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| 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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.25 | -2.28% | 53.50 | 52.50 | 53.40 | 56.00 | 53.40 | 55.90 | 126,514 | 16:35:25 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Wine,brandy & Brandy Spirits | 354.05M | -17.41M | -0.2353 | -2.27 | 39.52M |
From Apr 2019 to Apr 2024
TIDMWINE
RNS Number : 7979F
Naked Wines PLC
19 November 2020
Naked Wines plc
("Naked Wines" or "Group")
Half Year Results for the 26 weeks ending 28 September 2020
Acceleration delivering step change in scale
Accelerated growth rate sustained through H1 FY21(1)
-- H1 FY21 revenues of GBP157.1m +80% vs H1 FY20
-- Repeat customer contribution(5) of GBP36.2m, +GBP17.0m (+89%) as repeat customer contribution margin improves by 3.5 percentage points ("ppts") to 29.0% on revenues +66%
-- Material uplift in investment in new customers(5) +121% to GBP22.7m with 20 year payback(5) doubled to 7.6x driving growth in future value (5 year payback 3.9x, +70%)
-- Adjusted EBIT(5) loss of GBP(3.2)m improved by GBP1.3m despite higher investment
-- Loss before tax of GBP(8.9)m increased by GBP(2.7)m vs H1 FY20 driven by a non-cash write down
-- Cash strengthened by GBP21.6m in the half year to GBP76.3m (H1 FY20: net debt GBP(21.0)m) with no COVID-19 related Government support taken
Operation scaled quickly and effectively in response to demand
-- Warehouse capacity increased by 104% -- Customer service capacity increased by 80%
-- Operating KPIs for availability, 5* customer service and wine quality ratings all remained above our 90% targets
Step change in scale is delivering enduring benefits
Hot Features
Premium
-- Naked the largest direct to consumer ("DtC") wine business in the USA by volume(6)
-- Active Angels base +37% to 757k with strong indicators of future customer value
-- Newly acquired Angel retention and purchase frequency improved year on year
-- Contribution per new Angel currently tracking +99% vs historic averages
-- Repeat contribution margin improvement driven by:
-- Improved gross margin due to mix shift towards the USA
-- Improved utilisation of supply chain and customer service capacity
-- Fixed costs(5) as percentage of revenue reduced by 5ppts
Appointment of Chief Financial Officer and director
As announced on 17 November, Shawn Tabak will join as CFO on 7 December 2020.
Upgrading FY 2021 outlook
The positive trading momentum has been sustained into the start of the second half of the year, although we are mindful of significant levels of political and economic uncertainty.
The many scale achievements are seen as enduring and based on our central case assumptions we are upgrading expected sales growth to +55-65% for the current year.
Nick Devlin, Group Chief Executive, commented:
"Naked Wines is a bigger, better business than it was twelve months ago. The last six months have been a critical period in the development of the company. We have delivered exceptional growth and a permanent step change in scale and efficiency for the organisation. We have a business today that is not only larger, but structurally improved and ideally positioned to deliver sustained growth in the coming years.
Ultimately the most significant impact of COVID-19 on Naked Wines is not found in these interim results, but in the way it has accelerated the growth of the online wine category and increased consumer willingness to trial a new and better way to buy wine.
Delivering transformative growth, against a backdrop of new working conditions required by COVID-19, has required us to rapidly solve a series of operational challenges. We have done this whilst maintaining high levels of customer satisfaction and I am tremendously proud of the resilience, flexibility and capability displayed by our staff around the world. I would like to personally thank all of them for their commitment and the passion with which they have pursued our mission to connect the world's best independent winemakers to our community of wine drinkers.
Looking ahead, whilst the economic outlook remains uncertain, we move into the second half with continued trading momentum, supported by a strong cash balance and with conviction in the potential to unlock further growth opportunities in all our markets."
Total Group Reported
H1 FY21 H1 FY20(1) %YoY
--------------------- ------ ---------
Revenue GBPm 157.1 87.5 +79.6%
------ --------- ----------- --------
Adj EBIT(2)(5) GBPm (3.2) (4.5)(4) +29.1%
------ --------- ----------- --------
Adj LBT(3)(5) GBPm (2.7) (5.0)(4) +46.6%
------ --------- ----------- --------
Loss for the period GBPm (8.1) (5.4) (49.3)%
------ --------- ----------- --------
Basic EPS p (11.1)p ( 7.6p)
------ --------- ----------- --------
Cash / (Net Debt) GBPm 76.3 (21.0)
------ --------- ----------- --------
Standstill EBIT(5) GBPm 26.0 4.0 +554.5%
(rolling 12 month
basis)
--------- ----------- --------
--------------------------------------------------------------------------------------------------------------------------
Naked Wines plc will host an analyst and investor conference call at 2pm GMT / 9am EST / 6am PST on 19 November 2020. The briefing will be webcast using the following link https://webcasting.brrmedia.co.uk/broadcast/5f7d7d71c4d0076f2b93c8b4 alternatively it can be found on our website. To ask a question please dial in via the conference call line, call details are available from the Investor Relations Team at IR@nakedwines.com . A recording will also be made available after the meeting on our investor website results centre.
---------------------------------------------------------------------------------------------------------------------------
Notes:
(1) Unless otherwise stated, comparative figures reflect continuing operations only in H1 FY20 as a result of the disposal of the Majestic Wine and Lay & Wheeler businesses in the prior year.
(2) Adjusted EBIT is operating profit adjusted for amortisation and impairments of acquired intangibles and goodwill, acquisition costs, impairment charges, foreign exchange revaluations on PLC company foreign currency bank accounts and fair value movement through P&L on financial instruments.
(3) Adjusted LBT is defined as Adjusted EBIT less net finance income.
(4) This figure has been revised for share based payment charges which were previously included in adjusted items (see note 4 for an explanation of this change).
(5) This is an alternative performance measure. See the 'Definitions and Operational KPIs' from page 26 of this document.
(6) Naked the largest direct to consumer wine business in the USA by volume per internal management calculations based on market and company data.
For further information, please contact:
Naked Wines plc ir@nakedwines.com
Nick Devlin, Chief Executive Officer
James Crawford, Chief Financial Officer
Investec (Joint Broker) Tel: 0207 597
David Flin / Carlton Nelson 5970
Jefferies (Joint Broker) Tel: 0207 029
Ed Matthews / Harry Clements / Yusuf Subzposh 8000
Instinctif Partners (PR Agency) Tel: 0207 457
Damian Reece / Guy Scarborough / Sarah Hourahane 2020 or 07931
598 593
About Naked Wines plc
Naked Wines connects everyday wine drinkers with the world's best independent winemakers.
Why? Because we think it's a better deal for everyone. Talented winemakers get the support, funding and freedom they need to make the best wine they've ever made. The wine drinkers who support them get much better wine at much better prices than traditional retail.
It's a unique business model. Naked Wines customers commit to a fixed prepayment each month which goes towards their next purchase. Naked in turn funds the production costs for winemakers, generating savings that are passed back to its customers. It creates a virtuous circle that benefits both wine drinker and winemaker.
Our mission is to change the way the whole wine industry works for the better. In the last year, we have served over 750,000 individual customers in the US, UK and Australia, making us a leading player in the fast growing direct-to-consumer wine market.
Our customers (who we call Angels) have direct access to over 230 of the world's best independent winemakers making over 1,000 quality wines in 21 different countries. We collaborate with some of the world's best independent winemakers like Matt Parish (Beringer, Stags' Leap) and 8-time Winemaker of the Year Daryl Groom (Penfolds Grange).
