REG - Focusrite PLC - Final Results for the Year Ended 31 Aug 2024
27/11/2024 07:00
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RNS Number : 8055N Focusrite PLC 27 November 2024
Strictly embargoed until: 07.00, 27 November 2024
Focusrite plc
("Focusrite" or "the Company" or "the Group")
Final Results for the Year Ended 31 August 2024
Focusrite plc (AIM: TUNE), the global music and audio products group supplying
hardware and software used by professional and amateur musicians and the
entertainment industry, announces its Final Results for the year ended 31
August 2024 (FY24).
Commenting on the final year results Tim Carroll CEO, said:
"FY24 presented both challenges and opportunities. We experienced softness in
the Content Creation market, primarily due to inflation impacting consumer
confidence and channel de-stocking. However, we took proactive steps to
address these issues and launched significant new products which will drive
future growth when market conditions improve. Within Content Creation our
underlying end-user registrations were stable over the prior year, indicating
ongoing robust demand for our products across all channels. Our Audio
Reproduction segment delivered strong results. Recent acquisitions, combined
with a focus on innovative product development, have strengthened our Audio
Reproduction division, driving notable growth despite the broader market
conditions.
The Group has new product launches planned for the coming year, which will
further strengthen our brand positioning. Additionally, the Group has once
again demonstrated its ability to execute on its proactive M&A strategy
and we continue to carefully consider acquisitions that not only enhance
earnings but also expand our market potential, boost our R&D capabilities,
and add both scale and dynamism to our business.
We remain mindful of the significant global economic and political challenges,
as well as ongoing cost pressures, particularly in logistics and the supply
chain. Consequently, we continue to manage costs carefully, whilst making
appropriate investment, and focus on improving gross margins where there is
the opportunity to do so.
Trading in the first three months of the current financial period is in line
with expectations. We will continue to execute on our strategy and, in doing
so, we remain optimistic about the Group's future growth prospects."
Financial and operational highlights
FY24 FY23 Change
Revenue (£ million) 158.5 178.5 -11.2%
Gross margin % 44.5% 47.5% -3.0ppts
Adjusted(1) EBITDA(2) (£ million) 25.2 38.6 -34.6%
Operating profit (£ million) 5.7 24.3 -76.5%
Adjusted(1) operating profit (£ million) 16.6 30.4 -45.4%
Basic earnings per share (p) 4.5 30.4 -85.2%
Adjusted(1) diluted earnings per share (p) 18.0 38.4 -53.1%
Total dividend per share (p) 6.6 6.6 -
Net debt(3) (£ million) (12.5) (1.3) +£11.2m
· Group revenue decreased by 11.2%, (-10.0% organic, after adjusting
for acquisitions and currency(4)) primarily driven by challenges in the
Content Creation division, which experienced a drop in demand, partially
offset by growth in Audio Reproduction.
o Content Creation: Revenue fell by 19.1% (-17.4% organic constant
currency), as the market continued to de-stock post-pandemic. Focusrite
maintained its market leadership despite this challenging environment, and
ADAM Audio saw 22.6% growth (+25.5% organic constant currency).
o Audio Reproduction: Strong revenue growth of 14.9% (+14.4% organic
constant currency), supported by demand for live events post-pandemic,
acquisitions and product launches, particularly in immersive audio
technologies.
· Gross margin decreased by 3.0 percentage points, of which 1.3
percentage point was as a result of a write-down and sale of Vocaster stock as
previously reported. The remaining decrease was due to increased freight
costs and promotional activity, and supply chain challenges but freight costs
are beginning to stabilise at this elevated level.
· Adjusted EBITDA declined by 34.7%, with profitability impacted by
the lower sales and cost inflation, though proactive cost management helped
mitigate the downturn.
· Operating profit decreased by 76.5% impacted by a £5.4 million
non-cash impairment of Sequential assets reflecting the current difficulties
for premium synthesizers in this market.
· Net debt increased by £11.2 million to £12.5 million, primarily
due to investments in product development and acquisitions. The Group has
£50 million of committed credit facilities which provide strong liquidity for
ongoing operations and any potential M&A activity.
· Innovation: launched 35 new products and made 53 updates,
including Novation's Launchkey MK4 and Sequential's TEO-5 synthesizer,
enhancing the Group's competitive position.
· M&A: the acquisitions of Sheriff Technology and panLab have
bolstered the Group's position in the immersive sound segment.
(1) Adjusted for amortisation of acquired intangible assets, acquisition and
restructuring costs and other adjusting items
(2) Comprising operating profit adjusted for interest, taxation, depreciation
and amortisation see note 2 Alternative Performance Measures
(3) Net debt defined as cash and cash equivalents, overdrafts and amounts
drawn against the RCF including the costs of arranging the RCF see note 2
Alternative Performance Measures
(4) This is calculated by comparing FY24 revenue to FY23 revenue adjusted for
FY24 exchange rates and the impact of acquisitions.
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31 August 2024 and
notice of the Annual General Meeting ("AGM") of Focusrite will be posted to
shareholders by Friday 13 December and will be available on Focusrite's
website at www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which will be sought at
Focusrite's AGM on 31 January 2025.
The timetable for the final dividend is as follows:
31 January 2025 AGM to approve the recommended final dividend
24 December 2024 Ex-dividend Date
27 December 2024 Record Date
7 February 2025 Dividend payment date
-Ends-
Enquiries:
Focusrite plc +44 (0) 1494 462246
Tim Carroll (CEO) / Sally McKone (CFO)
Investec Bank plc (Nominated Adviser and Joint Broker) +44 (0) 20 7597 5970
David Flin / Nick Prowting
Peel Hunt LLP (Joint Broker) +44 (0) 20 7418 8900
Ben Cryer / Adam Telling
Rosewood (Financial PR) +44 (0) 20 7653 8702
John West / Llew Angus / Lily Pearce
Notes to Editors
Focusrite plc is a global audio products group that develops and markets
proprietary hardware and software products. Used by audio professionals and
musicians, its solutions facilitate the high-quality production of recorded
and live sound. The Focusrite Group trades under thirteen established brands:
Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal
Audio, Linea Research Sequential, Oberheim, Sonnox, OutBoard and TiMax.
With a high-quality reputation and a rich heritage spanning decades, its
brands are category leaders in the music-making and audio recording
industries. Focusrite and Focusrite Pro offer audio interfaces and other
products for recording musicians, producers and professional audio facilities.
Novation and Ampify products are used in the creation of electronic music,
from synthesizers and grooveboxes to industry-shaping controllers and
inspirational music-making apps. ADAM Audio studio monitors have earned a
worldwide reputation based on technological innovation in the field of studio
loudspeaker technology. Martin Audio designs and manufactures
performance-ready systems across the spectrum of sound reinforcement
applications. Linea designs, develops, manufactures and sells innovative
professional audio equipment globally. Sequential designs and manufactures
high end analogue synthesizers under the Sequential and Oberheim brands.
Sonnox is a leading designer of innovative, high-quality, award-winning audio
processing software plug-ins for professional audio engineers. TiMax
specialises in innovative immersive audio and show control technologies.
OutBoard manufactures and sells industry standard rigging control products for
live events, together with enterprise-level safety test, preparation and
quality management for global rental companies and venues.
The Company has offices in four continents and a global customer base with a
distribution network covering approximately 240 territories.
Focusrite plc is traded on the AIM market, London Stock Exchange.
Chairman's Report
Following outstanding performance during the pandemic in the Content Creation
division that includes the Focusrite, Novation and ADAM Audio as well as the
more recently acquired Sequential, Oberheim and Sonnox brands, we have
experienced a significant market contraction which is reflected in a reduction
in Group revenues and profit. That said, ADAM Audio is recovering, with very
positive growth of established models in FY24 and has recently added new
desktop-size speakers and the first of a new headphone range. The emergence of
Dolby Atmos for Music is also creating a renewed interest in new
multiple-speaker solutions for recording studios large and small. We also
experienced excellent growth in the Audio Reproduction division that contains
Martin Audio, Linea Research and the recently acquired TiMax and OutBoard
brands from Sheriff Technology Ltd.
Notwithstanding the market contraction that has affected all brands that
address the content creation market globally, it has to be noted that our
brands, most notably Focusrite, are still leading in their product categories
with Focusrite believed to be the dominant brand globally in Audio Interfaces
priced below $500, with significant market share. To support this leading
position, the Group has consistently invested in long-term manufacturing
commitments with its manufacturing partners in China and Malaysia. This has
enabled us to meet peaks in demand, notably during the pandemic, but has
resulted in larger than desired inventories in the sales channel of our most
popular products during the year as pandemic-related demand subsided. These
are being reduced over time. There is a determined policy by the Board to
ensure that the Group maintains a strong balance sheet and positive cash
generation.
The great success story for 2024 has been Martin Audio and the Audio
Reproduction Division. Having last year acquired Linea Research, its amplifier
supplier based in Letchworth, Hertfordshire, Martin has gone from strength to
strength. During the pandemic Martin pivoted to supplying permanent
installations of loudspeakers in venues that took advantage of being "dark" to
refurbish and re-equip. Once touring and festivals resumed, the traditional
Martin customers that provide sound systems for such events needed to re-equip
having in many cases sold off their inventories to maintain cashflow during
their dark period, Linea has since doubled its monthly output levels to meet
Martin and third-party demand. Installation continues to be an important
market globally, from auditoria to houses-of-worship, nightclubs and bars.
Importantly Martin Audio systems are the preferred solutions for BST Hyde Park
and Glastonbury having long-term proven superiority in both reproduction and
control (i.e. avoiding sound reaching sensitive, residential areas). The
recent acquisition of TiMax enables Martin to offer a complete solution for
Immersive Audio. This is a relatively new but important branch of Audio
Reproduction that features in Opera, Drama and Experience events.
At the heart of our strategy is the commitment to removing barriers to
creativity, enabling artists and professionals alike to deliver high-quality
audio. This year, we launched 35 new products, further strengthening our
market position across key categories. Our continued focus on research and
development, coupled with targeted M&A activity, has ensured that we
remain at the forefront of the rapidly growing immersive audio market. The
acquisitions of Sheriff Technology and panLab have expanded our Audio
Reproduction portfolio, enhancing our offerings in immersive sound
technologies, which we believe will be a significant growth driver in the
coming years.
Our financial position remains strong, despite the challenging environment. We
have maintained low gearing, and a robust balance sheet, supported by our
long-term bank facilities. We are confident that the investments we have made
this year will lay the groundwork for sustained growth, particularly as market
conditions stabilise in the Content Creation sector.
Despite the current challenges, we are excited and positive about the outlook
for the Group, each division is well-managed with strong brands and excellent
products, the executive team are well on top of the challenges at both Group
and operating levels, and investment for the future, i.e. in product
development and systems (IT and financial), is robust, all of which we are
confident will lead to growth and financial success when market conditions
permit.
Phil Dudderidge
Non-Executive Chairman and Founder
CEO Statement
Introduction
I am pleased to report on our results for the year ended 31 August 2024 and to
share with you some commentary on the Group's experiences over this year.
In summary, FY24 presented both challenges and opportunities. We experienced
softness in the Content Creation market, primarily due to ongoing inflation
impacting consumer confidence and channel de-stocking. However, we took
proactive steps to address these issues and launched significant new products
which will drive future growth. Our Audio Reproduction segment delivered
strong results, reflecting our strategic focus on immersive audio
technologies. Our acquisitions, combined with a focus on innovative product
development, have strengthened that division, driving notable growth despite
the broader market conditions.
Our two divisions, Content Creation and Audio Reproduction, have both had a
highly productive year, with numerous new product launches and updates leading
to increased market share in key product groups. Continued macroeconomic
trends, including cost-of-living pressures, rising freight charges, and
component price increases, have remained a challenge throughout the year, most
notably impacting Content Creation. The industry is now just beginning to see
some stabilisation after two years of uncertainty as a consequence of a
significant retraction from the post-pandemic spike.
