GBP0.9m last year. We expect to recoup this reduction in H2 2018 as we have an investment plan more weighted to the second half.

3. Retail: Sales growth plus cost efficiency equals strong profit growth

Majestic Retail grew reported sales by 2.3% (2.0% underlying), a slowdown compared to the rate of growth last year. Despite increasing our Repeat customer base to 510,000 people, (H1 2017: 475,000) price increases, precipitated by weaker sterling raising input costs, resulted in a total volume reduction. It is however reassuring that we continue to grow revenue in an extremely competitive market.

Gross margin was 35bps higher year on year. This was the net of:

-- Trading margin (the difference between the price we sell and the cost we buy at) down 28bps: Whilst we recovered the bulk of the cost increases due to weaker currency we reduced certain prices to ensure we remained competitive on a number of key value lines.

   --      Lower selling costs in store year on year generating 63bps of improvement 

The remaining cost base increased GBP0.1m, just 0.5%, despite ongoing inflationary pressures and the addition of a half year of costs relating to our National Fulfilment Centre. As a reflection of coming to the end of the 'heavy lifting' part of the transformation plan, dual-operating costs are being eliminated from the cost base. For example, we have delivered considerable savings through re-negotiating costs as diverse as print media and insurance, we incurred no contract termination costs of the type recognised in H1 2017, and we have started to reflect the impact of national fulfilment and shelving in our store resourcing and operations.

The result of this is an increase in Adjusted EBIT of 22.7% to GBP4.6m at H1 2017

4. Commercial: Sales decline impacted profitability

We have described the slow-down in the Commercial business over the past two reporting periods and the trends have continued to be disappointing. Sales declined 3.4%, driven by poor retention and sales performance from our existing account base. Looking at our KPIs it is easy to see the high level of staff turnover. As a result it takes time for account relationships and processes to be re-established. As these handovers are taking place we have not delivered the price changes needed to recoup the input cost pressures resulting in trading gross margins declining by 65bps vs H1 2017 and lower cost recovery causing a further 82bps decline, resulting in gross margin of 14.7% (FY17: 16.2%). With distribution and admin costs increasing GBP0.1m in the half the business delivered adjusted EBIT of GBP1.0m, GBP0.6m lower versus the prior period comparative.

The account management team has stabilised but, as Rowan has already stated, it will require long-term fixes and implementation of a set of new systems before we have the division working as we would like.

5. Lay & Wheeler: Continued growth with focus on margins

Sales grew by 8.9% despite the strong comparative (28% reported in H1 2017) and elimination of certain low margin sales which improved our trading gross margin by 107bps. However, other selling costs reflected in our total cost of sales offset this improvement, resulting in higher gross profit of GBP0.1m year on year. Other costs were broadly flat so this dropped through to the adjusted EBIT line delivering a 42.0% improvement year on year.

6. Central costs: Increased by reallocations and additional staff

We moved our IT development function, previously part recognised in each of Naked Wines, Retail and Commercial, into our central costs this year which increased reported Central costs by GBP0.8m. We have also invested in building out our central digital marketing team which has developed a pipeline of high returning activity.

As a result of these changes, we report GBP3.4m of central costs versus H1 2017 of GBP2.7m on an underlying basis. Excluding the reallocated IT costs, H1 2017 central costs were GBP1.9m last year.

7. Adjusted items: Reducing in size and scope

We use a range of adjusted performance measures to describe our results, as we believe these measures support clearer understanding of the value accruing to our shareholders. Items we eliminate from our adjusted profits are:

-- Substantial non-cash charges relating to the Naked Wines acquisition which are reducing on a planned schedule and would otherwise distort our trading performance

-- En-primeur sales shipped this year where orders and cash were taken in prior years, as this is a better measure of our sales team performance

-- Credits (and charges) due to marking-to-market our FX contracts which fluctuate in value daily

-- Other share based payment charges which are non-cash and distort underlying performance as they are impacted by share price fluctuation in the period prior to the award

To ensure our shareholders can calculate the value of each share they own we provide a disclosure, in our earnings per share notes, of the full number of shares that would be in issue if all share awards were to vest.

The range and magnitude of these adjusted items continues to reduce. We categorise these as:

a. Acquisition related items (charge of GBP3.9m vs GBP5.4m in H1 2017): Having vested the first tranche of earn-out shares these are now fully expensed, resulting in a reduction in the acquisition related share based payment charge from GBP3.3m to GBP1.9m in the half. Similarly the shortest lived intangibles we recognised on acquisition (hiring costs and IT assets) have been fully amortised, reducing the charge from GBP2.2m to GBP1.9m in the half.

b. Other items (credit of GBP0.2m vs credit of GBP1.0m in H1 2017): We recognised no acquisition or restructuring costs in the half vs GBP0.2m in H1 2017. Revaluation of FX contracts, used to stabilise our product purchase costs, generated a gain of GBP0.9m (H1 2017 GBP1.6m). Our non-acquisition related share based payment charge increased to GBP0.6m versus GBP0.2m in H1 2017 as we made a significant LTIP award in July 2016 that is now generating a full 6 months of expense in the period, as well as having made additional smaller awards since. The adjustment for timing of en primeur sales reduced to GBP0.2m from GBP0.3m.

8. Taxation

Tax for the six month period represents an adjusted effective rate (defined as current period charge divided by adjusted PBT) of 22% based on a current period charge of GBP1.5m. Net movements in deferred tax are GBP0.1m, resulting in a reported effective tax rate of 49%.

9. Financing costs, cashflow and net debt: Costs reducing as average net debt balance reduces.

Financing costs reduced by 12.8% to GBP0.6m, as we carried a lower average balance on our revolving credit facility. Net debt at the end of H1 2018 was GBP25.6m, GBP0.5m higher year on year and unchanged versus the end of FY17.

During H1 2018, the business generated free cash flow of GBP3.6m, 48.6% of adjusted EBIT, impacted by higher inventory build in the USA and the UK. This cash flow was utilised to pay interest of GBP0.5m, income tax of GBP0.4m and dividends of GBP2.6m resulting in the small reduction in reported net debt to GBP25.6m (FY17 year end GBP25.7m).

