Virgin Wines Uk (LSE:VINO) — Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the VIRGIN WINES UK PLC Interim Results 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 will review all questions submitted today and publish responses where it's appropriate to do so.

0:32 Before we begin, I would like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Jay Wright. Good afternoon, sir. Thank you very much, and thank you to everyone for coming and listening to our presentation today. I'm here with our CFO, Graham Weir, to present our interim results for f y twenty three. So I'd just like to start, by just really talking about the first six months of this financial year, which has seen a number of one off impacts on the business in tandem with a challenging macro environment. Despite this, we've continued to focus on a handful of key drivers to ensure the business is as well positioned as possible to grow and thrive once consumer confidence starts to recover.

1:20 These are delivering high quality, low cost recruits, driving membership growth in our key WINES Bank subscription scheme, focusing on maximizing direct to consumer gross margins, optimizing working capital usage to maximize free cash flow, and maintaining our disciplined approach to costs. To show the results of this focus, I want to mention a number of highlights. We've maintained our focus on driving large numbers of new customers into the business at low cost with 62,000 new customers acquired at a cost per recruit of just £11.82 down from £13.62 the previous year. We've grown our WINES Bank membership base by 9% to 142,000 customers.

2:07 We've recorded our highest ever gross profit margin through our direct to consumer repeat sales channels. We've continued to grow our commercial sales channel with both Moonpig and Virgin Red, two key strategic partners, driving significant year on year growth. And we've remained debt free. We have appropriate levels of high quality inventory and sizable cash reserves on the balance sheet. There are also a number of significant challenges that had a material effect on our financial performance. They can be classified into two areas, one off issues that won't be repeated and then the changes we've seen in consumer behavior and buying habits following the squeeze on consumers' discretionary spend. In terms of exceptional issues, our revenue in September was detrimentally affected by the brand directive to restrain from normal marketing activity over the two week period of national mourning following the passing of the Queen.

3:03 In addition to this, we also had the effects of having to stop taking orders for Christmas delivery a week earlier than planned.

3:10 This was caused through through a variety of issues, including us carrying a large backlog of orders following operational difficulties with the implementation of a new warehouse management system and a reduction in trailer capacity from our courier partners. We estimate that these two factors negatively impacted our revenue performance in h one by three and a quarter million pounds. On top of these one off factors, the general consumer landscape has been extremely challenging. We always knew that there would be a post COVID unwind in consumer behavior, but the effect of that has been exacerbated by low consumer confidence and pressure on people's disposable income. The main result of that has been a change to the average frequency of order we're experiencing from customers, and I'll go into more detail about that later in the presentation.

3:59 Moving on to slide four, I'd like to talk about the issues we're experienced with the implementation of our new warehouse management system. However, to begin with, I think it's worth explaining the rationale behind needing to replace the WMS in the first place. The warehouse management system we were still using up until this recent implementation was the original system that had been in place since March 2000 when we founded the warehouse wines business. Replacing that system was on our IT road map, but the sudden growth in the business during 2020 led to us needing to urgently expand into a second warehouse to be able to cope with the increased volumes. This exposed limitations of the existing WMS as it wasn't able to deal with dual stock locations for the same products, making operating two warehouses much more complicated.

4:52 Therefore, there was more urgency to implement a new WMS, and the business went through a thorough eighteen month process in terms of selecting the new system, working with third party consultants to develop the operational blueprints, training the staff, and the full implementation process. We went live with the system in mid September, and the view from all parties, including external consultants, our implementation partner, and our own internal stakeholders was that the go live was low risk. In practice, various issues followed around system stability and multiple bugs in the live environment alongside operational challenges for our people using a completely new automated system effectively when they'd been used to a much less process driven system for so many years.

5:40 These issues, coupled with the huge increases in volumes as we transitioned into peak trading period, caused numerous operational difficulties.

5:49 The result of this was lower service standards and significant additional costs in terms of IT resource, management resource, and warehouse labor over the peak November and December trading period. Clearly, we're disappointed that something we're in control of delivering has such an effect on our trading performance and service levels over our key trading period, and a full internal review followed in January. Given the significance of this, we wanted to bring you fully up to date in terms of progress made with the warehouse management system this calendar year. The first step in January was to instigate a full system review, which was carried out with our implementation partner. Bug fixes were identified and actions, and remedial work to rectify stability issues have also been completed.

