Hello, everyone, and welcome to Naked's FY 2024 results presentation. We're very excited that you're joining us. I'm Maza. I'll be sharing some thoughts with you later today, as well as JC, our CFO, and Rowan, our chairman. I'll hand it over to you, Rowan.
Good morning, everybody. I'm delighted to report that Naked Wines is in much better shape today than we were twelve or even six months ago. We've laid solid foundations, and the team have made substantial progress in fixing the problems of the past. Specifically, costs have been cut very substantially to match the current trading environment. Inventory commitments have been cut intelligently, so that we are now realizing cash from inventory and being done in a way which protects our core winemakers, and we now have a long-term funding facility in place that gives us the flexibility we need to restore Naked to growth. At the same time, the team have kicked off the process of restoring growth.
Basic marketing disciplines have been put back in place, and for the first time since our launch, we have a team in place with experience of recruiting customers through channels other than our traditional partner channel to help us solve our customer acquisition challenge. All of this is very ably led by our new CEO, Rodrigo Maza, who is known to his friends as Maza. And after six months being executive chairman with Maza in place, I've now gone back to a non-executive role, and at this point, I will hand over to James Crawford, our outgoing CFO, to cover the financial commentary.
Thank you, Rowan. Moving into the financial highlights now. So the key headlines for the year are laid out on the page here. The revenue trend was a 13% decline. While obviously, we'd like that to be in growth, we know that that's declining because we have fewer Angels. It was pleasing to see the reduction was less in the second half, at 9%, than the 18% in the first half, a slowdown of that trend. That translated to an adjusted EBIT of GBP 5 million for the year. That's a 66% reduction on the prior year. I think we said with the prior year results, we had largely underinvested in new customer recruitment in FY 2023, and with a GBP 16 million reduction in repeat customer contribution in FY 2024, we certainly felt the impact of that.
We offset that by taking GBP 11 million out across various cost lines, and that supported the ongoing profitability of the business at the adjusted level. Looking within those costs at our operating G&A, so our overhead lines in particular, at GBP 36 million, that was 11% lower year-on-year. It was 13% lower in H1, 11% lower in H2, and we undertook a further round of cost reduction at the end of the year. And as a result, the exit run rate for that measure is about GBP 30 million per year, which is intended to support profitability into FY 2025. We did, however, make a loss at a statutory level. There were nearly GBP 17 million of adjusted items that we reported during the year.
The largest ones of those would be the inventory provision we took in the U.S., reflecting the risk of inventory expiring, further impairment of goodwill on our U.S. business in particular. Inventory has been a key issue within the business. Closing inventory was just shy of GBP 145 million for the year. That's an 11% reduction year-on-year, which is the first time that's come down over, I think, the last three years. GBP 15 million lower year-on-year. Of that GBP 15 million reduction, GBP 7 million does relate to the provision in the U.S., but there is a real underlying reduction now beginning on the inventory line. That has supported an increase in net cash. Net cash of nearly GBP 20 million was almost double year-on-year.
That's been driven by that inventory reduction, the early redemption of the loan note, and offset somewhat by reductions in Angel funds and payables balances. The agenda I'm really gonna work through today is in three pieces. First, I wanna talk through how we've improved the cash and liquidity position of the business, how we've built the foundation around kind of cost, and some of the rigor around inventory management. Then wanna look at some of the trading dynamics. Ultimately, the core repeat performance of the business is pretty steady, but customer numbers remain lower and recruitment remains challenging. And then I wanna quickly touch on the guidance that we've issued today, how we've put that together and what the drivers are looking forward. So let's start with cash. We improved our net cash position by GBP 10 million in the year.
If we break that down in terms of some of the drivers, despite the reduction in EBIT, which translates to a reduction in adjusted EBITDA, what you can see is we saw a significant shift in the working capital trends. In FY 2023, we consumed nearly GBP 48 million worth of cash in working capital, the largest share of that being into inventory, with nearly GBP 30 million consumed into building inventory. That trend reversed this year. We actually reduced inventory by nearly GBP 15 million, and that is what has kind of really swung the operating cash flow from a cash consumption of GBP 25 million to a cash generation of GBP 10 million in the year. Moving on to the next slide, we can then put that in the kind of historical context and see that we're now exiting the lower period that we've had around liquidity.
