TIDMWINE
RNS Number : 4844D
Naked Wines PLC
20 October 2022
20 October 2022
Naked Wines plc
("Naked" or the "Group")
Operational and Financial Update
Renegotiated credit facility improves liquidity, concurrent with
pivot to profit
-- Strengthened balance sheet and liquidity
-- Net cash of GBP22m, with GBP64m of available liquidity as of end H1
-- Revised credit facility covenants provide considerable downside protection
-- Inventory commitments reduced to destock over 18-month time-frame
-- Pivot to profit
-- Guiding to deliver adjusted EBIT of GBP9-13m in FY2023 with
further improvement expected in FY24
-- GBP18m reduction across marketing spend and general &
administrative ("G&A") costs vs mid-point of prior guidance
-- Growth investment reduced from GBP41m in FY22 to GBP22-24m,
targeting a payback in excess of 2.0x and sustainable scale
-- Short-term impact
-- Sales and Active Angels will fall in near-term due to focus on profits over growth
-- Inventory is expected to peak now, remain elevated for 12 months, before reducing
-- Cash consumption expected during H2 FY23, fully supported by available liquidity
-- One-off costs of up to GBP12m (of which up to GBP4m are cash)
to reduce inventory and G&A costs
-- H1 performance in line with revised plan
-- Adjusted EBIT estimated at GBP4m, approximately 3x H1 FY22 levels
-- Revenue expected to be GBP166m, +4% vs 1H22 (-3% on constant currency basis)
-- Significant improvements in revenue trend, profitability and payback in Q2
Nick Devlin, CEO, said:
"We recognise that in pursuit of rapid growth we have made
mistakes. Whilst the business today remains materially bigger than
pre-pandemic, in 2021 we bought inventory and added to our cost
base in anticipation of sustained faster growth which has not been
delivered; today we are taking steps to reset our cost base and
unwind inventory levels.
We commit to not only resolve these challenges but also to
ensure they are not repeated. While the operating environment
remains challenging, with low consumer confidence and high levels
of supply chain inflation, we have taken steps to reconfigure Naked
appropriately:
-- We have already ensured that Naked is well funded by
renegotiating our banking facilities onto a sustainable long term
basis and reduced future inventory commitments
-- We have taken decisive action to pivot to profit, reducing
marketing investment that was not delivering satisfactory returns
but maintaining scope for sufficient investment to maintain Naked
at today's scale
-- We have restructured some of our teams to create a leaner and more focused organisation
These steps will lay the foundation for a return to our ambition
of sustained, profitable growth, whilst also providing us with
greater resilience against macroeconomic challenges. We look
forward to sharing more detail of the progress we have made with
our interim results in December.
Alongside these operational and strategic changes we have
separately announced today a number of changes to our Board. I
would like to thank Darryl Rawlings for his service and counsel
over the past 18 months and welcome David Stead into his new role
as Chairman of the Board.
This change in direction has been hard, but it has been
necessary. We are committed to driving Naked forward and to deliver
for all of our stakeholders - customers, winemakers, people and
shareholders."
Revised Guidance
We have reshaped our plans to deliver profitability at a
sustainable level. Our plans also offer us a choice whether to
invest in growth when conditions permit or deliver improved
margins.
Given the uncertain economic outlook into next year, we intend
to continue to operate on a reduced cost base in FY24 with G&A
costs benefiting from a full year of savings offsetting
inflationary pressure.
Marketing costs will remain substantially lower than FY22 in
FY24 unless we see a marked improvement in customer recruitment
economics. Overall, we anticipate stronger profitability in FY24 as
a result of a full year of cost reductions and the elimination of
our Marketing R&D spend.
