Naked Wines plc

Good morning, everyone. Thank you for coming.

We're sticking with the nautical theme and the observant of you will notice there are winds blowing from both directions in this particular illustration, which I think is a good indication of the environment in which we're operating. And the key message for today is steady as she goes, and there are 3 parts to it.

The first is we're doing what we said we would do. In April, we said we were going to invest more money in driving growth that would have the effect of increasing sales, but profits would come down, and that's exactly what's happening.

But we're also conscious that we are getting towards the end of our 3-year plan for Retail. And the retail environment is very different today to what it looked like 3 years ago.

And while we're not here to tell you what our new 3-year plan is, we do want to give you some indication of the way our thinking is going, so we're going to get onto that later. So as far as the overall numbers are concerned, group revenue is up by 5% with strong growth in Naked, and in my humble opinion, respectable growth in Majestic given the market conditions.

The Naked repeat customer contribution is up 17%. This is a pretty important number because all that money we invested last year is what's driving this.

And given that we're increasing investment this year, we want to be able to continue to show you the reason to keep believing in that investment is by looking at the effects of what we did in previous years. We've increased the investments in future value creation, acquiring new customers.

And profits are down. Profits are down with -- of around GBP 4-and-a-bit million.

3/4 of that is our decision to increase investment and the rest of it is slightly slower trading in Retail, okay? So I'm sure the headlines will say, profits fall at Majestic.

Please bear in mind this was a choice. This was something we decided to do because the payback is attractive.

So broadly, group revenue up. That's 14% in Naked and 1.9% in Retail.

The investment is up 61%. The payback on that investment is at our target of 4x.

This is lower than the number we got in H2. James will talk about this in more detail.

A few of the analyst reports this morning have said, oh, falling payback. I think just one really important thing to realize about this is if we're spending at a rate 61% higher than we were spending last year, the investments we made on the last day of the period we have got no payback.

There is a lag. When you suddenly increase investment, there is a lag effect.

And part of what you're seeing there is just that lag effect come through in the numbers. And EBIT down, a chunk of that to do with investments and a chunk of that to do with slower trading in Retail.

So starting with what we said we're going to do. In April this year, we said we were going to increase investment in areas that generated growth, we were going to pull money out of areas where we weren't getting growth and there was a bunch of heavy lifting that we intended to finish, and that's exactly what we're doing.

So in Naked, 61% increase in investment; payback still on 4x; total value-creation, GBP 32 million as opposed to GBP 25 million last year. Again, James will talk you through this in more detail.

One of the things we're saying about the measure of payback is that, historically, this is a number that has grown over time. So our initial estimates have tended to as the customers come through and the actual experience replaces forecast experience, this is a number that grows over time.

This is heavily driven by digital and the U.S. And I don't know if you can read that there, but the significance of showing you one of these ads is our digital -- there are lots of different ways of advertising on digital new customer recruitment.

You will have seen all of them. Most of them are about advertising deals.

Advertising deals produces lots of cheap customers with low retention that don't particularly stick around. We're going very much down a content route of getting customers involved in the discussion because, although we're not getting as many customers off the back of it, the customer quality is higher, the retention is higher, and therefore, our ability to build a big business improves.

On the partnership side, we continue to generate a bunch of new partnerships and the -- I think what you can see there is the number of household brand names forming part of our partnership base is growing. And that's partly because of scale, but partly also just for being in the market long enough, we're able to deal with more and bigger companies.

This is all translating into sales growth. I think crucial number here is that, for the first time, the U.S.

is now our biggest business by sales and growing strongly, and we expect that trend to continue. I think one of the things we don't talk nearly enough about is the quality of the winemakers that we're bringing in.

The -- our ability to recruit and hold on to customers is just like Netflix, it's very heavily driven by content. Our content is a liquid.

