Ladies and gentlemen, welcome to the interim results for Naked Wines for FY 2022. 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 gonna take you through the story of the last six months, and we're gonna present to you three 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 gonna hand over then to our CFO, Shawn, who will take you through the key numbers from the last six months. I will take you through the implications of those numbers, and 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. The reality of the wine industry is that in many ways, the way wine is sold hasn't changed in centuries. For winemakers, that means it's incredibly hard to gain access to distribution and to build a personal brand and make product that you're proud of, that's exciting and authentic. Naked's platform solves those challenges for winemakers. By giving them support from our nearly one 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 Angels who made them happen.
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. 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. If you think about how that model develops, as we scale the business, all elements of that become stronger. Today we're announcing we've got over 940,000 members, and we call them Angels, around the world in the U.K., the USA. and Australia. With their support, and those members make regular monthly contributions into their account, we're 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, who are 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 tastes and preferences.
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. It's a differentiated model with a virtuous circle underpinning it. 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, so 23% compound growth rate over the medium term. As we've done that, we've built a really sizable pool of profitability that comes from those Angels. As Shawn will describe later, that's the pool of profitability or contribution from our existing Angels that it now allows us to fund our future growth and acquisition of new members.
While we've made a lot of progress in the 13 years we've been in business, we really see us as 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 GBP 25 billion, with $20 billion of that being in the U.S., our largest market. That's, you know, a market comprised of people who are buying at the right kind of price point for us. You know, 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 passionate and interested about wine.
That GBP 25 billion market opportunity says that today, you know, we only have around a 1%-2% penetration in our different markets. We see multiple opportunities for long-term growth in all of our geographies. Before I hand over to Shawn, I just wanted to bring to life what that differentiated model means for some winemakers building their brands. Over the course of the last six 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 pre-sale. We sold $600,000 of that wine on release day.
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 2019-2021 vintages. It's a real example of how even with, you know, Daniel's reputation and contacts in the industry, there's not another platform that would allow you to build to scale in the time horizon that he's been able to working with Naked. Second example here, Mitchell Masotti. We launched to our Angels in the U.S. in October. He's the day-to-day winemaker at Bevan Cellars, and we were very excited. We built up a 7,000-follower list for him on his first day of release and they, those members pre-sold the entirety of his debut project. It's a beautiful Napa Valley Cabernet Sauvignon.
We've got a couple more from Mitchell. If you're lucky enough to be in the U.S., I thoroughly recommend you check those winemakers out. At that point, I'm gonna hand over to Shawn. Shawn's gonna 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. 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 four key themes behind our results in the H1 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 costs and behavior dynamics as we emerge from COVID. Three, supply chain challenges presented additional headwinds that 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 H1 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 H1 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 H1 of 2021, which benefited from COVID-19 lockdowns. In the H1 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 H2 of the year. We invested GBP 21.3 million in new customers in the H1 of fiscal 2022. The five-year forecast payback on this investment was 1.7x.
The H1 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 twelve 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 H1 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 four 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 H1 of 2020, driven by growth in the business. Taking a step back from 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 five-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 or 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 H1 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 H1 of fiscal 2020.
In the H1 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 H1 of 2020. Looking further at our repeat customers, what we show here is the contribution from these repeat customers by cohort. As we emerged from COVID-19 lockdowns, order frequency normalized following a higher than average frequency in the H1 of 2021. Despite this, our customer retention remained strong. You can see here that the contribution retention for the FY 2021 cohort was 260%.
The FY 2017 through FY 2019 cohorts retained contribution from year to year in the 80% range, and our oldest cohorts from 5+ years ago continue to show strong retention in the 90+% range. This strong retention is driven by our loyal customer base and 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 points increase over the H1 of 2020, driven by higher gross margins, mix shift to the U.S. and scale efficiencies and fulfillment costs. These gains were offset by non-recurring costs for the U.S. distribution network remodel of approximately $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 H1 of our fiscal year. For the full fiscal year, we are expecting our repeat customer contribution margin to be approximately 100-200 basis points below the H1 of 2022, including higher storage costs as we increase inventory levels and continue 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 segment's 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 H1 of 2020 increased 490 basis points, highlighting the scale efficiencies in the U.S. business and specifically from operating leverage and fulfilling orders. The U.S. segment benefits from the three-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 H1 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 H1 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 increased availability over the course of the H1 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. 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-GBP 355 million, which equates to a constant currency growth of 2%-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-GBP 45 million. Repeat customer contribution profit outlook remains unchanged at GBP 85 million-GBP 90 million. General and administrative expenses also remain unchanged at GBP 46 million-GBP 49 million.