This is our net cash or, for a couple of months only, net debt position over the last three or four years. And you'll see, you know, when I came back into the CFO role in July of 2022, we had been rapidly consuming the cash that had been built during the pandemic and from the sale of Majestic. We put in place a set of actions to mitigate that, and we have been through a period of low liquidity for the last 12 months-18 months. And then in the last kind of 3 months-6 months, we have started to exit that and start to rebuild liquidity. Now, as we trade through the next peak trading season, we should see that liquidity and net cash position improve yet further.
I think that marks the kind of turnaround point of the journey that we've been through, dealing with the aftermath of the pandemic within the business. The other kind of big achievement that we achieved just after the end of the financial year was the new credit facility. Our prior credit facility was imperfect. It didn't generate as much usable liquidity as we'd like because we were covenanted to hold GBP 20 million of cash. There were significant exclusions and reserves against the inventory that drove availability of liquidity from that facility. And while that cash holding mitigated any risk of Angel fund outflows from the bank's perspective, it wasn't necessarily visible to stakeholders, and it wasn't necessarily accessible.
And as a result of that, and an EBITDA covenant that limited our ability to invest as aggressively as we'd like, we had a facility that was less suited to our needs. Very, very pleased to have landed a new facility with PNC. They're a Tier 1 bank based in the U.S., if you aren't aware of them. It's the same headline size, but actually, because of the terms of the facility, generates $20 million-$30 million of more usable liquidity. Gives us a higher advance rate against inventory, it doesn't have that cash holding requirement, and it reduces the exclusions that we have out of inventory. It also has a lighter covenant package, a single springing fixed charge cover covenant, which would be tested were liquidity remaining to be less than $12 million.
And were that to be tested, it's a fixed charge cover requirement, not an EBITDA requirement, but it's likely to require lower EBITDA than the prior facility. The net result of all of that is more usable liquidity, less restriction, and landing that has been a key part in our ability to remove the going concern uncertainty that we'd reported in the last two reporting periods. What we show is just, were we to look at liquidity within the group at year-end on a pro forma basis with the new facility, we'd have had about GBP 20 million of net cash as reported. The facility would have provided GBP 37 million of borrowing capacity. And that would support operating cash balance needed in the business, the working capital cycle we have in the year.
It supports downside trade, trading protection, where our forecasts to deteriorate, and it also provides security against Angel balances, whether directly or through our payment providers. And, you know, we think that at year-end, that really is a kind of balanced liquidity place. It doesn't give us excess liquidity, but any future cash generation from this point forward should provide optionality around investment, whether that's in business growth, share buybacks, or the like. A key component that we have talked about a lot over the last kind of 18 months-24 months has been our Angel fund balances.
Obviously, during a period of low liquidity, that has been perceived as a risk to the business, but I think what we've been able to show, and we can continue to show, is that those balances have been relatively stable, both in aggregate balance, albeit a slight reduction as the Angel base has shrunk, but actually, the rate of redemption of that balance has continued to reduce on a percentage basis, which is the yellow line on this chart, and, you know, we see that as a stable source of funding to the business. I think it's interesting to note, Maza will speak later, that we are running what we call our Wine Genie program, for some new customers at this point. They don't carry Angel balance, so it kind of, on the one hand, reduces any risk that's perceived around us holding those balances.
But at the same time, we do generate equivalent amounts of cash from that program just through selling wine to those customers. I'd like to start moving to talk about the P&L. So we delivered GBP 5 million of adjusted EBIT in the year. That's a reduction from the nearly GBP 15 million we reported in FY 2023 at a 52-week comparable basis. Big drivers of that, I touched on these earlier, but GBP 16 million reduction in repeat customer contribution is really a function of the underinvestment in FY 2023 in customer recruitment. And then we also increased our new customer investment in FY 2024 by GBP 3 million , which moved profitability backwards. Three blue blobs on the right-hand side of this chart, then you see the cost reductions really kind of come through to sustain profitability for us.
So operating G&A reduction of GBP 4.4 million, share-based payment charge reduction of GBP 1.2 million, and we cut the marketing R&D investments that we'd been making in things like TV advertising, that were GBP 5 million in FY 2023. All of which contributed to bringing the adjusted EBIT number to GBP 5 million for the year. We actually continued to take G&A out of the business during FY 2024, undertaking another reduction in workforce at the end of the year. And what that means is that we kind of go into FY 2025 with an 18% further reduction in the operating G&A base versus the prior year. What we've done on the right-hand side here is just converted that into an estimated revenue for the business that would drive the business to breakeven. Obviously, that's not our intent.
