Virgin Wines Uk (LSE:VINO) — Annual Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the VIRGIN WINES UK PLC Annual Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab just situated on the right hand corner of your screen. Just please simply type in your questions at any time and press send. The company may not be in a position to answer every question received during today's meeting. However, the company review all questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation.

0:32 And I'd now like to hand over to CEO, Jay Wright. Good afternoon. Great. Thanks very much, Mark, and thank you all for coming along and listening to us today. I'd just like to start off by giving a quick overview of our financial year that started back in July 2021. We've gone through a lot of change over the past fifteen months, and we certainly went through a lot of change in the fifteen months preceding that. But what has stayed consistent is the key pillars that we base our business model on. And it's those key pillars of driving low cost customer acquisition, a laser like focus on delivering profit, maintaining our sales retention rates and customer retention rates at a high level, driving efficiencies across our business coupled with disciplined cost controls, and maintaining a strong balance sheet that's enabled the business to thrive when times are good and be robust and resilient when times become more challenging.

1:26 I think it would be fair to say that we're in one of those periods when life is a little more challenging. However, we've continued to focus on delivering to our business model and managing the areas that are under our control while continuing to mitigate wherever possible the macro elements that we have to deal with. Despite this, the challenging landscape to cite this challenging landscape, we've achieved an awful lot over the past twelve months. We maintained our low cost, highly disciplined approach to customer acquisition, delivering a 105,000 new customers at a lower cost per acquisition than f y twenty one. We increased our market share from 6.1% to 8.4%. We continue to grow our premium subscription service, Wine Bank, with membership of 8% year on year, while sales from those 130,000 members grew 21%.

2:14 Customers on our various subscription schemes delivered 81 of the total direct to consumer revenue, whilst cancellation rates on WINES Bank stayed broadly in line with the previous year at just 16.7%.

2:27 The commercial team delivered an exciting new partnership with Moonpig that has the potential for significant scale, and we made headway in the travel sector, continuing our relationships with LNER and Avanti West Coast, as well as adding Great Western Railways, a new partner. Our outstanding people adapted superbly to the varying challenges they faced, and we were delighted to have made significant progress delivering against our ESG objectives. We even won a couple of awards over the year, which are always nice to receive. What all this has enabled us to do was to maintain the vast majority of the spectacular growth that we saw over the COVID period, showing there continues to be great demand for our high quality exclusive wines and strong levels of loyalty from our customers. Graham will now talk you through our financial performance.

3:17 Thank you, Jay. Revenue for FY 'twenty two was at $69,200,000 This was down $4,400,000 from our peak in FY 'twenty one. This was mainly in two of our sales channels. New customer acquisition revenue was 2,000,000 lower, which was a combination of volume, a lower proportion of pay as you go recruitment in the mix and more aggressive discounting, particularly in our h two. The gifting channel, which was the fastest growing channel during COVID, also fell back by 1,700,000. The core repeat business remained extremely robust, and repeat revenue was only very marginally lower. Our our statutory gross margin was 31.4% versus 31.6% in the prior year.

4:11 This margin is sales less cost of goods, less packaging and delivery to the customer. Throughout FY '22, there was a number of cost challenges within dry goods and, in particular, the cost of glass and packaging and, of course, inbound freight costs. Our channel owners within the business have worked extremely hard to offset the impact of these cost pressures while continuing to deliver great value to our customers. As a result, we ended up with a profit before tax, after adding back exceptional items of $5.5100000 against 5,200,000 the prior year, so virtually unchanged. The exceptional items in in that that I referred to relate to the f the IPO costs of 3,500,000 in FY '21 the prior year. There were no exceptional cost items in in FY '22, and our earnings per share were 7.8p.

5:17 Our business has been profitable now for over a decade, is cash generative, and has no debt. When times are a little more challenging, it is important to have a strong balance sheet and the ability to generate cash. Net assets were up 4,500,000, 25% to 22,100,000 in f y twenty two.

5:41 And just to reiterate our approach to cash, the the cash balance in the accounts of 15,100,000 includes our WINES Bank customer deposits of 7,400,000. We hold that WINES Bank deposit money in a ring fenced customer account. It is not considered company cash, and we don't use it to fund working capital within the operation.

6:09 Being profitable business and having strong balance sheet has allowed us to deploy cash to fund opportunities and to derisk against supply chain disruption. We have accelerated our CapEx investment up to £1,000,000 in FY twenty two compared with 200,000 in the prior year. The theme behind the majority of our investments is scalability to ensure we can continue to grow the business and drive efficiencies, particularly in our back office functions. The projects that we've delivered include investing in warehouse layout and automation, our commercial division, which is a key channel for future growth, and we've invested in a b to b portal.

6:55 We've improved gift functionality with a personalization service that has now gone live. And we've also invested in security and resilience, again, we believe is critical for an online business and is something that we need to continue to to focus on in the future. We've also used cash to invest in working capital mainly through additional inventory by holding more stock and bringing it in earlier to avoid ongoing disruption. And as a result, year on year stock was up 1,500,000. That's a trend that we reported on last time. We are still seeing some disruptions in supply chain and some delays in shipping into The UK, And it's something we keep under review, but we we believe it is the right deployment of cash at the moment to make sure we've got stock in the warehouse rather than have the risk of of disruption, particularly coming up to our peak trading season.