Now I'll hand it back over to Nick.
Thank you, Shawn. What I want to do now is spend some time pulling out, I think, some of the most important messages from, you know, an important set of results over the course of the last six 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. Let's start by talking about three key numbers from today's presentation.
The things I want to talk about here are, to my mind, you know, the most important bits 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, you know, better revenue generation from those members. I want to take you through the retention trends we're seeing among our long tenure customers. 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.
Firstly, over the course of the last two or three presentations, we've kept updating you around the retention characteristics of our cohorts, 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, you know, before the COVID pandemic started. The blue line here is showing that in FY 2022, we continue to see materially better retention of those long tenure cohorts than we did two years prior.
I think we can at this point say that we have seen an enduring improvement in retention from those cohorts, you know, reflecting a strengthened relationship and also reflecting the result of a lot of work we've been putting in to enhance the range, to enhance the consumer proposition. That's the first takeaway from today. 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. As Shawn highlighted, you know, 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 two 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 five or six years. Turning to the next page, you can see that the returns we're projecting today for customers we've acquired in FY 2017 through FY 2021 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 five years. You see in particular the cohorts that are more aged, FY 2017 through FY 2020, some material upgrades there.
Also really pleasing to see that the FY 2021 cohort, where we reported a 3 x payback, also has seen a little bit of positive progress, and I think we're at a 3.2x currently. 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. 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, that translating through into more demand from our members. As we scale the business, that revenue turns into contribution more effectively. You know, the result of that you see borne out on this page.
We end up realizing better returns than we were initially forecast. Finally, I think it's worth calling out the performance of 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. You can see that the growth we've managed to sustain, driven by our strong retention overlapping FY 2021, 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 sub-segment 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'd pay elsewhere because of our advantage model, but actually still at a slightly higher average bottle price than the overall off-premise market. There were three 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 product we're making and to make sure we're getting fair credit from consumers, and in particular, non-consumers, for the quality of wine we make. I'm pleased to say that we have gained ground in quality perception in all our markets. We've gone from being at a parity to market or even behind parity in those markets to having a quality premium in all three of our geographies. From Washington in the USA., Dave Harvey. 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'd spent 20 years in the industry. He'd won a Decanter trophy for making, you know, one of the world's best Rhône-style red wines. He'd never had a chance to build a brand of his own of any scale. He produced, you know, 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, among other things, to open up his own production facility in Dayton, Washington, a community he's very passionate about reinvesting back into. Also a location that as a very keen trout fisherman gives him great access to the Columbia River.
You'll see the fish on all of his labels. Since we've worked with Dave, we've enabled him to scale that brand to something that sold over 70,000 cases on the Naked platform last year. He was one of the winemakers that had great success in the Decanter World Wine Awards, sort of like the Oscars of the wine trade. The two gold medals he won were in fact the only gold medals awarded to a winemaker from Washington State in this year's awards. Our members, they pay GBP 9.99 and GBP 12.99 for those two. I think it's 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.
In particular, our Never Miss Out and Wine Genie propositions help 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've continued to see growth in our customers and the number of active subscriptions per customer in the period. I think particularly excitingly for me, we've now got really clear evidence that signing members up to our wine where we use our data and algorithms to curate 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. That's a proposition that we anticipate scaling in the course of the next six to 12 months.
Now, ultimately, the most exciting thing about Naked Wines are the great people we get to work with and helping world-class winemakers share their product and their talent with our members. I'm delighted to highlight some of the new producers who've signed on to Naked Wines during the course of the period. Ken Wright in particular is a winemaker that I've admired for a long time, and I'm delighted he's gonna be making wines with us. He was one of the founding fathers of the Dundee Hills AVA in Oregon. Someone who's been heralded and won pretty much every award for pinot noir that there is going, and he's gonna 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, a great example, and delighted to say that they'll be producing an exclusive brand, Verse, I think you can probably see the connection, which we'll be debuting with Angels in the months to come. It's not just about introducing new winemakers, but also about us continuing to find new ways to harness the power of the Naked Wines community to have positive impact on the broader wine industry. I'm gonna highlight the exchange on the right, for the eagle-eyed viewers, a Twitter exchange between Ray O'Connor, Master of Wine, one of our U.K. buyers, and Tim Atkin.
