MAJESTIC WINE PLC

FULL YEAR RESULTS

Majestic Wine PLC ("Majestic", "Majestic Group" or "Group"), the UK's largest wine specialist with 213 stores and which recently acquired Naked Wines, a customer funded international online wine business, today announces its full year results for the 52 weeks ended 30 March 2015.

Financial Highlights

•     Revenue up 2.3% to £284.5m (2014: £278.2m)

•     Like for like sales in UK retail stores up 1.9% (2014: -0.1%)

•     Adjusted profit before tax excluding exceptional items¹ declined to £20.9m (2014: £23.8m)

•     Group profit before tax declined to £18.4m (2014: £23.8m) reflecting:

o    Gross profit margin 0.3% lower at 22.7% (2014: 23.0%)

o    Distribution costs up 5.7% or £1.5m to £28.3m (2014: £26.8m)

o    Administrative costs including £1.8m acquisition costs and £0.7m termination payments, up £4.4m or 31.4% to £18.5m (2014: £14.1m)

•     Majestic Wine Calais profit before interest and tax £1.4m (2014: £1.5m)

•     Lay & Wheeler loss before interest and tax £(0.1)m (2014: £1.0m)

•     Group cash flow generated from operations of £32.9m (2014: £23.6m), mostly reflecting working capital phasing.

Operational Highlights²

•     Number of active customers who made purchases during the year up 5.4% to 678,000 (2014: 643,000)

•     Average spend per transaction unchanged at £129 (2014: £129)

•     Average price per bottle of still wine purchased increased to £8.00 (2014: £7.94)

•     Online sales increased 12.4% to £31.1m (2014: £27.7m), now representing 12.1% of UK retail sales (2014: 11.4%)

•     Sales to Commercial managed accounts up 12.8% to £42.1m (2014: £37.3m)

•     Net 7 new stores opened during the year (2014: 12)

¹Exceptional items include acquisition costs related to acquisition of Naked Wines and termination payments

²These highlights relate to transactions through the Majestic Wine retail stores including Commercial and Ecommerce

Post Year End Developments

·     Acquisition of Naked Wines in April 2015 and its founder, Rowan Gormley, appointed as Majestic Group CEO.

·     Thorough strategic review of the Majestic business in progress.

·     A number of new initiatives designed to restore Majestic Wine to profitable growth and to strengthen the enlarged Group for the future including:

o  One off 'trial & learn' initiatives

o  Creation of in-house expertise in key areas

•     Initial costs are expected to be £3m in 2016, falling mostly in the first half.

•     Results from ongoing strategic review to be announced at the time of interim results for the six months ended 28 September 2015.

•     Trading for both Naked Wines and Majestic Wine in the first two months of the current financial year have been in-line with management expectations.

Commenting on the results Rowan Gormley, Chief Executive, said:

"I have only been Group Chief Executive for ten weeks but it is clear to me that the enlarged Majestic Group has excellent future prospects. Majestic Wine has many unique competitive advantages, especially its incredible staff. When combined with Naked Wine's digital strengths, and both businesses ability to source exclusive and exciting wines for their customers, we are uniquely placed to build a fast growing international leading wine specialist."

"Whilst my review of the business is ongoing it is obvious that we need to make investments to reinvigorate Majestic Wine. These investments will initially suppress profit in the short term but I am confident we can rebuild momentum in this excellent business. At the same time we aim to maintain the international growth trajectory of Naked Wine and crystallise the benefits of having the two businesses in the same Group. I am confident that we will create significant value for our shareholders over the medium term."

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The financial year ending 30 March 2015 proved to be challenging and profit before tax was 22.5% lower at £18.4m. This figure reflects a number of exceptional, one-off costs related to the deal to acquire Naked Wines and changes in members of the senior leadership team. Despite the challenging backdrop of a fiercely competitive environment we continued to grow market share, by 0.1% to its highest ever level at 4.3%, whilst UK like for like sales grew by 1.9%.

Transforming our future

I would like to welcome our new CEO Rowan Gormley, and all of our new colleagues at Naked Wines, to the enlarged Majestic Group. Rowan has a fantastic track record as a successful businessman, innovator and entrepreneur in the wine industry and beyond. He has assembled a deep pool of talent at Naked Wines with a similar culture to Majestic.

Rowan has made a fantastic start. In a short period of time he has delved deep into every aspect of the business and has identified a number of initiatives which have the potential to restore Majestic Wine to profitable growth. He brings with him a disciplined investment approach based on testing new ideas and analysing how customers respond to them. The Board believes that now is the right time for fresh thinking and for trialling new initiatives however, at this early stage it is impossible to know which will work and how large and how fast any return will be. We are fully supportive of the team's ongoing strategic review and look forward to sharing the results with our shareholders in due course. We are confident that Rowan and the team will be successful.