That liquid is created by these guys. And over the 10 years we've been going, we've moved from a situation where we were focusing very heavily on new people who were making their way in wine to we're now in the happy situation we're able to recruit the guy who made Chile's top wine; the sommelier who, at El Bulli, the famously best restaurant in the world for several years, he was there for 11 years, a man with a contact book to envy; and the most awarded female winemaker in Australia who made the best Shiraz in the world.

So we are pulling in some really seriously high-quality winemakers, which translates into good wine and good customer retention. On the Retail side, one of the things we said in April is that we thought some of the things that worked at Naked could translate to Majestic.

One of them is new customer acquisition. We've got an active partnership channel going.

Again, if you take a look at the names, there are some very good household brand names in there. I'm not getting free tickets to the rugby sadly as a result of this.

We did fight hard for it, but I didn't get it. But the important thing is 45,000 new customers in the half.

We expect 100,000 over the year. That's about a 25% improvement on the walk-in traffic we were getting before we started this partnership activity.

So we have proven our ability to drive new footfall into the stores. And if you think about the kind of customers who are -- customers of Barclays Premier, for example, Saga, National Trust, these are high-quality customers.

These are exactly the right kind of people we wanted to bring in. The other thing we said was that we thought that the subscription idea would work with Majestic and we've been testing this now for 2 years and now been ramping it up.

It's a product called Concierge. We now have 30,000 subscribers.

One of the reasons we think that H2 is going to be -- one of the things going into H2 that gives us a bit of a following wind is we already have 30,000 customers on this product, which means there's GBP 5 million of sales pretty much in the bag from those people. Now we expect the number by the end of the year to be about 40,000 customers, okay?

So flagged earlier, we expect some of the same things to work in Majestic and we are seeing some good signs of that happening. We also said we'd pull out underperforming capital.

On Naked, we've seen a 1% improvement in contribution margin. This is largely a function of lower variable costs, which is largely a function of scale.

And specifically in the U.S., we now have a fourth warehouse. This means that 98% of the U.S.

market gets 48-hour delivery from us. I don't know -- I don't think anyone else compares with that even close, but it's also cheaper.

The new warehouse is in Wisconsin, so you can -- if you think about the geography, there's a great big swathe of the population that we can now get to very quickly. The other East Coast ones are Florida and New York.

So we now have that area pretty well bracketed. We have also been consistently reducing the level of discount we give customers in their first order.

Part of this is we want to take that money out and redeploy it in driving more traffic to the site. And partly, it is just about improving customer quality.

And if you strip off the very bottom layer of customers, the retention on that group is not as good as the retention on the customers above that. And our economics work better by driving more customers and converting fewer of them to land up with a better quality customer base.

The easy, short-term thing would be to reverse that, but this is all about improving the retention number, which is a key number for the long-term business. And finally, in Retail, we have taken GBP 1.3 million of store and admin cost out.

This is offset by inflation and other costs. But like a lot of retailers, we're in a position where online is growing and the variable cost grows as a result and in-store sales are shrinking.

And we have actively worked to reduce our fixed costs in the store. Obviously, you come to a point where that can't be done any further, but we have acted on that in this period.

The heavy lifting list, which looked pretty onerous 3 years ago, is now really into the finishing stages. The store revamp and shelving program is very much ongoing.

Josh, roughly how many stores have been shelved now?

We're at about 16.

Right. New accounting systems, obviously, James is very excited about, but don't expect that to lead to any immediate improvement in sales, but remains one of the last pieces of the heavy lifting we identified early that we do need to tackle and get done.

All of this is translating into better KPIs. We talk about e-mail collection, both as a KPI in its own right because it just means more people we can talk to, but it's also a very good proxy for customer engagement because someone who just walked in the shop and grabbed a bottle of wine isn't going to give you their e-mail.

They need to feel like they've had a value-added experience, especially in the post-GDPR world. 5-star service remains consistently good, and availability has significantly improved and is now consistently good as well.

And that is also translating into gross profit. So meritocracy, the stores, which, if you remember we call sometimes franchise-lite, is the idea of empowering the base store managers to get on with managing their own headcount, their own range, opening hours, all these kind of things, also the opportunity to earn more money.