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 were able to reach out and the benefits of the modern world and the internet in action, I think within about three days we'd signed a contract, and we ended up working with Francois Haasbroek to make a beautiful Sauvignon Blanc which we've sold to our Angels in the U.K. It ended up winning a gold medal at the International Wine Challenge, but more pleasingly for me, our Angels have loved it. They've given it a 91% rating. Meanwhile in Australia, we continue our work to support Aussie winemakers who've 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's 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 for 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 that 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, you know, 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, you know, that can mean we're acquiring more customers at comparable economics to today.
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. In particular, we have goals around improving awareness, comprehension, and quality perception of the brand. In the course of the last six months, we've deployed some investment in Australia, in a combination of media, but most notably above the line, some TV investment. 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.
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 we're getting people to know the right things about us. 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 one 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 of the last six 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 three 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, you know, 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 gonna 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.
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 and full delivery to customers has not been where we wanted in the period. Turning to a little more detail around that investment performance, I know, you know, a lot of you who've tracked the business for a long time, you know, look very closely at the payback measure we report. I think it's worth highlighting three things that did cause us 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. The reflection for us is that we've pulled 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 and can control, you know, 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, you know, 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, you know, that's the kind of normal course of business. It has had an impact in terms of driving some CAC inflation in the course of the six-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. That has fed through in terms of, you know, our variable operating expenses, which go ultimately to both our cost of acquisition for a customer and impact the lifetime value that we project forward as a 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.
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. Just highlighting here, I think the point I made, that, you know, our availability levels in our two most important markets have not been where we wanted during the course of this six-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.
Again, to reinforce, you know, we will run the business with a slightly higher stock holding 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. There are some challenges that we faced during the course of the last six months. Finally, I just want to, you know, ask the obvious question. You know, what does all that mean for the long-term opportunity for Naked Wines? What's the net impact of what we've told you today? I think ultimately it's a story of two parts. You know, what we're reporting today is some really encouraging news around the extent to which our proposition is satisfying and delighting, you know, 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, you know, short-term operational challenges in terms of acquiring new members in the course of the last six months. What does that mean for our medium-term opportunity? Firstly, you know, 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 onto the platform.
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 our revenue per member per month and of 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 six-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.
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, you know, 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. There's a clear path to this business generating an EBIT margin north of 10%. 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. 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, 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 2023. 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 direct connection 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 chain 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 they impact the medium-term opportunity. 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 the independent producers and smaller brands. We're already today the largest direct-to-consumer player, and that gives us a number of advantages that continue to be reinforced with scale. You see that reflected in the improvement in the customer metrics we've delivered.
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. With that, I say thank you very much, and we're going to open things up to some Q&A.
Thank you, sir. Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one to ask a question. We will take our first question today from Brad Hathaway from Far View. Please go ahead. Your line is open.
Hi, Nick and Shawn. Great to chat again. Wanted to say, thanks for the results. I think the retention number was really strong, and I think that's a really critical driver of long-term value here. I appreciate the efforts you're making to improve the proposition. While I believe that, you know, 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. A couple weeks ago, U.S. investors kind of became aware of Naked Wines, and as everyone thought, the response was really strong. Even today, the U.S. share trades significant volume despite being, you know, an OTC pink sheet stock.
I think you can even see this morning, it seemed like once the U.S. woke up, there was a strong, it seems like a 20% recovery off the bottom as American investors started to digest the results. If you also look in the U.S., you know, you have your competitor, Winc, who I believe is a significantly worse business, but actually trades at a significantly 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.
I guess the question is, you know, with a U.S.-based CEO, CFO, chairman, it being your largest end market and also having a lot of U.S. shareholders, you know, why is now or why isn't it the right time to move the listing over kind of either at some point in the near future?
Thanks, Brad. You know, that was a strong lead up to that question. I think I knew where it was going from fairly early on. You gave me plenty of time. Look, I
Yeah.
I know this is a question we've been asked a kind of few different times, but I think, you know, good to have it out in the Q&A for here.
I'm gonna give you the same answer I've given you when you've asked this before, Brad. You know, the market reaction to one set of numbers doesn't really change that. You know, what I wanna 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, you know, things like access to capital, you know, could well be a part of that over the medium term. Right now, you know, 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 H2 of the year so that we deliver the investment returns we want, and creating value through the performance of the business.
