Virgin Wines Uk (LSE:VINO) — FY 2024 Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the VIRGIN WINES UK PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, as usual, I would just

0:32 like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from VIRGIN WINES UK PLC. Jay, good afternoon, sir. Thanks very much. And, yeah, thank you all for attending, and I appreciate everyone giving up their time to listen to Graeme and me today. What I'd like to do first is to give you an overview of the of the strategic priorities we set ourselves last July as we went into this financial year, briefly highlighting the progress made. We'll then build on those areas in more detail as we move through the presentation, examining the key performance drivers, showing you what's gone well, and what we're doing to drive further progress. We'll finish by giving you some thoughts about the outlook for the business moving forwards and where we're focusing our efforts to maintain our position as the business has the lowest cost to serve in the sector and where we can drive shareholder value.

1:25 There were 12 key strategic aims we highlighted for this financial year, and I'll quickly identify those and show you how we've been getting on against them at the half year point. First, we've always prided ourselves on our ability to deliver market leading levels of profit, and we're pleased to have grown our EBITDA by a 122% year on year. We have a disciplined approach to driving gross margins, and despite an inflationary environment negatively affecting input costs, as well as the largest single increase in alcohol duty in fifty years last August, we've increased our product gross margins from 36.5% to 37.2%. We wanted to deliver significant efficiencies within our warehouse operation, and we're delighted to have reduced the pick and pack cost per case by 25%.

2:14 As mentioned, we pride ourselves on being the lowest cost to serve in our sector. And by keeping a laser like focus on our costs, we've reduced our full operating variable by 11%. We wanted to drive even further levels of loyalty in our key wine bank scheme and are encouraged to see a reduction of the twelve month rolling cancellation rate from 17.8% to 16.8%. We also wanted to drive increased revenue through our loyal 134,000 WINES Bank subscribers and have succeeded in delivering a 6.5% increase in sales through those customers year on year. Customer acquisition is challenging, so we've doubled down on delivering high quality customers at low cost, shown by the new customer conversion rates being up by 22% and our fully costed cost per recruit down 14% from the same point last year.

3:08 Maintaining a healthy balance sheet is a priority. In the search, we've worked hard to reduce inventory with stock down an impressive 24%. Alongside that, we also set out to generate increased levels of cash and are pleased to see our net cash position rise by 3,400,000 to sit at 11,000,000 at the end of December twenty three. We know how much pressure there is on the cost price of wine, so maximizing the benefits we can drive from our open source buying model has been imperative. Focusing our buying more than ever on regions that deliver the best quality value ratios whilst also sourcing lower alcohol by volume wines where possible to benefit from lower duty rates. Finally, we set out to deliver a complete refresh of our brand, both visually and creatively.

3:54 And we've now rolled out a new logo, new fonts, and premium creative imagery across our sales channels. And at the end of October, we launched our new value proposition, Warehouse Wines, and we're encouraged to see just under 2,000 new customers purchased from the brand in that initial test period. We feel that's a great deal of progress in tough market conditions and gives the business a solid foundation from which we can launch new initiatives and grow. We'll now go into more detail about these areas with Graham starting off by expanding on all the key financial areas as well as talking you through the progress we've made operationally over the period. Good morning. At this point, we want to focus on the main year on year changes in H1 trading and highlight some of the underlying strengths of the VIRGIN WINES business model.

4:47 H one revenue was up 2% to 34,400,000, a strong recovery in profitability with EBITDA up just under 1,000,000 to 1,750,000 and profit before tax up by a similar amount from just under 100 k to 1,100,000. Reported gross margins continued to trend upwards increasing by 2% to 31.1%. The performance and profitability was underpinned by the quality of our subscription schemes, which account for 84% of all our D2C revenue and in particular, the WINES Bank scheme with year on year revenue growth of 6.5%.

5:34 Our commercial B2B operation continues to perform well with h one revenue up 6%. Our business model helps when times are good, but equally protects the downside when the business environment is more challenging.

5:53 Inflationary cost pressures, duty rate increases and squeeze on consumer disposable income have made this a challenging period to maintain gross margins. As previously mentioned, our reported gross profit, which includes packaging and delivery costs, has trended up from h one last year, improving again in h two this time and then increasing further in h one twenty twenty four. Our product margins, exclude packaging and delivery, have also improved up to 37.2 from 36.5. Our open source buying model allows us to maximize possible flexibility to find the best cost quality ratio of wines and offset some of the underlying inflationary pressures.

