Naked Wines plc

Ladies and gentlemen, welcome to the interim results for Naked Wines for FY '22. One of these days, I'll get to do a results presentation with some actual people.

But in the meantime, thank you all very much for joining us. Today, we're going to take you through the story of the last 6 months, and we're going to present to you 3 sections.

Firstly, I want to talk to you a little bit about Naked Wines' mission, for those of you who aren't familiar with it. I'm going to hand over then to our CFO, Shawn, who will take you through the key numbers from the last 6 months.

And then I will take you through the implications of those numbers. I want to talk to you a bit about the long-term growth opportunity that we have here at Naked Wines.

At Naked Wines, we've always had a dual mission: to solve problems for both winemaker and consumer. And the reality of the wine industry is that in many ways, the way wine is sold hasn't changed in centuries.

And for winemakers, that means it's incredibly hard to gain access to distribution and to build a personal brand and make product we are proud of and it's exciting and authentic. Naked's platform solves those challenges to winemakers by giving them support from our nearly 1 million members.

We're able to give them the financial security to pursue brands that they're passionate about, the ability to scale them quickly and to focus what they do best, which is make world-class wine. They're able to share those wines back exclusively with our Angel members who made them happen.

And that means our consumers gain access to wines of real character made by winemakers who are passionate about them, people that our Angels get a direct connection and chance to interact with. And best of all, the way our model works helps winemakers to make great quality wine at lower cost, enabling us to share that back in terms of superior value for our Angel members.

And if you think about how that model develops, as we scale the business, all elements of that become stronger. And today, we're announcing we've got over 940,000 members, and we call them Angels, around the world, in the U.K., the U.S.A.

and Australia. With their support, and those members make regular monthly contributions into their accounts, we were able to provide funding and commitment to over 200 winemakers.

Those winemakers make exclusively for distribution at Naked Wines over 1,500 world-class award-winning wines. Because of our support, our winemakers are able to produce that great-quality wine at a lower cost than it would otherwise be made at, and we're able to pass those benefits on to our consumers.

We're able to enjoy that wine at a lower price than they would pay a traditional wine retailer. Equally, as we grow, we don't just benefit from those hard economies of scale, but we create a really powerful ecosystem of data that lets us do a couple of things.

It lets us feed back to our winemakers and help them understand how to make better wine and respond to consumer taste and preferences. And it also gives us information to inform our decisions, our investment decision-making and helps us acquire more customers more efficiently and drive that future scale.

So it's a differentiated model with a virtuous circle underpinning it. And you can see in the numbers that that's a model that works, and there's real consumer appetite.

We've grown the number of members in the business to 947,000 to 23% compound growth rate over the medium term. And as we've done that, we've built a really sizable pool of profitability that comes from those Angel members.

And as Shawn will describe later, that's the pool of profitability or contribution from our existing Angel members, but it now allows us to fund our future growth and acquisition of new members. Whilst we've made a lot of progress in the 13 years we've been in business, we really see us still being at quite an early stage of our development and indeed the wine category at an early stage of its journey towards online models.

Globally, we address a market of worth $25 billion, with $20 billion of that being in the U.S., our largest market. And that's a market comprised of people who are buying -- and the right kind of price point for us.

We're out to make world-class wine at great value as opposed to cheap wine, selling to regular wine buyers in states we can ship to and people who are passionately interested about wine. A $25 billion market opportunity says that today, we only have around a 1% to 2% penetration in our different markets, and we see multiple opportunities for long-term growth in all of our geographies.

And before I hand over to Shawn, I just wanted to bring to life what that differentiated model means for some winemakers building their brands. In the course of the last 6 months, we launched the debut wine from Dan Baron.

He's a bit of a legend in the industry here in Napa. He was, for over a decade, the head winemaker at Silver Oak, also made the wonderful wines at Dominus Estate.

We launched his debut wine under a brand called Francophone this year. It was our biggest-ever presale.

We sold $600,000 of that wine on release day. And with that support and with the scale that we're able to leverage, we have currently over 400,000 bottles in production for Dan out of the '19 to '21 vintages.

And it's a real example of how even with Daniel's reputation and contacts in the industry, there's not another platform that will allow you to build a scale in the time horizon he's been able to working with Naked. Second example here, Mitchell Masotti, we launched to our Angel members in the U.S.

in October. He's the day-to-day winemaker of Bevan Cellars.

We were very excited, we built up a 7,000-follower list for him on his first day of release. And they -- those members presold the entirety of his debut project.

It's a beautiful Napa Valley Cabernet Sauvignon. We've got a couple more for Mitchell.

So if you're lucky enough to be in the U.S., I thoroughly recommend you check those winemakers out. At that point, I'm going to hand over to Shawn.

Shawn is going to take us through the key numbers from what's been a really important half year period for Naked Wines as we continue driving growth after obviously a transformative year last year. And I'll come back and talk to you about our long-term opportunity at the end.

Cheers.

Thanks, Nick. Before I get into the numbers, I wanted to highlight the 4 key themes behind our results in the first half of the year.

One, our results reflect the strong underlying retention characteristics of our model, which drove strong repeat customer performance. Two, we prudently moderated new customer investment to account for changing cost and behavior dynamics as we emerge from COVID.

Three, supply chain challenges presented additional headwinds, but our teams mobilized quickly to manage them. And finally, overall, the strong repeat customer performance drove increases in sales and EBIT over the prior year.

Starting here with group sales, which was GBP 159.3 million. Sales increased 6% on a constant currency basis or 1% on a reported basis over the prior year driven by growth in active Angels and sales to repeat customers, reflecting our high retention model.

Sales to repeat customers was offset by a decline in new customer sales as we had a tough comparison to the first half of 2021 when customer acquisition costs were low due to COVID-19 lockdown measures. In the U.S.

segment, which is our largest market opportunity and where our offering is most differentiated, sales increased 7% on a constant currency basis over the prior year. In the U.S., sales to repeat customers increased 28% on a constant currency basis.

Repeat customer contribution profit was GBP 41.3 million, a 10% increase over the prior year driven by strong performance in repeat customer sales and the strong retention characteristics of our consumer base. Repeat customer contribution profit increased 112% over the first half of 2020, highlighting the continued benefits of scale across the business.

Sales retention was 80%, above our expectations as order frequency returned to normalized levels against challenging comparisons to the first half of 2021, which benefited from COVID-19 lockdowns. In the first half of 2022, we experienced market-wide challenges around our global supply chain, including transportation and logistics costs.

We mitigated the impact of these challenges although we've seen some cost inflation, which put pressure on margins. We expect this trend to continue in the second half of the year.

We invested GBP 21.3 million in new customers in the first half of fiscal 2022. The 5-year forecast payback on this investment was 1.7x.

The first half of the year presented a changing market environment in our U.S. segment as wine consumers sought experiences that had not been possible in the prior 12 months due to COVID-19 lockdowns.

We also saw an increase in customer acquisition costs in the period. Adjusted EBIT was GBP 1.2 million as repeat customer contribution profit funded investments in growth, again, highlighting the self-funding nature of our growth opportunity.

Now turning to costs. Gross profit margin increased 240 basis points over the prior year driven by a higher mix of repeat versus new business in the period, which has a higher margin profile.

Australia's gross margin also increased year-over-year. Fulfillment costs remained flat at 18% of total sales.

In the first half of the year, we remodeled our U.S. distribution network, which included a $1.5 million investment to transport inventory from our legacy Napa warehouse to 4 distributed warehouses, which are closer to both our distribution centers and our customers.

We also saw increases in transportation and logistics rates and costs, which we partially offset with operating efficiencies and new modes of transportation. Advertising costs were 11% of total sales, a 160 basis point decrease over the prior year, primarily reflecting the higher marketing spend during the pandemic in the prior year and offset by an increase in customer acquisition costs predominantly in the U.S.

Total general and administrative costs were 12% of total sales, a 110 basis point increase over the prior year primarily driven by investments in our strategic initiatives. G&A costs decreased 350 basis points compared to the first half of 2020 driven by growth in the business.