You know, all the things you said at the beginning are perfectly valid, right? You could imagine, you know, a world where, you know, that made sense down the line, but we have no, you know, no immediate plans.
All right. 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. You know, 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 kinda two-year view. I think the tactics we're deploying in Australia, you know, 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. I think we've got, you know, multiple different ways in which we can grow both awareness, but also the quality of that awareness and comprehension of what we do. 'Cause ultimately, Brad, you know, 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, you know, another one of a number of other online wine models. Definitely see that as a big opportunity for us.
Absolutely. 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 reflexivity argument is pretty real. Anyway, I appreciate your thoughts on it. I appreciate your efforts to improve the business, and I look forward to seeing Naked develop. Thank you.
Cheers, Brad.
Thank you. We take our next question from Ben Hunt of Investec. Please go ahead.
When I look at slide 15, it's quite eye-catching, obviously how much the FY 2021 cohort now represents as a percentage of the repeat customer contribution. Now, obviously, having reached maturity, those customers sort of will, you know, naturally start to churn or attrite at a faster rate given the relatively younger age of cohort. It sort of feels like naturally there's gonna be an element of natural downward pressure on your sales retention for the repeat customers going forward. At the same time, it feels like the cost to replenish those customers leaving is obviously going up. 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?
Happy to answer that one, Ben. Look, I think the first thing to say is, yes, you know, our retention rate is to some extent a function of mix. Actually, you know, 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 2021 cohort. I think some signs that some of the quality in there is exceptionally good, but you know, we might have a bit of tenure mix factor. I think the second thing though, which really speaks to how we're.
Sorry, when I'm talking.
Go on, Ben.
Hello. Sorry. When I'm talking about the age of the actual cohort itself is a relatively young one, given it's only less than 12 months old, not the actual customers within the cohort.
Yeah, but you know, the extent to which having more young customers will drive your overall retention mix is a function of how many of them are there and how good are they, right? You know, we've got a lot of great customers in the FY 2021 cohort, so you know, I feel good about that cohort. The second kind of thing talks to you know, how we think about creating value in the business. What we're very focused on is making sure that we are maximizing investment subject to our belief around unit economics and delivering returns that we think are creating long-term value. I guess I don't take the characterization, right? That it's inevitably expensive to replenish the customers.
The way I see the business, you know, we've got multiple avenues to deploy additional growth investment over the medium term. We've got a long-term track record of making improvement to the business, which has enabled us to enhance our returns. I think you can see that show through in sort of seven years of cohort data that we're disclosing today. Ultimately, I take that as a stronger and more meaningful track record than, you know, six months where we've had a couple of specific operational challenges that impacted the payback number. We're very much focused on doing the things that we can control to deliver, you know, great return and an increasing level of investment over the medium term. I think that's the right way for us to proceed and create value.
Okay. Thanks a lot.
Thank you. We now move to Andrew Wade of Jefferies. Please go ahead.
Hello there both. Just a couple from 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've switched to the five-year reporting. At least as far as I'm aware, we haven't had an update on what you're targeting on that. What do you target internally and what should we be benchmarking you against? That's the first one.
Look, I think that'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 five and 20 years.
Yeah.
For our historical cohorts, which I think might be interesting to inform that. You can look back and see actually, look, you know, the 1.7 we report today, actually not far off what we initially reported on our FY 2019 cohort. If we'd been on a five-year basis, we'd have reported a 1.8 on that cohort. But with the improvements we've made to the business, you know, improvements to contribution margins we've delivered since then, that cohort's now on track to deliver 2.4. I think the first thing to say is actually, you know, the number today, I know everyone likes to get very excited about the 0.1 movements in this number. Maybe we created that beast, but you know, ultimately not so far away from where we've been historically.
Actually looking back to FY 2019, you know, that's a difference of, you know, a very moderate difference with us deploying three times as much growth investment in the period. To the second part of the question, I think we've acknowledged in the presentation today, you know, there were some things that didn't go as we would've liked in the course of the last six months, and, you know, that does infer, right, that we would target a slightly higher number than this.
I think, you know, our view would be over the medium term, you know, if this number is in the high 1 points to around, you know, 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. That's roughly the kind of range.
Right
which is consistent with us generating really good, strong positive IRR on those cohorts and scaling the business in line with our medium-term growth ambition. I think, I don't know, you 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.