This is a scenario analysis, but with the cost base we had in FY 2024, we would have needed GBP 263 million, give or take, to deliver breakeven. The cost base that we go into FY 2025 with, it would be down to GBP 228 million. So it's an indication of the level that the business could decline to while remaining profitable. As I say, that's not what we're forecasting. We'll talk about the guidance imminently, but gives an indication of the foundation we've built into the business with the cost base we're operating with. A lot of work has been undertaken on inventory. Pleased to say that U.K. and Australia inventory is now on track. We look on the right-hand side here, we've put, you know, the months of inventory we have in each market.
Eight is about right for the U.K. Once you look back through the supply chain at the work in progress that we held, we hold with our winemakers. 11 months, marginally higher for Australia at year-end, but coming down in FY 2025 and, and very much at the right level. The U.S. is where we remain overstocked. 24 months of inventory, probably the best part of double, where it should be for the U.S. We expect to reduce stock further over FY 2025 peak trading. There is very little stock, you know, coming into the U.S. We do expect to sell a significant amount over peak trading, and we actually expect intake to be below COGS through FY 2027 at this point. We've got a long-term inventory target, which would be below 50% of sales.
And we have a team in the U.S. who are reviewing options for accelerating our journey there. With the provisioning work we've done, you know, we will get there naturally, but over an extended period of time. There are options we would have for accelerating disposal of that stock, and we'll be opportunistic about that. There is a balance between taking losses on that stock and generating cash near term, and we'll navigate that balance based on essentially what the both markets or trade buyers of our inventory would tell us as we view opportunities. That was the first section. That's what we've done to improve our cash liquidity position, get the cost to the right place, and I think, you know, we can put ticks in those boxes. That is what I came back into the CFO role to get done.
And as you know, I'm leaving the role, but I think that was the line we wanted to draw under the business. I want to talk now a little bit about the trading performance in the year. If we move down a slide, I think the key point to understand is that on a kind of KPI basis, our repeat customers are performing well. So revenue per member is a really important metric. It is stable. That's the light blue line on the left-hand chart here. But what you can see in the bars on that left-hand chart is that the total membership has continued to decline. And so with the declining membership, stable revenue per member, we have seen repeat customer revenues decline. What's the driver of that decline in repeat customer base? It's not the attrition rate.
When we look on the right-hand side at our monthly attrition rates and an average kind of over a three-month trailing, yeah, those have been declining or stable. Essentially, it is a seasonal effect. People tend to cancel wine subscriptions after Christmas. But, you know, there's nothing that concerns us around the attrition rate of our member. What we need to fix is the rate of customer recruitment and get those in balance, and I'll talk about that some more in a moment. Before I talk about that, just worth kind of looking at our margins on repeat customers. It has been disappointing to see our repeat customer contribution margin decline again in the year.
You may remember in FY 2023, it declined, and it declined due to higher fulfillment costs that we were seeing in all of our markets, really, as inflation really kind of took grip. That's not the driver in FY 2024. If we bridge out from 2023 to 2024, what we see is a small one-off reduction where we saw a supplier fail, and we incurred some costs as a result of that. Mix shift in the business away from the U.S., with the U.S. business having declined quicker than the U.K., but the U.S. business having higher margins. We lost about 60 basis points of contribution margin due to that shift.
And then, there's about a 1 percentage point reduction in contribution margin, where we undertook a series of deep discounting activities during the year, really testing our ability to move stock quickly, generate cash out of inventory, and get the inventory off the books. That shouldn't be an underlying trend necessarily. That was kind of somewhat one-off in nature. But those would be kind of the big drivers that took down that contribution margin. I think on the right-hand side, it's reassuring to see that on fulfillment costs in the U.S., we've seen a reduction in FY 2024 on a per order basis, as the work we've done changing our warehousing arrangements and footprint have begun to bear fruit. And in the U.K., we've shown kind of FY 2024 to FY 2025 forecasts.
We moved our U.K. warehousing across March and April, kind of the year-end period of FY 2024, and we expect to see some reasonably material reductions in the fulfillment cost per order in the U.K., that should serve to bolster margins during FY 2025. Just now looking at the customer base trends and picking up on the point that while attrition in the repeat base is stable, we're still not recruiting enough new customers. This is a roll-forward of a chart we've shown for the last couple of years, showing the balance between recruitment in the dark blue bars and loss of customers from the starting base and those recruited in the year in the light blue. You can kind of see the big uplift we saw in customers during COVID in FY 2021, 2022.
