Earnings Call: H2 2021

Jun 11, 2021

Good day, welcome to the Naked Wines PLC FY Results 2020/2021 conference call. At this time, I will turn the conference over to Mr. Nick Devlin. Please go ahead, sir. Welcome everyone, to the full year results presentation for Naked Wines for the FY 2021 financial year. Third one of these, I'm still sat in my bedroom talking to a screen. Hopefully, at some point we'll get to do one of these in person. I want to start off with giving a few highlights from the year and just a recap on Naked Wines overall, then Sean will take us through the full details of the year's results. In summary, it's been a pretty transformational year for Naked Wines as a business, it's been one of profound change for the markets in which we operate. I think in particular in the U.S.A., which is now Naked Wines' biggest market, we've seen some really profound change in consumer behavior and consumer appreciation and understanding of the online channel for wine in particular. In the first part of 2020, we saw a really clear inflection point in channel penetration for online in the U.S. wine industry. In terms of Naked for the year, it's been one where we have materially enhanced the economics of the business. We have not just a bigger business, but a better, stronger business. You see that here in a material enhancement in our repeat contribution margin, up by 3 percentage points. You also see it in the scale economic benefit coming through in the business, and we're well on track to build a company with a 10%+ EBIT margin at scale. It's also been a year where community has been really important to us, and we've been profoundly aware that we've been one of the fortunate participants in the wine industry. Our model is well positioned to continue serving customers in a direct-to-consumer online way through a year of disruption. Many of the small winemakers that we know in the community have not had that privilege. Small independent producers have seen tasting room sales dry up. They've seen access to the on-trade and local restaurants dry up. Alongside focusing on trading the business, we've continued to double our efforts to give back into our community, whether that's supporting impacted winemakers, either those we've worked with or in the broader industry, and continuing to harness the power of our community for good causes. A particular pleasure to me is the fact we raised over £750,000 for Carmen's Kids, which is a charity we support with our winemaker, Carmen Stevens, in the Western Cape earlier this year. I think if I had to pick one thing, though, that was probably the biggest impact over the course of the last year, it's been the coming of age of the Naked proposition in terms of its appeal to winemakers. At the end of this year of such challenge, I think all winemakers are really clear that the future has to involve a credible, successful direct consumer strategy, and that online needs to be a big part of that consumer strategy. As Naked grows and scales, our appeal to winemakers gets stronger. As we've been able to continue to support the broader winemaking community in this year, our awareness and our visibility in that community has been enhanced. I think you see that coming through in some of the names that are coming onto the Naked platform that I'll talk about later. It's been a great year. We've also had some great numbers, and we'll talk about them. Overall, for us, really, it's been a year where we see ourselves making great strides towards fulfilling our long-term ambition. We've proven that the Naked Wines model works, that we can deliver great investment returns, and that we can build a business of meaningful scale. What we want to do now is really take that to the next level, be working with more winemakers and have a broader impact on the industry we operate in. I think it's as true now as it was 13 years ago when we founded this business, that most wine businesses, they don't work to the interest ultimately of the consumer or to the person who we think is important, the winemaker themselves. We think we've got a better model, and we want to share it with a lot more people in all our markets. To recap, that's a model that we consciously designed to get stronger every time we scaled the business. I think the results we've delivered this year really vindicate that. Today, we've got nearly 900,000 Angel members across three markets. That group of members have generated something like $300 million a year in inflow and subscription payments. It's a pool of money that lets us support over 230 winemakers, and this year make over 1,500 amazing wines. Because of the support that we're able to give to those winemakers, we help them lower their production costs and make amazing wine for less money. They don't have to worry about sales and marketing costs because they know they're selling them back to our pool of nearly 900,000 members. That means those members enjoy exclusive wines, and they pay less for them. As the business scales, those benefits improve, and we're able to deliver customers an even greater, stronger value proposition. That creates a high loyalty business and lets us grow our customer base. It's in some ways a simple model, but a very powerful model and a hard one to replicate. What that means for customers is we have a proposition that does two things. It gives rational differentiation, and I think this is maybe the easy part to pick up on. We're able to make high quality wine at a lower cost. We strip out some of the cost of distribution that typically exists in a lot of other models by going direct, and we give customers exclusive access to world-class wines from great winemakers. It's also emotionally differentiated, and I think we've really seen that amplified in the course of the last year. We've seen record numbers of our members interacting directly with winemakers on our app and our websites. In a year, we've had to pivot from in-person tasting events with winemakers. We've seen tens of thousands of our Angels take to Zoom and interact directly with our winemakers. On the winemaker side, we have a proposition that I think is very special and is unique in the industry. We're able to offer four things to a winemaker. Firstly, autonomy. Naked's a place where you get creative freedom. You're creating a brand with your own name on the label. You're making the wines you want to make the way you want to make them. We pair with that security. You're able to grow a business and go on your own with a limited capital risk. You've got a guaranteed outlet to sell your wines after you've made them, and we offer multi-year commitments. Those pairs very seldom come together. That's something very powerful we can offer. At the same time, we also offer great reward, and for our best, most successful winemakers, you can make a great living at Naked, and there's an opportunity to rapidly grow that income as our business scales. Finally, we give you an opportunity to really lean into your passion. This is a business where winemakers get to make wine, as opposed to spend time running winery P&Ls or spend time meeting new distributors, going and doing sales events. Ultimately, that I think is, of the four, probably the biggest factor that excites people about coming to work for Naked. A return to why they became winemakers in the first place. All of that adds up to a model that's engineered to ensure that we can create amazing quality wine and sell it at affordable prices. When you have a model that strips out a bunch of things you can't taste, that helps winemakers produce effectively at scale and get value out of the things you can, you can make great wines like Napa Cab from prime vineyards, and you can sell those wines at a massive discount to the traditional market system, and that's better value that people can appreciate. It's the core of what we do at Naked. We're also a pretty data-obsessed company, we're passionate about trying to measure that. This data here, which compares the price that Angels pay for our wines compared to the average price in the U.S. market, quantifies that. You'll see as we go into producing more premium wines, getting very high ratings, anything above four in the Vivino scale is deemed to be world-class. The value differentiation actually is accentuated because typically these are brands where traditionally you have even more money spent on things like marketing. You have bigger retailer and distributor markups. All of that, we've got this amazing business that's differentiated rationally and emotionally. We've got a sustainable way of making better wine for less money. Gives us the long-term ability, I believe, to take meaningful share in all our markets. Today we've got an addressable market of around $24 billion globally. We've got about 1.5% penetration of that TAM globally today. We have a massive opportunity to drive value. I think we can grow materially in all our markets, but obviously the biggest opportunity facing us is to penetrate the U.S. market more. I think it's the place where our business is most strongly differentiated, and I'm very excited about the ability to grow Naked over the coming years, and in particular, off the back of a breakthrough year where American consumers have really started to appreciate and understand the opportunity to buy wine online. At that point, I'm going to hand over to Shawn, who's going to take us through the details of the financials. I'll just take a small moment to introduce Shawn Tabak, who joined us as CFO at the beginning of this year. It's been great having Shawn on board, having another Californian come and join the team, and really enjoyed working with him. It's my pleasure to hand over to take us through the details of what are, I think it's fair to