And those stores are now growing at 3.1% and the rest of the base is shrinking at 1.3%. So we are -- I mean, we've got 51 partner stores in the program.

That is a number we are looking to grow, but we are feeling very confident that, that program is the right thing to over time improve the average quality of the stores. One of the pleasing things is that we have found that there are a group of managers who have got the capacity to manage more than one store and we've used those people to go to the underperforming stores and the 20 from the bottom quartile from last year is now average.

So we're taking the bottom 25% -- when I say we, I mean Josh. We've taken the bottom 25% of stores and got them up to the average.

Okay, which brings us onto the numbers. And I'm going to ask James to talk that through.

So the headline is higher sales, lower profits. You will have seen it in the numbers.

Two key things really to touch on in this section: one is how the Naked investment is driving quality and growth; and the second is to touch upon the Retail Concierge proposition and the impact that's had on both the revenue numbers, but also on the way that the cost base in Retail works. Always start with this chart, why change a good thing?

But Naked has very much driven the acceleration in growth. So the underlying sales growth of 4.8% in the half compares to 3.7% in the second half last year and 4.2% in the first half last year.

That's a fairly small shift in the aggregate, but you can see it's really driven by the shift in Naked, which has accelerated from where 11% a year ago up to 14%, and that is just due to the investment driving new customer sales. New customer sales have increased to 28% growth year-on-year and that, in turn, will translate into repeat sales growth over time.

Retail has held steady at 1.9%. I'm going to talk a little bit here to Lay & Wheeler and Commercial because I don't intend to talk about them again in the presentation.

Lay & Wheeler, a fairly stark decline of 9%, but that's driven by the Bordeaux en primeur vintage not being at the level of quality as it has been in prior years. And actually, there's about GBP 1.7 million of Bordeaux sales come out of that, which the team have done a good job in part replacing with non-en primeur product with higher margins, so the translation through to the bottom line at Lay & Wheeler is much more muted than that number would suggest.

And Commercial, whilst still in decline, the decline has begun to reverse and you can see it was nearly 8% in H2 of last year, about 3% in H1 of last year. So we're very comfortable that the team in Commercial are doing the right things to turn the corner.

We've got substantially more new accounts into Commercial year-on-year that are actually outweighing the rate at which we've lost accounts. But there is an underlying decline on an account-by-account basis, which reflects the broader trends in the leisure sector.

But the key point again is Naked and Retail, so let's talk about those. Overall, EBIT position for the group is a decline, as Rowan has signaled, of GBP 4.4 million.

But GBP 3.5 million of that is entirely due to the choices we've made to invest more in new customers, predominantly in Naked, and about GBP 0.5 million of that relates to building the Concierge customer base and some of the partnerships activity that we've run in Retail. On the right-hand side of the chart, there's another GBP 2.5 million of increment in the fixed cost base.

About GBP 2 million of that is the investments that we announced in April. If you strip those 2 pieces out and look at what's then happened to the aggregate underlying business for the group, actually, it's a net increase in the contribution from there, GBP 2.5 million of that coming from Naked Wines, which relates to having more Angels and those Angels spending more and about 800K decline across Retail and the other business units, predominantly Retail, and that's a combination of the margin movement we've seen and the shift in the cost base around fulfillment as the online business has grown much quicker than the Retail business -- the store-based business.

All right, looking at Naked. So Naked investment is up by 60% in the half.

That's translated to sales growth from new customers of 28% and that's who that investment is targeted at. Simple question is why isn't it just 60%?

Two factors in there: one, as Rowan has alluded to, there's a degree of it takes time for all of that investment to have its impact felt. And the media we deployed, the vouchers we sent out in the last few weeks of the year, nobody will have even really seen and then reacted to them yet.

The second piece is a little more nuanced, which is where we've been driving digital, which has been a big driver of this growth. We've been driving people to smaller first-order sizes, so there's a reason that the sales trajectory is a little bit lower than the investment trajectory.

