Virgin Wines Regulatory News (VINO)

Virgin Wines UK plc

("Virgin Wines", the "Company" or the "Group)

Interim results for the six months ended 31 December 2021

Strong growth in subscription sales and high cash generation

Virgin Wines UK plc (AIM: VINO), one of the UK's largest direct to consumer online wine retailers, today announces its interim results for the six months ended 31 December 2021 ("H1 2022"). All numbers shown are post-IFRS16 adjustments.

Highlights

· Total revenue of £40.6m, in line with the six months ended 31 December 2020 ("H1 2021") and up 55% compared to the six months ended 31 December 2019 ("H1 2020").

o Subscription based revenue of £26.3m up 23% on £21.4m in H1 2021.

· EBITDA of £3.7m (H1 2021: £4.5m) due to increased investment in new customer acquisition and additional operating costs as a listed business.

· Profit before tax of £3.2m (H1 2021: £3.4m).

· Earnings per share of 4.6p (H1 2021: 6.0p).

· Net cash1 of £13.6m up £5.2m since 30 June 2021 (H1 2021: £8.4m).

· Customer base:

o Subscription memberships(2) increased by 7% during H1 2022 to 158k.

o Active customer base(3) grew to 185k up by 9% since H1 2021.

o 12 month rolling new customer conversion(4) up to 56.2% (H1 2021: 51.3%).

· New partnership with Moonpig, driving sales in the commercial channel.

· Launch of BeerSave and SpiritSave subscription schemes.

(1) Net cash of £13.6m is total cash of £18.8m less Wine Bank customer deposits of £5.2m.

(2) Members of the Company's WineBank and Wine Plan subscription schemes

(3) Customers who have made a repeat purchase within last 12 months

(4) Percentage of recruits who have become active customers

Jay Wright, Chief Executive Officer at Virgin Wines, said:

"As expected, the trading environment has evolved considerably over recent months, and given strong prior year comparatives, we have worked hard to maintain encouraging growth from our core sales channels, whilst maintaining strict discipline around our customer acquisition and our cost control. This result demonstrates the strength of the underlying business model, our discipline in acquiring good quality customers, the reliability of future subscription revenues from a highly engaged customer base and the ability to generate free cashflow as well as our award-winning consumer propositions, the quality of our wines and our outstanding customer service.

The second half of the year has started well. We continue to make progress with our strategic initiatives and remain in line with management expectations."

Enquiries:

Notes to editors:

Virgin Wines is one of the UK's largest direct-to-consumer online wine retailers. It is an award-winning business which has a reputation for supplying and curating high quality products, excellent levels of customer service and innovative ways of retailing.

The Company, which is headquartered in Norwich, UK, was established in 2000 by the Virgin Group and was subsequently acquired by Direct Wines in 2005 before being bought out by the Virgin Wines management team, led by CEO Jay Wright and CFO Graeme Weir, in 2013. It listed on the London Stock Exchange's Alternative Investment Market (AIM) in 2021.

Virgin Wines has more than 1,000 products in its portfolio and an active customer base of more than 180,000 worldwide. It has approximately 200 employees and more than 40 trusted winemaking partners and suppliers around the world.

The Company drives the majority of revenue though its main channels such as email and web, as well as its growing subscription schemes including WineBank, Wine Plan and Pay As You Go.

Along with its extensive range of award-winning products, Virgin Wines continues to grow its beer and spirit categories, successfully launching more than 40 exclusive products as well as its BeerSave and SpiritSave schemes.

https://www.virginwinesplc.co.uk/

CHIEF EXECUTIVE'S STATEMENT

Business Overview

The past two years has seen rapid and continuous change to both the trading environment and consumer behaviour and the last six months has been no exception. It has been essential during this period that the business has continued to stay focused on its key principles of acquiring low-cost, high-quality recruits, building the number of customers in its subscription schemes, delivering outstanding customer service, and sourcing and blending the best value wines from across the world, driven by many thousands of customer reviews and ratings.

As well as being highly focussed on delivering our financial and commercial objectives, we have also been acutely aware of the personal toll the challenges of recent times has placed on our people and we have continued to support and look after our team members in a number of practical ways.

Clearly our business is impacted by the widespread cost pressures that are evident with significant increases in the cost of packaging, labour, energy, shipping, glass and courier charges all adding pressure to the cost base. Wherever possible we are mitigating these increases through beneficial FX rates and driving efficiencies.

The business has continued to perform well, with the loyalty and strength of the WineBank subscription base being of particular note, whilst our strategy of supporting the expansion of our commercial channel has been highly successful. The challenges around supply chain, that have been so well documented, have been largely avoided by pre-empting the issue, stocking up early and managing stock efficiently. This in turn has allowed us to keep gross margin largely in line with expectations whilst being able to successfully deliver customers the wines they want, when they want.

Trading Overview

Revenue for H1 2022 was £40.6m, in line with H1 2021 despite a significantly more challenging trading environment and up 55% compared with H1 2020. The Company delivered adjusted profit before tax1 of £3.3m which was broadly in-line with £3.4m in H1 2021.