Mm.
We know what we need to do to change that. I think that's kind of why we thought it was helpful in the presentation to provide, you know, some of the different factors that influenced the half year and that addressing could return. I think you can see from what we disclosed in the presentation, you know, you can take that number back up to 1.92 either by, you know, addressing some of the specific channel level issues we faced, or by looking at, you know, some measures to rebuild contribution margin to where it was last year, which we think is very achievable. You know, or you can do that by, you know, working on things like conversion rate optimization, or you can carry on getting members.
Yeah.
to buy more per month. You've got multiple levers to pull and I'm very confident we can do that.
Yeah. Thanks for that. That's very helpful. I think I'm definitely gonna have to follow up with someone with some questions on the.
Yeah
The five-year payback reconciliation slide. That's quite too complicated for me to take in in one go. Would you say that your sort of 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, you know, in before or during the Majestic era.
Yeah
Which gives us more latitude. I don't think philosophically we've changed.
Yeah.
You know, we've always wanted to grow the business, you know, as fast as we can, subject to making sure that we're delivering really strong unit economics from our cohorts. That means that we're willing for the story not always to go in a straight line. Everyone loves simple stories that go in a straight line, but you know, we're, you know, we've been consistent in that position and, you know, believe that's the right way to carry on managing this.
Yeah. One point I'd add in also on the-
Great.
Oh, yeah, 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 could see we included some information in the presentation on slide 15 around the.
Yeah.
FY 2016, FY 2015, FY 2014 cohorts retaining at over 90%. So and you know as we you know get more data from those older cohorts, we're continuing to see them retain very well. 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. One last on a completely separate subject, the risk of turning this into a one-on-one. You mentioned some U.S. wines there, available, Dan Baron, Mitchell Masotti, I think were the two you mentioned in particular, that if you happen to be in the U.S., you can get them. Would there be chance of us getting those as sort of U.K. Angels some point in the future? Partly interested as an Angel and partly interested as 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.
Yeah, look, absolutely, you know, you may well see some of those coming to the U.K. In the short term, to quench your thirst for big, bold, luxurious Napa Cab, I know we're taking some of our top wines from Matt Parrish for a journey across the Atlantic this vintage, so you should check those out.
Brilliant. Thank you very much indeed, guys.
Thank you. May we now move to our webcast questions?
Great. Thank you. 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.
Yeah, happy to take that, Elliot. I agree with you on the premise. There's a massive opportunity from driving, you know, 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. In Australia, we've had an opportunity to, you know, simulate pretty large scale advertising in, you know, large parts of the country. We have held out some regions. 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.
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. At that point, we can decide what we do in terms of translating to other markets. I think the numbers we've pointed to you today have been very encouraging. We're moving the perception levers that we thought we could. 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., you know, we'll do as you suggest, right? We're not intending to go from zero to blanket, you know, 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? Year zero payback multiples mean reverting a bit was most definitely expected. The longer-term five-year payback original forecast number for the FY 2022 cohort is the lowest it has ever been. Are there more specific negative characteristics around this year's cohort?
Yeah, happy to take that. To, you know, reinforce some of the points I made in the analyst Q&A earlier. You know, the first one is 1.7, you know, 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. That's a balance that I'd prefer, to be honest, because there are easier measures and more measures we can 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.
Totally lost my train of thought then. Yeah. More to do with cost of acquisition than to do with lifetime value. I think then, you know, in terms of the characteristics of that cohort, you know, we've seen, you know, broadly very similar characteristics to the period of time before COVID. If you go back to kind of FY 2020 and beyond, there's nothing unusual or alarming. 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, you know, revenue per month, and contribution margins in line with what we have seen historically.
I think we've disclosed pretty clearly the data that says, you know, over the medium term, we've tended to improve both those at around a 5% compound rate. 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 six months, and it would have started from a slightly higher number. But yeah, that would be the, you know, my perspective. I think you know, there's a couple of other questions here that are very related, so maybe it's worth kinda answering some of those, as well.
I think, you know, a couple of people have asked in the Q&A specifically around the outlook for the, for CAC, for the business and how we see that evolving going forward. I think it's important to be transparent. I can't, maybe my own failing or, you know, the difficulty innately of it, tell you with certainty what the CPM environment is gonna 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.