6:49 By selling mainly own label wines and curating cost cost case contents, our channel owners are able to set pricing and discount structures to give great value but also protect our margins. We mitigated the initial impact of the 44 p increase in duty by making stock duty paired at the old duty rates, and this enabled us to minimize the impact of price increases on our customers. And then by reducing and then maintaining lower inventory levels, we're able to move product through the business quickly and avoid the need for reducing margin by selling off stock.

7:36 August 23 saw the largest rise in UK wine duty in fifty years, adding 44p to the average pre VAT bottle cost. This was particularly unwelcome in the midst of a cost of living crisis. Some better news in March 24 budget, which confirmed no further changes in duty rates until February 2025. This will ensure no further duty hikes in 2024 and should give a predictable landscape for the majority of our FY twenty twenty five financial period. To where practical to do so, we will look at also reducing ABVs and utilizing the new rules on ABV labelling to take advantage of some lower duty rate segments.

8:28 As with profitability, we have seen significant progress in the net cash position in H1 twenty twenty four. We've continued our long established policy of keeping customer money in the form of WINES Bank subscriptions separate from group cash. Group cash at December 23 was up by GBP 3,400,000 to GBP 11,000,000 from GBP 7,600,000 in December 2022. In addition, we held GBP 6,400,000 in subscription deposits from our Winebank customers in a separate ring fenced account. Profit plus tighter management of working capital and in particular, the reduction of inventory levels have made the main difference to our cash position.

9:21 A key pillar of our business model is low cost to serve. In doing so, we want to maintain the highest possible level of customer service and satisfaction as that is key to customer retention. Order fulfillment costs fell by 11% from last year, dropping from 14.6% of revenue to 12% of revenue in h one twenty twenty four. The biggest fall happening in warehouse pick and pack costs, which were down 25% year on year following the issues we had with the launch of the new WMS in FY twenty three. However, it should also be noted that packaging, customer services and carrier costs were also lower this year.

10:12 Service and quality has been maintained throughout with customer wine ratings solidly over four out of five. And our Trustpilot score is rated as excellent at 4.4 stars, and we have over 17,005 star ratings. Probably the best overall indicator of service and customer satisfaction is the substantial fall in a in customer promise, which has almost halved to naught point eight percent of revenue. This is a combination of reducing picking errors due to the new working methods introduced as part of the new warehouse management system. We have also changed our packaging specification, reducing both damages and at the same time bringing down costs.

11:05 We allowed inventory levels to drift upwards to offset the potential impact of supply chain disruption. As these risks have now mainly eased, we have focused on bringing stock holding back down to more normal levels. As a result, the December 23 levels were down £2,600,000 from £11,000,000 to 8,400,000 With these lower levels, we have been able to exit all third party storage, improving our operational efficiency, eliminating double handling and reducing costs. We continue to monitor the range to ensure high levels of availability, but ensuring products are utilized quickly. The December 23 inventory incorporates the new warehouse wines range that was only launched this financial year.

11:59 Disruption of Suez Canal traffic is adding some extra days onto shipping from Australia and New Zealand, but at the moment, this is a manageable issue with no significant impact on our business operation. I'll hand back to Jay. Great. Thanks, Graham. So I'd just like to talk about a little about customer acquisition for a couple of minutes. As anyone who's listened to us talk before will know, we've built this business as the most profitable in its sector in no small part due to our disciplined approach to customer acquisition. There are three things that we focus on specifically when we discuss customer acquisition. First is the amount of money we're going to invest and what our allowable cost per recruit can be depending on the channel the customer is being recruited into.

12:47 And by that, I mean, whether they're required as the customer will fall into one of our subscription schemes, so either WINES Bank or our Discovery Club or come in as a pay as you go customer. The amount we're willing to invest in our customer acquisition is the largest single factor in determining the return on investment, lifetime value, or payback that we deliver. Second is the quality of the customer we acquire. The more aggressive we are with our pricing and the less targeted we are around the demographic profiling of the audience we deliver our offers to, the less likely it is that the customer will go on to purchase further cases and become a long standing loyal customer at VIRGIN WINES. Therefore, careful targeting alongside managing the discounts or pricing on that initial recruitment offer are key factors in determining the quality of the customer being acquired.