6:38 To ensure that the system could be used as effectively as possible within our warehouse environment, an independent consultant has been hired full time over February and March to review our warehouse processes, identify any capability gaps, examine our internal team structure, and ensure our warehouse layout maximizes efficiency in the pick and pack process. Our initial focus has been to ensure customer service levels revert to our normal high standards, And we're pleased that we've been able to dispatch over 97% of cases ordered before 4PM on the same day so far this calendar year. We budgeted an additional £300,000 of overhead at the half year point to enable us to deliver on the IT upgrades that were required, to cover consultancy costs, and to allocate against any higher variable costs of the pick and pack function in the short term.

7:31 We're confident that we'll be able to deliver the necessary improvements within this additional provision, and we're pleased to see the cost per case falling each month. The warehouse management system that we've implemented is a tier one system that's operational in businesses globally, and we're confident that the stability issues and bugs that affect performance pre Chris pre Christmas have now been rectified. We also now have now have a new modern system that will allow us to scale and deal effectively from an operational perspective with the growth in the business we're looking to drive over the coming years. Graham will now talk you through the half year financial results, some of the areas of cost inflation where we've had specific challenges, and what we've done to mitigate those wherever possible.

8:16 Thank you, Jay. The h one financial performance was very much impacted by the one off issues. Revenue was down £7,000,000, 17%. Just under half of this was the direct result of the one off impacts. The balance reflects a slowdown in customer demand and in particular, a decrease in order frequency. As a result of this, EBITDA was 1,400,000 after adjusting for exceptional one off operating expenses relating to the implementation of the WMS system. This was down from 3,900,000. The group continues to operate with no net debt.

9:01 And at the balance sheet date, it had 14,100,000 in cash. This was split between 7,600,000 of group funds and 6,500,000 of WINES Bank customer deposits. Once again, just a reminder that the WINES Bank deposits are held in a separate ring fenced account and are not used within the business to fund it. Slide seven is a a deeper dive into the one off issues and their financial impact on h one performance. The first of these being the suspension of marketing activity back in September in response to the death and the mourning period for Queen Elizabeth.

9:46 This meant our two main revenue channels, email and wine advisers, were carrying out no marketing activity during this time. As a result, like for like September revenue was down by 41%. Other than variable operating expenses, it was not possible to offset this loss of contribution by making cost savings. This impact should be non recurring and we fully expect summer twenty twenty three or September 2023 to return to normal levels of both revenue and profitability. The second impact relates to the WMS implementation. This had two financial impacts.

10:32 Firstly, on extra running costs throughout the implementation period and especially during peak trading. In addition, the combination of running a backlog of orders and reduced capacity within the carrier network meant a much earlier than planned cutoff resulting in lost revenue and contribution late in q two. Carrier capacities were impacted by a strike, a parcel force, and bad weather reducing the number of trailer collections in the lead up to Christmas. As Jay has explained, we now have a stable WMS platform and continue to drive cost per case improvements to ensure the new WMS can deliver the benefits that we did envisage.

11:21 In total, the impact of these exceptional items across h one was 3,200,000 in revenue and 1,600,000 in lost EBITDA. The lost revenue and the net contribution from that impacts have not been included in exceptional adjustments.

11:46 The business has also seen a number of cost challenges. These challenges have generally been out of our control contribution and are therefore hard to plan for and mitigate. These include supply chain issues mainly driven by COVID and cost inflation as a direct result of the increase in energy costs due to the war in The Ukraine. This is being felt mainly in the cost of dry goods, which includes glass packaging and closures for the bottles. Using October 2021 as the base index of 100, the combined dry goods costs are now standing at a 166, so reflect a 66% increase in underlying dry goods costs.

12:38 These input costs have got a disproportionate impact on lower cost wines. Whilst on Welcome, these costs do remain a smaller part of the total wine cost compared to the wine itself and UK duty. There has been a similar spike in freight costs with Chile and Australia, the worst impacted. The good news is that we've started to see a softening of these rates, but they remain well above our pre COVID levels. PRN costs, this is again something outside our control and the and the product of a broken market where recycling companies can freely set the price for PRNs. Year on year, this has added an extra 260 k cost in h one.

13:32 Our open source buying model has enabled us to mitigate a large proportion of these challenges. While maintaining long term relationships with our winemaking partners, we are able to move between country, region, and suppliers to find the best value wines. This enables us to keep both costs and selling prices as low as possible, but continue to deliver great quality product.