Since the announcement of our transformation plan in 2015, we have a stated target of net debt at 0.5x EBITDA. With profitability improving and the business generating cash we remain on track to achieve this with period end net debt of 0.95x EBITDA.

10. Dividend

Our policy is to pay out c.35% of adjusted earnings in the year. Based on our outlook for the year the Board has approved an interim dividend payment of 2.0p per share, a 33% increase on H1 2017. The dividend will be payable on 22 December 2017 to shareholders on the register at 1 December 2017. The ex-dividend date is 30 November 2017.

James Crawford

Group Chief Financial Officer

23 November 2017

INDEPENT REVIEW REPORT TO MAJESTIC WINE PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 2 October 2017 which comprises the statement of comprehensive income, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 8. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 2 October 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Deloitte LLP

Statutory Auditor

St Albans, United Kingdom

23 November 2017

Unaudited consolidated income statement

 
                                       26 weeks    26 weeks    53 weeks 
                                          ended       ended       ended 
                                          2 Oct     26 Sept       3 Apr 
                               Note        2017        2016        2017 
 
                                        GBP'000     GBP'000     GBP'000 
 
 Revenue                                217,361     205,640     465,444 
 Cost of sales                        (158,676)   (152,693)   (343,837) 
----------------------------  -----  ----------  ----------  ---------- 
 Gross profit                            58,685      52,947     121,607 
 Distribution costs                    (27,288)    (25,081)    (55,646) 
 Administrative expenses               (28,154)    (31,986)    (67,018) 
 Other operating income                     402         365         811 
----------------------------  -----  ----------  ----------  ---------- 
 Operating profit/(loss)                  3,645     (3,755)       (246) 
 Net finance charge                       (566)       (649)     (1,222) 
----------------------------  -----  ----------  ----------  ---------- 
 Profit/(loss) before 
  taxation                                3,079     (4,404)     (1,468) 
 
 Analysed as: 
 Adjusted profit before 
  taxation                                6,771          51      12,877 
 Adjusted items: 
  - Non cash charges 
   relating to acquisitions       4     (3,857)     (5,443)    (11,267) 
  - Other adjusted 
   items                          4         165         988     (3,078) 
----------------------------  -----  ----------  ----------  ---------- 
 Profit/(loss) before 
  taxation                                3,079     (4,404)     (1,468) 
----------------------------  -----  ----------  ----------  ---------- 
 
 Taxation                         5     (1,503)         419     (1,227) 
 Profit/(loss) for 
  the period                              1,576     (3,985)     (2,695) 
----------------------------  -----  ----------  ----------  ---------- 
 
 
 Earnings/(loss) per 
  share 
 Basic                            6        2.4p      (6.1p)      (4.1p) 
 Diluted                          6        2.2p         N/A         N/A 
 Adjusted basic                   6        7.9p        0.7p       17.7p 
 Adjusted diluted                 6        7.4p        0.7p       16.3p 
----------------------------  -----  ----------  ----------  ---------- 
 

The results are all derived from continuing operations.

Unaudited consolidated statement of comprehensive income

 
                                        26 weeks   26 weeks   53 weeks 
                                           ended      ended      ended 
                                           2 Oct    26 Sept    3 April 
                                            2017       2016       2017 
                                         GBP'000    GBP'000    GBP'000 
 
 Profit/(loss) for the period              1,576    (3,985)    (2,695) 
 Other comprehensive (losses)/income 
 Currency translation differences          (207)      1,476      1,780 
-------------------------------------  ---------  ---------  --------- 
 Other comprehensive (losses)/income       (207)      1,476      1,780 
 
 Total comprehensive income/(losses) 
  for the period                           1,369    (2,509)      (915) 
-------------------------------------  ---------  ---------  --------- 
 

The total comprehensive income for the period and the prior periods is wholly attributable to the equity holders of the parent company, Majestic Wine PLC.

Other comprehensive income relates to foreign currency translation differences on consolidation of foreign currency subsidiaries. These gains and losses are recycled to the income statement in the event of the disposal of a foreign currency subsidiary.

Unaudited consolidated statement of changes in equity

 
                                               Capital 
                                               reserve       Capital       Currency                        Total 
                           Share      Share      - own    redemption    translation    Retained    shareholders' 
                         capital    premium     shares       reserve        reserve    earnings            funds 
                         GBP'000    GBP'000    GBP'000       GBP'000        GBP'000     GBP'000          GBP'000 
 
 At 28 March 
  2016                     5,307     20,441       (17)           363          2,058      81,062          109,214 
 Total comprehensive 
  income /(losses) 
  for the period               -          -          -             -          1,476     (3,985)          (2,509) 
 Shares issued                 1         58          -             -              -           -               59 
 Share based 
  payment charges 
  - ongoing                    -          -          -             -              -         167              167 
 Share based 
  payment charges 
  - acquisition 
  related                      -          -          -             -              -       3,062            3,062 
 Deferred taxation             -          -          -             -              -          47               47 
---------------------  ---------  ---------  ---------  ------------  -------------  ----------  --------------- 
 At 26 September 
  2016                     5,308     20,499       (17)           363          3,534      80,353          110,040 
 Total comprehensive 
  income for 
  the period                   -          -          -             -            304       1,290            1,594 
 Shares issued                 1          6          -             -              -           -                7 
 Share based 
  payment charges 
  - ongoing                    -          -          -             -              -         432              432 
 Share based 
  payment charges 
  - acquisition 
  related                                 -          -             -              -       3,611            3,611 
 Dividends 
  paid                         -          -          -             -              -     (1,062)          (1,062) 
 Deferred taxation             -          -          -             -              -        (50)             (50) 
---------------------  ---------  ---------  ---------  ------------  -------------  ----------  --------------- 
 At 3 April 
  2017                     5,309     20,505       (17)           363          3,838      84,574          114,572 
 Total comprehensive 
  (losses) /income 
  for the period               -          -          -             -          (207)       1,576            1,369 
 Shares issued                45         52          -             -              -        (43)               54 
 Share based 
  payment charges 
  - ongoing                    -          -          -             -              -         490              490 
 Share based 
  payment charges 
  - acquisition 
  related                      -          -          -             -              -       1,813            1,813 
 Dividends 
  paid                         -          -          -             -              -     (2,564)          (2,564) 
 Deferred taxation             -          -          -             -              -        (22)             (22) 
--------------------- 
 At 2 October 
  2017                     5,354     20,557       (17)           363          3,631      85,824          115,712 
---------------------  ---------  ---------  ---------  ------------  -------------  ----------  --------------- 
 

