Earnings Transcript for MJWNY - Q4 Fiscal Year 2024

Rodrigo Maza: Hello, everyone, and welcome to Naked's FY '24 Results Presentation. We're very excited that you're joining us. I'm Masa, I'll be sharing some thoughts with you later today as well as JC, our CFO; and Rowan, our Chairman. I hand it over to you, Rowan.

Rowan Gormley: Good morning, everybody. I'm delighted to report that Naked Wines is in much better shape today than we were 12 or even six months ago. We've laid solid foundations and the team have made substantial progress in fixing the problems of the past. Specifically, costs have been cut very substantially to match the current trading environment. Inventory commitments have been cut intelligently so that we are now realizing cash from inventory and being done in a way which protects our core winemakers. And we now have a long-term funding facility in place that gives us the flexibility we need to restore Naked to growth. At the same time, the team have kicked off the process of restoring growth. Basic marketing disciplines have been put back in place. And for the first time since our launch, we have a team in place with experience of recruiting customers through channels other than our traditional partner channel, to help us solve our customer acquisition challenge. All of this is very ably led by our new CEO, Rodrigo Maza, who is known to his friends as Maza. And after six months, being Executive Chairman with Maza in place, I have now gone back to a non-executive role. And at this point, I will hand over to James Crawford, our ongoing CFO, to cover the financial commentary.

