Step Change in Scale

I'm delighted to announce today a strong set of interim results for Naked Wines for the 6 months ended September, 2020. This has been a transformative period, with exceptional growth delivered against a backdrop of lasting and favorable transformation of the markets we operate in.

As a result Naked has made tremendous progress against our growth ambitions and have been able to accelerate the growth path we envisaged last year when we reconfigured the group to focus on the Naked Wines model.

I’d like to pay tribute to our colleagues and winemakers around the world for their commitment, flexibility and ingenuity - each of which that has enabled us to scale all elements of the business rapidly in the first half. I’m proud to say we have combined step change growth with maintaining our core service and quality metrics ahead of our 90% targets, all alongside continuing to give back to our communities. Together in the last 6 months we have:

• Grown sales by 80% as we build our global Angel community to over 750,000
• Harnessed scale to improve the underlying profitability of Naked; growing Stand-Still EBIT to ￡26m (+555%) and enhancing repeat contribution margins by 3.5ppts
• More than doubled our growth investment in new customer acquisition, while increasing payback to 7.6x, combining to increase future value generation by 341% vs H1 last year

These are transformative changes for our wine business - and Naked Wines is in a position to shape the future of the industry. . Through building scale we have permanently enhanced the business and strengthened our ability to deliver on our mission of connecting the world’s best independent winemakers to everyday wine drinkers. We have not just a bigger business, but a better one, with enhanced medium-term growth prospects.

We have not just a bigger business, but a better one, with enhanced medium-term growth prospects

Impact of COVID-19 and Recent Trading

It is undeniable that the pandemic has had a favorable impact on our performance. I see the greatest, and likely enduring, impact here the extent to which the last 6 months have seen consumers form new consumption habits and embrace new ways of shopping. While this is by no means unique to the wine category, the impact here has been especially pronounced. Naked Wines offers a new model for wine consumers and a primary challenge in driving growth has been around building awareness – and trust,in the business, and the entire concept of online wine shopping, especially in the US. Prior to 2020 significant numbers of consumers didn’t realise that selling wine online was legal. This is especially the case amongst Boomer and Gen X generation consumers that remain the engine of the wine industry. Today the cat is firmly out of the bag; consumer openness to online is permanently transformed and unique online buyers of wine have increased more than 300% vs last year per Nielsen data. The landscape of the US wine market is structurally and permanently transformed.

The landscape of the US wine market is structurally and permanently transformed

Now with nearly 8 months of experience of the “new normal” we are also able to be much more confident in terms of the outlook for the new customers we have recruited during the pandemic. The signs are encouraging:

• The “Covid cohorts” of April-June look to be highly sticky
• As some degree of normality has returned through the fall cohorts appear in-line / marginally ahead of long-term benchmarks
• And we have seen increased loyalty from pre- 2020 cohorts

These positive trends give us further fuel to invest in growth and drive in turn further scale benefits for ourselves, customers and our incredible winemakers.

At the same time I am proud of the steps we have taken to serve our communities and to support the wider wine industry during the most challenging of times:

●     Our $5m COVID Relief Fund, to buy wine from impacted winemakers and the most impacted people in the wine industry has provided vital support to 44 talented independent winemakers in 7 countries

●  We are committed to playing our part to increase diversity in the wine industry. To that extent we are launching a scholarship, in partnership with the Roots Fund to offer an annual fully paid winemaking scholarship at the prestigious UC Davis as well as launching a mentorship program for aspiring winemakers. This builds on an existing partnership we have running at Stellenbosch in South Africa

●     Through a busy period I've been continually impressed at the drive of our teams to find new ways to give back to our local communities. Highlights in the last 6 months include:

• Donating over $127,000 to Kenwood Volunteer Firefighters Association; the product of an exclusive wine made by our very own Kenwood based Cellar Cru
• Launching Daryl Groom's "Wine with Heart" to Angels in the UK, where we have raised over ￡30,000 to date

Outlook

Looking ahead, we are upgrading our guidance for the full year off the back of these numbers and positive momentum moving into our key peak trading period.

Over the longer term, these results,  the scale we have built, and the structural shift we have seen in our markets all serve to enhance our growth thesis for investors. Put simply:

1. We continue to see opportunity to improve our core proposition -- translating into higher retention and customer LTV. Achieving scale faster than expected allows us to support faster investment here.
2. We have proven that we have scalable and robust infrastructure AND that we can drive efficiency from additional volume. We have the opportunity to continue to drive substantial scale efficiency as we grow from here. Again that will translate into higher LTV and will also give us greater fixed cost leverage.
3. The product of 1+2 above will support our efforts to expand our universe of productive growth investment. With the business now capitalized for growth we see substantial opportunities to unlock new direct marketing channels and increase spend in existing channels. The changes to the market have favorably changed conditions, with our model and offer resonant to more consumers and our awareness increased.
4. While we see opportunity in all of our markets, the opportunity is greatest in the USA where we seek to build on our leading proposition to grow in a $20bn TAM. Through the past 6 months we have grown share of the US market, even in a period of rapid online channel growth.

In summary

We have started the work of growing Naked to scale as a global online pureplay. Our strong performance in the first half reflects the potential for sustained growth and long term profitability of the Naked model. We are ideally positioned to continue to drive growth over the long term.

●     Differentiated proposition delivering superior value to customers

●     Clear and proven investment strategy

●     Large US market opportunity

●     Strong balance sheet

More than ever as the global wine industry deals with the uncertainty and disruption of COVID-19 there is a crucial role for Naked Wines to offer a viable alternative path to the failing traditional retail distribution model - and I am tremendously excited about our potential to deliver it.

For full details of our annual results please visit: https://www.nakedwinesplc.co.uk/investor-centre/results-centre/