say, a pretty strong set of numbers. Shawn, over to you. Thanks, Nick. Before I get into the financials, I just wanted to say hello and formally introduce myself to all of you. By way of background, I've spent the majority of my career with technology or internet companies in the San Francisco Bay Area and in Silicon Valley. Today I'm excited to work with Nick and the team at Naked Wines to drive profitable growth with solid cohort unit economics. I look forward to meeting all of you over time. Naked Wines delivered strong growth in fiscal year 2021, with sales increasing 68% to GBP 340 million, driven by strong performance in all three of our geographies, but particularly in the U.S., which is our largest market and where our offering is most differentiated. Many online businesses benefited from COVID-19 as consumers adapted to government restrictions and lockdowns over the past year. The wine sector also shifted towards online, resulting in a larger customer base for Naked, higher customer retention, and more frequent purchases. Repeat customer contribution profit increased 83% to GBP 85 million, driven by a 53% increase in active Angels, as well as scale economies and a mix shift to the U.S., which is our highest margin market. This increase in repeat customer contribution profit helped fund an increase in investment in new customers of 113% in the year to GBP 50 million, which tallied a 3x five-year forecasted payback. Our adjusted EBIT loss was GBP 1.5 million, relatively flat with the prior year despite the increased investment spend. This chart shows some of the underlying fundamental trends in our business, both on order frequency as well as retention, or as we show here, cancellation rates. You can see through the first half of the year, both order frequency and retention benefited from the COVID-19 lockdowns, and as a result, were better than historical trends. In the second half of the year, order frequency started to normalize as some of the lockdowns were lifted, but the retention rate has continued to trend better than historical trends throughout the year. Now turning to costs. During the year, we took a look at our disclosures, and based on investor feedback, we enhanced our reporting to provide additional understanding of some of the underlying trends that impact our business. We also added more details around the breakdown of the income statement on our main cost drivers, including cost of sales, which is primarily the wine that we sell. Fulfillment costs, which are primarily the cost to store, pick, pack, and ship wine to our consumers. Advertising costs, which are primarily media spend in our various marketing channels. General and administrative costs, which are primarily personnel-related costs. Gross margin improved 160 basis points over the prior year, driven by a mix shift to the U.S. and also product mix as we optimized the portfolio to preserve quality of service during the peak of COVID-19. Fulfillment costs remained flat at 17% of sales. Lower stock levels and greater scale efficiencies were offset by increases in transportation and logistics rates. Advertising costs were 12% of total sales, a 270 basis point increase over the prior year, driven by strong investment across all channels and geographies to capture the opportunity created by the shift to online purchasing, particularly in digital channels in the U.S. and U.K. markets. Total general and administrative costs were 11% of total sales, a 175 basis point decrease over the prior year, reflecting added roles to support the growth of the business. Taking a step back from the numbers, we effectively increased contribution profit by approximately 200 basis points over the prior year and reinvested that margin enhancement in advertising costs and growth, which in turn creates more intrinsic value. Turning to our key performance indicators for our investment in new customers. Our business model is to invest in new cohorts of customers and earn a return on that initial investment over the lifetime of the customer cohort. We incur 2 types of costs to acquire customers. The first is in the form of a discount on the first case of wine to new customers, which means we typically incur a loss on the first case. The second is in the form of advertising costs to acquire new customers. The COVID-19 pandemic resulted in lower advertising cost per customer in the first half of our fiscal year. Investment in new customers was £50 million in fiscal year 2021, with a 5-year forecasted payback of 3X. Customer acquisition costs normalized as the year progressed. To give you a sense as to these more normalized forecast payback levels, our 5-year payback in the second half of the fiscal year was 2.2X. Year 1 payback improved to 82%, driven by lower cost of acquisition and an increase in order frequency. This slide shows the 5-year forecast payback progression for the last 6 years of cohorts. It demonstrates that we have had strong payback economics for years and that historically, each cohort has improved since the original forecast. Additionally, our investment in FY 2020 cohort has already reached payback, and our FY 2021 cohort has already paid back 50%. Shifting now to repeat customers. Repeat customer sales were £284 million, a 63% increase over the prior year, driven by an increase in our customer base and an increase in order frequency, which was even higher during COVID-19 lockdowns. Repeat customer contribution profit was £85 million, resulting in a 30% margin. This represents a 320 basis point improvement over the prior year, driven by increased scale efficiencies, product mix, and the geographical mix shift toward our higher margin U.S. business. We expect around half of this margin improvement to be an enduring lift. Repeat customer sales retention was 88%, a 565 basis point improvement over the prior year, driven by higher customer retention and an increase in the frequency of Angel orders. We had 886,000 active Angels at the end of fiscal year 2021, which was a 53% increase over the prior year. Shifting now to the geographical split of our business. We're pursuing the growth opportunity we have in the $20 billion U.S. market and have provided additional segment disclosures in accordance with IFRS 8, including both sales and contribution. I'll start with sales here. All our geographies benefited from the shift to online wine purchasing over the last year. This trend has been most evident in the U.S., which is our largest market opportunity and where our offering is most differentiated. Total U.S. sales were GBP 162 million, representing year-over-year growth of 78%. The U.S. business now represents 48% of our total group sales, and we expect that shift in mix towards the U.S. will continue. Total U.K. sales were GBP 133 million, representing year-over-year growth of 66%, and total Australia sales were GBP 45 million, representing year-over-year growth of 42%. Moving on to the profits of the segments. Repeat customer contribution profit was solid across all geographies. The U.S. delivered the highest repeat profit of GBP 48 million, with a margin of 37%, which was 420 basis points higher than the prior year, driven by product mix and increased scale efficiencies. The U.S. segment benefits from the geographical 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 we can offer Angels a significant discount while delivering a healthy margin. Investment in new customers has increased across all geographies as we look to capture the market opportunity, particularly the U.S. Onto the balance sheet. We ended the year with a strong balance sheet and cash on hand of GBP 85 million. Free cash flow in the year was GBP 31 million, primarily driven by working capital. In fiscal year 2022, we will use our capital to invest in growth, including investments in customer acquisition, the customer proposition, and our go-to-market strategy. We'll also invest in inventory to increase availability, deliver our growth plans, as well as our strategic objectives around enhancing the customer proposition. This means an increase in inventory per active Angel from current levels, as well as a distributed warehousing model in the U.S., which has the benefit of storing wine closer to the consumer and increasing availability. Our goal is to maintain sufficient cash and liquidity to operate the business, given the seasonality in our inventory purchasing cycle and our sales. We allocate capital toward growth investments such that we deliver returns in excess of our weighted average cost of capital and our internal rates. If we identify that we have excess capital above what is needed to run the business and invest in growth opportunities, this will be returned to shareholders. Given the growth opportunities in front of us, we are not proposing any distributions or returns of capital to shareholders at this time, and we think we have sufficient cash to execute our fiscal year 2022 plan. Before I outline our guidance, I wanted to provide an update on trading through the first two months of our fiscal year 2022. I'm sure many of you are interested in what we are seeing in our business after such a tremendous year. Through the second month of the year, total sales have increased 8% year-over-year on a constant currency basis, driven by strong performance in our repeat customer base, which is a healthy pace considering the strong comparatives relative to last year. Repeat customer sales grew over 30% on a constant currency basis in the first two months of fiscal year 2022. This is being partially offset by normalization of new customer sales, given the strong comparatives to last year and also reflecting a lower level of investment spend. We have also looked at the growth in sales in the first two months of fiscal year 2022 compared