Earnings Call: H1 2021

Nov 19, 2020

Welcome everyone to the 2021 interim results presentation for Naked Vines. This is my second time doing this, and again, I'm sat in my house talking to a screen. But I'm very excited to share the news and the updates around business for the last 6 months with you all. And it has been a truly transformational period for the company. I'm going to start with some of the headline numbers and I think it's worth pausing here because there are some pretty remarkable numbers on this page. Overall, we grew revenue by 80% in the 1st 6 months of the year. I think repeat contribution growth often is something we highlight as a truer read on the underlying strength of the Naked Brands business model and that was at 89% of this generating SEK 36,000,000 in the first half. And really that came through, you can see from a combination of much higher retention, 95% sales retention for the period substantially enlarged customer base with over 3 quarters of a 1000000 active agents. If you wanted to add all that up, the metric we use is standstill EBIT, which gives a read on the underlying profitability of the MakeIT model if you normalize for the growth investment we make and that increased by an eye popping 5 55 percent to CHF 26,000,000 in the period. If you want to take a forward looking view and think about the value we're creating for the future through productive investment in new customers, we were able to deploy £23,000,000 of investment in the half with our payback metric doubling to £7,600,000 and that equates to something like SEK 173,000,000 of lifetime value that we project to be generated, again an increase of 3 40% on the prior year period. So I think what's clear here is that the past 6 months have represented a real step change in performance and scale for the group and a set of numbers that I'm very proud of and very proud of the commitment and hard work that's been put in by all of our colleagues across all our markets. It's not been the easiest 6 months operationally for any business. Like many at Naked, we've had to adjust to new working models, building out teams in fully remote environments. And our colleagues have unfailingly been focused through that I'll try to provide a great experience for our customers and to continue driving our mission to connect those customers some of the world's best independent winemakers. I'm very pleased to be able to report the set of numbers that evidences the great work that they've been doing. So I think now it's an appropriate period as we've just had thankfully the news of potentially a vaccine for COVID-nineteen to reflect on what the long term impact of the step change and the growth we've delivered in this 6 months is going to be for Naked Wines. And conscious, you know, we've been bracketed probably as one of the beneficiaries or the winners through COVID. But to my mind, the really profound impact is that we have not just a bigger business as a product over the last 6 months, we are fundamentally a better and a stronger business. So for those of you who are maybe a little newer to Native Wines, we talk about the virtuous circle we create through our model and the differentiation we drive by connecting customers directly to winemakers. We have a pool of members we call angels, their cash subscriptions and the ratings data and it allows us to work with over 200 independent winemakers. The funding we provide and the data lets them make better wine at lower cost. We're able to pass that back on to our customers who get great quality products at a better price than they pay in standard retail environment. That drives a very high retention model and we build again a larger customer base and that's how a circle works. It's worth thinking about how each of these things has been reinforced and amplified in the last 6 months. So firstly, we have more than an additional €60,000,000 of cash coming in, in terms of subscription from additional customers. That's enabled us to work with and support a larger group of independent winemakers. We brought more than 40 new winemakers into the model, including some we'll talk about later over the course of the last 6 months. In all of this means, we're able to amplify and, you know, drive even better, you know, scale economics and value, so we're reducing production costs for our winemakers and we're able to pass that through with greater efficiency, lower distribution costs to again reinforce the quality to value for money advantage trade will offer customers. So all of this is sustainable and permanent improvement in this kind of virtuous circle. And ultimately, I think what we'll see right now is there are 2 types of businesses that have done well out of lockdown. There are some businesses that people have been forced to use out of necessity and there are some categories and I firmly believe naked and online wine in general is one where this has been a period of time where people have had their eyes open to new models and have discovered new things that they're going to stick with. And ultimately, the reason they're going to stick is that we've got a better way of providing wine to customers. When you connect wine makers directly to customers, you can give people more choice, better value and a much richer experience. So what I want to do today is talk you through in a little bit more detail what we see as those enduring changes as a result of the 6 months we've delivered as a business. I'm going to talk a bit about the markets we operate in, the scale we've been able to build, some of the impact that has and some of the work we've been doing to drive customer lifetime value and how it also impacts and improves our appeal to winemakers. And overall, I think the message here is that we see a series of changes that will be enduring. You know, we have, as I say, a better business as well as a bigger business as a result of the last 6 months. Now firstly to think about the markets we operate in. We shared that there's been a really rapid period of inflection in terms of the penetration of the online channel in the wine category, in particular in the U. S. Where that channel was very underdeveloped. I think It's really interesting to reflect on why that's happened and the chart on the right hand side here shows that there's been a massive increase about a threefold increase in the number of unique buyers who bought wine online in the U. S. Looking in 2020. And this is a whole new swathe of people who've had their eyes open often who didn't even realize it was legal to buy wine online previously and are now trying new models, maybe our own, maybe some of our competitors, but we see this as a permanently expanded pool of buyers who are open to the idea of buying wine online. And I think another way of looking at this, and again, returning to this idea of people discovering a better way to buy wine, is to look at the dynamics in the early pay period in the US where there were very tight state level restrictions and then what we described as a reopening period through the summer in the US. And what you see looking at the chart on the left is that for the total off trade in the early period with restaurants and bars shut, there's a surge in growth, 27% year on year growth. But as the on trade started to reopen and things started to normalize, that fell away. If you look on the right hand side, looking at the direct to consumer market, businesses like ours, wineries shipping directly to customers, you see an even larger surge in the dark bar from March to May 20, But you see really very little change in the period moving through the summer. And again that's a reflection that as consumers are moving to an online model, they're discovering you can get something that's more convenient, you're getting great wine, you're getting a direct connection to a winemaker and you're getting better value and that's something that people want to stick with. And I think that's really profound. So we're operating in an environment where our markets have seen structural change that's favorable to us. The next important message from the last 6 months is that we've demonstrated that the infrastructure here at Naked Wines scales really efficiently. So we've been able to deliver this step changing growth alongside, you know, frankly some pretty profound transformation in how people go about doing their work and we've been able to do that very effectively. So operationally, we've seen capacity increase by over 100% in the half, We've opened new distribution centers and we've done that while maintaining great availability. From a customer service model, we're now operating a fully remote customer service environment in all our markets with having nearly twice as many contacts as we ever have before. But we've done that most maintaining really great feedback. The thing we're always passionate about is the performance and the ratings that our customers give us, 91% feedback rating maintained. We've also been working with winemakers and working with winemakers in new ways. So we brought in 36 new winemakers through our $5,000,000 COVID recovery fund. And we've continued to look for ways to do things differently to support winemakers looking to take advantage of new opportunities whilst other people are pulling back or deferring payment terms. You know, we always believe that close partnership with our winemakers is the secret to differentiation. I think it's also worth just noting here that during this period of time, you know, in none of our markets have we taken advantage of any of the different government economic support just made available. So we've taken no