The Group is dedicated to gaining valuable insights from our customers,
actively collecting data during their onboarding and user journeys as they
engage with our products. We closely monitor Net Promoter Scores ('NPS'),
which serves as a key performance indicator ('KPI') across all our businesses.
Additionally, we combine our proprietary data with industry market sources to
ensure that we consistently stay attuned to our customers' evolving needs and
purchasing behaviours. These efforts have enabled our products to outperform
the market, with increased share in key categories.
Our Audio Reproduction division has continued to grow this year, seizing more
opportunities with our expanded and diversified product portfolio, against a
backdrop of strong demand for live and installed sound systems. Both
acquisitions made during FY24 were in the Audio Reproduction space and have
performed well.
The Group's R&D efforts resulted in the launch of 35 new products,
alongside 53 updates to existing products and 53 content releases during the
fiscal year.
Additionally, we have continued to refine our go-to-market approach. Most
notably, this past year we took our Linea Research and Optimal Audio business
from distributor to direct-to-retailer in the US and established a local team
in Japan for our Content Creation business.
Our employee base, which now totals 565, consists of a remarkable group of
passionate professionals, including musicians, DJs, audio engineers, live
sound experts, and podcasters/streamers. We are fortunate to have employees
who actively use our solutions in real-world scenarios, contributing their
experiences, feedback and technical expertise. We continue to invest in our
people and, wherever possible, promote from within, which resulted in several
employees stepping into larger roles this year. Additionally, we continue to
seek and attract top global talent to further enhance the Group.
Our Group Structure
The Group is structured into two core divisions with 13 brands, supported by
dedicated regional sales teams and common Group functions.
Our primary locations are in the UK (High Wycombe, Letchworth, Oxford, and
London), Germany (Berlin), Hong Kong, Australia (Melbourne) and the US (Los
Angeles, Nashville, and San Francisco).
Additionally, the Group maintains a proactive approach to M&A, carefully
evaluating potential acquisitions that not only enhance earnings but also
expand our reach into existing and new markets, while boosting our R&D
capabilities. This past year saw two strategic additions to the Group through
M&A: Sheriff Technologies, which includes TiMax and OutBoard, and Innovate
Audio, which includes panlLab software. Both of these acquisitions have
expanded the Group's opportunity base within the growing immersive sound
segment.
Operating Review
12 months to 12 months to Reported Growth OCC
31 August 2024 31 August 2023 % Growth(1)
Revenue £'000 £'000 %
Focusrite 60.3 86.3 -30.2 -28.2
Novation 16.2 16.6 -1.9 0.6
ADAM Audio 22.6 18.4 22.6 25.5
Sequential 9.7 14.5 -33.0 -31.2
Sonnox(2) 2.0 1.1 72.8 8.6
Content Creation 110.8 137.0 -19.1 -17.4
Audio Reproduction 47.7 41.5 14.9 14.4
Total 158.5 178.5 -11.2 -10.0
(1)Organic constant currency (OCC) growth rate is calculated by comparing FY24
revenue to FY23 revenue adjusted for FY24 exchange rates and the impact of
acquisitions.
(2) Sonnox included for 8 months from acquisition in FY23 from December 2022.
FY24 continued to be a challenging period for our industry, with many sources
reporting significant declines across several of the Group's categories. The
diversity of the Group's portfolio, along with strong product introductions
and market-leading brands, helped mitigate many of these headwinds. The
Content Creation segment has struggled to stabilise post-pandemic, facing
numerous macroeconomic challenges. Inflation, price increases in freight and
components, and a bloated channel across all categories created a difficult
backdrop throughout the year. However, our brands remain market leaders,
maintaining relative market share levels which stands us in good stead when
markets improve.
In contrast to the Content Creation environment, Audio Reproduction
experienced growth as the industry continued to recover from the years of
depressed demand during the pandemic. Thanks to the Group's investments in
Audio Reproduction over the past four years, our offerings in this space are
now the most comprehensive they have ever been, enabling us to capitalise on
and win many more opportunities than in previous years.
Content Creation
12 months to 12 months to 31 August 2023 Reported Growth % OCC Growth(1)
31 August 2024 £m %
£m
North America 49.3 65.0 -24.1 -21.7
EMEA 47.7 52.9 -9.9 -9.3
ROW 13.8 19.1 -27.6 -26.1
Total 110.8 137.0 -19.1 -17.4
(1)Organic constant currency (OCC) growth rate is calculated by comparing FY24
revenue to FY23 revenue adjusted for FY24 exchange rates and the impact of
acquisitions.
We describe Content Creation as the process and technologies used to create
audio. Our Content Creation brands are utilised by artists to produce
professional-sounding audio for individual enjoyment through to professional
content created for a wider audience across a variety of mediums. The brands
in this category had mixed performances over the year: Focusrite and
Sequential faced challenges, but this was partially offset by strong
performances from ADAM Audio and Sonnox, resulting in a 19.1% decline (17.4%
on an organic constant currency basis) year over year.
Content Creation top-line revenue declined year over year in all regions.
North America and APAC witnessed the biggest declines. The decline in APAC was
primarily due to ongoing softness in China, as reported across trade
publications and other companies within this space. In North America, while
sell-through to end-customers remained in-line with the previous year, the
decline was driven by industry-wide channel de-stocking, which persisted
throughout the year.
In contrast, Europe, Middle East and Africa ('EMEA') experienced a relatively
low decline compared to the prior year, with most regions and partners
performing well. The exception was one continent-wide reseller who negatively
changed their inventory holding policy very late in Q4 affecting the entire
category.
Focusrite, being the largest business unit in this category, continued to be
impacted by this high level of channel de-stocking and lower market demand,
largely attributed to cost of living pressures and inflation as well as
resellers and distributors seeking to reduce working capital. Revenue was
further impacted by a targeted reduction of stock in our US sales channel and
a decision made close to year end by one of our major global distributors to
reduce stocking levels. However, Focusrite's end user sales rankings and
market share with top resellers remained strong and, in some cases, even
increased throughout the year, highlighting the overall strength of the
Focusrite brand, even in a difficult market.
Focusrite/Focusrite Pro branded products and solutions include the Scarlett,
Clarett, Vocaster, Red, and RedNet range of audio interfaces.
The Scarlett range, focused primarily on the home studio customer, continues
to dominate the market, maintaining its leading global market share. As
previously reported, the Scarlett range underwent a major product transition
late in the second half of FY23, at a time when the global channel was still
heavily overstocked across almost all categories. The launch of the 4th
Generation Scarlett Solo, 2i2, 4i4, and related bundles was announced at the
end of August 2023 to industry-wide acclaim for the new features and
specifications. However, due to the industry-wide slowdown and channel
overstock mentioned earlier, the Group had to undertake additional promotions
on the older 3rd generation stock to reduce inventory levels, much of which
occurred in the first half of FY24, particularly over the Thanksgiving and
Christmas holiday periods.
The Group has now successfully wound down the majority of channel and Group
inventory of 3rd generation products, although this did impact the
sell-through of 4th generation products in the first half of the year,
especially during the holiday season when more price-conscious customers tend
to dominate. Currently, there is minimal channel inventory remaining of 3rd
generation products, with the Group holding a small amount, as planned, to
sell as B stock through our direct-to-customer website.
Focusrite's Red and RedNet solutions continue to be industry standards for
professionals and facilities that require reliability and quality in complex
workflows. These solutions are used in live and on-air broadcasts, including
the US Super Bowl and Presidential debates, as well as in many professional
studios, especially for post-production and music production rooms with
immersive mixing capabilities.
Novation/Ampify branded products are a collection of hardware and software
solutions dedicated to the art of electronic music. These products, like
Focusrite's, cater to a wide range of customers, from beginners to
professional electronic music makers. This category continued to experience
softer demand across the industry, however Novation revenue grew on an organic
constant currency basis, due to a revitalised marketing programme across
social media and the launch of new products. At the end of this past year,
we debuted the new Launchkey MK4 controllers, setting a new benchmark for MIDI
controllers and integration capabilities with any software.
Ampify, our freemium software, continues to be an excellent vehicle for
attracting new customers.
ADAM Audio had a strong year of growth, with revenue increasing 22.6% (25.5%
OCC basis) compared to the prior year, bucking the industry-wide trend of
declines in this category. This success is primarily attributable to the
Group's execution of our route-to-market strategy, with ADAM moving to the
same distribution network as Focusrite/Novation in many regions. This shift
brought increased focus and awareness to the brand, and we believe ADAM has
increased its market share compared to the prior year, despite the challenging
environment.
Whilst a larger portion of the revenue came from the lower-priced T Series
this past year, the new A Series solutions have been well received in the
professional market. Many customers are choosing these products for upgrading
their rooms to new immersive mixing formats, such as Dolby Atmos. Towards the
end of the year the launch of a new range of desktop speakers and the first of
a new headphone range further supported sales growth in the year.
Sequential and Oberheim faced another very challenging year. Global industry
reports indicated the synthesizer category was down significantly this past
year, particularly for higher-priced products, such as those offered by
Sequential and Oberheim. This has resulted in a £5.4 million impairment of
the Sequential acquired assets, as a result of the lower base from which
future growth is planned. The brand remains profitable and much of the focus
this past year has been on innovation in lower-priced synthesizers, which are
showing much more stable demand. To that end, Sequential debuted the TEO-5 in
April 2024, with shipments occurring in the final months of the year. This new
synthesizer has become an instant hit, and demand remains strong.
Sonnox was acquired by the Group in December 2022, and the group has
benefitted from a full year in FY24, as well as from greater product awareness
due to cross-promotional activities with Focusrite.
Sonnox's suite of plug-ins is designed for both hobbyists and professionals,
greatly enhancing audio recordings and delivering a highly professional
result. As a pure software business, the portfolio is sold through a select
group of global resellers, as well as direct to end users. Additionally, the
Sonnox development team has been working closely with both the Focusrite and
ADAM Audio development teams on a number of new products, including the
headphones launched in the final quarter of the year.
Content Creation Summary
The Content Creation market has faced a very challenging few years
post-pandemic, however signs of stabilisation are now just beginning to
emerge. The Group has met these challenges head-on, making significant
progress in reducing both channel and internal inventories, introducing a
number of product refreshes and major new offerings, and maintaining top sales
rankings in our major categories.
In parallel, we continue to refine our routes to market and invest in our own
e-commerce platform, which has demonstrated solid growth over the past year.
Whilst the economic outlook remains uncertain, particularly concerning key
factors such as inflation and the cost of living pressures, we are confident
that our brands will continue to outperform the market with product
registrations remaining stable. As these conditions improve, we expect to
capture a large share of the market upturn.
Audio Reproduction
12 months to 12 months to Reported Growth OCC
31 August 2024 31 August 2023 % Growth(1)
£m £m %
North America 11.4 12.7 -10.1 -6.8
EMEA 19.2 16.6 15.9 10.8
ROW 17.1 12.2 39.6 40.6
Total 47.7 41.5 14.9 14.4
(1)Organic constant currency (OCC) growth rate is calculated by comparing FY24
revenue to FY23 revenue adjusted for FY24 exchange rates and the impact of
acquisitions.
The Group's Audio Reproduction brands - Martin Audio, Optimal Audio, Linea
Research, TiMax, panlab, and OutBoard - are focused on delivering
state-of-the-art audio to audiences across a wide spectrum of venues.
The largest music festivals, renowned theatres, music halls, nightclubs,
houses of worship, universities and stadia rely on our solutions to ensure a
rich and memorable experience.
An example of this includes another successful festival season, notably at BST
Hyde Park and Glastonbury, which rely on Martin's class-leading optimisation
of audience coverage. This technology allows for maximum coverage within the
audience space while minimising noise outside the event. With the inclusion of
TiMax, panlab and OutBoard this year, the Group now has the most complete
portfolio of solutions in its history for events of any size, including
state-of-the-art immersive experiences.