to fiscal year 2020, which removes some of the impact of the strong comparative. Compared to the first two months of fiscal year 2020, total sales grew 96%, new customer sales grew 30%, and repeat customer sales grew 107%. With all this in mind, we're introducing guidance for fiscal year 2022 as follows. Total group sales are expected to be in the range of GBP 355 million-GBP 375 million, and please note there that we'll be lapping strong comparatives to fiscal year 2021, driven by the significant increase in active Angels. We'll continue to invest in marketing opportunities, particularly in the U.S. With that in mind, we expect new customer investment will be between GBP 40 million and GBP 50 million. We'll continue to have a disciplined and data-driven approach toward investing, with a focus on profitable growth and creating intrinsic value. We expect repeat customer contribution profit to be in the range of GBP 85 million-GBP 90 million. As I discussed, some of the increases in repeat customer contribution margin that we saw in fiscal year 2021 were driven by product mix. Therefore, we expect repeat margin to improve by approximately 150 basis points over fiscal year 2020. We expect repeat customer sales retention to be in the mid 70% range, below our long-term sales retention of 83%, as we lap strong comparatives to fiscal year 2021, driven by the COVID-19 pandemic lockdowns. We expect general and administrative costs to be in the range of GBP 46 million-GBP 49 million as we invest in strategic initiatives, and this includes growing our teams across all segments, but particularly in the U.S., and also investing in our e-commerce functionality. At this time, we are sufficiently capitalized to achieve this guidance, which includes capital for committed inventory purchases to meet anticipated demand and availability targets. Now I'll hand it back over to Nick to cover the strategic plan. Thank you very much, Shawn. Set you up well there for a first set of numbers, and if you carry on reporting the numbers like that, then you're going to have a very happy group of investors to spend time with. I wanted to take stock and talk to you a little bit about what this year means. Obviously, we've had an exceptional set of performance. Some of that's been a result of incredibly hard work and some good innovation from our teams. Equally, some of that has been a product of favorable market conditions for an online pure-play business. It's going to be another year where predictions are difficult and it's hard to be unequivocal and certain. I do think there are a number of things we know and we can share. I wanted to talk to you about those and the impacts we think they have on our plans for this year and then our plans for the medium term. I think what we can be confident about is that we have built a bigger and better, stronger business, and that that business has enhanced medium-term growth prospects. We think we can grow this business faster coming out the other side of the COVID-19 pandemic over the medium term than we were growing it on the way in. I think it also means that whilst we're not going to change the core elements of the plan we've talked about over the course of the last year, we have an opportunity to accelerate and to go faster. That there are attractive investment opportunities for us in building capability to help us better serve our larger customer base, as well as attractive opportunities that we've always talked about in acquiring more members. That's a big part of what's behind the guidance Shawn has outlined to you with the stepping up our level of investment in our cost base. Put very simply, with 50% more members, the amount of improvement you need to drive in your proposition from an investment in, say, digital product or technology is 50% lower than it was last year. We think there's a compelling case to go faster, which is what we will do. Let me talk about these three strategic pillars and where the focus is this year. I'm going to start with the customer proposition. Whilst 2021 was, in lots of ways, an operationally intensive year, I'm actually really pleased that we also managed to make good progress on enhancing the customer proposition. I think a clear highlight was scale, our subscription product. In particular, Never Miss Out, where customers can pre-commit to their favorite wine, has become a big part of our business with over 180,000 subscribers. We launched a new app which is performing very well. We continued to launch a number of very exciting new winemakers. We trialed a fine wine club in the U.K., where over 3,500 happy Angels have been delighted by the dulcet tones of Ray O'Connor, who I want to give a shout-out to as Naked Wines' first-ever Master of Wine. Congratulations, Ray. What are we going to do this year? As I highlighted, we've got an ability to do more and move faster because we're investing in building out our technology and product teams to enable us to deliver a greater pace of change. The priorities are going to be focusing on improving the ease and speed of shop for our customers, enhancing and elevating the winemaker content, and sharing that more broadly. Using our data more effectively to deliver wine recommendations and aid customer discovery. Make it easier to find the perfect wine. We're going to continue to innovate our subscription products. I think we've seen massive consumer appetite, we believe we're only just scratching the surface of what's possible there. A couple of charts, I think, talk in particular about that subscription work we've already done. You can see we've grown that active user base very rapidly through the course of the last year. I think what's most exciting for us as a data-driven company is that we've built confidence that when we sell customers an additional subscription to their favorite wine, it genuinely makes those customers more valuable. For us, that's always the guiding light. If we can increase the lifetime value of customers, it means we can have the confidence to invest more aggressively in acquiring new members and still deliver attractive returns. That was a particular highlight of the year. One of the areas we've talked a bit about, but I think we can do more to explain, is our belief that there's a big opportunity for this business in better communicating the quality of wine we're making. I showed you the chart earlier, which to us is the objective side of this. We are absolutely certain that our model is uniquely configured to let us make world-class wine at lower cost and share that with customers. The reality is that there's also an important job to communicate that quality, and in particular to non-members and people who aren't as familiar with Naked. I think we can do a lot more here. In the course of the next year, you'll see us do things like traditional third-party accreditation, entering more awards, winning more awards, and then showing the customers and potential new members that we've won them. You'll also see us doing things to signal specialist authority and quality, like expanding the breadth of our offer in traditional old world wine regions, adding more premium products to the range. You've already started to see some of that, in particular in the U.S., in the range in the course of the last 12 months. We'll be creating more spaces to showcase content from our real stars, our winemakers. It's been a year where a number of big names have debuted on the platform. I could talk at length about all of these, but I've been told I need to keep it brief. I'll highlight Dan Baron, who's an amazing gentleman, a great winemaker, spent over a decade as head winemaker at Silver Oak. I'm incredibly excited about launching his Francophone brand to customers in the U.S. In fact, we've already sold over 30,000 bottles of it on pre-release, and it's going to be launching this fall. If you're in the U.S. watching this and you've got a chance, get in quick. All of that talks to some of the opportunities we continue to see to strengthen our customer proposition. We firmly believe that whilst we've got a great business, there are lots of opportunities to carry on enhancing that and driving loyalty and lifetime value. The second way in which we see us driving the proposition as we grow is by harnessing the benefits of scale. Some of this has been very evident in the disclosures we've made. On one level, you see the three percentage point enhancement of the contribution margin, and that tells the story more eloquently than I can. I want to talk a little bit about the other side of the scale benefits and the impact that has on our ability to attract world-class winemakers to the platform. Ultimately, what we've had is a year where it's become very apparent to winemakers in the industry that Naked is a viable alternative to three-tier distribution, and you can build brand scale. You can see here the growth that our top 10 wine brands in the U.S. have achieved. In fact, all of those top 10 now are over 50,000 case brands. Our largest, if it was reported separately, would make the list of the top 50 direct-to-consumer wine brand businesses in the U.S. I'm also really excited, though, about the way in which this growth is letting us lean into what I'm calling big niches. Put very simply, if only 10% of our customers are interested in a wine style, that's now nearly 100,000 people around the world. It's giving us the opportunity to invest and support more different types of winemakers making more different types of projects. I think that ability to harness scale economics behind less mainstream projects is only going to be very differentiating for us in our proposition. If we've got a business with a great customer proposition, but opportunity to improve it, and they get stronger as