Half-year Results

'Trading in line with guidance; strategic initiatives and testing are generating valuable learnings and progressing according to plan'

Naked Wines is pleased to announce its results for the 26 weeks ended 30 September 2024 (HY25)

Commenting on the HY25 performance, Rodrigo Maza, CEO, said:

"Naked Wines is in a better position, both financially and strategically. We now have robust financial foundations, and our members remain loyal and engaged. Our strategic initiatives centred around customer acquisition and retention are generating learnings, and we are currently experiencing solid trading during the peak season period."

"I am pleased to welcome Dominic as our new CFO. His experience in digital and international businesses have helped him quickly transition, and I look forward to working with him as we focus the business on cash, profitability and growth."

* Inventory liquidation costs include changes to the US stock provision, losses on disposal and other wine liquidation costs

Notes:

• Refer to the table in the APM section at the end of this announcement for a reconciliation of adjusted EBIT excluding inventory liquidation transactions to adjusted EBIT.
• Refer to note 6 Adjusted items for further details.
• Refer to the table in the APM section at the end of this announcement for an analysis of net cash (excluding lease liabilities).
• Active members includes all members with either an Angel or Wine Genie membership. HY24 restated from 792k to include Wine Genie members
• HY24 customer NPS updated for new calculation methodology, comparable to HY25. HY24 reported score of 66 is not comparable to HY25
• HY24 is the latest forecast, original forecast 1.5x.

Financial highlights

Trading remains in line with previously communicated guidance:

• Liquidity continues to improve, and is slightly ahead of the Group's treasury policy target:

o Net cash (excluding lease liabilities) of £22.9m, is an increase of £20.1m versus HY24, driven by stock reductions, partially offset by a reduction in payables; this also includes £9.1m inflow from the early redemption of the Vendor Loan Note

• HY25 revenue declined to £112.3m (HY24 £132.3m)
• HY25 adjusted EBIT excluding inventory liquidation and associated costs were £0.6m
• HY25 adjusted EBIT of £(3.1)m is down on HY24 by £5.3m, reflecting:

o +£2.9m of G&A savings from the FY24 reorganisation

o -£4.6m impact of lower sales

o -£3.7m of inventory liquidation and associated costs, including a £2.5m increase to the US stock provision and £1.2m of losses on disposal and other wine liquidation costs

• Statutory loss before tax of £(5.6)m (HY24: £(9.7)m), includes £1.9m of adjusted items, £1.8m of which relates to under-absorption of current year's winery overheads in the US

Operational highlights

Enhancements to the management team:

• Rodrigo Maza appointed as CEO in April 2024, implementing a comprehensive strategic initiatives and testing programme, and leading the adoption of a high performance culture
• Dominic Neary was welcomed to the Naked Wines team in November 2024 as CFO, and brings significant experience at international high growth consumer, digital and FMCG companies

Our 'Core' members remain highly engaged: customer NPS remains excellent, increasing to 76 (from 73 in HY24) and retention of core customers (greater than 24 months since acquisition) has increased to 79% (from 77% in HY24).

Strategic initiatives and testing have resulted in valuable learnings and are progressing according to plan; improvements are required in payback:

• Retention: Material improvements in retention are feeding through to KPIs, including the impact of redesigned on-boarding flows and processes such as ratings
• Acquisition: Customer acquisition cost increases have been a key driver in the decline of payback to 1.0x in HY25 (HY24: 1.3x), largely reflecting the industry-wide decline in the voucher mechanic, as well as testing of increased volumes in the Wine Genie product. In the second half, we are testing the redirection of some of our voucher spend into more efficient channels such as Earned Media. Payback will benefit from this alongside tailwinds from improvements in retention and personalisation
• Personalisation: Recently re-launched new user journeys are delivering significant improvements in conversion, most notably the newly launched Angel acquisition journey, where we have seen improved conversion uplifts in the UK of between 16% and 43% across channels

Outlook

• Early peak season trading has been solid; liquidity and cash continuing to improve
• FY25 performance is currently expected to be in line with the guidance previously given (as detailed at the end of the CFO statement)
• US inventory, whilst in line with previously communicated plans, remains overstocked; we are reviewing options to release capital from inventory; some of these would drive improved cash in FY26 and FY27, but could lead to increased liquidation costs, and result in EBIT at the lower end of guidance
• A performance review is underway, proactively evaluating options to maximise shareholder value; we will report back by the end of the financial year.