13:37 Finally, the other key component is the actual scale or number of customers we can acquire. We'd love to acquire huge numbers of customers that are highly likely to convert and buy multiple cases over many years at a low cost per acquisition. However, in the current climate, it's extremely challenging to deliver all three of those key objectives simultaneously. Therefore, we've needed to instigate a hierarchy that we feel is the most advantageous to our business and our p and l in the current trading environment. Our preferred approach has been to be highly targeted with our acquisition and around the profiling of partners we're working with to attract new customers. And whilst we've remained competitive with our pricing, delivering attractive offers and deals, we haven't reduced our pricing to the levels where one or two of our competitors have, instead focusing on quality and value.

14:28 The result of this has been a very significant increase in our new customer conversion rate. This is the percentage of new customers acquired who go on to purchase a second full price case. And this has increased by 22% from 41.4% in December 2022 to 50% in December 2023. Even more impressive is the increase in the conversion rate of our WINES Bank customers that's increased from 38.7% up to 55% in that twelve month period. Clearly, the higher we can drive the conversion rate, the lower the total number of new customers we have to attract to deliver the same amount onto our active customer base and the more efficient and cost effective we are as a business. Alongside the increases in the conversion rates has been our ability to also reduce our fully costed cost per recruit by 14% from £20.51 to £17.68.

15:27 For clarity, the definition of that fully costed cost per acquisition is the marketing cost of attracting new customer, the operational cost of serving that new customer, plus any gross margin made from the case purchased. We believe this tactic of delivering high quality, low cost customers as opposed to throwing significant amounts of money at attracting people who are likely to only be interested in that initial offer case and not going to be an active customer is the correct approach in what's relatively subdued market. However, we also know how important driving volume is in the longer term, and we're excited about two new acquisition mechanics we'll be launching onto the market over the next few weeks. And we hope that we hope we'll also address the issue of volume whilst keeping to our disciplined cost structure. And I look forward to reporting back on progress made here in due course.

16:21 I'd like to talk now about some of the key trends and behaviors we've been seeing from our customer base. We have three different groups of customers. Our WINES Bank customer base is our largest and most active. These members save a chosen amount of money each month in their WINES Bank account. The default amount is £25, but it can be anything between £15 and £100 a month. In return, we give those customers a bonus 20% interest on each monthly deposit. In effect, an extra £1 for each £5 they save. Those customers can then go on to use their wine bank savings along with the bonus interest we've given them to buy whatever they want, whenever they want. We also give all wine bank customers free express delivery as standard, saving them a further £7.99 on each order.

17:12 Our Discovery Club customers are on a regular wine supply program where they receive a case of top new discoveries and existing customer favorites every three months and at Christmas. They're in control and can change the contents of the selection. They can skip a selection or cancel completely, but this is a great scheme for customers who wants to go on a voyage of discovery, sampling a wide range of wines from our portfolio in a hassle free manner. Finally, we have our pay as you go customers who aren't on any kind of subscription scheme but choose to buy just as and when it suits them. We've been pleased to see continued loyalty from our existing base despite pressure on consumers' disposable income. Sales from our repeat customers grew 4% year on year, and revenue generated through our loyal WINES Bank members increased 6.5%.

18:01 This was the second highest grossing six month period ever from our WINES Bank customers, and revenue from our total WINES Bank membership is now 75% higher than it was in h one twenty twenty. Total deposits from WINES Bank customers hit an all time high in October last year at £9,000,000 before falling to 6,300,000 at the end of December as customers spent their wine bank balances over the Christmas period. I think it would be helpful to reiterate again that all customer money held by VIRGIN WINES is kept in a separate client account, and it isn't used to fund our business. It's customers' money, not ours. And as such, we believe this is the correct and ethical approach. We stress this because it's a fundamental difference in our business model to that of one of our main competitors.

18:51 I think one of the most encouraging trends we've seen over the last twelve months has been the reduction in the cancellation rates on both our subscription schemes. In the current environment, there's significant pressure on keeping subscribers loyal with many businesses seeing substantial increases in their in their cancellation rates. We've been pleased that over the last twelve months, the cancellation rates on WINES Bank has reduced further from 17.8% to 16.8%. We already felt we had a low cancellation rate, but to see that rate fall even further shows how much our members enjoy the flexibility of the service, the quality of the wines they receive, and the fabulous value that it represents. We've also seen a reduction in the cancellation rate from our Discovery Club members with it moving from 44% a year ago to 38.5% in December 23.

