Naked Wines plc

Good morning, everybody. Nice to see you all.

Just couple of quick introductions for those of you who haven't met them at the back right-hand corner. We got Greg Hodder, our newest Chairman; and David Stead, our very new and shiny non-Executive Director.

So welcome to both of them, and please catch up with them later. So today, we're getting to the exciting bit of the transformation plan, and this is the bit where we get to talk about growth and talk about putting our foot on the gas and accelerating.

And just a bit of context here. 3 years ago when we first started talking about the transformation plan, we said 3-year plan.

Year 1 was about getting the basics right, proving the model; year 2 was about doing some heavy lifting and preparing a foundation for growth; and in year 3, we would be in a position to start putting the foot on the gas and accelerating growth. And even in a pretty unpleasant market, even in a market which is not great, I don't think any of us predicted Brexit, the election result, that consumer demand would be where it is.

The good news is, the plan is on track. We are where we said we were going to be and, going into year 3, in good shape to start growing.

So let's talk through the reasons for that. The first is, we got profits up.

The second is, we got a solid foundation. And the third is, we have got the opportunities to grow.

We have built the investment pipeline for new customer acquisition, so we actually have places to invest our money going forward. Talking through each of those.

Profits GBP 6.6 million up, or GBP 6.9 million up even. And the key thing there is Naked is profitable and growing in all 3 markets, the biggest of which is the U.S.

So over the years, we've talked -- some people in this room have said, Naked's all very well. Is it ever going to make any money?

Yes, it is. Retail people have said, U.K.

retailers never make money in America. We are making money in America.

So that's the big turnaround this time. But please don't forget, on the retail end, the transformation is flowing through to bottom line, and we'll talk about that in a bit more detail.

On the foundations, the first 2 years, we've had to do a lot of heavy lifting. The projects are on plan and on track.

We're on budget. We got a lot of stuff done.

There are a few chunky bits still to come, but we're close to getting through that. But probably the biggest thing is we're starting to get to the point where we feel confident that the transformation in retail is sustainable over the long term.

And the reason I say that is more than once when I've stood here, I've said, look, the retail numbers are up, but I can't tell you if that's a bounce or if that's a systematic recovery. We're starting to build confidence that it's a systematic recovery.

The reason for that is you can see in the underlying KPIs, those are pointing in the right direction, and that's what tells us it's sustainable. And again, we'll go through that.

And as far as growth is concerned, we have restored return on investment. We have continued to grow investments in new customer acquisition in Naked.

But as importantly, possibly more importantly, we've also used this opportunity to expand the pipeline of future growth. So we can see the opportunity to keep growing investment in new customer acquisition across the group.

So we're ready to grow, and we're on track with the plan. That's the broad summary.

Let's dig into these. So profit growth.

The key profit driver here is obviously naked. Some of this is flattered by timing differences.

So there was about GBP 1-and-a-bit-million of new customer acquisition investment, which just though phasing is in the second half of the year rather than in the first. We should expect that to reverse in the second half.

But Naked underlying -- significant improvements in underlying profitability. Why is that?

Well, it's all driven by the U.S.A. Last year, the U.S.A.

made a loss. This year, a big swing into profit.

And when you look at the reasons for this, there are 2 reasons. The biggest one is, we are a year older.

And because the machine just keeps acquiring customers and over time the existing customers become more valuable, the biggest contributor to growth has been that improvement in contribution from our Matured Angels. And if you go back over every presentation we've done, that number has been about GBP 3 million, GBP 3.5 million, GBP 3.8 million every single time.

That's a very sustainable number that keeps coming through. The odd number this time is we have got a significant saving in new customer acquisition spend.

And the obvious question that triggers is, are you only profitable because you cut back on marketing and growth is now going to go the wrong way? And the answer to that is no.

We have continued to grow contribution from existing customers despite the fact that we've cut the investment in marketing. In fact, we've grown it by 33%.

And there are 2 reasons. The first is a year ago, we've gave you a profit warning about a direct marketing campaign we ran in the U.S., which didn't work.

We didn't repeat that one, you will be grateful to know. But the second thing is, we always keep our test-and-learn program running where we've taken the underperforming partners, the underperforming customers and trying to lose those and replace them with customers who are at least average so you keep moving the average up, okay?

So by just always focusing on test and learn, continuous improvement and reallocating capital, we are gradually improving the efficiency of our new customer investment. So why is that the case?

And the answer is because this is -- we built a real community. We're not just like other retailers.

So you've all heard about the fires in California. We put an offer together for our customers.