money in any market we've operated in this 6 months, we've not needed. And if you want to think about what that means and to take a US example, that means we're seeing really substantial cost leverage. So the fixed cost of our US operation as a percentage of sales in that US market is coming down by 5 percentage points, nearly halving compared to H1 '21. And then in terms of a unit cost basis, you see us driving a 22% reduction. And again, that's very profound because driving out that cost that no one can taste, that doesn't have any value as we add scale, leads us to delivering higher lifetime value of customer. So we've got markets that are transformed and more favorable to us. We've been able to scale the business and that's driving efficiency. And the next important thing to update on is that despite the disruption that's been going on and the challenge of scaling the business up, we've also been working hard to continue to improve the underlying experience for customers. We've talked a couple of times about our creation of new subscription products and our never miss out product to allow customers adoption across the customer base. So we have now over 180,000 members signed up to this. And we have compelling evidence. And what the chart is showing here is the dark line is showing the amount of lifetime value we generate by days elapsed from a customer once they've signed up to a never miss out on one of their favorite products versus the green line for a control group of similar customers it happens. So we've got evidence here that not only are we getting a lot of adoption here and generating revenue, but the revenue is highly incremental. And actually, we have £11,000,000 of contracted future revenue just through this never miss out product across our group. I think another question we talked I think pretty openly about 6 months ago was that we didn't know exactly what the impact of COVID-nineteen would be on behavior of existing customer cohorts. And actually what we've discovered is the impact has been to amplify the affinity customers have to our business. We've seen improvements in our retention rates and we've seen improvement in order frequency. So the left hand side is showing the behavior of all our customers that have been in the business for over 12 months. So these are a group of customers, all of these were recruited before COVID, but it's showing how their behavior has changed. If you look at the blue line on that left hand chart, you see a little spike in March 2020. So we did have a little cancellation spike. And actually what we did there was reach out proactively to our customers and said, hey, is anyone struggling? Is anyone in trouble? Do you need to pause payments? Do you need to take your money back? Because we've always believed that the right way to create long term value is to clearly position MakeIT as a business that's on the customer side. And I'm delighted to say if you then look at the dark blue line compared to the gray line through the rest of that chart on the left hand side, we've seen materially improved retention of customers through the balance of the first half. And then on the right hand side, you can see not only we have that higher retention, but each of those customers' frequency has increased. So James will talk a little bit more about the financial consequences of this in his section. A couple of very important trends there in terms of change in customer behavior we've observed. Now the other part of that equation is obviously, well, what about the customers we have recruited in the first half and customers that have obviously come to us in a unique environment. It's a different time. And I think there are 2 things to highlight here. We've highlighted the March through May cohorts, which in our mind are the customers we've recruited during the acute phase of COVID. And I think the message we have here is we have compelling evidence these customers are likely to be more valuable than the long term average. What we're showing here is the amount of contribution those customers have delivered in their 1st 90 days and compared it to the equivalent months last year. And you can see there's a substantial uplift. I think then if you take the cohorts from June onwards, what we've seen is really more of a reversion to the long term trend, still generating more contribution than the equivalent period next year. And I think we're at the point now where we'd say the evidence suggests these are of similar, maybe slightly higher than long term trend value of these cohorts. There's 2 slightly different dynamics going on here. But as this data is building up, we have a lot more confidence in the value of these cohorts than we obviously had 6 months ago where we knew lots of customers were turning up, but it was unclear exactly how they'll were. I think the final part of the story that's always important for us at MakeIT, but we've really tried to spend even more time focusing on over the course of the last 6 months is using the power of the community we have here to continue to engage people and give them a little bit of joy, a little bit of a respite from what's been a pretty bruising and challenging year. So whether that's been, you know, supporting the wine industry by doing things like our COVID relief fund, whether that's been creating new types of digital connectivity with customers, you know, moving from having you know tasting tours where we meet thousands of angels to having virtual experiences where we've connected with you know 70 or so 1,000 angels this year. And it's also been just customers doing it for themselves and looking to make it as a great safe space where they can go and engage with something firm, connect to a winemaker and take a little bit of time out from a crazy year. You can see that in the first half, I think it's pretty amazing, nearly a 1000000 posts are being recorded on our different winemaker pages showing the scale of community we've now delivered. So we've got markets that have been fundamentally changed favorably. We have a more scale business and we're seeing success in a number of our initiatives to drive lifetime value. What all that adds up to is also a business that amplifies its appeal to the world's best winemaking talent. And we've done a couple of major product launches with some of the winemakers we talked about 6 months ago, we brought on board as part of the COVID fund. And Jesse Katz, we launched his Aperture Wines on the on the 4th July on the Independence Day. We sold a quarter of $1,000,000 worth of wine in 24 hours and we did that in average bottle price of $42 a bottle, so materially ahead of where we traded in the past. Very excited about the next stage for Jesse with Naked. I was just out of his winery in the Alexander Valley a couple of weeks ago and we've got the final label design and plans for a range that is nickel the exposed range, be 100% exclusive to Naked Wines launching from the 2019 vintage. I think another example, I know this is an investor favorite for a lot of people, you know, the Matt Parish Napa reserve cap and I don't know if we've got more investors or you love our orders very thirsty, but we sold $300,000 of that in its first week of launch this year as well. What does all that add up to? I think it adds up to a business that is thriving, a business that is growing ahead of the market, and we've got some clear recognition of that. So for the 2nd year in a row, we were delighted to be voted USA's number 1 wine club by the readers of USA Today. And if you want to look in terms of a market share lens, you know, this is not just a growth story that comes from a market doing well, we've been taking material market share. Our volume share actually passed the 20% mark if you look at the kind of period from March, you know, COVID period to date. So that's more than 1 in every 5 bottles of wine that are shipped from a winery in the USA to a consumer are shipped by Naked Wines. I think it's really pretty remarkable statistic and you can also see us driving strong growth in our value share through that period. So if we add all that back up, comes back to this message of not just a bigger business but fundamentally a better business. The change we've seen is just reinforcing and if we think about the flywheel here in terms of value creation for the business. With scale, you know, has meant we've got, you know, greater efficiency. You know, that greater efficiency is translating and you're seeing it here. James will talk about The way The way we always think about higher lifetime value is that gives us an ability to go and invest and deliver customers that might have a higher CAC, but still maintain our long term payback targets. That means more productive growth investment. That means more new customers into the business that drives more scale. That's the way we always think about the business and we've really seen, you know, the pace at which this flywheel is turning has really stepped up in the course of the last 6 months and it gives us a lot of confidence looking into the future. And against that, I think the final important part of the story is that we are in a really good position to exploit and pursue those growth opportunities. Balance sheet continues to look strong. We had £21,000,000 of cash generation in the half. James will talk you through some of the drivers. At a high level, it's fair to acknowledge that that's not representative of the cash generation for us in high growth mode. There's a little bit of exceptional movement of working capital in this first half. But it does mean we're well set up and we've got the strength, the