we scale, all of that gives us the ammunition and the firepower to continue to grow the rate of investment whilst maintaining great investment returns. That's exactly what we want to do. Let me talk to you about our go-to-market strategy for the year ahead. I'm going to split this up into 2 pieces. I think firstly, just a little bit of context. In 13 years, we've grown Naked to GBP 340 million in revenue. We've done that almost exclusively behind direct response advertising, i.e., tactics like putting vouchers into boxes or paid Google marketing, Facebook ads, that are all aimed at driving an immediate response. We've not invested in paid brand communication. I think we've got to a point in the evolution of the company where it's right that we start to diversify that marketing mix and that there's a role for brand spend. We're not going to abandon our testing mindsets, we do recognize that moving into brand advertising requires a different way of evaluating things. It requires longer-term measurement. In the course of this year, we're going to be moving in that direction. I'll talk you through a bit of that. I'll also tell you what our priorities are in terms of direct response. Why do I say now is the right time for brand advertising to have a part in the Naked mix? I think firstly, it's because we're at a point with over a year under our belt of an independent company that we have real clarity on the brand positioning of Naked. We know that we exist to be where the world's best winemakers make their best wine. We're clear on the messages we want to communicate. We've created a lot of the assets and the collateral behind that. I think it's also because the last 12 months have created the right market opportunity. In particular, in the USA, our biggest and most important market, more consumers than ever are open to the idea of buying wine online, and therefore our chance of success in communicating to a broad audience, we think, is greater than ever. It's also because some of the R&D spending we deployed in the last year has helped build our understanding. We have started tracking regularly a number of key brand metrics, and we've shown an ability to move and influence those metrics through spending in some different channels through deploying spend above the line. In particular, we've identified for our business, there are really 3 really important things to move. A qualified awareness measure, a measure around brand trust, and a measure around brand quality. We're very confident that if we can move those, actually over the medium term, there's an opportunity to accelerate the rate in which we're gaining share. Now, turning to our strategies around direct response advertising, there are 2 things I want to highlight. 1 is that this will be a year where we place a lot of focus on relevance. We've done some of the testing behind this, but we know that we are missing value around customers who have preferences that are different to the most common preferences in their market. Take the USA, 2 good examples. Our proposition is great for the majority of wine drinkers, but if you like wine that's on the sweeter side, at the moment, our first case isn't serving your needs. If you buy wine, you're normally spending $40 or $50 a bottle. We're not selling you the right wine either. There's a really simple fix for that, and we've done a lot of the testing in the background, and we'll be rolling that out over the coming months. You might ask me, "It's simple. Why haven't we done it already?" It's a fair question. The reality is that our ability to roll this out this year has been limited by some of the inventory challenges that we faced as a result of growing much faster than we anticipated. In terms of channel mix, we remain convinced there's an opportunity to materially increase the number of direct response marketing channels we're present in and how much we spend there. I think you've seen some evidence of us doing the second in the amount of investment we've been able to deploy at great returns in the last year. We have seen some really promising results in additional channels. Particularly highlight Google Shopping, which looks like a real breakthrough. Native channels, things like Taboola, Outbrain, Verizon network, where we're operating in all our markets. Direct mail, where we've seen some really promising early tests, in particular in our U.K. market. I think there's one note of caution, though. Before we deploy really material sums of money behind these channels, we do want to validate the results we've seen during the course of the last 12 months in a somewhat more normal consumer environment. That's just our mindset, and it's one of the challenges of having to go through such a period of disruption. We want to make sure that these results generalize coming out the other side of the COVID-19 pandemic. Where does all that add up to? I think it adds up to a time that's never been more exciting for Naked Wines. In particular, our largest, most important market has been favorably transformed, and we think that change is likely to be enduring. That gives us confidence in an enhanced medium-term rate of growth for Naked Wines as a business. We see the right target for us being growing this business at 20% a year over the medium term, after we come through a year of lagging COVID-19 comparatives this year. We come out with strengthened economics. Better economics mean higher lifetime values. Higher lifetime values mean a greater ability to invest in acquiring more customers. In turn, that lets us build scale, which drives the economics. It's a virtuous circle. We also have a stronger community than ever. That community is absolutely one of the bedrocks that lets us carry on having impact, that lets us build a differentiated proposition. It's really important that we're building a business that retains that emotional differentiation alongside its rational differentiation. Our appeal to winemakers has never been stronger. Ultimately, I'm a big believer that one of the most important sources of competitive advantage we have is the quality and breadth of winemaking talent we work with around the globe. I think we can continue to grow that level of advantage. I'm very excited about the opportunities we have to continue bringing new winemakers in to our platform over the course of the next year. It's a great time for Naked. It's going to be another year that's going to have degrees of challenge projecting and forecasting, but I feel incredibly excited, and I'm really looking forward to it. I'm looking forward to approaching it with Shawn and the team. On that note, I'm very happy to take some questions. Thank you. If you wish to ask a question, please signal by pressing star one on your telephone keypad. If you're using your speakerphone, please make sure your mute function is turned off to allow your signal a chance to reach our equipment. Again, that is star one for a question. We now pause for just one moment. We will now take our first question from Mark Astrachan from Stifel. Please go ahead. Hi. Morning, afternoon, everybody. 3 from me, if that's all right. 1 on current trading, 1 on inflation, and 1 on working capital, if that's all right. Just on current trading, that 8% number in April and May is encouraging. I wonder if you could split that by your 3 main geographies, because the U.K. is perhaps a tailwind with tougher lockdowns, whereas I think Australia has opened up quickest, with the U.S. probably in the middle. That might just give us a better feel for the run rate when lockdowns are lifted. The inflation question, you talk about stepping up investment in staffing. Could you maybe talk about how you're finding that staffing process? Are there any challenges from some of the dislocation in the labor market that we're seeing elsewhere as COVID-19 disruption recedes? On cost of goods, any signs of pricing pressure on that front, either through supply chain disruption or more fundamental inflation? If so, just how much of that inflation, if there is any, do you think you can pass on, and how much will you absorb? The last one on working capital is why was there such a strong inflow from deferred income into the year end? Can we split the questions up a little bit? Sorry, it's very early on the West Coast, and we're too simple to keep three questions. Sorry in our mind at once. Go for it. Should we do current trading? The current trading first. It's not generally our intent to kind of disclose a lot of detail on current trading. We've made exceptional disclosures today because we know the level of interest. I'm not going to give those numbers we've disclosed by market. I can say that we're seeing broadly consistent trends across markets, so with substantially faster growth in repeat sales, evidencing the translation of customers we acquired last year into loyal members. I can say that for our most important market, the U.S., we're seeing trends that overall are entirely consistent with what we're disclosing for a group. Lovely. Thanks. Maybe just the inflation one then on labor and cost of goods. Yeah. I think in terms of cost of goods, there's always a mix here. There are inflationary trends. There are also market-level dynamics in terms of great markets and regional sourcing, which move in different ways. Counterbalancing that, we've got an opportunity to harness the substantial additional scale we've brought into the business, and I think overall, we feel that, in general, nets out to a pretty favorable position. We've seen underlying gross margin improve over the course of the last 12 months. Certainly, it's our intent always to work out how we can be more efficient, how we can offset any underlying inflationary challenge and continue to maintain the prices we're