Taking a step back to the numbers, we increased our contribution profit over the prior year and reinvested the incremental profits into the business while maintaining our strong unit economics. Turning to our key performance indicators for our investment in new customers.

We invested GBP 21.3 million in new customers, which is made up of a new customer contribution loss of GBP 3.4 million and advertising costs of GBP 17.9 million. Our 5-year forecast payback was 1.7x.

We had approximately GBP 2 million of investment that was below our expected payback levels as the market environment shifted sooner than we had expected coming out of the COVID-19 lockdown periods. We also saw increases in digital marketing acquisition costs mainly on Facebook.

As a result, we invested less than we would have liked to in new customers in the period. Shifting now to repeat customers, which are our subscription customers for Angels that have made their first monthly subscription payment.

Repeat customer sales were GBP 144.7 million, an increase of 21% on a constant currency basis or 16% on a reported basis over the prior year driven by the growing customer base and higher-than-expected sales retention. In the first half of 2021, our order frequency increased in line with COVID-19 lockdown measures as did customer retention.

As we've emerged from lockdown restrictions, customer retention has continued to be strong, while order frequency has normalized to historical levels. Our Angel subscriber base increased to 947,000 active Angels, which is a 25% increase over the prior year and a 71% increase over the first half of fiscal 2020.

In the first half of 2022, we saw a strong retention from both the large cohort of customers we acquired in fiscal 2021 and from cohorts that we acquired in previous years. Repeat customer sales retention was 80%, a decrease over the prior year driven by the strong comparative as order frequency and retention spiked during the COVID-19 lockdown periods.

Repeat customer contribution profit was GBP 41.3 million, a 10% increase over the prior year and a 112% increase over the first half of 2020. Looking further at our repeat customers.

What we show here is the contribution from these repeat customers by cohort. As we emerge from COVID-19 lockdowns, order frequency normalized following a higher-than-average frequency in the first half of 2021.

Despite this, our customer retention remains strong. You can see here that the contribution retention for the FY '21 cohort was 260%.

The FY '17 through FY '19 cohorts retained contribution from year-to-year in the 80% range. And our oldest cohorts from 5-plus years ago continued to show strong retention in the 90-plus percent range.

This strong retention is driven by our loyal customer base that highlights the strong consumer proposition that Nick talked about earlier. Let's take a closer look now at our repeat customer contribution margin.

The repeat margin was 28.5%, which is a 270 basis point increase over the first half of 2020 driven by higher gross margins, mix shift to the U.S. and scale efficiencies and fulfillment costs.

These gains were offset by nonrecurring costs for the U.S. distribution network remodel of approximate nearly $1.5 million or GBP 1.1 million.

We've continued to improve the underlying margins in the business as we scale while working to share the value creation from our platform with both consumers and winemakers. In what has been and continues to be a challenging global supply chain environment, our teams reacted quickly to cost pressures, and we were able to mitigate the impact for our margins in the first half of our fiscal year.

For the full fiscal year, we are expecting our repeat customer contribution margin to be approximately 100 to 200 basis points below the first half of 2022, including higher storage costs as we increase inventory levels and continued supply chain disruption and labor pressures. Shifting now to the geographical split of our business and starting with sales.

Total U.S. sales were GBP 74.4 million, representing an increase of 7% over the prior year on a constant currency basis.

We continue to take share of the U.S. market and are well positioned with a strong consumer offering.

Foreign exchange rates were a headwind to the reported numbers as the pound strengthened against the dollar year-over-year. Total U.K.

sales were GBP 62.4 million, and total Australia sales were GBP 22.5 million. Moving on to the segments' operating performance.

Repeat customer contribution profit was solid across all geographies. The U.S.

delivered the highest repeat profit of GBP 23 million, with a margin of 34%. The U.S.

margin compared to the first half of 2020 increased 490 basis points, highlighting the scale efficiencies in the U.S. business and specifically from operating leverage in fulfilling orders.

The U.S. segment benefits from the 3-tier distribution system, which drives up prices in the region.

Our exclusive direct-to-consumer model allows us to bypass the non-value-added markups associated with the distribution and retail tiers. This means that we can offer our Angels a significant discount while delivering a healthy margin.

In Australia, we saw margin improvements in the first half of the year driven by gross margin accretion as we rationalize the range. The improving unit economics in Australia provide a better opportunity to invest in that market.

Investment in new customers has increased across all geographies compared to the first half of 2020. We would have liked to invest more in the U.S.

but tapered our investment, as I mentioned earlier. This slide shows our standstill EBIT, which is a pro forma EBIT measure that would have been reported if we had only invested in new customers to replenish the current customer base loss to attrition.

Standstill EBIT increased 36% to GBP 37.2 million, which is predominantly driven by a GBP 24.2 million increase in repeat customer contribution profit. Standstill EBIT margin was 12.3%, demonstrating our ability to deliver above 10% adjusted EBIT when we have reached a mature scale.

Cash at the end of September was GBP 57 million compared to GBP 85 million at the end of March. Inventory at the end of September was GBP 127 million compared to GBP 85 million at the end of September in the prior year as we increase availability over the course of the first half of 2022.

We continue to allocate capital to support growth, including investments in customer acquisition as well as in our customer proposition and our go-to-market strategy. Our investment in inventory drives availability for our customers, enabling us to satisfy demand during our growth journey and support our strategic objectives around enhancing the customer proposition.

Being mindful of the challenges in restoring availability over the last 12 months and the continued supply chain disruption, we intend to run the business with higher inventory balances over the medium term to preserve availability for customers and ensure we do not constrain our growth potential. Given the investment opportunities we see before us, we think the best utilization of cash is to reinvest in the business.

And therefore, we are not proposing any distributions or returns of capital to shareholders at this time. We utilized GBP 26.5 million of cash during the period with adjusted EBIT of GBP 1.2 million and a net working capital outflow of GBP 28.9 million.

This net working capital outflow was primarily driven by an increase in inventory of GBP 51.2 million, offset by deferred income of GBP 6.8 million and trade and other payables of GBP 15.3 million. And before I hand it back over to Nick, I'll cover our updated guidance.

Our fiscal year 2022 guidance is as follows. Total sales is updated to a range of GBP 340 million to GBP 355 million, which equates to a constant currency growth of 2% to 7%, reflecting lower-than-anticipated investment in new customers.

Investment in new customers is now expected to be in the range of GBP 35 million to GBP 45 million. Repeat customer contribution profit outlook remains unchanged at GBP 85 million to GBP 90 million.

And general and administrative expenses also remain unchanged at GBP 46 million to GBP 49 million. And now I'll hand it back over to Nick.

Thank you, Shawn. So what I want to do now is spend some time pulling out, I think, some of the most important messages from an important set of results over the course of the last 6 months, talk a little bit as well about the progress we've made beyond the numbers in advancing on the strategic initiatives we outlined at our last full year results and talk to you a little bit about what the implications of all that means.

So let's start by talking about 3 key numbers from today's presentation. Things I want to talk about here, to my mind, the most important piece of news we're sharing today because they go to the long-term opportunity for Naked and highlight the fact that, in a number of ways, we're delivering on our goal of enhancing the proposition for our members and seeing that translate into higher retention and better revenue generation from those members.

So I want to take you through the retention trends we're seeing amongst our long-tenured customers, and we're going to talk about the implications of that for our investment returns. And then I want to talk a little bit about market share in the U.S.

So firstly, over the course of the last 2 or 3 presentations, we've kept updating you around the retention characteristics of our cohort, and obviously, something that is incredibly important to us and we monitor very closely. What we're sharing here is just giving a further update on the retention we're seeing from customers we acquired, what feels like a lifetime ago, kind of before the COVID pandemic started.

And the blue line here is showing that in FY '22, we continue to see materially better retention of those long-tenured cohorts than we did 2 years prior. So I think we can, at this point, say that we have seen an enduring improvement in retention from those cohorts, reflecting a strengthened relationship and also reflecting the results of a lot of work we've been putting in to enhance the range, to enhance the consumer proposition.

