Good morning and welcome to the Naked Wines plc half-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself; however, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and I would now like to hand you over to CEO Rodrigo Maza. Good morning.
Hello everyone, and welcome to our half-year 2026 results presentation. We are very grateful for your time. I'm Rodrigo Maza, Naked CEO. I'll be presenting today along with Dominic Neary, our Chief Financial Officer. Here's the agenda that we'll cover this morning. Before we get into the details, a few headlines to set the stage. We've made a lot of progress in the first half of the year. Our performance continues to track in line with the guidance we've shared with the market. We remain focused on delivering shareholder returns, and we're pleased to have completed our first distribution during the summer. As stated during our last presentation, we made structural changes to our business at the start of the year to enhance focus, speed, and accountability. We're making tangible progress on both acquisition and retention. We strengthened both our senior leadership team and our board of directors.
We're happy to welcome Jan Mohr and Susan Cooper as non-executive directors. We extend our gratitude to Deirdre Runnette, who's exiting our board for all her contributions to Naked Wines. We remain confident in the strategy shared with investors last March as we go through our peak trading season. Results so far are positive. Let's dive in. Naked Wines is all about connecting wine drinkers and winemakers. Our model removes the middleman so customers get better wine for their money, and winemakers earn more for doing what they do best: making exceptional wine. This direct, meaningful relationship builds loyalty, drives a sense of community, and differentiates us in the market. Now, this is what our model delivers. This chart leverages Vivino's data to show how Naked consistently overdelivers on quality for price when compared to traditional retail brands. This is one of our main drivers of retention.
This is our model at scale. Naked currently connects over 0.5 million very satisfied Angels in the U.K., the U.S., and Australia, with over 300 of the world's most talented independent winemakers. As stated during our strategy event back in March, we think of our footprint as an advantage. This is especially true in the U.S., where the ability to legally deliver wine to over 90% of the population is a true moat. Operating across three countries adds meaningful resilience to our business. That diversification protects us from overexposure to any single market or regulatory shift. It also allows us to test things faster, accelerating our learning. When we exceed our Angels' expectations, our whole flywheel accelerates. The delighter Angels tell others, and when that happens at scale, everything moves. More Angels means more funds, more sales, more cash. It's truly a virtuous cycle.
When our Angels are happy, our winemakers, our teams, and our shareholders, they feel it too. Now, over to you, Dom.
Thank you very much, Maza. I'm going to be taking us through HY 2026 performance. We'll then move on to our strategic pillars. I'll cover the first two of those, and Maza will cover return to growth. So, moving on to our financials. We're seeing, first of all, continued strong cash generation, including the two million share buyback, which was completed in September. So that's GBP 10 million of cash generation less the two million share buyback, is an eight million increase on 12 months ago. Adjusted EBITDA is doubling, reflecting the intentional strategy to reduce acquisition investment and to focus on higher quality core profitable customers. So, adjusted EBITDA up 112% on prior year at GBP 3.6 million. This strategic change, which we've communicated before, leads to the lower revenue number you see there, down on prior year.
And as I repeat, this is what we've communicated, and this is expected, and it's in line, tracking in line with our full year guidance. The loss before tax you see there benefits, of course, from the doubling in EBITDA. It includes a number of items. There's a GBP 2 million restructuring, which we've announced in April. There's the one-off impact of EPR costs, which will unwind in H2. And then, of course, there's GBP 2.6 million of the inventory liquidation costs, which we've flagged as we proceed with the liquidation of our inventory. And that is part of the GBP 12 million or $17 million target, which we have over the medium term, which is likely to impact this year and the next two. As we move on to our key strategic KPIs, free cash flow, if we start at the top, free cash flow is positive.
It's where we expect it to be. So, inventories are down in the year, in the half year. But what we are seeing is some inventory build in the U.K. and Oz, which is why free cash flow is lower than prior year. But this is still a strong result, reflecting, as it does, cash generation ahead of our peak season, where we would normally see cash being used up as we build for peak. So, a strong result there. As we move on to ROIC, we can see the impact primarily of the doubling in profitability, but also the impact of share buyback impacting that as well. Gross profit margin is up materially. 50% of this is related to inventory liquidation differences between this year and prior year.