7:57 Our EBITDA bridge, just to show you how we've tracked from FY twenty three FY twenty two through FY twenty one through FY twenty two. The starting point in f y twenty one was EBITDA of 7,000,000. We increased investment in new customer acquisition by 500 k. That's mainly through offers and discounting rather than increasing the marketing cost per recruit, which was flat in f y twenty two. Core contribution was down a little, around 400 k, and that was mainly from the lower revenue and contribution coming in from the gifting channel, which we mentioned earlier. The commercial division was also down a little, naught point 3,000,000.

8:45 And, again, that was mainly due to the change in the mix of the corporate deals that went through in f y twenty two. There was a fixed cost saving of 400 k, and that tracked through leaving us with an EBITDA of 6,200,000, 9% of revenue for f y twenty two. The table on the right shows the business can deliver sector leading EBITDA margins across a range of different trading environments where over the last three years been able to deliver 8.5, 9.5%, and 9% giving a really constant and predictable return for the business. How we do that is is through our key earnings drivers.

9:32 The box at the top shows our revenue by cohorts. Just to make this a little bit easier to understand, we sort of grouped different historical groups of cohorts together. So you can see our pre in blue, the pre f y fifteen cohorts. And in f y nineteen, those cohorts generated 20,900,000 revenue for the business, and those same cohorts in f y twenty two delivered 20,400,000 in revenue, a sales retention rate of of 95%. You can also see from the boxes that, obviously, there was a tick up in retention sales retention rates across f y twenty and across FY twenty one during the peak of COVID.

10:22 But again, tracking FY nineteen through to FY twenty two shows the real consistency of those historical earnings. We've also separated out our f y twenty and f y twenty one recruits, which are the ones in red. And those are the the customers that obviously joined us during the COVID period. And again, you can see very similar trends there in that those customers generated £21,000,000 worth of revenue in f y twenty one and 20,000,000 in f y twenty two. So, again, we're we've got a really predictable future business driven from these historical cohorts. The three boxes three tables at the bottom really show that if you've got the revenue, you also need to be able to drive the profitability from that revenue.

11:15 So the product margin is just sales less less cost of goods, and we've worked really hard over the last few years to get that up above 38%. It dropped back a little bit from its peak in f y twenty one of 38.4% down to 38.1. But, again, our channel owners have worked really hard to maintain margins and offset the majority of the impact from cost inflation that has come through. The repeat customer net contribution, this looks at the gross profit, less marketing costs, and less fulfillment costs on all repeat customer activity. And those margins have been driven up from under 20% back in f y eighteen to now over 23%.

12:08 We're really it's really important to us to drive the maximum profitability we can out of every single transaction that goes through the business. So, again, delivering a high net net contribution of those repeat customers is really important. And what that gives us is strong payback. So the payback table on the right hand side, this looks at initial investment cost of new customers and tracks that as a times return against their repeat contribution over a five year and a ten year period. Back in f y nineteen, our five year payback was just above four. And since then, it has moved up to just over five. And, again, FY '21 and FY twenty two are extremely consistent as is the the ten year

13:02 times return as well. Great. Thanks, Graham. So just moving on to, some of the more strategic elements of the business since, our customer acquisition model is focused on delivering high quality, low cost recruits using a disciplined multichannel approach. Over the course of the year, we acquired a 105,000 new customers. The first half of the year was a little disappointing with response over the Christmas period dropping below expectations. However, we continue to work hard to create a raft of new opportunities and test a variety of mechanics, and we finished the year strongly. Cost per acquisition was £13.22, with net cost per acquisition £13.61 as pricing in the market became more competitive, and we needed to be more pragmatic with pricing to drive volume.

13:53 As Graham's already commented upon, five year payback was maintained at a very healthy five times our investment, and the conversion rate for customers required onto one, acquired onto one of our subscription schemes was 53%. Over the year, 59% of customers were directly acquired onto WINES Bank, 18% onto WINES plan, and 23% into pay as you go.

14:17 One of the more significant factors at play was the reduction in search volumes, which has mirrored changes in consumer behavior. This has led to substantially higher digital costs as consumer intent decreased, but competition for that custom increased. We've carefully managed our investments in this area to ensure we're maximizing opportunities that fell within our allowables, but also ensuring we didn't waste money chasing low quality customers at inflated prices. So as has always been the case, the partnership channel is our largest and most important source of acquiring new customers. The cost per acquisition is lower than all other channels with the exception of walk up traffic, and the conversion rates on average are higher. This, in turn, helps drive our positive payback rates.

15:02 The team have continued to add quality partners to our roster, and even over last Christmas, which was a more challenging period, we delivered 57% more deals into the market than the previous year. Over the past twelve months, the partnership channel has contributed 55% of all new recruits and has worked with over 350 different partners, including British Gas, Rail Delivery Group, Currys, and o two Priority Moments to name a handful. As the second half of the year progressed, we tested a number of different pricing structures and case configurations, which helped deliver a 37% year on year increase in new customers in q four.

15:41 Acquisition through digital channels remains important, and we view search, shopping, native advertising, programmatic, and social channels to acquire new customers or run small tests throughout the year. 23% of new customers acquired came through digital activity. Whilst it is and will remain a key part of our acquisition plans, as already mentioned, it does continue to produce higher CPAs and lower conversion rates than partnership activity, and as such, we'll manage investment at the level that drives best value.