CHIEF EXECUTIVE REVIEW
A period of transformational growth
For winemakers around the world COVID-19 has completely reshaped demand and routes to market overnight. While continued economic uncertainty makes planning challenging, producers in the USA and Australia have also had to contend with difficult fire seasons.
At Naked, that backdrop has only strengthened our determination to disrupt the wine industry to the benefit of producers and consumers. With the depth of our community of over 750,000 Angel members we are able to support over 230 independent winemakers, offering them a growth-focussed, long-term partner and allowing them to focus on what they do best - making amazing wine. Together we know we can achieve things that wouldn't normally be possible, especially in the face of a global pandemic.
I believe the past six months have been a permanent step change for Naked and its future potential. With exceptionally strong trading performance in all markets, we have:
-- Delivered an increase in repeat customer contribution +89% vs H1 FY20; the same growth we achieved in total between FY14 and FY20
-- Grown Group revenue +80% to GBP157.1m
-- Invested in new customers (up 121% to GBP22.7m) at 20 year payback of 7.6x, doubled from 3.8x in the prior year. On the five year basis, which we are moving to as our primary payback measure, this is an increase from 2.3x in H1 FY20 to 3.9x, implying an increase of +218% in future value generated to GBP89m
-- Added 204k additional active Angels +37% in the last 12 months, now 757k
Adjusted EBIT was a loss of GBP(3.2)m for the first half, an improvement of GBP1.3m. The statutory loss for the period of GBP(8.1)m increased GBP2.7m year on year, driven principally by the non-cash write down in the fair value of deferred contingent consideration detailed later in this statement.
A step change in scale with enduring benefits
Deep in our ethos is the principle that growth is the engine that benefits all our stakeholders and we have seen that brought to life in the first half. The scale increase means we have a better business, as well as a substantially larger one:
-- Operating at scale: starting to showcase the scale leverage potential of the Naked model
-- Our economics are improved: repeat contribution margin enhancement of 3.5ppts, scale benefits and proposition improvement driving contribution margin and customer lifetime value(5) ("LTV") to new highs
-- Our appeal to winemakers is enhanced: proving the potential of the Naked model to create a compelling home for the world's best winemakers
A reshaping of customer demand in our biggest market, the US
Whilst the strength of our business is clear in our first half performance, arguably the most important consequence of the pandemic has been the rapid acceleration of demand online in the wine category, most notably in the US market, which is where we believe the Group will add the most substantial value in the future.
The trend toward shopping online and for products with real provenance has been apparent for years. The pandemic has combined this with a period of people being more frequently at home, looking for safer and more convenient ways to buy the things they want. Quite simply, many customers did not know they could order wine online, to be delivered to their door, until COVID-19 motivated them to look, and they are now embracing it. As a result, US online sales of wine have grown from 5% of off-premise value pre-COVID-19 to 20% in April of this year. Benefitting from this shift, the Naked US business delivered the strongest revenue growth in the first half (+95%) and now represents 49% of Group sales.
While that is exciting in itself, what is also clear is that the Direct to Consumer ("DtC") model which we operate has come of age. As a reminder, we believe our addressable market in the USA to be $20bn in value, with the "delivered to you" segment including online and DtC segments totalling $5bn, and the DtC sub-segment being $3bn in value. Following the periods of lockdown, we saw sustained growth of the DtC channel even as individual states began to re-open through summer and into the autumn with DtC market revenue +20% YoY in Q1 accelerating to +28% in Q2. This is evidence of consumer recognition that DtC models offer genuinely better value and within the DtC segment we continue to thrive. USA Today voted us the Best Wine Club in the US for the second year running, and we now ship one bottle in every five that is sold through DtC having grown our volume share across H1 FY21 to 21% vs 14% in H1 FY20 (source: SOVOS ShipCompliant 2020 DtC wine shipping report).
Looking ahead, we are ideally positioned to continue to grow in the US with favourable market conditions, positive customer retention and order patterns, ongoing heightened consumer awareness and enhanced business economics. This supports our ongoing initiatives to open further customer acquisition channels and scale our existing channels as marketing effectiveness is enhanced by an expanded addressable consumer base willing to buy online. Given this outlook, we believe there remains substantial growth headroom whilst maintaining strong investment returns. Consequently, we intend to continue to invest aggressively in growth and are well positioned to continue to expand our share of the online market in all our markets.
Delivering on our ambition to scale and improve the core business
Against the backdrop of disruption from COVID-19 I am incredibly proud of the work undertaken by my colleagues around the world to scale our operations and maintain focus on enhancing experiences for our customers and winemakers. A few personal highlights from the first half include:
1. Scaling our operation while maintaining service levels: Fulfilment capacity doubled (104%); full remote customer service model launched whilst maintaining 91% 5* feedback from customers.
2. Engaging our customers in innovative and compelling ways: The community we create by connecting our customers directly to winemakers has been more valuable than ever. There were over 900,000 comments on winemaker and Angel walls in the half and over 40,000 Angels have attended our 'Virtually Naked' tour and 'Thirsty Toosdays' events in the UK.
3. Generating 45k orders on our automated ordering products: Our Never Miss Out and WineGenie products are now subscribed by 16% of our customer base and we have future forward orders worth GBP12m.
4. Living our pledge to change the industry: As demand from on-premise retailers collapsed for quality independent winemakers in the summer we launched a $5m COVID Relief Fund. This resulted in us sourcing 105 new wines from 36 new winemakers, a number of which will be going on to become permanent in the range following high customer ratings.
5. Supporting our communities: We believe in paying it forward. In the UK we donated GBP115k to meals for the NHS, and 715 cases of wine to NHS workers. In the US, Our "Cellar Cru" red blend project raised $127,000 for Kenwood Volunteer Firefighters Association and our collaboration with star winemaker Daryl Groom on DRG "Wine with Heart" has raised $16,000 so far this year.
6. Committing to support diversity and the underprivileged in the wine industry: The Black Lives Matter movement brought the challenges of entering the wine industry for minorities into sharp focus. Alongside our sponsorship of a South African winemaking scholarship, we have partnered with The Roots Foundation to launch a full winemaking scholarship to University of California Davis, and are launching a mentor program to support new minority winemaking talent in the US.
Capital to invest in growth opportunities
We move into the second half with continued trading momentum, GBP76m of cash on the balance sheet and strong conviction in the potential for further growth in all our markets.
The progress we have made in the last six months lays the foundations for further investment in our core business, both in accelerating our rate of investment in customer acquisition and in continued investment in capability, especially in data, technology and people.
Our current assessment of the outlook for FY22 is to at least maintain the investment levels we expect to achieve in FY21 albeit with payback reverting towards our 4.0x target for 20 year forecast payback. We also intend to continue to invest alongside our winemakers to expand our range and build our reputation as the home to the world's best independent winemakers.
We maintain a disciplined approach with regard to capital allocation, investing where long-term returns are most attractive. We continue to believe we will create the most value for our shareholders by investing in high return growth opportunities whilst maintaining a robust balance sheet to give us competitive advantage. This approach has served us well throughout H1.
At this point in time with such a high degree of growth opportunity and continued global macroeconomic uncertainty, we see our balance sheet as a strategic asset, allowing us to be focused on realising the growth opportunities present in a time of disruption. Consequently, we are not planning any distributions or returns to shareholders at this time. We will, however, remain committed to returning surplus cash to our shareholders in the most efficient way should the circumstances arise in the future.