balance sheet we need to be able to continue to invest and to take a view where we can look for the medium and long term opportunities in a period of uncertainty. And I'm very excited about that. And it's not just about investing in customer acquisition and it's also about investing in the capabilities that have made us to connect winemakers and customers, and it's about investing alongside our winemakers in exciting new wines and new projects and to continue to build Make Your Wines as the home of the world's best independent winemakers. Medium term, no change to our capital allocation philosophy. But as I said 6 months ago, right now we see our strong balance sheet as a real source of competitive advantage. So with that, I'm going to hand over to James and I get to embarrass James for a second We said 6 months ago, maybe it'd be James' last time. He's he's managed to make it through. I'm delighted actually he's managed to make it through to present such an incredible set of results as we have today. In the course of his time with the business as CFO, I think we've given this something like 4 times the size of when he joined and I really couldn't think of a single contributor who's been such a big part of our ability to deliver that and to build the company we have today. So James will be taking us through these numbers. I'm also delighted to announce that we have James' successor secured and in place. Sean Tabak will be joining us. And Sean, think is going to be again a brilliant addition to this team. His background, his experience having worked with a number of businesses that are aligned to ours in thinking about driving sustainable long term growth through a real understanding of the value of customers in the long term and building out growth of, you know, really underlying set of favorable investment economics, I think, meant he was an ideal candidate. I think he's going to slot Brilliant into the team. But for now, I'm going to give James the pleasure of talking us through the details of what was a pretty amazing first half. Thanks, Nick. I'm humbled by your kind words and slightly embarrassed to have had to hear them a second time, but I promise this is the last time folks. Starting with revenue, top line is up 80% in the half. I think useful to see quite how much the US at this point is becoming the driver of the business. It's now 49% of our global revenue in the last 6 months and it's also the business that grew the fastest. It achieved 95% growth in revenues. Not to say that the U. K. And Australia were slow, 76% 48%, respectively. But obviously with the dynamics like this, you can see that the U. S. Will continue to grow its influence across the group in terms of its scale. I think it's also informative to look at the timing of our growth and you'll see how on this chart how momentum accelerated throughout the half. What you're seeing here is in the dark blue line that we had a very large spike in revenue derived from new customers as the COVID pandemic took hold in March April. And that then slowed as things returned to a degree of normality. But the green line shows how the repeat customer revenue accelerated in that time as those new customers converted into repeat customers and started shopping again. And that led to an overall kind of increase in the pace of revenue growth, which is the medium blue line during the course of the half. I think worth flagging that that was the story of the first half. We've given guidance today as to what we expect the full year outlook to be and we are anticipating low momentum in H2. Why is that? Well, in part it's a normalization of the marketing environment which has been some of the driver of that slowdown from the extremely high levels of new customer sales growth we saw earlier in the half. It's also a reflection of the fact that during the time of our peak trading, we get very high proportions of our customers ordering anyway to the point where it's not going to be as achievable to grow frequency within that period. And then, yes, there's also a reality that our new customers are generally now being offered 6 packs for their first order. So we're achieving lower revenue per new customer order. That means that the rate of growth year on year will be lower. And finally, the comps at the back end of last financial year included some uplift. You can see it in the March section here. Due to COVID-nineteen trading and obviously as we annualize those numbers, the growth rates would be expected to drop. Moving from revenue to profitability, this chart shows how we made £17,000,000 more repeat contribution in the half and reinvested the majority of that into increased investment into new customers and also an amount of fixed cost and R and D spend with the net result profitability will still improve by £1,300,000 We've broken out the increase in repeat contribution in a slightly more granular way than normal, because I think it's informative to start understanding how much of that growth is sustainable and how much is somewhat transient due to the trading conditions. So with the GBP17 1,000,000 of repeat contribution uplift GBP7.5 million is due to us having more customers, that's a sustainable uplift. £5,100,000 is due to us realizing higher levels of sales per customer driven by purchase frequency. That relates more to the COVID-nineteen impact and in particular some of the consumer behaviors we saw at the start of lockdown. We would expect that to unwind at least in part. And then €4,400,000 relates to the fact that our margin on repeat customer sales improved by 3.5 percentage points. That is in part sustainable, which I shall talk about in a second. So just looking at the repeat contribution number in some different ways, we added £17,000,000 of repeat contribution in the half year. Just as context, I think Nick alluded to this, that's the same amount as we've added since the first half of fiscal 'fourteen on a half by half basis. And there are 3 drivers of that. The first of it is retention of sales from customers that were customers a year ago. And historically that number has tracked around about the early 80s, 83%. In this half it was nearly 95%, bringing a 12 month rolling just north of 90%. That's the first driver of the uplift in repeat contribution. The second driver is the payback that we have been achieving on the customers that we've recruited in this half. And normally we would see very little contribution being delivered from the cohort as context, that's a 12% return realized in that 6 month period. As context that's a 12% return realized in that 6 month period. The dynamics have been very different this year. We brought in a lot of the customers early on in the year. Normally our full year recruitment is very much back end weighted towards our peak trading. But because of that early recruitment of customers we from the customers we recruited this half already. So that's a year 0 payback of 35%. And that's obviously a huge positive. It reflects some of what Nick indicated around the quality indicators we're seeing from those customers. It does come with a potential slight sting in the tail that you could expect potentially lower retention from those customers in fiscal 2022 because they've been recruited earlier in the year. You'll still get the payback, but the timing of the payback will be different. The timing will be positive because by getting early payback you enhance the IRR. The 3rd driver of RFP contribution uplift is the contribution margin improvement. And I said a couple of slides ago that that's in part sustainable. So we achieved 3.5 percentage points of improvement in contribution margin overall. 1.6% of that is driven by underlying improvements in gross margin in each of our markets. Those are driven in part by marketing and range changes that were to some degree forced upon us by the rate of increase in business that we had. Some of it relates to enhanced buying scale, it's hard to separate that entirely, but we would say that certainly the majority of that is not likely to be ongoing, some of it should be but not all of it. The other 1.9% we believe is a sustainable uplift in that margin. It relates to gross margins being improved as the business moves towards the U. S, offset by some increase in fulfillment costs due to that same movement and then a 1.6% improvement in contribution margin due to fulfillment cost improvements and that is just a reflection of those operational efficiencies that Nick alluded to in the slides earlier. Moving now from the repeat side of the business to the new customer investment. So we doubled spend year on year and we also doubled payback from 3.8x to 7.6x. When we look at which side of the equation that comes from, it's actually pretty evenly balanced between the cost per range will be lower year on year as marketing costs went down both in terms of rates, but also per angel as we've got improved conversion as our proposition obviously resonated strongly with people in lockdown situations. And then we saw an equivalent increase by an increase year on year in the LTVs per angel, some of which is already realized as people have shopped earlier, some of which our forecast are showing as indicators through retention and purchase frequency that the customers will have higher values year on year. The net of those was that overall increase to 7.6x. I think it's also informative to look at our investment and our returns in terms of when in the period they were delivered and what happened. What you'll see in this chart is the bars represent how much we spent each month and the line is what payback we achieved on that investment