19:42 The main challenge with this scheme has been acquiring new customers as the proposition of receiving a full case every three months has been less popular than the small and regular payment structure of our wine bank scheme. As such, revenue from our Discovery Club members, which instantly is our smallest customer segments, reduced by 22% in the first half year. On the other hand, revenue from our pay as you go customers increased by 13% year on year, an encouraging trend. Despite the lower quantity of customers acquired this year, the reduction in the cancellation rates alongside the increase of a new customer conversion rate has led to a modest 1% growth in total membership of our subscriber base. We're also buoyed to see an increase in our sales retention rate, which has increased to 91%, up from 74% a year ago and 80% at the end of the last financial year in June 2023.

20:39 I'd just like to move on now to talk about our commercial and gift channels. It's been a positive period for for both of those. Our commercial channel is where we focus on b to b activity, and it falls into three main areas, wholesale, retail, and corporate gifting or incentives. Our wholesale activity is focused on developing key relationships with a number of large national accounts. These tend to operate where we can deliver our wines to a relatively small number of distribution points for that business to then use as appropriate. We've been particularly strong in the rail sector for a number of years and have enjoyed long standing partnerships with LNER and Avanti as well as a more recent relationship with Great Western Railways.

21:25 We're delighted to have recently extended our partnerships with both L and ER and Avanti for another two years after a recent tender process. Continuing with our strength in the travel sector, we were delighted to agree a partnership with, for w eight Smith to stock a selection of our quarter bottles in their travel stores. And after a promising twelve months, we've recently extended that partnership for partnership for another year as well. We continue to operate with a number of key retail partners, and we have highly valued partnerships with the likes of Moonpig, ShopDirect, Amazon, and Debenhams. We're more reliant on the traffic to their respective websites to deliver increased volume, but we're a 100% committed to driving long term growth, and we're continuously working with our partners to find ways to drive increased sales.

22:15 Our team generated excellent levels of revenue through corporate gifting over Christmas, and this was the largest single contributor to our 6% year on year growth. This is also the highest margin activity in the commercial channel. Finally, we've continued to work ever more closely with our friends at Virgin Red. The Virgin Group loyalty program is going from strength to strength, and Virgin Wines are a key partner. We identified this opportunity as a key initiative right from launch and are delighted to see encouraging growth through the program. We're a particularly attractive option for Virgin Red members who have lower point balances as we offer a relatively low entry level for members to redeem their points against wine, especially when compared to booking a flight or or a cruise.

23:02 Our gift channel also saw excellent year on year growth, up 17.5%. We were delighted with the results of our key advent calendar campaign, which finished 18% ahead of the previous year, whilst orders for our bespoke, specially curated gift range were up 13%. This was all achieved while reducing our digital advertising costs by 14% as this is the main marketing channel used to drive gift purchases. Graham has already touched on, our open source buying model, but as you know, we've seen aggressive aggressive inflationary environments surrounding the cost inputs that go into producing and delivering a bottle of wine. We're fortunate that the buying model we operate allows us to be extremely flexible in the way we go about sourcing our wines, and the team have done an excellent job pivoting continuously to focus their buying on countries and regions where we can deliver the best quality value ratios and where we get the most benefit from current foreign exchange rates.

24:04 To continue to be competitive on pricing while delivering increased levels of gross margin and maintaining the high levels of quality from a wine perspective, which is nonnegotiable for us, this flexible approach to buying is paramount. Apart from a tiny number of cases where it's essential for continuity of supply, so Prosecco, for instance, we don't ever contract guaranteed volumes of wine in advance. Grapes are an agricultural product, and as such, the quality and the pricing varies from vintage to vintage and from region to region. We wait to understand the quality and value that can be delivered each and every year before committing to volumes, and then we're totally involved in the blending process of our wines to ensure they deliver exactly to the stylistic profiles we know our customers love.

24:52 This intensive way of continuously ensuring our customers receive the very best value, every vintage, from every reason is a key factor in why we've managed to increase gross product margins whilst maintaining the high ratings for our wines. It's therefore not surprising that Sophie Lord, our head buyer who you can see pictures on the slide there, was awarded the extremely prestigious title of UK buyer of the year by Decanter Magazine just a few months ago. Sophie started with the business over sixteen years ago in our customer service team and has been with and as has been the case with so many of our senior team, worked their way through the business via a lengthy period in the WINES advisor team and then eventually into the buying department, eventually taking over the head of role just eighteen months ago.