Appointment of Chief Financial Officer
I'm delighted that Shawn Tabak will be joining Naked on 7 December 2020 as CFO. Shawn is ideally suited to the role through his experience and his understanding of the US market will be valuable. I am excited about partnering with him to deliver the next stage in Naked's growth as we take another key step in our transition from British start-up to a US-led global pureplay.
I'm also pleased to continue to work with James Crawford following the support he has given over six years as CFO, guiding us through many challenges as a start-up to our current growth story. As UK MD, I am confident James will continue to grow our business in the years to come.
FINANCIAL REVIEW
Group performance
The Group has delivered a record growth performance and continues to trade strongly, with total sales in the first half +80% vs the prior year. Growth has accelerated in all of our markets, with the US becoming the clear lead market at 49% (H1 FY20: 45%) of Group sales.
Adjusted EBIT was a loss of GBP(3.2)m, down from GBP(4.5)m in the prior year. This reduction was achieved despite a substantial uplift in investment in new customers and higher fixed costs due to the strong growth in repeat sales and contribution from our existing customers.
Reported PBT dropped by GBP2.7m to GBP(8.9)m (H1 FY20: GBP(6.2)m) as a result of a write down in the fair value of the Calais-related deferred contingent consideration from the disposal of the Majestic Wine business (see adjusted items commentary below for a fuller explanation of this write-down).
Our headline performance has been strong in all markets with revenue +95% in the US, +76% in the UK and +48% in Australia. Growth was driven by:
-- New customer sales +166%, with investment in new customers +121%
-- Repeat customer sales +66%, with sales retention of 95% and contribution margin improved by 3.5ppts to 29.0%
Our growth rate accelerated slightly through the period as the high level of new customer sales started to translate into repeat customer orders. We expect this to moderate through the second half of the year as described in our updated central case assumptions below.
H1 2021 H1 2020(1) YoY
GBPm GBPm %
New customers
--------- ----------- ----------
- Revenue 32.2 12.1 +165.5%
--------- ----------- ----------
- Contribution(5) (22.7) (10.3) +120.9%
--------- ----------- ----------
Repeat customers
--------- ----------- ----------
- Revenue 124.9 75.4 +65.8%
--------- ----------- ----------
- Contribution(5) 36.2 19.2 +88.8%
--------- ----------- ----------
Fixed costs (including central
costs)(5) (15.3) (12.8) (20.3)%
--------- ----------- ----------
Marketing R&D spend (0.8) - n/a
--------- ----------- ----------
IFRS2 costs(4) (0.6) (0.6) -
--------- ----------- ----------
Adjusted EBIT (5) (3.2) (4.5) +29.1%
--------- ----------- ----------
Finance income / (charges) 0.5 (0.5) n/a
--------- ----------- ----------
Adjusted loss before tax (2.7) (5.0) +46.6%
--------- ----------- ----------
Memo: Total revenue 157.1 87.5 +79.6%
--------- ----------- ----------
KPIs
--------- ----------- ----------
Forecast payback (5 year) 3.9x 2.3x +69.6%
--------- ----------- ----------
Forecast payback (20 year) 7.6x 3.8x +100.0%
--------- ----------- ----------
Year 1 payback (L12M) 67% 66% +1.5%
--------- ----------- ----------
Active Angels 757k 553k +36.9%
--------- ----------- ----------
Repeat customer sales retention 95% 79% +16.0ppts
--------- ----------- ----------
Repeat customer contribution
margin 29.0% 25.5% +3.5ppts
--------- ----------- ----------
Standstill EBIT (L12M) GBP26.0m GBP4.0m 554.5%
--------- ----------- ----------
New customers
Taking advantage of the market conditions and increase in online demand for wine, we increased investment in new customers by 121% in the period to GBP22.7m (H1 FY20 GBP10.3m), realising lower costs of acquisition for new customers due to a combination of favourable marketing costs and improved response rates. As a result of this, our forecast 20 year payback was strongly enhanced at 7.6x (H1 FY20 3.8x). At the full year results we introduced a five year forecast payback measurement period and on this basis we forecast payback of 3.9x (H1 FY20 2.3x). We will be moving to five year payback as our primary payback measure in future.
Contribution margin on new customer sales was (70)% vs (84)% in the prior year comparative, this improvement being due to lower marketing costs per new customer. Our central case forecast anticipates this trend reversing in the second half, assuming normalisation of the marketing environment and a reduction in the average number of bottles we include in first orders.
Note that the majority of the increase in new customer acquisition was in marketing spend, which is reported within administrative expenses in the consolidated income statement.
Repeat customers
The number of active Angels has grown by 37% in the last 12 months and our customer base now consists of 757k active Angels, i.e. those who have shopped as Angels in the last 12 months (H1 FY20: 553k). Revenue from repeat customer sales grew by 66% in the period reflecting the growing customer base and increased frequency of customer orders during the pandemic.
Of particular note is that repeat contribution sourced from the cohort of new customers recruited in the period constituted 22% of total repeat contribution in the period, significantly higher than prior years (H1 FY20: 6%) and represented 0.35x payback on the investment in this cohort being realised already (H1 FY20: 0.12x). As the data on this cohort builds so does the confidence in the quality of this cohort, where they are showing higher retention and early purchasing than equivalent cohorts in prior years, with trends consistent across markets and channels.
In addition, we saw an improvement in sales retention in the period to 95%, benefitting from an uplift in purchase frequency and therefore significantly ahead of our typical levels and the prior year (H1 FY20: 79%). Angel retention is showing an improvement for all cohorts, offset by a mix shift to younger tenures.
These factors converted to repeat customer contribution growth of 89% as margins improved to 29.0% vs 25.5% in the prior year. The drivers of this improvement were:
Underlying gross margin improvements: +1.6% Gross margin country mix shift +0.6% Fulfilment cost underlying improvements +1.6% Fulfilment costs country mix shift -0.3%
The underlying gross margin improvements were, in part, a result of marketing and range changes necessitated by the increased order volume and as such are likely to reverse over time. The drivers of the remaining 1.9ppts, being driven by the scale and geographic distribution of the business, are more likely to be sustainable.
Fixed costs
Total fixed costs of GBP16.7m consist of GBP0.6m of IFRS2 share based payment charges, previously reported as adjusted items (H1 FY20: GBP0.6m), GBP0.8m spend from the marketing R&D fund and GBP15.3m of costs comparable to the prior year (H1 FY20: GBP12.8m), an increase of 20%. This is below our medium-term target that fixed costs should grow at half the rate of revenues but reflect:
1. Additional roles in support of the growth of the Group, most significantly the appointment of a new country Managing Director and a Director of Growth in the US and the annualisation of the appointment of Nick Devlin as CEO at a market aligned compensation package.
2. An enhanced variable compensation plan to reflect the level of discretionary effort being put in by the teams to support the extraordinary growth we have seen.
Standstill EBIT
Our calculated Standstill EBIT, a measure of our annual profitability if we only invested enough in new customers to maintain the size of the business, has substantially increased to GBP26.0m (H1 FY20 GBP4.0m). This increase is predominantly driven by a GBP21.1m increase in repeat contribution in the last twelve months, and also a GBP3m reduction in replenishment costs driven by improved retention and payback KPIs.
Financing costs and tax
Interest income of GBP0.5m (H1 FY20: GBP(0.5)m charge) is derived from our cash held on deposit with a range of banks and the non-cash amortised interest income on the loan note created as part of the disposal of the Majestic business.
Total tax credit of GBP0.8m (H1 FY20: credit GBP0.8m) amounts to an effective tax rate of 9.3%, substantially distorted by the non-deductible write down in the fair value of the deferred contingent consideration acquired on the disposal of Majestic and the non-recognition of deferred tax assets in UK Group companies whilst they remain likely to continue to be loss making.