So that's the first takeaway from today. And it's not just a case of improving retention, but also, we've been able to continue our momentum in driving the amount of revenue we drive per Angel per month.

And as Shawn highlighted, we've continued to be able to translate that revenue more effectively into contribution profit as the business has scaled and mix has moved towards the U.S. and we've seen the group enhance its contribution margin.

When you look at those 2 things over time, you get to an implication for the returns we've realized on the customers we've acquired over the course of the last 5 or 6 years. So turning to the next page.

You can see that the returns we're projecting today for customers we've acquired in FY '17 through FY '21 are substantially higher than the returns that we originally estimated at the end of those years, something like a 25% increase on average across these 5 years. You see in particular the cohorts that are more aged, FY '17 through FY '20, some material upgrades there, but also really pleasing to see that the FY '21 cohort where we reported a 3x payback also have seen a little bit of positive progress.

And I think we're at a 3.2 currently. So that's really what you'd expect to see.

We have a relatively conservative way of projecting our expected payback. It assumes that we continue doing roughly what we do today in terms of our ability to meet our customers' needs and translate that through into revenue per member.

And it assumes that we have the same set of base economics. As we've shown you, we've got a good track record of improving our proposition, and that translating through into more demand from our members.

And as we scale the business, that revenue turns into contribution more effectively. The result of that you see borne out on this page, we end up realizing better returns than we initially forecast.

Finally, I think it's worth calling out the performance in our U.S. segment and in particular looking at market share evolution in that area.

We've purchased some additional data for the benefit of this disclosure versus prior reporting, and we're showing our share of the overall off-premise market in the U.S., as tracked by Nielsen. It gives us a pretty clear read of our penetration of the $20 billion TAM we have in the U.S.

And you can see that the growth we've managed to sustain, driven by our strong retention overlapping FY '21, means we've taken a further 0.2 points of share in that market. Also, I think this is different in the past, we've just disclosed the subsegment data on the direct-to-consumer market.

When you look at Naked in that broad $20 billion TAM, you can see value share ahead of volume share, reflecting that ultimately, we're selling high-quality wine at a lower price than you pay elsewhere because of our advantaged model but actually still at a slightly higher average bottle price than the overall off-premise market. So there were 3 highlights that I wanted to call out because they talk to the continued momentum we are having in developing our proposition, better meeting customers' needs and that translating through into ultimately a kind of high retention business driving strong returns.

Next, I want to talk to you about some progress we're making on the strategic initiatives we announced at the full year. One of the things we talked a lot about was the desire to reinforce the quality of the products we're making and to make sure we're getting fair credit from consumers and in particular nonconsumers for the quality of wines we make.

I'm pleased to say that [ we've asked ] around quality perception in all our markets, and we've gone from being at a parity to market or even behind parity in those markets to having a quality premium in all 3 of our geographies. One of the tactics we've deployed this year is to enter our wines into more awards.

Look, it's pleasing to see that when you enter great quality wines from world-class winemakers into some of the world's most prestigious awards, what you expect to happen does happen. We've won tons of medals, golden platinum medals, delighted to see that, obviously.

I think maybe the next page brings it to life a little more effectively by showcasing the story of one of our winemakers from Washington in the U.S.A., Dave Harvey. And again, I think this is a great way of showing the power Naked has to help create scale brands in a really compressed time period and give a platform to talented winemakers who previously haven't had an opportunity to create their own brand.

Before working with us, we first met Dave in 2016. He spent 20 years in the industry.

He'd won a Decanter trophy for making one of the world's best Rhone-style red wines. But he'd never had a chance to build a brand of his own of any scale.

He produced a couple of hundred cases here or there. His first vintage with us was in 2017 and was incredibly well received by our Angels.

Off the back of that, we signed a long-term commitment with Dave. It's enabled him, amongst other things, to open up his own production facility in Dayton, Washington, a community he's very passionate about reinvesting into, also a location that is very keen to fishermen, gives them great access to the Columbia River.

You'll see the fish on all of his labels. Since we worked with Dave, we've enabled him to scale that brand to something that's sold over 70,000 cases on the Naked platform last year.

And he was one of the winemakers that had great success in the Decanter World Wine Awards, like the Oscars of the wine trade. And the 2 gold medals that he won were, in fact, the only gold medals awarded to a winemaker from Washington state in this year's awards.

And our members, they pay $9.99 and $12.99, I think, is the perfect illustration of our ability to create world-class wine at amazing value. Another area we've talked a lot about recently is our investment in enhancing the customer proposition through providing some different types of curated subscription.

And in particular, our Never Miss Out and Wine Genie propositions help to -- our Angels to discover great new wines they can love and then make sure they can secure their favorite wines, be shipped to them effortlessly time and time again. We continue to see growth in our customers and the number of active subscriptions per customer in the period.

But I think particularly excitingly for me, we've now got really clear evidence signing members up to our wine [ subscription ] where we use our data and algorithms to create recommendations that we think customers will love, is translating through into really strong performance. Those customers are spending more, and they're showing higher retention than they were previously.

So that's a proposition that we anticipate scaling in the course of the next 6 to 12 months. Now ultimately, the most exciting thing about Naked are the great people we get to work with and helping world-class winemakers share their products and their talent with our members.

I'm delighted to highlight some of the new producers who've signed on to Naked during the course of the period. Ken Wright in particular is a winemaker I've admired for a long time, and I'm delighted he's going to be making wines with us.

He was one of the founding fathers of the Dundee Hills AVA in Oregon, someone who has been heralded and won pretty much every award for pinot noir that there is going. And he's going to be producing an exclusive brand.

The grapes look great. They were crushed recently from the 2021 vintage available for our Angels in the U.S.

We've also seen a number of winemakers sign on who we initially worked with through our COVID Relief Fund last year. Megan and Ryan Glaab who produce a brand called Ryme Cellars are a great example.

And delighted to say that they will be producing an exclusive brand, Verse, I think you can probably see the connection, once we debut them with Angels in the months to come. And it's not just about introducing new winemakers but also about us continuing to find new ways to harness the power of the Naked community to have positive impact on the broader wine industry.

And I'm going to highlight the exchange on the right. For the eagle-eyed here, it's a Twitter exchange between Ray O'Connor, Master of Wine, one of our U.K.

buyers, and Tim Atkin. And the outcome of that was Ray identifying that there was a parcel of incredibly good sauvignon blanc set to go unharvested in South Africa.

[ We ] reached out, and the benefits of the modern world and Internet action, I think within about 3 days, we've signed a contract and we ended up working with Francois Haasbroek to make a beautiful sauvignon blanc, which we sold to our Angels in the U.K. It ended up winning a gold medal at the International Wine awards, but more pleasingly for me, our Angels have loved it.

They've given it a 91% rate. Meanwhile, in Australia, we continue our work to support Aussie winemakers who have had the raw end of the deal in Australia and China's trade disputes with extreme tariffs being levied on imports of Australian wine to China.

We've had an opportunity to work with 11 winemakers as part of our relief fund there. Their wine has been supported by over 10,000 Angels to date and have been wildly popular.

Turning to our continued investment to leverage our scale. And really, this is the root of that enhancement of margin that you've seen over the medium term.

As Shawn highlighted, we have invested to give more resilience and scalability to our U.S. fulfillment network.

We think over the medium term, that means both better cost economics but more importantly better experience to customers and higher availability. In the U.K., we have invested to meet the challenges of our rapid growth through warehouse automation, again, an approach which both gives us protection and insulation from rising labor costs but also means we're able to give a higher quality of service, greater pick accuracy to our members.

Next, I want to talk a little bit about our testing into the area of brand advertising. As you may recall, one of the things we believe is there's an opportunity for us to continue to grow the pool of productive investment for Naked by stretching beyond our heritage, our core of direct response marketing spend and increasingly communicating the story, the incredibly differentiated proposition that we have to an audience.

Our belief is that over the long term, that can mean we're acquiring more customers at comparable economics [ to survey ]. But in the interim, we've defined a number of measures we can use to assess whether or not that spend is likely to be successful.