Analyst and investor conference call:

A recording will also be made available on the Results section of the investor website www.nakedwinesplc.co.uk shortly after the conference call

Group CEO review

Overview

I articulated my observations and priorities in August during our FY24 results presentation, and these remain unchanged:

• We now have robust financial foundations in place. We restructured our costs, landed a fit-for-purpose credit facility in July, and we continue the sale of our surplus inventory with the UK and Australia now returning to normal inventory levels, and US inventories, whilst still significantly in excess, are nevertheless down £20.5m on HY24.
• We have embedded resilient management systems. These ensure focus and alignment, enable the adoption of a high-performance culture (with Engagement Results improving for the first time since 2022), and drive winemaker success.
• We are fully focused on getting Naked Wines back to sustainable growth. We have been rolling out a comprehensive testing plan since the start of the fiscal year to recruit the right customers for the right reasons (Acquisition), bring them into the relationship that best suits their needs (Personalisation), and drive their long-term engagement and activation (Retention).

Strategic Initiatives

As shared a few months ago, we continue to see improvements from our Testing Plan and are building learnings across a number of areas, which we are already taking action on. In Q4 we will share more details of this and the implications they have on the trajectory of our company.

This plan challenges the fundamental aspects of the business and, because of that, some of our metrics are likely to be volatile during the testing phase. Payback in H1 has been an example of this, although we see tailwinds as we head into H2. Pleasingly, we note that early "peak season" trading has been solid, and we are tracking in line with FY25 expectations.

Retention improvements are feeding through in our KPIs

We are increasingly confident of improvements in both our Immature and Mature Retention (refer to Glossary for definition). Redesigned on-boarding flows are helping customers understand Naked's value proposition from the start, and a new engagement approach (moving from focusing on discounts to sharing relevant information about our wines and winemakers) is reinvigorating our relationships with members across most tenures.

A good example of this is our recently relaunched 'wine ratings'; we know that there is a strong correlation between completion of ratings and long-term retention and value. The new ratings process has resulted in a 94% completion of ratings versus 63% before. We are also seeing improvement in key retention metrics - sales retention is up 2% year-on-year, and retention of our core customers (more than 24 months since acquisition) has improved from 77% in HY24 to 79% in HY25.

Acquisition testing has identified significant efficiencies to reverse the recent trend in payback

The payback metric has deteriorated in HY25 - a key driver of this has been Customer Acquisition Cost (CAC), which has been adversely impacted by the industry-wide decline in voucher efficiency. Naked has historically over-invested in this area, and recent analysis and testing has identified the opportunity to generate significant efficiencies as we re-direct investment to more efficient channels such as earned media. Included within guidance are identified efficiencies in H2 FY25, with incremental opportunities likely in FY26 - these should improve payback going forward as we move away from legacy strategies.

Finding the right channels to develop continues to be a top priority. We're seeing early signs that our priority channels are driving a virtuous cycle, e.g. using PR and content creators for cost effective brand wide reach, then converting more efficiently into new members via Meta, member referral and brand search. We've invested in more robust mechanisms to measure the effectiveness of our efforts and remain confident in the potential of new growth avenues.

Recently re-launched product journeys are delivering significant improvements in conversion

Testing around Personalisation continues to show good progress, with the LTVs of members acquired through new funnels proving to be materially above average and the conversion gaps being actively improved upon. I'm pleased to share that enhancements to our Angel journey as well as our check-out have produced material conversion benefits at this early stage. As an example, we are seeing conversion uplifts in the acquisition of new Angels across all channels, ranging from 16% to 43% - this launch is being rolled out channel by channel between September and January.

Current trading and performance

We are currently within our peak trading period, and results so far are tracking in line with our expectations and overall guidance for FY25, but December remains important to delivery. We'll provide a full trading update in late January 2025. This will be followed by further insight into the Strategic Initiatives outlined above and their outputs before the end of our financial year.