16:14 Other sources of new customers this year has been re recruitment through our CRM activity, our relationship with the Daily Mail, running the Daily Mail Wine Club, telemarketing, and walk up traffic, all of which have been important contributors to our total customer acquisition volumes. Looking to the here and now, I'm delighted that we've recently agreed a long term exclusive partnership to operate a co branded wine service on behalf of Saga. It'll be named vintage by Saga with a launch planned for this November. Both Saga and VIRGIN WINES have ambitious plans for the proposition. We see the we see the Saga membership as being an ideal demographic profile to enjoy the benefits of having wine delivered to the door. And with a huge membership, we're confident we can deliver something quite significant over the coming years.

17:03 So just moving on to slide 11 and our customer base. The strength of the customer base was highlighted over the past year as our customers showed their loyalty and stickiness even in a more challenging environment. The active base grew to a 186,000 from a 182,000 back in June June 21. Sorry. This growth was driven by rise in the WINES Bank customer base counteracting a fall in the pay as you go and WINES plan customers. The rolling twelve month trade rates remained consistent at 70%, again, highlighting the large number of customers who are active at the end of f y twenty one who bought again during f y twenty two. Both the sales retention rate and customer retention rate achieved 91% with the sales retention rate normalizing back to a more normal level as average order frequency returned to ninety days similar to the order frequency we saw pre COVID.

17:58 The customer retention rate stayed consistent with previous years as customers remain loyal and active. This is the key factor that gives us confidence moving forwards. We're aware that consumer behavior can change as the economic environment evolves, but the fact our customers are staying loyal and continue to be active members of VIRGIN WINES is highly encouraging.

18:20 Moving on to our direct to consumer sales and our different subscription schemes. As you've heard, we've worked really hard to grow our active customer base, minimize attrition, and maximize retention. We have a really unique set of consumer propositions that help us do that with our wine bank scheme being key.

18:39 Just a reminder, our wine bank scheme enables customers to spread the cost of buying wine by saving a chosen amount each month, earning 20% interest on the money they save as well as receiving free delivery on every order. This is our premier service, and we were pleased to see the membership grow by 8% over the past twelve months to a 130,000. However, revenue generated from WINES Bank members grew even faster by 21%, which highlights how active this space is and how loyal the membership is.

19:11 The twelve month rolling cancellation rate remains steady at 16.7%, and we're pleased to see such stability at a time when many subscription schemes seem to be under pressure. Deposits in WINES Bank have risen to a record level of 7,600,000 at the year end and have increased still further since to currently stand at 8,600,000. With that scale of WINES Bank deposits, it's a good sign of future revenue, and we're pleased to see them up at this extraordinary level.

19:40 We're also confident that the structure of WINES Bank is helpful when there's pressure on consumer spending as it's a great way to budget for your wine purchases by saving each month, and it also delivers such great value with a 20% interest rate. Then we have our wine plan scheme, which is basically the hassle free way to enjoy a bottle of outstanding wine every week whilst going on a voyage of discovery. We have two main schemes, our Discovery Club and our Just Reds premium red wine club, which is a club fronted by one of the world's leading wine authorities, Matthew Jukes, who writes up all the wines and road tests every bottle. Wine plan is always at slightly greater risk than Wine Bank when there's pressure on consumers' discretionary spend as customers are paying larger amounts in one go.

20:25 However, the option of taking payment holidays or parachuting onto Wine Bank the mechanics our customer service team have used effectively over recent months. Despite these pressures, revenue generated through WINES plan customers fell just 2.3 year on year.

20:41 The yield from customers on WINES plan, which is the percentage of customers who take their quarterly case when it's offered to them, achieved 67.8% in f y twenty two compared to 68.2% in f y twenty one. So we are, again, really pleased with the way the schemes have continued to perform. Summing up, our subscription schemes are vital to the success of the business, and we're delighted that they've remained so strong and robust. The 152,000 customers on one of our schemes have contributed 81% of our total direct to consumer revenue, showing the value and loyalty of this large group. Our pay as you go service has been developed for customers who just want to dip in and out when it suits them without any subscription mechanic. We saw a huge influx of pay as you go customers over the COVID lockdowns as people were looking for a way to have a case of wine delivered to their door, and we're delighted to be able to we were delighted to be able to welcome so many new customers to VIRGIN WINES.

21:39 However, we're always mindful that this group would be the most challenging to remain active and keep engaged, and that has proved to be the case. However, we've also worked hard to upgrade customers from pay as you go to one of our subscription schemes. And over the last twelve months, we've upgraded a total of 6,000 pay as you go members. Our 45 over 45,000 customers enjoy the benefit of being looked after by one of our WINES advisors. They offer every customer a personal one to one service and take care of every aspect of the customer's relationship with Virgin Wines. Revenue through our wine adviser team continues to grow year on year plus 3.8% and generates the highest average order value of all repeat channels. The team works across all our different customer groups, whether that be WINES Bank, WINES Plan, or Pay As You Go, and we treat this as our first subscription scheme given the loyalty and personal relationships that are developed between the adviser and their customers.