To support the new brands and the expanded portfolio, the Group has grown its
sales teams to cover all targeted verticals . This, along with the continued
post-pandemic industry recovery, resulted in another strong year of sales
growth. Revenue for the Group's Audio Reproduction brands finished the year up
14.9% year over year and this has carried over into the new year with a
healthy order book.
Our Martin Audio products are seen and heard at some of the world's largest
music festivals and tours, as well as many of the most prestigious music halls
and theatres globally. After a major release year in FY23, Martin Audio
introduced two new offerings in FY24: the TH series of loudspeakers and the
iK41 power amplifier.
The TH series is a high-performance line of loudspeakers, ideal for clubs and
medium to large-scale installations, while the iK41 expands Martin's amplifier
range for larger venue speaker ranges, and other select systems.
Linea Research, one of the Group's 2022 acquisitions, manufactures
professional-grade amplification for a variety of live sound settings. Linea
Research had another strong year, with production ramped up to double the
output of amplifiers compared to previous years. This success contributed
significantly to Martin Audio's success, as many of their powered offerings
use Linea Research amplification. Linea Research also continued to sell its
amplifiers as OEM products to external customers worldwide.
Optimal Audio, the Group's commercial audio brand, focuses on delivering
high-quality sound to a wide range of commercial installations. Optimal Audio
has become popular with system integrators for installations in restaurants,
gyms, smaller clubs and universities. With 18 new releases this past year and
a suite of products to fit commercial audio requirements of any size, Optimal
Audio experienced a strong year of growth, with the pipeline expanding as
system integrators globally began specifying Optimal Audio in their bids.
Audio Reproduction Summary
The Audio Reproduction market continues to flourish post-pandemic, a testament
to the global appreciation for live music and events with pristine audio
quality. All industry data points to the market normalising over the coming
year, as the large pent-up demand that built up during the lockdown begins to
unwind. While many sources predict flat demand for the upcoming year, we
believe that with the expanded scale and reach of the Group's audio
reproduction portfolio, we will outperform these forecasts.
Routes to Market
Content Creation
Our Content Creation brands are sold worldwide through a network of
distributors and resellers which specialise in music technologies, as well as
through our own direct-to-customer websites. The global route-to-market
footprint for our Content Creation brands has changed dramatically over the
past few years. Our efforts to form consolidated sales and marketing teams
across the Americas, EMEA, and APAC regions have had a profound impact on the
leverage and focus we receive from our global partners.
For our acquired brands, such as ADAM Audio and Sequential, the Group has been
transitioning distribution in some markets to align all of our Content
Creation brands with top distributors in those areas. Additionally, we have
seen significant growth in our reseller-direct and key accounts across both
EMEA and APAC. As mentioned previously, our direct-to-end-user segment has
experienced solid growth, driven by the investments the Group has made in IT
infrastructure and the integration of brands and e-commerce websites.
Audio Reproduction
Our Audio Reproduction brands operate globally through system integrators,
rental companies and pro-audio specific resellers. As with our Content
Creation division, the route-to-market for the Audio Reproduction division has
also undergone changes. Most notably, this past year we have taken our Linea
and Optimal Audio business on to a direct-to-dealer model in the US, bringing
us closer to our end users and improving gross margins.
Summary and Outlook
FY24 presented both challenges and opportunities. We experienced softness in
the Content Creation market, primarily due to inflation impacting consumer
confidence and channel de-stocking. However, we took proactive steps to
address these issues and launched significant new products which will drive
future growth when market conditions improve. Within Content Creation our
underlying end-user registrations were stable over the prior year, indicating
ongoing robust demand for our products across all channels. Our Audio
Reproduction segment delivered strong results. Recent acquisitions, combined
with a focus on innovative product development, have strengthened our Audio
Reproduction division, driving notable growth despite the broader market
conditions.
The Group has new product launches planned for the coming year, which will
further strengthen our brand positioning. Additionally, the Group has once
again demonstrated its ability to execute on its proactive M&A strategy
and we continue to carefully consider acquisitions that not only enhance
earnings but also expand our market potential, boost our R&D capabilities,
and add both scale and dynamism to our business.
We remain mindful of the significant global economic and political challenges,
as well as ongoing cost pressures, particularly in logistics and the supply
chain. Consequently, we continue to manage costs carefully, whilst making
appropriate investment, and focus on improving gross margins where there is
the opportunity to do so.
Trading in the first three months of the current financial period is in line
with expectations. We will continue to execute on our strategy and, in doing
so, we remain optimistic about the Group's future growth prospects.
Tim Carroll
Chief Executive Officer
27 November 2024
Financial Review
Overview
With ongoing challenges in the global Content Creation market, the Group has
experienced a revenue decline of 11.2%. Additionally, gross margin was
impacted by a one-off provision and heightened freight rates, leading to a
34.6% reduction in adjusted EBITDA. This resulted in a decline of 53.1% in
adjusted diluted earnings per share (EPS).
Income statement
2024 2024 2024 2023 2023 2023
£m £m £m £m £m £m
Adjusted Non-underlying(1) Reported Adjusted Non-underlying(1) Reported
Revenue 158.5 - 158.5 178.5 - 178.5
Cost of sales (88.0) - (88.0) (93.7) - (93.7)
Gross profit 70.5 - 70.5 84.8 - 84.8
Administrative expenses (45.3) (0.1) (45.4) (46.2) (1.7) (47.9)
EBITDA 25.2 (0.1) 25.1 38.6 (1.7) 36.9
Amortisation of intangible assets (5.7) (10.8) (16.5) (5.5) (4.4) (9.9)
Depreciation of tangible assets (2.9) - (2.9) (2.7) - (2.7)
Operating profit 16.6 (10.9) 5.7 30.4 (6.1) 24.3
Net finance expense (3.2) - (3.2) (1.6) - (1.6)
Profit before tax 13.4 (10.9) 2.5 28.8 (6.1) 22.7
Income tax expense (2.7) 2.8 0.1 (6.2) 1.3 (4.9)
Profit for the period 10.7 (8.1) 2.6 22.6 (4.8) 17.8
(1)Non-underlying costs and income as defined in note 2 and note 5 to the
financial statements.
Revenue
Revenue for the Group decreased by 11.2%, from £178.5 million to £158.5
million. Adjusting for acquisitions and at constant currency, this represents
an organic decline of 10.0%. Sheriff was acquired in December 2023, and FY24
included eight months of revenue from this acquisition. Sonnox was acquired in
December 2022, with FY23 including eight months of revenue.
The average Euro exchange rate was €1.16 (FY23: €1.15). Sterling
strengthened against the US dollar, moving from an average of $1.21 in FY23 to
$1.26 in FY24. This reduced reported revenue, but the currency impact was
broadly neutral at the gross profit level, as the majority of cost of sales
are also incurred in US dollars.
Revenue by brand:
FY23 FY24 FY24
FY24 FY24 FY24 FY23 FY23 Constant Currency Reported Growth OCC
Revenue Acquisition Organic Revenue Exchange £m Growth(1)
£m £m £m £m £m
Focusrite 60.3 - 60.3 86.3 (2.4) 83.9 -30.2% -28.2%
Novation 16.2 - 16.2 16.6 (0.4) 16.2 -1.9% 0.6%
ADAM Audio 22.6 - 22.6 18.5 (0.5) 18.0 22.6% 25.5%
Sequential 9.7 - 9.7 14.5 (0.4) 14.1 -33.0% -31.2%
Sonnox 2.0 (0.8) 1.2 1.1 - 1.1 72.8% 8.6%
Content Creation 110.8 (0.8) 110.0 137.0 (3.7) 133.3 -19.1% -17.4%
Audio Reproduction - Martin Audio 47.7 (0.9) 46.8 41.5 (0.6) 40.9 14.9% 14.4%
Total 158.5 (1.7) 156.8 178.5 (4.3) 174.2 -11.2% -10.0%
(1)OCC (organic constant currency growth). This is calculated by comparing
FY24 revenue with FY23 revenue adjusted for FY24 exchange rates and the impact
of acquisitions.
The reported decline in organic constant currency revenue for the year of
10.0% reflects similar trends to those seen in the first half of the year. Our
Content Creation brands continued to face difficult markets, with ongoing
cost-of-living pressures impacting end-consumer demand. Additionally, a
reduction of stock in the US reseller channel for Focusrite offset
improvements across our other Content Creation brands. Meanwhile, our Audio
Reproduction brands benefitted from an expanded product offering and the tail
end of increased demand for experiences following the end of COVID-19.
Within Content Creation, our biggest business unit, the Focusrite brand,
declined by 30.2% (28.2% on an organic constant currency basis) to £60.3
million (FY23: £86.3 million). As referenced at the half-year mark, actions
were taken to reduce stock in the US, which impacted sales to this region in
particular. In addition, delays to the launch of the higher-end Scarlett range
products, due to engineering team constraints, further affected revenue in
FY24, along with the ongoing difficult market conditions.
In contrast, the second half of the year saw positive signs across all other
Content Creation brands. Our Novation synthesizer brand declined by 1.9% in
FY24 (organic constant currency growth of 0.6%), significantly better than the
overall market, supported by a refreshed marketing focus and the introduction
of the Launchkey MK4 range. ADAM Audio grew by 22.6% (organic constant
currency 25.5%), benefiting from a new route to market in the US, now aligned
with Focusrite and Novation, and the strong performance of the entry-level T
Series range.
Sequential revenue declined by 33.0% (organic constant currency 31.2%)
compared to the prior year, though the second half saw a smaller decline of
11.1% compared to 47.6% in the first half, as revenue levels stabilised. This
was helped by the introduction of a new, lower-priced synthesizer, the Teo-5,
in May 2024. FY24 was also the first full year of revenue from Sonnox,
delivering growth of 8.6% and total revenue of £2.0 million (FY23: £1.1
million).
Our Audio Reproduction division grew from £31.9 million in FY22 to £41.5
million in FY23, and has now grown to £47.7 million in FY24, driven by strong
demand since the lifting of COVID-19 restrictions and a strengthened range
through new product development and targeted acquisitions. Linea Research
continued to grow ahead of its record-breaking FY23 production levels and,
with the addition of Sheriff Technology and Innovate Audio this year, the
division now has a complete spatial audio offering. A further 20 new products
were introduced this year across Martin and Optimal, in addition to major
releases in FY23. This enabled the division to continue delivering strong
growth, with a 9.6% increase in the second half as the market began to
normalise, and 14.9% growth for the full year (14.4% organic constant
currency).
Revenue by region:
FY23 FY24 OCC
FY24 FY24 FY24 FY23 FY23 Constant Currency FY24 Growth(1)
Revenue Acquisition Organic Revenue Exchange £m Growth
£m £m £m £m £m
North America 60.7 (0.3) 60.4 77.7 (2.8) 74.9 -21.8% -19.2%
EMEA 66.9 (1.2) 65.7 69.5 (0.8) 68.7 -3.7% -4.5%
Rest of the World 30.9 (0.2) 30.7 31.3 (0.7) 30.6 -1.3% 0.4%
Total 158.5 (1.7) 156.8 178.5 (4.3) 174.2 -11.7% -10.0%
(1)OCC (organic constant currency growth). This is calculated by comparing
FY24 revenue with FY23 revenue adjusted for FY24 exchange rates and the impact
of acquisitions.
North America represents 38% of the Group's revenue and saw a 19.2% decline on
an organic constant currency basis, impacted by de-stocking in the reseller
channel of Focusrite particularly in the second half of the year, compared to
the initial sell-in of Scarlett Gen 4 in the prior year, together with a
weaker market hit by cost-of-living issues. Content Creation brands in North
America reported a year-on-year decline of 24.1% (-21.7% organic constant
currency). Audio Reproduction's strong growth elsewhere was hampered in the US
by supply chain process issues, resulting in a decline of 10.1% (reported) and
-6.8% (organic constant currency). These issues have now been addressed with
increased stock levels in the US.