offering to customers. If we see other models having to pass some of that through, that's an opportunity to further enhance our differentiation. You're not pushing any underlying pricing through at the moment? We're not seeing that, and we don't have any requirement to do that. Lovely. Just the last one was on working capital. Do you expect the inflow to reverse fully in the new financial year? I'll leave that one to you, Sean. Yeah, that sounds great. Yeah, so Mark, thanks for the question. When COVID hit, just as a backdrop, what happened in FY 2021? Much of the working capital benefit that we saw in the year was driven by inventory balances. When COVID hit, we reacted quickly and responded to capture the tremendous growth opportunity in the market. Based on the really strong demand that we saw in FY 2021, our inventory levels were chipped away a little bit. Despite that, I think it's important to note that we maintained really strong customer satisfaction scores, such as our five-star service rating at 91% and our buy again rating at 91%. Going forward, we ended the year with a strong balance sheet of GBP 85 million, and we'll be investing to right-size the inventory for the larger customer base. We have a solid inventory plan in place and commitments to fill our demand and our growth going forward. Okay. Thank you. The next question comes from Pearce Uboroff from Brook. Please go ahead. Hi, can you hear me? I have a couple of questions that I'd like to ask you about today's slides. These probably show nothing more than my ignorance of the business. If I can just ask 2, please, about your disclosure. The first one is on slide 10, which is the one where you show. Well, in fact, maybe you can just clarify for me. In the chart which you're showing, I think the point you're making is how good value you think your wines are. Can you just be clear, please? What exactly are you comparing with what there? If I go to the right-hand end of the chart, for example, where you're showing wines rated a 4.3 on Vivino, and then you're showing 2 different typical price points. Are you showing the same wines or are you showing wines which you think are of similar quality? Can you just help me with that one, please? First one. Yeah, sure. It's a disclosure that compares the blue line. These are all wines that are sold on Naked in the U.S.A. The rating comes, it's the rating that they've been given by users of Vivino, and the price is the price we sell to our customers. The dark blue or black line is data disclosed by Vivino, so the aggregate of all wines sold, or all red wine sold, I think here, in the U.S.A. It's saying of all wines rated at a 4.3 on Vivino, the average price is $68. The average of the wines that are sold by Naked that are rated 4.3 on Vivino is about $25. Apples to apples on quality. It's a consumer crowdsourced rating. Then it's comparing what customers are paying for that quality level at Naked versus on average what the prevailing price in the market is. Okay. It's comparing what someone would pay at Naked for a wine of comparable quality on Vivino, but a kind of a much larger sample size on Vivino. Is that right? Yes. Yeah. Okay, great. The other one, this is probably just a point made on disclosure. When you talk about your Angels, you talk about a number of 886,000. In your slides, if I go a little later on, if I look at slide 27, I see your global active subscriptions as shown on a chart where it looks like at the year end they were somewhere between 300,000 and 400,000. How do those two numbers fit together, please? That number on the bottom left of 27 and your 886,000 Angels, please. Page 27 is a disclosure around our subscription products. These are additional subscriptions that customers can make beyond having an Angel account, and they involve making a prior commitment. Okay. Is this your 500,000 annual-? Exactly. Oh, I see. Okay. Yeah. You can infer from this a penetration of the subscription product into our Angel base. Oh, very good. This is a subset of your Angels who happen to have other subscription products. That's right. Okay, thanks. That's all from me. Thanks for those clarifications. Once again, if you wish to ask a question, please press star one. It appears there are no further questions via the audio at this time. We will now take questions from the webcast. Thank you. We've had a lot of questions from the webcast, we will endeavor to get through as many as possible. First question is from Andres. He's got two different questions. First one for Nick is, are you happy with two times two payment in H2 which is lower than all prior cohorts? Can you tell how April, May payback looks like? To the second question for Shawn is, can you elaborate how much currency and % will fit guidance, e.g., what is the CC guidance? Andres, thanks for the question. I'll give you a short answer. Yes. Very happy. Investing at that level reflects when you fully discount back and look at the rate of return, we're generating something that we're very comfortable with and we see as being very attractive. In the second half of the year, we were able to deploy more than 100% uplift in quantum invested versus prior year. If you think about value creation, that was a big step up. We've given the disclosure in the presentation on how our returns have tended to evolve over time. We'd be very comfortable that 2.2x over 5 years represents very rational and attractive unit economics. Indeed, happy with that. Sorry to disappoint you, but I'm not going to get into commenting on payback by month. I don't think that's a particularly helpful or actionable metric. We thought it was useful to give the second half trend, because it shows to you that we've seen a reversion from a period of, I would say, excess payback during the peak of the COVID-19 pandemic to an ability to deploy materially more investment at something that's closer to our long-term target rate of return. I'll let Shawn talk about constant currency. Yeah. Great. Thanks for the question, Andreas. At this time, we don't report on constant currency or guide to it. Certainly, rates in the U.S. have moved up, and in particular, if you look at the first half of our FY 2022 versus FY 2021, rates have moved up. Changes in rates obviously can put some volatility on our growth rate in the year, depending on which way rates move. Our planning assumption was just under 1.4. Take a step back from that, obviously, the U.S. would be the main driver of any volatility there. If you take a step back, we're focused on the $20 billion TAM and the long-term value creation opportunity that we have there, which we think is really exciting and will drive sustainable growth over a period of time. Next question is from David Collins, who's asking, "How does inventory of wine available to Angels vary by each of the three regions? E.g., do U.S. Angels get access to more U.S. wines than U.K. Angels? Short answer, David, absolutely. We have localized buying capability in each of our markets, and we've tailored a range around the preferences of those markets. For example, around half the wine we sell in the U.S. is domestically produced, so American wine. That would be a big difference. If you look to Australia and New Zealand, the proposition is very much engineered around supporting Australia and New Zealand's best winemakers, with an extremely strong preference for locally produced product. Yes, the range is very different. It's bespoke in each of our markets. We've got a few questions from Elia from Ninety One, who's asking, "What trends are you seeing in digital ads, prices, and effectiveness? What are the best ROI channels, and do you expect that to change?" Finally, "How is the competitive environment in the U.S. and the U.K.? The downside of written questions is people cheekily go for three questions in one. Let's try and answer this. In terms of digital advertising, it's fair to say that we have seen increases in CPM rates across a bunch of channels as the economy has started to reopen, and a lot of people moving to advertise, both online pure plays looking to sustain momentum and traditional retailers looking to reopen. We've also seen some of the disruption associated with the iOS changes, I think has led to some short-term inflation. Overall, though, I think the success criteria we've always found in digital advertising is around innovation and producing great content that differentiates and explains your brand and engages customers. That's always, for us, been a bigger driver of long-term success and viability of digital advertising platforms than the exact kind of CPM rates prevailing in the channel. In terms of disclosure of payback by channel, I'm going to say the same thing I say every year. We don't disclose payback at a channel and market level. We don't do that to be a pain in the ass. We just do it because ultimately, the way we manage the business is around looking for a set of returns profiles. We challenge all of our channels and all of our markets to consistently deliver that over the medium term. We don't think reporting the short-term volatility or outcome at a market and channel level is ultimately helpful. In terms of the competitive environment of the U.S. and the U.K., that's a rather broad question. I think that the key thing we're seeing in both of those places is that there has been an acceleration in an existing trend of migration of customer demand from physical retail to online. In both of those markets, our biggest competitors and where most of our new customers come from are from buying wine in large traditional physical environments. Grocery in the U.K., mixture of grocery and independent liquor in the U.S. That trend's accelerated, and we think that materially enhances our long-term growth prospects. Thank