REG - Focusrite PLC - Final Results
16/11/2021 07:05
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RNS Number : 4507S Focusrite PLC 16 November 2021
Strictly Embargoed until 07.00, 16th November 2021
Focusrite plc
("the Company" or "the Group")
Final Results for the Year Ended 31 August 2021
Focusrite plc (AIM: TUNE), the global music and audio products company,
announces Final Results for the year ended 31 August 2021.
Phil Dudderidge, Founder and Executive Chairman commented:
"We are delighted with these outstanding results, having overcome disruption
to component suppliers, factories, logistics and changes to working practices.
With so many lockdowns around the world, musicians, podcasters, and other
creatives in audio and sound have been investing in Focusrite interfaces and
'studio packs' in record numbers while we work hard to meet that challenging
demand. Major global take-up in home recording has also resulted in
significant growth in demand for ADAM Audio monitor loudspeakers and Novation
products. In the professional audio industry, renewed demand from the live
sound market promises further growth in 2022 and 2023 as sound service
companies reinvest in the new generation of Martin Audio event systems".
Financial and operational highlights
FY21 FY20 Change
Revenue (£ million) 173.9 130.1 +34% (+28% organic(1))
Gross margin 48.4% 46.0% +2.4ppts
Adjusted EBITDA(2) (£ million) 47.5 28.6 +67%
Operating profit (£ million) 35.8 7.9 +353%
Adjusted(3) operating profit (£ million) 41.4 23.0 +80%
Basic earnings per share (p) 48.8 7.1 +587%
Adjusted(3) diluted earnings per share (p) 57.5 32.8 +75%
Total dividend per share (p) 5.2 4.2 +24%
Net cash (£ million) 17.6 3.3 +£14.3m
• Revenue growth of 34% across the group reflecting
continued growth of core customer base.
o Focusrite products up by 24% to £124.4 million (FY20: £100.7 million)
driven principally by the Scarlett 3(rd) Generation range.
o Novation revenue up by 14% as the new generations of Circuit and Launchkey
products gained traction.
o Martin Audio grew by 23% (organic(1) constant currency growth) returning
to pre COVID-19 levels at end of year.
• Growth across all major geographic regions: North America was
up by 47%; Europe, Middle East and Africa ('EMEA') by 23%; and the Rest of
World by 32%.
• Acquisition of Sequential completed in April 2021 for $20
million net of acquired cash.
• Launch of a new brand, Optimal Audio, operating in the
commercial audio market.
• Year-end net cash balance of £17.6 million (FY20: £3.3
million), repaying debt drawdown of $10m for Sequential in four months
• Increased investment in our people, technology, IT,
management systems and tools.
• 13 new hardware products launched within Focusrite as
well as numerous software/firmware updates.
• Final dividend of 3.7p recommended, resulting in 5.2p for
the year, up 24% on prior year.
1 The organic constant currency growth rate is calculated by comparing FY21
revenue to FY20 revenue adjusted for FY21 exchange rates and the impact of
acquisitions (more detail in the Financial Review on page 12).
2 Comprising earnings adjusted for interest, taxation, depreciation,
amortisation, goodwill impairment and adjusting items.
3 Adjusted for amortisation of acquired intangible assets, goodwill impairment
and other adjusting items.
Commenting on the outlook Tim Carroll CEO, said:
"Since the year end, demand for the vast majority of our Group products has
remained strong, and those sectors negatively impacted by COVID-19 are showing
ongoing signs of recovery. All the Group's acquisitions are settling in well,
numerous cross-business initiatives have already been completed and many more
are slated to occur later this year, the benefit of which we expect in the
latter part of FY22 and into FY23. Our roadmap across all the brands remains
robust, with many new product introductions planned to occur later in FY22.
Accordingly, we are now cautiously optimistic about the prospects for modest
revenue growth in the current year.
"Our growth strategy continues to pay off; providing focus and clarity on
where we should invest and deploy our resources. This focus has been a crucial
element in enabling us to navigate through the myriad of macroeconomic and
pandemic related issues we have encountered across this past year. Whilst
there remains considerable opportunity for operational leverage across the
Group as revenue increases, in FY22 operating costs will increase to reflect
current tightness in supply chains, travel resuming and our intention to
increase investment, where appropriate, in order to fuel future growth in the
business".
"Our teams have worked passionately and diligently through these continuing
uncertain times and delivered impressive financial and operational results for
our investors. We look forward to another year of innovation and expansion."
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31 August 2021 and
notice of the Annual General Meeting ("AGM") of Focusrite will be posted to
shareholders by 23 November 2021 and will be available on Focusrite's website
at www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which is being sought
at Focusrite's AGM to be held on 17 December 2021.