And in particular, we have goals around improving awareness, comprehension and quality perception of the brand. In the course of the last 6 months, we've deployed some investment in Australia in a combination of media but most notably above-the-lines and TV investment.

And it's been very pleasing to see that we are making great progress on those interim measures of success. We've driven awareness of the brand in Australia to nearly 60%.

It's now clearly the best-known online exclusive wine brand in the market. And as we've grown awareness, comprehension has really improved.

And we've seen favorable movement in a number of key metrics we track, such as quality perception, which suggests we're not just getting people to know about us but getting people to know the right things about us. And that's something we think is highly likely to translate into an ability to acquire more high-quality customers in the future.

Now it's obviously too early. This doesn't definitively prove our hypothesis, but it's exactly what we wanted to see.

That means looking forward, we'll continue. We're deploying a second wave of investment right now in the Australian market, and we'll move on to wave 1 of spend behind our brand hypothesis in the U.S.

and U.K. markets.

So that's an update on the strategic plan we outlined in last year's results. Next, I want to touch on a couple of the challenges over the last 6 months.

And operationally, it's been a period where there have been a number of challenges both from the consumer and market environment. I think there are 3 things that it's worth calling out.

And these are things that candidly, we would like to have done better and we think we could have executed more successfully in these areas than we did. The first one Shawn highlighted was around customer acquisition where as reflected in our payback disclosure, we would have liked to have seen slightly higher efficiency in that customer acquisition spend than we did in the period.

Two things in particular that impacted that, and we'll talk a little bit more about them, but one, some challenges around the digital marketing environment and some of the social platforms; and two, the pace at which the consumer environment evolved in the U.S. in particular.

We've also seen some supply chain disruption in the business. And the thing that I regret is that we have taken too long to fix availability challenges for our consumers.

As Shawn pointed to, we're going to take clear action to make sure that doesn't happen again in terms of the level of stock that we hold as a buffer against supply chain disruption. And then finally, we have had our customer experience has come under pressure, often for reasons outside of our control in terms of things like network and courier performance.

But again, it has meant that our on-time in full delivery to customers has not been where we wanted in the period. Turning to a little more detail around that investment performance.

And I hope, a lot of you who have tracked the business for a long time, look very closely at the payback measure we report. I think it's worth highlighting 3 things that did cause us a real challenge in the period.

The first was the environment in terms of digital advertising was tougher than it was a year ago. Anyone who reads the Facebook results presentations can see the level of inflation in terms of CPM rates that there's been in the period.

But that, added to the impact of Apple's privacy changes, has meant a more challenging environment where it's harder to target the very best customers with higher CPM rates. And the reflection for us is that we pull back spend to a rate that is supported by current performance.

And we know we need to work harder on things that we're good at to control, the creative optimization and conversion optimization that will let us build back investment in that area. The second one is a one-off and I think one that ultimately was a risk that we knowingly took.

And the flip side of us having been very successful in capturing the opportunity over the course of the last 18 months was that where consumer behavior changed in the spring, summer in the U.S. in particular, there were some marketing partnerships which had been very successful that ceased to deliver the returns we wanted.

We've exited those partnerships, and that's the kind of normal course of business. But it has had an impact in terms of driving some CAC inflation in the course of the 6-month period and had an overall impact to the payback we've delivered.

I think the final point here is a little different. And as Shawn said, we've managed very well a bunch of supply chain cost pressure during the course of the period.

But we're not immune to that pressure entirely. And that has fed through in terms of our variable operating expenses, which go ultimately to both our cost of acquisition for a customer and impacts the lifetime value that we project forward on the function of the margins we expect to generate.

Our perspective here is that we've been taking our time to assess the extent to which some of these cost pressures are likely to be enduring. I think it's still early to be entirely definitive, but we do see signs that some of them are likely to stick around at least into the medium term.

And to the extent that they are, we will take action in the forward period to ensure that we maintain our margin structure in recognition of that. And just highlighting here, I think, the points I made that our availability levels in our 2 most important markets have not been where we wanted during the course of the 6-month period.

The good news is you can see from the October data that we're back up at good availability levels and really well stocked heading into our peak trading period and expect to be able to deliver a great peak in both those markets. But again, to reinforce, we will run the business with a slightly higher stockholding level over the medium term because ultimately, we don't want to be in a position where we compromise either our growth opportunity or the customer experience through having a suboptimal range available.

So they're some challenges that we faced during the course of the last 6 months. Finally, I just wanted to ask the obvious question, what does all that mean for the long-term opportunity for Naked?

What's the net impact sort of what we've told you today? And I think ultimately, it's a story of 2 parts.

What we're reporting today is some really encouraging news around the extent to which our proposition is satisfying and delighting our members. You see that reflected in really high-quality retention results today.

You see that in the increase in the expected payback from members we've acquired historically. And that's balanced against short-term operational challenges in terms of acquiring new members in the course of the last 6 months.

What does that mean for our medium-term opportunity? Firstly, we remain in a very strong position with a great market opportunity in front of us.

We are still at an early stage of our development with only around 1% of our global addressable market captured today. We continue to strengthen our proposition both in terms of the customer experience but really importantly as well in terms of the winemaker proposition and the quality of winemakers we can bring on to the platform.

And as we've shown today and I think the most important thing in the results today, the investments we're making in the customer proposition and the winemaker proposition are translating through into stronger underlying economics. We have a clear track record of improving revenue per member per month and are better translating that revenue into contribution.

The net of all that means we're reporting higher expected investment returns against the customers we've acquired historically than we believed at the time. Ultimately, the business model is working even better than we realized.

Now balanced against that, we've had a 6-month period where we haven't quite met our goals in terms of the number of customers we hope to acquire and the rates at which we hope to acquire them. And there's work we need to go away and do to address that, but we're clear on what needs to happen and we know what we need to do to address that.

When you've got the tailwind behind you of a proposition that's increasingly resonating with customers and high retention rates, that gives you the foundation you need to meet those challenges. Overall, that means we see the medium-term opportunity very much as we outlined it.

So there's a clear path to this business generating an EBIT margin north of 10%. And you can see reflected in the standstill EBIT numbers that Shawn highlighted that the business economics, even that we have today without further improvement, support that.

And over the medium term, we continue to expect sales growth of something in the region of 20% per annum to be deliverable. What is clear is that in terms of the expectation for next year, it will take us -- we will need to build to that 20% number.

And there will be an impact of us acquiring fewer customers this year on the growth rate in the early part of FY '23. So in summary, we've got a model that we believe is the future of both making and buying wine.

It's truly disruptive. It strips out cost that adds no value.

It gives talented independent producers access to a platform and directly connecting to wine drinkers. And it gives our members exclusive access to better-quality wine for less and an emotional connection to the person who made it.

All of that is leading to an incredibly strong business model with sustained growth led by high levels of customer retention, improving economics as the business scales, and we're making progress on further enhancing our customer and winemaker proposition. In the period, we have seen some executional challenges, but we're clear as to what we need to do to resolve them and we don't think may impact the medium-term opportunity.

And that is for us to continue to penetrate a large addressable market, supported by a number of secular tailwinds that are moving spend and demand towards online and that support our focus on championing maybe independent producers and smaller brands. We are already today the largest direct-to-consumer player.

And that gives us a number of advantages that continue to be reinforced with scale. And you see that reflected in the improvement in the customer metrics we've delivered.

So I'm very excited about where Naked is and how we're positioned and looking forward to continuing to pursue that growth opportunity over the coming years. So with that, I say thank you very much, and we're going to open things up to some Q&A.

Nick and Shawn, I think the retention number was really strong. And I think that's really a critical driver of long-term value here, so I appreciate the efforts you're making to improve the proposition.

While I believe that the long-term performance is really driven by the performance of the business, I also think cost of capital matters a lot for a long-term growth company. So a couple of weeks ago, U.S.

investors kind of became aware of Naked. And as everyone saw, the response was really strong.

Even today, the U.S. share trades significant volume with -- despite being an OTC pink sheet stock.