25:39 In line with our ethos of driving a lean, efficient, productive business, we only have four people in our buying team, but I'm also delighted that their hard work and talent has been recognized as they've been shortlisted alongside Waitrose and the coop as best buying team at the forthcoming London Wine Fair. We've said for some time that we don't believe we received the acknowledgment we deserve for the outstanding quality of our wine range. But along with a handful of other initiatives aimed at reinforcing this, which I'll talk about shortly, it feels that the industry is starting to recognize the exceptional quality and value for money that we continuously deliver to our customers. Over the second half of this last calendar year, we worked with a creative agency to update our brand guidelines.

26:25 As part of that project, we created a freshly designed logo, new fonts for both our headline and body copy, as well as incorporating more lifestyle and wine orientated imagery. Building a point the building upon the point I just made about the quality and authority we have regarding our wine range, it was important that we represent that within our marketing and customer communications to deliver a more premium

26:49 and aspirational image. We're delighted with the results of the process, and we're pleased to have received positive comments from customers about the new look and feel. We recently hosted our Manchester tasting and had the pleasure of welcoming 800 of our customers who descended upon Manchester Central Exhibition Centre where they could see all the assets of the new brand refresh at firsthand. The reaction was uniformly positive, and we're currently in the process of rolling this out across all our sales and marketing channels. Hopefully, you can see some of the elements of this new brand look and feel within this presentation, and I hope you like the direction we're taking. One of the key initiatives for this financial year was to launch a new value proposition and test it by bringing it to market. This proposition is called warehouse wines, and it's aimed at delivering superior quality wines to supermarket buyers who are wine enthusiasts that tend to buy their wines at under £10 a bottle.

27:46 This is a huge addressable market and one that we believe is poorly catered for currently by the by by the direct to consumer players. We launched the brand in late October with 60 exclusive wines, largely priced between £6.49 and £8.99 a bottle with the aim of understanding whether potential customers would be attracted to to the proposition.

28:11 We've deliberately differentiated the business model to be one that's focused on everyday low prices rather than subscription mechanics. And so far, the results have given us reason to feel really optimistic. We've used the lapsed virgin wine space as the main test bed for this as a free source of new potential customers. We also know that they've been previous we also know that those customers who've previously been attracted to buying wine by the case has something to do with the virgin wine proposition, most likely either the price or being on a subscription scheme, has caused them to never convert after that recruitment case often to stop engaging with us. Given we've attempted to encourage these customers to reengage with Virgin wines many, many times, it was encouraging to see nearly 2,000 of them buy from warehouse wines in that short two month period.

29:01 Feedback from customers has been extremely positive, and we already have an excellent rating on Trustpilot from a 110 reviews, whilst the wines that are being rated by customers on our website is giving average ratings of over four out of five, so comparable to what we receive for the Virgin wines range.

29:18 Anecdotally, from both our customer service team and Trustpilot, the fact there is no subscription element has has been highlighted as a real plus, and the competitive nature of the ongoing pricing has been highlighted regularly. To add independent credibility to the proposition, we delighted that wine experts and TV personality, Joe Faterini, has come on board to champion the brand and the quality of the offering. He is very much seen as a wine personality that endorses bringing good quality wine to the masses, and he's incredibly enthusiastic about the warehouse wines proposition, the quality of the wines, and the value that they represent, making him an ideal partner for us. Given this promising start, we're now putting in place a full marketing plan to drive meaningful volume over f y twenty five, y '26, and to establish Warehouse Wines as a multimillion pound contributor to the VIRGIN WINES group as well as a leading player in the direct to consumer sub £10 a bottle market.

30:18 Last time we presented, I mentioned plans to launch two new initiatives designed to add credibility and authority to our wine credentials. I'd just like to briefly update on how those are on on on how those are going as they're both imminently to to to be launched. First, the five o'clock somewhere wine club or five o s as we lovingly call it, is an exclusive club available to a limited number of customers who will exclusively have the first opportunity to purchase wines released under the five o s banner. 05:00 somewhere wines are created by winemaking superstar Steve Grimley in McLaren Vale in Australia. They're exceptional handcrafted wines made in tiny quantities, often only a single barrel, and often highlighting unusual grape varieties for Australia such as Barbera, Tempranillo, or Grunervelt liner.