22:38 Moving on to beers and spirits. Given the change in the economic climate, our focus has been on promoting these categories to the existing customer base. To help achieve that, we developed the Beer Save and Spirit Save propositions and launched those to reward existing customers on either WINES Bank or WINES Plan with preferential pricing across both those product ranges. Due to the high cost of digital acquisition activity, we scaled back promoting outside the core base. We believe this is the correct strategy at the present time. This doesn't mean we aren't still ambitious to drive both categories when there's better return on investment on marketing spend. But right now, focusing on refining the portfolios, managing the working capital required for both product groups, and promoting our own existing customer base is our favored approach.

23:27 Moving on to gifts. As Graham had mentioned, the gift channel was one of the most positively affected by the COVID lockdowns. It's also been hard to retain that level of growth with so much of the sales we saw due to shops being shut and people not being able to travel in person to see friends and family. However, we're pleased that we're still trading 45% ahead of where we were in f y nineteen, and we have new exciting initiatives in place that we believe believe will drive growth moving forwards. In particular, we're pleased to have launched our personalized gift service where customers can create their own wording and message on a bottle of wine Prosecco champagne au jin. We've also seen the advent calendar market become significantly more congested in recent times. Back in 2017, we were the first to go to market with a wine advent calendar.

24:15 And whilst this has now been copied by many other businesses, we're still able to generate £1,000,000 of sales from the campaign in f y twenty two. Just moving on with our commercial sales. We've been pleased to see excellent growth in the commercial arm of our business over recent years. It's an area that we believe has real opportunity for future for for further growth, and we're investing in both the team and technology to help support those ambitions. Over the past twelve months, we've made some real strides opening up new opportunities and capitalizing upon areas where we feel we can excel. In particular, our partnership with Moonpig has been extremely positive. What started out as an opportunity to supply a handful of wines to them soon turned into a full blown partnership where there was a mutual benefit in scaling the opportunity.

25:05 This led to a full VIRGIN WINES at Moonpig store in store concept receiving heavy prominence on their site with over 70 SKUs now available to purchase. We still see this very much as the start of the relationship, and we've been meeting regularly to plan significant further expansion of the range and the volumes. We're also looking to test customer acquisition initiatives for both businesses with the other's customer base with the first test planned for December this year. Avanti West Coast and LNER started to trade again as trains began to operate post COVID, and we saw steady growth in their trade as the year progressed. On the back of the reputation we're building in the travel sector, we won the tender for the supply of all wines on board Great Western Railway, which went live in January 22.

25:53 This represents the first change of wine supplier for Great Western Railways in nearly twenty years. In addition, the corporate gifting service continues to grow, up 18% year on year. We're excited about the potential we have to grow as one of the key partners to Virgin Red as they invest heavily in their loyalty and rewards proposition over the coming years. Whilst we continue to trade strongly through Amazon and we shop direct through their very brand, which has been a long standing and highly valued partner. We also have an exciting pipeline of potential new partnerships that we continue to have discussions with. And we look forward to updating you on those as they come to fruition. As I think you'll be aware, our unique open source buying model is fundamental to our ability to deliver the gross margin profile that we achieve.

26:44 Open source buying basically gives us the opportunity to go wherever we want year after year to find the best quality grapes to deliver the best value every vintage. Grapes being an agricultural product vary in yield, quality, and cost from vintage to vintage and region to region. Having a wide network of trusted and loyal winemaking partners across the globe gives us the flexibility to focus our winemaking on wherever we can find the best value. That way, we're always able to deliver to our customers wines that we believe represent the best quality value ratios that can be found. This winemaking process is then driven by data. Our highly engaged customers rate and review our wines in their thousands every week.

27:30 This data is continuously analyzed and referenced to understand themes and trends in customer preferences, which can then be utilized in the stylistic profiling of each wine we make. This continual focus on marginal stylistic improvements helps to ensure that we can refine and improve the taste profile of our wines year after year. It also means we've been able to consistently deliver an average star rating of 4.2 out of five for our wines over the past three years, driving it up from 3.8 out of five ten years ago. 93% of our wines sold by volume are exclusive to virgin wines. So due to the fact we're blending the wines at source in conjunction with our winemaking partners around the world, it naturally means they're exclusive to virgin wines. Indeed, 93% of our wines are. As well as giving us a portfolio of unique wines, we believe it delivers the very best quality value ratios.

28:26 It also delivers three other key benefits. Customers who love the wines they receive from us come back to purchase them again and again, increasing customer loyalty. We control the pricing of the wines based on their quality rather than having to price match to other retailers, therefore allowing us to control our margins much better. And we're in complete control of the product architecture to ensure everything from design of the label to the weight and shape of the bottle are exactly to our specification. So in summary, this control of the winemaking process gives us the flexibility to ensure we can build our range exactly to our requirements, delivering to customers the very highest quality value ratios, and ensuring that we can maintain gross margins. Just moving on to our people.

29:16 I always believed that you build successful businesses from the inside out. Having a talented, motivated, and enthused team is of the highest priority. People working in the business have dealt with a huge amount of change over the past two and a half years, which has put more pressure than ever on them both personally and professionally. Therefore, supporting our employees' well-being and creating an environment where they can thrive has been an absolute priority within the business. With this in mind, we focused on a number of areas. We've researched how we're perceived around diversity and inclusion. We want to ensure everyone can be their their authentic selves and that everyone feels they belong at VIRGIN WINES. Clearly, the cost pressures that consumers are feeling are also being felt by our teams. And as such, we delivered a minimum 4% cost of living pay rise across the business this year.