14:03 Key to this process is the ratings and feedback from our customers, which is shared with our winemaking partners and influences how future vintages are blended. This ensures we can make wines that we know our customers will love and return to us each year to purchase.

14:26 As a result of our wine buying model and the actions taken to offset cost increases, we have been able to increase our core DTC product margins. Product margins are sales less wine cost. In h one of twenty twenty three, these are now at record levels at forty one point one percent, up from forty point four percent in f y twenty two and two point two percent higher than pre COVID levels in h one twenty twenty.

14:59 A disciplined approach by our sales channel owners, our use of exclusive label wines, and our ability to curate the content of cases enables us to manage margins even against the most challenging backdrop. Commercial b to b margins also increased slightly year on year. New business margins are lower on a like for like basis, reflecting the change in offer structure first introduced in h two last year. This change is helping us drive higher numbers of new recruits into the business.

15:36 Statutory margins include the cost of packaging and delivery as well as wine, And these fell due to increases in the packaging cost element and the delivery charges from from sir from surcharges from the carriers and also a change in the mix between new and repeat revenue.

15:57 I'll hand you back to Jay now. Great. Thank you, Graham. So just moving on to slide 11. One of the areas we're often asked to try to show more simply is how the business model works from the point of acquiring customer to some trading with us in one or a number of our different sales channels. We've therefore put together what we hope is a simple chart that summarizes the way the model works.

16:24 Our first task is to attract new customers to our business. The section at the top of the chart shows the different consumer acquisition methods we employ to drive new customer recruitment, including our partnership program, the use of digital and social activity, CRM, telemarketing, and walker or organic traffic to the website.

16:47 Through the different acquisition offers we utilize, these customers will all have been acquired directly onto either one of our subscription schemes, so WINES Bank or one of our WINES plan services, or as a pay as you go customer where there's no subscription element involved. From this point, we utilize a variety of different sales channels to engage with customers in each of those different customer buckets and to actively encourage them to buy from VIRGIN WINES.

17:15 The largest driver of sales is through our email activity, and we have a proactive and targeted approach to drive the highest engagement and conversion rates possible. Second to this is the revenue generated through our 40 strong team of personal wine advisers who each individually look after around a thousand customers.

17:34 On top of this, our wine plan customers, as well as a percentage of wine bank customers who are also on one of our wine plan schemes, have the opportunity to enjoy one of our specially curated cases on a quarterly basis, whilst all our customers are able to purchase through the website at any point from the full range of products and services we offer. If you look down the left hand side of the slide, you'll see the range of products that we offer to all our customers with wine clearly being by far the key driver of sales, but also gifts and spirits being product offerings we're committed to growing. And then over on the right hand side of the slide, sitting separately to this, is our commercial division. This tool uses all the core competencies of the business and its infrastructure, but offers a full b to b service through either trade partnerships, wholesale arrangements, or through corporate gifting.

18:26 I hope that's helpful in showing in a nutshell how the business operates. So the first part of that business cycle is bringing in new customers, and customer acquisition is an area we've been pleased with over the first half of the year and particularly over our q two from October to December. We acquired 62,000 new customers over that period with 42,000 of them recruited directly onto our wine bank scheme, with the total number of customers acquired over our q two up 24% year on year. We've maintained our disciplined approach to marketing spends and have acquired those customers at a cost per recruit of just £11.82. That's down 15% from £13.62 the previous year.

19:13 Where we have been more aggressive is around our margin expectations as the dual factors of increased wine costs alongside the challenging consumer environment led to an increase in the net investment per recruit as we maintained our pricing structure and trialed six

19:28 bottle cases. This was largely a continuation of the tactics which we then enjoyed success with over the latter part of our previous financial year in FY twenty two and was and was within our budgeted expectations.

19:43 Our partnership activity continues to be the main driver of our highest quality recruits at the lowest cost. We've been delighted that we're able to continue to expand the amount of partners that we're working with and the number of new customers we've acquired through our partnership activity increased by 42% year on year in q two. In particular, we have a core of partners that we work with all year round that delivers continuous levels of new quality customers. We're delighted to have recently brought on new partnerships with a host of quality businesses with the likes of Currys, On the Market, and Go Outdoors delivering significant levels of new recruits. We were also pleased to get started with our activity with Saga and felt encouraged that over 2,000 of their members took advantage of the new Vintage by Saga wine club offers in the five weeks prior to Christmas.

