As he launches a turnaround plan, Naked Wines boss Nick Devlin declares only three things in life are certain: Death, tax… and drinking
Growing pains: Boss Nick Devlin and a Naked Wines vineyard
‘The only things certain in life are death, taxes and maybe drinking,’ the boss of Naked Wines declared as he unveiled a turnaround plan for the business.
Nick Devlin is under pressure to shake up the company as lacklustre growth, over-zealous expansion plans and growing worries around the state of the economy and consumer spending left it facing a cash crunch.
But the Cambridge-educated businessman, who now lives in California, was adamant that households would keep buying wine despite the cost-of-living crisis.
‘I think customers will want to keep the subscriptions they have a real connection with,’ he said yesterday.
Naked Wines has had a tough year. This summer, as it released its accounts for the year ending March 28, the business revealed there was ‘material uncertainty’ over its ability to keep going.
In a rare mea culpa yesterday, Devlin said: ‘We recognise that in pursuit of rapid growth we have made mistakes.
‘Whilst the business today remains materially bigger than pre-pandemic, in 2021 we bought inventory and added to our cost base in anticipation of sustained faster growth which has not been delivered.’
His mistakes meant he had to wield the axe. Naked cut 30 staff, around 6 per cent of its workforce, saving around £18m in an attempt to create a ‘leaner and more focused organisation’.
And Darryl Rawlings, who was chairman for just over a year, was shown the door to be replaced by David Stead, who has been on the board since 2017.
Devlin said: ‘This change in direction has been hard, but it has been necessary.’
With cash in short supply as autumn approached, the net was closing in on Naked.
It had a £53m debt facility in place, but there were strict ‘covenants’, or rules, set by the banks which dictated whether Naked could access the money.
One of these covenants concerned repeat customer contribution – a metric on which Naked was in danger of falling short. But yesterday Devlin proudly revealed the business has renegotiated its covenants with the banks, so they were now more closely related to plain old profitability.
Now, in order to access the loan, Naked needs to generate at least £1m of ‘adjusted’ profit every quarter for the first three quarters of the year, and £4m for the year as a whole.
In the first half of this year alone, Devlin said, Naked had pulled in around £6m of profit on this measure. This will come as a relief to Naked’s so-called Angels – customers who pay a regular monthly sum into their account, which goes towards their next wine purchase.
What many customers may have missed is that this cash – an eye-watering £72m as of the end of March – is used by Naked as working capital. That means if Naked had hit the rocks, and become insolvent, they may never have seen that money again. Much of it has already been used to bulk up the firm’s wine supplies as it prepared for growth that never materialised.
Devlin said Angels need not worry now he has the business back on the straight and narrow. He plans to sell the excess stock slowly over the next year, slash investment in growth and cut marketing costs. Wayne Brown, an analyst at Liberum, said the plans were ‘sensible’.
Investors seemed satisfied. Shares rallied 29.2 per cent, or 27.6p, to 122p. But they are still down 82.2 per cent over the last year.
David Reynolds, an analyst at Davy, said a severe economic downturn could mean Naked misses expectations again.
‘I personally think you would have to make an enormous leap of faith to invest in the business here,’ he said.