The timetable for the final dividend is as follows:
17 December 2021 AGM to approve the recommended final dividend
30 December 2021 Ex-dividend Date
31 December 2021 Record Date
31 January 2022 Dividend payment date
- ends -
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Investec Bank plc (Nominated Adviser and Joint Broker) +44 (0) 20 7597 5970
David Flin
William Brinkley
Charlotte Young
Peel Hunt LLP (Joint Broker) +44 (0) 20 7418 8900
Edward Knight
Michael Burke
James Smith
Belvedere Communications
John West +44 20 3687 2753
Llew Angus +44 20 3687 2754
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR)
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 eight established brands:
Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal
Audio and Sequential.
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 synthesisers 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.
The Focusrite Group 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 Statement
It is almost seven years since Focusrite plc joined the AIM market (December
2014) and we have continued to deliver for our investors, customers and
people. The growth of the business, organically and more recently through
acquisition, has more than justified the confidence placed in our management
and staff by the original institutional investors, a great number of whom
remain invested in the Company, as well as those which have joined us more
recently. We remain grateful to you all for your support.
It was a particularly proud moment when we discovered that we had won the
prestigious Company of the Year Award at the AIM Awards 2021, which was held
in Old Billingsgate, London in front of over 1,400 guests a few weeks ago.
It is a true testament to all the hard work and dedication of our employees,
senior leadership team and Board of Directors.
As a business we have a primary purpose: to satisfy the needs and expectations
of our customers, most of whom are investing their passion, careers and
businesses in music creation, recording and performance.
I would like to express my personal thanks to all the stakeholders who
contribute to our success and to the management teams that make it all happen,
by ensuring that we make products that are the best choice for each and every
customer, whether a musician, sound designer or technician who decides what is
the best product to meet their needs.
We have a strong relationship with our partners that assemble and distribute
our products to customers, globally, whose commitment has enabled Focusrite
Group brands to meet the potential we have created in the market.
And we also have a huge reliance on our employees in our branded business
units who invest their careers with us, to enable us to achieve our goals, and
I thank them here for their contributions to our successful performance.
The COVID-19 pandemic has challenged all businesses but as you will read in
the following CEO and CFO reports, Focusrite plc has achieved outstanding
results while overcoming disruption to component suppliers, assembly
factories, international logistics and markets, as well as dealing with the
challenges of enforced changes to everyday working practices.
In the professional audio industry, the global suspension of live music
performance for 18 months (and still in recovery) impacted our new member of
the Group, Martin Audio, which was acquired just three months before the
pandemic hit in March 2020. I am pleased to report the commitment and
agility with which the Martin Audio team has pivoted the focus of their
business to Installed Sound (including places of worship, auditoria and
nightclubs) and away from Touring and Festival Sound for which it was
historically best known. They have delivered a great performance (no pun
intended) in the 2021 financial year as you will read in the following pages,
to the credit of CEO Dom Harter and his team. Renewed demand from the live
market promises further growth in 2022 and 2023 as the sound service companies
reinvest in the new generation of Martin Audio event systems.
With so many people affected by lockdown regulations around the world,
musicians and people using Zoom particularly for creative purposes like
voice-overs as well as podcasters, have been investing in Focusrite audio
interfaces and 'studio packs' in record numbers while we battle to meet that
demand, month in, month out. Home recording generally is booming and that has
also been reflected in significant growth in demand for ADAM Audio monitor
loudspeakers and Novation products too.
Most recently, our acquisition of Dave Smith's Sequential brand of
synthesisers has reinforced our commitment as a Group to this genre of musical
instrument. Sequential is arguably the 'Rolls-Royce' of synthesiser brands and
with Novation as a stablemate the Group is in a very strong position to grow
in this market.
Focusrite plc is recognised in our industry as a successful and friendly home
for complementary branded businesses, with the ongoing successful integration
of our ADAM Audio and Martin Audio acquisitions. This fits our ambition to
build the Group through acquisitions which can address adjacent segments
within the vertical markets we serve; music recording and creation, live
performance, audio post-production for film and streaming content, media
education and audio networking (which has applications in all of the
verticals).
I would like to thank Jeremy Wilson, our Chief Financial Officer ('CFO') who
left in March 2021, for his leadership and stewardship of the finance team, as
well as his contribution to the achievement of our continued growth,
profitability and cash generation.
Our business is becoming more complex with organic growth and acquisitions
too. I would like to commend our Chief Executive Officer ('CEO'), Tim Carroll,
CFO Sally McKone and the entire Group Executive Team for embracing the
challenges and enabling the Group to deliver record results in FY21. We look
forward to continuing the trends we have established over recent years.