20:36 Given we had limited activity in a short period of time, this surpassed both our and Saga's initial expectations. The increase in the amount of partner activity was also the key driver in our ability to keep the marketing investment in customer acquisition so low and, in fact, reduce the cost per recruit year on year. Alongside the partner activity sits our digital and social marketing, and the work we've carried out in refining and optimizing that has ensured we've delivered year on year gains in that channel too. Indeed, over December alone, our digital marketing was responsible for a 9% increase in the customers acquired through that channel whilst delivering a decrease in cost per recruit of 39% year on year. Just moving on to talk through the loyalty, of our customer base.

21:27 We doubled down over h one in driving new customers onto the WINES Bank scheme as we believe this is the most customer friendly scheme in the current climate. It's been more challenging keeping customers active on our wine plan schemes over the last twelve months, and the pay as you go base is always less sticky than those with a subscription. The result of this is a rise in the number of customers on our subscription base to a 162,000 with a 9% increase in the wine bank membership, partly offset by a decline in the wine plan group, leading to a 6% rise overall, up 10,000 at the half year point. There are a host of KPIs we measure to monitor the health of the customer base.

22:12 And whilst we can see some downward pressure on these, we're encouraged that they are relatively minor given the pressure on consumers and some of the cancellation rates on subscription schemes we've seen quoted elsewhere. The cancellation rates on both our WINES Bank and WINES Plan schemes are in line with our long term averages. The trade rate, which measures the percentage of customers who are active on the base at the start of of the financial year that go on to buy in the next twelve months, is at 68.4%, down from 69.6% a year ago, so a relatively small movement. And whilst our sales retention rate has fallen from 91% to 80% as a result of the lower turnover in the first half of the year, the customer retention rate has been less affected, moving from 88% to 84% over the past twelve months.

23:05 Moving on to our WINES Bank scheme. This continues to be the most robust and resilient of all our customer groups with the total membership increasing over h one by 9% from a 130,000 to a 142,000. We continue to believe that the mechanics of WINES Bank that allow customers to save a chosen amount in their WINES Bank account each month, receive 20% interest on their monthly deposits, and enjoy free delivery on all their purchases has been a key factor in keeping customers loyal. This ability to help members budget their wine expenditure appropriately whilst delivering genuine added value has ensured the cancellation rate has stayed relatively consistent and in line with what we've seen historically.

23:52 What we are seeing from customers, however, is a propensity to save more money in their WINES Bank account and wait longer between purchases, something I'll go on to in more detail on the next slide. The result of this is that the amount of customer deposits we're holding in our client account is rising, hitting an all time seasonal high at the half year point of £6,500,000, up 25% from the previous year, and actually is now sitting at over £8,000,000. We're delighted that customers are staying loyal, continue to add their monthly deposits into their wine bank accounts, and whilst we'd love customers to spend the money they're saving on wine as frequently as possible, we also know that as consumer confidence returns, the average order frequency that customers buy will increase and drive higher levels of revenue.

24:42 We'd be much more concerned if we were seeing increased cancellations with customers falling off the scheme and withdrawing their money from their WINES bank account, but that isn't a trend that we're noticing. Just to explain how external factors drive order frequency, we'd really like to talk you through the following chart. This graph details how many days on average our customers wait between placing orders with us. The best place to start with that is with the brown line running right across the graph, which details the order frequency of customers over 2019 that benchmarks what normal looked like pre COVID. We also tracked 2017 and 2018 on here initially, but they literally just duplicated the 2019 line showing how predictable consumer behavior was over that period.

25:37 The similar trends of the lines on this graph shows the shortest number of days between orders for customers is at the start of each calendar year when customers have been at their most active over the Christmas period, and then the line steadily increases peaking in November before falling steeply back down. If we take the 2,019 line as being the norm for the pre COVID period, customers were buying around every ninety days from us at that point, so around four cases a year. Moving on to the yellow line, which tracks all the frequency through 2020, you can see that it starts at the beginning of the year to follow the same trajectory as the 2019 line before before falling instantly to unprecedented levels during April and May over the lockdown period.