in each month. And you can see that the exceptionally high payback overall we achieved is very strongly driven by results in April, May, kind of early in the cycle of the uplift and acceleration of business. Why did that happen? It happened for a number of reasons. One is that it was just not possible to maximize the capacity dedicated to new customers quickly. In the U. K, our repeat customers were essentially using all of our fulfillment capacity and we actually switched off temporarily for new customers. We also weren't able to switch on partner volume quickly. It takes time to print vouchers and get them distributed. But you can see that as we then moved into May June, we were able to significantly uplift spend in those channels alongside digital where we could move investment very, very quickly and start spending at a real kind of peak level for the business. The third factor is a little more technical, but is that we set ourselves a goal of making sure that we were going to hit our 4x target by targeting actually 5x when it was uncertain what kind of quality these customers were. Over time, the cohort value forecast we've achieved for those customers have been increasing. And as a result, when we thought we were targeting a 5x in May June, we've actually ended up with a 6x to 8x type payback just because the customers have demonstrated themselves to be worth more than we expected at the time. Overall effect of that is that we have, for the past few months of the half, been trading at a 4x to 5x payback in the investment that we're making. And obviously that remains our target going forward. Moving away now from new customers just to the fixed cost base of the business. We said at the full year that we would need to be catching up somewhat on some fixed costs we hadn't built into the business during fiscal 2020 and we did that with 20% growth recognized in the fixed cost base during the half. However, given the high level of sales growth we've achieved at 80% that remains below our medium term guidance despite investing in a set of additional roles including the U. S. Managing Director, the Director of Growth and putting in place an enhanced variable compensation package to reward employees just in this year for the exceptional efforts they've made to keep the business running and keep our quality indicators like 5 star feedback high. Just worth flagging that in this aggregate fixed cost number, I am including both our RR and D spend, our spend exploring new marketing channels, which amounted to £800,000 in the half and also IFRS 2 charges, share based payment charges, which will be circa £2,000,000 per annum going forwards but were previously reported as adjusted items, we're now building them up into our adjusted EBIT number. Bringing that all together, Nick referred to our standstill EBIT number increasing to £26,000,000 per annum. That is the calculation of what we would make as adjusted EBIT in the event that we only invest this to replenish the customer base and not to grow the business. I think it's most informative to look at how that has grown so much. It was £4,000,000 on a rolling 12 month basis a year ago to 26 now. £21,000,000 of that uplift relates to the uplift in repeat contribution over that 12 month period. GBP3 1,000,000 is actually an improvement in the replenishment costs to replenish the contribution loss to attrition. And that's a reversal compared to normal trends. Generally, you'd expect to have a bigger business. And with a bigger business, you'd expect to have to spend more money to replenish the customers that you've lost. But because we've seen higher levels of retention and enhanced levels of payback that actually has reversed the other way. Yes, I would flag being prudent that I would expect that number to reverse on the assumption that at some point our attention and payback KPIs reverse towards kind of historical normal levels. The 3rd driver then is the Opdivisions fixed cost in the 12 month period, which completes the bridge from 4% to 26%. Moving away from the P and L now and into cash. Again Nick alluded to our strong cash generation. We've generated £21,000,000 of cash in the half. Yes, a small amount of cash absorption due to the EBIT loss, but really the moving parts in here relate to working capital. We invested £15,000,000 in the half into inventory to grow inventory levels, but that is a number which is lower year on year than the €23,000,000 in the first half of fiscal twenty twenty, despite the fact that the rate of growth was significantly higher. That actually reflects an underinvestment in inventory and we will need to invest substantially to right size that position. In order to keep up with demand, we pulled certain vintage releases forwards and things like that. There is a right sizing of that required. Increasing customer funds is what you would expect based on the enhanced level of angels that we now have, but the increase in accounts payable from 7.6 €1,500,000 of cash generation from that in the half is not a sustainable number. It reflects to some degree the growth we've seen, but also the fact that in securing inventory quickly in the pace at which things were moving through the supply chain at the back end of the half, there are balances there that you would expect to unwind over time. It's worth reiterating it, there's nothing in that balance like a long term VAT deferral, we didn't take any advantage It is just an unusual shape of the balance due to the trading conditions we've been in. So moving to guidance, we have upgraded our outlook today. You may remember that at the full year and with our ATM announcement, we indicated that our guidance assumed reversion of KPI trends towards the norms we've seen in recent times. And we have started the second half with some sustained momentum ahead of those in those KPIs. The net result being that our central case as this is, we do have a wider range of scenarios with the amount of uncertainty that remains. But our central case now is suggesting total sales growth between 55 65% for the year. Repeat contribution in the range of £75,000,000 to £80,000,000 investments in new customers between £40,000,000 £45,000,000 and fixed costs including the R and D and those share based payment charges in the range of £37,000,000 to £39,000,000 Looking further forward to FY22, it obviously becomes more uncertain and more difficult to forecast what's likely to happen. I think what we are able to say is that we intend to sustain the levels of investment in new customers at least at the FY 2021 levels and targeting at least a 4x payback which has been our target for some years now. There's a wide range of potential outcomes for the repeat business. Obviously, we've seen exceptional trading to our repeat customers this half and it all depends on whether or not they continue to purchase at the enhanced frequency which we've seen. If they do, we would expect our sales retention to be kind of at the levels we considered normal pre COVID in the early 80s. If their frequency reverts to the levels that used to be normal, actually we would see reduced sales retention versus those levels for 1 year just as they get back into the purchasing patterns we've seen previously. And we will continue to invest in our fixed cost base. We believe that the fixed cost base should reflect the size of the business. There are a number of areas in particular around kind of tech and data we want to continue to build and continue to invest in R and D to open up further marketing channels. But hopefully the picture I'm painting is that with sustained investment in new customers, with sustained healthy levels of sales retention whether at this year's level or the level of years gone by. We are in a position where we've seen a step change upwards in the scale of the business and we have confidence in the long term ability to keep growing from that point onwards. That is where I hand back to Nick. Before I do that just want to say again thank you to all of you for the relationships we've built over the last 4 or 5 years and very much look forward to watching from the sidelines at these events in the future as Sean takes my place and presents the numbers to you. In the meantime, over to Nick. Thank you very much James. I just want to leave with you a couple of messages before we move over to Q and A. It's clear that this has been a transformative 6 months for Naked Wines. The results have been great, the numbers we've delivered are impressive and testament to the hard work of all our colleagues And it's a pleasure to say to be able to give you the upgrades to the full year guidance. I think in particular, it's shown that this is a business that really scales effectively and that the investment and the time and the thought we put in terms of building a set of infrastructure that does allow us to build a larger business has been time well spent. And it also shows that you can see for yourself now the benefits of building that scale. And they're coming through here very clearly in the numbers in terms of some of the operational efficiency and the margin enhancement that we're disclosing in the first half. So you can seek yourself the evidence of that logic that a bigger business is is also a better business. We're as well a business that is now operating in a market that I believe has seen structural transformation that is favorable to us. And if you look at the long term history of any kind of consumer goods market and its migration from physical to online channels, that tends to be pretty much a one way street on that migration. And I think the enhanced awareness, understanding