We contributed $100,000 in cash to the fire relief effort, and we put together an offer for our customers to contribute as well. And we've raised over $800,000 for farm-making communities affected by the fires.

That's not the behavior of a normal retailers customer group; this is a real community. Okay.

So let's talk about the foundations. First thing is we're coming to the end of the heavy lifting.

So one of the biggest projects we've had to undertake is to replatform the Majestic website onto the Naked platform. This hasn't -- is not about huge changes in functionality.

It's clicker -- it's quicker; it's slicker. Conversions around 12% up on this time last year.

The percentage of customers checking out is higher. The percentage of customers registering and giving us their e-mail address is higher.

So all the KPIs are pointing in the right direction. But the absolutely key thing is we've gone from a website built on out-of-date technology and shaky foundations to one built on solid foundations where you've got a single view of the customer, which means the guys in store now have got data tools that they can use to manage their customer base.

So for example, if you had a customer in your store who bought from you several times and then vanished for some reason, maybe they had moved, maybe something happened, it was very difficult unless you happen to remember that customer's name and number to actually find the data. If you had a customer who was a very good customer because sometimes they shopped in store and sometimes they shopped online, that data was in 2 different places.

We've now got a nice simple tool that tells our stores these are the best customers who shopped at your store who've stopped shopping. And if you want to get him back in time for Christmas, these are their favorite wines.

So you know how to pick up the phone, give him a call and do what it takes to get him back into the store to try those wines and reactivate them. So this is a big step forward.

We've talked before about having a national fulfillment center, which is shipping now 170,000 cases. We always giggle slightly when we talk about shelving stores, but that program continues to rollout and is very heavily appreciated by the guys in store because it's so much easier to display and so much quicker to put product away.

And coming into peak, we're going into this peak with less manpower than we did last time because the stores are just easier and simpler to run. They look better.

Product availability now averages 84%. On our Christmas mailer last time I looked, it was 96%.

That's 1 out of every 25 products we are promoting is not on every shelf in every store. 2 years ago, that was 1 out of every 3.

So availability has been -- there's been a step-change improvement. And finally, we've launched what we're calling Franchise-Lite, which I'm going to tell more about in a detail -- I'll give you more detail on that in a minute.

There are couple of big things coming up. So we're putting in a new EPOS system.

Our current EPOS is 1998 technology and is fragile. So we're about to replace that.

Once we've done that, we then have all of the underlying architecture we can get rid of and move onto modern and more resilient systems, which also happen to be massively cheaper. So there will be investment in CapEx in a new EPOS system, but the operating and -- underlying operating cost of the new modern technology are lower and it's safer and it's better.

And finally, we have got 7 accounting systems, and we're going to migrate them onto one and have slicker, quicker management information. So those 3 projects are still to come and all scheduled for completion in calendar 2018.

But let's talk about the important bit, which is the retail transformation. And like I say, the key thing is we believe that this is looking to be sustainable.

The reason we say that is we've laid out this pattern every single time, which is it's all about sustained like-for-like sales growth. The best way to get that is not by opening stores.

It's by growing the customer base. To grow the customer base, you have to be able to retain customers.

If you can retain customers, they're valuable. If they're valuable, you can invest in acquiring new ones.

To get customer retention, you need to give him great service. And to give him great service, you need staff who're engaged and are sticking around.

Okay. So when we report our KPIs, this is the chain -- the value chain that our KPIs drop out of.

So what's happened during the course of the year is, in a tough market, we have got positive like-for-likes. That's driven by growth in the customer base.

Customer retention is down. I'll come back to that and talk about that in a bit more detail.

Service is up, and team retention is up. I'm going to show you a new KPI just because it illustrates very well the impact of the changes we've put through in second half of this year.

We measure for every customer comes into the store for whom we don't have a valid e-mail address, what percentage of e-mail addresses are collected. And this is an important metric for us for 2 reasons.

One is, customers who give us an e-mail address are worth twice what the customers that don't. The second is for customer to give you an e-mail address, they have to be engaged.

If someone just grabs a bottle and walks up and you say give me your e-mail, no, they won't. So you have to -- this has to be someone you've actually helped, right?

So it's a very good proxy score for customer engagement. And this is a number that has stayed suspiciously flat for a very long time.

And 6 months ago, when we implemented our new Franchise-Lite program, it has absolutely taken off. And the reason for that is the guy does not get it to understand why this matters.

Again, when I talk to you Franchise-Lite, I'll explain this slightly better. But the core of it is, it's a change from a command and control traditional retail environment to one where we are empowering the guys in the store.