EMEA, which represents 43% of Group revenue, declined by 3.7% (-4.5% organic
constant currency) to £66.9 million. Audio Reproduction was strong,
delivering 15.9% growth (10.8% organic constant currency), marking the second
consecutive year of double-digit growth, with significant gains in both live
and installed sound. Content Creation brands declined by 9.9% (-9.3% organic
constant currency). With ADAM Audio and Novation returning to growth, the
decline was driven by weakness in the market impacting Sequential and
Focusrite, exacerbated by a change in stocking policy by a key reseller which
impacted sales in the final quarter.
The Rest of the World (ROW), comprising mainly APAC and LATAM, represents the
remaining 19% of Group revenue. Overall, the region was down 1.3% (reported)
compared with FY23, though it posted 0.4% growth on an organic constant
currency basis. This result included very strong growth in Audio Reproduction
of 39.6% across the year, offset by a 27.6% decline in Content Creation,
indicative of the global pattern. Within Audio Reproduction, China was
particularly strong due to the delayed removal of COVID-19 restrictions, while
in Content Creation the consumer electronics market remained weak.
Segment Profit
Segment profit is disclosed in more detail in note 5 to the financial
statements under 'Business Segments'. The revenue is compared with the
directly attributable costs to calculate profit by segment. There have been no
additional segments this year, as Sheriff and Innovate are managed as part of
the Martin brand segment.
Gross Profit
Gross margin decreased in FY24 to 44.5% from 47.5% in FY23 as a result of a
one-off stock clearance, increasing freight rates, and ongoing promotional
activity. As noted in the first half, a £1 million provision was made to
reduce the net realisable value of Vocaster stock, which was subsequently sold
to a European distribution partner. This significantly improved the working
capital position and reduced stock to normalised levels but had a negative 1.3
percentage point impact on the full-year margin. Despite its positive
reception, Vocaster faced 12-month launch delays due to component availability
issues during the pandemic. This resulted in initial launch quantities
exceeding market demand as the market for podcasts softened unexpectedly.
After adjusting for the Vocaster write-down, underlying margins decreased by
1.7% from the prior year, with the biggest impact coming from freight rates,
which increased by 2 percentage points (as a percentage of sales) year on
year. Logistical issues in the Red Sea and congested ports worldwide ensured
that rates continued to escalate. Across our two divisions underlying product
margins differed. Content Creation margins reduced compared to the prior
year as promotions continued at an elevated level in order to partially
mitigate the impact of channel de-stocking and cost of living issues, whereas
Audio Reproduction margins increased due to an increase in sales to China
which are at a higher margin.
For the next financial period, we expect freight rates to remain at their
current elevated levels, reflecting ongoing global geo-political instability.
While promotional activity in the Content Creation division may reduce
somewhat as stock levels in the channel hopefully normalise, offsetting this
we expect the mix of sales for Audio Reproduction to return to previous levels
as sales strengthen in other regions compared with China where, as noted,
sales are at a higher margin. As a result, we expect the underlying gross
margin to remain broadly flat next year.
Administrative Expenses
Administrative expenses consist of sales, marketing, operations, the
uncapitalised element of research and development, and central functions such
as legal, finance, and the Group Board. These expenses totalled £64.8
million, up from £60.5 million last year. This includes depreciation and
amortisation of £8.6 million (FY23: £8.1 million), amortisation of acquired
intangible assets of £5.5 million (FY23: £4.5 million), and non-underlying
items of £5.5 million (FY23: £1.7 million), which are discussed in more
detail below. Excluding non-underlying items, depreciation, and amortisation,
administrative costs were £45.3 million (FY23: £46.2 million), a decrease of
£0.9 million compared to the prior year.
In such a difficult market, costs have been tightly controlled across the
Group, and bonus and share-based payment costs reduced to £1.5 million below
the prior year. and £2.0 million normalised "on-target" levels. In addition,
£0.4 million of one-off costs related to office site moves and refurbishments
in FY23 did not repeat in FY24.
Offsetting these savings, new acquisitions added £0.8 million to the cost
base, with the annualisation of Sonnox contributing £0.4 million, and the
addition of Sheriff adding a further £0.4 million, which will fully annualise
in the following financial period. While average headcount reduced slightly
across the Group this year, the largest cost increases were related to
inflation, with pay rises implemented during the peak of cost-of-living
impacts, resulting in an increase of £1.4 million. We have continued to
invest in our people and strengthen our innovation teams in particular this
year, which will result in a similar inflationary uplift in the following
financial period.
Adjusted EBITDA
EBITDA is a non-GAAP measure widely recognised in the financial markets. It is
used (as adjusted for non-underlying items) as a key performance measure and
forms the basis for some of the senior management incentivisation within the
Group. Adjusted EBITDA decreased from £38.6 million in FY23 to £25.2 million
in FY24. This reduction was primarily due to the lower sales and lower gross
margin described earlier.
Depreciation and Amortisation
Depreciation of £2.9 million (FY23: £2.7 million) was charged on tangible
fixed assets on a straight-line basis over the assets' estimated useful lives.
This figure remained stable compared to the prior year, following the
investment in new offices in FY23.
Amortisation on non-acquired intangibles is mainly charged on capitalised
development costs, writing off the development costs over the lifespan of the
resultant product. Development costs related to individual products are
written off over periods ranging from two to ten years, reflecting the
differing lifespans of products across our brands. Normally, capitalised
development costs exceed amortisation, reflecting the Group's continued
investment in product development. During FY24, capitalised development costs
amounted to £8.8 million (FY23: £8.6 million), compared with amortisation of
£5.7 million (FY23: £5.5 million). We expect development costs to remain at
this level as we continue to invest in further product refreshes and develop
new products. Additionally, this year saw the completion of our acquisition of
licences to utilise certain technologies, adding £3.0 million to intangible
assets during the year, with plans to incorporate these technologies into our
future product roadmap.
The amortisation of acquired intangible assets totalled £5.5 million during
the period (FY23: £4.4 million) and has been disclosed within adjusted items.
Underlying amortisation in FY24 was £5.7 million (FY23: £5.5 million),
increasing slightly as more products were launched during year.
Non-underlying Items
In FY24, the Group acquired Sheriff Technology and Innovate Audio, with
associated acquisition costs amounting to £0.1 million (FY23: £0.4 million
related to the Sonnox acquisition). There were no earn-out payments in FY24
whereas in FY23 earn-outs related to the Linea Research and Sequential
acquisitions were completed and paid out, resulting in a cost of £0.8
million.
Non-underlying items also include amortisation of intangible assets from
acquisitions, amounting to £5.5 million (FY23: £4.4 million). This increase
is due to the inclusion of Sheriff Technology and the annualisation of Sonnox
amortisation for brands and technology. Additionally, FY23 included the
benefit of a one-off adjustment for £1.0 million of amortisation that was
incorrectly charged in prior years on assets not yet brought into use. For
further details, see notes 2 and 7 of the financial statements.
The Sequential and Oberheim syntheziser brands were purchased in 2021 and 2022
for £14.5 million and £4.5 million respectively. The acquired assets have a
net book value of £15.9 million at 31 August 2024 including £2.5 million of
goodwill. Both brands are iconic within the industry and since acquisition
have had a good track record of launching critically acclaimed new products.
However, this sector of the market has been particularly hard hit by
cost-of-living issues, particularly for the higher price point products, and
the industry has seen year on year contractions in demand. This has resulted
in a lower starting point for future forecasts and greater risk to
forecasts. Consequently, the Board, based on management's estimate of
recoverability (see note 7 to the financial statements), have decided to
recognise a one-off, non-cash impairment of £5.4 million.
Notwithstanding this impairment, Sequential remains profitable with plans to
extend the range of both brands further with the introduction of lower price
point products, which is expected to bring the brands back to growth.
Foreign exchange and hedging
Sterling has remained relatively stable compared with the Euro between years,
but the average rate has weakened against the US dollar.
Exchange rates 2024 2023
Average
USD:GBP 1.26 1.21
EUR:GBP 1.17 1.15
Year end
USD:GBP 1.31 1.27
EUR:GBP 1.19 1.17
During the year, Sterling strengthened against the average US dollar rate,
moving from $1.21 to $1.26. The US dollar accounts for 40% of Group revenue
but over 80% of the cost of sales so, while this resulted in increased
revenue, the impact on gross profit was neutral. The Euro comprises
approximately a quarter of revenue but incurs little cost. The policy adopted
by the Group is to hedge approximately 75% of Euro flows for the next 12
months and approximately 50% for the year thereafter. Currently we are
reviewing the scope and levels of currency of the policy and aim to have
updated hedges in place before the end of the 2025 calendar year.
Finance costs
Finance costs of £3.2 million (FY23: £1.6 million) primarily arose on
interest on the Group's revolving credit facility (RCF) drawdowns. This
increase is due to higher interest rates throughout the year and increased
drawdowns to fund working capital.
Corporation Tax
In FY24, the corporation tax credit totalled £0.1 million on reported profit
before tax of £2.5 million, an effective tax rate of (4)% (FY23: 21.8%).
The lower tax rate is the result of a number of adjustments upon
finalisation of the group's prior year tax returns, none of which are in
isolation significant, combined with tax reliefs gained through patent box
claims. Adjusting for non-underlying items and prior year adjustments, the
effective tax rate is 23.9% (FY23: 21.7%) on adjusted profit before
tax of £13.4 million. Going forward, we expect the effective tax rate to
remain broadly in line with the UK corporate tax rate.
Earnings Per Share (EPS)
The basic EPS for the year was 4.5 pence, down 85.2% from 30.4 pence in FY23.
This decrease is primarily due to a combination of factors, including the
reduction in operating profits, the non-cash impairment of intangible acquired
assets and the increase in the UK corporate tax rate from 19% to 25% in April
2023. The adjusted diluted EPS, which accounts for the dilutive effect of
share options, decreased by 53.1%, from 38.4 pence in FY23 to 18.0 pence in
FY24.
2024 2023 Change
pence pence %
Basic 4.5 30.4 (85.2)
Diluted 4.4 30.2 (85.4)
Adjusted(1) basic 18.3 38.7 (52.7)
Adjusted(1) diluted 18.0 38.4 (53.1)
(1)Adjusted for amortisation of acquired intangible assets and other adjusting
items (see notes 7 and 11).
Balance sheet 2024 2023
£m £m
Non-current assets 94.0 95.9
Current assets
Inventories 49.3 55.3
Trade and other receivables 37.6 32.9
Cash 22.0 26.8
Bank loan (34.5) (28.1)
Current liabilities (34.8) (45.4)
Non-current liabilities (17.6) (18.9)
Net assets 116.0 118.5
Non-current Assets
The non-current assets comprise goodwill of £14.2 million, other intangible
assets of £66.1 million, property, plant, and equipment of £11.1 million,
and a deferred tax asset of £2.7 million. The goodwill of £14.2 million
(FY23: £16.1 million) decreased due to the impairment of Sequential (see note
7 for assumptions), slightly offset by the acquisition of Sheriff Technology
this year, for a total consideration of £2.9 million, including goodwill of
£0.7 million.
The other intangible assets of £66.1 million (FY23: £66.7 million) consist
primarily of capitalised research and development costs and acquired
intangible assets related to product development and branding. The capitalised
development costs in use have a carrying value of £15.0 million (FY23: £10.0
million), which increased with the launch of 35 products this year. Products
and technology under development amount to £7.1 million (FY23: £8.5
million), of which £2.0 million relates to acquired assets under development
(FY23: £2.0 million). During the year, £8.8 million of costs were
capitalised (FY23: £8.6 million), and underlying amortisation was £5.7
million (FY23: £5.5 million). Approximately 65% of development costs are
capitalised, and they are amortised over the life of the relevant products.
Acquired capitalised development costs had a carrying value of £22.0 million
(FY23: £24.3 million) at year-end. This has reduced due to the annual
amortisation charge of £3.6 million, and the impairment of Sequential of
£1.1 million, offset by the inclusion of Sheriff's development costs of £2.0
million.