The acquisition of Naked Wines in April 2015 following the end of the period under review represents a transformational opportunity for both businesses. Both have significant strengths which are very complementary. Majestic has considerable expertise in distribution, a nationwide UK store network, and friendly knowledgeable staff who excel in delivering exceptional customer service.  These competencies are a perfect fit with Naked Wines' unique sourcing and selling model. This acquisition will significantly accelerate the planned development of Majestic's online capabilities whilst providing Naked Wines with the infrastructure to enable a Click & Collect delivery option for its customers. In addition, this acquisition opens up attractive international markets in the United States and Australia which increase our potential customer reach eightfold.

Board Appointment

I was delighted to welcome Anita Balchandani to the Board as a non-executive Director on 10 June 2015.  Anita is a Partner and Sector Head of the UK Retail Practice for OC&C Strategy Consultants, a leading international consulting firm.  She brings a wealth of knowledge to the Board from her experience of working with clients to make the transition towards successful multichannel operating models and unlocking insight and value from customer data.

Dividend

As previously announced on 10 April 2015 the final dividend for the financial year 2015 and the interim dividend for the financial year 2016 will be withheld, with future dividends to be progressively re-instated by the financial year 2018. This decision reflects the Board's intention to reduce balance sheet leverage resulting from the acquisition of Naked Wines, ensure that the business has sufficient working capital resources and to invest in the business where attractive returns are proven.

People

I would like to take this opportunity to thank all of our teams for their unwavering enthusiasm and focus on delivering a great customer experience at Majestic. This unrivalled level of service enjoyed by our customers most clearly differentiates Majestic from the competition. I was particularly pleased to find that all the team at Naked Wines share a similar passion and customer-led culture.

Investing for the future and outlook

We are excited about embarking on a new chapter for Majestic.  We are well progressed with a major review of the business and we will announce in more detail at the time of our interim results our plans to restore Majestic Wine to profitable growth whilst expanding Naked Wines' successful business, and crystallising the benefits of the acquisition. The Board are very focused on delivering results and creating significant value for our shareholders. 

Phil Wrigley

Chairman

12 June 2015

Strategic Report

Chief Executive's Statement

Market position and customer proposition

We are in the business of helping wine lovers discover the magic of wine. 

Our key competitive strengths are:

·     Our staff - we have over 800 friendly, knowledgeable and highly trained staff in our stores, who love the product they sell and excel in serving our customers in a way that supermarkets and other discounters cannot;

·     Delivery and availability - with over 200 wine warehouses each with its own delivery vans, we are able to deliver range and convenience with wines open to taste every day;

·     Buying - we sell significant volumes of wine in our £7-£10 sweet spot range which gives us a unique buying advantage with medium sized wineries and especially those that are family run.

The acquisition of Naked Wines strengthens this competitive positioning even further.  The addition of the US and Australian markets increases our market reach eightfold. Naked Wine's proven and successful online capabilities give Majestic additional expertise to help develop its own better and more quickly, and Naked Wine's direct sourcing model and winemaking knowledge can help further improve the range Majestic offers.

Looking forward

Although I have only been Chief Executive for ten weeks, it is clear to me that the enlarged Majestic Group has excellent future prospects.

However, it is also clear that Majestic Wine had a period of challenging trading in recent years.  Profit declined last year with growth in online and commercial sales not enough to offset the underlying sales decline in the more mature Majestic stores.

There are a number of areas where customers are telling us that we need to do better, and issues which are holding us back need to be addressed.

My initial priorities are to:

·     Make the shopping experience simpler, easier and more fun;

·     Invest further in staff training and retention in order to equip our staff to fulfil their potential and keep our experienced retail staff motivated in store;

·     Build sustainable sales growth through personalised service, delivering on our discovery promise and recognising loyalty;

·     Rebuild the supply chain to optimise 'On Shelf Availability' and reduce working capital requirements;

·     Deliver robust and scalable IT, with the development agility required to support ongoing innovation;

·     Limit new store openings to the 20-30 locations that can deliver a good return on investment.

These initiatives require investment and I expect that we will initially incur £3m during the current financial year mostly falling into the first half. With this investment, I am confident that we can identify the areas for further investment necessary to restore growth momentum in Majestic, and ensure all our customers get the service and inspiration they are looking for.