So I would like to give you a bit more detail on this because I think it's a very important part of our transition. In retail, people traditionally measure sales, measure outputs and historic outputs, specifically sales.

We wanted to measure inputs and outputs. So we had have 2 vectors.

One is service, recommendations, customer engagement; the inputs. The second is what is the output.

If you do those things right, we should see growth in gross profit. We put those into a matrix, a 2 x 2, and we've classified all the stores into 1 of 4 groups.

And I think the names kind of speak for themselves in terms of how we treat those stores. But the key thing is, it means we don't treat the store estate uniformly.

It means that the good managers who are driving all of the right behaviors and positive growth; get the opportunities, get the rewards, get the ability to make good autonomy, okay? The people in the bottom left-hand corner get the reverse of all those things.

So we do support these guys first, but we're in a position now where it's much clearer to us and to them and to their managers who's really succeeding and who's failing and who's game to succeed. So over here, you will have people who've got the right inputs, but the GP isn't showing it yet.

The GP will come. If you look half your customers in the right way, the GP will come.

Down here, you've got people who're growing GP but are not servicing customers in a way we want them to. GP there is fragile.

It's not enough to be delivering growth; you've got to be delivering growth in the right way. So we manage these guys in quite different ways.

And it then very easy for stores to see how are they fitting into the picture. And the first time we drew this graph when it went live, there were 70 stores below the line.

And simply by showing people where they figured, what the rewards were for moving on to the right side of the line, that's fundamentally changed. So what's this mean in practice?

It sounds like a nice theory. How does it actually feel to the guys in the ground?

The first thing is stores, there were 27 things they had to get permission for. And we've said, you make up your own minds and here is a small fund to money, we call it a frugal fund because if you use it wisely, it comes back again.

If you waste it, you lose it. Everyone used to be treated the same.

And now people are treated according to how they are performing. The focus used to be on the sales and is now on gross profit.

And the focus used to be on outputs, and this is now on inputs. The regional managers were policemen.

The regional manager's job was to turn up and find all the things they were doing wrong. And we changed the regional manager's role into coaches where they have a direct interest in improving the quality of their people because they benefit from it financially directly.

Everything used to be on paper. Now it's in a very smart data tool called Tableau.

And the huge difference for the guys in the store is your income potential for -- over Christmas, for example, for everybody in the stores has gone from around GBP 500 to we will have some stores who're going to be taking GBP 10,000 this Christmas. So it's a very different environment our stores' staff are working in.

Okay. There are few things that haven't worked.

When commercial -- the first time the trouble emerged in commercial about a year ago. We said 2018, we would get around to sorting it out, and that is exactly the case.

We plan to address it properly in 2018 when we've got the retail heavy lifting projects under the way. So no change there.

And I mentioned that retail customer retention wasn't good. Underlying this is change of mix.

There is the fact that the market is not a great market to be in. My belief is that both of these factors are temporary and will work their way through and that the behavior of our high-value customers is heading in exactly the right direction.

So if you go back a second, I talked about sales, GP versus sales. Companies that focus on GP tend to get excited about customers who only ever buy when something is on the deepest, deepest discount and makes you no money because they generate a lot of sales, and they're very volatile.

They'll go wherever the deal is. We've changed the focus to focusing on the customers who make us money, and these are customers who buy whether something is in a deep discount or not.

And what that means is, we split customers into high value and low value. And we've put all that focus onto the high-value customers.

If the low-value customers attrite, to be honest, we're not that bothered. Holding onto the high-value customers is what's going to make us money in the end.

So it isn't a number that's, at the headline level, is pointing in the right direction, but it is a number that I'm confident that things we're doing will deliver on the bottom line. So let's talk about growth.

So first thing is, we've restored ROI. You can remember when we're talked about profit warning, we were down there.

We've got it back up to 98%. Lots of you've said to us, what exactly is ROI and what exactly does that mean?

And the simple answer is 98% ROI is about 4x your money. So 98% ROI means if we spend GBP 1 on acquiring new customers, we will generate 98p per year, every year, indefinitely thereafter after we've replenished attrition.

The other way of saying it is, if you spend GBP 1, we will generate GBP 4.50 over the course of the next several years. Okay?

Why'd we do that? We didn't repeat the mistake, and we've stuck to these disciplines.

I know I'm bang on about test and learn, continuous improvement and active capital management. They're not just management buzz words.

They are things we actively practice, and they are things that improve the numbers. So what does the future look like for the investment pipeline?