26:25 Clearly, that wasn't anything that we did to drive that change in order frequency. It was a direct result of external factors and a change in consumer behavior. The green line that shows 2021 shows all the frequency still much shorter than historic levels, but above the 2020 year. And then the blue line, which shows 2022, initially mirrors what we believe would happen as the COVID effect fully unwound and fell back to a similar level as we saw in 2019. However, what we can see from August onwards is consumer confidence started to fall to its lowest levels, is the order frequency lengthened beyond what we'd seen historically to longer periods than ever before. This trend continued through the latter part of 2022 and into 2023 with the first three months of this year showing a higher starting point than ever before.

27:18 And currently, all the frequency in terms of number of days is around 10% longer than our historic norms. As you saw on the previous slide, this ties in with what we're seeing with WINES Bank bank deposits building as members spend less frequently. But to reiterate, as consumer confidence returns, and it will do in due course, average order frequency will start to reduce. Couple that with a wine bank membership as an all time high and record levels of wine bank balances waiting to be spent. We believe we're ideally placed to capitalize on this when current sentiment unwinds. Moving on to slide 17 and talk to our commercial channel as that's a key area of focus for us and one where we see substantial growth opportunities.

28:07 We were therefore delighted to see excellent momentum with a number of our key partners. In particular, our partnership with Moonpig continues to go from strength to strength with a 283% increase in revenue. This is a relationship that still has significant growth potential, and both companies are keen to work together to maximize that. We've also talked previously about the opportunity that we have to grow our revenue as the Virgin Red loyalty scheme starts to gather momentum. This is a major initiative for the Virgin Group. And whilst it's still relatively early days for Virgin Red in terms of its scale, we believe that wine is an attractive category for customers to redeem their Virgin Red points against, and growth of 77% to over £430,000 in the first half of the year would seem to bear this out and also show how much future potential there is here.

29:03 Sales generated through activity we have with online partners such as Amazon and ShopDirect has dropped as search volumes for those sites have also fallen since the highs of 2020 and 2021. And this year, corporate gifting was a little softer over the Christmas period than we've seen in the previous few years as a number of companies cut back on expenditure in this area. However, we continue to make up for that and more with other opportunities, and our growth in the rail sector is a good example with a 15% year on year increase in revenue following the launch of our partnership with Great Western Railway, who joined Avanti and L and ER as a key customer in this space. The gifting part of our business was the area that benefited most substantially from the unique circumstances we saw over 2020 and the early part of twenty twenty one.

29:59 Since then, we've seen the search volumes for gifting reduced consistently, and we're now back to seeing volumes more consistent with what we saw pre COVID. However, our advent calendar campaign drove good levels of sales with over 10,000 units sold, and we still see gifting as an opportunity for future growth. We're currently reviewing the overall range and seeing where we can decrease complexity and drive an expansion of our margins, and the opportunity for personalized gifting is also a focus for future growth. We scaled down on our marketing investment in beers and spirits as we saw reduced levels of return on investment recently, and this has resulted in us reappraising our focus here. The competitive nature of the beer sector, along with the lower average case values and cash margin, plus the increased operational costs it drives as a percentage of each case, has meant we've scaled back significantly here and are concentrating our efforts on the growth of our spirits category.

30:56 Spirits appear to be a better fit with a wine customer. It's much easier to add a bottle of gin, whiskey, or cognac to a wine order and receive it all in the same consignment, and therefore, the operational costs and complexity are much reduced. And while the gross margin on spirits are lower, the net contribution when dispatched with the wine order is still attractive. This will therefore be where we push growth in terms of these adjacent product categories. And whilst it's been a challenging period for our business, it's also been a challenging period for our people. We've always prided Virgin Wines on being a fun, supportive, and inclusive place where people are proud to work, and we continue to hold that ethos close to our heart.

31:42 However, many individuals have struggled over the past three years, and we continue to support our teams with an employee assistance program that delivers free advice both online and on a one to one basis using an ex an external counseling service for those in need of support. I doubt it will come as a surprise to any of you that eighty five percent of all inquiries from our employees over the last twelve months are related to mental health struggles or financial concerns. We're pleased that the support we provide through this service is being utilized, that our staff are finding it of real value, and we'll continue to do all we can to help and support our teams on an ongoing basis. We're also continuing to develop our credentials around sustainability, and we're delighted to be the first online wine business to be certified as carbon neutral.