31:08 They retail for anywhere between £15 and £25 a bottle and feature unusual authentic artwork. You can see the style of labels in the photograph on the slide. And these are often created by local artists in the Adelaide or McLaren Vale area. This initiative is being launched imminently and will initially feature 12 different wines before we roll out roll out a regular quarterly cycle.

31:33 Following on from this, over the past eighteen months, we've been working with a small number of wineries around the world who've been kind enough to allocate allocate a small proportion of their vines to virgin wines where we can create our own wines from our own bespoke vines. This has been created to deliver a halo effect by showcasing how we normally work with winemakers across the globe to create this exclusive virgin wines range that our customers know and love. The difference in this instance is that we're

32:03 in charge of the whole process as if we own the land and that these are exclusively our own rows of vines, and we're in complete control of the whole winemaking process. We have seven different wines being produced that will all be available before the end of our financial year in June with exclusive bottlings for wines from France, South Africa, Australia, and England. The first wine is now in stock and will be and will be available to customers shortly, and that is the English sparkling wine we've created. And you can see the actual wine featured here on this slide. We're excited about both these wine initiatives, and we believe they will do much to build our reputation as being one of the most credible and exciting wine retailers in The UK.

32:48 I'd like to move on now to speaking about the prospects for the business over the next few months before Graham takes you through a number of initiatives we have in place to ensure we continue to drive efficiencies and productivity across our business as well as looking at ways we can drive shareholder value. As explained already, in a tough environment, we've doubled down on delivering year on year gains across numerous KPIs, working hard to control what's in our power. We've substantially increased our profitability. We've driven revenue growth overall with year on year increases through our wine bank customers as well as in our commercial and gift channels while driving an expansion of our gross margins.

33:27 We focused on operational efficiency, reducing costs in the warehouse, and across our full operating variable, inventory, generating cash, remain disciplined around our customer acquisition, all while launching a number of new initiatives. Given this backdrop, it gives us reason to be optimistic about the prospects for our business. It is still a tough trading environment, and we aren't immune to the challenges the current consumer landscape delivers. Driving increased volume is challenging. In January and February, which are always quiet months, we're typically subdued. However, March has returned to much more normal levels of trading, and we remain confident in delivering our profit for the year in line with our expectations. However, it's vital to retain our focus on cost control as well as working out how best to use the cash we generate to deliver value to shareholders.

34:19 And I'll now hand back over to Graham to talk about these two areas.

34:27 Our view at the moment is that this is no time to be complacent. Market conditions remain challenging and the group is continuing we have a fit and lean business well positioned to take advantage of all market conditions. With that in mind, we've been carrying out a group wide review of all expenditure to ensure it delivers the best value for money and is targeted towards achieving our core growth objectives. Initiatives include re tendering key supply agreements, reassessing the value of value for money of all our tech and IT spend, further leveraging the functionality of the new WMS system to drive down operational costs and to continue monitoring our stock levels to protect margins and reduce storage costs.

35:20 Savings from this exercise will be used to invest quicker in growth initiatives and to protect our profitability. We're already seeing benefits from some of the early initiatives and the full value of these should be reflected in our f y twenty three trading f y twenty five trading. We are we are, of course, aware that the shares have not performed well post IPO. It is our responsibility to find ways to drive up shareholder value. The group remains debt free, and we believe the business will continue to generate free cash. There there are a number of options under consideration. Whilst maintaining our core discipline, we we will, as appropriate, invest further in organic growth through new customer acquisition and by growing the warehouse wines brand that we've just recently launched.

36:17 We continue to assess both UK and international M and A opportunities that would deliver profitable growth and accretive shareholder value. We will also review options to introduce, if necessary, a dividend policy to return cash to shareholders. And based on the current good value of the shares, we have announced our intention to launch a limited share buyback scheme to cover our future commitments under our share based payment plans and to avoid future shareholder dilution. Thank you. Perfect, guys. If I may just jump back in there. Thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that sit uates on the right hand corner of your screen.

37:14 But just while the company takes a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. Jay, Graham, as you can see there in the q and a tab, we obviously received a number of pre submitted questions ahead of today's event. And as you can see, we've also received a number of questions throughout your presentation this afternoon as well. So firstly, thank you to all of those on the call for taking the time to submit their questions. And, Graham, Jay, if I may, at this point, hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. That's great. Thanks a lot. Yeah. Thank you for anyone who's putting questions through. We've got a I've got one which was which was have we considered introducing shareholder perks, like free case of wine, free tickets to wine tastings, or significant discount on on purchases.