Phil Dudderidge
Founder and Executive Chairman
15 November 2021
Chief Executive's Statement
Introduction
I am very proud to share with you our results for the financial year ended 31
August 2021. The Group has continued our pattern of record-breaking financial
performance, fuelled by organic growth across all brands as well as a partial
year contribution from Sequential, our latest acquisition, and a full-year
contribution of Martin Audio.
FY21 presented us with a mix of opportunities and challenges. As the
pandemic continued throughout the world, we witnessed more people turning to
creative content creation including music, podcasting and video, which
resulted in continued high demand for audio recording related solutions.
The Group also experienced the continued closure of live sound events which
had a negative impact on our offerings in that market. Component shortages
and shipping/logistics issues have also been very challenging throughout this
year, but to date, the Group has fared well through this with long-term
planning and intensive data analysis. This past year saw more investment in
our people, technology and tools to ensure our plans were achievable and to
give us as much insight as possible into customer buying behaviours and trends
in the market mitigating its effects.
Our employee base has now grown to over 475 strong and we continue to invest
in our people, promoting from within as well as continuing to hire top talent
in all divisions across the Group.
Our office footprint is global, with key locations in the UK (High Wycombe and
London), Germany (Berlin), Hong Kong, Mexico, Australia and the US (Los
Angeles, Nashville and San Francisco). Our employees are a highly passionate
group of individuals, many of whom are also accomplished musicians, DJs, audio
engineers, live sound specialists and podcasters in their own right. We
are so fortunate to have so many people who leave work and actually use our
solutions in real world environments; bringing their experiences and feedback
back into work to continually improve our offerings.
The wellbeing of our employees continues to be a top priority. The ongoing
work at home environment as well as the slow, methodical return to work plans
brought many unique challenges to the Group. By providing the necessary
tools, support and flexibility, the Group rose to the challenge and as a
result, the vast majority of our employees have managed well through all of
this and continued to ensure that strategic objectives and initiatives hit
their timelines. The Group has also made significant steps in ensuring we are
maturing in our diversity and inclusion policies and green initiatives, two
subjects that are very important to our employees, Board and management.
This year has seen increased focus and investment into both areas. The Group
hired our first Head of Sustainability. This role champions all aspects of how
we can do our part to move forward global green initiatives. Even at this
early stage, this role has already helped us make decisions that will have
impact. For example, the Group was able to switch to a new renewable
electricity contract that reduced the carbon footprint of our UK offices.
Additionally, the Group has made strident efforts to raise awareness on
D&I issues in our industry, including numerous internal training/awareness
seminars and support of charities and institutions that promote equal
opportunity for everyone.
Our operations
The Group's products are sold in approximately 240 territories throughout the
world. We continue to refine our routes to market as macroeconomic conditions
change and new opportunities come to light. We utilise a mix of
retailer/system integrators (online as well as brick and mortar shops),
distributors in specific countries where localisation, support and supply to
the local channel are factors, and direct to the end user via our own
e-commerce platform and in-app software purchases.
Last year we sold over 1.5 million physical products, had over 1.4 million
downloads of our various software titles, and began our subscription and
rent-to-own software offerings, which is growing steadily month on month.
Our manufacturing approach is multifaceted, driven by the specific needs of
each individual business unit. FAEL (Focusrite, Focusrite Pro, Novation and
Ampify) hardware and software is all designed in the UK and hardware products
are produced in Malaysia and China. ADAM Audio products are all designed in
Berlin. Some ADAM Audio products are manufactured in Berlin whilst the
higher volume retail products utilise Chinese contract manufacturing. Martin
Audio's products are all designed in the UK, with a portion of their range
built in the UK and the balance using Chinese contract manufacturing as
well. Our newest acquisition, Sequential, develops all of their products in
the US and assembly is also completed in the US.
Our market
Our products and solutions service a wide spectrum of customers all of whom
are seeking high-quality audio results. Until 2020, the majority of our
offerings were focused on music and audio creation, with solutions designed
for a wide range of customers, including the absolute beginner, hobbyist and
both the aspiring and seasoned professional. The majority of the Focusrite,
Focusrite Pro, Novation, Ampify, ADAM Audio and Sequential portfolio aligns
with these customer personas.