At the same time we aim to maintain the growth trajectory of Majestic's Commercial business and Naked Wines, whilst realising the benefits that arise from the combination of two great businesses.

Rowan Gormley

Chief Executive

12 June 2015

Operational and Financial Review

Group profit before tax for the 52 weeks ending 30 March 2015 at £18.4m showed a decline of

22.5% on the previous year after expensing £1.8m in costs relating to the acquisition of Naked Wines International which was completed post year end.  Total Group sales were up by 2.3% to £284.5m.

After adding back the acquisition costs of £1.8m and termination payments of £0.7m adjusted Group profit before tax was £20.9m compared with £23.8m reported last year.

Majestic Wine

Profit before interest and tax was £19.0m, a decline of £2.4m on the previous year.  Revenues were up £10.2m to £266.0m with retail like for like sales increasing 1.9%.

We have seen a further increase in the number of active customers on our database who have made a purchase in the last year, up 35,000 to 678,000.  The bottle price of still wine purchased at Majestic has risen to £8.00 up from £7.94 last year with the average spend per transaction level on last year at £129.

New stores

We have opened in ten new locations during the financial year in Leighton Buzzard, Hexham, Loughton, Addlestone, Tiverton, Taplow, Wrexham, Bedford, Devizes and Fort Kinnaird in Edinburgh.  We have also closed three locations Bushey, Bracknell and Uxbridge bringing the total number of stores trading at the financial year end to 212.

In recent years we have seen strong growth from our online and business sales channels.  This change in the sales mix, coupled with our intention to invest in driving customer traffic, challenges earlier assumptions on the size of our store estate.  We now envisage that in order to provide coverage across the UK the total estate needs to be between 225 and 250 locations a reduction from 330 previously indicated.

Commercial

Majestic Commercial is our business to business division which focuses on the supply of wine to a wide range of corporate customers throughout the UK.  The retail store network gives us real competitive advantage as in effect we have over 200 depots holding extensive stocks close to our customers and the ability to organise deliveries seven days a week.  In addition, for central London we have a dedicated warehouse facility located in Kings Cross which handles distribution for larger business customers.

We have built an excellent team of sales professionals who are responsible for sourcing and building relationships with restaurants, hotels and gastro pubs.  We have seen a further year of strong growth in the sales generated by the Commercial team, up 12.8% on last year to £42.1m.

Ecommerce

Sales received online showed a return to strong growth, up 12.4% on the previous year and now represent 12.1% of total UK retail sales.  The number of orders processed increased 14.7% to 281,000 whilst the average transaction value online has declined by £2 or 1.8% to £133.

We have recently merged multiple data sources to create a single view of our customers, reflecting both on-line and in-store purchases. This has enabled us to implement a programme of segmented customer email communications.  In order to increase leverage from this programme we have worked hard to increase the number of customers email addresses that we hold, up 45.9% to 394,000.

We recognise that the online consumer is increasingly using mobile technology to interact with retailers and we were pleased that towards the end of the financial year we launched our own mobile app,  "myMajestic".  The app allows customers to store their entire purchase history both online and in-store.  The app has been downloaded by 19,000 customers to date and initial feedback has been very encouraging.  We intend to continue to invest in enhancing functionality for the mobile app and development will be based partly on feedback from the user base.

Customer Relationship Management

We continue to work hard to earn loyalty from our customers, keeping them engaged with our brand and friendly, knowledgeable store teams, whilst inspiring them to further their knowledge and enjoyment of our exciting wines.

We provide an extensive programme of guided tasting events in store which enable us to showcase the range and demonstrate our employees' extensive product knowledge. These events are free to attend and include our very popular Wine Course and Spotlight Tastings. We saw a significant increase in the number of customers attending a tasting event at their local Majestic store to 61,000, up 8,000 on last year.

We implemented a new CRM strategy during 2014 following the appointment of a new marketing agency with a demonstrable track record of utilising data to enhance and personalise customer communications.

We aim to build a more engaging personal and relevant relationship with our customers. We are improving the consistency across both our on and off line communications and by utilising our rich customer data in a more sophisticated and targeted way. We successfully executed the first stage of this strategy by enhancing and segmenting our database to enable better targeted multichannel customer communications. We launched a new customer welcome programme in November 2014 with promising initial results.

Lay & Wheeler

Lay & Wheeler is our fine wine merchant and has particular expertise in en primeur sales, cellarage and broking of customer reserves.  The business recorded a loss before interest and tax of £0.1m compared with profit at £1.0m in the previous financial year.  The loss is after recognising a reduction of £0.5m in the balance sheet carrying value of stocks of fine wine for which market values have fallen below acquisition cost, primarily in the Bordeaux 2010 vintage.