James Crawford: Thank you, Rowan. Moving into the financial highlights now, so the key headlines for the year are laid out on the page here. The revenue trend was a 13% decline, whilst obviously, we'd like that to be in growth, we know that that's declining because we have fewer Angels. It was pleasing to see the reduction was less in the second half at 9% and the 18% in the first half, a slowdown of that trend. That translated to an adjusted EBIT of £ five million for the year. That's a 66% reduction on the prior year. I think we said with the prior year results, we had largely under-invested in new customer recruitment in FY '23. And with a £ 16 million reduction in repeat customer contribution in FY '24, we certainly felt the impact of that. We offset that by taking £ 11 million out across various cost lines and that supported the ongoing profitability of the business at the adjusted level. Looking within those costs at our operating G&A, so our overhead lines in particular, at £ 36 million, that was 11% lower year-on-year. It was 13% lower in H1, 11% lower in H2, and we undertook a further round of cost reduction at the end of the year. And as a result, the exit run rate for that measure is about £ 30 million per year, which is intended to support profitability into FY '25. We did, however, make a loss at a statutory level. There were nearly £ 17 million of adjusted items that we reported during the year. The largest ones of those would be the inventory provision we took in the US, reflecting the risk of inventory expiry, further impairment of goodwill on our US business in particular. Inventory has been a key issue within the business. Closing inventory was just shy of £ 145 million for the year. That's an 11% reduction year-on-year, which is the first time that's come down over, I think, the last three years, £ 15 million lower year-on-year. Of that £ 15 million reduction, £ 7 million does relate to the provision in the US, but there is a real underlying reduction now beginning on the inventory line. And that has supported an increase in net cash. Net cash of nearly £ 20 million was almost doubled year-on-year. That's been driven by that inventory reduction, the early redemption of the loan note and offset somewhat by reductions in Angel funds and payable balances. The agenda I'm really going to work through today is in three pieces. First, I want to talk through how we've improved the cash and liquidity position of the business, how we've built the foundation around kind of cost and some of the rigor around inventory management. Then I want to look at some of the trading dynamics. Ultimately, the core repeat performance of the business is pretty steady, but customer numbers remain lower and recruitment remains challenging. And then I want to quickly touch on the guidance that we've issued today, how we put that together and what the drivers are looking forward. So let's start with cash. We improved our net cash position by £ 10 million in the year. If we break that down in terms of some of the drivers, despite the reduction in EBIT, which translates to a reduction in adjusted EBITDA, what you can see is we saw a significant shift in the working capital trends. In FY '23, we consumed nearly £ 48 million worth of cash in working capital. The largest share of that being into inventory with nearly £ 30 million consumed into building inventory, that trend reversed this year. We actually reduced inventory by nearly £ 15 million and that is what has kind of really swung the operating cash flow from a cash consumption of £ 25 million to a cash generation of £ 10 million in the year. Moving on to the next slide, we can then put that in the kind of historical context and see that we're now exiting the lower period that we've had around liquidity. This is our net cash. For a couple of months, only net debt position over the last three or four years. And you'll see when I came back into the CFO role in July of '22, we had been rapidly consuming the cash that had been built during the pandemic and from the sale of Majestic. We put in place a set of actions to mitigate that, and we have been through a period of low liquidity for the last 12 to 18 months. And then in the last kind of three to six months, we have started to exit that and start to rebuild liquidity. Now as we trade through the next peak trading season, we should see that liquidity and net cash position improved yet further. And I think that marks the kind of turnaround point of the journey that we've been through dealing with the aftermath of the pandemic within the business. The other kind of big achievement that we achieved just after the end of the financial year was the new credit facility. Our prior credit facility was imperfect. It didn't generate as much usable liquidity as we'd like because we were covenanted to hold £ 20 million of cash. There were significant exclusions and reserves against the inventory that drove availability of liquidity from that facility. And whilst that cash holding mitigated any risk of Angels fund outflows from the bank's perspective, it wasn't necessarily visible to stakeholders and it wasn't necessarily accessible. And as a result of that and an EBITDA covenant that limited our ability to invest as aggressively as we'd like. We had a facility that was less suited to our needs. Very, very pleased to have landed a new facility with PNC. They're a Tier five bank based in the US If you aren't aware of them, it's the same headline size, but actually because of the terms of the facility generates $20 million to $30 million of more usable liquidity gives us a higher advance rate against inventory. It doesn't have that cash holding requirement, and it reduces the exclusions that we have out of inventory. It also has a lighter covenant package, a single springing fixed charge cover covenant, which would be tested with liquidity remaining to be less than $12 million. And were that to be tested. It's a fixed charge cover requirement, not an EBITDA requirement, but it's likely to require lower EBITDA than the prior facility. The net result of all of that is more usable liquidity, less restriction and landing that has been a key part in our ability to remove the going concern uncertainty that we've reported in the last two reporting periods. What we show is just were we to look at liquidity within the group at year-end on a pro forma basis for the new facility would have had about £ 20 million of net cash as reported, the facility would have provided £ 37 million of borrowing capacity. And that would support operating cash balance needed in the business, the working capital cycle we have in the year. It supports downside trading protection, where our forecast to deteriorate. And it also provides security against angel balances, whether