and willingness to trial online models only favorably changes the long term growth potential that make it and then speed at which we can realize that potential. And we're a business that's ideally positioned to go for that. We've got the funding in place. We have the strength of balance sheet. We've built the team that we need to do that. So I'm very excited about the prospects for the balance of the year. But more than that, the prospects that we have on an ongoing basis is to continue driving towards our long term mission. We believe by bringing together the world's best independent winemakers with everyday wine drinkers, We can create fundamentally better way for people to buy wine, for winemakers to do what they're passionate about, just produce world class product. And we're really excited about the opportunity to bring that to 100 of 1000, if not over time, 1,000,000 more wine lovers all around the world. So thank you very much. And that's we'd like to open things up for Q and A. We will now take our first question from Jonathan Pritchard from Peel Hunt. Please go ahead. Your line is open. Afternoon, morning all, and congratulations on a great half. Two sort of big pictures for me. The competitive set in the States, you've obviously taken a lot of market share just at a moment where, I guess, awareness or the willingness to buy wine online has rocketed. What's the competitive set been up to? I mean, have they been slightly caught, a little bit asleep at the wheel here that you've been able to take so much market share? I know you've got great balance sheet strength, but what are the behaviors being of the competition in the States? That's question 1. And then just to sort of not a bad problem to have sort of question, but personalization and dealing with small winemakers, I mean, obviously, you're growing incredibly quickly here. Is there a degree to which that lovely notion of being able to email a winemaker or have a chat with a winemaker, as thousands and thousands more people join, does that become less personalized? Jonathan, happy to take those. Let's start with the question around market share. The first thing to remember is if you look at the dynamics we laid out around the channel in the US, coming into 2020, 95% of wine was being bought in physical locations and not entirely dissimilar to the UK, the largest of those grocery channel, slightly larger specialist physical channel as well. So the biggest thing we've been doing has been driving the growth of the overall direct consumer market, and we've been bringing new consumers into that channel. And that's had the function of both us growing share of that market, but also expanding that market. Really, I think this has been a period where a lot of consumers have suddenly had their eyes opened that there is a different alternative out there. You can have something different than buying highly branded wine made from 1 of the big 5 U. S. Wine groups and can have that direct connection to a winemaker. And really, I think that's the secret behind our ability to drive share. And I think that's something that is something we can continue to do. There's still a lot more people buying wine, we would say, probably the wrong way or not the certainly not the most exciting way. And your second question around the personalization of the community, I think actually the first half has been really interesting to show that the community can become even more relevant and more vibrant as we get bigger. So I think we pointed to nearly a 1000000 people posting on a winemaker wall in the first half of the year, which is an incredible number. You've got to remember, we've got over 245 winemakers now across the world. So it's not like that's all happening in one place on one day. And actually, one of the things that we're able to do with that enhanced scale is continue investing behind the technology and the user experience, making both sides of that conversation easier, so for the winemaker and for the customer. So we feel it's our challenge as we grow to carry on enabling conversations and make sure they can happen. Okay. Thank you very much. We will now move to our next question from Brad Hathaway from Farview Capital Management. Please go ahead. Your line is open. Hi, Nick and James. Congrats on some great results. Really pleased to see how well you operated during what has been an unprecedented environment. And James, congrats on the move. I'm excited to see how you run the UK business. So one question that I think I'd be interested in discussing is the potential to move up market in the U. S. So you've added some really exciting top end winemakers. I mean in the deck you talked about Jesse and Matt, but also you have a bunch of also really great winemakers now. And it seems like there's an opportunity for you to move up in price points. So I'm curious as to how you see that both as an opportunity and what you think the impact on the business model might be? Thank you very much for the kind words, Brad. And, yeah, happy to talk a little bit about premiumization. I think I want to separate into 2 things, what we already know now and what we think could be a further opportunity in the future. So what we know from the testing we've done already is that there are a large number of angels within our US base who are very receptive to buying wine at what we describe as a kind of premium price point, say $20 an hour. And when we combine a compelling story, a great winemaker and a great product, we're actually able to move really material volume at some of those price points. And that volume plays into how we've always thought about the business. That volume means we can produce amazing luxury wine at a lot lower cost than a traditional boutique producer, and we can share some of that benefit on with our consumers. So I think what we've proven to ourselves is there's an opportunity to stretch the range, to develop more of product, and to use that to drive, if you like, the overall revenue per member, which, in our language, will always be driving the lifetime value. I think we're confident in that and really working to build out that range. And delivering authentic projects with great winemakers does unfortunately take a little bit of time. So it will take a while for those products to drop through, but we are working hard on that. I think the interesting question, which is opportunity for the future that we haven't 100% grounded out yet, is can we acquire material quantities of customers directly into those price points? And, certainly, if you look at the direct to consumer market, there's a large, you know, section of that market which sits in the sort of $20 to $50 a bottle range, where I do think we've got an an opportunity to become more relevant and and take more share. But but that working that out is still something where we're running some tests around and we haven't fully figured out. So if that answers your question, Brad, there's one definite opportunity and there's one thing that we're excited about for the future but still need to do a little bit of work to unlock. Okay, great. As you say, you're 20% of volume, but I think 5% of value. It seems like there's a huge top end market. And if you can grab a winemaker like Jesse and Matt and Daryl and Ken and whatnot, it seems like there's a huge opportunity to continue telling that story and moving up to those price points. I had a very socially distanced catch up with Daniel Barron, who's the former head winemaker at Silver Oak, whose first wines will be releasing in about 6 months. I think they'll be right up your street, Brad. So that's the next one for you to look out for. There are currently no more telephone questions. Okay. So now this where we're testing in real time. This is where we move over to a period where we read out some questions we've received through our web link, and then we'll give you a reply. So I'm going to start out with a question here from Jonathan Auton at Imperial Capital. It's quite a long one. Given the importance of the US business and the extent of both national and state regulatory complexities, what regulatory risks do you foresee for the business and how are you mitigating these? And the question asked 2 specifics. 