Unaudited consolidated balance sheet

 
                                    2 Oct     26 Sept     3 April 
                                     2017        2016        2017 
                                  GBP'000     GBP'000     GBP'000 
 
 Non current assets 
 Goodwill and intangible 
  assets                           49,610      54,154      51,447 
 Property, plant 
  and equipment                    66,561      69,103      68,011 
 En primeur purchases               2,315       1,772       1,841 
 Prepaid operating 
  lease costs                       1,791       2,033       1,905 
 Deferred tax assets                1,264       1,135       1,696 
-----------------------------              ----------  ---------- 
                                  121,541     128,197     124,900 
 
 Current assets 
 Inventories                      110,649      99,297      94,834 
 Trade and other 
  receivables                      15,125      15,743      14,973 
 En primeur purchases               3,716       2,558       3,030 
 Financial instruments 
  at fair value                       230       3,428           - 
 Cash and cash equivalents         11,878      11,495      23,007 
-----------------------------              ----------  ---------- 
                                  141,598     132,521     135,844 
 
 Total assets                     263,139     260,718     260,744 
 
 Current liabilities 
 Trade and other 
  payables                       (64,775)    (79,489)    (56,019) 
 En primeur deferred 
  income                          (4,653)     (3,182)     (3,937) 
 Deferred Angel income           (30,986)    (23,506)    (28,406) 
 Bank overdraft                  (11,804)     (3,169)    (12,537) 
 Provisions                         (232)       (241)       (235) 
 Deferred lease inducements         (645)       (430)       (437) 
 Bond financing                     (157)     (2,411)     (2,619) 
 Financial instruments 
  at fair value                     (179)           -     (1,090) 
 Current tax liabilities          (1,318)           -       (185) 
-----------------------------              ----------  ---------- 
                                (114,749)   (112,428)   (105,465) 
 Non-current liabilities 
 En primeur deferred 
  income                          (2,729)     (2,080)     (2,122) 
 Deferred lease inducements       (1,841)     (2,391)     (2,215) 
 Provisions                         (865)       (695)       (829) 
 Bank loan                       (23,112)    (28,415)    (33,512) 
 Bond financing                   (2,445)     (2,590)           - 
 Deferred tax liabilities         (1,686)     (2,079)     (2,029) 
-----------------------------  ----------  ----------  ---------- 
                                 (32,678)    (38,250)    (40,707) 
 
 Total liabilities              (147,427)   (150,678)   (146,172) 
 
 Net assets                       115,712     110,040     114,572 
-----------------------------  ----------  ----------  ---------- 
 
 Shareholders' funds 
 Called up share 
  capital                           5,354       5,308       5,309 
 Share premium                     20,557      20,499      20,505 
 Capital reserve 
  - own shares                       (17)        (17)        (17) 
 Capital redemption 
  reserve                             363         363         363 
 Currency translation 
  reserve                           3,631       3,534       3,838 
 Retained earnings                 85,824      80,353      84,574 
-----------------------------  ----------  ----------  ---------- 
 Equity shareholders' 
  funds                           115,712     110,040     114,572 
-----------------------------  ----------  ----------  ---------- 
 

We confirm to the best of our knowledge that:

(a) the condensed consolidated interim financial statements have been prepared in accordance with IAS 34: 'Interim Financial Reporting', as adopted by the European Union, and

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

- an indication of the important events that have occurred during the first 26 weeks of the financial year and their impact on the condensed consolidated interim financial statements,

- a description of the principal risks and uncertainties for the remaining 26 weeks of the financial year; and

- material related party transactions in the first 26 weeks of the year and any material changes in the related party transactions described in the last annual report.

By order of the Board

James Crawford

Chief Financial Officer

23 November 2017

Unaudited consolidated cash flow statement

 
                                               26 weeks   26 weeks   53 weeks 
                                                  ended      ended      ended 
                                                  2 Oct    26 Sept    3 April 
                                        Note       2017       2016       2017 
                                                GBP'000    GBP'000    GBP'000 
 
 Net cash generated by 
  operating activities 
 Cash generated by operations              8      5,183      4,167      9,127 
 Foreign exchange differences                      (46)        258        315 
 UK income tax paid                               (605)    (1,620)    (3,354) 
 Overseas income tax paid/(received)                184      (250)      (591) 
-------------------------------------  -----  ---------  ---------  --------- 
 Net cash generated by 
  operating activities                            4,716      2,555      5,497 
 
 Cashflows from investing 
  activities 
 Purchase of property, 
  plant and equipment                           (1,255)    (1,564)    (3,311) 
 Purchase of intangible 
  fixed assets                                    (362)       (44)      (190) 
 Purchase of prepaid lease 
  assets                                              -          -       (22) 
 Proceeds from sale of 
  non-current assets                                  -          -         21 
-------------------------------------  -----             ---------  --------- 
 Net cash outflow from 
  investing activities                          (1,617)    (1,608)    (3,502) 
 
 Cashflows from financing 
  activities 
 Interest paid                                    (468)      (416)      (874) 
 Issue of ordinary share 
  capital                                            54         59         66 
 Draw down of borrowings                              -      4,000      9,000 
 Repayment of borrowings                       (10,517)          -    (2,371) 
 Loan arrangement fees 
  paid                                                -       (68)       (88) 
 Equity dividends paid                          (2,564)          -    (1,062) 
-------------------------------------  -----             ---------  --------- 
 Net cash (outflow)/inflow 
  from financing activities                    (13,495)      3,575      4,671 
 
 Net (decrease)/increase 
  in cash                                      (10,396)      4,522      6,666 
 Cash and cash equivalents 
  at beginning of year                           10,470      3,804      3,804 
 Cash and cash equivalents 
  at end of year                                     74      8,326     10,470 
-------------------------------------  -----  ---------  ---------  --------- 
 

Notes to the unaudited financial statements

   1.      General information 

Majestic Wine PLC is a public limited company ("Company") and is incorporated in the United Kingdom under the Companies Act 2006. The Company's ordinary shares are traded on the Alternative Investment Market ("AIM").