directly or through our payment providers. And we think that at year-end, that really is kind of balanced liquidity place. It doesn't give us excess liquidity but any future cash generation from this point forward should provide optionality around investment, whether that's in business growth, share buybacks or the like. A key component that we have talked about a lot over the last kind of 18 to 24 months has been our Angel fund balances. Obviously, during a period of low liquidity that has been perceived as a risk to the business. But I think what we've been able to show and we can continue to show is that those balances have been relatively stable, both in aggregate balance, albeit a slight to the reduction, as the Angel base has shrunk but actually, the rate of redemption of that balance has continued to reduce on a percentage basis, which is the yellow line on this chart. And we see that as a stable source of funding to the business. I think it's interesting to note, Maza will speak later that we are running what we call our Wine Genie program for some new customers at this point. They don't carry Angel balance. So it kind of, on the one hand, reduces any risk that's perceived around us holding those balances. But at the same time, we do generate equivalent amounts of cash from that program just through selling wine to those customers. I'd like to start moving to talk about the P&L. So we delivered £ five million of adjusted EBIT in the year. That's a reduction from the nearly £ 15 million we reported in FY '23 at a 52-week comparable basis. Big drivers of that, I touched on this earlier, but a £ 16 million reduction in repeat customer contribution is really a function of the underinvestment in FY '23 in customer recruitment. And then we also increased our new customer investment in FY '24 by £ three million, which moved profitability backwards. Three blue blobs on the right-hand side of this chart, then you see the cost reductions really kind of come through to sustain profitability for us. So operating G&A reduction of £ 4.4 million, share-based payment charge reduction of £ 1.2 million and we cut the marketing R&D investments that we've been making in things like TV advertising, the £ five million in FY '23, all of which contributed to bringing the adjusted EBIT number to £ five million for the year. We actually continue to take G&A out of the business during FY '24, undertaking another reduction in workforce at the end of the year. And what that means is that we kind of go into FY '25 with an 18% further reduction in the operating G&A base versus the prior year. What we've done on the right-hand side here is just converted that into an estimated revenue for the business that would drive the business to breakeven. Obviously, that's not our intent. This is a scenario analysis. But with the cost base we had in FY '24, we would have needed £ 263 million, give or take, to deliver breakeven. With the cost base that we go into FY '25 with it would be down to £ 228 million. So it's an indication of the level that the business could decline to whilst remaining profitable. As I said, that's not what we're forecasting, we'll talk about the guidance imminently, but it gives an indication of the foundation we've built into the business with the cost base we're operating with. A lot of work has been undertaken on inventory. Pleased to say that the U.K. and Australia inventory is now on track. We look on the right-hand side here, we've put the months of inventory we have in each market. 8 is about right for the U.K. once you look back through the supply chain, the work in progress that we hold with our Winemakers. 11 months marginally higher for Australia at year-end, but coming down in FY '25 and very much at the right level. The US is where we remain overstocked, 24 months of inventory, probably the best part of double where it should be for the US We expect to reduce stock further over FY '25 peak trading. There is very little stock coming into the US We do expect to sell a significant amount over peak trading. And we actually expect intake to be below COGS through FY '27 at this point. We've got a long-term inventory target, which would be below 50% of sales. And we have a team in the US who are reviewing options for accelerating our journey there. With the provisioning work we've done, we will get there naturally but over an extended period of time. There are options we would have for accelerating disposal of that stock, and we'll be opportunistic about that. There is a balance between taking losses on that stock and generating cash near term, and we'll navigate that balance based on essentially what the bot markets or trade buyers of our inventory would tell us as we view opportunities. That was the first section. That's what we've done to improve our cash liquidity position and get the cost to the right place. And I think we can put ticks in those boxes. That is what I came back into the CFO role to get done. And as you know, I'm leaving the role, but I think that was the line we wanted to draw into the business. I want to talk now a little bit about the trading performance in the year. If we move down the slide, I think the key point to understand is that on a kind of KPI basis, our repeat customers are performing well. So revenue per member is a really important metric. It is stable. That's the light blue line on the left-hand chart here. But what you can see in the bars on that left-hand chart is the total membership has continued to decline. And so with the declining membership, stable revenue per member, we have seen repeat customer revenues decline. What's the driver of that decline in repeat customer base? It's not the attrition rate. When we look on the right-hand side at our monthly efficient rates and an average kind of over a 3-month trail. Those have been declining or stable essentially. It is a seasonal effect. People tend to cancel their subscriptions after Christmas. But there's nothing that concerns us around the attrition rate of our member what we need to fix is the rate of customer recruitment and get those in balance, and I'll talk about that some more in a moment. Before I talk about that, just worth kind of looking at our margins on repeat customers. It has been disappointing to see RP customer contribution margin decline again in the year. You may remember in FY '23, it declined and it declined due to higher fulfillment costs that we were seeing in all of our markets really as inflation really kind of took group. That's not the driver in FY '24. If we bridge out from '23 to '24, what we see is a small one-off reduction where we saw a supplier fail and we incurred some costs as a result of that. Mix shift in the business away from the US with the US business having declined quicker than the U.K., but