If you ignore last year, which this blip over here is the GBP 2 million spend on the direct mail campaign that didn't work, we've grown investment in new customer acquisition by around 20% a year. And we think the future looks about the same, but we will tell you more as we go.

Okay. That's the end of my bit.

Handing you over to James.

Thank you, Rowan. So a few pages from me, and the common thread that pulls them together is really that we've continued doing what we said we were going to go and in 4 areas.

First of all, we've always said we would deliver sustainable sales growth through customer growth. The numbers this half show that.

We said that those sales should translate to profit growth. That has been delivered this half.

We said that we would reallocate capital and pull money out of underperforming investments. We've done that.

And you've seen that that's one of the drivers of the profitability in the half. And we said that we will return surplus cash to shareholders.

Today, we've increased the dividend by 33%, demonstrating that we are following through on that commitment. Talking about the sales line to start with.

You've seen this chart before, 4.2% of the group sales line very much in the realm of what we said it would be in terms of the mix. But the key thing in this chart is really how sales growth and customer growth move in tandem.

So Naked growth sales were 11%. At the end of the half, the number of Mature Angels was up 16%.

And the same thing down the page where customer numbers go up, sales go up. And it's a consistent theme that we're trying to drive the business always through growing the customer base.

Where it doesn't work in commercial and we've lost more customers than we've gained, the sales go backwards. But overall, a very solid sales performance driven by those customer numbers.

Translating those sales into profitability. Yes, we grew adjusted EBIT by GBP 6.9 million in the half.

First 2 blocks on this chart are the impact of that sales growth translated at constant margin. There's GBP 2.3 million of that.

And margin improvement is a further GBP 2.4 million. And that's not just pure kind of did we buy stuff for less than we sold it for movement.

Really the big drivers in there are the mix of the business moving towards Naked Wines and, in particular, Naked Wines in the U.S., which has a structurally higher gross margin because of the 3-tier system, meaning we participate in multiple layers of the margin chain in that supply chain. We've also reduced the amount of new business in Naked Wines, which is business which is sold deeply discounted.

That has also driven that margin number forwards. Rowan has talked about the marketing phasing, GBP 1.3 million of marketing that will drop into H2 this year.

And then we've been withdrawing capital from other areas that have been underperforming. So we've pulled out of low ROI marketing, in particular, in Naked.

We started eliminating dual running costs where, for example, we've launched the new Majestic website. That now means we're not paying a bunch of third-party providers to run that website for us.

But during last year's numbers, you were seeing both the cost of the IT team who built the website and the cost of running the old website. And last year, there were some one-off in nature costs, such as contract terminations that we highlighted.

Those have not been repeated this year. Looking at Naked.

The sales growth number of 11%, is down, but reiterating what Rowan said, actually, that's a mix of 2 very different factors where we've withdrawn capital from the new business pipeline because it wasn't performing, that has had a sales impact with sales down 23% in new customers. Interestingly, we spent 40% less, got 23% less sales but only about 10% less Mature Angels.

So the efficiency and the rationale behind that capital withdrawal was hopefully pretty clear. Meanwhile, the repeat customer base grew their sales by 23% as we continue to turn those higher-quality new customers into Angels who continue to spend with us.

Best leading indicator going into the second half is how many more Mature Angels do we have year-on-year. We're going to the second half with 16% more Mature Angels.

So we have a pretty good degree of confidence that sales are going to continue to grow to that Mature base in the second half. And as I've said, that mix shift between new and repeat also drives the margin of the Naked business turning those sales into profits even more strongly.

For the first time, we've started showing the market mix across Naked in our results. And it's about 3 different messages to come out of here.

One is Naked is now a strongly profitable 7% EBIT margin business, and it can deliver a 7% EBIT margin while still growing sales at double-digit levels. The second thing is all 3 Naked markets are now profitable.

So we said we will pass the tipping point. In many ways, this is another one which is each of the Naked markets is now standing on its own 2 feet and delivering cash despite funding the growth investment it needs to grow.

And the third thing is then the mix of those EBIT margin numbers. The U.S.A., we've always said is a fantastic opportunity because of both the scale of the market and the economics of that market.

The U.S. business in this half has delivered an EBIT margin of 9%, which is the highest margin in the Naked business.

It's the highest profit number in the Naked business and has done that while still delivering 10% sales growth. That now demonstrates in the numbers very clearly, those structural dynamics in the U.S.

business that we see as the opportunity going forward. I guess if I will add a fourth point, the Australian business, yes, sustaining very high sales growth and has a really good kind of large and high-quality new business pipeline.