The address of the registered office is Majestic House, The Belfry, Colonial Way, Watford WD24 4WH The Group's principal activity is the retailing of wines, beers and spirits. The Company's principal activity is to act as a holding company for its subsidiaries.

   2.      Basis of preparation 

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the accounting policies set out in the annual report for the year ended 3 April 2017. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union. The condensed financial statements are not statutory accounts. The financial reporting period represents the 26 week period ending 2 October 2017 and the prior period, 26 weeks to 26 September 2016.

Going concern

The Directors have, at the time of approving the interim financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the interim financial statements.

   3.      Segmental reporting 

IFRS 8 requires operating segments to be determined based on the Group's internal reporting to the Chief Operating Decision Maker ("CODM"). The CODM has been determined to be the Board as they are primarily responsible for the allocation of resources to segments and the assessment of performance of the segments.

The Group's operating segments are organised into four distinct business units, each operating in a separate segment of the overall wine market. Retail is a customer based wine retailer, selling wine, beer and spirits from stores across the UK, and online, and also incorporates the Group's French business. Commercial is a Business to Business ("B2B") wine retailer selling to pubs, restaurants and events. Lay & Wheeler is a specialist in the fine wine market and also provides cellarage services to customers. Naked Wines is a customer funded international online wine retailer.

Performance of each operating segment is based on Sales, Adjusted EBIT (being operating profit less any Adjusted Items) and Adjusted PBT (being profit before taxation less any Adjusted Items.) These are the financial performance measures that are reported to the CODM, along with other operational performance measures, and are considered to be useful measures of the underlying trading performance of each segment. Adjusted Items are not allocated to the operating segments as this reflects how they are reported to the Board.

The revenue and profits of the Lay & Wheeler operating segment as presented to the CODM are recognised on the receipt of orders, cash receipts and payments in relation to en primeur campaigns. The segment performance is reviewed in this way as resources utilised in generating these sales are expensed as incurred. This differs from the revenue recognition policy required under IAS 18 where revenue is recognised on delivery of the wine to the customer, which may be up to two years after

the original order and payment. As a result a reconciling item is presented between the total operating segments revenue and results and the IFRS statutory measure.

   3.      Segmental reporting (continued) 

Costs relating to centralised group functions are not allocated to operating segments for the purposes of assessing segmental performance and consequently these are presented as a separate segment.

Inter-segment transactions are conducted on an arm's length basis. The Group is not reliant on a major customer or group of customers.

All activities are continuing.

 
 26 weeks ending                                    Naked 
  2 October 2017           Retail    Commercial      Wines       L&W     Unallocated    Group 
                           GBP'000    GBP'000      GBP'000     GBP'000     GBP'000     GBP'000 
 
 Third party revenue       120,640       22,636       67,794     7,614             -   218,684 
 Movement in en primeur 
  sales                          -            -            -   (1,323)             -   (1,323) 
------------------------                                                              -------- 
 Reported third party 
  revenue                  120,640       22,636       67,794     6,291             -   217,361 
 
 Segment result - 
  Adjusted EBIT              4,592        1,033        4,720       392       (3,400)     7,337 
 Net finance costs               -            -            -         -         (566)     (566) 
------------------------                                                              -------- 
 Adjusted profit/(loss) 
  before taxation            4,592        1,033        4,720       392       (3,966)     6,771 
 Adjusted items: 
  - Non cash items relating 
   to acquisitions                                                                     (3,857) 
  - Other adjusted 
   items                                                                                   165 
 Profit before taxation                                                                  3,079 
------------------------  --------  -----------  -----------  --------  ------------  -------- 
 
 Depreciation                2,444            -          172        53             -     2,669 
 Amortisation                  316            -        1,834       164             -     2,314 
 
                                                        Rest 
 Geographical analysis                       UK    of Europe        US     Australia     Group 
 Reported third party 
  revenue                               173,044        4,321    27,267        12,729   217,361 
 Non-current assets                     118,823          127     2,504            87   121,541 
 
   3.      Segmental reporting (continued) 
 
 26 weeks ending                                        Naked 
  26 September 2016            Retail    Commercial      Wines       L&W     Unallocated    Group 
                               GBP'000    GBP'000      GBP'000     GBP'000     GBP'000     GBP'000 
 
 Third party revenue           117,880       23,430       58,980     6,992             -   207,282 
 Movement in en primeur 
  sales                              -            -            -   (1,642)             -   (1,642) 
----------------------------  --------  -----------  -----------  --------  ------------  -------- 
 Reported third party 
  revenue                      117,880       23,430       58,980     5,350             -   205,640 
 
 Segment result - 
  Adjusted EBIT                  3,459        1,623      (2,775)       276       (1,883)       700 
 Net finance costs                   -            -            -         -         (649)     (649) 
----------------------------  --------  -----------  -----------  --------  ------------  -------- 
 Adjusted profit/(loss) 
  before taxation                3,459        1,623      (2,775)       276       (2,532)        51 
 Adjusted items: 
  - Non cash items 
   relating to acquisitions                                                      (5,443)   (5,443) 
  - Other adjusted 
   items                                                                             988       988 
 Profit/(loss) before 
  taxation                                                                       (6,987)   (4,404) 
----------------------------  --------  -----------  -----------  --------  ------------  -------- 
 
 Depreciation                    2,510            -           91        56             -     2,657 
 Amortisation                      564            -            -        47         2,160     2,771 
 
                                                            Rest 
 Geographical analysis                           UK    of Europe        US     Australia     Group 
 Reported third party 
  revenue                                   168,921        4,323    23,790         8,606   205,640 
 Non-current assets                         122,057        2,861     3,208            71   128,197 
 