But the rest of that is a genuine improvement, reflecting significant reductions in first-order loss as we acquire customers and cost savings in G&A and marketing efficiencies. And this is despite significant ongoing regulatory cost increases from duty and EPR, which are impacting the industry more broadly. Acquisition break-even, this is our new metric. So, this historically, we've looked at a five-year forecast for marketing acquisition, which we've called payback. We're now, as we've already indicated, moving to a 24-month metric, which we estimate is circa the same as an IRR of 23%. And it's the equivalent to what would have been 1.7x in our old payback metric. So, acquisition break-even, which is when we obviously get the break-even on our marketing acquisition investment, has improved significantly on this time 12 months ago. So, we're down to 44 months from 75 months.
Clearly not at our target, but nevertheless, moving well in the right direction. And that is driven by a number of factors. We're seeing lower CACs, which we'll come on to in a second. We're seeing better retention, particularly of acquisition customers. And there are some notable impacts from margin improvements. And this is an area where we continue to anticipate significant margin improvements forthcoming over the next few years. Adjusted EBITDA, we've already talked about, so I'll move on. Return to Sustainable Growth. nps remains excellent, so no change there. Member retention rate is in line with 12 months ago. It's actually up 100 basis points on the end of last year. We are seeing, as I've indicated already, some positive signals on retention rates of new members. Given this is a 12-month metric, you're not going to see that in here yet.
That will come through at the end of the year, but nevertheless, positive movements in retention overall. CAC, as I've already said, is down, and that impacts from a number of factors, but is critical to our metrics, and revenue per member, going backwards slightly, this is largely geographic mix, and there is a little bit of hesitancy in the broader industry in our industry, which is having a small impact on that as well. Moving on to our three strategic pillars, we're happy with the progress of our KPIs, and we believe this reflects progress as we implement our new strategic plan. As I've indicated, I'm going to be covering off the first two of these pillars, that's cash and profitability, and Maza is going to be talking to you later about returning to sustainable growth.
If we dive straight into cash, HY 2026 sees the continuation of a strong story. Cash generation continues. As I've already said, we've seen GBP 10 million of cash generation, which has funded GBP 2 million of share buyback, which was completed in September. That's an GBP 8 million net cash increase. Importantly, we've seen an increase in cash generation in cash in the first half of the year against normal seasonality. Of course, that reflects the ongoing improvements both in profitability, but also in liquidation of our inventory. Inventory continuing to decline. We are progressing well with this, with our plan to generate GBP 40 million of net cash from inventory. While the majority of the big drops are likely to happen in FY 2028 and 2029, we continue to see improvements here, and we have confidence, particularly because the biggest portion of overstock is in U.S. expensive reds.
The good news on these is that they last for in excess of 10 years. We continue to anticipate generating net cash from our inventory, and that's a key part of that. We also continue with our commitment to generate value from our capital. I talked already about the share buyback we completed in September, which the board believes was at a value that is significantly below the intrinsic value of the company. We continue to anticipate ongoing distributions and, of course, more substantial distributions in the medium term. We will, of course, consider inorganic opportunities as they arise as well. Moving on to our profitable core. Again, we're seeing solid progress with profitability as we reiterate our medium-term target of up to GBP 14 million EBITDA over the medium term.
Clearly making great progress with this on EBITDA and the improvements to gross margin and G&A I've talked about. Key aspects of this are obviously visible in HY 2026, so I've already talked about our new acquisition break-even KPI, which is replacing payback. This is a much better short-term focus, as I've indicated, targeting that 24-month break-even point, and we're seeing significant improvements in this, and a key part of those margin improvements is coming out of price increases in Australia and the U.K., and also, of course, another driver is the acquisition retention improvements that I flagged earlier. As a result of this focus on profitability, we are reducing inefficient marketing investment, and that's driving in excess of GBP 5 million of efficiencies versus FY 2025, and that reflects the strategy we talked about in March, where we've reduced investment in vouchers and other ineffective channels.
We are, of course, focused on costs everywhere across the P&L, and we have delivered GBP 1.5 million of G&A savings, which, after inflation, delivers the GBP 1.1 million reduction in G&A costs that we're seeing coming through the P&L. We continue to see this as an opportunity to drive significant value, and to that end, we are implementing a ZBB strategy on our costs, which will take effect from FY27. Continuing focus here, and I'm going to hand over now to Maza, who's going to take you through the final pillar.