the US business having higher margins. We lost about 60 basis points of contribution margin due to that shift. And then there's about a five percentage point reduction in contribution margin where we undertook a series of deep discounting activities during the year, really testing our ability to move stock quickly, generate cash out of inventory and get the inventory off the books. That shouldn't be an underlying trend necessarily. That was kind of somewhat one-off in nature. But those would be some of the big drivers that took down that contribution margin. I think on the right-hand side, it's reassuring to see that on fulfillment costs, in the US, we've seen a reduction in FY '24 on a per order basis as the work we've done, changing our warehousing arrangements and footprint have begun to bear fruit. In the U.K., we've shown kind of FY '24 to FY '25 forecast. We moved our U.K. warehousing across March and April, kind of the year-end period of FY '24, and we expect to see some reasonable material reductions in the fulfillment cost per order in the U.K. That should serve to bolster margins during FY '25. Just now looking at the customer base trends and picking up on the point that whilst attrition in the repeat base is stable, we're still not recruiting enough new customers. This is a roll forward of a chart we've shown for the last couple of years showing the balance between recruitment in the dark blue bars and lots of customers from starting base and those recruited in the year in the light blue. And you can kind of see the big uplift we saw in customers during COVID in FY '21, '22 and then kind of reductions. But whereas in FY '23, our net loss of customers was 164,000 with 407,000 recruited, 570,000 lost. The reduction in the loss was only 380,000 and we recruited 323,000 in FY '24. So we are bringing the trends back in the direction of equilibrium. We're not getting there as quickly as any of us would like. But I think it's reassuring to see the emerging trend in that balance and also the continued reduction in the kind of percentage of opening base and customers recruited that we have seen down to 37% in FY '24. Then so customer recruitment is the challenge, let's explore that in a little more depth. FY '24 headlines would be 323,000 new recruits. We invested £ 23 million, and we got a 1.3x forecast payback on that. Some negative drivers that are within those numbers. We tested a non-subscription journey for new customers. So we invested in the marketing. We gave people the discounted first order, but we didn't require them to sign up to be subscribers to see whether that would drive enhanced lifetime value and kind of improved win-back opportunities. The reality it didn't. We stopped doing that. We've seen continued tough trends in marketing conversion to traffic. And we have been accepting of some low marginal paybacks to liquidate stock, especially in the US From a cash generation perspective, it makes sense to deploy money at a 1x payback when actually the stock is already on the balance sheet and generates cash immediately. But we've also seen some positives. Improvements in digital creative and more use of social channels versus where we've been at the end of F '23. Those lowering of payback thresholds to drive cash have driven some volume into the number. And actually, just a refocus of the team on our core partner marketing process. We tried quite aggressively during FY '22 to '23 to expand the range of channels, probably to the detriment of our core. And what you see kind of from some of those positive drivers on the right-hand chart, if we look at the last 12 months, new members recruited actually, whereas that had been declining during and beyond FY '23. During FY '24, we've really seen stability at the group level in that, which is the dark line on top. And then the lighter line in the middle, you can actually see an uptick beginning to emerge in the U.K. in the volume of new customer recruitment that we've done. So some very, very early positive signs visible in there. So moving down the slide. That's really the kind of headlines around the core trading, then I just want to touch on the guidance that we've issued today on the next slide, please. So looking forward, we've issued new guidance today for FY '25. I don't want to talk through every number on the page. They're here. They're in the RNS, but I think it is useful to explain the process a method by which we arrive at that guidance. So we basically looked across our markets and assumed quite prudently, no changes in a lot of key performance metrics. So flat trend in customer recruitment, flat trends in customer retention rates, no changes to the annual revenue that we achieved per member. We then overlaid the known cost base, whether that's on the SG&A, fixed cost side or whether it's on our fulfillment. So it includes impact of cost reduction work we've done on both of those cost elements. And then something new that we've done this year is we've overlaid not just the sell-through of inventory based on underlying demand, but also we've put in some estimates for some bulk disposals or trade disposals of stock in the US which we are estimating losses of £ two million to £ five million off, which is a new guidance item for us. I think just to drill down on that a little bit because the accounting is important. Any sales of provision stock we make will be treated as adjusted items. So if we've written wind down to 0 in FY '24, and we managed to sell it for some form of recovery, then we don't kind of take that into adjusted EBIT. That's an adjusted item gain. However, if there's stock that we haven't provisioned that we choose to liquidate in order to generate cash and reduce inventory, that will be included in adjusted EBIT. And hence, we've shown and adjusted EBIT, including inventory liquidation and excluding inventory liquidation in the table on the left. So it's a relatively prudent approach. And then overlays what we know about inventory liquidation I think then it's worth linking that to what we said earlier today about Q1 trading. So Q1 trading was broadly in line with the Board's expectations. There was a reasonable amount of volatility or variance month-to-month in some of that. And we've seen some of those trends continue into P4P5. And that's the reason that we've got quite a wide range on the guidance as you see. There's a lot of change going on in the business. There's a relatively volatile consumer environment out there at the moment. And hence, we've got a fairly wide range around some of these metrics, but they are based on no assumed improvements or changes to the underlying KPIs that we've seen. That's all from me. And I just want to say thank you to you all for listening this morning and handing back to Maza for his section.