32:32 We continue to drive new initiatives with just one being the implementation of LED lighting across all of our business locations in Preston, Bolton, and Norwich earlier this year. And just moving on to our outlook and future initiatives Without wanting to repeat myself from the start of the presentation, in the short term, our focus will remain on trying to control the controllables and making good decisions for the long term prosperity of the business in what we know is a tough environment. So we will continue to ensure we're delivering high quality, low cost new customers, driving membership growth in our wine bank scheme, maximizing gross margins through our repeat sales channels, maximizing free cash flow through optimizing our working capital requirements, and keeping a laser like focus on costs.

33:26 So far this year, we've traded broadly in line with expectations over January and February. They are two of our lower revenue months of the year. And whilst we've continued to see a lengthening in order frequency, as shown earlier, the increase in the membership base has largely balanced that out. Our view is that it's unlikely that we'll see any dramatic changes to the consumer environment over the short term, so we're expecting challenging trading conditions over the rest of this financial year, but we're optimistic that we'll see improvements over FY '24. When we do see conditions improve, we believe we're ideally positioned to take advantage of that. Our WINES Bank membership is at an all time high, and we have record levels of customer deposits that will be turned into sales in due course.

34:13 Our partnership program is in great health, which helps both our customer acquisition and our commercial revenues. As well as growth through existing rail relationships, we have a buoyant pipeline of new opportunities for our commercial channel. Despite the teething issues we've experienced pre Christmas, we've implemented a tier one new warehouse management system that gives us the ability to scale our operations and work across multiple sites. And we know average order frequency average order frequency of order is highly influenced by macro conditions, and any shortening of that will have a beneficial impact on our ongoing revenues. We're also in the process of undergoing a business review to look at new initiatives and opportunities that will help drive incremental revenue and profit over the next three years.

35:03 Just to be clear, this review is around growth, and there is nothing sinister about it. It's our intention to come back and give more details around these new growth initiatives before the end of this financial year. Thank you very much. Just now open up the audience to any questions that anybody may may have that they like to ask. Jay, that's great. And Graham as well, thank you, very much. If I may just jump back in there, thank you very much indeed for your presentation this afternoon. I mean, if I may, what I'll do is I'll just bring back up your cameras there. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. Just while the team take 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.

35:56 Jay, Graham, as you can see there in the q and a tab, we've received a number of questions throughout your presentation this afternoon. So thank you to all of those on the call for taking the time to submit their questions. But, guys, if I may just hand back to you to respond to those where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Thanks very much. That's great. So thank you. There are a there are a few questions which have been asked here. Just the the first one from from Michael. Do you or have you ever considered engaging social media influences to promote the brands and enhance brand recognition? It's a really good question. We we we did utilize influences through through a number of different channels, particularly over over that COVID period. I think I think we felt that we weren't really sure the value that we got out of it. In influencers can be extremely expensive. I think one of the things that we talk about a lot is the discipline that we have in terms of our marketing expenditure.

37:00 And so at the moment, I think while we're very, very driven on making sure that we drive very attractive returns on investments on our marketing expenditure, It's something which I think we've can you know, we'll we'll continue to consider. I think where we where we do see some real value is utilizing some of the of the wine experts, and and we do do a reasonable amount of work with a with a number of people in that space, people such as Matthew Dukes and Ollie Smith and and Joe Wadsack and Joe Facherini. So, you know, a number of sort of wine experts that that we work with. But, yeah, I think it's a I think it's an interesting point. The next question was from Simon. He's saying, what plans do you have for expansion outside of The UK either through acquisition or partnership? I mean, Graham, do you want to talk through talk through that?

37:58 Yeah. We know we've got cash on the balance sheet, and obviously, we we are keeping our general m and a up we're we're looking for opportunities if they come our way. Some of those have been international ones that we have assessed. To date, we haven't found anything that we thought was going to add long term shareholder value to to the group. So therefore, we haven't we haven't moved on anything, but we will continue to assess opportunities that come along. I think we still think we've got a lot of runway to grow and expand virgin wines within The UK. And, obviously, we're focusing a large amount of our growth plans on The UK at the moment, but we will sort of we work on the base that we never say never. And if the right opportunities come along, we will certainly consider them, but we're very much UK focused at at the moment.