you. Our next question is from Owen from MP Capital Partners. Again, we have a few questions in here, so let's start with the first. "Who would you say is your biggest competitor in the online channel in the U.S. market?" The second question is, "Given the long production- Let's break them up. Okay. That's a question. I think the first thing to say, Owen, is that the biggest opportunity in the U.S., in the same way as the U.K., is introducing new customers to buying online and new customers to buying direct from winery. Very much the biggest challenge is offering customers better value than they're currently seeing, either in generalist liquor retailers or in grocery stores. In terms of the online market, I think there's a limited number of real direct head-to-head competitors. Ultimately, we see there's much more of a question here of convincing more customers to join the channel and grow overall channel growth, where we are the largest pure online winery direct-to-consumer business. Second question was around, given the long production cycle of wine and unpredictability of Angel growth and demand, how do we balance and manage that supply and demand dynamics? Angels need to increase supply/find winemakers versus Angels demand. Is there any risk of inventory write-off? Yeah, look, that's a great question, and I think it's probably one of the most complex parts of operational management in the business, which we put a lot of focus and energy against. One of the big benefits as we scale is that more and more of our demand goes to our Angels, our repeat customers, whose demand profile, both in terms of the composition, the types of wines they buy, and the absolute quantum, is actually very forecastable and predictable. Compared to 4 or 5 years ago, it's actually a lot easier to forecast this than it was. Still in a year like this, it can be tough. The dynamic is that you do need to make a commitment. If you want to make authentic, high-quality wine, you need to make a commitment in advance, and it takes time for that wine to come to market. The inherent compromise we have to make because we want to make wine authentically, we don't just want to go and buy it on spot in the bulk markets, is that at times when you have a rapid inflection of growth, you do see some gaps in the range. We've seen some challenges in availability metrics in the last 6 months in both the U.K. and the U.S. I think we'll be honest about that. The good news is we've got a broad, diversified supply network. We've got more winemakers than ever keen to work with us. There's absolutely plenty of high-quality wine out there for us to find. The flip of that is saying, is there a risk of a hangover and inventory write-off? I'm very confident that we're not sitting on a bunch of stock that's likely to become obsolescent, so no. Owen's final question is, what's the latest regulatory environment in the U.S. that may affect interstate sales and your operations? I think always important to start here by reframing that the way we trade in the U.S. as a winery selling direct-to-consumer in 43 states plus the District of Columbia is based on positive affirmation that's been tested at the Supreme Court and is a very conventional model. Nearly every major winery, so people like Kendall-Jackson through to Gallo, have a direct-to-consumer arm of their business. It's nothing exceptional, unusual, and certainly not a workaround. That is very well established, and I think it's a core part of how the American wine industry operates. At a regional level, where a lot of laws are set, we've actually seen some positive momentum in the last year. We opened up Kentucky earlier this year. That was, let's say, number 42 or 43. Someone will have to fact-check me. Alabama, which might be state 43, is due to open in the fall. We're seeing, I think, that regulators have got a bit of a push and a nudge from consumers who said during the course of the COVID-19 pandemic, "Hang on, why don't we get access to all that great selection and choice of direct-to-consumer wine that people in other states get?" Next question, I think we can do this in one go. It's from Matthew Hayes, it's for Nick, he's saying, we've seen a secular shift towards DTC model emerging from the pandemic. As for legal action, what steps have the big three traditional wine distributors taken to combat their secular decline, what is Naked Wines's response? I think, again here, it's worth talking about our general approach with compliance. The first one is we invest a lot of money and have built a really strong team headed by our U.S. General Counsel, Anne Huffsmith, to make sure that we are absolutely compliant with the law in all the territories we operate in, and that we spend a lot of time understanding the regulatory dynamic and trends and challenges at a state level, which you absolutely have to do. It's a core competency, actually. It's one of the things that's somewhat of a barrier to entry for a lot of people in terms of effectively serving the U.S. market with a direct-to-consumer proposition. As I said, in general, the biggest changes at a state level have been favorable in the course of the last 12 months, but we're not complacent. The more successful we are growing this business, absolutely one of the ways in which people will seek to compete with us is trying to tilt the regulatory playing field. I wish that people would only compete with us by trying to offer customers better value for money, but that's not always the nature of competition, certainly in the wine industry in the U.S. As I say, our best response is to keep very much aware of what's going on in different markets, but also to bring to bear the power of our rapidly growing customer base. A good example of that would be legislation that was tabled earlier this year in Tennessee looking to ban fulfillment houses, so third-party warehouses that help wineries get wine out to the end consumer. One of the things we did when that legislation was tabled was get our thousands of customers in Tennessee to write to their local legislators. In a rare example of people listening to their constituents, the bill got withdrawn. The next question is from Yann from JMX, who would love to hear more context around the 30% per annual growth ambition and why that pace as opposed to 10% for much longer or 30% in a more aggressive ramp. Yann, thank you, and it's a great question. I think a couple of things I'd draw out. One, we thought it was helpful today to provide some guidance around the medium term, given FY 2022 is an exceptional year where we lagged a very unusual set of comparative metrics, and so you're going to see a deviation from our long-term trend. I think what we're getting at here with signaling that at least 20% feels credible is that we are convinced that if you ultimately draw the chart of this business, you're going to have a sloping line going up. We were growing the business in the mid-teens pre-COVID. You're going to have a big spiky year and a slightly flatter year for FY 2021 and FY 2022. We think the diagonal line you draw out the other side is going to be steeper than the one we had going in. You know us very well, Yann. We're going to deploy investment as the opportunity is supported by attractive returns, and it won't be a straight line. There'll be times where the rate is greater than 20%, and there may be times where it's a little bit lower. We thought it was helpful to give that level of signal around our confidence that the medium-term outlook looks, in our mind, favorable, and that the growth opportunity has been accelerated by some of the shift in trends we've seen. I'm sure we're going to chat a lot more about this when we catch up. I'm looking forward to it, Yann. We have a question for Shawn now from Colin McCafferty. He's got two questions. I'll do them both as they're short. The first question is, "Thanks for more detailed breakdown on your cost structure. Will you be able to provide this data for years before FY20 as well?" The second question is, "Why do we expect sales retention in FY22 to be so low relative to our historical average? Yeah. Thanks, Colin. I'll take those in reverse order maybe. Starting with the sales retention. As a backdrop, in fiscal 21, we saw, especially when COVID-19 hit and folks were in lockdown, we saw higher order frequency. Throughout the year, we saw higher customer retention, lower cancellation rates than usual. We also recruited customers a lot earlier in our fiscal year than what's typical. We also found that customers were making their 2nd purchase quicker than usual. That kind of atypical phasing sets us up for a strong comp on sales retention in fiscal 22, as well as obviously the higher order frequency is a factor as well. As these trends normalize, especially around order frequency, we expect our retention to have a strong comp and be in the mid-70% range in fiscal 22. In the medium term, we expect it to come back to our historical range of about 83%. The question on the costs, going back to FY19, that is not data we'll be providing. Thank you. Next question is from Nick Montoya from PLP Funds. He's asking, "To what extent is your low inventory position constraining your ability to grow currently and to serve new customers? Nick, it's definitely been the case that there have been periods over the course of the last 14 months in market to market where we've had to slow the rate of customer growth because of operational constraints, early on in the pandemic, warehousing, a choke point in particular, or due to inventory position. There's no point spending money bringing customers into the business to then give them a poor experience through a suboptimal range. There's certainly no point doing that also at the expense of either the customer