Summary

Naked is in a better position, both financially and strategically, than it was at the start of FY25. While it is still early to claim definitive wins, we are seeing positive outputs from our experiments and Strategic Initiatives. We have big ambitions and are focused on the execution of our strategy, with lots of opportunities available to us to return to growth and a capable and motivated team in place to deliver on it. We look forward to providing regular updates on outputs and progress.

Rodrigo Maza

Group Chief Executive Officer

CFO Review

I would like to thank Maza and the team for their warm welcome since joining as CFO in November. The business has made significant progress in the last 12 months. Some of this is clear with net cash (excluding lease liabilities) of £22.9m, up £20.1m on HY24. Other improvements will take longer to impact financial results fully.

Our members remain engaged and loyal:

• Customer NPS is excellent and improving at 76 (HY24: 73) - once acquired, customers love our proposition
• Sales retention has improved a further 200 bps to 74% (vs. 72% in HY24)
• The trend in member decline is improving, in part due to the fact that the exceptional acquisition levels, and therefore attrition levels, from FY21 to FY23 cohorts are naturally reducing over time

The strength of our core membership continues to improve:

• Sales from core members, who are more than 24 months old, has increased to 74% of our business versus 67% in HY24
• Member retention of this group has increased to 79% from 77% last year

Payback has deteriorated in the first half; actions are in hand to address this:

The key drivers of the deterioration to 1.0x in HY25 (HY24: 1.3x) are:

• CAC (Customer Acquisition Cost) has substantially increased in the US and the UK, although it has declined in Australia; this reflects the increasingly inefficient cost of the voucher mechanic. Testing has identified significant non-voucher channel opportunities which will drive down investment levels in H2 and into FY26, resulting in significant efficiencies, some of which will drop down to the bottom line.
• In the last 12 months, Naked Wines has been investing in higher converting 'Wine Genie' members. Testing in the last three months has shown that longer-term performance through this product is weaker than forecast. Acquisition has largely pivoted back to the Angel channel.

We are stepping up our focus on profitability

Key drivers of this are: the significant opportunities highlighted above in redirecting voucher spend, and also ongoing improvements in procurement and arising from our tech investments

Cash and liquidity are strong

Naked Wines has made considerable progress with liquidity in the last 12 months. Net cash (excluding lease liabilities) of £22.9m is up £20.1m on HY24. As previously communicated, the new credit facility was completed in July 2024 and total cash and credit facility capacity at half year was £62m. Of this, £11m has been committed, via payment partners, to provide security to Angel customer balances and £8m has been drawn down. The remaining £43m is unpledged and puts the Group's liquidity slightly in excess of the position required under our treasury policy. As such, as part of our performance review, we are assessing whether we are likely to have potential excess funds in the future.

Separately, we are considering the potential for making early duty payments to help offset increased wine taxes coming into effect in 2025 - this would impact cash levels at the end of FY25, and into FY26.

We are investigating options to speed up the proposed reduction in our inventory

UK and Australia stock levels are now returning to normal levels. Whilst progress has been made in the US in line with previously communicated plans, the region continues to remain significantly overstocked. We are currently investigating options to reduce inventory levels more quickly; some of these would drive improved cash in FY26 and FY27, but could lead to increased liquidation costs, and result in EBIT at the lower end of guidance.

The opportunities in the business are significant, but considerable work remains to be done. For example, we need to step up the pace of our digital simplification and associated effectiveness. Having only recently joined, I am now working with the team to perform a review, with a focus on efficiency, speed and cashflow.

Group financial summary1:

Notes:

• Refer to the reconciliation of reported performance to management adjusted basis in the APM section at the end of this announcement for a reconciliation of total revenue to total adjusted revenue.
• Refer to note 6 Adjusted items for further details.
• Refer to the table in the APM section at the end of this announcement for an analysis of net cash (excluding lease liabilities).