38:09 And, yeah, I think, actually, this got this got brought up at the last investor meat company presentation that we did. And and and shareholder discounts on-site is something that's actually being being instigated at the moment. So it's a it it take as as all these things, they take IT developments, and we have quite a long pipeline of IT development already in place. But I think, one, in terms of being able to to reward existing shareholders as well as hopefully attract attract new shareholders, particularly in the retail environment, you know, we think we we we think giving perks on our business offering is a really good way to do that. So, yes, and it's in it's in the process to sort of watch this space. There's been there's been a couple of questions, which it might be worth as just trying to put them together because there's been a number of questions about m and a.

39:03 So what kind of m and a we might be considering, what sort of criteria we would look at, and maybe how how we may fund any acquisitions. I mean, Graham, I don't know if you wanna just sort of pick up on that and and then talk to that whole piece. Yes. I think in terms of potential m and a opportunities, I think we're we are focused on remaining in in the online sector rather than going for sort of bricks and mortar retail. So we probably will look to expand online. That could be within The UK in a similar or related sector to what we currently operate in where we could bring our disciplines and our business model to play.

39:52 We also see opportunities internationally as well where there are markets where actually wine consumption is growing. And we think we could potentially put our business model into some of some international model markets, particularly, obviously, if there's a a VIRGIN brand recognition in some of those markets as well. So those are the sorts of things that we're we're basically looking at. We have retained cash on the balance sheet, part of our thinking around that is so that we can be we can react quickly to opportunities that come our way. Obviously, how we would ultimately fund any particular acquisition would depend on the scale, how how much the size of the of of the the company that we were looking at, and how much we would have to pay pay for it. But at the moment, we're very much focused on it being an outlet for for company cash that we could actually spend to to grow the business.

41:03 Thanks, Graham. There's I've got a question here that just says, given the importance of WINES Bank and other subscription schemes to the company's revenue, what are the plans to further enhance these offerings and drive membership growth? Well well, I I in terms of I I think WINES Bank is already a pretty strong scheme in terms of what we give customers. So we think that the the 20% interest rate and the free delivery is really attractive, and I think the cancellation rates and the loyalty of those customers prove that. There is in terms of the membership growth and then Look. I should also just say, you know, we we've obviously got to make sure that we look after our gross margins, you know, as well. And, obviously, the more the more we give away on the on the schemes, then, you know, the more difficult it is to do that.

41:52 But, you know, we do we do offer extremely good offers to WINES Bank customers. And then on top of the in terms of driving membership growth, that is gonna be around recruiting more more new customers into the schemes. As I mentioned, it has been it has been quite challenging driving large numbers of new customers, so we have focused on low cost, high quality. I think that the new as I've I I I did mention there's a couple of new initiatives that we're gonna be launching soon, and we're we're quite hopeful that one of those in particular will drive volume into the into the wine bank scheme. But ultimately, you know, we wanna make sure that we don't ruin our our our our whole business model by trying to drive, you know, expensive customers in who don't convert, but but, you know, maintain that low cost, high quality, and in volume elements of it.

42:47 So, you know, we'll just continue to work really hard on doing that. There's also just another question which I think sort of touches on that, which is around what the challenging consumer environment it's been and what strategies led to a 22% increase of a new customer conversion rates. And, again, I think, again, it just goes back to the targeting that we're doing around making sure that the profile of customers that we that we go to and then the fact that we don't over discount on those initial on those initial offers leads to a higher quality of customer. Fundamentally, the cheaper the deal that you go out with or the more you know, the the the the the lower the price of that initial deal, generally, the lower quality of customer comes in and the lower conversion rate you get. So we're trying to remain competitive. We're trying to make sure our pricing is attractive, but we're also trying to make sure that we keep conversion rates high. So, fundamentally, that's what we'll continue to do, and I'm sure, you know, we'll we'll stick to that philosophy moving forwards.

43:50 Graham, do you know anything about the duty free market? Is there a question here from from from guys saying airport shopping might be duty free, but your price comparison suggests it's far from being profit free. Do we see any opportunities there? I'm I'm I'm not sure about the duty free model, so I would be not not not really able to comment on the Yeah. Profitability. I think as as Jay mentioned before, we are actually we do quite a lot of work in the travel sector generally. We we haven't had access to any duty free shopping at at this stage, but it's something that we could potentially look at through through the people that's sort of concessions. My understanding is that it's very expensive to get to actually get on to the duty free side of of of any sort of of airports and things like that. So it may well be that it's it's something that that we couldn't do, but but it's something certainly that our our commercial team would would definitely consider going forward. There's no reason why we couldn't do it if we can find the right way to enter that market.