   3.   Segmental reporting (continued) 
 
 53 weeks ending                                        Naked 
  3 April 2017                 Retail    Commercial      Wines       L&W     Unallocated    Group 
                               GBP'000    GBP'000      GBP'000     GBP'000     GBP'000     GBP'000 
 
 Third party revenue           262,200       46,628      144,341    14,715             -    467,884 
 Movement in en primeur 
  sales                              -            -            -   (2,440)             -    (2,440) 
----------------------------  --------  -----------  -----------  --------  ------------  --------- 
 Reported third party 
  revenue                      262,200       46,628      144,341    12,275             -    465,444 
 
 Segment result - 
  Adjusted EBIT                 13,345        2,541        1,417       980       (4,184)     14,099 
 Net finance costs                                                               (1,222)    (1,222) 
----------------------------  --------  -----------  -----------  --------  ------------  --------- 
 Adjusted profit/(loss) 
  before taxation               13,345        2,541        1,417       980       (5,406)     12,877 
 Adjusted items: 
  - Non cash items 
   relating to acquisitions                                                     (11,267)   (11,267) 
  - Other adjusted 
   items                                                                         (3,078)    (3,078) 
 Profit/(loss) before 
  taxation                                                                      (19,751)    (1,468) 
----------------------------  --------  -----------  -----------  --------  ------------  --------- 
 
 Depreciation                    4,982            -          362       106             -      5,450 
 Amortisation                    1,201            -        4,096       321             -      5,618 
 
                                                            Rest 
 Geographical analysis                           UK    of Europe        US     Australia      Group 
 Reported third party 
  revenue                                   377,398        7,658    58,347        22,041    465,444 
 Non-current assets                         119,414        2,845     2,544            97    124,900 
 
   4.   Adjusted items 
 
                                         26 weeks   26 weeks   53 weeks 
                                            ended      ended      ended 
                                            2 Oct    26 Sept    3 April 
                                             2017       2016       2017 
                                          GBP'000    GBP'000    GBP'000 
 
 Non-cash charges relating 
  to acquisitions 
 Amortisation of acquired intangibles     (1,947)    (2,160)    (4,321) 
 Acquisition related share 
  based payment charges                   (1,910)    (3,283)    (6,946) 
--------------------------------------  ---------  ---------  --------- 
                                          (3,857)    (5,443)   (11,267) 
 Other adjusted items 
 Acquisition costs                              -         31       (53) 
 Restructuring costs                            -      (205)      (819) 
 Fair value movement through 
  P&L on foreign exchange contracts           915      1,624      (957) 
 En primeur adjustment                      (163)      (261)      (517) 
 Share based payment charges                (587)      (201)      (732) 
--------------------------------------  ---------  ---------  --------- 
                                              165        988    (3,078) 
 
 Total adjusted items                     (3,692)    (4,455)   (14,345) 
--------------------------------------  ---------  ---------  --------- 
 
   5.   Taxation 

Tax for the six month period is charged at an adjusted effective tax rate (the ratio of the current tax charge to the adjusted profit before taxation) of 22.0% (2017: 30.0%) representing the best estimate of the average annual effective tax rate expected for the full year, applied to the profit before taxation of the period.

   6.   Earnings per share 

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares in issue of the Company, excluding 3,067,028 (2016: 4,920,863) contingently returnable shares issued as a result of the acquisition of Naked Wines (which have been treated as dilutive share options) and 143,543 (2016: 3,934) held by Employee Share Trusts.

The dilutive effect of share options is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all dilutive potential ordinary shares. These comprise contingently returnable shares and share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary Shares during the year. Share options granted over 260,408 (2016: 331,200) ordinary shares have not been included in the dilutive earnings per share calculation because they are anti-dilutive at the period end.

Adjusted earnings per share is calculated by excluding the effect of Adjusted items (see note 4). This alternative measure of earnings per share is presented so that users of the financial statements can better understand the Group's underlying trading performance.

 
                                          26 weeks     26 weeks     53 weeks 
                                             ended        ended        ended 
                                             2 Oct      26 Sept      3 April 
                                              2017         2016         2017 
                                           GBP'000      GBP'000      GBP'000 
 
 Earnings/(loss) per share 
 Basic earnings per share                     2.4p        -6.1p        -4.1p 
 Diluted earnings per share                   2.2p          N/A          N/A 
 Adjusted basic earnings 
  per share                                   7.9p         0.7p        17.7p 
 Adjusted diluted earnings 
  per share                                   7.4p         0.7p        16.3p 
------------------------------  -----  -----------  -----------  ----------- 
 
                                          26 weeks     26 weeks     53 weeks 
                                             ended        ended        ended 
                                             2 Oct      26 Sept      3 April 
                                 Note         2017         2016         2017 
                                           GBP'000      GBP'000      GBP'000 
 
 Profit/(loss) for the 
  period                                     1,576      (3,985)      (2,695) 
 Add back adjusted items: 
  - Non-cash charges relating 
   to acquisitions                  4        3,857        5,443       11,267 
  - Other adjusted items            4        (165)        (988)        3,078 
------------------------------  -----  -----------  -----------  ----------- 
 Adjusted profit after 
  taxation                                   5,268          470       11,650 
------------------------------  -----  -----------  -----------  ----------- 
 
                                          26 weeks     26 weeks     53 weeks 
                                             ended        ended        ended 
                                             2 Oct      26 Sept      3 April 
                                              2017         2016         2017 
 
 Weighted average number 
  of shares in issue                    66,940,255   65,843,853   65,848,467 
 Dilutive potential ordinary 
  shares: 
 Employee share options and 
  contingently returnable shares         4,554,269    4,670,778    5,598,621 
-------------------------------------  -----------  -----------  ----------- 
 Weighted average number 
  of shares for the purpose 
  of diluted earnings per 
  share                                 71,494,524   70,514,631   71,447,088 
 
 Total number of shares 
  in issue                              71,375,986   70,775,262   70,778,262 
------------------------------  -----  -----------  -----------  ----------- 
 

If the Group's share option schemes had vested at 100% the Company would have 75,182,557 (H1 2017: 75,175,929. FY2017: 74,913,212) issued shares.