It's not of concern to us because we know we're getting the customers and that the customer quality looks good. The second key point is to look at the split of that investment between discounts on first orders and the losses we make on first order and the marketing spend that actually reaches people and drives traffic to the Naked website.

And you can see that, whilst it was always a relatively small part of the mix, the first order losses are now a much smaller part of the mix because we actually haven't increased the spend on that. All of the increase has gone into marketing, and we know that by doing that, we bring in higher-quality customers because, quite frankly, when you discount, you get more discount hounds.

They take the first case and then they disappear. By increasing the average price of the first order, it means that we're getting people who are actually buying because they want to be part of the proposition going forward, and we will start seeing that over time in the value of the customers.

So we've reported a payback for the half at 4x, which was the target we set ourselves at the Capital Markets Day in April. That is a reduction from 5.1x, which is what we would have reported if we were using this methodology in the first half last year.

But we think that's conservative and there are some good reasons for that. So I appreciate this is a slightly complicated chart, but what it shows is down the chart these are the periods in which we recruited new customers at Naked Wines.

And across the top is had we measured what we expect the payback to be on that investment at each of those points in time, what would it have told us? So the bottom right, 4x is the number that you see in the reporting today.

If we dialed the clock all the way back to the first half of fiscal '17, we would have put the results out and said, we've got 3.6x return on the investment that we've made. That's what we expect to see from those customers.

But over time, what has been happening is the customers are performing better than the average that we used to create that measure. So we create the measure by saying all customers in the past look -- all customers we've recruited look a lot like those we've recruited in the past.

Over time, we see that they start to perform better than those we recruited in the past. The attrition is lower, they buy more frequently, they buy more wine.

So over time, their value moves ahead of what we're forecasting based on history. And you can see, as you follow across the top line, we actually go from 3.6 to 4.3x at the end of F '18 for that same cohort of customers and about 4.2x right now.

You see a similar trend of increase across each of those cohorts, and we have a reason to believe that we will see a similar increase in the F '19 H1 cohort, but it will only be when we actually see them performing better than the average over the last 5 years that's used to create the prediction that we will start to see that come through in the numbers. The other factor, which you do see in this chart, is that there's a slight dip between the end of F '18 and the start of F '19 because this is looking at the amount of sales we get from each customer in a period where we actually don't have an Easter in April of '19, but we had one in April of '18.

The model says, well, hold up, it looks like people aren't spending as much as you expected them to. So it just drops the forecast lifetime value a little bit.

When all of these, the phasing, net out, I expect that to move back up again. In terms of the less complex where we sometimes see the results of investments, this is the impact on EBIT in the half.

And again, we show this every time, but there's GBP 1.9 million of incremental contribution just because we have more Angels this half than we had in the same half a year ago. There is a further 600k because we are getting more contribution per Angel in the half than we were in the same half a year ago.

And again, that 600k is broken out on here because it's another measure of the fact that we're getting better returns out of the Angels year-on-year than we have been. And it's another indicator that, that quality improvement is being seen in the numbers.

The big downward shift is the change of investment. We indicated in April we were looking at a GBP 5 million to GBP 8 million uplift in investment in Naked year-on-year.

GBP 3 million of that has come into the first half. We expect at least at this point another GBP 3 million in the second half, and there are some indications that we may have opportunities to move beyond that as well.

And then there's about 900k of incremental fixed costs in the half, which you might remember we were investing in the resource, which is driving that growth in investment, but also the kind of control and compliance infrastructure around it to make sure that we can create these measurements tools and techniques and we know that we're investing well. Moving on to Retail.

1.9% sales growth in Retail is the number we're happy with. We think we've tracked the market.

It is a tough market out there. The big driver of that growth is the Concierge business.

So Concierge was just being born in the period that this is comparing to. So there's GBP 4.5 million of incremental sales out of Concierge in the half and that has actually driven all of the sales growth in Retail.

Because there was no Easter this half, there's about GBP 1.5 million of sales that we would have got had the phasing of Easter has been like-for-like. And actually, it was pretty much the worst timing Easter could be because inevitably when people buy a lot in Easter, they don't buy for a couple of weeks afterwards.