Rodrigo Maza: Thank you, JC, and hello again, everyone. When Rowan returned to Naked at the end of last year, we identified three priorities for the company. The first was setting a robust financial foundation that allows us to focus on generating long-term value. The second was restoring a sense of pride amongst our winemakers and employees, reminding them that negative is special and worth fighting for. Third was discovering through thorough testing centered on key levers, how to get Naked back to sustainable growth. As JC already explained, we've delivered on the first priority, Naked is financially stable. We've made significant progress on the second five as well. We've designed and implemented the systems that will galvanize winemakers and employees' efforts around key deliverables. And now we're fully focused on the third one, getting Naked back to growth. This will be the main focus of my presentation today. But before diving in, let me take a couple of minutes to introduce myself. If we go to the next slide. My name is Rodrigo Maza, and I'm very honored and excited to be acting as Naked's CEO. I'm a firm believer in the potential that this company has. And while I recognize that the last couple of years have been very tough I do have confidence that we can turn things around. I joined Naked after a 17-year career in AB InBev, the largest brewer in the world. I learned many things about business and leadership in my time there. There are three that stand out as I take on this challenge at Naked Wines. First, that strategy needs to be articulated simply and straightforwardly or it won't get effectively translated into high-quality, consistent execution. Second, that for companies to win in the space at Naked placing, they need to be created at both discovering ways to grow and they also need to be great at harvesting value from their mature operations. And third, that a strong commitment to customer centricity needs to be withheld at all times, especially when the business faces headwinds Paradoxically, the best way to solve our company's problems is to solve the ones our customers face. So it's with this customer-centric perspective that I've evaluated Naked since I joined, and this is what I found. Naked's business model is very likely its biggest strength. It isn't broken, it consistently delivers value to our customers, our winemakers and our team. Retention is a proof 50% of Naked sales comes from customers who have been members for over five years. Once our customer understands the benefit that Naked is uniquely positioned to deliver, this company has world-class retention, once our customer understands. And that's our weakness. We should have built a strong brand by now, but make is a great story, poorly told. Because we haven't effectively communicated what the value we deliver is, we've made it very hard for a word of mouth to spread. And our acquisition costs have consistently deteriorated as a result. Naked's new leadership team is working to both build on our strengths and address our weaknesses. The good news is that we don't need to reinvent the wheel here. As you'll see in the next slides, much of the plan is centered on implementing standard practices in the DTC space. The bad news is that some of them will take time to deliver material impact. What we need to do is to increase Naked's enterprise value and to do so by multiples. And we have a plan in place to deliver just that. It doesn't require anyone to take big leaps of faith, I think. I can summarize it like this. We'll implement acquisitions best practices to grow the quantity of customers. We'll innovate on personalization to enhance their quality and will optimize our already strong retention to drive their value. This will get Naked's performance back to pre-COVID levels and that along with the clearance of our surplus inventory will materially change our valuation. The test we're running currently around acquisition, personalization and retention are therefore fundamental. But before discussing them in detail, it's critical to share the key ingredient negate flywheel was missing. It's a promise we present to audiences in the US, the U.K. and Australia. The one we crystallize to the visitors of our site. The one we need to bring to life in that hopefully magical first delivery, the one we keep alive with every story we share with our customers. It's our value proposition. Naked exists to enable people to enjoy great wine without the guesswork. Our customer value proposition has helped us zoom in our target audience, clearly articulate the actual problem we're solving for our customers. And share the reasons why Naked is uniquely positioned to do so. Good news. It's landing. It's only been a couple of months since we started presenting our CVP to audiences and it's been both surprising and rewarding to see annual playing it back to us and even better to potential customers. So armed with that much needed clarity, we're now running tests around acquisition, personalization and retention. On acquisition, we want to get the right customers through the door and to do so for the right reasons. This means highlighting our value prop instead of focusing on discounts. Regarding personalization, we want to get customers into the relationship that's right for them. We believe that their experience with Naked will be significantly better when we give them the freedom to make that call. Finally, we want to enhance retention by achieving two things