Drivers of Group P&L performance

In HY25 total revenue declined by 14% on a constant currency basis to £112.3m (HY24: £132.3m). This broadly reflected the drop in active members which were down by 12%. Active member numbers have been trending more positively since the start of the year and were down by 6% on the start of the financial year.

Repeat Customer contribution dropped in line with Repeat Customer sales. There was a 12% decline in New Customer sales on a constant currency basis, with investment in the acquisition of new customers growing by 3% in HY25.

Statutory general and administrative (G&A) costs of £15.7m were down 16% on prior year (HY24: £18.6m), reflecting the annualisation of the cost savings implemented in FY24.

This resulted in adjusted EBIT excluding inventory liquidation and associated costs of £0.6m (HY24: £2.6m). The adjusted EBIT including liquidation of inventory was £(3.1)m (HY24: £2.2m). The statutory loss of £5.6m (HY24: loss of £9.7m) includes both the £3.7m of inventory liquidation costs and £1.9m of adjusted items.

Key adjusted items

Refer to note 6 Adjusted items for further details of all these key adjusted items. These are adjusted as they are either material one-time charges we do not expect to be repeated or they are non-trading related. We feel that treating them as adjusted items provides clarity of these non-recurring events and also a more comparable view of business trading performance.

Cash flow drivers

HY25 net cash excluding lease liabilities was £22.9m, up £20.1m on HY24. There was £4.3m of net cash generation in HY25 (excluding the impact of FX), when we typically see cash outflow in the six months ahead of peak trading. This is a significant improvement in cash performance vs the typical cash outflow in the first half of the financial year.

Cash flow analysis

Notes:

1 Other non-cash amounts is made up of share-based payment charge of £0.8m, fair value movement on foreign exchange contracts of £0.1m, less movement in inventory provision of £0.3m and fair value movement on foreign exchange contracts of £0.1m

Net interest charges totaled £0.7m in HY25 (HY24: £1.0m), being the net of interest receivable on cash at bank and interest payable relating to the Group's asset-backed lending facilities in place in first half of the year, as well as interest costs of right-of-use assets.

The Group's statutory effective tax rate of (16)% (HY24: (20)%) is substantially driven by tax charges on overseas taxable profits and a reduction in US deferred tax assets recognised at the half year.

Liquidity and going concern

The Group has continued to build its net cash excluding lease liabilities position during FY25, primarily by focusing on inventory reduction. Angel funds, which are heavily weighted to our core members who have been with the business for more than 24 months, have remained resilient during the period, reflecting the loyalty of our longer-term and most engaged members.

The combination of this improvement, the additional liquidity and reduction in covenant limitations afforded by the new credit facility, and the expectation of additional cash generation that is typical through the peak trading period, has improved the Group's resilience to weather any downturn. The Board has stress-tested a range of trading scenarios, which incorporate a range of inventory liquidation costs and also potential early duty payments, and have a reasonable expectation that the Group and the Company will be able to operate within the level of their available liquidity. For this reason, and the reasons given above, the Board considers it appropriate for the Group and the Company to adopt the going concern basis in preparing these financial statements.

Dominic Neary

Group Chief Financial Officer

Guidance1

Our view on headline FY25 metrics remain unchanged as follows:

FY25

Notes:

• This guidance is provided based on FX rates of 1 GBP = 1.27 USD and 1.85 AUD

Condensed consolidated income statement

For the 26 weeks ended 30 September 2024

* Note reference relates to HY24.

Operating loss analysed as:

• Refer to the table in the APM section at the end of this announcement for analysis of adjusted EBIT identifying inventory liquidation transactions.

The notes to the condensed consolidated interim financial statements following the primary statements are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated statement of comprehensive income

For the 26 weeks ended 30 September 2024

Items that may be reclassified subsequently to the income statement:

The total comprehensive loss for the period and the prior period is wholly attributable to the equity holders of the parent company, Naked Wines plc.

The notes to the condensed consolidated interim financial statements following the primary statements are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated statement of changes in equity

For the 26 weeks ended 30 September 2024

The notes to the condensed consolidated interim financial statements following the primary statements are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated balance sheet

As at 30 September 2024

The condensed consolidated interim financial statements of Naked Wines plc (company registration number 02281640) have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted for use in the UK.