Cash and cash flow drivers
The business has been strongly cash generative in the period with Free Cash Flow(5) of GBP20.6m (H1 FY20: cash utilised GBP(11.4)m). The main drivers of this have been:
-- Adj. EBIT loss of GBP(3.2)m -- Outflows to build inventory of GBP(14.9)m -- Inflow from Angel fund increases of GBP17.6m -- Inflow from increased payables and accruals of GBP21.5m
As a result, we end the period with GBP76.3m of cash (H1 FY20: net debt GBP21.0m).
Free Cash Flow was materially affected by the net working capital improvement of GBP23.5m (H1 FY20: GBP(7.2)m outflow) in the period. This was the result of inventory levels remaining lower than planned whilst purchases, and consequently payable balances, increased as a result of accelerated sales. Looking forward, we anticipate needing to build further inventory to support the bigger customer base and the working capital cycle returning to historic patterns. We plan to maximise investment in customer acquisition and our technology and infrastructure to accelerate growth and maximise the opportunities ahead, while holding a material cash buffer against the economic uncertainty which continues. As a result, we are not making any distributions or returns of capital to shareholders at this time.
Adjusted items and write down in the fair value of Majestic Calais deferred contingent consideration
Our adjusted items totalled GBP6.2m in the period, up from GBP1.2m in H1 FY20 (after reclassifying IFRS2 charges to fixed costs).
The biggest driver of this was a GBP4.0m charge reflecting a write down to nil in the fair value of the deferred contingent consideration receivable for the Majestic Calais stores agreed as part of the disposal of the Majestic business. The terms of the disposal left GBP5m of consideration contingent on the post-Brexit regulatory environment and business performance of the Majestic Calais stores, which was fair valued at GBP4.0m as of the end of FY20. In September 2020 the UK Government outlined new personal allowances for duty free import of alcoholic beverages from Europe which are considerably lower than the personal import allowance in place when the UK was part of the EU customs union. It is the Board's understanding that this is likely to result in a material impact on the Majestic Calais business sufficient to render the consideration non-payable and as a result we have written down the fair value of this asset to nil.
Current trading and central case assumptions
We have sustained positive trading momentum into the start of the second half in all geographies. We remain mindful of significant levels of political and economic uncertainty, including the potential for future lockdowns across our geographies or operational disruption and the impacts these may have on peak purchasing at Christmas.
New customer recruitment remains heightened into autumn, and while we expect our metrics to revert once we experience more normalised trading conditions, we see many of the scale achievements as enduring. While we maintain a range of potential scenarios, we are upgrading our FY21 central case assumptions as follows:
-- Total sales growth for the full year of around 55-65% -- Repeat customer contribution of GBP75m - GBP80m
-- Investment in new customers of GBP40m - GBP45m with a slightly improved margin vs the prior year
-- Fixed costs of GBP37m - GBP39m, which includes the marketing R&D spend of GBP3m and the IFRS 2 charge taken above the line of GBP2m
We remain committed to maximising our investment in new customer acquisition subject to meeting our returns criteria and will invest in inventory and operational capacity to support this. While it remains challenging to give detailed guidance for FY22, we are confident that we are well placed and envisage a central outlook including:
-- Investment in new customers at or above the level expected to be achieved in FY21, with payback reverting towards our targeted 4.0x 20-year forecast
-- A wide range of potential performance outcomes for repeat customers, ranging from reversion to historic purchase frequency (implying lower than historic sales retention due to FY21 uplift) to sustaining the higher frequency seen in the year to date (implying a reversion to historic levels of sales retention)
-- Continued investment into our fixed cost base and continued R&D spending at levels similar to FY21
Independent review report to Naked Wines plc
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 28 September 2020 which comprises the income statement, statement of comprehensive income, the statement of changes in equity, the balance sheet, the cash flow statement and related notes 1 to 9. 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.
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 Financial Reporting Council 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 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 26 weeks ended 28 September 2020 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.
Use of our report
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 Financial Reporting Council. 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.
Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
18 November 2020
Unaudited consolidated income statement
For the period 26 weeks to 28 September 2020
52 weeks
26 weeks 26 weeks to
to to 30 Mar
Note 28 Sep 2020 30 Sep 2019 2020
GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 157,098 87,463 202,911
Cost of sales (95,220) (53,976) (125,352)
------------------------------------ ----- ------------- ------------- ----------
Gross profit 61,878 33,487 77,559
Distribution costs (28,228) (15,825) (34,955)
Administrative expenses (38,996) (23,332) (47,478)
Fair value loss arising on
deferred contingent consideration 4 (4,043) - -
Operating loss (9,389) (5,670) (4,874)
Net finance income/(charges) 497 (541) (501)
------------------------------------ ----- ------------- ------------- ----------
Loss before tax (8,892) (6,211) (5,375)
Analysed as:
Adjusted loss before tax
* (2,684) (5,022) (2,896)
Adjusted items*:
- Non-cash charges relating
to acquisitions 4 (1,823) (1,823) (3,646)
- Other adjusted items 4 (4,385) 634 1,167
------------------------------------ ----- ------------- ------------- ----------
Loss before tax (8,892) (6,211) (5,375)
------------------------------------ ----- ------------- ------------- ----------
Tax 5 830 810 (1,310)
Loss for the period from
continuing operations (8,062) (5,401) (6,685)
------------------------------------ ----- ------------- ------------- ----------
Discontinued operations
(Loss)/profit from discontinued
operations, net of tax - (1,012) 14,837
------------------------------------ ----- ------------- ------------- ----------
(Loss)/profit for the period (8,062) (6,413) 8,152
------------------------------------ ----- ------------- ------------- ----------
Loss per share - continuing
operations
Basic and diluted 6 (11.1p) (7.6p) (9.3p)
------------------------------------ ----- ------------- ------------- ----------
(Loss)/earnings per share
- Total Group
Basic 6 (11.1p) (9.0p) 11.3p
Diluted 6 (11.1p) (9.0p) 11.1p
------------------------------------ ----- ------------- ------------- ----------
* Share based payment charges have been reclassified in the period from adjusted items and are included within adjusted loss before tax in the 26 weeks to 28 September 2020. Comparatives have been restated accordingly. See note 4 for further details.
Unaudited consolidated statement of comprehensive income
For the period 26 weeks to 28 September 2020
26 weeks 26 weeks 52 weeks
to to to
28 Sep 30 Sep 30 Mar
2020 2019 2020
GBP'000 GBP'000 GBP'000
(Loss)/profit for the period (8,062) (6,413) 8,152
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations 342 1,125 (1,320)
-------------------------------------- --------- --------- ---------
Other comprehensive income/(loss) 342 1,125 (1,320)
Total comprehensive (losses)/income
for the period (7,720) (5,288) 6,832
-------------------------------------- --------- --------- ---------
The total comprehensive income for the period and the prior periods is wholly attributable to the equity holders of the parent company, Naked Wines plc.