30:06 We've continued to support our people with our employee assistance program that provides everyone access to information, advice, and even a free counseling service. It also includes access to resources for financial well-being and budgeting tools that we feel are particularly important at the moment. And we wanna make the most of the talent we have around the business. And as such, we'd be more active than ever in delivering training and development, both internally and externally, to give every everyone the best opportunity to grow and fulfill their professional ambitions here at VIRGIN WINES. We're also proud to make great strides this year when it comes to reviewing and implementing plans around our carbon emissions and sustainability. This year, we compiled our first scope three emissions report with the report being fully aligned with the greenhouse gas protocol standard.

30:57 We're also proud to announce that we achieved the past twenty sixty standard in September, meaning we're the first online wine retailer to be certified carbon neutral. Whilst being a carbon neutral business is an achievement, we understand that this is only a step on our journey to reduce our carbon emissions. Therefore, we've committed to reduce to to produce scope one and scope two emissions by at least 42 by 2030. And longer term, our ultimate goal will be for virgin wines to achieve net zero by 2045. As part of our work to reduce emissions in our supply chain, we continue to look at ways we can be more sustainable when shipping wines from around the world. This year, 28% of wine we bought was bottled that was bottled here in The UK, which saves approximately 40% of the carbon emissions compared to compared to shipping in bottle, and we'll continue to drive that percentage up over the coming years.

31:52 So moving on to the right now. I'm sure everyone is keen to hear about our plans for f y twenty three, and you'll see that there continues to be very clear and consistent strategy here. We'll continue to prioritize driving our customer acquisitions through our partnership channel. Delivering high quality customers at low cost is at the heart of our business model, and the most productive way to achieve that dual aim is to work with business partners who have a customer base that's well aligned demographically to our own. As I've mentioned, we're delighted to have secured Saga as an exciting new partner, and we'll continue to look for opportunities to increase our strategic partnerships over the coming year. Our open source buying model to protect our gross margins is key, and we'll continue to look for the best value around the world each vintage.

32:40 We've already identified areas such as Australia, South Africa, and Spain where we can see real opportunities. And with costs continuing to to increase on dry goods and freight, it's more important than ever that we can focus on maximizing the value we can derive from our wine buying. As you know, growing our wine bank scheme is at the heart of our business model, and that continues to be the case. We're doubling our efforts around conversion and retention, having undergone a process to refine the customer welcome journey to minimize early dropout rates and maximize customers joining the active base. We're also using the latest technology to increase targeting and relevancy of offer and utilizing the incredibly rich data we have access to to drive the most personalized customer experience.

33:28 As mentioned, we've been greatly encouraged by the opportunities we've identified in the commercial area of the business. Our partnership with Moonpeak has substantial scope to grow whilst there are further potential partners in the travel sector that we're actively pursuing. Whilst there may be pressure on consumer spending, there are equally great opportunities to drive growth in this area of our business, and we're extremely ambitious around the growth potential here. Finally, we'll continue to drive efficiencies across the business. Part of this will come through the investment we're putting into our IT and our infrastructure, and part of it will come from our focus on continuous improvements, marginal gains, and our strict discipline around cost controls. Delivering value from every piece of investment, whether that be marketing, people, or IT, is more important than ever and remains a key focus.

34:19 So moving on to our outlook for the year. And clearly, there's a mix of challenges and opportunities. Our q one started with a steady July and a positive year on year performance in August followed by a softer September, which was impacted through us not by not actively marketing during the period of mourning following the death of the queen. The current landscape is one where we know there's continued pressure on the consumer's disposable income, and there are significant cost pressures that are largely out of our control such as the huge rise in the waste levy alongside increases in the cost of packaging, glass, and freight. However, we also have a number of reasons to be optimistic. Our customer base remains loyal. Our wine bank scheme is a great tool for customers to use to help them budget for their wine purchases.

35:09 As consumers go out a little less, they're more likely to enjoy a bottle of wine at home or socialize in that environment with family and friends. We're also pleased with the progress we're making with expanding our partnership, especially with the forthcoming launch of Vintage by Saga this November. Forecasting is naturally extremely difficult at the moment. But given all the factors at play, we expect revenue to be resilient with growth broadly flat year on year. We'll continue to deliver sector leading levels of EBITDA margins, and we're confident we can mitigate a large number of the cost pressures we face. However, it's impossible to mitigate them all, and we expect EBITDA margin to be approximately 8% against our previous forecast of nine. So just to summarize, we have great faith in our business model.

35:58 It's robust and disciplined and proven to perform in a variety of market conditions. We continue to make great progress with our partnerships and through our commercial channel whilst our customers continue to show great loyalty. We have an efficient business that generates excellent value from its investments as well as a strong balance sheet that gives us flexibility around capital allocation. So despite the challenging nature of the current environment, we believe we're well set to deliver long term growth whilst managing the headwinds we see in the short to medium term. That concludes the presentation. So I think we'll just now move over onto the Q and A, if that's okay. That's perfect, Jay. Jay, Graham, thank you very much indeed for updating investors this afternoon, ladies and gentlemen. Do please continue to submit your questions using the Q and A tab just situated on the right hand corner of your screen. Just while we give Jay and Graham just a few moments to review the number of questions that you've sent in already, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