38:58 Thanks, Graham. It's a question from David, which is asking with the subscription schemes, the repeat revenue driver, what's the focus in reducing churn? It's it is obviously a never ending focus in terms of in terms of reducing churn. I think that what we are pleased about, David, is that is that we we we haven't really seen an uptick in churn. What I hope that we're able to demonstrate over the course of presentation is that whilst customers aren't spending as frequently as they were, what they are doing is is is they're staying with us. They're continuing to put money into their WINES bank accounts, and they're just not using that money as often as they were to purchase with. So, you know, our our our long term average on cancellation rates on WINES Bank is around 17 and a half percent.

39:49 Our current cancellation rates on WINES Bank is 17.8%. So I don't think we're seeing a real uptick in churn. Obviously, you know, if everything we can do to reduce that, will do. And I think, you know, again, the quality and value that we offer, the service that we offer, we were disappointed, obviously, that our service levels dropped over the Christmas period. So there's been an absolute focus on getting ourselves back to the very high standards we hold ourselves to around that. And we'll we'll obviously continue to to try to give our customers the very best value, very best quality, and best service we can, which we hope will will minimize any churn that we experience. Graham, this is probably a good a good one for you as well. The next one is from John. He just says Jay Graham is both significant shareholders in the company. You'll be hurting just as much as other shareholders from the dismal share price performance.

40:43 Given the underlying business is profitable, then why is there no capital allocation to a share buyback even if it's only a small, say, 500 k to 1,000,000 or at least some explicit comments about it? I think Greg will probably give you an update on on where we are around around our thoughts on that. Yeah. We we we sought approval from the shareholder base at our AGM back in December that would allow us to do share buybacks in the future. At the moment, we don't think it's the right time to do it. We want to make sure, obviously, we've resolved all our issues around the WMS system. Obviously, we're keeping an eye on how current trading is going, but it is a it is something that is a a regular discussion point at our board meetings, and we'll we'll continue to do so. So we're certainly not ruling it out, but we we don't have any immediate plans to do it at the moment.

41:42 Okay. There's another question from from David. Could you comment on the on the competitive landscape, and are there opportunities for acquisitions? I mean, it's it's interesting in our in our field. The there there's really sort of four main main players in the sort of direct to consumer wine landscape with Lathe Weights, the wine society, ourselves, and Naked Wines. And they're they're I think in terms of of acquisitions, what we'd be looking at is probably somebody who was sizable enough to to make a difference, but probably not at the size that those other businesses are. And and and and there's either those four main players and then a lot of very, very small players in the market.

42:31 So I I think the opportunities for around acquisition here in The UK is relatively limited. We do get a lot of IMs coming across our desk and, obviously, in terms of a number of different product sectors. As of yet, we haven't really seen anything that we think would add real value to the business, and in fact, would detract from value. So, yeah, we are we are we're always looking at ways that we can use cash and use our infrastructure to drive new initiatives. And I think, again, we're as I mentioned at the end of the presentation, we're we've got some we've got some really exciting ideas, which we're looking forward to coming back and talking about in in the near future. The difference between sorry. Akash has asked about what is the difference between cost per recruit and fully loaded cost per recruit.

43:20 Again, Graham, do you want to do you wanna explain the the differences there? Yeah. The the cost per recruit is basically our marketing and media cost divided by the number of recruits that we bring in. And we monitor that because we think it's really important that we manage our marketing spend. It's easy to sort of run away and spend a lot of money and end up with extremely expensive recruits. So we do monitor that as a separate KPI within the business. The fully loaded cost per recruit includes any margin we make on the recruitment offer itself less the fulfillment cost of actually shipping that case to the customer. So that fully loaded cost is effectively what we use within our within our payback calculations as well. So it includes margin and fulfillment costs as well as the as well as the media cost or marketing cost of bringing the recruiting in the first place.

44:24 Great. Thanks, Graham. Javier has asked, apart from lower frequency in buying, have you seen the trend in customers buying lower priced wines, and have we increased prices to offset the increased costs? We we've been I think you can imagine it's a real balance at the moment between trying to make sure that we we maintain our margin discipline, which I think Graham showed earlier that we've done a good job of doing whilst also delivering really good value for money for customers in an environment where consumers are obviously reasonably price sensitive. So we've tried to minimize our price increases wherever we can, and, obviously, we've mitigated as many of those cost pressures that we have on this, again, which Graham talked about about earlier. That means there have been some price increases across the board. What we what we've seen overall is an average increase in our in our case values of around about 4% over this financial year. So we have seen an increase in case price overall.