experience and proposition we provide to our community of nearly 900,000 existing members. It has been a factor. Your second part of your question you ask about kind of if it's been a factor, at what point will it be cured? The plans we've got, we're actually in a process where we see a lot of vintage changeover in the industry at the moment. Lots of northern hemisphere 2021 wines that are coming close to release, in particular kind of white wine, where some of our availability has been most challenged. Very much something that we're starting to see now. We will see continued improvements, I think, in availability in the U.K. and the U.S. in particular over the course of the next 3 months. I think it'd be confident as we kind of head to the fall that we'll have the range in a position that's much more long-term average. I think as we head into peak, I hope we're in a position where we start to have our most exciting range in a long time. A lot of the things we've talked about in terms of partnership with some of the new winemakers we're bringing on board and some of the higher end wines we've been working on for a while are going to start to go live. Just as a reminder to everyone, we've had an incredibly lot of questions come through. We're trying to get through as many as we can. Our next question is from Simon, and it's for Shawn. Simon is saying, "Last year, revenues grew by 68% and you invested GBP 50 million in new customers, yet cash balances grew from GBP 55 million to GBP 85 million. This year, you forecast growth of 5% to 10% and investment in new customers about the same as last year, which is GBP 40 million-GBP 50 million. Surely you do not need to retain so much cash on the balance sheet. Yeah, thanks, Simon. Good question. First off, I'll say we're delighted that we ended the year with a strong balance sheet, and we are well-positioned heading into FY 2022. Maybe I'll take a second to maybe outline our approach to capital allocation and how we think about capital structure of the business. There's really 3 pillars to this. The first is we maintain sufficient cash to operate the business. In particular, taking into account the seasonality of our profits as well as our purchasing cycle. The Northern Hemisphere harvest is in the fall, and that's when we purchase a lot of our wine, and our low point in cash tends to be in the October timeframe. We need to consider that in our cash management cycle. I think the second pillar to our philosophy is that we allocate capital to growth investments and ensure that those are delivering a return well in excess of our WACC and our internal hurdle rates. Then the third pillar is any excess capital above that which is needed to run the business and invest in growth, which includes inventory, will be returned to shareholders. I think if you take a step back from all that and think about what we've outlined here today with respect to fiscal 2022, we're investing in strategic initiatives to create long-term value for the business. We're investing in new customer cohorts. We'll be investing in inventory to meet our growth plans. Also inventory to increase availability from current levels, as we talked about on the call today. In particular, we're rightsizing the inventory for the larger customer base that we have so that we can deliver our growth plans, and as well as our strategic objectives around enhancing the customer proposition. We have a good inventory plan in place for FY 2022, as I said earlier, with solid commitments in place to fill our demand. As a result, as I said earlier, we're not proposing any distributions or returns of capital to shareholders at this time. There's clearly a lot of exciting growth opportunities we have ahead of us. I guess the one other thing I will highlight is our guidance represents really a central scenario in a somewhat unpredictable year coming out of COVID-19. As Nick just talked about, we do have a midterm belief in a faster growth rate, especially as the comps normalize. We want to make sure we're set up well to execute in that faster growth environment. I think that's John, just to build on that. Simon, 18 months ago, I found a lot of questions people asked us about our cash position and said, "Well, look, surely you can never invest more than about GBP 25 million a year acquiring customers, so obviously you've got too much cash." I think we sit here having just finished the year investing GBP 50 million in acquiring customers. We have provided the best guidance we can of what that investment level looks like in a slightly uncertain year. Got absolute conviction that over the long term, there's ability to productively deploy substantially more capital than that acquiring customers at rates of return we find attractive in all of our markets. Thank you. Our next question is from Elliot Turner from RGA Investment Advisors, and he is asking, "Can you elaborate on your strategies to segment the customer base? How will you be tailoring the initial offering to customer group? Can you talk about the interplay between customer segmentation and the marketing strategy? Absolutely. I think one of the pages we highlighted in the presentation was just an extract from what we're calling internally triage testing. The principle here is that you can get customers to disclose quite a lot of information in a pretty low friction, low effort way that helps you make the first case of wine more relevant. Some of the key dimensions we're interested in are exploring kind of customer style and wine type preference. We're testing doing that by asking about favorite brands versus explicitly asking around styles. Also to understand typical price points they purchase at. That gives you a pretty powerful way to then plug that into a little bit of data-led curation and serve different assortments of wine, potentially also with different associated offers and subscription parameters up to different types of customer. What we've shown already is that you can create a low friction experience, i.e., you don't give up any conversion in order to make the product more relevant. That there are clear groups that you can serve better. When you serve a group of customers who are used to buying expensive wine, a bunch of our premium wines on the right-hand side of that Vivino chart, they're much more satisfied than when you serve them a bunch of wines which are designed for a consumer who's typically spending GBP 20 in their local grocery store. That's the early part. I think you kind of hint here at something that we think is really powerful. Actually, the more information you derive upfront, the more powerful and the more personalized we can make your first 30, 60-day experience with Naked. In common with a lot of subscription models, that's where you have your biggest opportunity to influence long-term retention. As you can see from our long sales retention disclosure, once customers get into habit of becoming Angels, they recognize the emotional and rational differentiation of the model. They're very sticky. There's a big opportunity in that early stage. Any extra information we gather, we can pass through to our marketing teams to personalize that experience. Some of the cost investment we're putting in this year is doing things like investing in better CRM technologies and platforms to make it easier and give more powerful tools to our teams to make those early experiences more relevant. That's some of the stuff that we'll be doing. We could chat about this over a glass of wine for hours, but there's the high level. Next question comes from Ben Hunt from Investec, who's asking, "Given the widening gap price/value between Naked and peers at higher end prices, is there a temptation to put up prices and to improve margins or use that margin to do more brand investment? If so, are you at risk of jeopardizing the Naked Wine investment philosophy? Ben, I think two things. You rightly highlight that our business model works incredibly effectively at higher prices than we've typically sold wine at, and that's an opportunity. It's an incremental opportunity to our core business, and it's one that we are pursuing. We're working to pursue that opportunity in an authentic way, which means it involves working with great winemakers, making amazing wines. They do take a while to come to fruition in market, but we absolutely think that's an opportunity, and it should show through in us enhancing lifetime value. We'll have a group of customers for whom that resonates will be exceptionally valuable. It'll overall give a favorable shape to our cohorts. On the flip side, I think the answer's no. Ultimately, we set out to build a business that was a win-win, that was differentiated for winemaker and consumer, and one of our core beliefs is at any price point, we always want to offer exceptional value to consumer. It doesn't matter if we're selling a GBP 10 wine or a GBP 50 wine. The second thing is that, as we scale this business, all the economics improve. Ultimately, I very strongly believe that by sharing that improvement back with the consumers and driving retention rates and loyalty, you build a stronger business that's more competitively differentiated and harder to compete with. That's the right way to drive long-term profitability. Again, if you think about any subscription model, the higher your retention rate, the less money you spend acquiring customers to offset customers you lose. Your long-term EBIT margin gets enhanced. That's my preferred route to long-term value creation and a high EBIT margin at maturity, not trying to take short-term price. We have a few questions there from Andrew Wade, from Jefferies. His first question is, "Could you talk through the frequency chart on page 14? It seems to show frequency was lower than