And the results of that is just that lower EBIT margin. They are spending more money on growth than the other markets, and that results in the lower EBIT margin.

I think as we go forwards and we start to accelerate growth in the Naked business, we'll be increasingly stressing kind of how the growth investment in the EBIT margin move against each other, but demonstrating the profitability that underlies the Naked business is there all along. And what drives that high profitability?

Rowan has alluded to this, but this is a different view. Customers are retained very well in the Naked business.

And actually, as they retained, they generally start spending more often and more money. So this shows a cohort curve of the contribution from customers, not just the number of customers.

And you can see, if I can find the pointer, even down at the bottom here, the customers we were recruiting 7 years ago in FY '11 are still delivering about the same amount of contribution today as they were all those years ago. So although in numbers they have dropped off through natural attrition, actually in contribution, they remain as valuable as they were.

And that contribution build year-by-year is a pictorial representation of what Rowan was saying, around that every year, the Matured contribution goes up by another few million pounds, and that's the machine that will keep growing the Naked business going forward. Moving onto retail now.

The retail environment in the U.K. is tough, and input costs have gone up.

But we've grown sales, and we've grown sales 2%. That 2% is really the net of about 4% of price less 2% of volume.

And that's a trend, which we believe is consistent with the rest of the market. Prices have gone up across the market.

We don't think we've done anything unusual. We've actually invested some margin, and you'll see in the commentary, and the trading margin number is slightly backwards about 30 bps to maintain some key price points on some items and key categories.

And we believe by doing that, the volume impact we've seen has actually been mitigated. It would have been much greater had we not bought very well and yet worked with our supplies to mitigate some of this and invested, as Rowan has alluded to in specific segments of customers, that are high-quality customers, to retain them whilst actually pulling away from some of the non-value-creating promotional activity.

And that retail growth of 2% has translated through to profit growth of about GBP 1 million, GBP 600,000 of coming through that sales growth and additional GBP 400,000 coming through margin. And that margin is the net of 2 different movements.

One is the trading margin. So the difference between what we buy and what we sell for being 30 bps weaker as we've invested in some of those key price points.

But the cost of sales, in particular, the staffing of stores delivering a 60 bps margin improvement as we've started eliminating essentially some dual running costs where we have national fulfillment and we also have store fulfillment. In H2 of last year, we were really running those in parallel, but now that the national fulfillment is running smoothly, we were able to withdraw some of the costs from the stores that have previously been there to support the operation.

We made a commitment to return surplus capital to shareholders. We've increased the dividend by 33%.

Our free cash flow is up 29% in the half. And despite a large working capital build, which tends to be a fairly volatile number as we run up to Christmas, we're no longer investing at the high levels of capital [ involved ].

So the CapEx spend is lighter and consistent year-on-year. But essentially, we're now at the point where our leverage is under 1 turn of EBITDA.

We're on track to getting that down to a 0.5 turn of EBITDA, which is our stated goal. Financing costs are coming down.

They're down 13% a year, which is the best representation I know of what the average balance of debt was during the half. And that gives us the confidence we can increase the dividend by 1/3 while remaining on track to that net debt target.

In terms of guidance for the balance of the year, we are remaining in line with the current market expectations for F '18. That's going to see mid-single-digit group sales growth.

We've talked about the reversal of the marketing phasing, and there will be about a GBP 3 million increase in the group cost in the second half, which is a subinflation increase in the cost base as we continue to see some of those benefits come through. But that keeps us in check with the consensus range, which we've currently provided for you because it does keep moving around, but GBP 480 million to GBP 486 million on the sales line, GBP 16 million to GBP 18 million on the EBIT line is the current range in the market before today's results.

That's me done. Over to Rowan to wrap up.

So like I said, this is the exciting bit and the thing we've been waiting for. And if we go back 2 years, we said at the time we thought that the opportunity here was to build a growth business by doing 2 things.

One was to take Naked and continue to do exactly what we've been doing and continue to grow it, and that's exactly what we've done. But the second thing was to take some of that Naked pixie dust and apply it to Majestic and get Majestic back into being able to grow even in a tough market by being able to attract and hold on to customers without opening stores.

And to do that, we have to do a whole bunch of heavy lifting, which we've done. We had to get the guys in the stores get their hearts and minds in tune with that, which we've done.

And this brings us to the point where it's time for us to be able to start putting our foot on the gas and being able to grow. And that's the bit we like.

So as a management team, this is coming into the part of the plan that was the bit that got us excited in the first place, and we're pleased to be here. Thank you very much.