KPI FY23 guidance FY23 guidance FY24 guidance
at 9 June revised
Revenue GBP345m - GBP340m - -
375m 360m
-------------- --------------- --------------
Revenue growth (CCY) -4% to +4% -9% to -4% -
-------------- --------------- --------------
Inv. in New Customer Acquisition GBP30m - 40m GBP20m - 24m -
-------------- --------------- --------------
Repeat Customer Contribution GBP83m - 93m GBP80m - 88m -
profit
-------------- --------------- --------------
General & Administrative GBP45m - 48m GBP42m - 44m Flat
costs
-------------- --------------- --------------
Share based payment charge GBP4m GBP1.5m - GBP2.5m -
2.5m 3.5m
-------------- --------------- --------------
Marketing R&D costs GBP5m GBP5m Nil
-------------- --------------- --------------
Adjusted EBIT "Breakeven GBP9m - GBP13m Improvement
Adj. EBITDA" vs FY23
-------------- --------------- --------------
Adjusted EBIT % Margin 2-4% Improvement
vs FY23
-------------- --------------- --------------
One-time costs
* Non-cash 0 Up to GBP8m 0
0 Up to GBP4m 0
* Cash
-------------- --------------- --------------
Depreciation c.GBP2m GBP2-3m
-------------- --------------- --------------
Revised guidance has been provided based on a 1.15 GBP/USD rate
for future planning purposes. Note, FY23 is a 53-week year which
contributes approximately GBP5m of sales or two percentage points
of growth.
Balance sheet and revisions to credit facility
We have successfully renegotiated the profitability covenant on
our credit facility, resulting in GBP64m of available liquidity
based on closing H1 cash on hand and available borrowing contingent
on the terms of the facility. The previous covenant, based on
Repeat Customer Contribution, was agreed on an assumption of
continued growth which has not been delivered. A replacement
covenant has been set at a level where we have considerable
headroom, even on a downside basis, and is linked to facility
adjusted EBITDA (as defined in the terms of our Credit Agreement
and excluding share based payment charges). We have more short term
control over this metric than the original Repeat Customer
Contribution metric.
Under the revised agreement, Naked must deliver GBP1m of
facility adjusted EBITDA per quarter for fiscal year quarters one
through three, and an aggregate GBP4m of facility adjusted EBITDA
for the full fiscal year. We have already delivered GBP5-6m in
facility adjusted EBITDA for H1.
As a result of these changes, we have a credit facility that
delivers four important elements:
1. Supports a long-term capital structure where the seasonal
working capital cycle is not equity-funded
2. Provides flexibility as we align our supply and demand
outlooks and undertake a necessary destocking process over the next
18 months
3. Provides the capital we need to support selective growth
initiatives and range enhancements such as higher levels of luxury
wine
4. Offers a substantial buffer against the risk of a material downturn in business performance
This amendment removes the fact pattern which resulted in the
material uncertainty cited in the FY22 accounts going concern
assessment which related to the Group's ability to meet its Repeat
Contribution covenant in the event of a downturn in business
performance. The Company will be updating its going concern
assessment in light of our revised plans and the credit facility
amendment. We will provide an update on the outcome of that
exercise with our half year reporting in December.
Pivot to profit and cash generation
We have taken decisive action to demonstrate the liquidity,
profitability and attractive unit economics of the business in the
near-term:
1. Reduced Growth investment to a run rate of c. GBP20-24m per
annum, targeting payback in H2 of 2-2.5x
2. Reduced G&A costs in FY23 to GBP42-44m vs previous guidance of GBP45-48m
3. Developed a destocking plan, with FY23 stock intake expected
to be c.25% lower than in FY22 and a material reduction inventory
levels by the end of FY24
New customer marketing programmes have been reduced in all
geographies to ensure that we are delivering attractive payback
across all geographies and channels.
G&A cost reductions have been targeted across our UK, US and
Central business units across a mix of roles and spend categories.
The group share based payment charge has been reduced by GBP1.5 -
2.5m versus prior guidance.
Implications and Future Growth
In the near-term, the pivot to profitability will slow sales and
increase stock holding, resulting in additional cash investment in
inventory over the second half of the year that is well-supported
by our liquidity position. Inventory is expected to peak in October
2022, with the Group ending FY23 with approximately GBP185m of
inventory and reverting to approximately GBP145m by end FY24.
We expect that these actions will stabilise the business and
enable the Group to deliver sustained profitability and baseline
cash generation. We remain committed to identifying paths to
profitable growth or driving enhanced EBIT margins beyond that.
We are rebuilding payback levels on new customer investment, so
that, once we have delivered our profitability goals, we can resume
profitable growth.