44:57 Yeah. And there's just a question about about benefits packages as well off by companies or agencies on their behalf of their employees. And, yeah, that is that is something that we're involved with. We we do a lot of work with PerkBox. We we obviously have there's a Virgin wide employee incentive scheme as well, which obviously we're we're very active in. And yet, look, again, any way that again, it it sits into with our commercial department, but they're always talking to people who will give access for our products to large groups of people. So employee incentive schemes and packages are are are definitely part of our model. There's also a question here about lean methodology.

45:43 So so a question is you've been learn someone's been learning about lean methodology to maximize value for the customer, minimize waste or processes. Is Virgin Wines a lean business? I'm not sure if if if lean, the way you've expressed it all in in capital letters, is a is a specific methodology that I'd have to know about before saying whether that was definitely the case or not. But, yeah, I believe that we are extremely lean in terms of how we would think about that in terms of being low cost, operationally efficient, and very productive. And we analyze every single cost line and try to make sure we get value for every single pound spent. Graham, I don't if you wanna expand on that at all. Yes. I think we focus very much on on our operating variables because we know the lower we can keep those, the better value we can give our customers overall.

46:35 So and and it's it's a it's a matter of sort of, you know, a penny here, 2 pennies there, 5 pennies there to to to try and keep our operating variables as low as we possibly can. So we do assess processes. We look for efficiencies. We try to improve operational productivity continually to do that. And we also do the same in terms of our tech spend as well, making sure tech spend, we get value for money that is really adding value to all our processes. And we will continue to invest in in tech where we think it can produce productivity improvements. We can only really benchmark ourselves against people who do who have similar business models to ourselves.

47:23 And we believe that we're the the lowest cost to serve of of all the businesses in our sector. But that's something that we don't just take for granted. It's something we work on continually, and we'll we'll try to continue to drive that down because it means that we can keep our our our pricing to our customers as competitive as we possibly can. And, hopefully, that means we can also drive volume through our business model as well. Great. And there's another there's a question here about the psychology of pricing. So sort of odd pricing, $6.99 essentially, is associated with the lower end of the market while even pricing, £10, £12, $50.15 is associated with the higher aspiration lens. Have we have we investigated the psychology of pricing?

48:12 Not formally. I haven't investigated the psychology, but we obviously I guess twenty seven years of doing this gives you quite good empirical understanding of how pricing works with customers at different at different levels of the market. But I will I will take that on board and go, and I'm I'm gonna Google the psychology of pricing and see if we can we can learn more about that. So so thank you. Thank you for the comment. And then finally, have we considered reviewing or recommending selling books about wine? And so, yes. Yes. We have. We've I mean, we have sold wine books. We've had a number of different books that have accompanied different cases that we've offered. We had a in we had one one one fantastic book about the history of Chateau Musard and producing wine in Lebanon that we sold alongside three different vintages of Chateau Musard as a as a gift pack that did extremely well.

49:01 So, yep, that that that book books are something that we do that we do sell alongside our wines and not just wine books, but recipe books and things like that as well. So so, again, thank you for the comment. But, yeah, that is that is something which we look at continuously. So I think that that's it for the questions at the moment. So unless there's anything else, I think we're we're there on that front. Absolutely, Jay Graham. Thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors. And, of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, just for you to review to then add any additional responses, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But, Jay, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great.

49:55 Yeah. Thanks. I've I've just that I think we have an incredibly disciplined business. We're really efficient. We deliver excellent levels of gross margin, the cash generative, profitable. And we're driving continuous improvement everywhere and ensuring, say, every pound that we spend, we get a return on. However, you know, we are also ambitious and we want to grow. And with that in mind, we believe the discipline way that we work at the moment puts us in a great position to deliver growth in our core business as soon as the macro outlook is a little more positive. We also believe our new initiatives will deliver growth, and we're excited about the prospects of warehouse wines as a value proposition in the d two c space, and we're open to growth through m and a if and when the right opportunities arise. So we're we're optimistic about our prospects moving forwards, and we hope you've also been encouraged by what you've heard today, and we'll look forward to updating your further progress in a few months' time.

50:50 Jay, that's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in all that the management team can really 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 UK PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.