And I think you can even see this morning, it seemed like once the U.S. woke up, there was a strong -- almost like it seemed like a 20% recovery off the bottom as American investors started to digest the results.

If you also look in the U.S., you have your competitor Winc, who I believe is a significantly worse business but actually trades at a [ fairly ] higher valuation than Naked does. I also think that a U.S.

listing could aid brand awareness in what is a critical long-term growth market for the company. I think being U.S.

listed could help with your brand awareness there. So I guess the question is, with a U.S.-based CEO, CFO, Chairman, it being your largest end market and also having a lot of U.S.

shareholders, why is now -- or why isn't it the right time to move the listing over kind of either -- in some point in the near future?

Thanks, Brad. There was a strong lead-up to that question.

I think I knew where it was going from a while -- from fairly early on, so you gave me plenty of time. Look, I know this is a question we've been asked kind of a few different times, but I think good to have it out in the Q&A for here.

I'm going to give you the same answer I've given you when you've asked this before, Brad, and the market reaction to one set of numbers doesn't really change that. But what I want to make sure we're really focused on is executing well to take advantage of the massive opportunity we've got in front of us.

You're absolutely right that things like going to access to capital could well be a part of that over the medium term. But right now, what we're really focused on is building on the great retention numbers you talked to, making sure that execution is really strong in the second half of the year so that we deliver the investment returns we want and creating value through the performance of the business.

All the things you said at the beginning are perfectly valid, right? So you could imagine a world where that made sense down the line, but we have no immediate plans.

All right. What -- do you have any thoughts on kind of the ability -- you've obviously had good brand awareness changes in the Australian market.

I mean how do you think about the ability to kind of improve your brand awareness in the U.S.? I mean I know that's earlier stage.

It is. I think there are a couple of things.

We run brand tracking quarterly in all our markets. And we have seen improvement in the U.S.

and meaningful improvement if you take a kind of 2-year view. I think the tactics we're deploying in Australia, the reason we're doing it is we feel like it's a great area for us to learn and evolve rapidly and at lower cost.

And I think a lot of that can be transferable to the U.S. market.

So I think we've got multiple different ways in which we can grow both awareness but also the quality of that awareness and comprehension of what we do. Because ultimately, Brad, I agree with you, we've got a business that is much more differentiated both in terms of the value we offer directly to customers and the emotional connection and provenance and the quality of the winemaker base we've got compared to a number of other online wine models.

So we definitely see that as a big opportunity for us.

Absolutely. And as I said at the beginning, I mean I strongly believe that business performance is the most important thing, so I completely agree with you there.

However, I would not underestimate the value of a supportive shareholder base who understands kind of the business and wants to see the long-term opportunity in terms of actually impacting that business performance. I think the [ reflection ] of the argument is pretty real.

So anyway, I appreciate your thoughts on it. I appreciate your efforts to improve the business.

And I look forward to seeing Naked develop.

When I look at Slide 15, it's quite eye-catching obviously how much the -- cohort slide, by the way, how much the FY '21 cohort now represents as a percentage of the repeat customer contribution and now obviously having reached maturity, those customers so -- naturally start to churn or attrit at a faster rate given the rest of -- a relatively younger age of cohort. So it sort of feels like naturally, there's going to be an element of natural downward pressure on your sales retention for the repeat customers going forward.

And at the same time, it feels like the cost to replenish those customers leaving is obviously going up. So I guess my question is really, how much flexibility do you now have over the cost base to potentially mitigate some of that pressure that's coming through?

Yes. Happy to answer that one, Ben.

Look, I think the first thing to say is, yes, our retention rate is, to some extent, a function of mix. Actually, over the medium term, what you see is the average age of customer increasing, and that positively supports retention.

You're right, we've got a very large FY '21 cohort. I think some signs that some of the quality there is exceptionally good, but we might have a bit of tenure mix factor.

I think the second thing, though, which really speaks...

Sorry, when I'm talking...

Go on, Ben.

When -- I'm talking about the age of the actual cohorts itself is the relatively young one given it's only less than 12 months old, not the actual customers within the cohort.

Yes, the extent to which having more young customers will drive your overall retention mix as a function of how many of them are there and how good are they, right? And we've got a lot of great customers in FY '21 cohort, so I feel good about that cohort.

The second kind of thing talks to how we think about creating value in the business. And what we're very focused on is making sure that we are maximizing investments subject to our belief around unit economics and delivering returns that we think are creating long-term value.

So I don't -- I guess I don't take the characterization, right, that it will -- that it is inevitably expensive to replenish the customers. The way I see the business, we've got multiple avenues to deploy additional growth investment over the medium term.

We've got a long-term track record of making improvements to the business, which has enabled us to enhance our returns. And I think you can see that show through in sort of 7 years of cohort data that we're disclosing today.

And ultimately, I take that as a stronger and more meaningful track record than 6 months where we've had a couple of specific operational challenges that impacted the payback number. So we're very much focused on doing the things that we can control to deliver great return and an increasing level of investment over the medium term.

And I think that's the right way for us to proceed and create value.

Just a couple for me. In terms of payback on acquisition investment and the discipline around that, it's always been a sort of key hallmark of Naked's history.

With that in mind, what do you now target in terms of that payback? You've always talked about that sort of 4x 20-year payback.

But now you switched to the 5-year reporting. We -- at least as far as I'm aware, we haven't had an update on what you're targeting on that.

So what do you target internally? And what should we be benchmarking you against?

That's the first one.

I think that it's a fair question. I'm sure other people have got it on their minds.

I think it's useful to put this in kind of context. And actually in the appendix, we've provided a translation between 5 and 20 years for our historical cohorts, which I think might be interesting to inform that.

And you can look back and see actually the 1.7 we report today, actually not far off what we initially reported on our FY '19 cohort. If we've been on a 5-year basis, we'd have reported a 1.8 on that cohort.

But with the improvements we've made to the business, improvements to contribution margins we delivered since then, that cohort is now on track to deliver 2.4. So I think the first thing to say is actually, the numbers today, I know everyone likes to get very excited about the 0.1 movement in this number, and maybe we created that beast, but ultimately, not so far away from where we've been historically.

And actually, looking back to FY '19, that's a difference of -- a very moderate difference with us deploying 3x as much growth investment in the period. But to the second part of the question, I think we've acknowledged in the presentation today, there were some things that didn't go as we would have liked in the course of the last 6 months.

And that does infer, right, that we would target a slightly higher number than this. I think we -- our view will be over the medium term, if this number is in the high 1 points to around 2, 2.1, that's probably the right kind of zone.

And there's not a lot of value creation to be found in spending all our time and energy and focus on managing this to the last decimal point. But that's roughly the kind of range that's consistent with us generating really good, strong positive IRR on those cohorts and scaling the business in line with our medium-term growth ambition.

So I think -- I don't know. It's probably the 1.7, like it's a B minus or something.

It's not terrible, but we'd have liked it to be better. We know what we need to do to change that.

And I think that's kind of why we thought it was helpful in the presentation to provide some of the different factors that influence the half year and that addressing could return. So I think you can see from what we disclosed in the presentation, you can take that number back up to a 1.92, either by addressing some of the specific channel-level issues we faced or by looking at some measures to rebuild contribution margin to where it was last year, which we think is very achievable, or you can do that by working on things like conversion rate optimization or you can carry on getting members to buy more per month.

You've got multiple levers to pull, and I'm very confident we can do that.

Yes. And would you say that -- that's very helpful.

Another thing I'm definitely going to have to follow up with someone there with some questions on the 5-year payback reconciliation slide. Those are -- that's too complicated for me to take in, in one go.

But would you say that your sort of -- your take on how you manage the business in terms of payback versus growth has -- you're a bit more flexible on that than you historically were? Is that a fair way of thinking about it?

I think the facts and circumstances are different, so the business is not capital constrained in the way it was in -- before or during the Majestic era, which gives us more latitude. I don't think philosophically will that change.

We've always wanted to grow the business as fast as we can subject to making sure that we're delivering really strong unit economics from our cohorts. And that means that we're willing for the story not always to go in a straight line.