And then kind of reductions, but whereas in FY 2023, our net loss of customers was 164,000 with 407,000 recruited, 570,000 lost. The reduction in the loss was only 380,000 , and we recruited 323,000 in FY 2024. So we are bringing the trends back in the direction of equilibrium. We're not getting there as quickly as any of us would like, but I think it's reassuring to see the emerging trend in that balance, and also the continued reduction in the kind of percentage of opening base and customers recruited that we have seen down to 37% in FY 2024. Then, so customer recruitment's the challenge. Let's explore that in a little more depth.
FY 2024 headlines would be, you know, 323,000 new recruits. We invested GBP 23 million, and we got a 1.3x forecast payback on that. Some negative drivers that are within those numbers, we tested a non-subscription journey for new customers, so we invested in the marketing. We gave people a discounted first order, but we didn't require them to sign up to be subscribers to see whether that would drive enhanced lifetime value and kind of improved win-back opportunities. The reality, it didn't. We stopped doing that. We've seen continued tough trends in marketing conversion to traffic, and we have been accepting of some low marginal paybacks to liquidate stock, especially in the U.S.
From a cash generation perspective, it makes sense to deploy money at a 1x payback when actually the stock is already on the balance sheet and generates cash immediately. But we've also seen some positives. Improvements in digital creative, and a more use of social channels versus where we'd been at the end of FY 2023. Those lowering of payback thresholds to drive cash have driven some volume into the number. And actually, just a refocus of the team on our core partner marketing process. We tried quite aggressively during FY 2022 to 2023 to expand the range of channels, probably to the detriment of our core.
And what you see kind of from some of those positive drivers on the right-hand chart is if we look at the last 12 months, new members recruited. Actually, whereas that had been declining during and beyond FY 2023, during FY 2024, we've really seen stability at the group level in that, which is the dark line on top. And then the lighter line in the middle, you can actually see an uptick beginning to emerge in the U.K. in the volume of new customer recruitment that we've done. So some very, very early positive signs visible in there. So moving down a slide, that's really the kind of headlines around the core trading. Then just wanna touch on the guidance that we've issued today on the next slide, please. So looking forward, we've issued new guidance today for FY 2025.
Don't want to talk through every number on the page. They're here, they're in the RNS, but I think it is useful to explain the process and method by which we arrive at that guidance, so we've basically looked across our markets and assumed, quite prudently, no changes in a lot of key performance metrics, so flat trends in customer recruitment, flat trends in customer retention rates, no changes to the annual revenue that we achieve per member. We've then overlaid the known cost base, whether that's on the SG&A and fixed cost side, or whether it's on our fulfillment, so it includes impact of cost reduction work we've done on both of those cost elements.
And then something new that we've done this year is we've overlaid not just the sell-through of inventory based on underlying demand, but also we've put in some estimates for some bulk disposals or trade disposals of stock in the U.S., which we are, you know, estimating losses of GBP 2-GBP 5 million of, which is a new guidance item for us. I think just to drill down on that a little bit, because the accounting is important, any sales of provision stock we make will be treated as adjusted items. So if we've written wine down to zero in FY 2024, and we managed to sell it for some form of recovery, then we don't kinda take that into adjusted EBIT. That's an adjusted item gain.
However, if there's stock that we haven't provisioned, that we choose to liquidate, in order to generate cash and reduce inventory, that will be included in adjusted EBIT, and hence we've shown an adjusted EBIT, including inventory liquidation and excluding inventory liquidation in the table on the left. So it's a relatively prudent approach. It then overlays what we know about inventory liquidation. I think then, yeah, it's worth linking that to what we said earlier today about Q1 trading. So Q1 trading was broadly in line with the Board's expectations. There was a reasonable amount of volatility or variance month to month in some of that, and we've seen some of those trends continue into P 4/P5 . And that's the reason that we've got quite a wide range on the guidance, as you see.
You know, there's a lot of change going on in the business. There's a relatively volatile consumer environment out there at the moment, and hence, we've got a fairly wide range around some of these metrics, but they are based on no assumed improvements or changes to the underlying KPIs that we've seen. That's all from me. Only just to say thank you to you all for listening this morning and handing back to Maza for his section.
Thank you, JC, and hello again, everyone. When we returned to Naked at the end of last year, we identified three priorities for the company. The first was setting a robust financial foundation that allows us to focus on generating long-term value. The second was restoring a sense of pride amongst our wine makers and employees, reminding them that Naked is special and worth fighting for. Third, was discovering, through thorough testing centered on key levers, how to get Naked back to sustainable growth. As JC already explained, we've delivered on the first priority. Naked is financially stable. We've made significant progress on the second one as well. We've designed and implemented the systems that will galvanize wine makers' and employees' efforts around key deliverables. And now we're fully focused on the third one, getting Naked back to growth.