   7.   Dividend 
 
                            26 weeks   26 weeks   53 weeks 
                               ended      ended      ended 
                               2 Oct    26 Sept    3 April 
                                2017       2016       2017 
                             GBP'000    GBP'000    GBP'000 
 
 Equity dividends paid 
  and proposed 
 Final dividend                2,564          -      2,548 
 Interim dividend                  -          -      1,062 
-------------------------  ---------  ---------  --------- 
 Total Equity dividends 
  paid and proposed            2,564          -      3,610 
 

An interim dividend of 2.0 pence (H1 2017: 1.5 pence) per share was approved by the Board of Directors on 20 November 2017. This has not been included as a liability as at 2 October 2017.

   8.   Notes to the cash flow statement 
 
                                      26 weeks   26 weeks   53 weeks 
                                         ended      ended      ended 
                                         2 Oct    26 Sept    3 April 
                                          2017       2016       2017 
                                       GBP'000    GBP'000    GBP'000 
 Cash generated by operations 
 Operating profit/(loss)                 3,645    (3,755)      (246) 
 Add back: 
  - Depreciation and amortisation        4,983      5,428     11,301 
  - Profit on disposal 
   of property, plant and 
   equipment                                 -          -        (6) 
  - Impairment of prepaid 
   operating leases                          -          -       (38) 
  - Fair value movement 
   on foreign exchange contracts       (1,141)    (1,624)        957 
  - En primeur movement 
   in income statement                     163        261        517 
  - Share based payment 
   charges                               2,497      3,483      7,678 
-----------------------------------  ---------  ---------  --------- 
 Operating cashflows before 
  movements in working 
  capital                               10,147      3,793     20,163 
 Increase in inventories              (16,812)   (15,436)    (9,787) 
 Increase in customer 
  funds in deferred income               2,620      3,487      8,044 
 Increase in trade and 
  other receivables                      (824)    (4,741)    (4,876) 
 Increase/(decrease) in 
  trade and other payables              10,052     17,064    (4,417) 
-----------------------------------  ---------  ---------  --------- 
 Cash generated by operations            5,183      4,167      9,127 
-----------------------------------  ---------  ---------  --------- 
 
 
 Cash and cash equivalents 
 Cash and cash equivalents              11,878     11,495     23,007 
 Bank overdraft                       (11,804)    (3,169)   (12,537) 
-----------------------------------  ---------  ---------  --------- 
 Total cash and cash equivalents            74      8,326     10,470 
-----------------------------------  ---------  ---------  --------- 
 

Additional unaudited information

   1.   Segmental reporting - additional information 

A more detailed analysis of the underlying year on year segmental results is shown below. These numbers exclude adjustments for en primeur and use a constant rate of foreign exchange.

 
                                                        Retail 
                       ------------------------------------------------------------------------ 
                          26 weeks      26 weeks   26 weeks   26 weeks     26 weeks 
                             ended         ended      ended      ended        ended 
                             2 Oct       26 Sept    26 Sept    26 Sept      26 Sept 
                              2017          2016       2016       2016         2016 
                                                   Constant 
                        Underlying   As Reported         FX   IT Costs   Underlying    variance 
                           GBP'000       GBP'000    GBP'000    GBP'000      GBP'000 
                       -----------  ------------  ---------  ---------  -----------  ---------- 
 UK revenue                116,319       113,557          -          -      113,557        2.4% 
 France revenue              4,321         4,323        350          -        4,673       -7.5% 
                       -----------  ------------  ---------  ---------  -----------  ---------- 
 Total revenue             120,640       117,880        350          -      118,230        2.0% 
 Gross profit               28,561        27,481        101          -       27,582        3.5% 
 Gross margin                23.7%         23.3%      28.9%          -        23.3%     0.4ppts 
 Distribution 
  costs                   (14,963)      (13,645)       (16)          -     (13,661)        9.5% 
 Administrative 
  costs                    (9,006)      (10,377)      (115)        314     (10,178)      -11.5% 
 Adjusted EBIT               4,592         3,459       (30)        314        3,743       22.7% 
---------------------  -----------  ------------  ---------  ---------  -----------  ---------- 
 
 
                                                      Commercial 
                       ------------------------------------------------------------------------ 
                          26 weeks      26 weeks   26 weeks   26 weeks     26 weeks 
                             ended         ended      ended      ended        ended 
                             2 Oct       26 Sept    26 Sept    26 Sept      26 Sept 
                              2017          2016       2016       2016         2016 
                                                   Constant 
                        Underlying   As Reported         FX   IT Costs   Underlying    variance 
                           GBP'000       GBP'000    GBP'000    GBP'000      GBP'000 
                       -----------  ------------  ---------  ---------  -----------  ---------- 
 Total sales                22,636        23,430          -          -       23,430       -3.4% 
 Gross profit                3,331         3,793          -          -        3,793      -12.2% 
 Gross margin                14.7%         16.2%          -          -        16.2%    -1.5ppts 
 Distribution 
  costs                    (1,295)       (1,598)          -          -      (1,598)      -19.0% 
 Administrative 
  costs                    (1,003)         (572)          -         26        (546)       83.7% 
 Adjusted EBIT               1,033         1,623          -         26        1,649      -37.4% 
---------------------  -----------  ------------  ---------  ---------  -----------  ---------- 
 
 
                                                     Lay & Wheeler 
                       ------------------------------------------------------------------------ 
                          26 weeks      26 weeks   26 weeks   26 weeks     26 weeks 
                             ended         ended      ended      ended        ended 
                             2 Oct       26 Sept    26 Sept    26 Sept      26 Sept 
                              2017          2016       2016       2016         2016 
                                                   Constant 
                        Underlying   As Reported         FX   IT Costs   Underlying    variance 
                           GBP'000       GBP'000    GBP'000    GBP'000      GBP'000 
                       -----------  ------------  ---------  ---------  -----------  ---------- 
 Sales on management 
  basis                      7,614         6,992          -          -        6,992        8.9% 
 En primeur                (1,323)       (1,642)          -          -      (1,642)      -19.4% 
                       -----------  ------------  ---------  ---------  -----------  ---------- 
 Total sales                 6,291         5,350          -          -        5,350       17.6% 
 Gross profit                1,856         1,713          -          -        1,713        8.3% 
 Gross margin                24.4%         24.5%          -          -        24.5%    -0.1ppts 
 Distribution 
  costs                      (548)         (509)          -          -        (509)        7.7% 
 Administrative 
  costs                      (916)         (928)          -          -        (928)       -1.3% 
 Adjusted EBIT                 392           276          -          -          276       42.0% 
---------------------  -----------  ------------  ---------  ---------  -----------  ---------- 
 