1, the potential opening of interstate retailing may increase competition. And 2, is there a risk that using your winery operations to facilitate DTC sales comes under scrutiny given your dominance of the segment? So, Jonathan, if I may, I'm going to take those in reverse. I think the second one, very important to understand 2 things. Number 1, the model we operate under, selling direct to consumer as a winery, is positively enshrined in in US law. It's being clearly established and tested at the Supreme Court. And, see, it's not a workaround. It's it just is the law, the ability of wineries to sell direct to their consumers. So I think the fact that we are the largest company doing that, and it doesn't really, to my mind, pose a great risk. And in fact, there are much bigger businesses than ours who have a direct to consumer segment. If you go and look at if you look at someone like a Costa Brown or you look at the Treasury, they will have their direct to consumer business. So that's something that we don't see as a concern. The second question around competition, I think you're right that there may well be over the next 5 to 10 years a trend of more states allowing retailers to ship direct as opposed to just wineries like ourselves. The key thing to remember there, Jonathan, is that's already the state in 13 of the states we serve, including California, our biggest market. And Naked still, you know, does very well in those markets. That has no meaningful difference in terms of either our lifetime value or our payback if you split it like that. And the reason for that is retailers are still operating, you know, within a 3 tier system. So these are still retailers buying from wholesalers, buying from producers. So whilst you do have more competition, you know, we're still structurally advantaged against those players. So, you know, it doesn't, to my mind, represent anything of an existential threat. And now I need to remember that we then move on to reading the next question. So, from Lukvaka, there are questions here talking about the reference in our presentation to improved gross margin as a result of mix shift for the US. And Mr. Arson can explain why the US has gross margins? And it's a simple answer. It comes back again to the same nature of the market in the US. So the majority of wine in the US is sold through this 3 tier regulatory system, a regulatory system where a producer makes wine, a distributor then is an intermediary, and a retailer, say, either a liquor store or a restaurant, sells it on to the customer. The consequence of that is you have 3 margin pools built up, and wine is more expensive in the USA than it is in any other country on And that's not because it costs more to make. It's because of the way it's sold. Because our model allows us, as a producer, to sell direct to consumers, we're able to combine values to consumer, getting a better wine at a better price and generating a good margin. So that's why we're able to generate a higher margin in the U. S. Than we are in other markets where there's not that market structure and where the market is more efficient as a baseline. Take, for example, the U. K, where there's an incredibly competitive and efficient wine market. And then you have a second question, which I think I'm going to hand over to James for. Thank you, Nick. The second question is, we mentioned higher fixed costs due to strong growth in repeat sales and contribution from existing customers. Why does this increase fixed costs? I think two answers there. One is it's probably a bit of an overgeneralization in the introductory paragraph, and I think we've given a bit more granularity later on. But there is an element of the fixed cost base that does actually kind of grow with the business. So certainly when we see an uplift in scale as we did quite quickly here, just getting more people out to process more wine buying, get it listed on the site, get it into the warehouse, process the invoices. There's just a set of activity required, which is the repeat customer base, buys more wine and scales, requires some more heads kind of within the organization because we haven't, at this point, automated a lot of that activity. I think there is then kind of more general set of increases which we have alluded to in the fixed cost base this half around some of the roles we filled out such as the U. S. President role and actually a substantial portion of variable comp where we've put a specific plan in place for this year to incentivize the teams to maximize the growth we can get in the extraordinary times of the brain. Thank you, James. This is going okay so far. It's clearly here at some point. Next question is from Andreas Hahn, who's asking a question around our listing location. Your business is more and more US based with CEO and CFO now in the US. How do you think about a US listing as peers in the US are trading at higher valuations? I think, Andreas, I'm going to say the same thing I've said in private conversations to many of you on the line, which is, Naked has actually never really had a period of time where it's had the funding, the resourcing, and the single focus to really pursue generating the long term shareholder value that we believe is here. And what we did with the disposal of the retail business in the UK was create that for the first time. And I think the results we're showing today are a vindication of doing that. And what I absolutely want to be focused on over the course of the next 6 to 12 months is delivering on the potential we've got here, continuing to grow the business and focusing on generating long term value, intrinsic value in that business. My belief is that that's going to show through, And that's what we're focused on doing. Obviously, if you get to a point where you've delivered a ton of great performance and there's no value for it, then maybe you look at different things. But really, our focus right now and the reason we've put a CFO into the US has been around creating the right operating management team to maximize long term value creation in the business. I think that was also there was a question the same question on listing came up from Paul Jyersinger, so covered that one off as well. The next question is from Michael Heery, who's asking how does your U. S. Market share compare to your nearest competitor? I think the answer here is that the data we rely on from a company called Sovos Ship Compliance who process the, the direct to consumer, winery to consumer transactions. It doesn't break out and let us see individual competitor shares, so I can't give you a, number answer. The reason we know we're largest is because we can tell that we are all of the largest band of, they do break it out by scale of winery. I think to give an idea of relativity, we'd expect the business to probably be somewhere in the region of 2x, the largest direct to consumer peer, but it's you have to do a little bit of inference to get there. And I'm going to hand back over to James for our next question. Oh, no. I'm not sorry. This is where it was going to go wrong. I've skipped I've skipped down one. So the next question we have actually here is from Ben Hunt at Investec, another slightly long one. I'll try and get this all in. Underlying fixed cross costs grew 20%, maybe 30% if you include r and d. Is there an argument to say, given the step up in scale, that actually the fixed costs may be more fixed than you'd have first presumed, and that assuming that they grow as 50% of sales is too conservative? And in which case, would you be tempted to relax the targeted payback metrics and go for even more growth in the future? So I'm gonna try and unpick into a few different parts. I think firstly on the cost assumption, I'd say 2 things. We have demonstrated that you can scale the infrastructure and make it quite effectively. And I think you're absolutely right that we have a choice if we can deliver high growth to grow the cost base at less than 50% the rate of open. So it's not a requirement. It's a choice. But our long term guidance does remain to expect that 50%. And that's because we see, actually, as we grow, there are lots more areas where we can continue to invest productively to improve the customer experience and drive lifetime value. So in the same way that we're open to any type of investment that we're confident delivers a good return over the long term. That includes fixed cost investment. So I'd say our guidance of 50%, you should expect to to see stay. I don't believe it's right for us to wholesale reduce our payback target, But I do think there is a little nuance here. And it's certainly true in periods of time where we are growing materially faster or maybe the cost base is not growing as fast. We have an opportunity to accept or make some different investment decisions on marginal spend, where we maybe might be willing to take another $5,000,000 of investment at, say, a 3 times payback. And that's still consistent with generating strong IRRs and would make sense at that point where your kind of overhead growth is covered. Hopefully, that answers the question. I appreciate that's quite a long and technical question. So do my best to answer in this format. And now I'm going to hand back to James. He's got a question from Mark. Hi, Nick. Question from Mark Profitlick. Why is 1.6% gross margin improvement from increased scale not here to stay? And I think this is referring to the chart labeled on Page 26. I think important to say, Mark, that 1.6 percent is not just a simple we bought more and the costs were better. It's actually driven significantly by some of the marketing and range changes we implemented during the kind of start of the lockdown period. For example, in the UK, we had to operate a limited range for a period of time because of social distancing in the warehouse. And that meant that what we did was essentially put forward the SKUs that we had the most depth of stock in and the biggest sellers. They tend to be the biggest scale SKUs and therefore we managed to achieve some of the better margins on them. There is a degree of scale benefit where we bought more wine than we had originally planned and contracted with winemakers for the year. And in some cases, we got some better pricing than the baseline pricing. But again, when we get the range back into the shape that we would expect it to be rather than having to make some trade offs frankly to fulfill in a kind of stressed scenario of warehousing space. That's what we're saying we'd expect it to unwind. I'd like to think some of it will stick, but what I didn't want to do was set that expectation given I felt that the items on the right hand side are very much ones that we should expect to see structurally be maintained within the business. Back to Nick. And then, James, do you want to take the second part of Paul's question, which was or the first part, which I think was just giving you an opportunity to bloat around how much wine you sold recently in the U. K. Sorry. Yes. So as an agent in the U. K, very happy