This will be the main focus of my presentation today, but before diving in, let me take a couple of minutes to introduce myself. If we go to the next slide. My name is Rodrigo Maza, and I'm very honored and excited to be acting as Naked CEO. I'm a firm believer in the potential that this company has, and while I recognize that the last couple of years have been very tough, I do have confidence that we can turn things around. I joined Naked after a 17-year career in AB InBev, the largest brewer in the world. I learned many things about business and leadership in my time there. There are three that stand out as I take on this challenge at Naked Wines. First, that strategy needs to be articulated simply and straightforwardly, or it won't get effectively translated into high quality, consistent execution.
Second, that for companies to win in the space that Naked plays in, they need to be great at both discovering ways to grow, and they also need to be great at harvesting value from their mature operations. And third, that a strong commitment to customer centricity needs to be withheld at all times, especially when the business faces headwinds. Paradoxically, the best way to solve our company's problems is to solve the ones our customers face. So it's with this customer-centric perspective that I've evaluated Naked since I joined, and this is what I found. Naked's business model is very likely its biggest strength. It isn't broken. It consistently delivers value to our customers, our winemakers, and our team. Retention is the proof. 50% of Naked sales comes from customers who have been members for over five years.
Once our customer understands the benefit that Naked is uniquely positioned to deliver, this company has world-class retention. Once our customer understands, and that's our weakness. We should have built a strong brand by now, but Naked is a great story, poorly told. Because we haven't effectively communicated what the value we deliver is, we've made it very hard for word of mouth to spread, and our acquisition costs have consistently deteriorated as a result. Naked's new leadership team is working to both build on our strengths and address our weaknesses. The good news is that we don't need to reinvent the wheel here. As you'll see in the next slides, much of the plan is centered on implementing standard practices in the DTC space. The bad news is that some of them will take time to deliver material impact.
What we need to do is to increase Naked's enterprise value, and to do so by multiples, and we have a plan in place to deliver just that. It doesn't require anyone to take big leaps of faith, I think. I can summarize it like this: We'll implement acquisitions-based practices to grow the quantity of customers. We'll innovate on personalization to enhance their quality, and we'll optimize our already strong retention to drive their value. This will get Naked's performance back to pre-COVID levels, and that, along with the clearance of our surplus inventory, will materially change our valuation. The tests we're running currently around acquisition, personalization, and retention are therefore fundamental, but before discussing them in detail, it's critical to share the key ingredient Naked's flywheel was missing. It's a promise we present to audiences in the U.S., the U.K., and Australia.
The one we crystallize to the visitors of our site, the one we need to bring to life in that hopefully magical first delivery, the one we keep alive with every story we share with our customers. It's our value proposition. Naked exists to enable people to enjoy great wine without the guesswork. Our customer value proposition has helped us zoom in our target audience, clearly articulate the actual problem we're solving for our customers, and share the reasons why Naked is uniquely positioned to do so. Good news, it's landing. It's only been a couple of months since we started presenting our CVP to audiences, and it's been both surprising and rewarding to see Angels bringing it back to us, and even better, to potential customers. So armed with that much needed clarity, we're now running tests around acquisition, personalization, and retention.
On acquisition, we want to get the right customers through the door and to do so for the right reasons. This means highlighting our value prop instead of focusing on discounts. Regarding personalization, we want to get customers into the relationship that's right for them. We believe that their experience with Naked will be significantly better when we give them the freedom to make that call. Finally, we want to enhance retention by achieving two things: effectively onboarding our customers so that they immediately understand how Naked is both different and better, and to foster their engagement with communication that builds their confidence around wine, instead of relying on one-time bounded deals. What I'll share now are signals we're getting from the tests we're running. It's very important to state that these are not conclusive outputs yet.
We need more time and scale to confirm the impact they can have on our business trajectory, but we feel optimistic about what we are seeing so far, and hopefully you will, too. So here we go. We're sending new vouchers to people's homes. They're centered on the problem we want to solve for them, and while less of them are making it to our website, and therefore we can't yet claim this as a win, they're doing it for the right reasons, and that's already producing significant improvement in our conversion rates. SEO is, maybe surprisingly, something new to Naked. We officially launched the channel a couple of months ago, and while it will take some time for it to deliver a sizable amount of new users to Naked, we're immediately recognizing positive signals that make it clear that this is an opportunity worth pursuing.