The notes to the condensed consolidated interim financial statements following the primary statements are an integral part of these condensed consolidated interim financial statements.

By order of the Board,

Dominic Neary

Chief Financial Officer

Condensed consolidated cash flow statement

For the 26 weeks ended 30 September 2024

The notes to the condensed consolidated interim financial statements following the primary statements are an integral part of these condensed consolidated interim financial statements.

Notes to the financial statements

• General Information
• Basis of preparation

These condensed consolidated interim financial statements have been prepared applying the accounting policies set out in the Annual Report and Accounts for the 52 weeks ended 1 April 2024.

The auditor's report on those accounts was not qualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial statements included in this report have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting, as adopted for use in the UK. The condensed consolidated interim financial statements are not statutory accounts. They include the financial statements of Naked Wines plc and entities controlled by the Company (its subsidiaries), Naked Wines plc has control over the Naked Wines plc Share Incentive Plan Trust and the Naked Wines Employee Benefit Trust, which have not been consolidated on the basis of materiality.

The financial reporting period represents the 26 weeks ended 30 September 2024 and the prior period, 26 weeks ended 2 October 2023, and are presented in GBP which is the Group's functional currency, and all values are rounded to the nearest thousand (£'000), except when otherwise indicated.

The new accounting standards that came into effect in the current accounting period beginning 2 April 2024, noted below, do not introduce any new disclosures that are explicitly required in the condensed consolidated interim financial statements.

Effective date 1 January 2024

• Non-current Liabilities with Covenants - Amendments to IAS 1
• Classification of Liabilities as Current or Non-current - Amendments to IAS 1
• Lease Liability in Sales and Leaseback - Amendments to IFRS 16
• Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7

At the reporting date, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective.

• Lack of Exchangeability - Amendments to IAS 21
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (effective date deferred indefinitely).
• Significant estimates

Inventory provision

The Group continues to closely assess the recoverability of its inventory holdings, especially in its US market.

In this market, the Group has continued to hold elevated inventory levels. It has continued to assess expected levels and product mix of consumer demand and has also continued to liquidate inventory through secondary market activity.

As such, whilst disposals amounting to £5m of cost of goods have been completed through secondary market channels in the period, the Group has seen a smaller reduction in US inventory provision level from £12.5m at the end of FY24 to £11.5m at the half year, with an inventory provision charge of £2.5m in the period (FY24: £7.4m).

A number of critical judgements have been made in the calculation of the US segment inventory provision analysis, including:

• Realisable volumes and value of bulk wine in the open market;
• Changing consumer consumption patterns between wine product families resulting in changing bottling plans; and
• Estimates of future trading activity and utilisation of inventory on hand.

For both bulk and cased wine inventory in the US, the full range of reasonably possible outcomes is inherently difficult to calculate as it is dependent on key assumptions such as future expected sales of wine and sales proceeds. The Directors highlight therefore it is possible that outcomes may differ from their estimates made at the half year, and that the magnitude of the inventory provision in the Group's US business unit could materially change in subsequent reporting periods. Two relevant sensitivities that are readily quantifiable are the expected proceeds from the disposal of bulk inventory on hand not currently in planned wine production and the possible value of further cased good inventory provision required following a change in future sales versus expectation. Management have prepared their estimates of these sensitivities based on expected disposal of inventory volumes through secondary market channels, recent experience of realisation values for wine disposed of on the secondary market and recent forecast sales run rates.

Bulk wine (provision of £8.7m (FY24: £7.7m)) disposal assumptions: If management are not able to realise expected proceeds for bulk wine reaching commercial expiry in the next 24 months, an additional £1.0m (FY24: £0.9m) of inventory would be written off. Additionally, there is a further net £2.1m of remaining bulk wine at the balance sheet date which is considered to be most at risk. This wine is expiring after more than 24 months and is either currently expected to be used in future wine projects or has anticipated proceeds on disposal assumed. However, if these assumptions prove to be inaccurate, then the Company would be exposed to this additional £2.1m of inventory write down.