We've got a good track record of improving conversion rate 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. We've also got an opportunity, and we've started to see some really good progress on driving more reacquisition of previous members. As we grow the range, strengthen the proposition, you know, we're finding that members who've tried us maybe five, six years ago and loved the concept are coming back and finding a stronger business than ever. You know, that's another great lever we can pull to influence our cost of acquisition, you know, per new member acquired, that is not dependent on a CPM environment that we ultimately can't control or predict. Plenty of things we can do to influence that, and, you know, answering that question as well.
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?
Yeah, I can take that one. Thanks, Owen, for the question. You know, as you know, we invest in a number of different channels to acquire customers. In-store 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 and like Facebook and Google and other online media. You know, 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. That's really important because it helps us understand you know, 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 CAC should be. It gives us confidence and the ability to invest. I think it's important to note as we talked about today, those economics continue to improve over time, as does the consumer proposition that we have. We don't disclose by channel, but what I can say is directionally, we typically see a lower CAC and a lower LTV in the in-store channels. That would make sense because the distribution there is less targeted versus a higher LTV also with a higher CAC, though in the online channels. 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 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?
Yeah, sure. Look, the flywheel is ultimately driven by, you know, it 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, you know, we report a number of winemakers with product sold in the period, and there are just, not least because of supply chain disruption, a number of our winemakers that unfortunately we didn't manage to have in stock at all during the period and are not reported in the number. Number two, some of the winemakers that we sold in FY 2021, I think we worked with 44 winemakers as part of our COVID relief fund.
You know, they were not winemakers that we had a long-term relationship with. Some of them, we talked about the Glaabs in the presentation, they're a good example, have translated through into saying, "Hey, this is amazing. I'd love to be part of this full time." Not all of them have, not all of them were ever intended to. You see a little bit of that unwinding. They're the main drivers behind, you know, that movement. Obviously, for the winemakers we have, you can do the math, right? You know, 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. Hopefully, that clears that one up for you.
Great. Thank you. Our next question is from Wayne Brown at Liberum. Of the cash balance, how much is Naked cash versus customer cash, please?
I'm happy to take that one. If you look at the balance sheet, excuse me, and zoom out a bit. Our current assets were GBP 100 million at the end of the period. That was mostly comprised of just under 60 million of cash and 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 75 of that was deferred Angel and other income. The Angel funded balances would be within that 75 number. We also had around GBP 50 million of trade payables.
I think, you know, one thing I would say about our model is, as you know, 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. There is, you know, a self-funding growth opportunity here that we've seen play out over time.
Thank you. We have another question from Wayne Brown at Liberum. Six bottles from 1999 campaign in the U.K. is very aggressive. How does this make profit? 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. We shouldn't have targeted you with these ads, right? You've been very animated about them. 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 lookalike audiences, which means it's rational and sensible to, you know, make the offer, you know, heavily incentivized. You see through our disclosures that we spend money acquiring customers two ways, media costs and a negative contribution on first orders. You know, we're not shocked that we don't make a profit selling this case of wine.
What we do is acquire a bunch of customers that are highly valuable because they come from targeted audiences. You know, they end up being of high quality. I think you can see in aggregate that the business has got very high retention characteristics. I think we've guided to in the past, the retention characteristics of our oldest market, the U.K., are the strongest. You know, the two things are clearly compatible with, you know, building a business that's continued to grow materially, you know, at 13 years of age. That's how we think about it. Ultimately, you know, 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 a 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 Barrie at Berenberg. Hello, both, and thank you for the presentation. Can you please explain why year one payback was so high in the half, and what gives you confidence that that's a realistic level to use in your standstill EBIT calculation? Thank you.
Yeah, I can take that one. I'll take those in order. The year one payback was around 100% in the period. That was from the prior cohort in some of the dynamics that we saw and talked about last year, especially in the H1 of the year when folks were locked down on lockdown and we saw spikes in our order frequency. With respect to the standstill EBIT calculation, you know, there's a couple of. The year one payback is not the normal level of year one 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 H1 last year, as I just said, we saw increases in order frequency. You know, it's part of the dynamics of the rapid, you know, growth that we saw last year, just around 70% growth. You know, the payback that we delivered is, you know, it does have some impact on the standstill EBIT, but it, you know, 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 shows 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 the lure of discounts? Over to you.