We've tested different models in the past year. E-commerce was tested at scale in Australia, and it didn't work for us. Driving membership post-purchase turned out to be too hard. On the other hand, the model that allows us to pick wines for our customers, Wine Genie, has proven to be quite effective in converting and monetizing younger audiences. This is positive, not only because it provides Naked's customers with an alternative to the Angel model, but because it significantly expands our TAM. The new funnel we're presenting to our customers allows them to choose if they want to choose their wines themselves, or if they want us to do it for them, the frequency in which they like to receive their cases, and the amount they're comfortable spending. It also, while clearly presenting our value proposition.
While we are facing some challenges around conversion rates, the funnel is driving our second order rates materially across all channels, and at the same time, it's reducing the rate of cancellation at the 60-day mark. If these effects are sustained as the data ages out, the impact of this new funnel is very, very sizable. Some of Naked's customers are willing to spend much more than the average user on wine. They've always made it to our site, but Naked has never presented them with the offer that suits their premium needs. The new funnel is giving them that option, and it looks like these customers are dramatically more valuable. Their LTV seems to be more than double than the average. This information still needs to age out, but if confirmed, this is a massive finding for Naked. There's good news around low-value customers as well.
Naked has invested a lot of money over time in acquiring users that aren't really interested in our value proposition, and therefore churn immediately after receiving their first heavily discounted case. With this new funnel, we're better able to identify the users that are just looking for a deal, and instead of pushing them into a membership they don't really want, we're presenting an offer that's attractive to them and that makes us some money instead of having to incur in a first-order loss. Now, moving on to the retention side of things. Naked loses over half of the users it acquires during their first ninety days as members. We're working on revamping our onboarding process to avoid this happening. This includes redesigning our email welcome flow, our unboxing experience, and more.
We know that there are certain actions that, when customers engage with, are predictive of long-term retention: downloading the app, rating a wine, and a few more. While it's still early to point at improvements in retention, what we are noticing is that the changes that we're making to the onboarding experiences are driving up downloads significantly. So as you can see, our experimentation agenda is well on its way, and it will only grow in the next few months. As we go through it, we'll build confidence in our path forward. We commit to share the findings we have with our mid-year results, to have conclusive outputs by the end of the fiscal year, and to adjust our FY 2026 forecast considering the learnings that we will acquire. So what can you expect from us?
You can count on us to be scientific in our testing and transparent regarding our findings, both good and bad. We have guardrails in place around our costs, investments, and our balance sheet, and you can count on us to run the business with focus and discipline, and finally, you should expect us to be pragmatic and know that should we be unable to find a path to sustainable growth, we'll be proactive in looking for alternative methods to realize value for shareholders. Before wrapping up, I want to take a moment to recognize and thank our CFO, JC, who's leaving Naked in the fall after ten brilliant years with Naked. JC has played an instrumental role in Naked's journey, and as a parting gift, he has successfully laid the foundations for our future. Thank you, JC, on behalf of everyone at Naked. We wish you nothing but the best.
I'm happy to share that Naked has found its new CFO in Dominic Neary. He'll be joining us from Mind Gym in the next few months, and I'm looking forward to partnering with him to drive the company forward. So in summary, we have ensured robust financial foundations for Naked Wines. We have systems in place to ensure focus and alignment on the top priorities, embed a high-performance culture among our team, and drive wine maker engagement. We are now fully focused on getting Naked back to sustainable growth, and to do that, we have crystallized our value proposition. We have tests in place to get customers in for the right reasons, tests in place to get customers into the relationships that best suits them, and we have tests in place to effectively onboard customers and drive their long-term engagement and activation.
We will continue to run an ambitious experimentation agenda throughout the year and share results at the end of FY 2025. FY 2026 will incorporate the findings. You can count on us to be scientific and transparent, focused and disciplined, and responsible and pragmatic in our approach. I will finish where I started. I am honored, and I am excited to be leading Naked Wines. My first few months in the role haven't been easy, and there are still big challenges ahead, but the level of engagement from our customers, I've never seen anything like it, and I've worked with the biggest beer brands in the world. I'm confident that by developing a brand that leverages that engagement, the loyalty from our wine makers, and the commitment from our team, we will get Naked growing again. Thank you for your time today.
I'm happy to answer any questions you may have.