We got the shadow this half, we didn't get the buy. And then the sum total of the rest of Retail trading outside the Concierge is a very small decline in sales.

That's a combination of more discounted orders, in particular, through partnerships, a lot more customers coming in and spending less on the first order because they've got some form of voucher. And actually, we are seeing on average smaller orders from our customers.

They are buying fewer bottles of wine, but they are spending a little bit more on a bottle of wine on average. That translates into an EBIT decline in retail of GBP 1.3 million.

Of that, GBP 0.5 million is because of the timing of Easter and about GBP 300,000 is because of the investment we've put into Concierge. So about half of that decline is either timing or investment related.

The remaining 1.2 -- I'm sorry, the remaining 600k is a net of GBP 1.2 million of decline due to a combination of the cost footprint shift, and I'll talk about that in a second, additional discounts and having to continue to invest in gross margin in order to remain competitive in the marketplace. We have then taken a lump of cost out of the Retail business, which is split between the 2 bars on the right.

600k of that has come out of the admin cost base, about 700k of it has come out of the contribution from the remainder of that trading business. So let's look at that cost base a little bit.

We've done some great work in Retail on managing the cost base and beginning to align the cost base to the trends that we're seeing in terms of the orders and where they're coming from. So on the left-hand side, you can see actually 34% growth in the sales that came through online orders or Concierge because Concierge is a kind of distant selling approach.

That is a 3% decline in the orders captured in -- sales orders captured in store. But bear in mind that at Majestic, a number of our online orders are still fulfilled out of store so it doesn't reflect exactly the flow of goods through stores versus national fulfillment.

On the right-hand side, we show the drivers of the cost base movement. So there's about GBP 1 million of inflation in the cost base in Retail in the half.

We have spent GBP 1.1 million more driving products through centralized national fulfillment to fulfill online and Concierge demand, but we've offset that with GBP 1.3 million of savings across the store base and the admin base. So we are shifting the cost base to reflect where the orders and the customer demand are coming from.

The resulting net increase of 800k is actually less than just the inflation in the cost base that we started the year with. So lots going on in Retail.

And actually, we feel we're going into H2 very well positioned. We have 4.5% more repeat customers as we go into the second half.

We have about 93% more Concierge customers because that is such a new initiative, 30,000 in total. We are expecting to see about 55% more new customers coming out of the partnership pipeline that Rowan spoke to earlier.

Customer numbers should translate to sales growth, but only if each customer is spending the same as they were last year. And on the right-hand side, we're showing what was the spend per month for each repeat customer and how did it track year-on-year.

So you can see there is a big dip relating to Easter. But beyond there, it's actually tracking relatively close.

So we are reasonably happy that we have the customers in place going into H2. And all things being equal, the proposition performing as it is, the sales per customer should hold up and that will translate to slightly stronger sales growth in the second half.

As ever, how Christmas plays out remains to be seen, but that's what the data tells us. So that covers Naked and Retail.

Just very quickly talking about cash and the balance sheet. Much reduced cash flow year-on-year, but that's largely as a result of investment.

So the EBIT reduction drives a big chunk of cash movement. The capital expenditure line is significantly higher year-on-year.

We've guided back at the very start of the transformation journey to GBP 6 million a year of CapEx. The last couple of years have come in around the GBP 3 million and GBP 4 million mark.

This is the year we play a little bit of catch-up to that average, and that GBP 4 million in the half reflects both the continued rollout of the shelving in the stores, but also the implementation of a new EPOS system across the entire estate, both software and hardware, which is in place and performing well. That's what you see in the numbers.

We continue to build working capital this half. Part of that is just the seasonal phasing, part of it reflects that we are continuing to buy stock for the U.S.

growth that we're seeing and getting ahead of the continued strong investment into the U.S. market.

All of that said, year-on-year, the net debt balance is lower by about 20%. You see that come down through the financing charges, which are 30% lower year-on-year.