37:01 Jay, I I give you very little time and ground to look at these questions, but you'll notice that you've had a number of questions that were both presubmitted, and you got a number of questions from Guy, Matthias, Kelvin, so on and so forth. So if I may just hand back to you just to read out those questions and give a response, and then I'll pick up from you at the end. Yeah. No problem. Yeah. Lot lots of questions, which is great. So the first one here has asked us if we can talk about what if any tweaks and changes in our strategy are being made at the moment because of the economic situation we're currently in. I hope that I hope that, you know, some of those got answered during the presentation, but I think, you know, focusing, you know, on the on the really robust nature of our model, those key pillars that we talked about at the beginning, you know, more important than ever, low cost, high quality customers through our customer acquisition, driving that wine bank base, developing the commercial area of the business that we think is probably less affected by by the current market conditions, and being as efficient as possible and driving cost controls everywhere. And I think, you know, now now is the time to make sure that we, you know, we we we make sure every pound investment counts and that we stick to our core principles, and that's what we're planning on continuing to do.

38:18 So I'm just getting on to the next question. We're saying, oh, are we able to comment in general about what we're seeing in the market right now? So we obviously, as previously stated, some competitors doing promotions, etcetera, significant losses with questions around sustainability financially for them with the challenging times we're facing. Have you noticed a drop off in this? So market environment, I guess, though, it's always gonna be a competitive environment in the in the wine sphere where you're you're right. There's obviously been I mean, Naked Wines in particular have have have come out with some statements recently to say that they're they're gonna scale back on the aggressive nature of their of their marketing.

39:10 I think probably that's that's helpful. I don't think having sort of $19.99 for six bottles as being the sort of the the the the clear sort of promotion in the marketplace gives real value for wine. So so I think that's that that that's probably helpful. Overall, we expect the grocers to continue to be to be competitive and aggressive in their pricing, particularly over the Christmas period with with you know, they we we we know the supermarkets like to use alcohol as a as a loss leader to drive footfall, so I'm sure we'll see that again. But overall, I think, you know, businesses are seeing that that that that to be sustainable long term, you have to have a business model that that that that makes sense and that can generate generate long term sustainable incomes. And so I hope that's a that's a benefit to us.

40:03 Graham, I think you already sort of mentioned this, so maybe you wanna take this again, but just just talking about the the the channels where the where the drop in sales came from previous year. Yes. We I mean, the the Christmas impact last year meant that we we cut off a little earlier, and that did have an impact of approximately 1,000,000 pounds. And, again, that was mainly due to staff within the warehouses getting COVID during that sort of lead up in into Christmas. Obviously, we're hoping that there'll be no repeat of of that this year. There's a lot more people, obviously, who have got vaccinated. And, obviously, we've seen a significant drop in in sick levels with with within our within our operations.

40:54 So we're hoping that was just a one off for last year and won't repeat itself. I think more fundamentally, the the the drop off in sales were what I talked about at the start of the the presentation in that we we lost some volume through through new customer acquisition, through heavier discounting and slightly lower volumes through that channel. And then the gifting channel, it was probably a combination of of of just the changes post COVID and also gifting possibly over Christmas as well will have had an impact. But, you know, these should that should have been a one off for for last year and something that is doesn't get repeated this time around. Great. Thanks. Thanks, Graham. There's a question here around beers and spirits.

41:44 So I appreciate this is a fledgling area. I know you've been going for a short while, but it'd be good to hear your thoughts. Have you had enough customer intelligence and feedback to start producing your own brand beers yet, or is this a work in progress? So, yeah, well, as as as mentioned in the presentation, again, the the the we're we're ambitious around what we'd like to do around beers and spirits. We think that there's opportunity in both in both markets. But we we're bringing we largely bring new customers into those product categories through digital advertising, and the the cost of digital advertising at the moment is such that we just don't think it's value. So we're holding back on that. What we are doing is doubling down on in in marketing our beer and spirit range to our existing customers.

42:31 And that's going extremely well, and we're getting through all buying from existing customers and sort of then moving into those adjacent product markets. We're also developing more and more of our own exclusive brands in both the beer and the spirit side of the business. So, yeah, that's you're replicating what we do with our with our wines by developing our own brands of beers and our own brands of spirits is absolutely the focus, and that continues, you know, that that that well, it it's it's continuing to grow as it has in over the last year or two. There's a question here about, are we able to quantify the membership or financial effect of having live tastings and roadshows again now that we're getting back to normal after COVID?

43:19 Yeah. It's been absolutely brilliant to be able to get back out and meet customers and host our events. And we have just a fortnight ago, we were down in London and had over a thousand customers come and join us to taste 250 different wines. They didn't have to all have all 250 if they didn't want to. I think a few tried. But it was it was a fantastic event. And what we know is that when a customer comes to one of our events for the first time, the year the year after that, they spend on average 50% more than they did do the year before. So whilst the events in themselves aren't necessarily profit making, obviously, costs quite a lot to host those events, and we always staff it with all of our own staff. So we're bringing people from Norwich or from Preston and Bolton warehouses to come in to come and support us at those events.

44:07 The actual effect it has on the lifetime value of the customers who come is extremely positive. And, again, we just love doing it, and we love being out with our customers and speaking to them and and having a having a great time tasting wines with them all. So, yeah, we'll continue to do more and more now that we can get back out and and enjoy hosting them again. This is a question just regarding whether we've looked at I mean, I think I mentioned the opportunity for us to look at capital allocation. Graham, maybe you wanna take that one on board as well around how we how we may or may not use our our cash moving forwards. Yeah. I mean, obviously, we're it's great to have a strong balance sheet, and it's it's great to have a business that's extremely cash generative.

