Majestic Wine PLC – Full Year Results

Majestic Wine plc release their full Year Results for the 52 weeks ending 1 April 2019.

A Pivotal Moment

• In advanced discussions regarding potential sale of Majestic Retail and Commercial (“Majestic”) – expected to be finalised over the summer months
• Group revenue grew +6.3% to £506.1m, accelerating as Naked Wines (“Naked”) continues to invest in customer acquisition
• Naked growth plan on track
  –    Naked underlying⁽¹⁾⁽⁶⁾  revenue growth rate accelerated to 14.5% (FY18: 11.3%)
  –    US now biggest division with sales 21% higher year on year
  –    New customer investment⁽⁶⁾ of £19.1m, an increase of £5.0m on last year
  –    Repeat customer sales retention⁽⁶⁾ of 81% (FY18: 83%)
  –    Repeat customer contribution⁽⁶⁾ increased by £6.0m to £39.8m with margin improved to 26.1% (FY18: 25.2%)
  –    Forecast payback on new customer investment on target at 4.0x (FY18: 4.7x)
• Majestic Retail (“Retail”) solid in a tough market
  –    Underlying revenue growth of 1.5% (FY18: 1.9%)
  –    Adjusted EBIT⁽⁶⁾ reduced to £11.3m (FY18: £13.3m) due to gross margin decline
• Group Adjusted PBT(6) of £11.3m lower than FY18 (£17.2m) as a result of the accelerated investment in Naked growth and lower Retail profitability year on year
• Reported loss before tax of £8.5m impacted by £11.1m store impairment charge
• Balance sheet robust: Net Debt of £15.5m, 0.8x Adjusted EBITDA(6 (FY18: £8.4m, 0.35x Adjusted EBITDA) despite high levels of investment in the year and high working capital due to Easter timing and Brexit contingency planning
• Final dividend suspended, to be replaced with a special dividend equal to the final FY18 payment, contingent on completion of Majestic sale
• Board strengthened with US expertise in anticipation of Naked’s next phase of growth with proposed appointment of John Walden as Chairman elect and the appointment of Nick Devlin as COO

		FY19	FY18	% YoY	FY19 Underlying (1),(6)	FY18 Underlying (1),(6)	% YoY Underlying (1),(6)
Reported revenue	£m	506.1	476.1	+6.3%	505.1	477.5	5.8%
Adjusted EBIT (2),(6)	£m	12.1	18.2	-33.8%	12.1	18.1	-33.4%
Adjusted PBT (3),(6)	£m	11.3	17.2	-34.5%	11.3	17.1	-34.2%
Adjusted EPS (4)	p	14.7p	23.9p
(Loss)/profit before tax	£m	(8.5)	8.3
Basic EPS	p	(13.3p)	10.9p
Final dividend per share	p	–	5.2p
Free cash flow (5),(6)	£m	1.9	24.9
Net debt (6)	£m	(15.5)	(8.4)

To provide a meaningful comparison with last year, operating performance commentary is stated on an underlying basis (unless otherwise stated). A full reconciliation between our reported numbers and these underlying measures is provided in the financial review.

Rowan Gormley, Group Chief Executive, commented:

“A pivotal moment: We are at a crossroads in the Company’s history. As laid out in March, we have taken the difficult but important decision to focus on Naked and exit from Majestic. As at the date of this announcement, our intention is to sell the business and we are at an advanced stage with multiple bidders. A further update will be provided if and when negotiations conclude at which point we will seek shareholder approval to move ahead. If we are unable to complete the process over the summer, in time for the important Christmas and New Year season, we will continue to run the two businesses independently of each other and look to restart the process in 2020.

It is important to point out that this is a decision we have made from a position of strength.

• The Group grew sales by over 6% despite a tough UK market
• Although underlying profits fell, the biggest cause was a decision to increase investment in new customer acquisition in Naked – which will drive future growth
• And I am delighted to report that our Commercial business, under a new team, has returned to growth after two years of contraction
• Our balance sheet remains strong with leverage of only 0.8x adjusted EBITDA

So why exit Majestic?

Majestic is a great business, with brilliant people and strong customer loyalty. It is also a much better business than it was four years ago with

• Revenue that’s 20% higher with online sales up by more than 50%
• Wide scale cost efficiencies implemented to help mitigate FX and inflationary headwinds
• A growing subscription business
• A national fulfilment facility

However Naked has the greater potential for growth, and will deliver the best results for our shareholders, customers, people and suppliers over time. Although we have several options to realise value from Majestic, the cleanest and best for customers, staff and shareholders currently looks to be an outright sale at this time. Majestic Wine started life with a disruptive model that challenged the status quo. Now is the right time to do it again under the Naked brand.”