with the naked Christmas box, which is great to hear, Paul. Thank you. I was nervous though when the site went down for a short period, does this reflect more investments in systems is needed or just short term demand? It is just short term demand. What happened there was we had load tested the side to coming at 2x to 3x historic transaction volumes. We actually kind of hit a capacity within the amount we had load tested, it, but there was one specific subcomponent of the site that more traffic went through than we expected, and that bit failed. So it was a very high spike versus what we expected. With 40% or 50% more customers, you don't expect to get 2 to 3x the scale of demand. And that was the scale of transaction processing that we were undertaking. But actually, all the tech team had to do was take that subcomponent offline and then they can very quickly spin up more cloud based capacity for it and hence we got the site back up in 40 minutes. And I'm going to say this processed about 3 transactions a second for the next hour, which is certainly an all time high. Okay. Now I don't know if that one was a plant for you, James, but it was an impressive launch. Next question. I think, Mark, you have 2 further questions. Maybe we maybe I cover off both of those. The first one was around the R and D spend. So this is investment that we make to try and open up new customer acquisition opportunities. We disclosed $800,000 of that spend so far in the year and just was asking around, is there anything we can talk about? So the reason we haven't put anything in the presentation is there's nothing that we would hang our hats on at the moment as definitive and proven. So, you know, that you know, we don't want to kind of make promises on something that is still in test. And, you know, whilst they've got a couple of things that look interesting, there's nothing yet that we can promise we're going to be able to deploy, you know, material spend into at our target 4 times return. We have, I can say, 4 different channels in test currently live through Q3. And I'm very hopeful that we'll be able to give you a more specific answer when we get to the full year results. But I don't want to make myself a hostage to Fortune, I'm afraid, Mark. I'm going to disappoint you on the specifics. The second question from Mark Brookledge was around the can we give any more detail around the characteristics of the extra customers we've been acquiring? And he's asking, for example, have we seen any changes in demographics around age of customer? I can say we've done quite a lot of work here. So we disclosed in the presentation, I guess, the outcome, what are customers doing in terms of their ordering characteristics. But we have also given the increased magnitude of customer recruitment and, obviously, the potential for for change in in audience during during what's been a pretty unusual year. Done done further research in partnership with Experian and some of their counterparts in in all three geographies. That has told us a pretty consistent picture actually. So in all markets, we continue to have a customer base that is highly skewed towards affluent working professional. We are, to the extent some people are kind of following a story of a k shaped recovery, guess we're fortunate to be on the right side of that recovery in terms of the customer base. The average age remains we remain a business that primarily recruits customers who are at that kind of family at home or post family at home life stage, where wine at home is an important part of their lifestyle. Not a big movement, but actually a slight movement. I think the fastest growing age band was about 35 to 45 in all our markets. But really, the research we've done has given us a lot of confidence in the resilience of the customer base and certainly the demographic profile of the people we've been recruiting during the last 6 months has been consistent and to an extent slightly favorable to the profile of the customer base if you look at 2019 acquisition. And then I skipped over one question here, but let me go back up. A question from Ari Lazar, which is, what is the strategy to get more popular producers similar to Jesse Katz and Matt Parrish, and how has the progress been? And answer that in 2 ways. I think the first one, Ari, has been that scale is massively helpful in attracting more and more of the world's best winemakers. And that's very simply because for the same level of risk exposure for us, we're able to commit to higher volumes initially and that makes the proposition we offer to winemakers that much more attractive. And the second thing is the increased confidence we're having in being able to sell some wine at higher price points also makes us much more attractive. Fundamentally, most great winemakers are, you know, artisans, and, you know, they're passionate about creating a broad range of wines. And if you can tell them they can you can create everything from a $10 wine to a $50 wine and make it, that's a much more attractive pitch than just saying you can create a lot of $10 wines. So we have to write raw ingredients. We are pursuing a number of active conversations. We've got some winemakers that we've signed up and wine's waiting to release. And, well, you can expect to see a number more coming, and our pace of new winemaking development is going to increase. Very specifically in the last 6 months, we worked with 44 people through our $5,000,000 COVID relief fund. And we see a number of opportunities to move high caliber winemakers that we initially worked with through an existing brand they have as part of that fund and bring some of them on board full time with Naked. And that's what happened with Jesse. There are a few other people where we're in advanced negotiations to do similar. James, I think a question from Tillman is for you. Yes. What do you expect from the coming months? Do you see comparable demand increases as in spring? I think I'll refer back to the guidance we've given here, which kind of clearly demonstrates if you think that the first half of 80% and the full year at 55% to 65% is a slowdown in the second half in the rate of sales growth. The reasons for that, we've outlined part of it is we are going to be lapping the first part of the acceleration due to COVID. The second is a seasonal effect where, generally speaking, over the holiday periods of November, December, including Thanksgiving, Christmas, etcetera, very close to 100% of our angels will order 1 anyway. So whereas earlier in the year we were seeing uplifts in a month that normally we would expect maybe a quarter of the Angel population to order and that was looking like 50 percent and we were seeing material growth. We don't believe that people are going to be ordering twice as much wine from us at Christmas given quite often everybody orders anyway. So that's kind of basically the premise behind the guidance. And that then kind of rolls through into the F 'twenty two guidance that we talked about in the presentation. But yes, it is signaling continued growth but at a slower but still high rate. Okay. I think the next question is from Vishal Bhatia at Johanborough. Question here is congratulations on a fantastic half. With regards to the US, pleased to see the cost of order fulfillment has dropped to $31 Where can this get down to with economies of scale and at a certain volume level to alternative or lower cost fulfillment models become feasible? I'm not going to get myself in trouble with my ops director and give you a number, But definitely, the work we've done suggests there are continued efficiencies that we can realize. And we said we don't think we're operating at an optimum scale yet. I think in terms of difference in terms of technology, it's absolutely right that there will, at some point, be a breakpoint where, for example, we could look at more automation or investments like that. Actually, you can probably in the US, we're not the closest to that. Our biggest warehouse still remains our UK warehouse, where the geography of the UK means we're able to fill the whole UK out of a single site versus the UK being US being switched across 4 sites. So probably actually, you know, the lead contender for, you know, for some of that innovation, you know, may well be at our site in the UK. But it's something we obviously continue to look at, and we're committed to carrying on driving this number down. It's a great way to create value, and it's cost that's giving no benefit to the customer. I think then the next question was from Martin Cormack. And maybe, James, you can give a kind of view on this one. I'm not sure if we're entirely interpreting this right. The question is, will you be able to export more to the U. K. If lower tariffs happen? Could we see a growth in value? James, you want to maybe give a little bit of context on what the impact of tariffs might be on the U. K. Business? Sure. Yes. Sorry, Martin. I'm not sure I fully understand the question. If you're able to kind of reframe it through a follow-up, please go ahead. But I mean, right now, we obviously don't pay tariffs on EU wine imported to the U. K. There are certain jurisdictions that there are tariffs payable. But overall, if we look at the EU imports, we'd be looking at something like Tempe a bottle on wine coming into the UK. I think to put that in context, right now, our consumers kind of via our pricing are paying £2.35 or £2.50 I forget the latest number of duty on each bottle. So, yes, if WTO tariffs are imposed post Brexit, there will be a small increment in cost, but akin to a duty change. So whilst tariffs are something we're keeping