Operator: Thank you. [Operator Instructions] Our first question is, what senior management changes have you made? And will you be making any more?

Rodrigo Maza: Thank you for the question. We've made a few key appointments in the past few months. And now I can say I have confidence we have the right team in place to deliver on our present and future challenges. I don't expect any further changes to happen once Dominic Nery joins the company as our CFO in November

Operator: Thank you. Our next question is, how is the relationship with the winemakers?

Rodrigo Maza: The relationship with winemakers is fundamental to our business. I would say it's very strong. We value their trust and their support and are looking for ways to further drive their engagement. We recently launched our winemaker success program, which establishes shared sales, marketing and operations objectives. It has landed very well, and we look forward to partnering with them in the near and long-term future.

Operator: Thank you. Our next question comes from Kate Calvert at Investec. And her question is, the testing activity you plan for FY '25 on improving recruitment, retention, personalization going forward. Is the level of activity focused on any particular country or is it spread across all geographies? Which regions are you experiencing most volatility in Q1?

Rodrigo Maza: Thanks for the question. So the answer to the first one is we are running tests in all markets. It's an advantage of being a global company that we're fully leveraging in. And the answer to the second question, which regions are expecting -- experiencing, sorry, most, I would say probably the U.K. is a market where we're experiencing it the most. We've had both good and bad months so far, but trading so far is in line with expectations.

Operator: Thank you. Our next question is, when do you anticipate revenue stabilizing and returning to growth?

Rodrigo Maza: Important question. I mean the conditions for growth have to be established, and they now have been. We have a robust financial foundation. We are reengaging our stakeholders and the fundamentals of our business are strong. The focus now, the main goal is to find the levers that when pulled effectively get us back to a 2x payback. And we will do that in FY '25 and scale those improvements in FY '26. So that's the year where we should be going back to growth again.

Operator: Thank you. Our next question comes from Andrew Wade at Jefferies. And the question is, you've talked through some interesting opportunities to potentially drive growth

Rodrigo Maza: Great question. I would point to one in particular. I think personalization brings them all together, actually. We believe, and this is what the tests are proving that by giving customers choice over the relationship that they want, the range that they're interested in and enabling them to decide at every point of their journey, their lifetime value is going to be higher. So data still needs to age out, but the signals so far are very positive.

Operator: Thank you. And we have another follow-up question from Andrew Wade. The question is what evidence makes you confident that Naked's differentiated proposition is feeding into a better value proposition, i.e., price quality trade-off for customers?

Rodrigo Maza: I think that the strongest evidence is our retention rate. That has been strong. Historically, continues to be strong today. In terms of the value proposition and what makes it different. I think what our customers look for is great value, and we offer that. We offer world-class wine at very fair prices and that's enabled by our business model. We are removing guesswork by offering an unpretentious approach to the wine category that facilitates learning. And you can see that in the features that we're building, in our approach to category management, the user ratings that we share with all our customers and our hassle-free guarantee. And last but very important also, it's a frictionless experience, right? We offer a fast, reliable experience -- delivery experience, sorry, that's particularly relevant in the US We offer world-class customer service, and that's something that we're over and over again, that's very valued by our customers.

Operator: Thank you. We have our next question from Anubhav Malhotra at Panmure Liberum. And he has two questions, I'll read them out one by one. The first is from your experience of running subscription businesses in the past, how do you view the payback of 2x compared to what you had seen in past businesses you worked at?

Rodrigo Maza: Sorry.

Operator: Thank you. Would you like me to read the question again?

Rodrigo Maza: Yes, please.

Operator: Thank you. The question is, from your experience of running subscription businesses in the past, how do you view the payback of 2x compared to what you had seen in past businesses you worked at?

Rodrigo Maza: I mean, we always -- we will always like for the payback to be higher, right? But given where we are, I think 2x payback is the right number to target. And all the testing that we're conducting is aimed at delivering that.

Operator: Thank you. His second question is, given the 1.3x payback, why do you still insist on investing £ 22 million to £ 25 million in new customer recruitment?

Rodrigo Maza: The main reason to maintain investment levels is stability of the operation in terms of scale and the strength of our partnerships, right? It's very hard -- this is not an on-off switch, right, like turning those partnerships of presents a challenge whenever we want to go and leverage them once again, right? So we are not operating at the payback that we'd like. But with the changes we're making, we believe we can get those partnerships back to the right level.

Operator: Thank you. He has another follow-up question, and it is, you mentioned the change in acquisition approach could reduce the loss on first case with cost customers who don't want a long-term relationship with Naked Wines. Could you please explain in more detail, maybe with an example how it will be practically achieved?