The remaining intangible assets, totalling £22.8 million (FY23: £23.9
million), include brands of £16.1 million (FY23: £20.1 million) acquired as
part of acquisitions, which are amortised over 10 years for ADAM Audio, 20
years for Martin Audio, 15 years for Sequential and Linea Research, and 10
years for Sonnox. The Sequential brand asset has been impaired by £1.3
million as part of the overall impairment. Intellectual property, licence
and trademarks of £5.9 million (FY23: £3.4 million) have increased by £2.5
million, due to the final stage payments relating to a platform technology
development which will be used in later iterations of several major product
ranges.
Tangible assets comprising property, plant and equipment decreased from £12.5
million at the end of FY23 to £11.1 million at the end of FY24, due to the
annual depreciation charge. There were no significant capital additions or
lease renewals during the year, following the office move and refurbishments
in FY23.
Working capital
At the end of the year, working capital was 32.8% of revenue (FY23: 23.9%).
This reflects a phasing of working capital towards year-end, driven by the
launch of several new products, including the Scarlett Gen 4 higher range
products, ADAM Audio desktop speakers and headphones, and the Sequential
Teo-5, which were sold to sales channel partners in the final quarter. As a
result, debtor and creditor balances were high in the final quarter, but
effective credit management ensured minimal issues with collections or bad
debts during the year. Issues noted at the half year have improved, with stock
and therefore debtor holdback reducing with our US distributor by $6 million
during the second half of the year. However, overall debtors increased at
year end due to sales phasing in the final quarter of the year.
Creditors continue to be paid on time. Inventory overall has reduced by £5
million to £49.3 million from the £55.3 million at August 2023 and February
2024. This is due to the ongoing reduction in Scarlett stock as the
remaining Generation 3 inventory is sold. Martin Audio stock has remained at
elevated levels as stock is brought into the US to provide greater stock
availability and mitigate any potential tariff increases.
Cash flow 2024 2023
£m £m
Cash and cash equivalents at beginning of year 26.8 12.8
Foreign exchange movements (0.4) (1.0)
Cash and cash equivalents at end of year 22.0 26.8
Net (decrease)/increase in cash and cash equivalents (per Cash Flow Statement) (4.4) 15.0
Change in bank loan (6.6) (15.2)
Increase in net debt (before foreign exchange movements) (11.0) (0.2)
Add back: equity dividend paid 3.9 3.6
Add back: acquisition of business (net of cash acquired) 2.5 7.2
Free cash (outflow)/inflow (4.6) 10.6
Add back: non-underlying items 0.1 1.7
Underlying free cash outflow/inflow(1) (4.5) 12.3
(1)Defined as cash flow before equity dividends, acquisition of subsidiary
(net of cash acquired) and adjusting items.
Debt
The net debt balance at the year-end was £12.5 million (FY23: net debt £1.3
million). In October 2024, the Group extended the £50 million RCF facility,
along with an uncommitted facility with HSBC and NatWest, for an additional
year, with a new expiry date of September 2028. At year-end, the Group had
drawn down £35.1 million of the RCF (FY23: £28.2 million) to support our
working capital requirements.
The underlying free cash flow for the full year was a cash outflow of £4.5
million (FY23: cash inflow of £12.3 million), leading to a year-end net debt
position of £12.5 million. Within this, the movement in working capital
included an outflow of £8.9 million (FY23: outflow of £7.6 million), largely
driven by debtor and creditor phasing, as explained above. Capital
investment for the year totalled £14.2 million (FY23: £14.4 million), of
which £9.7 million (FY23: £9.2 million) related to capitalised R&D gross
of any attributable tax credits, reflecting the Group's ongoing commitment to
product development. We expect this level of investment to continue to support
the Group's product roadmap.
Historically the Group has converted around 45% to 50% of EBITDA to free
cashflow. Given the ongoing tough markets and our commitment to investment
in product development we expect this to be lower over the next 12 months,
with the Group nevertheless remaining inherently cash generative.
Dividend
The Board is proposing a final dividend of 4.5 pence per share (FY23 final
dividend: 4.5 pence), which would result in a total of 6.6 pence per share for
the year, in line with the prior year (FY23: 6.6 pence). This represents an
adjusted earnings dividend cover of 2.7 times (FY23: 5.8 times).
Change in Accounting Reference Date
As announced on 30 October, the Group will be changing its accounting
reference date from 31 August to 28 February, with the next audited results
being presented for the 18 months to 28 February 2026. Interim results will be
presented for the 6 months to 28 February 2025 and for the 12 months to 31
August 2025.
Summary
FY24 brought continued challenges, with market weakness in Content Creation
due to cost-of-living pressures and channel de-stocking. However, the
diversity of the Group's portfolio helped offset these challenges, with strong
growth in Audio Reproduction and the successful launch of new products,
maintaining our leadership in key categories.
Our balance sheet remains robust, despite the challenges of the year, with net
debt at a level of less than half EBITDA providing the Group with the
stability to weather these markets and we remain confident in our ability to
navigate uncertain markets whilst continuing to focus on innovation and
product development in order to deliver long-term value.
Sally McKone
Chief Financial Officer
27 November 2024
Principal Risks and Uncertainties
Overview
Effective risk management is intrinsic to enabling and supporting our business
strategy and our commitments to customers, community, climate and environment.
We are committed to conducting our business responsibly, safely and legally,
while making risk-informed decisions when responding to opportunities or
threats that present themselves. The Board is responsible for risk management
and the General Executive Committee is responsible for setting and monitoring
the appetite for risks and the effective management of risk across the
Focusrite Group.
The table below sets out our principal risks. Please note, this list does not
include all of our risks. Risks which change or are not presently known, or
are currently considered to be less material, may also have adverse effects.
The table below includes a description of the risk, notes on any changes since
the previous year and the residual risk, the impact on the business and risk
mitigation.
Principal risk/uncertainty Mitigation
Business strategy development and implementation (No risk movement)
Impact on the business
The risk of not identifying and reacting to changing market conditions, not Failing to develop products which engage and inspire our customers will mean
being able to implement our acquisition strategy or bring efficiencies to our that our investors lose confidence in our business.
route to market strategy can impact our growth.
The risk remains relatively stable as we monitor drivers for macroeconomic
changes and implement appropriate response strategies to manage their impact Risk Mitigation
on the Focusrite Group's performance. This has enabled us to ensure that the
risk is managed appropriately in line with any changes to external The Group has a multi-stranded resilience plan with an increasingly diverse
conditions. range of products which ensures there are various revenue streams to enable
Group growth and undertakes rigorous customer testing which helps ensure that
new products and next generation products will be well received by
customers. We also have an increasing number of direct-to-market routes which
enables us to reach more customers.
Product Innovation (Risk increasing)
Impact on the business
Risks associated with our ability to design, manufacture and position our A design strategy that does not result in innovative products may lead to a
products to generate returns and value for stakeholders in a fast‑changing lower demand for our products which will impact our ability to
industry. deliver returns to stakeholders and fund our investment and growth
opportunities.
It may also result in our product portfolio being less resilient to
We have increased our user testing and influencer endorsements to test and climate-related risks or movements in commodity prices or inflationary
exalt our products to ensure that they meet the current market pressures and other macroeconomic factors. In the short term, these may
expectations. reduce our cash flow and in the long term could adversely affect the results
of our operations and performance.
Risk mitigation
The Group has developed resilient strategies, processes and frameworks
to grow and protect our product portfolio. Our business development strategy
focuses on enhancing our product portfolio to ensure the Group retains
its competitive advantage and identifies threats
to or opportunities for our products.
Product supply (Risk increasing)
Impact on the business
Risks associated with market demand, including the availability of materials Multiple ongoing global conflicts and rising geopolitical tensions as well as
to manufacture products and our ability to sell and deliver products increased volatility and uncertainty in the international trading environment
into new and existing key markets. could cause disruption of global supply chains and affect macroeconomic
conditions and our ability to sell to our products.
Exposure to risks associated with our product supply increased in
FY24 due to external changes over which we have little influence. Risk mitigation
We continually monitor and assess:
· our ability to access key markets;
· product demand and our sales plans;
· relationships with our sales partners; and
· geopolitical and macroeconomic developments and trends, etc.
Identifying weather and/or climate-related vulnerabilities is also one of our
considerations as we seek to mitigate disruptions to our ability to physically
access materials. We also continue to explore and increase the level of
interchangeability in our supply chain to reduce the risk presented by
single-source materials, namely electronic components.
Continuing to diversify our product portfolio will also reduce exposure
to product supply risks.
Leveraging the longstanding relationships we have with our logistics partners
to minimise impact of freight disruptions.
People (Risk decreasing)
Impact on the business
People are critical to the Group's ability to meet the needs of its customers We continue to rely on key individuals to contribute to the success of the
and end users and achieve its goals as a business. Not only do we need to have Group. We need our people to develop their skills in order to future-proof
the right talent, we also need to be agile and innovative to drive business the Group's business whilst being able to attract,
change and results. Leading from that we also need to make sure that we retain and motive people.
always have the right leaders in place in terms of succession planning.
Risk Mitigation
Failure to attract, retain and develop senior managers and technical
personnel, and to embed our values in our culture, could impact on the We are promoting work-life balance and improving our training and development
delivery of our purpose and business performance. programmes. Succession planning for key roles and the identification of any
new skillsets are reviewed by the Board.
Climate change (Risk increasing)
Impact on the business
Climate change is a multifaceted risk to the business at many levels. Failure Reduced availability of raw materials could have several effects from
to deliver on climate change initiatives, particularly around the reduction in fluctuating and rising prices to uncertainty in the supply chain to
the use of energy and carbon within required timescales, will have short, our having to use lower quality raw materials in our products.
medium and long‑term climate change risks to residents, businesses and
infrastructure. We expect regulation and the possibility taxes on less sustainable materials
or processes to increase.
We are also aware that climate change is a concern for our customers and
stakeholders who expect us to lead the way in running a sustainable business
and it will have an impact on our reputation if we fail to adequately
address these concerns.
Risk Mitigation
Managing our operations towards a low-carbon future e.g. through the use of
recycled materials in order to sustain the longevity and prosperity of the
business remains one of our key mitigation efforts.
Sustainability criteria is embedded throughout the product design process in
order to mitigate risks and identify opportunities to deliver our Environment
and Climate objectives.
Systems to monitor and reduce the environmental impact of our operations and
ensure compliance with environmental legislation are in place.
Information security, data privacy, business continuity and cyber risks (Risk
increasing)
Impact on the business
Disruption to our information systems may have a significant impact on our
Protecting the availability, confidentiality and integrity of Group's sales, cash flows and profits.
information assets is critical to successful trading.
An information security breach could lead to unauthorised access to, or loss
The threat of an information security breach or an unauthorised attack is an of, personal information, financial data or intellectual property.
ongoing and increasingly sophisticated risk that the Group believes would
negatively impact its reputation. Similarly, the inadvertent processing of
customer or employee data in a manner deemed unethical or unlawful could
result in significant financial penalties, remediation costs, reputational Risk Mitigation
damage and/or restrictions on our ability to operate.
The Group's business continuity plan is reviewed and tested on a regular
basis.
Existing systems will be hardened to ensure we are following industry best
practice.
Regular system and application patching is in place including the use of
vulnerability scanning and penetration testing to identify security weaknesses
across our attack surface.
Security awareness training and phishing simulation frequency will be further
embedded, to help manage human risk.
Investment in our security controls will continue as we look to continuously
improve our current posture.
AI Governance has been set and we will aim to both manage the security and
privacy risks of using AI, and leverage the technology to defend against
emerging threats.
Macroeconomic/Geopolitical conditions (Risk increasing)
Impact on the business
In a world where geopolitical relations are being strained by episodic We recognise that the smallest economic or geopolitical event can cause any
upheaval, many major economic countries have or could have changes of company to edge past the tipping point of resilience, and we have seen the
government and financial turbulence, there is a sense of global effect that less predictable and harder-to-handle inflation has had on our
destabilisation which is causing an uncertain outlook and is making it harder sales patterns.
to predict customer demand and undertake long-term planning.