Cased wine (provision of £2.8m (FY24: £4.9m)) sales volume sensitivity: Management have forecast expected consumption of cased goods in hand at the balance sheet date by using product level or product family level historic run rates to calculate forward days cover and to assess the calculated SKU consumption date against SKU family expected prime marketing life. A pro-forma 5% reduction in SKU level run rates across the cased goods inventory holding at the half results in an additional £0.1m of cased goods inventory provision requirement.

Going concern

Background and context

The Group's financial statements for the year ended 1 April 2024 were signed on 27 August 2024. These financial statements were prepared on a going concern basis.

Credit facility

On 8 July 2024 the Group entered into a 60-month senior secured revolving credit facility with PNC Bank, National Association, as administrative agent and lender for up to $60m of credit based on the inventory held by the Group's US, UK and Australian subsidiaries. The purpose of this facility is to provide the Group with access to working capital and also to be used as a source of security for strategic stakeholders. The Group has met all of its credit facility covenant requirements since signature of the agreement up to the date of the signing of these financial statements.

Base case forecast

In assessing the appropriateness of the going concern assumption, the Board has considered (i) the cash requirements of the business to pursue its intended strategy, (ii) the funding available to the Group from existing cash reserves and its credit facility (iii) the level of security to be held against Angel fund balances and (iv) potential variations in the cash requirements of the Group, including taking into account a severe but plausible downside scenario that appropriately reflect Naked's recent trading and the current macroeconomic outlook.

The Directors have prepared cash flow scenarios extending for a period of at least 12 months from the date of the approval of these interim financial statements ("the going concern assessment period") to assess the liquidity of the Group.

A baseline forecast was prepared in which business unit trading KPIs were assumed to be in line with current expectations for the remainder of FY25 and flat year-on-year, adjusted for known one-off distortions, in the remainder of the going concern period. The forecast anticipated continued upward pressure on customer acquisition costs. Costs were assumed to be in line with current underlying run rates allowing for reasonable market inflation. Liquidity was forecast on the basis of the Group's current credit facility alongside anticipated inventory holdings. In this scenario, the Group maintained more than £20m of headroom above its springing covenant liquidity test of more than $12m of facility availability and US PNC banked cash across the forecast period, above which it does not need to measure compliance with its fixed charge cover ratio covenant test of greater than 1.2x.

Severe but plausible downside and reverse stress test

The Directors have then prepared a severe but plausible downside scenario incorporating a number of sensitivities and also available mitigating actions.

Sales performance driver:

• A 5% decline in revenue per Angel from the beginning of the base case forecast period, described above, extending over the entire forecast period.

Cost mitigations:

• A 10% reduction in new customer investment from the beginning of the FY26, amounting to a saving of £1.8m across the forecast period;
• Reduction to £nil payable variable compensation in FY25, resulting in a £1.4m P&L saving in the second half of the year and the associated cash outflow reduction in H1 FY26; and
• A further reduction of P&L cost of £1.0m relating to FY26 variable compensation for the remainder of the forecast period.

Working capital mitigations:

• Reduction in inventory intake in FY26 of £10m in response to lower sales expectation.

The net impact of the severe but plausible downside is to reduce the Group's headroom to its springing covenant test to £14m in October 2025, reflecting the phasing of inventory intake for peak trading in the following periods. In all other periods of the assessment, the severe but plausible downside scenario showed that the Group retained more than £20m of headroom. This reduction in headroom still does not require the testing of the Group's fixed charge cover ratio in the forward forecast period.

A further 'reverse stress test' scenario has also been run, deliberately designed to identify the point at which the Group failed its banking facility covenant. This scenario required a further 8% decline in revenue per Angel, without any further cash or cost mitigation, before the Group would trip its covenant commitments. In this scenario, the Group failed its covenant test in October FY26.

Summary

After considering the forecasts, sensitivities and mitigating actions available and having regard to the risks, uncertainties and challenges in recent trading and the macroeconomic environment, in the modelled scenarios Naked Wines has sufficient liquidity to continue trading and to meet its minimum facility liquidity requirements, avoiding the need to assess its fixed charge cover ratio covenant commitment.