FY 2019 in March, but materially ahead in April and May. Is that right, and could you explain that trend, please? Yeah, I can take that one. Thanks, Andy. We obviously are providing a lot of detail on the underlying trends in the business. Sometimes the order rates can fluctuate from month to month based off of the promotional calendar or if there's a large Never Miss Out subscription that goes out, especially as that product becomes more and more attractive with our Angels. That's what we saw happen in the March-April timeframe. It was just a function of timing and a little bit of a shift in activation or order frequency based on, again, promotional calendar and when some of the Never Miss Out subscriptions landed. Andy's second question was, "Could you give us a little bit more detail on the elevated G&A spend and what that will be on? To simplify in terms of modeling metrics, should we expect this to drive higher retention, frequency, and year 1 paybacks over time? Yeah, happy to talk to that. As Shawn signaled, most of the step-up in spend involves us investing against capability to deliver the strategic initiatives we're outlining today. Important point to make, it's kind of discretionary. We could choose not to make it. Why that increase in the cost base is because we're really convinced that there are specific opportunities to enhance our customer proposition that are likely to drive an attractive return and a comparable return to acquiring new customers. We have an agnostic investment philosophy. We don't mind what we invest in, and what we care about is whether there's a believable case to generate attractive returns. Different parts of that investment will show up in different line items in the P&L over time. I think you'd signal that in particular, we'd be thinking about two things. There are a suite of investments that we've talked about to improve the core shopping experience, to remove friction, to improve personalization, recommendation, and investment in the range to broaden that out. You'd expect that they would, over time, give us an opportunity to enhance or improve the long-term sales retention rate. That's where you'd see that increased loyalty come through. There's also an opportunity to invest in things that enable us to deploy more capital to acquire customers. For example, where we're looking to make our proposition more relevant to a new customer, ultimately that should show through in enhancing our paybacks and letting us deploy more capital in investment. There's a couple of different places you should see that come through. Overall, a good example of this, I think, is our subscription products. Things like Never Miss Out. Back of the napkin math, we've spent about GBP 1 million of product and tech cost over about a 2-year period to build out these new products, and they're now generating somewhere in the region of GBP 6 million of incremental contribution a year, which is growing rapidly. These are the kind of opportunities we've got. We think we've got more of them. We feel like we've proven out the operational model, and now's the right time with a substantially larger customer base to extract value from that investment in the proposition. Okay, I think we've got time for a couple of more questions. The next question is from Brad Hathaway. He's asking, "I appreciate the incremental disclosure about long-term margin, but can you provide more color as to how you're thinking about those longer-term margins? Yeah, absolutely, Brad. The way I think about this is if you start off from thinking about the economics of us selling wine to our members, so our repeat economics, you see in the disclosure today that we make around a 30% contribution margin on those sales. Actually, that's enhanced by 3 percentage points this year. Over the medium term, as we shift the mix more towards the U.S., you can see from the disclosure that that is likely to be enhanced further, as our repeat contribution margin is substantially higher in our U.S. market. Effectively, that's the pool of cash, the pool of profitability that we're generating. From that, we're doing a couple of things. We need money to invest in acquiring new customers, and we need to pay our SG&A cost base. Over time, as we grow the business and achieve scale, we see material opportunity to drive leverage in the SG&A cost base. See that falling from probably about 14% or so of repeat sales today to likely substantially under 10% as the business approaches some degree of maturity. The amount of money we spend acquiring new customers, again, to have the business at a point of maturity or a low single-digit growth, that investment level, again, likely falling to sub 10% of repeat sales. You do your math of 30% could go up to 35%, knock off, say, 8% or 9%, knock off another 10%. You get left with your long-term EBIT margin, which is likely to be in that 10%-15% range. The thing that's challenging is giving disclosure about the timeframe, because actually, the more successful we are at proving that we can penetrate our $20 billion TAM in the U.S., the longer we'll be able to deploy very high levels and increase our levels of investment in acquiring customers, and you push out the point at which the business becomes more mature and then turns into delivering that high EBIT margin. That's why we provide our disclosure around steady state EBIT margin to help people think about the potential and how, given the business's economics today, for long-term profitability. Hopefully that helps give you some color about how we think about that internally and why we think the numbers we're showing today very clearly show that we're on the path to delivering that greater than 10% EBIT margin as we scale. Our final question is from Sahil Shan. He's asking if you could put more color on the U.S. growth. Are there any U.S. regulatory, structural, competitive headwinds looking forward? I think one thing that really stood out for me in the numbers was actually we doubled the contribution from members in the U.S. year-over-year. Twice as much contribution profit from in the U.S. than we made a year ago. It's been a real step change. Underpinning that, the single most important fact is that in the U.S. market, there was very low comprehension of what online models existed, and even many U.S. wine consumers who didn't know it was legal to buy wine online. That inflection in understanding and really accelerating, bringing forward the rate at which spend migrated from physical channels to online channels is really important and powerful, and I think it gives us the platform for sustained faster growth in that market. Put simply, that awareness and understanding isn't going to go away. When you add that to having a business model that lets you deliver clearly differentiated, rational things, like better value for money, plus playing into trends like people wanting to know where their wine comes from, understanding the person behind the label, I think we've got a business that looks very favorable to take material share over the coming years in the U.S. I think in terms of your question on headwinds, there is a vibrant competitive environment, but we don't see any other business that's configured in the way Naked is that enables it to support high-quality winemakers making wines exclusively for Naked that we can sell at an attractive margin structure at the kind of range of prices we do, looking at $9-$50. There are a lot of other businesses that are looking to sell direct and focusing on maybe the $30 plus because they're operating different models with a different set of economics. I think Naked's very differentiated in being able to effectively serve that range of price points and generate attractive contribution margins doing it. I think we're in a good place. We're clearly differentiated from some of the other competitors who are looking to grow online. I'm very excited about the outlook for our U.S. division over the years to come. Thank you. That concludes our webcast Q&A. There are a lot of questions, obviously, that we didn't get a chance to answer, but we have your email addresses, so we will endeavor to get back to you when we can. On that note, I'll hand back to Nick for some closing remarks. Thank you very much. Thank you, everyone, for taking the time to join us. I think to conclude where I left off, I want to just conclude by giving a big thank you to all of the colleagues and all the winemakers who've been part of Naked's success this year. It's been 13 years since we started on this mission to connect directly consumers to some of the world's best winemakers, and I think we've never been closer to delivering on that. We're working with over 235 winemakers now and bringing some incredible wine to market, with 900,000 Angel members supporting. I just want to thank every single one of those 900,000 people, but also in particular our winemakers for what they've contributed in the course of this year. We're very excited about what comes ahead. I think by necessity, FY 2022 to some extent will be a year of consolidation. Us delivering growth on top of an exceptional year in FY 2021, but also investing to put in place a stronger customer proposition to restore inventory and availability levels and further differentiate the wine proposition and give us a springboard and platform for faster long-term growth. I'm very excited about that. I'm incredibly keen to get back into a little bit more normal life and get back into the office with the team. I'm very excited about the prospects in the year ahead and look forward to telling you all about it in due course. On that note, if you're somewhere where it's appropriate, cheers. Have a good evening. If you're with me over on the West Coast, I guess we can go start our days.