For Immediate Release                                                                                                                                 16 November 2015

Majestic Wine PLC

("Majestic" or the "Company")

Interim Results

Majestic reports encouraging first half results and launches three year transformation plan

Majestic Wine PLC, the UK's largest wine specialist, today announces its unaudited interim results for the 26 weeks ended 28 September 2015.

Summary:

•  Underlying H1 trading encouraging at Majestic Wine whilst strong growth continued at Naked Wines

•  Thorough strategic review now completed, challenging medium term target announced today along with key new initiatives and updated short term cost guidance

•  New management structure and team in place and working well

Results:

1.        Adjusted EBIT is reconciled to Adjusted PBT in note 3 to the interim financial statements.  As well as the exceptional items and non-cash charges relating to the acquisition of Naked Wines it excludes net finance costs and the movement in en primeur profit which is also explained in note 3

2.        % YoY comparator at constant FX translation rates, see Additional Note 2

3.        Trend excluding any contribution from Naked Wines on constant currency basis, see Additional Note 2

Financial Highlights:

Unless noted, Sales and Adjusted EBIT trends are shown on a constant currency basis as shown in Additional Note 2

•  Group sales (+36%) and adjusted EBIT (+12%) are strongly ahead reflecting the Naked Wines acquisition at the start of this financial year

•  Underlying revenue (i.e. Total Group excluding Naked Wines) is +6% (Retail Like for Like ("LFL")* +2.3%, Commercial sales +8%, Lay & Wheeler +23% excluding movement in En Primeur sales)

* Retail LFL includes sales through stores in the UK and Calais to non-commercial customers and including ecommerce orders. Calais sales are translated at constant currency.

•  Underlying adjusted EBIT (i.e. Total Group excluding Naked Wines) up +6%, with a flat adjusted EBIT margin reflecting growth in the cost base due to legacy cost investments and spend on ongoing strategic initiatives of £0.8m in the half, lower than previously indicated

•  Strong sales growth at Naked Wines +35% (comparing the full 6 months to 30 September year on year). Adjusted EBIT of £0.9m (£0.6m reported in the period of ownership) reflects better than planned performance from existing customers and the decision to delay spend on customer acquisition into H2

•  Despite growing sales at L&W, we did not achieve the targets set at the end of FY15, consequently we reviewed the goodwill associated with the business and recognised impairment of £2.6m

•  Group Adjusted PBT, which excludes accounting charges relating to the Naked Wines acquisition, impairment of subsidiary,  one-off gains on disposal of property and one-off acquisition and termination costs, was lower by 1% due to the interest costs on the new banking facility

•  Reported PBT (-50%) reduced as a result of non-cash charges relating to the Naked Wines acquisition, interest costs and exceptional items

•  Basic EPS declined by 72%, a steeper decline than reported PBT, due to reported tax rate impacted by a high number of disallowable non-cash expenses

•  Closing net debt of £25m (vs net funds of £11m as of 30 March 2015) reflects the borrowing to fund the acquisition of Naked Wines and the cashflow performance in the period

Three year transformation plan highlights:

•  Announcing today a new strategy to deliver sustainable, volume led earnings growth and improved return on capital

•  Targeting over £500m sales by 2019. Key performance indicators to demonstrate progress are also published today

•  Good progress made on structure, team and key initiatives

•  Key elements of the plan include:

•  Absolute focus on disciplined investment to generate returns on investment - measured as annual recurring EBIT generated as a % of investment outlay - above our target of 25%

•  Change of emphasis from opening new stores to new customer recruitment to drive higher returns from the current level of investment spend

•  Total UK store target reduced from 330 to 230, currently 211

•  Reviewing the existing store network for opportunities to unlock value

•  Reinvigorating sales growth in mature Majestic Retail stores with a new and  simplified pricing policy (including no minimum purchase) and improved customer experience in store and on-line

•  Continuing to expand the fast growing and successful Majestic B2B business by winning additional accounts

•  Continuing to expand the fast growing and successful Naked Wines businesses in the UK, USA and Australia

Guidance:

•  Majestic underlying costs have grown above the rate of inflation due to legacy of store opening programme. Total growth c. £4.5m in FY16

•  Previous guidance on costs of strategic initiatives (£3m in H1 2016) now changed to 

-  £4m operating costs in full year FY16

-  £8m embedded thereafter, reflecting annualised impact of costs associated with additional staff, new IT team and leadership team as well as store maintenance and marketing innovation expenses

•  Capex reduced to around £6m per year, but lower than this in FY16

•   Interest costs on debt are expected to be £2m in FY16 as previously indicated. Expected exceptional costs in H2 of £0.5m plus a further £5m of non-cash acquisition related accounting charges.

•  Guidance issued at the time of the acquisition for progressively reinstating the dividend whilst deleveraging the balance sheet remain unchanged

Phil Wrigley, Majestic's Chairman, commented: 

"We now have a first class team and a compelling strategy to create a real step change in the value of the business for our shareholders. The team has completed a thorough 'root and branch' review of the business, identified the key steps to be taken and the measures that will demonstrate our progress over the coming years. Alongside all this activity the new team has traded the business effectively."