During the year the Bordeaux 2013 campaign was very disappointing, although the quality of the vintage was good, sales were down across the industry.  This further impacts ancillary trading and broking of older vintages. We increased the frequency of diversified offers and have had some success such as the launch of Penfolds Grange 2010. We have rebranded our fine wine subscription club as Cellar Circle with enhanced membership benefits and customer sign up rates have improved.

Majestic Wine Calais

This business operates from two units located in Calais catering for UK consumers wishing to take advantage of the much lower rates of alcohol duty in France.  Profit before interest and tax on a constant currency basis shows an increase of €0.1m to €1.8m after translation into pound sterling profit showed a decline of £0.1m to £1.4m.

During the Autumn of 2014 we simplified our pricing structure highlighting to customers where they can make substantial savings on the UK market price. We encourage customers to order through our well-established Click and Collect proposition and this now accounts for 44.4% of sales, up from 41.1% last year.

Acquisition of Naked Wines International

On 10 April 2015, Majestic Wine acquired the entire issued share capital of Naked Wines International a customer funded privately held international online wine business for a total consideration of up to £70m. The initial consideration included £50 million paid at completion in cash (of which approximately £30m was utilised to repay debt facilities) and a further amount of up to £20 million in Majestic's Ordinary Shares (based on the closing share price at 2 April 2015) will be issued to management subject to the achievement of certain performance criteria over a maximum period of four years. The initial consideration represents a multiple of approximately 0.6x Naked Wines' sales for the 12 months to 31 March 2015.

Taxation

The effective rate of corporation tax in 2015 was 26.8% (2014: 25.9%) compared with the main rate at 21.0% (2014: 23.0%).  During the year Majestic incurred expenses of £1.8m relating to the acquisition of Naked Wines International which are non-deductible for tax purposes.  In addition, the Group has an excess of depreciation over capital allowances as certain assets are non-qualifying.

Earnings per share

Basic earnings per share for the year at 20.5p was 6.5p lower than in the previous year (2014: 27.0p).  Diluted earnings per share for the year was 20.4p (2014: 26.6p).  Adjusted basic earnings per share stated before acquisition costs and termination costs was 24.1p (2014: 27.0p).  Adjusted diluted earnings per share was 23.9p (2014: 26.6p).

Dividend

As previously announced the Board is not proposing to pay a final dividend for 2015 following the acquisition of Naked Wines International. The cash component of the acquisition consideration was financed by a new five year revolving credit facility of £85 million.  The withholding of the dividend will reduce leverage and ensure the business has sufficient working capital resources with access to cash to invest where attractive returns are proven. Future dividends will be progressively re-instated by FY 2018.

Cash flow

Group cash flows generated from operations were £32.9m compared with £23.6m in the previous year.  This improvement in operating cash flows largely arise from timing differences.  The year under review benefitted from certain calendar month end payments worth around £4.4m falling into the 2016 financial year. Conversely the beginning of the previous financial year was adversely impacted by the timing of Easter which meant that a number of month end payments fell into the period.

Capital expenditure incurred during the year declined by £1.9m to £8.4m reflecting a reduction in the rate of the new store opening programme.

Dividends paid by the Group to shareholders increased £0.1m to £10.5m whilst the level of cash received on the exercise of share options fell to £0.1m from £1.2m in the previous year.

Group tax payments totaling £5.4m were made during the year a marginal reduction on the £5.5m remitted in the previous year.

The Group had net funds of £11.0m at 30 March 2015 compared with £1.8m at the end of the previous financial year.

Financial Position and Liquidity

The balance sheet has considerable strength as it is underpinned by significant cash and freehold assets. The Group ended the financial year with net assets of £98.6m up from £96.0m at the previous year end.  We have used this strength to partly fund the acquisition of Naked Wines International by way of bank debt.  We have entered into a new five year £85m revolving credit facility replacing existing arrangements to provide the Group with ample headroom for the enlarged business' working capital requirements and sufficient liquidity to support future growth. The new facility is provided jointly by Barclays Bank and HSBC and is priced at a competitive margin above LIBOR with standard covenant tests.

By Order of the Board

Nigel Alldritt ACMA     

Group Chief Financial Officer and Company Secretary

Majestic House

The Belfry

Colonial Way

Watford

WD24 4WH   

12 June 2015

Registered in England and Wales

No. 2281640

Group Income Statement

For the year ended 30 March 2015

Group Statement of Comprehensive Income

For the year ended 30 March 2015