Rodrigo Maza: I think that there are two parts. I'll break the answer in two parts. So the first is the way we're presenting Naked to potential customers, right? So what we're focusing now is on our customer value proposition. And if that's not interesting enough for a customer, then he or she won't make it into our site, and we need to be fine with that. Now for those that do that have some interest in Naked and the range we offer but are not looking to become members. We are now offering that option. They won't get any pricing. They won't get the same benefit as members, obviously, but they'll still be able to transact. And our belief is that most of them will like the wine they get that will facilitate turning them into members in the future.

Operator: Thank you. Our next question is, why aren't you conducting share buybacks to create shareholder value at this depressed valuation alongside your testing to grow? Why does it have to be after the testing?

Rodrigo Maza: I think it comes down to focus, right. We are running many tests, some of which will work, some of which won't, right? If we knew they were going to work, they wouldn't be tested. So we need to be focused on that and the implications that the results have for the long-term trajectory of the business and armed with that knowledge, then we make other types of decision.

Operator: Thank you. And we have a couple more questions in from P&R Investment Management. The first question is, can you walk us through how you create shareholder value by achieving payback ratios of 1.3x to 2x and using your margin forecast? And then he's put example, an investment of £ 10 million in customer acquisition will result in what kind of returns for shareholders?

Rodrigo Maza: JC, I think you're very sure to answer this question.

James Crawford: Yes, happy to take that one. Thanks, Maza. I mean I think the first thing to say is that a 1.3x payback using the contribution from repeat customers is not reflective of the cash payback when we are liquidating inventory that's already on the balance sheet. We generate significantly kind of more cash than we do contribution as a result of that overstock position. I'm not too sure exactly what the kind of margin forecast piece means matters, but if you want to pick that up five on five afterwards, very happy to do it. Probably five for us to with spreadsheet and chat through, but I think we are confident that we're generating kind of cash payback well north of that. And b, we still believe that the 2x is the right place to be and that -- that does generate shareholder value when you add all costs through and kind of generate an IRR of it, but let's have that conversation offline.

Operator: Thank you. Our next question comes from Andrew Wade at Jefferies. His question is, why do you think Naked has struggled so much in the US given its inherent advantage versus the 3-tier model?

Rodrigo Maza: The US is our biggest opportunity, but it's also our least mature market. I think that something critical that has happened is that we've appointed Boca Andrella as our General Manager there a couple of months ago. The work that he has been doing with the team in discovering how to engage the American customer is fundamental. We're making good progress there, and we'll remain focused and invested in that market as I said, it's a bit -- has the biggest potential for Naked.

Operator: Thank you. And our next question comes from Matthias P&R Investment Management again. The question is, Naked's core story has always been the Angels of funding winemakers. However, the funds can be withdrawn any time, and therefore, you cannot really use them for longer-term funding. What progress have you made to change this?

Rowan Gormley: Maza, I don't know if you want me to take this one. But I think I think it's worth saying we operate with a treasury policy and a credit facility that ensures we can always redeem likely Angel withdrawals and that chart that we've shown for the last two or three sets of results that shows the rate of withdrawal shows kind of how predictable that is. I think it's also kind of work being the credit facility being secured on the inventory that Angels are funded is designed to be a device that can convert the inventory, the Angel funds has generated into liquidity as needed for Angels. And therefore, there is a solving there that means you can use that funding to create inventory while having a mechanism to convert it back into cash if needed. And then I think the kind of last thing to say some of the testing we're doing on the funnel, whether it's around the value proposition, the real clear transparency that comes with that as to what we do with Angel money or signing people up to things like Wine Genie that generates cash, but without bringing an Angel liability are all components, which means that that liability remains a source of funding we feel comfortable to use.

Operator: Thank you. We have no further questions at this time. I will now hand back to management for closing remarks.

Rodrigo Maza: Thank you, everyone, for your time and for your questions. I'd like to wrap up by restating that Naked has a robust financial foundation that we are putting systems in place to ensure our stakeholders are aligned, focused and engaged, that the business fundamentals are strong and that we are now fully focused on discovering the levers that when pulled effectively get us back to that 2x payback. We will continue to experiment in FY '25 with the aim of scaling those improvements in FY '26, which should be the year Naked goes back to growth. Thanks again, and look forward to talking to you soon.