44:53 We know that cash in the long term, obviously, is is owned by our investors. So we will look at opportunities going forward, whether that's dividends or or share buybacks or further investments to to increase growth. It's it's something that we're actively discussing at the moment with with with the board and and our advisers. We're still relatively new to the AIM market. We've only been on there just over eighteen months. And I think the general advice we've been given at the moment is obviously to start making assessments on those sorts of things now. So it's definitely something that's on the agenda, but I have to say at the moment, we haven't actually reached a conclusion on on on our approach to it, but we will be doing shortly. And, obviously, we'll communicate that back to the investor community once we've agreed what the approach that we're going to take.

45:51 It's great. Thanks. Thanks, Graham. And this this probably follows on. Question here saying, will Jay Graham John Rizman, who's our chairman, and the other non exec directors look to purchase shares in VIRGIN as a confidence measure and signal to the market about about the long term prospects of the company? Well, as as you may or may not know, Graham and I are both are both very substantial shareholders in the business already as is as is John, and we are extremely committed to the business and very complex long term prospects. And probably just as the last conversation around it being a board topic, because, obviously, there are certain times when we can go into the market to buy shares and certain times when we're when we're not allowed to. You know, it's it it again is a conversation for us at board level to have about about directors purchasing of shares, but we believe that the business is undervalued at the moment. Therefore, certainly from my perspective, and I probably shouldn't speak for others, I would see it as a as a great opportunity to be able to get great value out of the shares right now.

46:56 So so yeah. Do do we in the current environment, do we see potential m and a opportunities arising? We we get a we get a lot of IMs across our desk, and Graham and I spent quite a lot of time looking at at various opportunities. They would have to be extremely attractive opportunity for us right now. I think there's probably a lot of businesses who are who are sort of needing support right now. I don't think that we wanna do anything which would take our focus off what we're doing in our core business. But we're obviously, we would always look and see if there is something which would be, you know, profit product accretive to the business. And if that was the case, and and it really it really sort of helps us be able to drive into areas which fits within our our core propositions, then I think we'd look at that. But but I'm not sure right now. M and A is is is really high on our on our on our list of on our sort to do list unless it was a a fantastic opportunity that came along.

48:06 Graham, do you wanna add anything to that? Or No. I think I think it's right that we're always looking for opportunities. And if the right thing comes along, we'll go for it. But there's a lot we've seen a lot of low quality businesses out there that we don't think would add long term value and would actually damage our p and l. So, you know, we we've we've considered some but but but walked away from opportunities. But but, you know, we keep our door open, and if something could comes along, we will definitely look at it. Great. Thanks. A question here just asking if we can give a a a rough idea of month when we'll be giving our next update to the market. Yeah. When we'll be doing that post Christmas, so in in January, we'll we'll we'll give an update on on how how trading has gone over the over the well, what is now the next couple of months and actually fully follows on nicely to a question from from Steve saying, do you feel high inflation and the squeeze on consumer spending will impact the business over the important Christmas period?

49:10 I suppose the answer is we don't we don't really know. I I'm yeah. I think we know that there's gonna be pressure on consumer spending overall, but we also know that that that we've got very high levels of customer savings in our WINES bank deposits already. We know the commercial business is is doing extremely well. We've got some great customer acquisition offers and partnerships on the go. And I think that the British public will will wanna go out and enjoy their Christmas still and have a and have a great time, and wine will be an important part of that. So, yeah, I think we're really hopeful that Christmas will still be a very positive trading trading period for us. But, look, time time will tell. And as I said before, I think forecasting at the moment is is so difficult and, you know, we're we're really wary and understanding of the of the challenges that are that are there in the in the consumer landscape and doing all we can to make sure that we can maximize every opportunity that that that we have.

50:14 There's a there's a question here from Guy just saying the share price of partner Moonpig is near an all time low. Do you have a view on this and on the potential impact of Moonpig states on virgin wines? Look. It would be completely inappropriate for me to comment on on Moonpig's overall business and their and their share price. What I will say, I think I think they're a great business. They're very, very good people. They seem to be doing a fantastic job, and we've got a great relationship with them, and we look forward to doing a lot more with them moving forwards. I think that I I hope that the work that we're doing with Moonpig will will enhance their offering. And certainly from their perspective, I think they feel that's the case. So but we're just working looking forward to working more with them moving forwards. But they probably question for for them rather than me.

51:11 Matthias has asked a question here, which I think will probably pass over to to Graham to have a to answer just saying that gross margin has remained relatively stable around 31.5% versus last year with some costs skyrocketing. So could we quantify the impact of the higher cost of glass and logistics, And can we explain and quantify the offsetting effects which has kept gross margin stable? So, Graham, do you wanna pick that one up? Yeah. I think probably the first thing to comment on is the fact that the main two elements of our of our cost of sales are the wine itself UK duty. So those are the two biggest items.

51:56 While, obviously, glass and packaging and labeling, etcetera, are important parts, they're relatively small in terms of the amount of pence per bottle compared with the wine itself and and and the duty. So being able to secure good wine from the right regions at the right price helps us offset some of the higher costs that are coming through on glass and logistics. We also can protect margins a little bit by pricing in terms of how we price our offers, the levels of discounts that we're that we're able to give so we can we can manage margins again through through through pricing, through how we mix our own cases and the price points that we we we sell the those those at.