And everyone loves simple stories that go in a straight line, but we're -- we've been consistent in that position and believe that's the right way to carry on managing this.

Yes. One point I'd add in also on the...

Great. and then one...

Yes. Sorry, I was to say one point I'd add in on the unit economics that obviously, we're getting more and more data as well as the older cohorts age out.

You can see we included some information in the presentation on Slide 15 around the FY '16, FY '15, FY '14 cohorts retaining at over 90%. So -- and as we get more data from those older cohorts, we're continuing to see them retain very well.

And I think a lot of that is driven by the really strong consumer proposition that we're delivering to our Angels. And then as well as the flywheel, I think we're really seeing the flywheel that we talk about come into effect in delivering very high-quality wine to our Angels, which is pleasing them and retaining them at very high levels.

Very clear. Certainly, pleasing me as an Angel.

And then one last one, a completely separate subject at the risk of turning this into a one-on-one. You mentioned some U.S.

wines there, Dan Baron, Mitchell Masotti, I think were the 2 you mentioned in particular. If you happen to be in the U.S., we can get them.

Would there be a chance of us getting those as sort of U.K. Angels at some point in the future?

Partly interested as an Angel and partly interested in terms of where wine can go and where you can ship to and where you can sell to and why you might choose to sell it to certain places rather than others.

Yes. Look, absolutely, may well see some of those coming to the U.K.

In the short term, to quench your first for big bold luxurious Napa Cab, I know we're taking some of our top wines from Matt Parish for a journey across the Atlantic this vintage for you to check those out.

Great. Thank you.

So our first question is from Elliot Turner from RGA Investment Advisors. Fantastic retention and engagement from Angels.

Can you elaborate on the brand marketing experiment -- It seems as though one of the foremost challenges and opportunities in the U.S. is increasing unaided awareness.

Why not be a little more aggressive on that in the U.S. in particular especially given how you can segment your spend experiment by geography?

Over to you.

Yes. Happy to take that, Elliot.

And so agree with you on the premise, there's a massive opportunity from driving that awareness point. I think for us, one of the big benefits of having a portfolio of different businesses is our ability to use different markets to learn different things at different times.

And in Australia, we've had an opportunity to simulate pretty large-scale advertising in large parts of the country. We have held out some regions.

But that means we feel like we can accelerate our learning about the brand experiment the fastest, and that's why we've chosen to do the first wave of spend there. It felt like for a controlled amount of money, we would learn the most.

And the way we thought about it was we'll then have a first checkpoint on, are we seeing the movement in the lead indicators that we want? And at that point, we can decide what we do in terms of translating to other markets.

I think the numbers we've pointed to today have been very encouraging. We're moving the perception levers that we thought we could.

And so next step is to start moving to that testing in the U.K. and the U.S.

I think then as we move into the U.S., we'll do as you suggest, right? We're not intending to go from zero to blanket national TV.

We'll look at ways to deploy spend in channels that reach customer groups we're particularly interested in and some of the regional opportunities we have, again, to simulate meaningful expenditure but without having to bet the house.

Great. Moving on to our next question from Mina at Alva Capital.

What do you think the drivers behind the lagging performance of this year's cohort are? Near 0 payback multiples mean reverting a bit was more definite -- was most definitely expected.

But the longer-term 5-year payback, original forecast number for the FY '22 cohort is the lowest it has ever been. Are there more specific negative characteristics around this year's cohort?

Yes. Happy to take that.

So to reinforce some of the points I made in the analyst Q&A earlier. The first one is 1.7 is not a long way away from numbers we've reported in the past and so I wouldn't overstate the difference.

I think we've guided that more of the volatility or more of the change has been around the cost of acquisition environment than the quality side. And that's a balance that I'd prefer, to be honest, because there are easier measures and more measures we could take to influence our cost of acquisition than there are if you've got an underlying weakness in your proposition leading to low lifetime value.

In terms of -- excuse me, downsides of live Q&A. So totally lost my train to back.

So yes, more to do with customer acquisition than it's to do with lifetime value. I think then in terms of the characteristics of that cohort, we have -- we've seen broadly very similar characteristics to the period of time before COVID, so if you go back to kind of FY '20 and beyond.

So nothing -- there's nothing unusual or alarming. And what I think you'd expect to see and what we've got a strong track record of is that over time, we tend to deliver better from cohorts than we initially project.

We have a deliberately relatively cautious projection approach, i.e., we assume that customers deliver revenue per month and contribution margins in line with what we have seen historically. And I think we've disclosed pretty clearly the data that says over the medium term, we've tended to improve both of those at around a 5% compound rate.

So ultimately, I'm pretty sanguine about where that cohort will land out. Notwithstanding, right, we could have done a few things a little better in the course of the last 6 months, and it would have started from a slightly higher number.

But yes, that would be the -- my perspective. I think the -- there's a couple of other questions here that are very related, so maybe it's worth kind of answering some of those as well.

I think a couple of people have asked in the Q&A specifically around the outlook for the TAC for the business and how we see that evolving going forward. And I think it's important to be transparent.

I can't -- maybe my own failing or the difficulty innately of it, tell you with certainty what the CPM environment is going to be by channel for us over the course of the next 12, 24 months. What I can say is that we have a number of levers that we know and understand that we can pull to influence our cost of acquisition irrespective of cost of traffic.

And we'll be focused on doing that. So we've got a good track record of improving conversion rates and better translating traffic into lifetime value.

We continue to invest in growing our product team aligned to that, and I think that's a clear opportunity for us. And we've also got an opportunity and we've started to see some really good progress on driving more reacquisition of previous members.

And as we grow the range, strengthen the proposition, we're finding that members who tried us maybe 5, 6 years ago and love the concept are coming back and finding a stronger business than ever. And that's another great lever we can pull to influence our cost of acquisition per new member acquired that is not dependent on a CPM environment that we ultimately can't control or predict.

So plenty of things we can do to influence that and worth answering that question.

Our next question comes from Owen Lu at MPC. Can you please shed some light on your customer acquisition channel and their effectiveness?

What percentage is currently through vouchers versus digital and their effectiveness?

Yes, I can take that one. Thanks, Owen, for the question.

As you know, we invested in a number of different channels to acquire customers. Insert channel is a large channel for the company and something that we've built up and do quite well, vouchers in e-commerce boxes as well as online channels like Facebook and Google and other online media.

The company has built a machine learning model, which helps us understand the LTV and the economics and effectively score each of the customers that we're acquiring. And that's really important because it helps us understand what the future contribution will be from those customers, gives us a really good understanding of what we should be paying to acquire those customers, what the cash should be, it gives us confidence and the ability to invest.

So -- and I think it's important to notice as we talked about today, those economics continue to improve over time as does the consumer proposition that we have. So we don't disclose by channel, but what I can say is directionally, we typically see a lower CAC and lower LTV in the insert channels.

And that would make sense because the distribution there is less targeted versus a higher LTV, also at a higher CAC though, in the online channels. And you would expect that because, again, you're having a more targeted go-to-market strategy with the online channels, which has a positive impact on the LTVs.

All right. Thank you.

Our next question comes from Marcin Kramer. The question relates to the decrease in number of winemakers.

Having in mind that the model is based on a flywheel effect, the decrease in number of winemakers has to be gravely concerning. Would you mind sharing some information on the causes of the decrease and also plans on how the company will go about tackling the issue.

Yes, so look, the flywheel is ultimately driven by -- starts with the number of members we have in the community, which is 200,000 more than we had last year. So I'm not gravely concerned.

But happy to talk you through the movement in winemaker numbers. Three things going on.

One, we report a number of winemakers with products sold in the period and there are just, not least because of supply chain disruption, a number of our winemakers. So unfortunately, we didn't manage to have in stock at all during the period that are not reported in the number.

Number two, some of the winemakers that we sold in FY '21, I think, we worked with 44 winemakers as part of our COVID Release Fund, they were not winemakers that we had a long-term relationship with. Some of them, we talked about the labs in the presentation, a good example, have translated through into saying, hey, this is amazing.