Net debt-to-EBITDA of 1x is higher than the target of 0.5 turn we've set ourselves, but we are very comfortable with that in the context of the investment phase that we're in. And the fixed charge cover, which is the other banking covenant we have, is at 2.8 versus a 1.75 covenant, so plenty of room there.

We've held the dividend flat in the half. The intent is that we have a progressive dividend this year, but that is subject to the amount of investment we can make in the second half and obviously, peak trading performance.

So just wrapping up with the outlook for this year. Naked investment is growing.

The range that we had given at the Capital Market Day is GBP 5 million to GBP 8 million. We now see the bottom end of that range at, at least GBP 6 million and potentially higher.

Naked margins should continue to improve. There is a structural shift there in terms of market mix, and there are also some cost efficiencies in our cost to serve being shown in both H1 that should continue through to H2.

Growth drivers in Retail, very much driven by the customer base, more online customers, more Concierge customers, more new business and we believe we are seeing steady sales per repeat customer and obviously, Christmas trading will be the test of that. But then the Retail channel mix and margin changes that we've seen will likely continue.

So national fulfillment cost will continue to grow. There continues to be kind of pressure on margins because the pricing we're seeing on a number of lines is actually no different now to how it was at the point of Brexit despite all of the currency movement coming through, and we had seen some movement there at one point, but it's largely reversed.

So a mixed picture on Retail but positive at the top line. Naked, very much operating as we expected and steady as she goes.

And we've made a comment so that it's not a surprise to people at the end of the year about a little more inventory coming into the year -- year-end in the U.K. as protection against any disruption from Brexit.

It's not a huge number in the context of the GBP 100 million of inventory we have on the balance sheet. It's not like we've had to double our warehouse space, but it seems to be garnering some press attention, so we'll see how that plays out today.

That's me done. Back to Rowan for a look a little bit further ahead in the next 6 months.

So Naked, we told you about our plan in April and there's no change to the plan aside from the fact it looks like we're able to invest at a higher rate than we expected to, which we consider to be good news. I think I did say in April that we believe we've got this Investor Relations game right where we stand up and go, "Good news, profits are down because investment is up," and the share price goes up.

We clearly have some work to do. But the fact that investment is up should be considered to be good news.

Retail on the other hand, we are coming to the end of a 3-year plan and the environment is very different, so we want to talk about that. As far as Naked is concerned, I think one of the key things is there is going to be more focus on the U.S.

and the focus is more heavily on growth. And the reason for the U.S.

is the market is 8x the size of the U.K. That's our section of the market is 8x the size of the U.K.

It's growing fast. The direct-to-consumer market is growing double digits and has been doing so for some time.

And we have a 2x price advantage. And so far, we haven't seen any competitors emerge that are able to compete on those kind of terms.

So given where we are, the size of the market, our competitive advantage, our feeling very strongly is that we should be going at it as hard as possible to build up our market position. I explained earlier the impact that volume had on variable costs.

And given that variable costs are about 30% of the cost of the wine, that has a significant impact on your long-term competitive positioning. So we will continue to go hard at the U.S.

and expect to see more of that. As far as Retail is concerned, the question everyone asking is, are you shutting branches?

Is there a future? And the answer is, yes, I do think there is a future for face-to-face retail.

But it is not a warehouse. It's not boring retail.

It is experiential retail. Wine is particularly well suited to it as a product.

It's not something -- it's not like an iPhone that you can read the specs and buy online. It is something that very few of us, myself included, don't know what it's going to taste like until you get at home.

And therefore, the ability to be able to go into a store, taste, compare it to other wines, speak to someone who knows what they're talking about remains a valuable service. But it is going to be different.

And what's going to be different in the future is going to require data, is going to require IT capabilities and it's going to require some entrepreneurial spirit to take advantage of these things. I think I speak to a lot of retailers who see only challenge ahead and I see opportunity.

And so I think put all that together, how do we see the future? Naked, doing what we said we'd do.