52:48 We we also have areas where we can change the the the supply chain a little bit. I I think Jay mentioned from a sustainability point of view, we're also increasing the amount of bottling that we do within The UK. And that also, while it's good for the environment, is also a very cost effective way of bottling as well because we can ship more wine more effectively at at lower cost. So we use a combination of all those things to try to make sure we we we maintain margin and offset as much as the of the cost inflation as we possibly can. And we'll obviously endeavor to keep doing that and and refine our model as we go along.

53:35 Thanks, Graham. Question here that I think I might have already just touched on, but it's, can you comment on the new developments at Naked Wines and whether the changes to their strategy would have any implications for you? I guess, in short, think when we when we read what they they said they were looking to do moving forward their strategy, it it looked like they'd read our business model and had taken various elements out of that. So, look, their their strategy is their strategy. We're very much focused on our business and what we do. If they are slightly less aggressive within the customer acquisition field, then I think that's probably positive for us, as I mentioned. But that's that's that's probably that's probably it really. 20% interest on WINES Bank. Is that per annum? If so, very generous. How's it costed, stroke, financed?

54:24 Graham's got finance in the question. Sorry. Can you can do that? Okay. The the way the interest works on WINES Bank is that for every £5 that you subscribe in into your WINES Bank account, we give you £1 wine interest to go on it, and that goes on straight away. So most people are putting in or the default is to put £25 per month in. We then give £5 wine interest that the customer can spend. So effectively, have £30 in their account at that point to spend on wine. So that that's really how how the scheme works itself. In reality, obviously, the the the wine interest itself is effectively discount that we're we're allowing the customer.

55:10 So being on WINES Bank is is the best scheme to be on if you're buying wine from from VIRGIN WINES because you get that level of of consistent discount throughout your your time with this, and you also get free p and p as well. So it's our number one scheme. It's a scheme where where our customers get best value. And I'd say we just make sure that, obviously, our our pricing and margin model, the the targets we set ourselves, obviously, take those those discounts into account when we when we set up our pricing matrix. Great. Thanks, Graham. And just we've got two more questions. So, also, we can probably just just squeeze it all in just in time, I think. So both from Guy. First one about English sparkling wine.

55:57 I'm just asking, saying it goes from strength to strength. Do you see opportunities for traditional method of the top end of the market and or Prosecco style at the lower end? We definitely see opportunity for the traditional method at the top end of the market. And you're right. Some of the English sparkling wines are fantastic. And we've got a couple of great initiatives on the go here in the here in England, which which we'll be able to tell you more about in the not too distant future. But, yeah, some brilliant sparkling wine being made. It's much more difficult at the Prosecco style and lower end just because the the price of land in The UK is so high. A lot of the vineyards are relatively new, and therefore, the yields that they get out of the vines aren't necessarily huge at this stage. Therefore, the pricing structure is such that it does it does tend to be more expensive to make sparkling wine here in The UK than it can be in certain other areas of the world.

56:54 But that may well develop over time. But right now, think it's a great opportunity at the top end, and I'm sure there will be there will be there will be wineries here in The UK who are who are working hard to to tackle that lower end as well. And finally, does dragging margins in South Africa treat producers and their employees fairly and ethically? Absolutely. We we we do a full all of all suppliers who we work with, we do a full questionnaire around all of their ethics and how they treat how they treat their people. The the margin gains in South Africa don't come through trying to drive the price down in terms of the the the cost we would pay for a grape from year on year apart from from the yields that they get and the quality of those yields. So if they get substantially higher yields in South Africa, then that tends to mean that the pricing of the actual wines itself goes down and becomes and becomes better better value. So it's really down to yields rather than anything else.

57:55 The actual the actual structure of how people we we we work with treat their employees is exceptionally high on our on our list of priorities, and we wouldn't work with anybody that didn't fulfill those very highest of of standards. Twelve fifty eight, I'm not sure if that's if, Mark, you wanna you wanna stop there or was gonna stop done on questions, I think. I was gonna say, Jay, thank you very much indeed. And if any further questions do come through, what we can do is we'll make those available to you post today's call. Thank you to everybody for your engagement today and for for all your questions. Jay, I'll shortly redirect everybody on the call to give you their feedback and their thoughts and their expectations. But I wonder before doing so, if I may, just ask you for a few closing comments.

58:42 Yeah. Absolutely. Thanks very much again for the opportunity today to talk to you all, and thank you very much for coming along and and listening to us. I hope it I hope it's interesting, and I hope more than anything, you can see that, you know, we're we're sticking to our core principles. We're working hard to give customers great value all the time. We're we're trying to make sure that we keep the loyalty levels of loyalty of our customers really high. And that we just and and that there's a there's a great long term opportunity with Virgin Wines, and the the business continues to perform extremely well. It's very robust. It's very resilient, very disciplined model. And and we'll continue to work incredibly hard to deliver the very best results we can for all of our shareholders. That's great. Jay, Graham, thank you once again for updating investors this afternoon.

59:30 Ladies and gentlemen, please could I ask you not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of VIRGIN WINES PLC, we'd like to thank you for attending today's webinar. That now concludes today's session. So good afternoon to you.