Unaudited consolidated statement of changes in equity
For the period 26 weeks to 28 September 2020
Capital
reserve Capital Currency Total
Share Share - own redemption translation Retained shareholders'
Note capital premium shares reserve reserve earnings funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ----- --------- --------- --------- ------------ ------------- ---------- ---------------
At 1 April
2019 5,411 21,116 (17) 363 2,701 79,577 109,151
Adjustment
on initial
application
of IFRS16 - - - - - 36 36
Loss for the
period - - - - - (6,413) (6,413)
Other comprehensive
income for
the period - - - - 1,125 - 1,125
Shares issued 51 47 - - - (49) 49
Credit to equity
for equity
settled share
based payments - - - - - 482 482
Deferred tax
on share based
payments - - - - - (450) (450)
-------------------- ----- --------- --------- --------- ------------ ------------- ---------- ---------------
At 30 September
2019 5,462 21,163 (17) 363 3,826 73,183 103,980
Profit for
the year - - - - - 14,565 14,565
Other comprehensive
loss for the
period - - - - (2,445) - (2,445)
Shares issued 4 (1) - - - (4) (1)
Credit to equity
for equity
settled share
based payments - - - - - 1,213 1,213
Dividends paid 7 - - - - - (3,786) (3,786)
Deferred tax
on share based
payments - - - - - 53 53
At 30 March
2020 5,466 21,162 (17) 363 1,381 85,224 113,579
Loss for the
period - - - - - (8,062) (8,062)
Other comprehensive
income for
the period - - - - 342 - 342
Shares issued 19 - - - - (19) -
Transfer of
shares into
an employee
benefit trust - - 17 - - (17) -
Credit to equity
for equity
settled share
based payments - - - - - 461 461
Deferred tax
on share based
payments - - - - - 102 102
--------------------
At 28 September
2020 5,485 21,162 - 363 1,723 77,689 106,422
-------------------- ----- --------- --------- --------- ------------ ------------- ---------- ---------------
Unaudited consolidated balance sheet
As at 28 September 2020
30 Sep 30 Mar
Note 28 Sep 2020 2019 2020
GBP'000 GBP'000 GBP'000
Non-current assets
Goodwill and intangible assets 34,205 41,036 35,996
Property, plant and equipment 1,297 2,111 1,234
Right-of-use assets 3,373 4,804 5,289
Investment property 877 - 899
Deferred tax assets 3,107 2,681 3,309
Other receivables 9,413 - 13,005
--------------------------------- ----- ---------- ---------
52,272 50,632 59,732
Current assets
Inventories 84,917 81,409 69,935
Trade and other receivables 7,084 8,545 5,737
Financial instruments at fair
value 352 95 539
Cash and cash equivalents 76,383 10,870 54,736
--------------------------------- ----- ---------- ---------
168,736 100,919 130,947
Assets classified as held for
sale 8 - 194,526 953
Total current assets 168,736 295,445 131,900
Total assets 221,008 346,077 191,632
--------------------------------- ----- ------------ ---------- ---------
Current liabilities
Trade and other payables (47,495) (29,216) (26,046)
Deferred Angel and other income (61,102) (44,673) (43,632)
Lease liabilities (749) (1,271) (1,165)
Provisions (1,407) (1,235) (1,165)
Bond financing (78) (85) (84)
Financial instruments at fair
value - - (143)
--------------------------------- ----- ------------ ---------- ---------
(110,831) (76,480) (72,235)
Liabilities directly associated
with assets classified as held
for sale 8 - (127,636) -
--------------------------------- ----- ------------ ---------- ---------
Total current liabilities (110,831) (204,116) (72,235)
--------------------------------- ----- ------------ ---------- ---------
Non-current liabilities
Provisions (326) (511) (348)
Bank loan - (31,820) -
Lease liabilities (2,711) (3,763) (4,198)
Deferred tax liabilities (718) (1,887) (1,272)
--------------------------------- ----- ------------ ---------- ---------
(3,755) (37,981) (5,818)
--------------------------------- ----- ------------ ---------- ---------
Total liabilities (114,586) (242,097) (78,053)
--------------------------------- ----- ------------ ---------- ---------
Net assets 106,422 103,980 113,579
--------------------------------- ----- ------------ ---------- ---------
Shareholders' funds
Called up share capital 5,485 5,462 5,466
Share premium 21,162 21,163 21,162
Capital reserve - own shares - (17) (17)
Capital redemption reserve 363 363 363
Currency translation reserve 1,723 3,826 1,381
Retained earnings 77,689 73,183 85,224
--------------------------------- ----- ------------ ---------- ---------
Equity shareholders' funds 106,422 103,980 113,579
--------------------------------- ----- ------------ ---------- ---------
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first 26 weeks of the year); and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board
James Crawford
Chief Financial Officer
18 November 2020
Unaudited consolidated cash flow statement
For the period 26 weeks to 28 September 2020
26 weeks 26 weeks 52 weeks
to to to
28 Sep 30 Sep 30 Mar
Note 2020 2019 2020
GBP'000 GBP'000 GBP'000
Cash generated by operating activities
Cash generated/(utilised) by operations 9 21,777 (10,393) (117)
UK income tax received/(paid) 274 (367) (276)
Overseas income tax paid (515) (452) (268)
Net cash generated/(utilised) by operating
activities - continuing operations 21,536 (11,212) (661)
Net cash generated by operating activities
- discontinued operations - 8,775 22,290
---------
Net cash generated/(utilised) by
operating activities 21,536 (2,437) 21,629
Cashflows from investing activities
Disposal of discontinued operations,
net of cash disposed of - - 63,761
Interest received 116 - -
Purchase of property, plant and
equipment (464) (1,569) (569)
Purchase of intangible fixed assets (102) (625) (544)
Purchase of prepaid lease assets - (18) -
Proceeds from sale of assets classified
as held for sale 953 - -
Net cash generated/(used) in investing
activities - continuing operations 503 (2,212) 62,648
Net cash used in investing activities
- discontinued operations - - (2,430)
Net cash generated/(used) in investing
activities 503 (2,212) 60,218
Cashflows from financing activities
Interest paid - (467) (344)
Issue of ordinary share capital - 48 53
Repayments of principal under lease
liabilities (567) (5,840) (1,153)
Draw down of borrowings - 9,300 -
Repayment of borrowings (6) (14) (22,459)
Equity dividends paid - - (3,786)
----------------------------------------- ----- --------- ---------
Net cash from financing activities
- continuing operations (573) 3,027 (27,689)
Net cash from financing activities
- discontinued operations - - (6,625)
Net cash from financing activities (573) 3,027 (34,314)
Net increase/(decrease) in cash 21,466 (1,622) 47,533
Cash and cash equivalents at beginning
of year 54,736 6,997 6,997
Effect of foreign exchange rate
changes 181 393 206
Cash and cash equivalents at end
of the period 76,383 5,768 54,736
----------------------------------------- ----- --------- --------- ---------
Notes to the unaudited financial statements
1. General information
Naked Wines 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 registered office is Norvic House, Chapel Field Road, Norwich, NR2 1RP . The Group's principal activity is the online 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 30 March 2020.
The information for the year ended 30 March 2020 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
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 to 28 September 2020 and the prior period, 26 weeks to 30 September 2019.
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. The Group has continued to experience current trading ahead of expectations during the course of the 26 weeks to 28 September 2020. Management have prepared a conservative forecast covering more than the next complete financial year which supports the assumption of going concern which has been reviewed by the Board of Directors. Management have also produced two maximum stress downside scenarios which have been deliberately engineered to challenge the Group's liquidity position in the very short term by either a sustained reduction in Angel numbers or a single one-off exit of Angel numbers and which have been assessed for likelihood and determined to be highly unlikely in the face of current trading and realistic worst case expectations.
These forecasts and the analysis demonstrate that the Group's freely deployable cash reserves and its ability to moderate working capital flows over a realistic timescale are sufficient for the Group to meet its obligations as they fall due for a forecast period of more than twelve months beyond the date of the signing of these financial statements.