Rowan Gormley, Majestic's CEO, commented: 

"Six months in to my new job it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked and our Commercial business. We have a clear plan, which will require investment and take 3 years to complete, but will also deliver a better business that can create sustained growth in shareholder value. Fortunately, the Board acted decisively and quickly when it became clear that a change of direction was required, so our core competitive strengths are intact and provide a sound foundation to work from. As a result, profit for the current year is expected to be impacted by the increased investment derived from our successful test period after which we expect to see sustainable growth as the anticipated returns from our initiatives are realised."

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Majestic Wine PLC will host an analyst briefing on Monday 16 November 2015 at 10.00am at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN. To attend please contact Buchanan.

An audio webcast will be available on:

http://vm.buchanan.uk.com/2015/majestic161115/registration.htm

For further information, please contact:

About Majestic Wine PLC:

Majestic Wine PLC is the UK's largest wine specialist with 213 stores across the UK and France and over 700,000 active customers. In April 2015 Majestic Wine acquired Naked Wines, the online crowd funded wine retailer, and appointed Rowan Gormley, founder and CEO of Naked Wines to CEO of the enlarged Group. 

In June 2015 Rowan Gormley launched a strategic review and a number of new initiatives designed to reposition the Group as the go-to destination for wine, while maintaining the growth trajectory of Majestic's Commercial business and Naked Wines. Key to this strategy is to ensure all customers get the service and inspiration they are looking for when purchasing their wine, which other retailers can't provide.

Chairman's Statement

Phil Wrigley

This has been an important and busy six months as we embark on an exciting transformation of Majestic. We acquired Naked Wines in April 2015 which brought key digital retailing skills and exposure to international markets to compliment Majestic's UK based store retail footprint. We have taken key steps in the process of restoring Majestic to sustainable growth, and we now have a new team to lead this transformation.

1.    Trading

Underlying trading in the first half was solid. Retail sales are up 2.3% on a like for like basis, our Commercial division has grown by 8% and the new Naked Wines business now contributes 24% of the Group's revenues. While Lay & Wheeler grew in the period it was below our expectations resulting in a significant impairment charge in the half.

2.    The acquisition of Naked Wines

During the course of 2014, it became clear to the Board that new store openings were reaching saturation and we needed to look online and internationally for new opportunities for growth, and a greater breadth of skills on the management team to deliver this ambition. The acquisition of Naked Wines allowed us to do all three.

Naked is an online crowd-funding platform for independent winemakers that enable wine drinkers to buy exclusive wines, at preferential prices, in exchange for supporting winemakers. Launched in 2008 in the UK it has expanded to the very exciting US and Australian markets and currently has 269,000 "mature" angels that have been customers for four months or more. 

I am pleased to report that Naked's results in the first half demonstrate that the reasons for the acquisition were sound. In addition to delivering 35% sales growth, Naked achieved profitability six months ahead of plan.

3.    The transformation

The Board is committed to restoring Majestic to sustained growth, to create a step change in shareholder value.  To achieve this we have begun a three year project to transform the Group. The key elements are:

•  A new management team, lead by Rowan Gormley, the founder of Naked Wines, and including John Colley, Luke Jecks and James Crawford, who head up our retail, Naked and finance teams respectively

•  A strengthened non-executive board with the addition of Anita Balchandani, who as Head of Retail at OC&C brings great insight and perspective, and Greg Hodder, CEO of Charles Tyrwhitt, who brings a wealth of experience in multi-channel retailing. Justin Apthorp will retire from his role as Executive Director and Buying Director after 13 years of leading the buying team and will remain on the board as a Non-Executive Director.

•  We have split the Group into 4 divisions - Retail (which includes our Calais business), Naked Wines, Commercial (our B2B business) and Lay and Wheeler

•  A significant change in strategy, away from opening new branches (we have cut the new store opening programme from 16 stores a year to two or three) towards customer acquisition and retention to drive higher returns

This transformation will take time and require significant investment, so we expect profits to fall before they grow again. However, we are certain that it is the right thing to do for shareholders, customers, staff and suppliers.

As previously announced, the Board is not proposing to pay an interim dividend as we use cashflows to invest in the business and reduce the debt incurred with the purchase of Naked Wines.  Our intention remains to restore the dividend progressively by the 2018 financial year.

CEO's Business Review

Rowan Gormley

1.    Results

I am pleased to report that both sales and adjusted profit before interest and tax have grown in the first half 6%, before the impact of the acquisition of Naked Wines

Cash flow derived from the core Majestic business was very strong, with the Majestic operations (Retail and Commercial combined) generating £13m more cash this year compared to H1 FY15, driven by reduced store openings, reductions in working capital and the sale of a freehold property.

This is a pleasing performance in a market characterised by falling like for like sales, with all the distractions of a major transaction and reorganisation, and is a tribute to our brilliant people around the world. 