Risk mitigation
The Group has developed resilient strategies, processes and frameworks
to grow and protect our product portfolio. Our business development strategy
focuses on enhancing our product portfolio to ensure the Group retains its
competitive advantage and identifies threats to or opportunities
for our products.
Changes to Risk Scores vs Prior Year
Information security, data privacy, business continuity and cyber risks Risk
increasing
Organisations are becoming more vulnerable to cyber threats due to the
increasing reliance on computers, networks, programs, social media and data
globally. A relatively small data breach or a common cyber attack has a
massive negative business impact. The level of cyber attacks from 'bad actors'
has increased alongside increased geo-political uncertainty. Whilst the
measures we are taking ensure our cyber security programme increases each
year, we, along with many other businesses, are finding that the frequency and
sophistication of cyber security incidents is increasing.
Product innovation, Product supply and Macro-economic/Geopolitical conditions
Risks increasing
There is a heightened level of macroeconomic uncertainty relating to
cost-inflation leading to rising prices which has been exacerbated by the
wars in Ukraine and the Middle East. These are impacting our customers'
disposable income, thereby changing the products they buy and increasing
our operational costs which, together, affects several of our
principal risks.
The supply chain risks facing the Group have again changed shape over the last
year. In addition short term supply issues can impact our ability to launch
new products in an increasingly competitive environment. The global business
climate is increasingly uncertain with manufacturers facing a myriad of
challenges, including high energy prices and unexpected fluctuations in raw
material costs as well as rising geopolitical tensions disrupting global
supply chains. Many raw materials are becoming harder to secure and their
fluctuating costs can have a significant impact on the profitability and
pricing of products. As the various factors are not expected to be alleviated
in the short term, this will remain a significant risk for the Group.
We understand the short-term risks and impacts, and we have the right teams,
governance, innovative products and strategies in place to be able to ride out
the current storm. The longer-term impacts remain uncertain, and we continue
to monitor the associated risks closely and respond accordingly.
Escalating geo-political tensions
Global risk reports indicate a predominantly negative outlook for the world
over the next two years that is expected to worsen over the next decade
through a combination of instability, global catastrophes and turbulent
conditions which will have unknown consequences on customers and businesses.
Group's view: Geopolitical risks are not new. We review the effect trade
tariffs or trade embargos being imposed between countries where we trade and
manufacture and market recovery being slower than previously anticipated. The
impending change in government in the US, a key market for the Group, has
increased the level of uncertainty for the Group, particularly with regard to
the threatened increase in import tariffs for goods from overseas,
particularly those from China.
Actions we will take: We recognise that risks are interconnected and have the
potential to be influenced by other risks, and as such there is no single
solution. We have continued to diversify our strategies to help build a safety
net, boosting our manufacturing capabilities in order to ensure we can quickly
scale up production should a location become unviable, and using inventory
buffers to give us time to react to global challenges.
Emerging Risk Themes
Emerging risk themes are reported alongside our principal risks. We conduct
horizon scanning to enable a medium- and longer-term view of potential
disruptors to our business. As part of our risk assessment process, we analyse
internal and external sources of emerging risk themes through review of
leading external publications including attending industry seminars and
forums, gathering insights via top-down and bottom-up risk workshops with
internal stakeholders, and seeking professional consultation where required.
We are currently tracking several emerging risk themes such as political,
economic, technological, environment and talent. Examples of those emerging
themes that have a potential impact and require a response are set out below:
Identified Risk Group's view Actions we will take
AI For the Group it is seen not only as a risk, but also as an opportunity that We continue to harness AI to drive operational and cost efficiencies, as well
can offer great potential for product development automation which could lead as strategic business trans-formation programmes where the opportunity arises
Generative AI is viewed as a strategic risk to competitive advantages whilst being aware of the growing amount of harmful misinformation,
increasingly sophisticated privacy breaches and cyber-security threats.
FORWARD-LOOKING STATEMENTS
Certain statements in this announcement are forward-looking. Although the
Directors believe that their expectations are based on reasonable assumptions,
any statements about future outlook may be influenced by factors that could
cause actual outcomes and results to be materially different.
Consolidated Income Statement
For the year ended 31 August 2024
Note 2024 2023
£000 £000
Revenue 4 158,524 178,465
Cost of Sales (88,031) (93,616)
Gross Profit 70,493 84,849
Administrative Expenses (64,797) (60,506)
Adjusted EBITDA (non-GAAP measure) 25,219 38,568
Depreciation and Amortisation (8,574) (8,087)
Adjusting items:
Amortisation of acquired intangible assets (5,510) (4,451)
Impairment of intangible assets 7 (5,355) -
Other adjusting items 7 (84) (1,687)
Operating profit 5,696 24,343
Finance income 100 770
Finance costs (3,292) (2,365)
Profit before tax 2,504 22,748
Income tax (credit)/charge 8 104 (4,951)
Profit for the period from continuing operations 2,608 17,797
Earnings per share
Basic (pence per share) 10 4.5 30.4
Diluted (pence per share) 10 4.4 30.2
The accompanying notes on pages 26 to 37 form part of these abbreviated
financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2024
Note 2024 2023
£000 £000
Profit for the period (attributable to equity shareholders) 2,608 17,797
Items that may be subsequently reclassified to the income statement
Exchange losses on translation of foreign operations (923) (1,742)
(Loss)/gain on forward exchange contracts (491) 784
Tax on hedging instrument 67 (186)
Exchange gain/(loss) on acquired amortisation 123 (18)
Total comprehensive income for the period 1,384 16,635
Consolidated Statement of Financial Position
As at 31 August 2024
Note 2024 2023
£000 £000
Assets
Non-current assets
Goodwill 14,194 16,138
Other intangible assets 11 66,065 66,709
Property, plant and equipment 11,096 12,495
Deferred tax assets 2,666 533
Total non-current assets 94,021 95,875
Current assets
Inventories 49,267 55,256
Trade and other receivables 37,391 32,384
Cash and cash equivalents 22,040 26,787
Current tax asset 226 -
Derivative financial instruments - 491
Total current assets 108,924 114,918
Current liabilities
Trade and other payables (30,745) (39,703)
Other liabilities (1,527) (1,761)
Current tax liabilities (2,022) (2,619)
Provisions (522) (1,270)
Bank loan (34,565) (28,093)
Total current liabilities (69,381) (73,446)
Net current assets 39,543 41,472
Total assets less current liabilities 133,564 137,347
Non-current liabilities
Deferred tax (10,815) (10,824)
Other liabilities (6,793) (8,071)
Total non-current liabilities (17,608) (18,895)
Total liabilities (86,989) (92,341)
Net assets 115,956 118,452
Capital and Reserves
Share capital 59 59
Share premium 115 115
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve (3,680) (2,757)
Hedging reserve - 491
EBT reserve (1) (1)
Retained earnings 118,015 119,097
Equity attributable to the owners of the Company 115,956 84,347
Total Equity 115,956 118,452
The financial statements were approved by the Board of Directors and
authorised for issue on 27 November 2024. They were signed on its behalf by:
Tim
Carroll
Sally McKone
Chief Executive
Officer
Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 August 2024
Share capital Share premium Merger reserve Merger difference reserve Translation reserve Hedging reserve EBT reserve Retained earnings Total
£000 £000 £000 £000 £000 £000 £000 £000 £000
Balance at 31 August 2022 59 115 14,595 (13,147) (1,015) (293) (1) 105,003 105,316
Profit for the period - - - - - - - 17,797 17,797
Other comprehensive income - - - - (1,742) 784 - (204) (1,162)
Total comprehensive income - - - - (1,765) 784 - 17,593 16,635
Share based payments deferred tax deduction - - - - - - - 5 5
Share based payments current tax deduction - - - - - - - (123) (123)
EBT shares issued - - - - - - 1 584 585
Share-based payments - - - - - - (1) (246) (247)
Shares withheld to settle tax obligations - - - - - - - (216) (216)
Premium on shares in lieu of bonuses - - - - - - - 106 106
Dividends paid - - - - - - - (3,609) (3,609)
Balance at 31 August 2023 59 115 14,595 (13,147) (2,757) 491 (1) 119,097 118,452
Profit for the period - - - - - - - 2,608 2,608
Other comprehensive (loss)/income - - - - (923) (491) - 190 (1,224)
Total comprehensive income - - - - (923) (491) - 2,798 1,384
Share based payments deferred tax deduction - - - - - - - (84) (84)
EBT shares issued - - - - - - - 22 22
Share-based payments - - - - - - - 158 158
Shares withheld to settle tax obligations - - - - - - - (106) (106)
Dividends paid - - - - - - - (3,870) (3,870)
Balance at 31 August 2024 59 115 14,595 (13,147) (3,680) - (1) 118,015 115,956
Consolidated Cash Flow Statement
For the year ended 31 August 2024
2024 2023
Note £000 £000
Operating activities
Profit for the financial year 2,608 17,797
Income tax (credit)/expense 8 (104) 4,951
Net interest expense 3,192 1,595
Loss on disposal of property, plant and equipment 13 187
Loss on disposal of intangible assets 75 27
Amortisation of intangibles 11,198 9,861
Impairment of goodwill and acquired intangibles 5,355 -
Depreciation of property, plant and equipment 2,887 2,677
Other non-cash items (625) (229)
Share-based payments credit/(charge) 158 (246)
Operating cashflow before movements in working capital 24,757 36,620
Increase in trade and other receivables (4,909) (3,599)
Decrease/(increase) in inventories 6,362 (6,916)
(Decrease)/increase in trade and other payables (10,367) 2,922
Operating cash flows before interest and tax 15,843 29,027
Net interest (2,403) (1,699)
Income tax paid (1,781) (1,856)
Cash generated by operations 11,659 25,472
Net foreign exchange movements (563) 860
Net cash from operating activities 11,096 26,332
Investing activities
Purchase of property, plant and equipment (1,540) (3,204)
Purchase of intangible assets (3,040) (2,024)
Capitalised R&D costs (9,660) (9,163)
Proceeds from disposal of intangible assets - 5
Acquisition of business, net of cash acquired (2,494) (7,153)
Net cash used in investing activities (16,734) (21,539)
Financing activities
Proceeds from loans and borrowings 9,355 15,226
Repayments of loans and borrowings (2,750) -
Payment of lease liabilities (1,423) (1,427)
Equity dividends paid (3,870) (3,609)
Net cash used in financing activities 1,312 10,190
Net (decrease)/increase in cash and cash equivalents (4,326) 14,983
Cash and cash equivalents at the beginning of the year 26,787 12,758
Foreign exchange movements (421) (954)
Cash and cash equivalents at the end of the year 22,040 26,787
Notes to the Final Results
For the year ended 31 August 2024
1. BASIS OF PREPARATION
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 August 2024 or 2023 but is derived
from those accounts. Statutory accounts for 2023 have been delivered to the
registrar of companies, and those for 2024 will be delivered in due course.
The auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
The Board of Directors has a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence and meet
their liabilities as they fall due for a period of at least 12 months from the
approval of these financial statements ('the going concern period').
Accordingly, the financial statements have been prepared on a going concern
basis.
The Group meets its day-to-day working capital requirements from cash balances
and a revolving credit facility of £50 million, of which £35 million was
drawn at the Balance Sheet date, which was extended in September 2024 for a
further year to a maturity date of September 2028. The availability of the
revolving credit facility is subject to continued compliance with certain
covenants.
