2018 Year in Review

In a nutshell:

Over 2 years into our 3 year transformation plan, we are in reasonable shape – a better business in a tougher market.

Where are we?

  • Delivering profitable growth
  • With the means to grow faster
  • And a solid platform for growthNow we plan to keep doing what we are doing – because it is working. But we plan to do it faster and better.

Faster – We plan to double our investment in new customer acquisition from £14m to £28m a year – of which we plan to deliver an increase of £5-£8m additional investment in FY2019, depending on the opportunities available that meet our investment criteria.

Better I am going to devote most of this letter to what we plan to do better. Our goal is to make ourselves unbeatable in our chosen markets, by reinforcing and growing our competitive advantages.


As a group we delivered a £9.8m improvement in reported Profit before Tax to £8.6m (FY17 loss of £1.5m) of which £6.6m was underlying growth in adjusted profit before tax. This was driven by 4.0% underlying growth in revenue, which is satisfactory, but only just.

Key drivers of performance in 2018:

  1. Naked Wines got one year older – because we are investing £14m a year in new customer acquisition (NCA) in Naked, and delivered a forecast 4.7x payback on that in FY18, every year that goes by sees our contribution from existing customers grow. In this year it grew by £6.9m. As expected, sales growth slowed in Naked Wines to 11.3%, as a result of the previously announced reduction in investment in new customer acquisition in H1 FY18.
  2. The impact of currency and duty increases in the UK – Since 2015 average market bottle prices should have gone up by 60p, but actually only increased by 21p. We estimate that our UK COGS increased by £8.7m due to FX driven cost movements.
  3. Majestic Retail managed to deliver 1.9% underlying revenue growth, offsetting £4.9m of the Costs of Goods Sold (COGS) pressure but resulting in gross profit all but flat.
  4. Improved efficiency of new customer investment – we added the same amount of future value but spent £0.8m less to get it (4.7x forecast payback vs 4.4x for FY17 investments).
  5. We added £1m of underlying cost to our central teams, reflecting investments in digital marketing staff and additional IT resource.
  6. The non-cash items, generally costs, that we adjust out of our underlying performance shrank by £5m, mainly due to the charges relating to the Naked Wines acquisition beginning to drop away with time.

And how do we expect those to play out in 2019?

  • Naked will get another year older – so the £14m we invested in 2018 will deliver additional repeat customer contribution in 2019
  • We will increase investment in New Customer Acquisition by £5-8m
  • UK market – we expect the UK to remain tough
  • Commercial – as said in previous letters, we believe commercial is a good business, but have not been able to focus on it because we had bigger fish to fry. We are now in the happy position that those fish are fried, we have a brilliant Managing Director for the business and we are at last getting back to driving growth
  • Digital customer acquisition – we expect continued growth
  • Majestic Retail branch improvements – we believe that the improvements in branch will be able to overcome the adverse market conditions through improving customer experience