Thank you, Dom. As you know, our third pillar is focused on the work we're doing across both retention and acquisition, leveraging our engaged community of Angels and winemakers to drive sustainable growth. We're also enhancing our activity around business-to-business sales, which we view as a credible source for medium-term revenue and contribution growth. Back in March, we presented our growth strategy, structured around retention and acquisition and enabled by selective tech modernization. While the building blocks remain unchanged, our understanding of how they come together in an improved experience that delivers on our mission and value proposition has evolved. Our business is a loop, not a funnel. What this means is that for us to accelerate sustainable growth, we need to find more ways to tap into our engaged community of Angels and winemakers. Retention is our foundation.
We remain focused on facilitating discovery with improvements to our catalog and its navigation, soon to be scaled. We have created more options for our customers around delivery, and we're focused on unleashing the power of our community, partnering with winemakers to tell not only their wine stories, but to present the category to existing and future Angels the Naked way, tearing down the parochial approach to wine that's very prevalent in our industry. As we deliver on our retention priorities, acquisition is becoming more efficient, with advocacy and word of mouth becoming its key drivers. We remain committed to acquire customers that have a real interest in Naked's value proposition, which requires us evaluating every channel investment diligently, moving away from underperformance and scaling only those that deliver sustainable customer acquisition costs. Importantly, we remain focused on making sure that the first interaction with Naked delights every new joiner.
A few highlights to share on the retention front. Our entry-level range in the U.S. has produced solid results since launch. We've seen a material increase in our rate of sale without cannibalizing our other segments within our catalog, which is exactly what we set out to do. We are now ready to roll out our automatic credit-back guarantee to all Angels after a few months of validating. We view this as a key enabler of discovery and therefore retention. We are now offering more delivery options to our customers, and while results still need to age out, we are seeing frequency improving in the markets in which these alternatives are available, and finally, we have started to offer Angels the option to purchase three-bottle cases through careful cost management to protect unit economics. This is proving to be quite effective as a reactivation lever.
Next step is to offer this on the acquisition side of things as well, as it reduces the amount customers would pay for trying out Naked Wines, which could obviously have a very positive impact on conversions. As I mentioned already, it's our community that's our unfair advantage and what we need to leverage to get Naked growing again. The campaigns we've recently launched have landed very well, not only commercially, but in driving Angel engagement. You are bringing the magic back. This is the type of thing that makes me proud to be Naked. These are real customer comments that show we're in the right direction. As we're starting to get data that backs that up, we've seen referrals in the U.K. reaching the highest levels in over two years. Now let's talk acquisition. We've run several tests regarding our acquisition offer across all markets.
We've seen significant improvement to our first-order contribution as a result, and we are now ready to scale the learnings globally. We have a new homepage experience live in the U.K. and the U.S. This is a massive step forward for Naked, as we're now representing our customer value proposition much more clearly, while also allowing customers with different levels of intent to explore Naked the way that best suits them. We are very excited about this launch and its potential impact on our growth. It's important to talk about the things that haven't worked out too. We are expecting YouTube and other video platforms to become relevant channels for us. And while they are driving an important number of sessions and improving frequency amongst existing Angels, the fact is that conversion remains challenging.
For that reason, we are divesting away from this channel while we see focus on conversion efforts yield results. The same applies for lead gen. After running holdout tests across Australian geographies, it's clear to us that this channel is past diminishing returns and that it makes no sense for us to continue to invest in it. We plan to get this business growing through advocacy and referrals. In order to do that, we need to go bigger on the moments that best represent Naked's model. The connection between winemakers and Angels and how it adds value to both needs to be front and center, and we need both of them, plus carefully selected creators, to spread the word about it. While these are still the early days, we're excited with the reaction we're getting and remain convinced that this is how we'll win in the market.
Now back to you, Dom.
Thank you very much, Maza. Moving on to post-period end trading and reiterating our FY26 guidance. Firstly and importantly, we are in line, we are tracking in line with guidance, with delivering on what we said. We are also making good progress with the strategy we set out in March. The clear progress here is visible in margin and marketing efficiencies and, of course, in cash. We continue to see that and expect progress on that and cost savings as we progress. Of course, we continue to reiterate our medium-term inventory target. We continue to be committed to ongoing distributions and engaging with our partners on our next distribution. Peak is progressing satisfactorily so far. The next two weeks, as ever every year, are critical, and we will revert in January with a trading update. Onto our guidance, there is no change to our guidance.
We are comfortable with all the metrics and particularly happy with the significant improvement in EBITDA versus 12 months ago. We continue to anticipate the full $17 million of inventory liquidation costs that we've talked about before. Those are, of course, spread over the next three years.