I'd love to be part of this full time. But not all of them have, not all of them were ever intended to.

So you see a little bit of that unwinding. So they're the main drivers behind that movement.

And obviously, for the wine mix we have, you can do the math, right? There's strong growth in terms of volume per winemaker, which is continuing to feed the flywheel and the positive unit economics at a winemaker level in production.

So hopefully, that clears that one up for you.

Great. Our next question is from Wayne Brown at Liberum.

Of the cash balance, how much is Naked cash versus customer cash, please?

Yes, I'm happy to take that one. So if you look at the back -- the balance sheet, excuse me, and zoom out a bit, so our current assets were GBP 190 million at the end of the period.

That was mostly comprised of GBP 60 million -- just under GBP 60 million of cash and GBP 127 million of inventory. On the other side of the balance sheet, on the current side, we had about GBP 135 million of current liabilities within there.

And about GBP 75 million of that was deferred Angel and other income. So the Angel-funded balances would be within that GBP 75 million number.

And then we also had around GBP 50 million of trade payables. So I think one thing I would say about our model is, as you know, is the very high repeat customer contribution profit that we have in the business, again, we're guiding to between GBP 85 million and GBP 90 million this year helps fund our investment in new customers.

So there is a self-funding growth opportunity here that we've seen play out over time.

We have another question from Wayne at Liberum. Six bottles from 1999 campaign in the U.K.

is very aggressive. How does this make profit?

And surely, this is attracting a very low-quality consumer. Can you discuss the dynamics of this campaign, why it's so aggressive?

And what is customer retention like in the U.K. versus the U.S.?

No, Wayne. I was setting the targets during these ads, right?

We've been very animated about them. So happy to talk to you about this.

We run a bunch of different offers to different consumers in different channels and markets all the time. This is an example of a campaign that we run in some of our digital channels, where we're able to lean into highly targeted look-a-like audiences, which means it's rational and sensible to make the offer heavily incentivized.

You see through our disclosures that we spend money acquiring customers 2 ways, media costs and a negative contribution on first orders. So we're not shocked that we don't make a profit selling this taste of wine.

What we do is acquire a bunch of customers that are highly valuable so they come up from targeted audiences. They end up being of high-quality.

I think you can see in aggregate that the business has got very high retention characteristics. And I think we've guided to in the past, the retention characteristics of our oldest market, the U.K., are the strongest.

So things are clearly compatible with building a business that's continued to grow materially at 13 years of age. So that's how we think about it.

And ultimately, the way we decide the right acquisition offer for the right customer in the right channel is just applied math. I don't really mind whether the investment goes through as media spend to a partner or it goes through as a subsidized first case.

I'm only really interested in the returns it generates.

Our next question is from Charlotte Barry at Berenberg. Can you please explain why year 1 payback was so high in the half and what gives you confidence that this -- that that's a realistic level to use in your standstill EBIT calculation?

Yes, I could take that one. So I'll take those in order.

So the year 1 payback was around 100% in the period. That was from the prior year cohort in some of the dynamics that we saw and talked about last year, especially in the first half of the year when folks were locked -- on lockdown, and we saw spikes in our order frequency.

With respect to the standstill EBIT calculation, there's a couple of -- the year 1 payback is not the normal level of year 1 payback. So that is impacting the calculation.

I think on the flip side, the sales retention, as we talked about, also has a really tough comp to the prior year because in the first half last year, as I just said, we saw increases in order frequency. So it's part of the dynamics of the rapid growth that we saw last year, just around 70% growth.

And the payback that we delivered is it does have some impact on the standstill EBIT, but it's probably impacting both of those numbers.

Our next question comes from Elliot Turner at RGA Investment Advisors. Can you talk about pricing strategy?

You have noticeably more product on the site at higher price points and the Daniel Baron offering so as you can feed demand there quite well. How are you thinking about opportunities to segment your customers earlier and take advantage of the improving brand perception to acquire some higher value, more sophisticated wine drinkers rather than merely those who seek lower of discounts?

Over to you.

Yes, happy to talk about that Elliot. I think we have 2 hypotheses around extending the range, and in particular, increasing our selection of what we might describe some kind of luxury price points north of sort of $20, $25.

One is that by broadening our assortments, we will be able to meet more of the need for the customers we've got today, and that's another lever we can pull to continue to drive revenue per member per month. I think as you say, where we've launched these lines, they've been very popular and our confidence in that hypothesis is very high.

And the second thing you point to is it may be that by broadening the range in this way, we can attract entirely different customers who may have kind of very attractive characteristics, and that might open up new ways we can invest, the new ways we can grow the business. And I think ultimately, the answer on that is, that is still unproven.

There are some things we, as ever continue to test around different ways to align the wine we give with customers in their first order as and when we have something that's definitive will come back on that. But the good news is extension of the range clearly is something that can enable us to sustainably carry on improving revenue per member per month and obviously at attractive margin characteristics.

Our next question is from Federico Brambilla. With respect to the promise to offer high-quality wine to customers, could you please elaborate a little on the selection criteria for winemakers?

How do you select them?

Happy to. There are lots of different ways in which we meet winemakers and way in which we choose them.

But there are a few common threats. The first one is we only want to work.

Okay. Sorry, I'm getting someone telling me they can't hear me, but maybe that's an isolated issue where they muted me.

So common threats. The first one is you've got to be an outstanding winemaker.

So we're only interested in working with truly high-quality winemakers. The second one is more attitudinal.

There are some great winemakers who kind of live for the gratification of a 95-point score or being poured by some LAA in a trendy West Coast bar. And they're ultimately never going to be a great step to make it.

We love winemakers who really thrive off getting direct feedback from the people who drink their wines. I love the idea of over delivering and being able to make world-class wine available on everyday price.

And that's something that we always look for in anyone we work with. And the third one is someone who's got the time, energy and excitement about really focusing in on hands-on day-to-day on winemaking.

The beauty of being a winemaker at Naked is we let people get back to what they first fell in love with about the industry. They're creating a brand with their own name on it.

They're getting a chance to focus on what they do best, making the wines in the vineyard and the sour and letting us take care of the marketing and the distribution. So we look for people who are energized and excited about that.

I think we might have lost the person who's reading our questions. So we might have to improvise a little bit here, the joys of live Q&A.

I don't know, Lars, do you want to step in and read the questions or...

Next question, what gives you the confidence to be able to maintain a strong medium-term growth outlook despite recent inability to invest in growth at the size and payback levels you had previously anticipated.

Yes. I think to reinforce a few things I said in the presentation on this point, the first one is being Naked in a great position over the long term.

There are a couple of really powerful secular tailwinds that support our growth. The first and really blinding the obvious one is I believe in 5 and 10 years' time, substantially more wine will be purchased online than it is today as a share of the market.

That's especially true in our largest market. Wine remains a very low penetration category for consumer good in the U.S.

And I really think as more people understand and some of the misinformation barriers break down, that's going to see a very strong tailwind over the coming years. The second one is about the way in which we deliver wine and our approach to the category.

I see consumers increasingly looking for provenance for a sense of identity in place in what they buy and a maker behind it as opposed to a large and anonymous brand. And I think there's a real need for that in the wine industry where for too long, there's been hyper consolidation.

There's been very large-scale producers who are putting out 50, 100, 200 brands onto a single retail shelf. And I think consumers really, as they understand what Naked does, are looking trying to plays into that bigger macro trend.

I think beyond that, there's a couple of really important things we announced today. If you look at the track record we have of the increasing revenue per member per month and then our proven ability to translate scale into turning revenue into contribution profit more effectively.

They give you the 2 sustainable drivers that mean actually quite easy for us to grow the business if you take a medium-term perspective. And we continue to see a lot of opportunities through the customer experience and the range to carry on driving that type of performance.

On top of that, you then get to what does that mean for investment in new customers and to hit the kind of medium-term guidance we've given, we need to be -- carry on and improve that revenue per member and then probably grow investment in new customers, somewhere in the region of 10% to 15% a year. I think over the medium term, historically, we've managed to grow that number by around 20% compound and we need to generate returns that are comparable to where we've been in the past.