To undertake the changes in our plans we will incur a one-time
charge of up to GBP12m during FY23 reflecting our best estimate of
the cost to undertake these actions through a combination of bulk
wine sales and negotiated exit of commitments. c.GBP8m of this is
expected to be non-cash in nature, with the remaining c.GBP4m being
cash costs from undertaking organisational changes and exiting
inventory commitments.
H1 performance
As a result of the decisive actions we have taken as part of our
strategic review and our pivot to profit, we are now trading
profitably and in line with our revised guidance for FY23. The
Group will provide more detail on these initiatives and their early
outcomes during its interim results presentation.
Due to the reduction in new customer investment, the Group
expects to report revenue declining by 3% in the first half (at
constant exchange rates) with FX changes bringing this to +4% on a
reported basis. The first quarter accounted for the decline as the
comparator period still had pandemic-driven buying in evidence.
In the second quarter Group revenues were +4% (at constant
exchange rates) and +14% on a reported basis. Revenue growth (at
constant currency) in our biggest markets improved sequentially
during the quarter US (Q1: -9%, Q2: +12%) and the UK (Q1: -13%, Q2:
+3%).
Adjusted EBIT is expected to be significantly ahead of the prior
year at c.GBP4m (FY22 H1: GBP1.2m). However statutory profit before
tax will be impacted by one-time costs of up to GBP12m relating to
restructuring, inventory provisioning and stock commitment changes,
offset by a profit of GBP4.8m on disposal of the freehold of the
property retained on the sale of Majestic in 2019.
Closing H1 net cash of GBP22m (FY22: GBP40m) reflects further
outflows in the half into stock as a result of our lower sales and
long-term commitments to our winemakers. As outlined above we have
a clear plan to address our overstock position going forwards and
expect to deliver substantial positive cash flow from H2 of FY24
onwards.
Board Changes
As separately announced today, the following changes have been
made to the board:
-- Darryl Rawlings will step down as Chairman of the board,
effective today and as a member of the Board at month's end
-- David Stead will assume the role of Chairman of the Board, effective from today
-- Deirdre Runnette will assume the role of Senior Independent
Director also effective from today
-- The Board has initiated the process to recruit a new Audit
Committee Chair and an announcement will be made in due course
-- The Board is in active discussions with James Crawford to
assume the CFO role on a permanent basis to support delivery of our
new operating & financial plan
Financial calendar
The group expects to report the first half financial results in
early December 2022, [at which time, we will share additional
detail on the Group's pivot to profit and early evidence of this
strategy in action.
Naked Wines plc will host an analyst and investor conference
call at 9:00 AM BST / 4:00 AM EST / 1:00 AM PST on 20 October 2022.
Toll free call numbers are as follows:
UK Toll Free: 0808 109 0700
USA Toll Free: 1 866 966 5335
Call Password: Naked Wines
The briefing will also be webcast which can be joined at
https://stream.brrmedia.co.uk/broadcast/634d03956815e65bb9fd5041
Alternatively, it can be found on our website. A recording will
also be made available after the briefing on our results in the
announcements section of our investor website.
Cautionary note regarding forward-looking statements
This announcement includes statements that are forward-looking
in nature. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the group to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Except as
required by the Listing Rules and applicable law, Naked Wines
undertakes no obligation to update or change any forward-looking
statements to reflect events occurring after the date such
statements are published.
For further information, please contact:
Naked Wines plc IR@nakedwines.com
Nick Devlin, Chief Executive
Officer
James Crawford, Chief Financial
Officer
Clara Melia / Chris MacDonald
Investec (NOMAD & Joint Broker) Tel: 0207 597 5970
David Flin / Carlton Nelson
/ Ben Farrow
Jefferies (Joint Broker) Tel: 0207 029 8000
Ed Matthews / David Genis /
Gill O'Driscoll
Instinctif (Financial PR) Tel: 07917 178 920 / 07931 598
Guy Scarborough / Damian Reece 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 financial year, we served more than
960,000 Angel members 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 266 of
the world's best independent winemakers making over 2,500 quality
wines in 20 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).
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END
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