Thank you. We will now begin the question and answer session. If you would like to submit a question, please do so by clicking the Ask a Question button on the Spark Live webcasting page. Our first question is: What senior management changes have you made, and will you be making any more?
Thank you for the question. We've made a few key appointments in the past few months, and now I can say I have confidence we have the right team in place to deliver on our present and future challenges. I don't expect any further changes to happen once Dominic Neary joins the company as our CFO in November.
Thank you. Our next question is: How is the relationship with the winemakers?
The relationship with winemakers is fundamental to our business. I would say it's very strong. We value their trust and their support, and are looking for ways to further drive their engagement. We recently launched our Winemaker Success Program, which establishes shared sales, marketing, and operations objectives. It has landed very well, and we look forward to partnering with them in the near and long-term future.
Great. Thank you. Our next question comes from Kate Calvert at Investec, and her question is: "The testing activity you plan for FY 2025 on improving recruitment slash retention slash, slash personalization going forward, is the level of activity focused on any particular country, or is it spread across all geographies? Which regions are you experiencing most volatility in Q1?" Thank you.
Thanks for the question. So the answer to the first one is, we are running tests in all markets. It's an advantage of being a global company that we're fully leveraging in. And the answer to the second questions, which regions are experiencing, sorry, most volatility in Q1? I would say probably the U.K. is a market where we're experiencing it the most. We've had both good and bad months so far, but trading so far is in line with expectations.
Great. Thank you. Our next question is: When do you anticipate revenue stabilizing and returning to growth?
Important question. I mean, the conditions for growth have had to be established, and they now have been. We have a robust financial foundation, we are reengaging our stakeholders, and the fundamentals of our business are strong. The focus now, the main goal, is to find the levers that when pulled effectively, get us back to a 2x payback, and we'll do that in FY 2025 and scale those improvements in FY 2026, so that's the year where we should be going back to growth again.
Great. Thank you. Our next question comes from Andrew Wade at Jefferies, and the question is: "You've talked through some interesting opportunities to potentially drive growth, personalization, Wine Genie, premium customers, amongst others. Which do you think is the biggest upside?
Great question. I wouldn't point to one in particular. I think personalization brings them all together, actually. We believe, and this is what the tests are proving, that by giving customers choice over the relationship that they want, the range that they're interested in, and enabling them to decide at every point of their journey, their lifetime value is gonna be higher. So the data still needs to age out, but sgnals so far are very positive.
Thank you. And we have another follow-up question from Andrew Wade. The question is: "What evidence makes you confident that Naked's differentiated proposition is feeding into a better value proposition, i.e., price, quality trade-off for customers?
I think that the strongest evidence is our retention rate. That has been strong historically, continues to be strong today. In terms of the value proposition and what makes it different, I think what our customers look for is great value, and we offer that. We offer world-class wine at very fair prices, and that's enabled by our business model. We are removing guesswork by offering an unpretentious approach to the wine category that facilitates learning, and you can see that in the features that we're building, in our approach to category management, the user ratings that we share with all our customers, and our hassle-free guarantee. And last, but very important also, it's a frictionless experience, right? We offer a fast, reliable delivery experience that's particularly relevant in the U.S.
We offer world-class customer service, and that's something that we hear over and over again, that's very valued by our customers.
Great. Thank you. We have our next question from Anubhav Malhotra at Panmure Gordon, and he has two questions. I'll read them out one by one. The first is: From your experience of running subscription businesses in the past, how do you view the payback of two times compared to what you had seen in past businesses you worked at?
Sorry, uh-
Would you like me to read the question again?
Yes, please. Can you read it?
Sure. The question is: From your experience of running subscription businesses in the past, how do you view the payback of 2x compared to what you had seen in past businesses you worked at?
I mean, we always, we would always like for the payback to be higher, right? But given where we are, I think 2x payback is the right number to target, and all the testing that we're conducting is aimed at delivering that.
Thank you. His second question is: Given the 1.3 x payback, why do you still insist on investing GBP 22 million-GBP 25 million in new customer recruitment?
The main reason to maintain investment levels is stability of the operation in terms of scale and the strength of our partnerships, right? It's very hard. This is not an on/off switch, right? Like, turning those partnerships off presents a challenge whenever we want to go and leverage them once again, right? So we are not operating at the payback that we'd like, but with the changes we're making, we believe we can get those partnerships back to the right level.