Any questions, please?

JP?

Super info, mate. Sorry -- Jonathan Pritchard at Peel Hunt.

Could you just give us a bit of a granularity on the nature of the new customers acquisition campaigns? You're putting your foot on the gas, but I think you've suggested that, that'd be focused on digital and focused in the U.S., but perhaps another level down of granularity and why we should share your confidence that they're going to deliver those returns?

And secondly, the Naked EBIT margin of 7% as it stands today but lots of moving parts there. Do you have a view on a, I don't know, 3- to 5-year where we have steady-state margin that Naked should be able to achieve?

Do you want to take the second question first, James?

I was hoping to do the mental arithmetic while you answer the first. The steady-state EBITDA as we calculate it, JP, is about GBP 13 million as of today.

So I would say that if you take that GBP 13 million on the last 12-month sales number, it will give you mental arithmetic around about an 8% to 9%. I'll follow-up with my calculator afterwards.

But that would be the way I would think about that. And I think the calculation we've always done historically on steady-state EBITDA is validated in the numbers that are now coming through where you see the lower growth market.

So I'm kind of confident to say that's the right way to think about it.

As far as new customer acquisition is concerned, it's really coming from 3 places. The first is our existing channels continue to grow.

So right now, we acquire most of our customers through partners, other companies with customer bases similar to us. Greg used to run Charles Tyrwhitt Shirts, very similar kind of customer base.

If you bought Charles Tyrwhitt Shirts, you may find a Naked Wines voucher in there and vice versa. So that's accounted for a big chunk of our new customer acquisition.

The second part is optimization. And when we talk about continuous improvement, we're always trying to improve things as simple as redesigning the voucher and putting foil onto the number, turns out it yields a 5% uplift in conversions, right?

That's equivalent of opening 10 stores in Majestic. So that continuous improvement and optimization has driven some of these efficiency gains.

And then the third area is digital. Now we've fiddled around with digital for several years.

We haven't seen anybody really use it successfully. And about a year ago, we made a commitment.

We got in a team of people who are really smart and put aside a chunk of R&D cash to get them to prove once and for all if digital could work for us or not. We've got to the point where they have, and we've been able to prove to ourselves that we can acquire good-quality customers in decent volumes on a sustainable basis through digital.

So the -- I think underlying part of your question was how do we know there won't be another profit warning coming up in the very near future, is that a good read? The answer is experimenting with direct mail, you just are experimenting in big bloody chunks, especially in America.

Digital is much more gradual, and you get the read of the results much more quickly. If you do a big direct mail test, all the direct mail goes out, and you then have to sit for 6 weeks and wait and see what comes back again.

The great thing with digital is it's much more -- you're constantly dialing it up or down. So it's much more an exercise you're doing in real time.

And we have been doing it now for long enough to be able to attract -- to be able to attract the retention patterns on those customers and to be confident that they are as good as if not better than traditional partnership marketing. Peter?

Peter Smedley from Panmure. Two questions.

First one definition of one, which will lead into the first question. So I'm looking at the glossary and just reminding myself.

So a repeat customer at Majestic Retail, I guess, Naked, but the question is about Majestic Retail, is someone who has shopped more than once in the last year. And that number is up year-over-year in the 7% and yet you've gone backwards on the repeat customer retention, i.e., the percentage of repeat customers from 12 months ago that are still repeat customers.

So I'm trying to understand why that cohort of repeat customers in these past 12 months aren't up a bit and/or leaving for the same reasons as the repeat customer retention figures are showing. What's the dynamic or the explanatory factors for that?

That's my first question.

So you got a mix variance in this. So we've got single-bottle customers coming through.

So you've seen a 7% increase in customers and a 2% increase in sales. And the big differentiator between that is a lot of the new customers are single-bottle customers.

The second part of your question, I'm not sure I completely understood to be honest, Peter. Did you get it?

Yes. I'm just -- so the retention -- is the retention rate of those people who have come in that -- over the past 12 months who purchased more than once, what you just indicated is they come in and buy, say, twice in the year because they're attracted to buy a 1-bottle offer and then they're off looking.

So the [ premise gets ] looking for the next one. So you seem to be doing a good job getting people in for first time, maybe second time in 12-month period, and then they disappear.

But I'm just trying to understand why you could be doing so well on one dynamic and not on the second dynamic of retaining them. Can it only be simply explained by the fact that it is this single-bottle phenomenon?

There are other phenomena. The key one is, our emphasis on trying to hold onto high-value customers and accepting that there are some customers that only ever buy effectively when we give the product away.