The plan is working. We're sticking to the plan.

It's going to go a bit faster than we thought. It's going to be a bit more U.S.

than we thought, but that's just adjusting, tweaking what we're doing to reflect where we're seeing the opportunities. As far as Retail is concerned, I think the key thing is these -- the initiatives we put in place are working.

The stores where we're getting them onto the partners are delivering over and above the others. We are bringing in new customers, we are getting customers over to subscription, but we're doing that running up an escalator that's coming down.

So I think the team have done an amazing job, but they're running very hard to stand still. And that means, like a lot of retailers, we will be looking at really evolving our business over the next 3 years and I'd like to think we're going to be one of the winners because we're one of few people that have got the ability to do something about it and frankly, relish the challenge, see this as exciting and fun rather than terrifying and gloomy.

So that's us. Any questions, please?

Ben Hunt from Investec. Can we -- on the Retail, can we just focus in on the gross margin investments required to be competitive with supermarkets, I presume, and really how that dynamic played out over the summer and how you continue to see and where you think it will be going forward?

Are you beginning to see an easing? Or is it still very much as it always has been?

So just to be crystal clear, there are 2 gross margin investments: one is in recruiting new customers and subscription customers, the second is in matching pricing where price increases as a result of Brexit haven’t been passed through to consumers, okay? So I think it's really important to split those out because one of them is a choice and we can see some positive things happening as a result and the other is imposed upon us.

The second part of that, I think, is those prices that's been in the market virtually all of this year. So last year, we pushed up prices, most other people did.

As it came to Christmas, gradually those prices eroded. In January, everyone put up prices 6%.

Those price increases came off again very quickly. So really, the prices we've been operating on virtually all of this year reflects current exchange rates, current pricing and unless something material happens over the next few weeks, reflects I think the pricing we're going to go into Christmas and the price we'll operate with next year.

So I don't think you should look -- you should expect to be looking at a business where you're seeing margin erosion. All of which being said, we do see areas like, for example, champagne where price competition is intense and we will, if we have to sacrifice percentage margin to keep our share there, we will.

But we are still making healthy pound margins.

Okay. And just sort of more nerdy question on the difference between the paybacks for those customers you recruit via marketing versus those more on the first order losses.

Do you have any sort of -- what are the disparities between the 2 of them?

Yes. I think the best way of saying it is we look at all of the investments -- all of these decisions as investment decisions, right?

So effectively, we've got a choice of saying our next dollar, we can either invest by driving more customers to the site or by increasing the conversion rate on the site by making the offer more attractive. And what we do is we'll run 3 different price points and look at the retention curves and the sales curves on those customers and really work out the impact of that marginal dollar.

And in the U.S., we've -- that number is varied. The typical spend for a new customer and the kind of most attractive offer on the site that we put in front of a new customer has varied between $59 and $99.

And currently, our control is sitting at $79. So -- and that's where -- and the gap between $79 and $69, for example, we are getting a lower payback than giving that money to the digital team and saying, bring more customers to the site.

I think as far as the long-term/short-term discussion is concerned, there is an easy way to make payback look good and that is by bringing in cheap customers who -- with high churn and you do get your money back very quickly. But given that it's high churn, you are creating a downward escalator that every year is going a little bit faster.

Our view is we are better off building a business that's sustainable for the long term by focusing on retention as a key metric and continuing to invest in higher LTV customers who cost more money, but in 3 years' time, 10% difference in retention, you have got a lot more residual customers there.

Sherri Malek from RBC. So is the way you think about customer acquisition is that there's a trade-off between pace of growth and the payback that you're willing to accept?

So if you want to push harder to drive scale, that will mean accepting a low payback, albeit still very high obviously. In which case, should we be thinking that potentially growth could be higher over the long term, but that the payback might be a bit lower?

I don't think so. And I think there are 3 -- there's a third factor to think about, which is overhead, right?

So the way we think about it is we want to get -- have an average of a 4x payback. And that means that once you've amortized any growth in overhead over the period, that you're still left with a healthy bottom line number.