a careful eye on and we would very much prefer it don't happen, We see it, I guess, in the round of a fairly large piece of cost relating to duty, etcetera, anyway and think it's manageable in that context. Sorry, I'm not sure if that answers the question. But if you could refine it as a follow-up, then please do and we'll see if we can do a better job. The next question, noticeably, we get a lot more questions on this format than when we turn up and do this in a room. Good job we allowed some flex in our schedule. The next question from George Perry asks, are you constrained at all in your customer number growth by the level of production of wine producers? Is there a scenario where quality wine producer numbers limits growth? I think a couple of things are important then. Number 1, there are a lot of incredibly talented independent winemakers around the world. The challenge for most of them is gaining access to a market, a route to market in distribution. And the other challenge is having an ability to invest back in their business to drive quality. So for example, having the additional money to pay a grower to farm grapes in a higher quality way or having the equipment you need in the cellar or the barrels you want to age your wine and make a really high quality product. So there are a lot of potential high quality producers, and there are lots of people who, by working with naked, can make even higher quality wine. So that's not a barrier. What is a challenge and what is important is that you plan and you anticipate the growth that you're looking to drive because we're working with real independent winemakers here. And you can't just turn on more wine. There's not a large tap. There's not a pipeline. So you do need to make some commitments to inventory and anticipate growth. And I mean one of the things James was signaling in the section of the presentation was that we will be investing through the balance sheet to build up inventory levels to give us that capacity to continue to meet accelerated growth rates. And you should probably expect to see that through the second half of the year. The next question from Simon Caulfield was around it was around kind of a linked question, I guess. It says, I'm a happy shareholder and a big fan of pretty much everything you guys are doing, but there's one thing I don't understand. Why do you need so much cash on the balance sheet? Even in a period of high investment, you've generated cash. So why not return some cash to shareholders? And firstly, Simon, it's a conversation we actively have as a management team, as a Board on a regular basis. But the reason that we don't think now is the right time to return cash really come down to the extent to which we see the balance sheet we have today as a really important source of advantage and the kind of thing that's allowed us to be aggressive and confident during a period of disruption in the first half of the year. As James talked you through, I think the cash generation in the course of the last 6 months is a little bit of a a red herring. A lot of that came through movement in the working capital cycle. And you would not ordinarily expect to see that at a period where we're growing the customer base. And, really, it reflects the fact that trading was exceptionally strong. And if we could, we were we would have if we'd had a crystal ball, we would have committed to even more inventory ahead of time, and we would not have generated that cash in the first half. So I guess you should say it's accidental as opposed to intentional that cash generation. I think the second thing is whilst we've delivered a big step up in new customer investment, I remain very firmly of the belief that we're nowhere near the ultimate potential for this business in terms of acquiring customers. We generate attractive and increasing lifetime values. And when we look at some of our peers in other subscription categories who have got offered not the same in in their base lifetime value. They're able to deploy substantially more than us in substantially more channels. I think if we do our job as well as we can in the coming years, there's a very high likelihood that we end up needing that cash that we have to fuel growth. And certainly, I don't want to take away that opportunity or deny us the strategic flexibility what's going to continue to be probably another unpredictable 6 to 12 month period. So that's the view we've taken as a Board and that's the kind of things that we're taking into consideration when making that decision. The next questions are now down to ones that have come up while I was answering previous questions. So I'm just quickly trying to work out who they're for. We've got a question from Mario Santos at Ammiral Gesteon. He says, thank you for the presentation. Congratulations on the results. Can you please comment on how wine Genie is doing since you launched it and maybe comment a little bit more on the value it brings to customer engagement and how it can further be enhanced from here. Thank you. So for those of you that's a little bit of a technical question, Wine Genie is a new product we've launched, which is another type of subscription for customers where we use our data and algorithms to generate personalized cases of wine that are shipped to them according to parameters they set and on a period of their choosing. I think we're at just over 10,000, 12000 people signed up for this product around the globe. And I'd say it's still in an early testing stage, so we're using that audience to refine the product. I think in a ways, it can be further developed. Really, for us, it's around starting to identify the groups of customers who are finding it most appealing within our base and get more of those onto it. I think also there's an opportunity for us over time to integrate some of the different parts of our experience. So for example, at the moment, that's a pure web product. Wouldn't it be great if it was integrated with some of the in person service we offer through teams like our wine advisers? So practically, what that looks like, we have a product development group around subscriptions. And Wine Genie is one of the 2 main products that they're focused on. And and they've got a pipeline of innovation, for that. I mean, you know, long term, we remain, we remain pretty positive about it. We're seeing good early performance from the the test group of customers, and we hope to see that grow substantially in years to come. And finally, this looks like it's a question for you, James. It's a question around what from Paul Levine, who asks, what's the cost in wastage of various forms of fulfillment errors? Not as uncommon as you would like, I'd assume. And how would you fix them? Yes. Sure. Look, precise numbers, not something we disclose, but it's immaterial in the grander scheme of things. Yes, as an example, the reported rate of missed picks in the U. K. Warehouse is less than 0.2%. Breakage in the supply chain is generally kind of in part at least covered through contracted rates with couriers. So there are a range of areas that we know that product gets broken, lost, etcetera, or in various stages of production. Obviously, there are different amounts in tanks and leaks, etcetera. But it's not a huge number and you fix it through basically finding out where each piece is happening and improving the process, but that can be anything from putting a person at the end of a pick line who audits periodic cases to actually sending boxes through different distribution systems with different weights of cardboard and seeing how many bottles get broken and then doing the cost balance trade off on that. Just with everything else, we will test, learn and choose the optimum outcome when we do that. So hopefully that gives you some sense. I think we're short on time and I think I'm handing back to Nick for a quick wrap up. But if there are still questions coming through, we'll endeavor to capture them and get back to you offline, if that's okay. Nick, back to you. Yeah. Thank you all very much. Thank you for tuning in. And, yeah, I'd just like to leave you with by saying that we're very excited and motivated as a management team to take this story forward. So it's been 6 months of profound change for Naked Wines. We've grown this business, really to some material scale. And I think you can all see in the numbers here that it's demonstrated the potential of what the economics of this business look like at scale. But I think what I'm most excited about is the extent to which the past year has really led to transformation of consumer habits and the shape of the channel shape of the markets in which we operate. And I firmly believe, right now, the wine industry and consumers need a business like Make It more than ever. You've got more than ever really talented independent winemakers making amazing products with a ton of passion, who are finding no route to market, no livelihood, at the same time as you have big discounted brands being pushed through multiples by global wine companies. And fundamentally, we believe there's a better answer out there for consumers and a better answer out there for producers. I think what you're seeing here is when we're able to introduce customers to that, that they really, really resonates and it generates a lot of loyalty. So for us, we're excited about what the rest of the year holds and indeed over the longer term and building the Make It Minds model out to real scale and have a real impact on this industry. So I want to thank you all very much for your questions and taking the time. And on that note, have a good afternoon or morning.