With the acquisition of Martin Audio in late 2019 and the launch in 2021 of
the Optimal Audio brand, we expanded our offerings into professional audio
reproduction. The Martin Audio and Optimal brands offer professional quality
sound reproduction solutions for small bands to the largest professional tours
and festivals, and for permanent installations for bars, clubs, corporate,
houses of worship, theatres and performance halls. Having a stake in both
the production of audio content as well as the reproduction gives the Group a
well differentiated experience in that our solutions help artists throughout
their entire journey of creating, recording and performing.
Each of the individual business units continue to focus on innovation,
ensuring a healthy roadmap of both new versions of our core products as well
as totally new solutions each year. The world of audio creation and
reproduction is constantly evolving, and with that we spend considerable
effort and resources on our R&D efforts to ensure we are at the forefront
of technology, new standards and workflows for our customers. Along with
organic development, the Group carefully considers new acquisitions that will
add to our market potential and expanding R&D resources.
We actively collate industry market data along with our own internal data
collection efforts to better understand our customers, their needs and buying
behaviours. From this, we categorise our customers into personae for audio
creation sectors and by venue for audio reproduction. For audio content
creators, these are:
· Aspiring Creator: A customer who may have little to no music or
audio recording experience but is interested in learning more.
· Passionate Maker: A customer who has the desire to create or produce
high-quality music or audio content (such as podcasting).
· Serious Producer: A customer for whom audio and/or music production is
more than just a hobby and is considering a potential career path in these
fields.
· Music Master/Facility: Highly skilled musicians, audio engineers,
producers and business entities focused on the production of music or audio
content for their livelihood.
For audio reproduction, the classifications are as follows:
· Hospitality: Cafes, bars, restaurants and hotels
· Houses of Worship: From 50-seat chapels to 10,000-seat mega churches.
· Auditoria: Education and conference spaces
· Nightclubs: Nightclubs of all sizes
· Live Events: Concerts, festivals, theatre, corporate showcases.
Operating review
The Group has had another successful year building our core customer base,
increasing revenues, whilst prudently managing our cost base to maintain
healthy gross margins and drive EBITDA 1 (#_ftn1) performance and cash
generation.
Revenue for the Group grew by 34%: comprised of growth from FAEL of 24%,
growth from ADAM Audio of 37%, growth from Martin Audio of 70% (full year vs
eight months previous), and four months of Sequential. Adjusted EBITDA(1)
increased 67% over FY20.
Many factors contributed to this successful outcome: continued success of
legacy products and products introduced in previous years, new product
introductions, accelerated growth of user base, further evolution in our
routes to market approach and continued tight control on expenses.
Throughout this past year, the Group has encountered a number of challenging
macroeconomic events, such as Brexit, continued work at home and restricted
travel due to COVID-19, component shortages together with freight and
logistics issues. To date, we have been able to mitigate the negative impact
of these, by sensible business planning and in some cases, maximise
opportunities. We are aware that these issues will continue well into this
new year, but we remain confident in our level of preparedness and ability to
adapt where necessary.
Purchase of Sequential
In late April of 2021, the Group announced the completion of the acquisition
of Sequential, a legendary American synthesiser company founded and run by
Dave Smith. This is our third acquisition since the beginning of 2019. The
initial consideration was $20 million, with a further payment to be made to
Sequential employees of up to $4 million if agreed gross profit targets are
met.
Demand for analogue synthesisers is high and Sequential revenues increased by
90% in the 12 months to August 2021 compared to the same period in the prior
year.
Sequential employs 18 full-time team members, and all except one work out of
the high-tech region of the San Francisco Bay Area. Approximately 35% are
engaged in research and development.
We have already identified many opportunities to use the strengths of the
Group to help Sequential to grow, covering areas such as: component sourcing,
distribution logistics, global customer support availability, marketing
automation and reseller channel expansion.
Demand for Sequential products remains strong and despite similar component
availability challenges that we face in other Group companies, we remain
excited about their product roadmap and growth potential, with multiple new
products anticipated throughout 2022.
Continued impact of COVID-19
As the pandemic continued throughout this past fiscal year, a number of
challenges discussed in the previous year's Annual Report continued: these
included work at home mandates, various lockdowns in our own facilities and
with our contract manufacturers, and a continued end user preference for
e-commerce purchases vs brick and mortar. As with the previous year, the Group
was well equipped to handle these challenges. Additionally, the prolonged
period of the pandemic did bring new global challenges, most notably around
component availability across the supply chain and constraints on logistics
and shipping.