And if they choose to leave, it's not the end of the world. So what I'd suggest is this is a number that probably you need to let settle down a bit to be able to see what the long-term trends look like because you've got 3 one-off factors pulling in different directions and confusing the numbers.

Okay. Then the second question is on digital for driving new customer acquisition.

So what are you finding in turn -- what's the digital marketing technique that's giving biggest bang for its buck so far? And does that play out across the 3 Naked Wines' territory?

And also, are you employing those same digital techniques in Majestic Retail yet? And again, what works better -- which digital marketing technique works better there?

I'm not going to answer what works best because that's commercial. What I will say is the same techniques are working across the board.

I'm including in, for example, Lay & Wheeler. It's the work in every country and in every -- each one of the companies.

So I think the big learning we've had is that the sort of full frontal digital marketing of just advertising discounts to people doesn't work at all. The techniques we are using are working, but they require a bit more work and expertise and testing and, therefore, a bit harder to find, which is why it's taken us a few years to do so.

But I think the best way to describe it is we're confident that it's got legs.

And just to follow up on that, is it working much better with the Naked Wine customer base than the Majestic Retail?

No. And I think it's important to say the easy supposition to make is that the growth will come from Naked in the U.S.

and probably from digital. And all those things are probably true.

I think the important thing to say though, is we have found areas where we can recruit high-quality new customers into Majestic Retail in the U.K. in a lousy market highly profitably, the same kind of ROIs we're getting in Naked.

So when James is doing capital allocation, he is completely agnostic as to is it U.K., U.S.; is it Naked, Majestic; is it digital or off-line. We don't really care.

We just put in the money wherever we're getting the best returns. John?

John Stevenson at Peel Hunt. Just a question on the differences in sort of lifetime values or spend characteristics or general behavior of customers across the 3 Naked territories?

I mean are they -- is the frequency different or spend different and what's the LTV looking like? Can you talk about how those markets are maturing?

The answer is we don't really care. We're obsessed about ROI.

And so the plot I showed about the growth and value of the contribution from Naked existing customers, some of that's because they got more customers. Some of that's because the customers are becoming more valuable.

The reason they're becoming more valuable is we did a big recalibration about 18 months ago where we discovered, especially in the U.S., that expensive customers, it was worth paying the money to get expensive customers. So we are always reallocating spend wherever the ROI tells us to put it.

And if that means we pay double in one country to another or we pay this partner twice as much as we pay that partner, totally indifferent.

Okay. Where I'm getting was trying to get -- is the sort of the quality of the customer base now in the states compared to U.K.

in terms of how they shopped and could you maybe talk around that?

Yes. So the key measure we look at is retention, how -- and pound retention.

If you recruit a customer today and they make you GBP 1 this year, next years, are they making you 50p or GBP 1.5. And those patterns are very similar across all of the countries.

And also eerily similar to Majestic by the way. So I mean, Richard will remember virtually in the first week when we started Majestic and we got the customer KPIs and figured all -- put all the measures into the same definitions.

So it's like, oh, look at that, virtually identical.

Sanjay Vidyarthi at Canaccord. 2 or 3 questions.

First one is on Majestic's store portfolio. Can you talk about, under the bonnet, has there not been much change in the portfolio in terms of openings, closures?

Are there any plans over the next 6 months?

No change. So we haven't opened any stores in this year.

We haven't closed any stores in this year. We're comfortable that the number of stores which are not trading where we need them to be is low single digits.

No particular plans to open or close material numbers of store. I think what we said before is there's something like 30 locations in the U.K.

we would love to have a store. The fact we don't have one there after 30 years is it's hard to get a store there.

So if they become available, we would try and do it, but there's no great change. The emphasis remains much easier to bring customers into store than bring the stores to the customer.

The returns are higher. The risk of getting it wrong is lower.

If you make a mistake, you turn it off. You're not committed to 15 years' worth of rent and rates and everything else.

Okay. And second question is on the 1 bottle customer phenomenon.

How big -- can you say how big that actually is? And [ clearly ] there's a lot of stores where it just doesn't really happen, given where they're located?

Yes. The honest answer is, it's had very little.

When we -- I said after when we said we're going to roll it out that the result of the test was it made virtually no difference to like-for-like sales. You gained a few single-bottle customers.

And a few people who used to buy 6, bought slightly less. So the overall impact on the business is virtually immaterial.