   1.   Segmental reporting - additional information (continued) 
 
                                                             Naked Wines 
                          --------------------------------------------------------------------------------- 
                              26 weeks       26 weeks    26 weeks        26 weeks      26 weeks 
                                 ended          ended       ended           ended         ended 
                                 2 Oct        26 Sept     26 Sept         26 Sept       26 Sept 
                                  2017           2016        2016            2016          2016 
                                                         Constant 
                            Underlying    As Reported          FX        IT Costs    Underlying    variance 
                               GBP'000        GBP'000     GBP'000         GBP'000       GBP'000 
                          ------------  -------------  ----------  --------------  ------------  ---------- 
 Total sales                    67,794         58,980       2,151               -        61,131       10.9% 
 Gross profit                   25,100         20,221         866               -        21,087       19.0% 
 Gross margin                    37.0%          34.3%       40.3%               -         34.5%     2.5ppts 
 Distribution 
  costs                       (10,482)        (9,329)       (442)               -       (9,771)        7.3% 
 Administrative 
  costs                        (9,898)       (13,667)       (695)             510      (13,852)      -28.5% 
 Adjusted EBIT                   4,720        (2,775)       (271)             510       (2,536)      286.1% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 
                                                Naked Wines - Sales and Adjusted EBIT 
                                                             by geography 
                          --------------------------------------------------------------------------------- 
                                                        26 weeks 
                                           26 weeks       ended       26 weeks       26 weeks 
                              26 weeks       ended          26          ended          ended 
                                 ended        26           Sept           26             26 
                                 2 Oct       Sept          2016          Sept           Sept 
                                  2017       2016        Constant        2016           2016 
                            Underlying    As Reported       FX         IT Costs      Underlying 
                               GBP'000      GBP'000      GBP'000       GBP'000        GBP'000     variance 
                          ------------  -------------  ----------  --------------  ------------  ---------- 
 Total sales 
 UK                             27,798         26,864           -               -        26,864        3.5% 
 US                             27,267         23,424       1,383               -        24,807        9.9% 
 Aus                            12,729          8,692         768               -         9,460       34.6% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Total sales                    67,794         58,980       2,151               -        61,131       10.9% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Adjusted EBIT 
 UK                              2,014          1,327           -               -         1,327       51.8% 
 US                              2,447        (2,519)       (268)               -       (2,787)      187.8% 
 Aus                               390          (313)         (3)               -         (316)      223.4% 
 Central Costs                   (131)        (1,270)           -             510         (760)       82.8% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Adjusted EBIT                   4,720        (2,775)       (271)             510       (2,536)      286.1% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 
                                                            Central Costs 
                          --------------------------------------------------------------------------------- 
                              26 weeks       26 weeks    26 weeks        26 weeks      26 weeks 
                                 ended          ended       ended           ended         ended 
                                 2 Oct        26 Sept     26 Sept         26 Sept       26 Sept 
                                  2017           2016        2016            2016          2016 
                                                         Constant         IT Cost 
                            Underlying    As Reported          FX    Reallocation    Underlying    variance 
                               GBP'000        GBP'000     GBP'000         GBP'000       GBP'000 
                          ------------  -------------  ----------  --------------  ------------  ---------- 
 Administrative 
  costs                        (3,400)        (1,883)           -           (850)       (2,733)       24.4% 
 Adjusted EBIT                 (3,400)        (1,883)           -           (850)       (2,733)       24.4% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Net finance 
  charge                         (566)          (649)           -               -         (649)      -12.8% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Adjusted loss 
  before taxation              (3,966)        (2,532)           -           (850)       (3,382)       17.3% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 
 
   1. Segmental reporting - additional information 
   (continued) 
                                                                Group 
                          --------------------------------------------------------------------------------- 
                              26 weeks       26 weeks    26 weeks        26 weeks      26 weeks 
                                 ended          ended       ended           ended         ended 
                                 2 Oct        26 Sept     26 Sept         26 Sept       26 Sept 
                                  2017           2016        2016            2016          2016 
                                                         Constant 
                            Underlying    As Reported          FX        IT Costs    Underlying    variance 
                               GBP'000        GBP'000     GBP'000         GBP'000       GBP'000 
                          ------------  -------------  ----------  --------------  ------------  ---------- 
 Total sales                   218,684        207,282       2,501               -       209,783        4.2% 
 Gross profit                   58,848         53,208         967               -        54,175        8.6% 
 Gross margin                    26.9%          25.7%       38.7%               -         25.8%     1.1ppts 
 Distribution 
  costs                       (27,288)       (25,081)       (458)               -      (25,539)        6.8% 
 Administrative 
  costs                       (24,223)       (27,427)       (810)               -      (28,237)      -14.2% 
 Adjusted EBIT                   7,337            700       (301)               -           399          NM 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Net finance 
  charge                         (566)          (649)           -               -         (649)      -12.8% 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 Adjusted profit/(loss) 
  before taxation                6,771             51       (301)               -         (250)          NM 
------------------------  ------------  -------------  ----------  --------------  ------------  ---------- 
 
 
                                                   Group 
-------------  --------------------------------------------- 
                        26 weeks ended        26 weeks ended 
                            2 Oct 2017          26 Sept 2016 
                ---------------------- 
                                 Gross                 Gross 
                   Revenue      profit    Revenue     profit 
                   GBP'000     GBP'000    GBP'000    GBP'000 
                ----------  ----------  ---------  --------- 
 Underlying        218,684      58,848    209,783     54,175 
 En primeur 
  adjustment       (1,323)       (163)    (1,642)      (261) 
 Constant 
  FX                     -           -    (2,501)      (967) 
 Reported          217,361      58,685    205,640     52,947 
--------------  ----------  ----------  ---------  --------- 
 