Yeah, happy to talk to that, Elliot. I think we have two hypotheses around extending the range and in particular, increasing our selection of what we might describe as some kind of luxury price points, you know, north of sort of $20-$25. One is that by broadening our assortment, we will be able to meet more of the needs of the customers we've got today, and that's another lever we can pull to continue to drive, you know, revenue per member per month. I think as you say, where we've launched these wines, they've been very popular, and our confidence in that hypothesis is very high.
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 and new ways we can grow the business. I think ultimately the answer on that is that is still unproven. There are some things we, you know, as ever, continue to test around different ways to align the wine we give with customers in their first order. I mean, as and when we have something that's definitive, we'll come back on that. The good news is, you know, 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, you know, ways in which we meet winemakers and way in which we choose them, but there are a few common threads. You know, the first one is we only want to work with people who are.
Nick, we can't hear you.
How about now? Okay. Sorry, I'm getting someone telling me they can't hear me, but maybe that's an isolated issue. That they've muted me. Common threads. The first one is you've got to be an outstanding winemaker. You know, we're only interested in working with truly high quality winemakers. The second one is more attitudinal. You know, there are some great winemakers who kind of live for the gratification of a 95-point score or being poured by a sommelier in a trendy West Coast bar, and they're ultimately never going to be a great fit for Naked Wines.
We love winemakers who really thrive off getting direct feedback from the people who drink their wines, love the idea of over delivering and being able to make, you know, world-class wine available at an everyday price, and that's something that we always look for in anyone we work with. The third one is, you know, someone who's got the time, energy, and excitement about really focusing in on hands-on day-to-day 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. You know, they're creating a brand with their own name on it. They're getting a chance to focus on what they do best, you know, making the wines in the vineyard and the cellar, and letting us take care of the marketing and the distribution.
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. Lois, do you want to step in and read the questions or?
Hi there. Next question. What gives you the confidence to be able to maintain your strong medium-term growth outlook despite recent inability to invest in growth at the size and payback levels you had previously anticipated?
Yeah. I think to reinforce a few things that I said in the presentation on this point. You know, the first one is, you know, I think Naked's in a great position over the long term. There are a couple of really powerful secular tailwinds that support our growth. You know, the first and really blindingly obvious one is, I believe in five 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. You know, wine remains a very low penetration category for a consumer good in the U.S. And I really think as more people understand and, you know, some of the misinformation barriers break down, you know, that's going to see, you know, a very strong tailwind over the coming years.
The second one is about the way in which we deliver wine and, you know, our approach to the category. I see consumers increasingly looking for provenance, for a sense of identity and place in what they buy and a maker behind it, as opposed to a large and anonymous brand. 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, you know, very large scale producers who are putting out, you know, 50, 100, 200 brands onto, you know, a single retail shelf. I think consumers really, as they understand what Naked Wines does, you know, are looking for that, and it 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 increasing revenue per member per month, and then our proven ability to translate scale into turning revenue into contribution profit more effectively, you know, they give you the two sustainable drivers that mean, actually it's quite easy for us to grow the business if you take a medium-term perspective. We continue to see a lot of opportunities through the customer experience and the range to carry on driving that type of performance. You know, on top of that, you then get to what does that mean for investment in new customers? To hit the kind of medium-term guidance we've given, you know, we need to carry on, improve that revenue per member, and then probably grow investment in new customers somewhere in the region of 10%-15% a year.
I think over the medium term, historically, we've managed to grow that number by around 20% compound. We need to generate returns that are comparable to where we've been in the past. You know, we've talked a little bit about why we believe we can do that. You know, that's how I break that down, and that's kind of why we remain, you know, very confident. Ultimately, you know, I think we've got a winning proposition. I think that's borne out by the fact that people who've discovered us and tried us recently, you know, are voting with their wallets, right? They're sticking around. The retention numbers are great. I think when you've got that, you've got a foundation to be able to drive material penetration of our $25 billion TAM.
Great. Thank you. What do you think sales growth would have been on a constant currency basis if you had not been understocked in the period?
Yeah, I can take that one. As we talked about during the period, and I think we even showed some data on the availability levels, during the period we're below our 90% target. 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 H1 of the year. Not gonna 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, 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. We feel good about that, and where we sit today. You know, as far as going forward, you know, given the supply chain disruption that we've seen, we have taken a decision to increase our inventory holdings by about, I'd say, 10%-20% versus some of the historical
Normal averages that we've seen. You know, 'cause obviously we wanna make sure we maintain availability for our customers and be mindful of the challenges that we've had restoring that availability to this time, so.