The Board believes that the flexibility afforded to it by its new financing arrangements and the generation of net cash since the beginning of the current financial year mean that the Directors have a reasonable expectation that the Group will be able to operate within the level of their available liquidity and meet their liabilities as they fall due for the forecast period. For this reason, the Board considers it appropriate to adopt the going concern basis in these condensed consolidated interim financial statements.

Segmental reporting

Unallocated assets include goodwill and other intangible assets held by holding companies and unallocated impairment charges relate to impairments recorded against these assets. These assets are unallocated for the purpose of the segmental disclosure as these are not included in the assets and liabilities reported to the CODM for each operating segment. For the purposes of the geographical analysis, these assets are allocated to the UK as these assets arose as a result of an acquisition by a UK holding company. For impairment analysis, these assets are allocated to the relevant CGU.

All revenue is recognised at a single point in time when it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Specific to the Group, the performance obligations of the Group are deemed to be fulfilled when the product is delivered to our customer or Angel, typically within one to three days following dispatch, which is when the customer obtains control of their purchase and there is reasonable certainty regarding the recovery of the consideration.

The Group is subject to seasonal fluctuations resulting in varying profits over the full year period. The Group experiences increased sales in the third quarter which covers the holiday period, accounting for around 40% of total revenue compared to around 20% in each of the other quarters.

Included within Angel funds and other deferred income is deferred income of £6.5m (1 April 2024: £3.1m). These balances represent value of funds received in advance, but the order is yet to be fulfilled or delivered. This will be recognised as revenue when the order is fulfilled or delivered, which is expected to occur over the next six months.

• Other contribution constitutes loss on inventory liquidation and associated transactions
• Contribution after advertising costs is calculated as gross profit (£19.0m), less advertising costs (£8.1m), excluding transactions associated with the under-absorption of current year's winery overheads (£1.8m) (details in note 6 Adjusted items).

• Total adjusted revenue is calculated as revenue excluding revenue associated with the right-sizing of US inventory as analysed in note 6 Adjusted items.
• Contribution after advertising costs is calculated as gross profit (£29.0m), less advertising costs (£7.4m), excluding transactions associated with the right-sizing of US inventory included in contribution (£0.8m), (details in note 6 Adjusted items).

6 Adjusted items

The adjustments made to reported loss before tax are:

• Contribution loss analysed as sales of £nil (HY24: £0.7m) less cost of goods sold of £nil (HY24: £1.3m) resulting in a net contribution loss of £nil (HY24: loss of £0.6m).
• Right-sizing of US inventory

During the first half of the prior year, the Group recorded a net credit of £0.8m reflecting the utilisation of the inventory provision created in FY23 and a contribution loss where inventory that was provided against that has been sold on the secondary market as part the right-sizing exercise for less than historic cost of goods.

Under-absorption of current year's winery overheads

As a result of a reduction in the expected volume of wine to be produced by the Group's US business unit in the year, the Group is unable to allocate all of the associated wine production overhead costs into the wine produced. Per the relevant accounting standard (IAS 2 Inventories), unallocated overheads as a result of low production must be expensed to the income statement in the period in which they are incurred. The charge reported at the half year includes both the under-absorption of incurred production costs to date and a provision for the remainder of an onerous third-party production cost relating to current year production.

Impairment of non-current assets

Management have assessed whether indicators of impairment exist for the remaining non-current assets on the balance sheet, and whether indicators exist that previously booked impairments may be reversed. At the end of the current period, management found no evidence of further impairments required, nor any reversals of previously booked impairments required. The Group has therefore recognised an amount of £nil to the impairments to non-current assets (HY24: £11.5m).

Other adjusted items

The Group commits in advance to buying foreign currency to purchase wine to mitigate exchange rate fluctuations. UK-adopted international accounting standards require us to mark the value of these contracts to market at each balance sheet date. As this may materially fluctuate, we adjust this, and associated foreign currency inventory revaluation, so as to better reflect our trading profitability.

Restructuring costs

Restructuring costs in the current period was £nil. In the first half of the prior year, there was a release of the previous year's provision no longer required.