Cash generation remained strong delivering net cash2 of £13.6m as at 31 December 2021, a £5.2m increase since 30 June 2021. This leaves us in a positive position to assess further opportunities to invest in growth, whether that be in adjacent markets, through M&A or through international expansion.

Subscription Schemes

Sales generated by our subscription schemes grew 23% in H1 2022 to £26.3m compared with £21.3m in H1 2021 and by 77% compared to £14.8m in H1 2020. The popularity of our WineBank scheme continues to build with membership increasing by 11k customers (9.3%) in the past six months delivering a 28% increase in revenue year-on-year.

The balance of total customer deposits in WineBank continued to build with £5.2m of customer money held at 31 December 2021 (WineBank deposits are not included in the company net cash balance). This was up 42% on 31 December 2020 and is an excellent indicator of future revenue as customers save for their ongoing wine orders.

Active customer base and sales retentions

Whilst the WineBank membership base grew encouragingly, the decreased levels of organic walk-up traffic and the lapsing of PAYG customers led to only modest growth of 2k in the active customer base(3) over the past six months to 185k customers.

However, the continued focus on recruiting a high-quality and loyal customer base, alongside building the number of customers in our subscription schemes, resulted in a sales retention rate of 94% which helped underpin total Group sales.

Customer Acquisition

Customer acquisition was the most challenging area of the business. Aggressive competitor pricing coupled with the wider promotional schemes made throughout the sector to potential customers over the Christmas trading period, led to decreased traffic to the website from acquisition activity. Despite this challenging environment, we continued to focus on low-cost, high-quality recruits that can deliver market leading levels of payback and deliver a positive ROI.

New customers were acquired at an average cost of £13.62 per new customer (H1 2021: £12.65) while the conversion rate(4) achieved was 56.2% (H1 2021: 51.3%) once again highlighting the quality of the customers being acquired. We were also pleased to have scaled our partnership programme by delivering 55% more partnerships than during H1 2021.

Development Channels

Over recent years we have actively developed sales channels in adjacent markets to supplement the Company's core D2C wine business, moving into commercial/B2B activity, gifts, and beers and spirits. We have specifically focussed on driving the commercial channel having identified significant headroom to scale and which we are delighted has delivered £4.2m of sales, up 25% compared with H1 2021. The recent partnership with Moonpig, successfully launched in September 2021, is a good example of the opportunities we believe exist to drive growth in this area.

With online gifting being such a beneficiary of Covid-19 based restrictions on retail over the 2020 Christmas trading period revenue from our gifting channel was down 27% against H1 2021, but 47% ahead against H1 2020. There are still many opportunities to scale the gift channel with the launch of a fully personalised gift service planned for Q3 2022 whilst recent partnerships with Virginia Haywood (hampers) and Arena Flowers offer excellent new cross marketing opportunities.

In Q2 2022 we were also delighted to launch subscription schemes for our beer and spirit channels - BeerSave and SpiritSave. Operating on the same successful premise as WineBank, where customers save money each month in their BeerSave/SpiritSave account, they then receive preferential pricing on all products across respective categories. This preferential pricing is also available as standard for all WineBank customers, so our focus in the short term will be on communicating this new initiative and scaling the beer and spirit categories to our existing customer base where we believe there is still substantial headroom.

A Purpose Driven Business

At the centre of our brand DNA is our purpose, which is 'to make people's lives more enjoyable'. This is just as appropriate for our colleagues and our winemaking partners as it is for our customers and this philosophy of ensuring every interaction we have with each other, as well as with our customers, adds value to their lives in a positive way is core to our culture.

Over the past year we have introduced a free Employee Assistance Programme to all staff that offers everything from help with practical matters such as personal finance right through to individual one-to-one counselling. We have also developed an internal ESG Group that has 14 volunteers from across the business who are particularly passionate about our environment, both inside and outside our business. Everything from creating opportunities for colleagues to meet and interact in a variety of social situations (as our teams start the transition to office working again) through to the creation of our new charity wine initiative, The Benevolent Range, have been driven by this group. We are in the process of collecting our scope 3 data alongside creating an emission reduction roadmap in order to work towards net zero.

We have continued to work hand in hand with our winemaking partners across the world, and to support them as they deal with supply/harvest issues. This support has come in a variety of ways, from amending payment terms to more forward planning on wine requirements and firm commitments where appropriate.

Our focus on exceptional customer service continues and we are delighted to have been able to maintain our 'Excellent' TrustPilot rating, even over a period where there have been so many challenges with warehouse labour, courier capacity and supply chain disruption. Despite these headwinds we have managed to continue to keep the wine flowing into our customers' homes efficiently, accurately and with speed.

Operations

There has been significant pressure across our operations over the past six months. Warehouse labour, principally temporary labour over the Christmas period, was particularly competitive. This coupled with a significant increase in absenteeism as the Omicron variant took hold in December 2021 led to a challenging environment, and ultimately to an early cut-off (by 48 hours) for guaranteed Christmas deliveries costing the business circa £800k of sales in the final week running up to Christmas.