The Directors have prepared projected cash flow forecasts for the going
concern period. These forecasts include the base case, along with three
discrete severe but plausible downside scenarios, which include potential
impacts from risks identified from the business including
· Loss of our largest customer, our distributor for Focusrite, Novation
and ADAM Audio in the US
· Loss of a key contract manufacturer, potentially due to increased storm
intensity, as flagged in our climate risk analysis
· Reduction in gross margin due to ongoing pricing pressures and the
potential impact of import tariffs for goods imported into the US
Whilst climate change is considered to bring both risks and opportunities to
the Group, as outlined in our Environmental, Social, Governance ('ESG')
section in the Annual Report, we consider the quantifiable risk in the short
term to relate to increased storm intensity, resulting in the potential loss
of a distributor or contract manufacturer and this is included within our
scenarios.
The increased geopolitical risk which could impact our manufacturing
partners in China has also been considered, but has not been modelled, given
the considered likelihood and scale of global sanctions would not deem this a
plausible scenario.
The base case covers a period of at least 12 months from the date of signing
and includes demanding but achievable forecast growth. The forecast has been
extracted from the Group's FY25 budget and three-year plan for the remainder
of the going concern period.
Key assumptions include:
· Future growth assumptions consistent with those assumed in the Group's
internal plans for market growth and new product introductions and adjusted
for the annualisation of recent acquisitions.
· Working capital requirements in line with historic trends
· Continued investment in research and development in all areas of the
Group.
· Dividends consistent with the Group's dividend policy
· No additional investment in acquisitions in the forecast period
· Foreign exchange rates in line with those prevailing as at 31 August
2024
Throughout the period, the forecast cash flow information indicates that the
Group will have sufficient cash reserves and headroom on the revolving credit
facility to continue to meet its liabilities throughout the forecast period as
well as continuing to maintain covenant compliance.
The Directors have modelled three severe but plausible downside scenarios to
take account of the risks identified above. These models assume that
purchases of stock will, in time, reduce to reflect reduced sales, if they
occurred. The Group would respond to a revenue or gross margin shortfall by
taking reasonable steps to reduce dividends, overheads and capital expenditure
within its control. These mitigants have been included in each of the downside
scenarios. Across these scenarios, the most significant impact expected would
be a draw down from the revolving credit facility of an average of around £40
million for a period of 7 months, however the Group would be expected to
remain well within the terms of its loan facility with the leverage covenant
(net debt to adjusted EBITDA) in the period not exceeding the maximum of
2.5x.
Separately, as a reverse stress test, the Directors estimate that if the Group
were to experience a reduction in revenue expectations of greater than 30%
compared to the base case, permanently from the start of the forecast period,
leverage could rise to the upper limits allowed by the banking covenants by
October 2025. This scenario includes consequential reductions in the purchases
of stock and dividends as well as other mitigating cost reductions.
However, the Directors' view is that any scenario of a revenue shortfall of
greater than the severe yet plausible scenario above is not realistic.
In practice, the Group is still currently experiencing stable levels of
consumer registrations and underlying customer demand, and therefore the
revenue levels have been maintained at expected levels since year end. The
Group is increasing working capital, as is usual in the period prior to the
Thanksgiving and Christmas holiday season, with the Group's net debt balance
reducing from a net position of £12.5 million reported at year end to
approximately net debt of £17.8 million at 25 November 2024, which is
expected to improve by the end of the following financial period.
As a result, the Directors are confident that the Group and Company will have
sufficient funds to continue to meet their liabilities as they fall due for at
least 12 months from the date of approval of the financial statements and
therefore have prepared the financial statements on a going concern basis.
2. ALTERNATIVE PERFORMANCE MEASURES ('APMs')
The Group has applied certain alternative performance measures ('APMs') within
these financial results. A reconciliation to GAAP measures is provided in the
table below or are cross referenced to tables within the Financial review
section. The APMs presented are used in discussions with the Board, management
and investors to aid the understanding of the performance of the Group. The
Group considers that the presentation of APMs allows for improved insight to
the trading performance of the Group. The Group consider that the term
'Adjusted' together with an adjusting items category, best reflects the
trading performance of the Group.
Adjusting items are those items that are unusual because of their size, nature
or incidence, and are applied consistently year on year. The Directors
consider that these items should be separately identified within their
relevant income statement category to enable full understanding of the Group's
results. Items included are acquisition costs, earnout payable to employees of
acquired businesses, impairment of goodwill and acquired intangible assets and
restructuring costs
The following APMs have been used in these financial results:
• Organic constant currency growth - this is calculated by comparing
current period revenue to prior period revenue adjusted for current period
exchange rates and the impact of acquisitions, shown within the Financial
Review.
• Adjusted EBITDA - comprising earnings (operating profit) adjusted for
interest, taxation, depreciation, amortisation and adjusting items. This is
shown on the face of the income statement.
• Adjusted operating profit - operating profit adjusted for adjusting
items.
• Adjusted earnings per share ('EPS') - earnings per share excluding
adjusting items.
• Free cash flow - net increase/(decrease) in cash and cash equivalents
excluding net cash used acquisitions, movements on the bank loan and dividends
paid.
• Underlying free cash flow - as free cash flow but adding back
adjusting items.
• Net debt - comprised of cash and cash equivalents, overdrafts and
amounts drawn against the RCF including the costs of arranging the RCF.
A reconciliation of all items is provided in the table below
Profit definitions FY24 FY24 FY24 FY23 FY23 FY23
Adjusted Diluted Earnings Per Share Adjusted Diluted Earnings
Adjusted Operating Profit Adjusted Operating Profit Per Share
Adjusted EBITDA Adjusted EBITDA
£000 £000 £000 £000 £000 £000
Reported:
Operating Profit 5,696 5,696 24,343 24,343
Profit after tax 2,608 17,797
Add back/(deduct)
Underlying depreciation and amortisation 8,574 - - 8,087
Amortisation on acquired intangibles 5,510 4,451 4,451 4,451
5,510 5,510
Acquisition costs 98 98 98 367 367 367
Impairment of goodwill and intangibles 5,355 5,355 5,355 - - -
Earnout in relation to acquisitions - - - 786 786 786
Restructuring (14) (14) (14) 534 534 534
Tax on adjusting items (2,842) (1,319)
Adjusted 25,219 16,645 10,715 38,568 30,481 22,616
Weighted average number of total ordinary shares including dilutive impact 59,400 58,953
(000's)
Adjusted diluted EPS (p) 18.0 38.4
Cashflow definitions FY24 FY24 FY23 FY23
Free cash flow Adjusted free cash flow Free cash flow Adjusted free cash flow
£000 £000 £000 £000
Net (decrease)/increase in cash and cash equivalents during the year (4,326) (4,326) 14,983 14,983
Add back dividends paid 3,870 3,870 3,609 3,609
Add back cash outflow in relation to acquisition of business 2,494 2,494 7,153 7,153
Change in bank loan (6,605) (6,605) (15,226) (15,226)
Add back; adjusting items - 84 - 1,687
Free cashflow/Adjusted free cashflow (4,567) (4,483) 10,519 12,206
Definition of net debt FY24 FY23
Net debt Net debt
Cash and cash equivalents 22,040 26,787
Bank loan (35,101) (28,192)
RCF arrangement fee 536 99
Net debt (12,525) (1,306)
3. acquisition of a subsidiary
On 19 December 2023, the Group completed the acquisition of 100% of the share
capital of Sheriff Technology Limited (Sheriff), which trades principally
under the OutBoard and TiMax brands. The total consideration has been
calculated as £2.8 million, with £2.4 million paid on completion. An
additional amount of up to £1.2 million is due in January 2025 upon the
achievement of agreed gross profit targets, with a forecast discounted amount
of £0.4 million being included as additional consideration at 28 August
2024. The acquisition was funded by a drawdown of £2.3 million on the
existing revolving credit facility of £50 million with HSBC and NatWest.
Sheriff had £0.1 million of cash at the acquisition date such that the net
cash consideration was £2.3 million.
Sheriff is a UK-based company specialising in innovative entertainment
technologies, which it sells globally. Operating under two sub-brands - TiMax
and OutBoard - their products are vital for professionals in the audiovisual
industry, particularly in live performances, event management, and the rapidly
expanding sector of immersive sound experiences.
For the period between the acquisition date and 31 August 2024, Sheriff
contributed revenue of £0.9 million and a profit before tax of £0.2 million
to the Group. If the acquisition had occurred on 1 September 2023, management
estimates that OutBoard's revenue would have been £1.4 million and profit
before tax for the period would have been £0.3 million.
Acquisition-related costs
The Group incurred acquisition-related costs of £0.1 million on legal fees
and due diligence costs relating to the acquisition of Sheriff. These have
been included in adjusting item costs to give investors a better understanding
of the costs related to the acquisition of Sheriff. Additionally, because of
their size, nature and the fact that they vary from acquisition to
acquisition, the Group considers it a better reflection of the trading
performance to show these separately.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired, and
liabilities assumed at the date of acquisition:
Recognised values on acquisition £000
SoundHub technology 1,600
Motor control technology 425
Intangible assets 2,025
Property, plant and equipment 2
Working capital (including cash) 584
Deferred tax liability (506)
Net identifiable assets and liabilities at fair value 2,105
Goodwill recognised on acquisition 750
Consideration recognised 2,855
The acquired deferred tax liability has been estimated by applying the uplift
in asset fair value to the average expected corporate tax rates over the life
of the assets.
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets
acquired were as follows:
Assets acquired Valuation technique
Property, plant and equipment Cost approach
Developed technology Income approach (multi-period excess earnings method "MEEM")
The key assumption used is the forecast revenues attributable to the
existing asset.
Goodwill
The goodwill recognised is attributable to:
· the skills and technical talent of the Sheriff
workforce;
· income growth potential from new products, future
relationships;
· alignment to the Group's existing customer base; and
· strong strategic fit.
Intangible assets sensitivity analysis
In assessing the estimated useful life of the intangible assets, management
considered the sensitivity in the forecast sales on the valuation of the
developed technology. The following table details the sensitivity to a 10%
increase and decrease in the sales forecast and related cost of sales impact
this would have on the valuation of the assets.
Valuation impact
Asset Cost 10% sales increase 10% sales decrease
Developed technology 2,025 292 (262)
In June 2024, the Group purchased 100% of the share capital of Innovate Audio
Ltd for £217,000, net of cash of £17,000, this resulted in acquired
intangible asset additions of developed technology of £200,000.
In December 2022, the Group purchased Sonnox Ltd for £9,095,000, resulting in
acquired intangible assets additions of £5,553,000 and goodwill of
£2,683,000 arising due to this business combination.
4. Revenue
An analysis of the Group's revenue by reportable segment and by location of
customer is as follows:
Year ended 31 August 2024 Year ended 31 August 2023
North America EMEA Rest of World Total North America EMEA Rest of World Total
£000 £000 £000 £000 £000 £000 £000 £000
Focusrite 28,672 24,492 7,114 60,278 45,724 29,334 11,259 86,317
Novation 6,649 6,544 3,064 16,257 6,078 6,711 3,776 16,565
ADAM Audio 8,565 11,646 2,399 22,610 5,657 10,072 2,720 18,449
Sequential 4,737 4,172 73796 9,705 7,115 6,309 1,056 14,480
Sonnox 722 829 417 1,968 405 492 242 1,139
Content Creation 49,345 47,683 13,790 110,818 64,979 52,918 19,053 136,950
Audio Reproduction 11,397 19,236 17,073 47,706 12,684 16,601 12,230 41,515
Total 60,742 66,919 30,863 158,524 77,663 69,519 31,283 178,465
The amount of revenue sold to external customers in the UK was £11,759,000
(2023: £20,782,000).