Software as a Service cost

During the prior year, the Group provided for implementation costs relating to the development of a new ERP system.

7 Impairment of non-current assets

Management have determined that no indicators of impairment existed at the balance sheet date and as such no impairment review has been performed. In the prior year, impairment indicators were identified and an impairment review undertaken. As a result of this review, the carrying value of assets held in Naked Wines US and Naked Wines Australia were reduced to their recoverable amount through recognition of an impairment charge of £11.5 million against goodwill, other intangibles, property, plant and equipment and right-of-use assets. This charge was recognised within adjusted items in the income statement and is analysed by segment and asset type as set out below:

* The value in use of each CGU is calculated after a full allocation of corporate costs necessarily incurred to generate the cash inflows of the operating business units and in accordance with IAS36 Impairment of assets.

8 Tax

Tax for the 26 weeks ended 30 September 2024 is charged at an effective tax rate of (16.1)% (HY24: (19.8)%) representing the best estimate of the Group's expected annual effective tax rate, applied to the profit before tax of the period. The effective tax rate is substantially driven by tax charges on overseas taxable profits and a reduction in the US deferred tax assets recognised at the balance sheet date.

9 Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares in issue of the Company, excluding 137,298 (HY24: 180,161) shares held by the Naked Wines plc Share Incentive Plan Trust and the Naked Wines Employee Benefit Trust (which have been treated as dilutive share-based payment awards).

The dilutive effect of share-based payment awards is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all dilutive potential ordinary shares. Share options granted over 830,701 (HY24: 6,855,248) ordinary shares have been excluded from the calculation as they are anti-dilutive. There are no outstanding share awards that are potentially dilutive at the year end.

If all the Company's share option schemes had vested at 100%, the Company would have 78,727,032 issued shares (HY24: 74,624,159).

10 Notes to the cash flow statement

Cash flows from operations

• Analysis of movement in net cash and changes in liabilities arising from financing activities

• Non-cash movements relate to lease additions and foreign exchange movements.
• Borrowings held with Silicon Valley Bank, repaid on 8 July 2024.
• Borrowings held with PNC Bank, National Association, drawn down on 8 July 2024.

11 Borrowings

On 8 July 2024, the Group entered into a 60-month senior secured revolving credit facility with PNC Bank, National Association, as administrative agent and lender for up to $60m of credit based on the inventory held by Nakedwines.com Inc, www.nakedwines.com Ltd and Naked Wines Australia Pty Ltd. The facility is secured against the assets of the Group.

The principal terms of the new facility are:

• Maximum revolving advance amount of $60m, with available liquidity based on the value of inventory held (as defined in the facility terms);
• Facility term of five years;
• Margins, depending on facility headroom, of principally the Secured Overnight Financing Rate (SOFR) plus an applicable margin of between 2.75% and 3.25% and an unused line fee; and
• A single financial performance covenant requiring fixed charge cover of greater than 1.2x, but only tested if outstanding available liquidity (as defined in the facility terms) is less than $12m.

On completion of this agreement with PNC Bank, the Group's commitments and obligations under its previous senior secured credit facility with Silicon Valley Bank, a division of First Citizens Bank, fell away.

Indicatively, the facility's financial effect, using a representative current SOFR rate which cannot be predicted in the future and average facility margins which may not be representative of actual final applicable margins, is that a representative $10m of drawdown for 12 months would amount to a total interest and unused line fee payable of approximately £0.8m. In addition, the Group anticipates amortisation charges of the new facility arrangement fees of around £0.4m.

12 Events after the balance sheet date

There were no post balance sheet events that have a material impact on the financial position and performance of the Company.

Glossary of definitions, alternative performance measures (APMs)

and key performance indicators (KPIs)

Definitions

Alternative performance measures (APMs)

For the 26 weeks ended 30 September 2024

Please note due to rounding principles, numbers presented in £m may not sum to the totals provided. This can also lead to individual amounts being rounded to zero.

Repeat Customer contribution margin

• In HY24, a further amount of net credit of £0.8m relating to inventory disposal after inventory provision release has been reported within adjusted items.