Thanks, Shawn. Other online subscription services have had some impressive success of late in reactivating subscribers that have churned. Do you have any insights that you could share on the reactivation of Angels that have lapsed?
Thanks, Pratham. 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. I think from memory they're up to over 20% of new member additions are reactivations of former members. What I can say is we've done some research looking at attitudes of former members, and there's certainly, you know, a high level of openness to reactivating memberships. I think we've got a really compelling message to go back with, you know, a stronger business, you know, a broader range and, you know, 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 most successfully to date actually in our Australian market where we have hit a 20% of total net adds from reactivations. We've started to roll those learnings out through the U.S. and the U.K. 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. I think that is something we have started to do but have an opportunity to drive substantially harder.
Thank you. For the typical Naked Wines winemaker, how much of their total annual sales come from the Naked Wines platform? Do as many Naked Wines
I think I'll have to go a little quick 'cause we're getting long on Q&A. First thing, very hard to define a typical winemaker. There's everything from 100%-10% out there. I'm gonna go back to the thing at the beginning. You know, as long as you're a world-class winemaker, you're passionate about over-delivering, 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 Wines.
You detail progress in Australia. Please can you advise on what the underlying issues are in Australia? Are you not as competitive?
Really delighted with the performance you see in Australia, and I'd point to one number in the disclosure. It's in Shawn's section. You can look at the growth in contribution to our Angel members, our repeat contribution there. I think it's 20% year-over-year. 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 our business. I think, you know, we've had some executional challenges. We'd allowed those economics to weaken a little. We've taken clear action to remedy that, and the business is on, 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.
No, I think the proposition's great in Australia. I think Aussies really deserve an alternative to the Coles-Woolworths duopoly, and I'm delighted we've got a team there championing independent Aussie winemakers 'cause they really need it.
How much does the model depend on access to marketing at 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? I think, you know, if you go the way of thinking about this again is to compare back to the cohorts that we acquired pre-COVID. I think the comparison to FY 2019 is useful, right? You know, an initial investment level in FY 2019 of 1.8, we're at 1.7 now. We've actually deployed 3x as much spend as we did in the H1 of FY 2019, so, you know, there's not a massive difference, but we're deploying much more investment and, you know, 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, you know, we've actually got really predictable, sustainable ways to increase LTVs, which mean, you know, over time you increase your allowable cost of acquisition for a given level of return. So, you know, this is a business that we've grown investment in, grown the Angel base, and grown repeat sales in all of those things at north of 20% compound over the course of a decade, and, you know, 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 three point something payback number, you know, in a more normal environment. You know, that would, in a normal environment, reflect us being overly cautious and not deploying enough capital.
Last question for today. Can you please talk about your investments into digital marketing team and data science? New hires done or planned?
Yeah, look, in particular, one of the areas we've been investing in the period has been strengthening our data science team and capability. You know, 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 data sets we have, and we're very focused on doing that. You know, they're both gonna 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 Genie 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. 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.
Great. Thank you, Nick. Can I just pass to you for any closing comments?
Yeah, absolutely. Look, I think, you know, as we've highlighted through some of the questions, really there's a story of kind of two parts in this results. You know, overall, we've delivered a year of strong retention-led growth against a step change in FY 2020. You know, underpinning that, you see an incredibly strong, robust business where we're meeting and delighting the needs of our Angels. 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%. You know, that's a very strong picture.
What that means is that if you take a kind of six to seven-year view on our investment performance, we're generating better returns than we ever thought we would, than we initially projected. 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, you know, on the growth investment side in the course of the last six months. We didn't invest as much as we would've liked to, because as we saw some of those challenges, we pulled back to make sure all the investment was rational. That means you've got sales to new members negative in the period. You take +21 and a negative number, you get to the overall +6.
I think the way we think about this business, you know, the evidence we have of over a long period of time increasing the value of our members through improving retention and selling them more, you know, on a monthly basis and turning that more effectively into profit, to my mind, they're the things that talk to the strength of our long-term opportunity. Yeah. In short version, I think, you know, the good news is over six years is more important than some of the challenges over six 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. 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 six months, and I'm really excited with where we are now. I know an awful lot of hard work's gone into getting ourselves set up for our peak trading season and making sure that the virtual shelves are really well stacked for our customers. You know, the good news is, you know, the Sauvignon blanc's 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. I want to wish all of our Angels a very happy Christmas, thank you all very much for your questions.