Thank you. He has another follow-up question, and it is: You mentioned the change in acquisition approach could reduce the loss on first case with customers who don't want a long-term relationship with Naked Wines. Could you please explain in more detail, maybe with an example, how it will be practically achieved?
I think that there are two parts. I'll break the answer in two parts. So the first is the way we're presenting Naked to potential customers, right? So what we're focusing now is on our customer value proposition, and if that's not interesting enough for our customer, then he or she won't make it into our site, and we need to be fine with that. Now, for those that do, that have some interest in Naked and the range we offer, but are not looking to become members, we are now offering that option. And they won't get annual pricing. They won't get the same benefit as members, obviously, but they'll still be able to transact. And our belief is that most of them will like the wine they get, and that will facilitate turning them into members in the future.
Thank you. Our next question is: Why aren't you conducting share buybacks to create shareholder value at this depressed valuation alongside your testing to grow? Why does it have to be after the testing?
I think it comes down to focus, right? We are running many tests, some of which will work, some of which won't, right? If we knew they were gonna work, they wouldn't be tests. So we need to be focused on that and the implications that the results have for the long-term trajectory of the business. And armed with that knowledge, then we make other types of decisions.
Thank you. And we have a couple more questions in from P&R Investment Management. The first question is: Can you walk us through how you create shareholder value by achieving payback ratios of 1.3x - 2 x, and using your margin forecasts? And then he's put, example, an investment of GBP 10 million in customer acquisition will result in what kind of returns for shareholders?
JC, I think you're better suited to answer this question.
Yeah, happy to take that one. Thanks, Maza. I mean, I think the first thing to say is that, you know, a 1.3x payback using the contribution from repeat customers is not reflective of the cash payback when we are liquidating inventory that's already on the balance sheet. We generate significantly kind of more cash than we do contribution as a result of that overstock position. I'm not too sure exactly what the kind of margin forecast piece means, Matthias, but if you wanna pick that up one-on-one afterwards, very happy to do it. Probably one for us to sit down with a spreadsheet and chat through.
But I think, you know, we are, A, confident that we're generating kind of cash payback well north of that, and B, you know, we still believe that the 2 x is the right place to be, and that that does generate shareholder value when you add all costs through and kind of generate an IRR off of it, but let's have that conversation offline.
Great. Thank you. Our next question comes from Andrew Wade at Jefferies. His question is: Why do you think Naked has struggled so much in the U.S., given its inherent, inherent advantage versus the three-tier model?
The U.S. is our biggest opportunity, but it's also our least mature market. I think that something critical that has happened is that we've appointed Paul Calandrella as our general manager there a couple of months ago. The work that he has been doing with the team in discovering how to engage the American customer is fundamental. We're making good progress there, and we'll remain focused and invested in that market as I said, it's the has the biggest potential for Naked.
Thank you. And our next question comes from Matthias at P&R Investment Management again. The question is: Naked's core story has always been that Angels are funding winemakers. However, the funds can be withdrawn any time, and therefore you cannot really use them for longer term funding. What progress have you made to change this?
Maza, I don't know if you want me to take this one, but, I think, you know, I think it's worth saying, you know, we operate with a treasury policy and a credit facility that ensures we can always redeem likely Angel withdrawals. And, you know, that chart that we've shown for the last two or three sets of results, that shows the rate of withdrawal, shows kind of how predictable that is. I think it's also kind of worth being clear, you know, the, the credit facility being secured on the inventory that Angels have funded, is designed to be a device that can convert the inventory that Angel funds has, have generated into liquidity as needed for Angels.
And therefore, you know, there is a solve in there that means you can use that funding to create inventory whilst having a mechanism to convert it back into cash if needed. And then I think the kind of last thing to say is, you know, some of the testing we're doing on the funnel, whether it's around the value proposition, the real clear transparency that comes with that as to what we do with Angel money, or signing people up to things like Wine Genie, that generates cash, but without bringing an Angel liability, are all components, which means that, you know, that liability remains a source of funding we feel comfortable to use.
Thank you. We have no further questions at this time. I will now hand back to management for closing remarks.
Thank you, everyone, for your time and for your questions. I'd like to wrap up by restating that Naked has a robust financial foundation, that we are putting systems in place to ensure our stakeholders are aligned, focused, and engaged, that the business fundamentals are strong, and that we are now fully focused on discovering the levers that, when pulled effectively, get us back to that 2x payback. We will continue to experiment in FY 2025, with the aim of scaling those improvements in FY 2026, which should be the year Naked goes back to growth. Thanks again, and look forward to talking to you soon.