The reason we felt it was worth doing is it drove good customers mad when they came in and said, I know I was supposed to buy 6 bottles, but I bought 12 bottles last week and I just need 1 bottle of champagne, can't you make an exception? And the poor guys behind the counter have to go, like, no, you've got to buy 6.

So it was just a goodwill thing to stop. Something that was irritating our customers and our staff.

We don't see this being material to the numbers in the long term.

Right. And then final question is just in terms of Majestic and some of the new ranges that you've introduced, say, your own label stuff, the kind of value proposition stuff.

How those been doing?

I'm going to let Richard answer the question more fully. But just before he does, it's actually I want to just say that sadly for Richard, the buying team have done a bloody good job this year, but a whole lot of their hard work has been absorbed by the price increases across the rest of the portfolio.

And like James says, the red negative volume graph would have been a lot deeper had the buying team not saved our bacon by having bought better, which means we could still hold on to some key price points. Rich, [ how are we gain ] some parcels, et cetera doing?

Yes, they're going well. So we are now up to 87 SKUs that are completely exclusive to Majestic in a range that touch out just over of 700.

So in terms of SKUs, we're over 10%. In terms of profit driving, we're over 10%.

I think as Rowan said, the one thing that has happened in terms of introducing those ranges this year, I talked a little bit in June about Majestic Loves, but what we have had to do is focus our energy in new product developments at mitigating the effects of price inflation. So where we've had to rearchitect the range, we tended to focus our efforts on if a product is going up above the psychological price point, you replace it with something that comes more towards the bottom of the range.

And so we've sort of taken the focus of our exclusive product development in that direction. [ Against ] the parcels that we buy going from strength to strength.

And actually, one of the reasons I'm very confident about Christmas is because I think we have a better range of those going into December this year because we're focused on seasonal products, but that continue to work. And the constant churn of new things arriving in store, and we say when it's gone, it's gone.

It really means that customers come in on the next visit and there's a completely fresh range of them, is having good impact on the mix and so [ wiggies ] are driving a percentage of sales.

I think it's fair to say sexy is not a word people normally associate with Richard. But in the case of what he's done to the range, the ranges are a lot sexier because there's much more to talk about.

Wayne Brown from Liberum. Just on franchising lite (sic) [ Franchise-Lite ], can you just give us some indication as to what the operational changes fundamentally are?

And if you are failing or ailing, what tools you have necessarily to get those stores moving in the right direction. And sorry, on those operational elements, if there's any changes to the financial model, et cetera, will be -- just give a little bit more info.

Sure. I don't think any changes to the financial model.

What -- the way we split this to play through is as stores move from failing or ailing into one of the 2 positive categories, that flows through into customer retention, which is why that's a number, I think, we'll get back to where it's supposed to be. In terms of the tools we have available to help stores that are struggling, I think the biggest is we now have a much more structured training program, which the training program historically was all about wine.

And wine's great, if you got a customer in front of you who wants to buy some. If you don't have a customer in front of you, you can know as much of how wine as you like, but it's of no use whatsoever.

So the training program's become much more balanced. And as for example, how do you use the data tools we've given you to bring people into the store.

Once you got someone in the store, how do you buildup a relationship with them that at the end when you say would you like to hear about our ongoing tastings and those kind of things, they hand over their e-mail address. How do you manage the people in your store, how do you deal with if you got a member staff is underperforming and then how do you analyze your financial data.

So we got much more comprehensive training. And the guys have got a much stronger incentive in delivering the right results.

So I mentioned before what we call Franchise-Lite is effectively moving people into getting a profit share at the contribution level. So they've become responsible for managing the costs as well as the GP whereas historically they only manage sales.

So firstly, it's more interesting. But secondly, instead of everybody going or I can't run this store without 5 more people, then I have an active interest in running the store as efficiently as possible and making sure they've got the right people, okay?

So the reason the average bonus has moved -- the target bonus has moved significantly is because we've got stores that are now moving into that kind of level where their contribution changes sufficiently dramatic for that to come through. So what -- we haven't seen a huge change in the number of people.

What we've seen is a big change in the behavior of the people. And essentially, what we used to do historically was like most retailers, we tell people what we wanted them to do.

We changed the emphasis to tell them why we want them to do it, and we employ these bright people. We are one of the biggest graduate recruiters in the country.

We pay them like graduates, but then we were treating them like monkeys, in their own words. And by instead giving them the tools helping them to understand the financials of their own store and how, for example, service generated retention, generated GP, generated bonus, we've got them understanding much better why these things are important so they become much more self-powered.

Anyone else? No?

Thank you very much. Thanks for coming.