45:28 And I think probably what we would see is is at the at the higher end of the market, there will be people who maybe do take a case, which is a little bit cheaper than they were buying previously. But we haven't really seen any sort of dramatic effect in in people in people trading down particularly. So so let's say, again, our focus has always been on trying to deliver the very best quality value ratios we can for our customers whilst retaining our margin discipline, and that's what we'll continue to do. Guy has asked a little bit about the relationship with the VIRGIN brand and what's it cost. Graham, do you wanna explain where we our our relationship with VIRGIN?

46:13 Yeah. We we have a licensing agreement with with VIRGIN to use the brand. They don't have any sort of direct share ownership in the business itself. And, obviously, we but we do value the relationship. We we work to brand guidelines that obviously are are are across all all the Virgin branded business businesses, but we see those as positive. And, obviously, we work with a number of of the other Virgin branded businesses within The UK. I can't I can't tell you what it costs because that's a confidential matter that the the Virgin Group don't let us to discuss publicly.

47:00 But we do pay effectively a royalty on on turnover to to the Virgin Group for for use of the of the brand. Okay. And just another question from Guy. He's just asking whether we see any opportunities for partnerships with premium travel brand brands such as Orbi Travel and Secret Escapes. I know that we work with Secret Escapes already, so I know that we do quite a quite quite a bit of activity with them. I'll probably have to ask our partnerships team if we work with Orbi Travel because I don't know that off the top of my head. But absolutely, I mean, travel travel brands are definitely an area of focus for us. I mean, really, any partner that we think has got a customer demographic that would appreciate the services that VIRGIN WINES offer, we would try to partner with. And certainly, yeah, premium travel brands would be would be one of those. So, like I said, I'll I will check on all the travel, but I know that we definitely already work with Secret Escapes.

48:04 Another question from Guy just asking, is the premium alcohol free market an opportunity for quiet January New Year resolution sales? We we have got, I think, quite a quite a good range of of of no and and low alcohol products within our within our portfolio. There it is definitely a growing part of the market, but it is still it's still a very, very small percentage of the market overall. So whilst it's something which we do we do try to focus on, I mean, we try to focus on on the alcohol free element due during January and February, particularly during January, we also try and do a a sort of a buy a buy better sort of campaign where people are drinking less because I think there's not people don't all necessarily cut out completely, but they do scale back over that period. So, again, trying to get people to, you know, to they're buying a bit less to buy as, you know, as good a wines as they can do and really obviously love them when they have them over that period. But, you know, I think I think the alcohol free market is growing. It's an area of focus. It's one that we do look at and discuss continually. And I think, as I said, we've got we've got quite a good range there already, not just in in wines, but spirits and beers as well.

49:25 Another question from Guy regarding how might we attract customers cutting back on restaurants but still wanting a treat or special occasion. And I said, I think I think that's something that that we see. I think we know that that that as people as people go out less, people still wanna have an enjoyable time at home and stay in and have a great, you know, a great bottle of wine. And certainly for sort of anecdotal evidence that we have from doing our tastings and our events is that, you know, is the is is the people going out a bit less, but they are still really enjoying having a bottle of wine at home. So that is something we try and capitalize upon. So, yeah, I think that's that's a trend that we've we probably saw during the last financial crisis back in back in 2008, something which we monitored at at that time.

50:15 And as we do hit these more difficult times for consumers now, something where we think we can, you know, we can gain some traction. So so that's great. I think at the moment, that's that's all the questions on the on the list. So unless there's anything else anybody else wants to add. Jay, Graham, absolutely. And thank you very much indeed for being so generous of your time then addressing all of those questions that came in from investors this afternoon. 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 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 investor meet company platform. But, Jay, just really before redirecting 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.

51:04 Yeah. That's fine. Thanks. Well, first of all, again, thank you all for coming along and listening to to us this afternoon. Really appreciate it. I think I'd just like to reiterate how well the business is placed to take advantage when we see an upturn in consumer confidence. You know, our WINES Bank membership is growing. We have all time high levels of customer deposits, which will translate into wine sales. Our partnership activities are going from strength to strength, and we see considerable opportunities to continue driving growth in our commercial channel. You know, the the business is still profitable. We have a strong balance sheet with £11,000,000 of quality inventory and £7,600,000 of cash. So we believe we're in a great position to thrive in the future. So we're very optimistic about what the future has to hold. Jay, that's great. And Graham as well, thank you once again for taking the time to update investors this afternoon.

51:55 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 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 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.