5. Business segments
Information reported to the Board of Directors for the purposes of resource
allocation and assessment of segment performance is focused on the main
product groups which the Group sells. Similarly, the results of Novation and
Ampify also meet the aggregation criteria set out in IFRS 8 Segmental
Reporting. The Group's reportable segments under IFRS 8 are therefore as
follows:
Focusrite - Sales of Focusrite and Focusrite Pro branded
products
Novation - Sales of Novation or Ampify branded products
ADAM Audio - Sales of ADAM Audio branded products
Martin Audio - Sales of Martin Audio, Optimal Audio, Linea Research,
panLab, Timax & OutBoard products
Sequential - Sales of Sequential branded products
Sonnox - Sales of Sonnox branded products
Segment revenues and results
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in note 3 of the Annual Report. Segment profit
represents the profit earned by each segment without allocation of the share
of central administration costs, including Directors' salaries, investment
revenue and finance costs, and income tax expense. This is the measure
reported to the Board of Directors for the purpose of resource allocation and
assessment of segment performance.
Central administration costs comprise principally the employment-related costs
and other overheads incurred by the Group. Also included within central
administration costs is the expense relating to the share option scheme of
£158,000 for the year ended 31 August 2024 (2023: credit of £282,000).
The following is an analysis of the Group's revenue and results by reportable
segment:
Year ended 31 August
2024 2023
£'000 £'000
Revenue from external customers
Focusrite 60,278 86,317
Novation 16,257 16,565
ADAM Audio 22,610 18,449
Sequential 9,705 14,480
Sonnox 1,968 1,139
Martin Audio 47,706 41,515
Total 158,524 178,465
Segment profit
Focusrite 22,481 40,130
Novation 7,654 9,133
ADAM Audio 11,217 9,570
Sequential 4,044 6,705
Sonnox 1,899 1,125
Martin Audio 23,198 18,186
70,493 84,849
Central distribution costs and administrative expenses (59,358) (58,819)
Adjusting items (note 7) (5,439) (1,687)
Operating profit 5,696 24,343
Finance income 100 770
Finance costs (3,292) (2,365)
Profit before tax 2,504 22,748
Tax 104 (4,951)
Profit after tax 2,608 17,797
The Group's non-current assets, analysed by geographical location, were as
follows:
2024 2023
£'000 £'000
Non-current assets
North America 8,014 8,937
Europe, Middle East and Africa 85,981 86,725
Rest of the World 26 213
Total non-current assets 94,021 95,875
UK 67,400 68,867
Information about major customers
Included in revenues shown for FY24 is £29.8 million (FY23: £48.1 million)
attributed to the Group's largest customer, which is located in North America.
6. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Year ended 31 August
2024 2023
Note £000 £000
Net foreign exchange losses 241 331
Loss on disposal of property, plant and equipment 13 187
Research and development costs 2,241 4,873
Depreciation and impairment of property, plant & equipment 2,887 2,677
Amortisation and impairment of intangibles 11 14,030 9,861
Impairment of goodwill 2,523 -
Cost of inventories within cost of sales 74,147 75,548
Staff costs 27,341 28,235
Movement in expected credit loss 88 (292)
Share based payments 158 (282)
7. Adjusting ITEMS
The following adjusting items have been disclosed in the period because they
do not reflect the underlying business activities for the Group:
Year ended 31 August
2024 2023
£000 £000
Acquisition costs 98 367
Earnout accrual in relation to acquisitions - 786
Restructuring (14) 534
Adjusting items 84 1,687
Impairment of goodwill and acquired intangible assets 5,355 -
Amortisation of acquired intangible assets 5,510 4,451
Total adjusting items for Adjusted EBITDA 10,949 6,138
Tax on adjusting items (2,842) (1,319)
Total adjusting items for Adjusted profit after tax 8,107 4,819
Acquisition costs in FY24 relate to the acquisition of Sheriff Technology Ltd
in December 2023, and Sonnox in the prior year.
The impairment of goodwill and intangible assets relates to the write down of
the goodwill and intangible assets in relation the Sequential CGU. The
Sequential CGU comprises the Sequential and Oberheim brands, managed through
one management and innovation team. Sequential was acquired in 2021 for £14.5
million, and the Oberheim brand was acquired in 2022 for £4.5 million. The
assets of the CGU have a net book value pre impairment of £18.7m at the 31
August 2024 including £2.6 million of goodwill before the impact of any
impairment charge.
Since the acquisitions, the broader Musical Instruments industry has suffered,
impacted by both lower demand due to cost of living issues and a surplus of
stock in the channel post COVID-19 impacting pricing across multiple
categories. Sequential operates at the premium semi-professional end of the
market, with products priced around $3,000 - $5,000 and as a result have been
particularly hard hit by these issues with a reported revenue decline of 33.0%
this year and 10.5% in FY23.
The Sequential team have managed this decline well, successfully relaunching
the Oberheim brand with the award winning OBX8 synthesizer and introducing the
lower cost Teo 5 synthesizer this year, with plans to further extend the lower
price point range of both brands. This is expected to bring the brands back to
growth, however given the lower base in FY24 and the time needed to bring
these products to market, this has resulted in a lower overall cashflow going
forward and a resulting impairment of £5.4 million. This impairment has
been allocated to goodwill of £2.6 million and the remainder (£2.8 million)
to acquired brands and intellectual property and research in development now
in use.
Forecasts assumed the release of products in line with the existing product
roadmap. A reasonable possible change could be a 6 month delay in the launch
of these products, which would result in a further impairment of £2 million.
Gross margins are assumed to improve marginally due to production
efficiencies. A reasonable possible change would be an assumption that they
remain flat due to increased promotional activity which would result in a
further impairment of £2 million. The long term growth rate is assumed to be
2% based on IMF estimates. A reasonable possible change would be a drop of
0.5% which would result in a further impairment of £0.8 million. A reasonable
possible change in the WACC would reduce the impairment charge.
This impairment was calculated using the Five Year Forecast, calculating a
post tax cashflow and using a post tax WACC of 12.1%, with profits taxable in
the US in California.
8. Tax
Year ended 31 August
2024 2023
£000 £000
Corporation tax charges
Over provision in prior year (359) (309)
Current year 3,014 4,745
2,655 4,436
Deferred taxation
(Over)/under provision in prior year (140) 249
Current year (2,619) 266
(104) 4,951
Corporation tax is calculated at 25% (2023: 21.5%) of the estimated taxable
profit for the year. Taxation for the US and German subsidiaries are
calculated at the rates prevailing in the respective jurisdiction.
The tax charge for each year can be reconciled to the profit per the income
statement as follows:
Year ended 31 August
2024 2023
£000 £000
Current taxation
Profit before tax on continuing operations 2,504 22,748
Tax at the UK corporation tax rate of 25% (2023: 21.5%) 626 4,894
Effects of:
Expenses not deductible for tax purposes 236 480
Other differences 200 (26)
Rate changes (177) -
Additional UK tax reliefs (428) (642)
Prior period adjustment (499) (59)
Effect of change in standard rate of deferred tax - 12
Impact of foreign tax rates (62) 292
Tax (credit)/charge for the year (104) 4,951
Expenses not deductible relate to the costs of acquisition and entertainment
expenses.
Tax credited directly to equity
In addition to the amount charged to the income statement and other
comprehensive income, the following amounts of tax have been recognised in
equity:
2024 2023
£'000 £'000
Share based payment deferred tax deduction 84 5
Share based payment current tax deduction - (123)
84 (118)
The net corporation tax creditor is £1,796,000 (2023: £2,619,000).
9. Dividends
The following equity dividends have been paid or proposed for the period:
Year to Year to
31 August 2024
31 August 2023
Total dividend per qualifying ordinary share 6.6p 6.6p
During the year, the Company paid an interim dividend in respect of the year
ended 31 August 2024 of 2.1 pence per share (FY23: 2.1 pence per share).
On 25 November 2024, the Directors proposed a final dividend of 4.5 pence per
share (FY23: 4.5 pence per share) making a total of 6.6 pence per share for
the year (FY23: 6.6 pence per share).
10 Earnings per share ('EPS')
The calculation of the basic and diluted EPS is based on the following data:
Year ended 31 August
Earnings 2024 2023
£'000 £'000
Profit after tax 2,608 17,797
Adjusting items (note 2) 10,949 6,138
Tax on adjusting items (note 2) (2,842) (1,319)
Total underlying profit for adjusted EPS calculation 10,715 22,616
Year ended 31 August
2024 2023
Number Number
'000 '000
Number of shares
Weighted average number of ordinary shares 58,612 58,506
Effect of dilutive potential ordinary shares:
Share option plans 788 447
Weighted average number of ordinary shares including dilutive impact 59,400 58,953
EPS Pence Pence
Basic EPS 4.5 30.4
Diluted EPS 4.4 30.2
Adjusted basic EPS 18.3 38.7
Adjusted diluted EPS 18.0 38.4
The Group presents basic and diluted EPS data for its ordinary shares. Basic
EPS is calculated by dividing the profit attributable to ordinary shareholders
by the weighted average number of ordinary shares outstanding during the
period. For diluted EPS, the weighted average number of ordinary shares is
adjusted for the dilutive effect of potential ordinary shares arising from the
exercise of granted share options.
At 31 August 2024, the total number of ordinary shares issued and fully paid
was 59,211,639. This included 588,017 (FY23 624,173) shares held by the EBT to
satisfy options vesting in future years. The operation of this EBT is funded
by the Group so the EBT is required to be consolidated, with the result that
the weighted average number of ordinary shares for the purpose of the basic
EPS calculation is the net of the weighted average number of shares in issue
of 59,211,639 (59,073,009) less the weighted average number of shares held by
the EBT of 599,129 (FY23: 566,408). It should be noted that the only right
relinquished by the Trustees of the EBT is the right to receive dividends.
In all other respects, the shares held by the EBT have full voting rights. The
effect of dilutive potential ordinary share issues is calculated in accordance
with IAS 33 and arises from the employee share options currently outstanding,
adjusted by the profit element as a proportion of the average share price
during the period.
11 OTHER INTANGIBLE ASSETS
Technology, products and patents
Brands Acquired- in use Internally generated - in use Internally generated and acquired - In development Intellectual property, licences and trademarks Computer software Total
£000 £000 £000 £000 £000 £000 £000
Cost
At 31 August 2022 26,318 30,178 27,708 8,310 3,726 1,384 97,624
Additions: Acquired separately - - - - 1,706 318 2,024
Additions: Products developed during the year - - 2,514 6,085 - - 8,599
Additions: Business combinations 400 4,700 - 450 - 3 5,553
Transfers - 801 5,600 (6,261) - (140) -
Disposals - - (4,108) - - - (4,108)
Foreign exchange (1,010) (628) (183) (55) (2) - (1,878)
At 31 August 2023 25,708 35,051 31,531 8,529 5,430 1,565 107,814
Additions: Acquired separately - - - - 3,037 3 3,040
Additions: Products developed during the year - - 1,859 6,934 - - 8,793
Additions: Business combinations - 2,242 - - - - 2,242
Transfers - - 8,306 (8,306) - - -
Disposals - - (2,446) - (55) - (2,501)
Foreign exchange (468) (135) (207) (54) (11) - (875)
At 31 August 2024 25,240 37,158 39,043 7,103 8,401 1,568 118,513
Amortisation
At 31 August 2022 3,909 7,377 20,562 970 1,683 1,159 35,660
Charge for the year 1,885 3,536 4,824 - 342 244 10,831
Transfer - - 239 - - (239) -
Eliminated on disposal - - (4,081) - - - (4,081)
Reversal of amortisation - - - (970) - - (970)
Foreign exchange (196) (116) (22) - (1) - (335)
At 31 August 2023 5,598 10,797 21,522 - 2,024 1,164 41,105
Charge for the year 1,888 3,622 4,988 - 470 230 11,198
Impairment 1,303 784 745 - - - 2,832
Eliminated on disposal - - (2,411) - (15) - (2,426)
Foreign exchange (158) (67) (33) - (5) - (261)
At 31 August 2024 8,633 15,136 24,811 - 2,474 1,394 52,448
Carrying amount
At 31 August 2024 16,607 22,022 14,232 7,103 5,927 174 66,065
At 31 August 2023 20,110 24,254 10,009 8,529 3,406 401 66,709
At 31 August 2022 22,409 22,801 7,146 7,340 2,043 225 61,964
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