That being said, if we have got to the point where we have achieved our investment goal for the year and there are more opportunities available, which we can get with no additional overhead, but if those are less than 4x, should we take them? Yes, we should.

So in the end, what we have to do is amortize both the investment cost and the overhead as of the customer base. And that means that we want to maintain an average of 4 over the long term.

We will go below 4 where we see an opportunity to build additional marginal volume and we tend to cut off at 3 as an absolute number. So if a deal comes along that's going to be less than 3, we're saying no or we reprice, taking it up above that.

In addition, there are a whole bunch of deals that start off at 1 number and over time just as you optimize and become 3 and 3.5 and then 4, which gives us some latitude to be able to do some deals below the target to still keep our average at around 4x. We want to stay at around 4.

I think the nonscientific thing you just need to is the lag effect. On the last day of H1 this year, we're probably investing at 2.5x the rate of the last day of H1 last year.

You won't have seen $0.01 of return from that. You will see that come in over the next 6, 9 months.

And we've seen that happen over and over. When you take your foot off the gas, suddenly we look like heroes.

When you put your foot on the gas, suddenly we look like laggards. A lot of that is just turbo lag.

Kate Heseltine from Edison. Just going back to the Retail side.

Could you just remind me of the 211 stores that you have, how many of those have been refurbs to date? And do they typically correspond to the partner stores?

I think you have 51 now. And then just you mentioned in your press release expecting a decline to 205 at the year-end.

Do you expect that sort of trend to continue over the next couple of years? And just then, finally, what does your pipeline of lease renewals and reviews look like?

Are you having much -- getting much opportunity to renegotiate with landlords? You talked about some preferring to transfer to resi, so perhaps you don't have that same ability as the high street.

I'll get Josh to answer the first 2 questions, and James, maybe the third?

So the first question was around refurbs. So we've fully shelved around about 60 stores.

We haven't introduced you. Josh is the Managing Director of Majestic Retail.

Hello, sorry. I'm Josh, MD, Majestic Retail.

So yes, so we have about 60 that are fully shelved. About 80%, 90% of the stores are partially shelved.

You said, is it mainly the partner stores and the franchise-lite, absolutely. They're the stores that we invest more into because they are the teams that we feel are more investable.

So not just on the store itself, but also in giving them more autonomy over their range, giving them more accountability over running their store, more training as well and development in owning their store and a bigger piece of the pie as well. They get bigger share in the -- growing the profit of the store.

So that's where we are with that. The second question was around store closures.

So yes, we're going to be around 205 stores by the end of the year. To reiterate what Rowan said, we see face-to-face as a really key central part to the business.

As far as I know, you can't taste wine online yet, so that's been a big differentiator for Majestic over the years and will continue to be. The ones that are closing, it's a mixture of you had some landlords wanting to turn it into residential and some of them is just us looking after our estate as we should, which is some of them are not profitable and terms come to an end, so we're able to do something about that.

But there's no ongoing plan to be closing stores. We're taking them as a case by case.

In terms of the lease renewal pipeline, I think the average life left on lease is just shy of 6 years at this point.

Oh, I think I've got one.

All right. Look, we see a kind of combination of dynamics actually.

We see some places where, yes, there has been opportunity to regear a lease, get some rent reduction or at least some kind of rent-free period that wouldn't otherwise have existed and we've taken those opportunistically where we can. We -- as you've seen in the announcement, we have some circumstances where especially where we have stores closer to the kind of inner cities where landlords are saying actually anything that we would be willing to pay in rent is uneconomic versus the opportunities they have.

I think the interesting kind of factor in there is that there's a kind of 5- and 10-year period from, I guess, the early 2010s to '14 where the last wave of stores that were opened happened and we're actually seeing generally those tend to be more likely to be underperforming stores than the real core of the old stores. So in terms of the phasing of that lease renewal pipeline, there will be -- kind of probably the wave of biggest activity will happen as those wash through the system.

Okay. Thanks very much.