Accordingly, the Directors have continued to adopt the going concern basis of accounting in preparing the 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 it is primarily responsible for the allocation of resources to segments and the assessment of performance of the segments.
Following the disposal of the Majestic Wine businesses and the Lay & Wheeler businesses in 2019, the Group only operates one distinct business unit, being Naked Wines which is a customer funded international online wine retailer.
Performance of this Business Unit is assessed on revenue, 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 segment as this reflects how they are reported to the Board.
Operating segments set out below reflect the segments on which the performance of the business is presented to the Board. The Board considers that, as a single route to market and solely consumer facing business, the business is comprised of a single segment being exposed to similar underlying economic drivers across its whole business. The Group reports revenue from external customers as a single product group being wine and associated beverages.
Costs relating to centralized Group functions are not allocated to the operating segment for the purposes of assessing segmental performance and consequently central costs are presented as a separate segment. For the first time in 26 weeks to 28 September 2020, share based payment charges have been reclassified from adjusted items to adjusted EBIT in order to reflect their now stabilized and recurring nature as a cost to the group. Comparative statements have been restated accordingly and are included in unallocated costs.
Revenues are attributed to the countries from which they are earned. The Group is not reliant on a major customer or group of customers.
26 weeks to 28 Sep Naked
2020 Wines Un-allocated Total
GBP'000 GBP'000 GBP'000
Reported revenue 157,098 - 157,098
------------------------------------------ -------- -------- ------------- --------
Segment result - adjusted
EBIT 4,117 (7,298) (3,181)
Finance income 10 557 567
Finance charges (70) - (70)
------------------------------------------
Adjusted profit/(loss)
before taxation 4,057 (6,741) (2,684)
Adjusted items:
- Non-cash items relating
to acquisitions (1,823)
- Other adjusted items (4,385)
Loss before taxation (8,892)
------------------------------------------ -------- -------- ------------- --------
Depreciation 749 25 774
Amortisation - 1,891 1,891
------------------------------------------ -------- -------- ------------- --------
Geographical analysis UK US Australia Total
GBP'000 GBP'000 GBP'000 GBP'000
Reported revenue 57,750 76,511 22,837 157,098
Non-current assets excluding deferred
tax assets 44,667 3,910 588 49,165
------------------------------------------ -------- -------- ------------- --------
26 weeks to 30
Sep 2019 Continuing operations Discontinued operations Group
--------------------------------- ----------------------------------------- --------
Naked
Wines Un-allocated Total Retail Commercial L&W Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment revenue 87,463 - 87,463 116,492 21,848 7,693 146,033 233,496
Movement in en primeur
sales - - - - - (477) (477) (477)
--------------------------
Reported
revenue 87,463 - 87,463 116,492 21,848 7,216 145,556 233,019
---------------- -------- -------- ------------- -------- -------- ----------- -------- -------- --------
Segment result - adjusted
EBIT * 911 (5,392) (4,481) 1,293 587 298 2,178 (2,303)
Finance charges (74) (467) (541) (901) - (2) (903) (1,444)
----------------
Adjusted profit/(loss)
before tax * 837 (5,859) (5,022) 392 587 296 1,275 (3,747)
Adjusted
items*:
- Non-cash items relating
to acquisitions (1,823) (112) (1,935)
- Other
adjusted
items 634 (1,903) (1,269)
Loss before tax (6,211) (740) (6,951)
---------------- -------- -------- ------------- -------- -------- ----------- -------- -------- --------
Depreciation 792 7 799 7,038 - 64 7,102 7,901
Amortisation - 1,831 1,831 144 - 179 323 2,154
Impairments - - - 740 - - 740 740
---------------- -------- -------- ------------- -------- -------- ----------- -------- -------- --------
Geographical Rest
analysis of Group
UK US Australia Total UK Europe Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Reported
revenue 32,797 39,245 15,421 87,463 141,828 3,728 145,556 233,019
Non-current
assets
excluding
deferred
tax assets 44,948 2,420 583 47,951 - - - 47,951
---------------- -------- -------- ------------- -------- -------- ----------- -------- -------- --------
52 weeks to
30 Mar 2020 Continuing operations Discontinued operations Group
--------------------------------- -------------------------------------------------------- --------
Naked
Wines Un-allocated Total Retail Commercial L&W Un-allocated Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment
revenue 202,911 - 202,911 177,021 31,564 7,693 - 216,278 419,189
Movement in
en primeur
sales - - - - - 477 - 477 477
--------------
Reported
revenue 202,911 - 202,911 177,021 31,564 8,170 - 216,755 419,666
-------------- -------- -------- ------------- -------- -------- ----------- -------- ------------- -------- --------
Segment result -
adjusted EBIT * 8,470 (10,865) (2,395) 3,947 733 298 (892) 4,086 1,691
Finance
income - 321 321 1 - 10 - 11 332
Finance
charges (179) (643) (822) (1,271) - (12) - (1,283) (2,105)
--------------
Adjusted loss
before tax
* 8,291 (11,187) (2,896) 2,677 733 296 (892) 2,814 (82)
Adjusted
items*:
- Non-cash items relating
to acquisitions (3,646) (113) (3,759)
- Other
adjusted
items 1,167 (531) 636
Loss before
tax (5,375) 2,170 (3,205)
-------------- -------- -------- ------------- -------- -------- ----------- -------- ------------- -------- --------
Depreciation 1,623 15 1,638 9,731 - 64 - 9,795 11,433
Amortisation - 3,698 3,698 198 - 179 - 377 4,075
Impairments - - - 740 - - - 740 740
-------------- -------- -------- ------------- -------- -------- ----------- -------- ------------- -------- --------
Geographical Rest Group
analysis UK US Australia Total UK of Europe Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Reported
revenue 79,993 90,904 32,014 202,911 211,185 5,570 216,755 419,666
Non-current
assets
excluding
deferred tax
assets 51,637 4,161 625 56,423 - - - 56,423
-------------- -------- -------- ------------- -------- -------- ----------- -------- ------------- -------- --------
* Comparative statements have been restated for the reclassification of share based payments. See note 4 for further details.
4. Adjusted items
The Directors believe that adjusted profit before tax and adjusted diluted earnings per share measures provide additional useful information for shareholders on underlying trends and performance. These measures are used for performance analysis. Adjusted profit is not defined by IFRS and therefore may not be directly comparable with other companies' adjusted profit measures. It is not intended to be a substitute for, or superior to IFRS measurements of profit.
Reclassification of share-based payment charges
As the Group has built up a consistent rolling three years of LTIP and SIP schemes year on year, share-based payment charges are now more comparable. For the first time, in the 26 weeks to 28 September 2020, these charges have been reclassified from adjusted items to adjusted EBIT and the comparative statements have been restated accordingly (H1 FY20: GBP0.6m).
The adjustments made to reported (loss)/profit before tax are:
26 weeks 26 weeks 52 weeks
to to to
28 Sep 30 Sep 30 Mar
2020 2019 2020
GBP'000 GBP'000 GBP'000
Non-cash charges relating to acquisitions
Amortisation of acquired intangibles (1,823) (1,823) (3,646)
------------------------------------------- --------- --------- ---------
(1,823) (1,823) (3,646)
Other adjusted items*
Fair value loss arising on deferred
contingent
consideration during the period (4,043) - -
Fair value movement through P&L on
foreign exchange
contracts (43) 634 396
Foreign exchange movements on plc
company currency
bank balances (299) - 771
------------------------------------------- --------- --------- ---------
(4,385) 634 1,167
Total adjusted items (6,208) (1,189) (2,479)
------------------------------------------- --------- --------- ---------
Amortisation of acquired intangibles
These items reflect costs of customer acquisition from prior to the purchase of the Naked Wines business. As we expense ongoing customer acquisition in full each year we remove the amortisation as otherwise we overstate the level of investment driving the current rate of growth.