Increased costs in shipping, packaging, glass and courier charges led to pressure on the cost price of our goods although we were able to mitigate much of this through our flexible merchandising model, efficiencies and beneficial FX rates. There continues to be inflationary pressure in multiple areas of the supply chain to our business and we therefore keep pricing continually under review to ensure gross margins are maintained.

(1) Adjusted Profit before tax is stated after adding back share based payments of £177k.

(2) Cash balance £13.6m is stated after the deduction of Wine Bank customers deposits of £5.2m.

(3) Customers who have made a repeat purchase within last 12 months

(4) Percentage of recruits who have become active customers

FINANCIAL REVIEW

Revenue

Group revenue of £40.6m which is broadly flat compared with £40.5m in H1 2021 and up 55% compared with £26.2m in H1 2020. Revenue from subscription schemes of £26.3m up 23% on £21.4m in H1 2021 and 77% on £14.8m in H1 2020.

Gross Profit

Gross profit margin fell by 30 basis points to 31.1% (H1 2021: 31.4%) mainly due to higher discounts offered on introductory case offers and an increase in packaging costs. Despite cost challenges from increases in inbound freight costs the D2C product margin before packaging and delivery was relatively unchanged at 40.4% (H1 2021: 40.5%).

EBITDA

EBITDA of £3.7m was lower than £4.5m in H1 2021 due to an increase in new customer acquisition investment of £240k and an increase in operating costs as a listed business (Plc head office costs £233k and share based payments £177k). Net contribution from repeat customers was marginally higher.

Profit Before Tax

Profit before tax was £3.2m (H1 2021: £3.4m). Profit before tax on a like-for-like basis adjusted for share based payments was marginal lower at £3.3m (H1 2021: £3.4m).

Share based payments

The Group provided for a share-based payment expense of £177k (H1 2021: £0k) relating to the share based long term incentive plan for the leadership team.

Finance expenses

Finance expense of £70k in H1 2022 relates to the interest charge for Right of Use Assets. Finance expense of £679k in H1 2021 included £61k relating to the interest charge for Right of Use Assets and £618k relating to interest on Investor Loans which were repaid in full on 2 March 2021 as part of the IPO listing.

Earnings per share

Earnings per share decreased to 4.6p from 6.0p H1 2021 primarily due to the issue of new shares as part of the IPO listing on 2 March 2021.

Dividend

The Board is not recommending the payment of an interim dividend however, it will keep the Group's dividend policy under review.

Foreign currency

All group income is derived from UK activity and denominated in GBP. The Group purchases supplies, mainly wine, from the global market predominantly in Euros, US Dollars and Australian Dollars. The Group hedges its foreign currency purchases to provide clarity on future cost prices.

Inventory

As previously indicated the Group invested in higher stockholding to mitigate the impact of potential supply disruption throughout the 2021 calendar year. As a result, inventory increased by £2.9m from 30 June 2021 to £10.2m as at 31 December 2021 (H1 2021: £6.4m). The Group continues to monitor the supply conditions but expects to see stockholding return to normal levels in our Q4 as supply issues ease.

Cash

The Group monitors net cash after deducting Wine Bank customer deposits. The cash in hand excluding Wine Bank deposits at 31 December 2021 increased by £5.2m to £13.6m (FY 2021: £8.4m). Loans outstanding at 31 December 2020 of £12.0m were repaid in full on 2 March 2021 from funds raised as part of the IPO listing.

SUMMARY AND OUTLOOK

This result demonstrates the strength of the underlying business model, our discipline in acquiring quality customers, the reliability of future subscription revenues from a highly engaged customer base and the ability to generate free cashflow.

There are many positives with customers on our subscription schemes performing strongly and our key WineBank customer base growing steadily. Our disciplined business model ensures that it continues to generate high levels of cash which in turn gives opportunities to invest in a range of strategic initiatives to drive growth when, and where, appropriate. This, in tandem with the strong growth of our commercial channel, the ongoing initiatives delivering increased marketing opportunities through our gift channel and the introduction of our new subscription schemes in the beer and spirit categories leaves us optimistic that the business is well placed to grow strongly over future years.

There are two particularly challenging areas within the business, specifically driving customer acquisition numbers at the forecasted levels while also delivering low-cost, high-quality recruits, and the increasing cost pressure that is mounting on the business from a multitude of sources. However, we continue to drive new partnerships as well as optimising our digital marketing strategy, telemarketing, and CRM recruitment to help deliver the acquisition numbers the business is targeting, whilst we continually look to find efficiencies to help mitigate against rising costs while maintaining strict margin control.

Overall, notwithstanding the challenging trading environment, the business is in very good health and the second half of the year has started well. We have a strong and highly cash generative business model. We have many opportunities to grow the business through customer acquisition as well as new revenue channels and remain confident for the future and in our ability to create shareholder value. We continue to make progress with our strategic initiatives and remain in line with management expectations.

Jay Wright

Chief Executive Officer

15 March 2022

Condensed consolidated statement of comprehensive income

for the period ended 31 December 2021

Condensed consolidated statement of financial position

as at 31 December 2021

Condensed consolidated statement of changes in equity

for the period ended 31 December 2021

Condensed consolidated statement of cash flows

for the period ended 31 December 2021

Notes to the interim financial information

for the period ended 31 December 2021