   2.   Cash flow analysis 
 
                             26 weeks   26 weeks   53 weeks 
                                ended      ended      ended 
                                2 Oct    26 Sept    3 April 
                                 2017       2016       2017 
                              GBP'000    GBP'000    GBP'000 
 
 Adjusted EBIT                  7,337        700     14,099 
 Add back depreciation 
  & amortisation                3,036      3,268      6,695 
--------------------------  ---------  ---------  --------- 
 Adjusted EBITDA               10,373      3,968     20,794 
 
 Working capital movement 
  - Inventories              (16,812)   (15,436)    (9,787) 
  - Trade and other 
   receivables                  (824)    (4,741)    (4,876) 
  - Customer funds 
   and deferred income          2,620      3,487      8,044 
  - Trade and other 
   payables                     9,826     17,162    (4,509) 
--------------------------  ---------  ---------  --------- 
 Working capital movement     (5,190)        472   (11,128) 
 
 Capex                        (1,618)    (1,608)    (3,523) 
 Free cash flow                 3,565      2,832      6,143 
--------------------------  ---------  ---------  --------- 
 
 
 Reconciliation to 
  statutory cash flow 
 Free Cash Flow                 3,565      2,832      6,143 
 Cash Adjusted items                -      (273)      (539) 
 Capex                          1,618      1,608      3,523 
  Cash generated by 
   operations                   5,183      4,167      9,127 
--------------------------  ---------  ---------  --------- 
 
   3.   Naked Wines Business Split 
 
                                                 26 weeks           26 weeks 
                                                    ended              ended 
                                                    2 Oct            26 Sept 
                                                     2017               2016       YoY    % variance 
                                                  GBP'000            GBP'000   GBP'000 
---------- 
              New customers (to 
 P&L           maturity) 
 Breakout      Sales                               11,971             15,637   (3,666)        -23.4% 
   Contribution exc 
    Marketing                                       (477)                (6)     (471)            NM 
   Marketing                                      (4,243)            (7,905)     3,662        -46.3% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
   New customer Contribution                      (4,720)            (7,911)     3,191        -40.3% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
 
              Mature Angels 
   Sales                                           55,823             45,494    10,329         22.7% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
   Repeat Customer 
    Contribution                                   15,096             11,322     3,774         33.3% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
 
   Fixed costs                                    (5,656)            (5,947)       291           -5% 
 
   EBIT                                             4,720            (2,536)     7,256        286.1% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
 
 Customer      Opening Mature Angels              363,389            299,717    63,672         21.2% 
  Numbers      New Mature Angels                   71,960             80,459   (8,499)        -10.6% 
   Attrition                                     (64,132)           (58,968)   (5,164)          8.8% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
   Closing Mature Angels                          371,217            321,208    50,009         15.6% 
  --------------------------------------  ---------------  -----------------  --------  ------------ 
 
   4.    Glossary 
 
Adjusted EBIT        Adjusted EBIT is operating profit adjusted 
                      for amortisation and impairments of acquired 
                      intangibles and goodwill, acquisition costs, 
                      share based payment charges, restructuring 
                      costs, net fair value movement through P&L 
                      on financial instruments and adjusting en 
                      primeur results to reflect profits on orders 
                      rather than on wine fulfilment 
-------------------  ------------------------------------------------- 
Adjusted PBT         Adjusted PBT is defined as Adjusted EBIT 
                      less net finance charges 
-------------------  ------------------------------------------------- 
Annual Contribution  Number of Orders per year x Contribution 
                      per Mature Angel 
-------------------  ------------------------------------------------- 
Contribution         Sales less product costs, costs of fulfilling 
                      the sale e.g. branch staff, credit card 
                      fees etc. 
-------------------  ------------------------------------------------- 
Contribution         Contribution after subtracting all direct 
 per New Mature       costs that are associated with maintaining 
 Angel                that Angel (E.g Delivery, Customer Service, 
                      Cost of Sales, Returns etc) 
-------------------  ------------------------------------------------- 
Free Cash            Free cash flow is defined as cash generated 
 Flow                 from operations less capital expenditure 
                      and excluding cash Adjusted items 
-------------------  ------------------------------------------------- 
Growth Spend         The proportion of total investment which 
                      is spent on growing the total Angel base 
-------------------  ------------------------------------------------- 
Investment           Marketing investment in recruiting new customers 
 in New Customer      plus any contribution whether positive or 
 Acquisition          negative up to Mature Angel status 
-------------------  ------------------------------------------------- 
Mature Angel         A subscription customer for four months 
                      or more 
-------------------  ------------------------------------------------- 
Naked Wines          The recurring contribution per Mature Angel 
 ROI                  divided by the cost of acquiring each Mature 
                      Angel 
                      [C-(AxN)]/N where C = Annual Contribution, 
                      A = Attrition rate, N = Cost per New Angel 
-------------------  ------------------------------------------------- 
Repeat Customer      A customer who has shopped more than once 
                      in the last year 
-------------------  ------------------------------------------------- 
Repeat Customer      % of repeat customers from 12 months ago 
 Retention            that are still repeat customers, as measured 
                      from our customer databases 
-------------------  ------------------------------------------------- 
Repeat Customer      (1 - Repeat Customer Retention %) 
 Attrition 
-------------------  ------------------------------------------------- 
Return on            The recurring additional contribution (net 
 Investment           of replenishment costs) per year, generated 
 (ROI)                by this period's acquisition cost 
-------------------  ------------------------------------------------- 
Trading Margin       The difference between the price we sell 
                      and the cost we buy at 
-------------------  ------------------------------------------------- 
Underlying           Underlying results (a) includes en primeur 
 Results              revenues in year of order not year of fulfilment 
                      (b) is calculated using constant FX rates 
                      for translation of the comparative period 
                      and (c ) IT costs reallocated to PLC (A 
                      reconciliation between Reported and Underlying 
                      results by segment for H1 2017 is included 
                      in the Additional Unaudited information) 
-------------------  ------------------------------------------------- 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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