Fair value loss arising on deferred contingent consideration during the period
As part of the Group's disposal of the Majestic Wine businesses, Naked Wines received two financial instruments in part consideration for the business; a five year vendor loan note and deferred contingent consideration in respect of the disposal of the Calais business.
As a result of the new duty free allowances announced by the UK government on the 11 September 2020, the Directors believe that the deferred contingent consideration is highly unlikely to become payable and as such have revised the fair value of this financial asset to nil at the reporting date. This valuation includes a number of accounting estimates which the Directors will continue to evaluate following the introduction of the new duty free arrangements on the 1 January 2021. The Directors draw attention to the fact that this may result in material fair value adjustments to the carrying value of the deferred contingent consideration as further evidence becomes available.
Fair value movement on foreign exchange contracts
We commit in advance to buying foreign currency to purchase wine in order to mitigate exchange rate fluctuations. International Accounting Standards require us to mark the value of these to market at the balance sheet date. As this may fluctuate materially we adjust it out to better reflect our trading profitability.
Foreign exchange movements on plc company currency bank accounts
Following the disposal of the Majestic Wine businesses and the Lay & Wheeler businesses during the prior year, the Group is now holding net cash on its balance sheet and this includes sums of foreign currency which it will deploy to fund its US and Australian businesses. The FX revaluation of foreign currency balances held in the company are reported as adjusted items so as not to distort the picture of the underlying business cost base.
5. Tax
Tax for the 26 week period is charged at an effective tax rate of 9.3% (Sep 2019:13.0%) representing the best estimate of the Group's expected annual effective tax rate, applied to the loss before tax 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 191,707 (Sep 2019: 378,026) 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 period. Share options granted over 9,912 (Sep 2019: 399,150) 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.
Continuing operations Total Group
------------------------ ------------------------
26 weeks 26 weeks 52 weeks 26 weeks 52 weeks
to to to to to
28 Sep 30 Sep 30 Mar 30 Sep 30 Mar
2020 2019 2020 2019 2020
GBP GBP GBP GBP GBP
(Loss)/earnings per
share
Basic (loss)/earnings
per share (11.1p) (7.6p) (9.3p) (9.0p) 11.3p
Diluted earnings per
share (11.1p) (7.6p) (9.3p) (9.0p) 11.1p
Adjusted basic (loss)/earnings
per share * (2.5p) (5.9p) (5.8p) (4.5p) 15.7p
Adjusted diluted earnings
per share * (2.5p) (5.9p) (5.8p) (4.5p) 15.3p
--------------------------------- ----------- ----------- ----------- ----------- -----------
26 weeks 26 weeks 52 weeks 26 weeks 52 weeks
to to to to to
28 Sep 30 Sep 30 Mar 30 Sep 30 Mar
2020 2019 2020 2019 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Loss)/profit for
the period (8,062) (5,401) (6,685) (6,413) 8,152
Add back adjusted
items*:
Non-cash charges relating
to
acquisitions 1,823 1,823 3,646 1,936 3,759
Other adjusted items 4,385 (634) (1,167) 1,268 (636)
--------------------------------- ----------- -----------
Adjusted (loss)/profit
after tax* (1,854) (4,212) (4,206) (3,209) 11,275
--------------------------------- ----------- ----------- ----------- ----------- -----------
26 weeks 26 weeks 52 weeks 26 weeks 52 weeks
to to to to to
28 Sep 30 Sep 30 Mar 30 Sep 30 Mar
2020 2019 2020 2019 2020
Weighted average number
of shares in issue 72,833,756 71,291,875 71,909,151 71,291,875 71,909,151
Dilutive potential
ordinary shares:
Employee share options
and
contingently returnable
shares 1,091,984 1,848,704 1,552,166 1,848,704 1,552,166
--------------------------------- ----------- ----------- ----------- ----------- -----------
Weighted average number
of shares for the
purpose of diluted
earnings per share 73,925,740 73,140,579 73,461,317 73,140,579 73,461,317
Total number of shares
in issue 73,138,446 72,816,733 72,874,018 72,816,733 72,874,018
--------------------------------- ----------- ----------- ----------- ----------- -----------
* Comparative statements have been restated for the reclassification of share based payments. See note 4 for further details.
If the Group's share option schemes had vested at 100% the Company would have 74,948,561 (Sep 2019: 75,583,914) issued shares.
7. Dividend
26 weeks
26 weeks to 52 weeks
to 30 Sep to
28 Sep 2020 2019 30 Mar 2020
GBP'000 GBP'000 GBP'000
Amounts recognised as distributions
to shareholders in the period:
Special dividend - - 3,786
-------------------------------------- ------------------- ----------- -------------
- - 3,786
------------------- ----------- -------------
8. Assets held for sale
There are no assets classified as held for sale at 28 September 2020. The balance in the prior period to 30 September 2019 related to the disposal of Majestic Wines Warehouses Ltd and Lay and Wheeler which completed during the 52 weeks to 30 March 2020.
9. Notes to the cash flow statement
26 weeks 26 weeks 52 weeks
to to to
28 Sep 30 Sep 30 Mar
2020 2019 2020
GBP'000 GBP'000 GBP'000
Cash generated/(utilised) by operations
Operating loss (9,389) (5,670) (4,874)
Add back:
Depreciation and amortisation 2,665 2,630 5,336
Loss on disposal of property, plant
and equipment 128 4 71
Fair value loss arising on deferred
contingent consideration 4,043 - -
Fair value movement on foreign exchange
contracts 43 (634) (935)
Share based payment charges 464 484 833
-------------------------------------------- --------- ---------
Operating cashflows before movements
in working capital (2,046) (3,186) 431
Increase in inventories (14,902) (23,041) (13,291)
Increase in customer funds in deferred
income 17,553 6,657 5,312
Decrease/(increase) in trade and
other receivables (583) 1,577 594
Increase in trade and other payables 21,755 7,600 6,837
-------------------------------------------- --------- ---------
Net cash generated/(utilised) by
operating activities 21,777 (10,393) (117)
-------------------------------------------- --------- --------- ---------
Cash and cash equivalents
Cash and cash equivalents 76,383 10,870 54,736
Cash and bank balances included in
disposal group held for sale - (5,102) -
Total cash and cash equivalents 76,383 5,768 54,736
-------------------------------------------- --------- --------- ---------
Borrowings
Revolving credit facility - (31,820) -
Customer funded bond (78) (85) (84)
IFRS 16 lease liabilities (2,711) (3,763) (4,198)
Total borrowings (2,789) (35,668) (4,282)
-------------------------------------------- --------- --------- ---------
Total net cash/(debt) 73,594 (29,900) 50,454
-------------------------------------------- --------- --------- ---------
Definitions and operational KPIs
Definitions Operational KPIs
----------------------------------------------------------- -------------------------------------------------------
Angel A customer who deposits Product availability % of targeted range
funds into their Angel available
account each month to on websites as indicated
spend on the wines on by our inventory reporting.
our website.
---------------------------- ----------------------------- ------------------------- ----------------------------
CAGR Compound annual growth Wine quality % of "Yes" scores in the
rate. The year on year - last 12 months as recorded
growth rate required for "Buy it again by websites/apps.
a number of years for ratings"
a value to grow from its
beginning balance to its
ending balance
---------------------------- ----------------------------- ------------------------- ----------------------------
Company, Naked Wines plc Service ratings The number of service
Naked - ratings scoring 5* as
or Naked "5* customer a % of total ratings in
Wines service" the last 12 months as
recorded by websites/apps/
telephone feedback.