2.    Segment commentary

a.    Our core retail business grew sales by 5% to £112m, with like for like sales growing at 2.3%, the number of new customers advancing by 7% and conversion from new to repeat custom continuing to improve.  This strong performance only translated into a 4% increase in profits, as costs increased ahead of inflation, a legacy of the store opening programme.  I am especially pleased that we saw positive growth even in mature stores, which have been suffering negative like for likes for some time, reflecting the initial strategic actions put in place.  I said in June that we planned to make shopping at Majestic simpler, easier and more fun - and we are already seeing signs of progress on all 3 fronts

b.    Naked Wines grew sales at 35% to £45m for the full 6 months to 30 September 2015 and achieved profit 6 months ahead of plan with increased profitability coming from both the increase in number of Angels and improved profitability of each Angel, offset by smaller increases in costs. This is a really pleasing performance, and reflects the power of Naked's unique business model and the entrepreneurial culture.

c.     Our specialist Commercial team grew sales by 8%, which is a slower rate of growth than previous years reflecting a slightly slower build of new accounts during the half versus the prior year. We are confident that this division can resume historic growth rates and are investing in supply chain, IT and new business development to make this happen

d.    Lay and Wheeler, our specialist fine wine business, grew 3^rd party sales (excluding any En Primeur timing adjustments) by 23% due to a slightly stronger En Primeur vintage, but barely turned a profit. As previously noted, the carrying value of the business was sensitive to the performance this year and as we missed our goals for the business this resulted in us taking a £2.6m impairment charge in the period.

3.    Strategic Context

Six months into my new role, and after a thorough strategic review, my view of our business is:

•  We have a solid platform for growth. Our core retail business is sound, and we have two strong growth engines in Naked and Commercial

•  However, there are two issues in our core business that have to be addressed to restore profitable growth

-  Until this half, LFL sales in our mature stores have been declining each year

-  Turnover of store managers, who are the backbone of our retail business, is unacceptably high at 23% per year and needs to be improved

4.    Our 3 year plan

Our goal is to deliver sustained growth in shareholder value, in a way that is right for shareholders, customers, staff and suppliers. Our ambition is to grow sales to over £500m by 2019.

This is a transformation from growth through opening new stores to growth through increasing customer recruitment and loyalty.

To deliver this transformation we will need to deliver four things really well:

•  Best in class customer experience and competitive position

•  An environment that attracts and retains great people

•  A supply chain and IT platforms to deliver the availability and agility we need to compete in a multi-channel world

•  Disciplined and transparent capital allocation, targeting a minimum 25% return, across the four businesses and three countries we operate in

Once we have achieved all of this consistently across the group, we will be able to accelerate growth wherever we can get the highest returns on our capital

There is a lot to do, and we are getting started with an excellent team in place, possessing the skills and experience to deliver the plan.

5.    Organisational changes

To ensure that each business gets the focus and the resource that they need, we have segmented the Group into four units for reporting purposes:

•  Retail, which includes 211 UK stores and our 2 store Calais operation

•  Naked Wines

•  Commercial, our specialist B2B business

•  And Lay and Wheeler, our fine wine business

We have strengthened the management team with the addition of: 

•  John Colley, MD of Majestic Wine who joins us with over 20 years of experience in senior retail positions, and brings a wealth of knowledge in customer engagement and people development which fits exactly with our strategy

•  Luke Jecks, MD of Naked Wines who has 18 years' experience in wine direct marketing in Australia, the UK and Europe

•  James Crawford, CFO, who comes to us from Naked Wines and, previously,  Diageo where he held several senior finance, strategy and business development roles in the UK and North America.

To ensure we can track and report progress against our plans, we have identified new KPIs. We are announcing the metrics that will be reported every six months for our biggest business segments, Majestic Retail and Naked Wines, plus the date by which we expect to impact the key metrics in Retail.

Note: Wine quality at Majestic Retail will be measured in future by customer ratings. No current data is available.

6.    Outlook and progress so far

The new team has acted quickly and we are seeing the results in positive trading.

•  Following successful testing, we have removed our long standing six bottle minimum purchase requirement

•  We have simplified our pricing proposition, to offer good value to all and excellent value to people buying  6 bottles or more

•  The product range has been rationalised and enriched - we have removed a number of duplicated products and created space for more variety and excitement

•  To improve retention of great people, we have restructured the bonus arrangements in store to reward high performers, invested heavily in training and set up 20 "Jedi" test stores, where managers are given more authority to be entrepreneurial and creative

•  The stores are increasingly becoming cleaner, simpler and easier to shop

•  Finally, we have recruited an in-house IT team and started the process of migrating Majestic onto the Naked Wines IT platform enabling superior customer insight

We are excited and confident about the future, but I must emphasise that these plans will take time and require investment which means that we expect profits to fall before they return to growth from a low point in FY16.  We anticipate that our strong cash flow will enable us to invest as needed while continuing to deleverage and restoring the dividend in full by 2018.

Rowan Gormley

Chief Executive

Unaudited Group Income Statement

For the 26 weeks ended 28 September 2015

Unaudited Group Statement of Comprehensive Income

For the 26 weeks ended 28 September 2015