As we wrap up, the headline is simple. The business is moving in the right direction. Our first-half performance tracks the guidance we set, and we've begun returning cash to shareholders, an important milestone. The structural changes we made earlier this year are bedding in and are already driving clearer focus, faster execution, and stronger accountability. We're seeing real progress in both acquisition and retention as a result. We've also strengthened the leadership bench and our board. Jan and Susan bring fresh perspectives and diverse expertise to Naked. We're grateful to Deirdre for her commitment and service. To end, we remain fully confident in the strategy we set out in March. We're going through peak trading with momentum, and so far, results are encouraging. Thank you all for your time.
That's great, Rodrigo. Dominic, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the top right corner of your screen. While the company takes a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides on the published Q&A, can be accessed via our investor dashboard, and Rodrigo, Dominic, if I may now hand back to you to take us through the Q&A session to read out the questions where appropriate to do so, and I'll pick up from you both at the end. Thank you.
Sure thing, and thank you. Dom, do you want to take the first couple of questions, which is basically the same?
Yeah, thanks, Maza. Yeah, so we've got two questions which are on share buybacks, essentially saying, should we be moving faster on those given the shares are trading below intrinsic value? As we set out in March in our strategy day, this is a business that is generating cash and is going to have significant excess cash over the medium term as we increase our profitability and as we generate GBP 40 million cash from our excess inventory. We also set out at the full year results our clear policy of ongoing distributions, which we would be making as we go forward. And so that policy is that we will distribute up to 50% of cash generation in the last 12 months or Adjusted EBITDA in the last 12 months as well, the lower of those two.
As you'll see, we've made progress with that, and we've implemented that and done our first share buyback in September. That's an ongoing policy that will continue. Of course, that still leaves potentially material excess cash, particularly over the coming years. We've been very clear that we would make one-off and will make one-off distributions of that where that makes sense. What we also need to be clear about is that, and we said this, is that the key to that is increasing our profitability and working with our financial partners to agree those one-off distributions. That's exactly what we're doing. Really, to wrap up, we are moving ahead with our ongoing distribution policy. As the business becomes more profitable and as more excess cash is generated, that will free up the opportunity to do one-off distributions. That's a question of when, not if.
It's not today, but it's hopefully in the not-too-distant future.
Thank you, Dom. We also have a question related to the revenue mix from core members versus new growth and what are our views on that, so as we've shared, we're still going through the impact of the COVID cohorts. Once that has flowed through our base, we are expecting stabilization in the next couple of years, so that then means that acquisition needs to work, right, and our position there has been very, very clear. We are committed to disciplined acquisition, which means focusing on quality over quantity, getting customers, getting the right customers through the door, people that actually are interested in Naked for the right reasons for our value proposition, and that deliver healthy paybacks for the business.
So in summary, we remain focused on keeping retention, keeping Net Promoter Score high as we go through the COVID cohorts, and we remain committed to our disciplined acquisition strategies. There's another question: how about opening a few pop-up stores for peak season and sell Christmas gift boxes and other high-margin wines? This is something that we're definitely looking into. How can we leverage partnerships to bring the Naked experience into the real world beyond our tasting tour, which is massively successful and is the biggest wine event in the U.K.? But yeah, this is an area we're exploring. This is an area that we like. I don't think we need help in selling our Christmas gift boxes. Actually, we're very close to selling out of them this year. Over 70,000 of those Christmas cases have already been delivered into our Angels' homes. So we're very pleased about that.
Yeah, Christmas season is going well so far.
Yeah, we have a fantastic wine calendar as well, which Advent calendar, which I have one of myself at home, and if there are any left at the end of this week when I go home, I'll be having some of that myself.
That's great, Rodrigo. Dominic, thank you for addressing all those questions from investors today. And of course, the company can't answer your questions submitted today. And we will publish those responses on the Investor Relations platform. But Rodrigo, before I redirect investors to provide you with their feedback, which is particularly important to the company, can I please just ask you for a few closing comments?
Yes, of course. Well, first of all, thanks everyone for your time. We really appreciate it. We continue to be excited about Naked's future, and we remain very confident in our plan. Thank you for your time and happy holidays.
Fantastic, Rodrigo. Dominic, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure it will be greatly valued by the company. On behalf of the management team of Naked Wines plc, we'd like to thank you for attending today's presentation. And good morning to.