---------------------------- ----------------------------- ------------------------- ----------------------------
Contribution A profit measure between
gross profit and EBIT,
calculated as gross profit
less the costs of fulfilling
and servicing (e.g. credit
card fees, delivery costs,
customer-facing staff
costs) and marketing
expenses.
We often split contribution
into that from new and
repeat customers as they
can have different levels
of profitability.
---------------------------- -----------------------------
DTC Direct to Consumer.
---------------------------- -----------------------------
ESO Employee stock options
---------------------------- -----------------------------
Group Naked Wines plc and its
subsidiary undertakings
---------------------------- -----------------------------
LTIP Long Term Incentive Plan
---------------------------- -----------------------------
Marketing Expenditure focused on
- R&D spend researching and testing
new marketing channels
and creative approaches,
with the aim of opening
up significant new growth
investment opportunities
---------------------------- -----------------------------
New customer A customer who, at the
time of purchase, does
not meet our definition
of a repeat customer;
for example, because they
are brand new, were
previously
a repeat customer and
have stopped subscribing
with us at some point
or cannot be identified.
---------------------------- -----------------------------
New customer Revenues derived from
sales transactions with customers
who meet our definition
of a new customer.
A reconciliation and
analysis
including this metric
is shown below.
---------------------------- -----------------------------
Repeat customer A customer ('Angel') who
has subscribed and made
their first monthly
subscription
payment.
---------------------------- -----------------------------
Repeat customer These are the revenues
sales derived from orders placed
by customers meeting our
definition of a repeat
customer at the time of
ordering.
A reconciliation and
analysis
including this metric
is shown below.
---------------------------- -----------------------------
SIP Share Incentive Plan
---------------------------- -----------------------------
Standstill The adjusted EBIT that
EBIT would be reported if
investment
in new customers was reduced
to the level needed to
just replenish the current
customer base.
---------------------------- -----------------------------
Alternative performance measures Investment measures
------------------------------------------------------- ---------------------------------------------------------
EBIT Operating profit as Investment The contribution earned
disclosed in new customers from sales to new customers.
in the Group income (also referred An analysis including
statement. to as new this metric is shown below.
customer
contribution)
-------------------------- --------------------------- ------------------------- ------------------------------
Adjusted Operating profit adjusted Lifetime The ratio of the Lifetime
EBIT for amortisation of payback (also value (see below) of the
acquired referred customers recruited this
intangibles, acquisition to as forecast year to the investment
costs, impairment of payback) we made recruiting them.
goodwill, restructuring As this is an undiscounted
costs and fair value forward-looking estimate
movement through the it cannot be reconciled
income statement on back to reported financial
financial results. As we can refine
instruments and this expectation over
revaluation time, we also update the
of funding cash balances expected returns from
held. prior year investment.
-------------------------- --------------------------- ------------------------- ------------------------------
EBITDA EBIT plus depreciation Lifetime The future contribution
and amortisation. value we expect to earn from
customers recruited in
a discrete period of time.
We calculate this future
contribution using a Machine
Learning (ML) model.
Collecting
data for a number of key
customer characteristics
including retention, order
frequency and order value
along with customer
demographics
and non-transactional
data, the ML algorithms
then predict the future
(lifetime) value of that
customer.
-------------------------- --------------------------- ------------------------- ------------------------------
Adjusted Adjusted EBIT plus Repeat customer The profit attributable
EBITDA depreciation contribution to sales meeting the
and amortisation, but definition
excluding any depreciation of sales to repeat customers
or amortisation costs after fulfilment and service
included in our adjusted costs.
items e.g. amortisation An analysis including
of acquired intangibles. this metric is shown below.
-------------------------- --------------------------- ------------------------- ------------------------------
Adjusted Adjusted EBIT less net Repeat customer The proportion of sales
PBT finance income / sales retention made to customers who
(charges). met our definition of
"Repeat" last year that
were realised again this
year from the same customers.
Using our website data,
the population who were
subscribers in the prior
year are identified and
their sales in the current
year then assessed. This
is done
for each month and summed
to calculate the full
year retention.
-------------------------- --------------------------- ------------------------- ------------------------------
Free cash Cash generated by Fixed costs Administrative costs
flow operating excluding
activities less capital marketing spend.
expenditure and before
adjusted items and
taxation.
A reconciliation of free
cash flow is shown below.
-------------------------- --------------------------- ------------------------- ------------------------------
Year one This short-term payback
payback measure shows the actual
return in this financial
year of our investment
in the prior year, removing
the need to use a model
to forecast the future.
-------------------------- --------------------------- ------------------------- ------------------------------
Unaudited additional information
Analysis of sales and contribution between new and repeat customer components
26 weeks to 28 Sep 26 weeks to 30 Sep
2020 2019
-------------------------------------- ---------------------------------------
Analysed as: Analysed as:
------------------------ ------------------------
Repeat New Repeat New
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 157,098 124,861 32,237 87,463 75,319 12,144
Contribution 13,579 36,249 (22,670) 8,914 19,175 (10,261)
Operating loss
("EBIT") (9,389) (5,670)
----------------- ------------ ------------- --------- ------------- ------------- ---------
Memo
Administrative
expenses
analysed as:
Marketing costs
(included
above within
contribution) (20,071) (8,748)
Central R&D
spend (846) -
Fixed costs (15,914) (13,395)
Adjusted items
(excluding
fair value loss
arising
on deferred
contingent
consideration) (2,165) (1,189)
(38,996) (23,332)
------------ ------------- --------- ------------- ------------- ---------
Free cash flow reconciliation
26 weeks 26 weeks
to to
28 Sep 30 Sep
2020 2019
GBP'000 GBP'000
------------------------------------------------- --------- ---------
Adjusted EBIT (3,181) (4,481)
Add back: depreciation and amortisation
(excludes adjusted amortisation of acquired
intangibles) 970 807
Add back: share based payment charges 464 482
Adjusted EBITDA (1,747) (3,192)
Working capital movement
Inventories (14,902) (23,041)
Deferred Income 17,553 6,657
Trade and other receivables (583) 1,627
Trade and other payables 21,456 7,560
Working capital movement 23,524 (7,197)
IFRS 16 rent paid (567) (410)
Pre-tax operating cash flow 21,210 (10,799)
Capital expenditure (566) (565)
Pre-tax operating cash flow / "Free cash
flow" 20,644 (11,364)
------------------------------------------------- --------- ---------
Reconciliation to statutory cash flow statement
Free cash flow 20,644 (11,364)
Cash adjusted items - (4)
Capital expenditure 566 565
Repayments of principal under lease liabilities 567 410
Cash generated/(utilised) by operations 21,777 (10,393)
------------------------------------------------- --------- ---------
12 month rolling standstill EBIT calculation
28 Sep 30 Sep
2020 2019
GBPm GBPm
Repeat contribution (a) 63.0 41.9
Sales retention (b) 90.4% 80.9%
Repeat contribution lost to attrition (=a
x(1-b)) (c) 6.1 8.0
Year I payback (d) 66.8% 66.3%
Spend to replenish lost repeat contribution
(=c/d) (e) 9.1 12.1
Standstill EBIT is calculated as
Repeat contribution (a) 63.0 41.9
Less: replenishment spend (e) (9.1) (12.1)
Less: fixed costs (27.9) (25.8)
26.0 4.0
-------- --------
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END
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