And we've talked a little bit about why we believe we can do that. So that's how I break that down, and that's kind of why we remain very confident.

Ultimately, I think we've got a winning proposition. I think it was borne out by the fact that people have discovered us and tried us recently, voting with their wallets, right?

They're sticking around, the retention numbers are great. And I think when you've got that, you've got a foundation to be able to drive material penetration of our GBP 25 billion TAM.

Great. What do you think sales growth would have been on a constant currency basis if you had not been under staffed in the period?

Yes, I can take that one. So as we talked about during the period, and I think we even showed some data on the availability levels, during the period were below our 90% target.

And a lot of that was due to the supply chain disruption that we saw. I think our teams did a good job mobilizing and working around that.

But unfortunately, it did impact us in the first half of the year. I'm not going to quantify it, but certainly, the availability lows, especially as we saw over the summer months, would have had an impact.

I think looking forward, as I think about it, first of all, as we sit here today, we -- as I said, we have about GBP 130 million of inventory sitting on the balance sheet, and our availability levels are solid heading into our important holiday quarter. So we feel good about that and where we sit today.

As far as going forward, given the supply chain disruption that we've seen, I -- we've taken a decision to increase our inventory holdings by about, I'd say, 10% to 20% versus some of the historical normal averages that we've seen. And because obviously, we want to make sure we maintain availability for our customers and be mindful of the challenges that we've had restoring that availability to this time.

Thanks, Shawn. Other online subscription services have had some impressive success of late in reactivated subscribers that churned.

Do you have any insights that you can share on the reactivation of Angels that have lapsed?

Thanks, Prasant. I think it's a great question, and it's an area that we're mindful of as well.

I think HelloFresh is an interesting comp. And I think from memory, they're up to over 20% of new member additions or reactivations of former members.

What I can say is we've done some research looking at attitudes of former members, and there's certainly a high level of openness to reactivating memberships. I think we've got a really compelling message to go back with a stronger business, a broader range and a stronger range than we've ever had.

In the course of the period, we have started to do some testing to try and step this up. I think we've done it most extensively and more successfully today, it's actually in our Australian market, where we have hit 20% of total net adds from reactivations.

And we started to roll those learnings out through the U.S. and the U.K.

So I think there's plenty more we can do. There are also more tactics and channels we can deploy to reactivate those members.

And certainly, the return characteristics on that spend looks very healthy. So I think that is something we have started to do, but have an opportunity to drive substantially harder.

Thank you. For the typical Naked winemaker, how much of their total annual sales come from the Naked platform?

Do as many Naked wines...

I think -- yes, I'm going to go a little quick because we're getting long on Q&A. First thing, very hard to define a typical winemaker.

There's everything from 100% to 10% out there. I'm going to go back to the thing at the beginning.

As long as you're a world-class winemaker, you're passionate about overdelivering, you love engaging with our Angels and you're making an authentic product that's exclusively available for us, then we love working with you. Over time, as we grow, more and more of our winemakers, the most successful ones find their primary source of income at Naked.

You detailed progress in Australia. Please can you advise what the underlying issues are in Australia?

are you not as competitive?

I'm really delighted with the performance you see in Australia. And I'd point to one number in the disclosure of Insurance section.

You can look at the growth in contribution to our Angel members, I'll repeat contribution there. I think it's 20% year-over-year.

So very strong growth in our profit generation from our members there, reflecting great work the team have done working to improve the underlying core economics of that business. And I think we've had some executional challenges.

We'd allow those economics to weaken a little. We've taken clear actions to remedy that and the business is I think on really strong footing.

You combine that with the momentum we're building, investing in the brand in Australia. And I think we're really well set up for growth over the medium term.

So no, I think the proposition is great in Australia. I think Aussie has really deserve an alternative to the Coles Woolworths Geopoly, and I'm delighted we've got a team there championing independent Aussie winemakers because they really need it.

How much does the model depends on access to marketing or pricing that was obtainable during COVID? In other words, should we expect LTV to return to the levels we have seen in H1 going forward?

Look, short answer it doesn't, right? And I think if you go the way of thinking about this again is to compare back to the cohorts that we acquired pre-COVID.

And I think the comparison to FY '19 is useful right? An initial investment level in F '19 of 1.8, we're at 1.7 now.

We've actually deployed 3x as much spend as we did in the first half of FY '19. So there's not a massive difference, but we deploy much more investment and therefore, driving a much higher rate of future value creation.

The second thing is, because we've got a clear proven track record of improving revenue per member per month and of translating that revenue through to contribution more effectively, we've actually got really predictable, sustainable ways to increase LTV, which means over time, you increase your variable cost of acquisition for a given level of return. So this is a business that we've grown investment in, growing the Angel base and growing repeat sales, all of those things at north of 20% compound over the course of a decade.

And all of those things were kind of true before COVID. They'll be true again after COVID.

So it's not dependent on a unique set of marketing environments. It is fair to say we're unlikely to post a 3-point-something payback number in a more normal environment.

That would, in a normal environment, reflect us being overly cautious in not deploying enough capital.

And last question for today. Can you please talk about your investments into digital marketing team and data size?

New hires done or planned?

Yes. Look, in particular, one of the areas we've been investing in the period has been strengthening our data science team and capability.

Shawn highlighted the proprietary machine learning algorithms that we've built as one of our key sources of competitive differentiation. I think we have an opportunity to build out many more sources of competitive advantage through the unique datasets we have.

And we're very focused on doing that. They're both going to be the types of assets that improve our ability to invest but also the type of things that improve our ability to serve our customers.

One early illustration of us deploying that is our wine GD product, which leverages proprietary recommendation algorithms to recommend products to customers. I think we pointed to 18,000 members that we've signed up.

The really encouraging thing is that those members are both spending materially more than they were prior to joining and look to have better retention characteristics. So that's a product that we will look to scale in the year to come, and it's something that we can continue to further enhance as we invest in that area of the business.

Right. Can I just pass you for any closing comments?

Yes, absolutely. Look, I think as we've highlighted through some of the questions, really, there's a story of kind of 2 parts in this results.

Overall, we've delivered a year of strong retention-led growth against the step change in FY '20. Underpinning that, you see an incredibly strong robust business where we're meeting and delighting the needs of our Angel members.

We have more than 200,000 more members than we had this time last year. Revenue to that base growing by 21% on a constant currency basis and the contribution we generate growing by 16%.

So that's a very strong picture. What that means is that if you take a kind of 6-, 7-year view on our investment performance, we're generating better returns than we ever thought we would than we initially projected.

And again, that's very important and very good news for the kind of long-term potential and scale we think we can get this business to. The flip side of that is we did have some operational challenges on the growth investment side in the course of the last 6 months.

We didn't invest as much as we would have liked to because as we saw some of those challenges, we pulled back to make sure all the investment was rational. So that means you've got sales to new members negative in the period.

You take plus 21% and a negative number, you get to the overall plus 6%. I think the way we think about this business, the evidence we have of over a long period of time increasing the value of our members through improving retention and selling them more on a monthly basis and turning that more effectively into profit.

To my mind, they are the things that talk to the strength of our long-term opportunity. So short version I think the good news is more important than some of the channel over 6 years is more important than some of the challenges over 6 months.

It's been a pleasure to kind of take all these questions just about managed to get through our audio and different challenges and I want to thank everyone for their engagement and involvement with the business. And finally, I just want to thank our teams.

There's been an awful lot of hard work to execute and deliver for our customers and winemakers over the course of the last 6 months. And I'm really excited with where we are now.

I know an awful lot of hard work is gone into getting ourselves set up for our peak trading season and making sure that the virtual scales are really well stacked for our customers. The good news is the Sauvignon blanc back.

We've got the big Christmas cases in the U.K. The range in the U.S., I think, is larger than it's ever been.

So I want to wish all of our Angels very happy Christmas. Thank you all very much for your questions.