Component availability is an ongoing concern that every manufacturer has to
deal with, even during normal business times. Over this past year, demand
for silicon and wafer sky-rocketed as many companies found themselves
unprepared for the increased demand in electronics. This was severely
aggravated with many companies, which purchase on a 'just-in-time' model,
cutting back orders during the early stages of the pandemic, leading to many
manufacturers paring down capacity. When the demand started to come back,
the entire wafer producing industry found itself unprepared to satisfy this
demand. This has resulted in materially elongated lead times, spot buys at
much higher than normal pricing, and in some cases, the need to rework
products in order for them to utilise a more available or less costly
component. To date, the Group has weathered the storm on this well, with
only small intervals of stock unavailability and moderate increases for cost
of goods. Part of this is attributable to leveraging component buys at the
Group level rather than at an individual business unit level and placing long
lead time orders and commitments early on when these issues first began to
arise. While this is still an ongoing issue, we are confident in our ability
to supply a steady flow of product through our channel to ensure any stock
unavailability is kept to a minimum.
Likewise, logistics and freight have also experienced increased lead times and
costs to ship product to and from our contractor manufacturers and various
warehouses. This has been exacerbated by various port pandemic closures as
well as increased demand for the availability of sea and air freight carriers
and containers. Like component availability, this is an ongoing economy-wide
global problem and the Group is working in close contact across our various
channels, with our third-party logistics providers and with our
manufacturers to keep product flowing into customers' hands.
Throughout all the continuing and new challenges that COVID-19 is causing, the
Group is performing well, with very healthy revenue and margin results and a
number of new product introductions, a new acquisition, and continued
execution on our growth strategy. As always, we will continue to monitor
these events and work with our partners to deliver solutions on a timely
basis.
Brand overview:
Focusrite
The Focusrite branded product family, which includes Scarlett and Clarett
audio interfaces had another strong year, with a 28% year-on-year organic
increase in revenue. Audio interfaces provide the conduit between the world of
recordable material (e.g., instrument, voice, sound effects) and the computer
and Digital Audio Workstation ('DAW') software that allows one to capture,
edit and mix audio components into a final product. Demand for audio
interfaces remained strong throughout the year as more and more audio content
was created for various platforms, including music creation, voice recording
(podcasting and voiceover) and soundtracks for video. Additionally, but
still to a much smaller degree than the above, we continue to see more
customers purchasing audio interfaces for higher fidelity streaming workflows
such as gaming and conference calls. Whilst the pandemic and associated
lockdowns certainly drove many customers to seek out this type of technology
for their home studio or working needs, the demand post lockdown has continued
to be materially higher than pre-COVID-19 levels. We believe that the various
lockdowns and work from home mandates accelerated the growth and recognition
of these solutions as viable audio production tools, consequently increasing
our base of customers worldwide.
Additionally, late this past year the Group launched a new set of audio
plug-ins branded Focusrite FAST plug-ins. Developed in tandem with Sonible,
a well-known audio Digital Signal Processing ('DSP') company, these plug-ins
incorporate AI that enables customers at any level to sonically sculpt their
audio content in unique and creative ways. These plug-ins have received
numerous accolades from our community.
Focusrite Pro:
The Focusrite Pro suite of solutions provides professional audio engineers and
facilities with the best quality audio in scalable systems that fit the need
for any professional workflow, including music creation, post-production,
broadcast and live sound.
This brand launched several new products this past year that were well
accepted across the professional community. This included several updates to
our industry standard RedNet solutions, the A16R Mk II and D16R MK II, as well
as several net new solutions: the R1, a studio grade desktop remote
controller, the Red8, a new entry into our pro line of audio interfaces and
new DANTE-enabled option cards for the world-renowned ISA mic pre.
The Focusrite Pro brand had a very successful year, rebounding from the
pandemic and finishing up 40% from the previous year.
Novation:
Electronic music, and its many genres, continues to grow and to democratise
the art of music creation. The Novation brand encompasses a suite of products
and solutions focused on the creation and playback of electronic music.
The product range includes industry recognised premium keyboard and pad
controllers, grooveboxes and synthesisers and is aimed at a wide swathe of end
users, from the absolute beginner just exploring how to make beats, all the
way through to the professional DJ, producer, and musician. This past year,
the Novation brand introduced two new members of the Circuit groovebox
family: Circuit Tracks and Circuit Rhythm. These two products have received
numerous accolades from the industry as powerful music creation tools that
enable musicians of all experience levels to create great sounding tracks.
Additionally, Novation introduced the AFX Station, an update to our
award-winning Bass Station synth. These new products, along with continued
strength in the existing portfolio resulted in revenue growth of 15% to prior
year.
Ampify:
Ampify expands the Group's electronic music offerings into iOS and
cross-platform desktop solutions that allow anyone to experiment with and
create high-quality soundtracks. The apps are all free to download.
Ampify Studio, our desktop music creation app, is bundled with all Focusrite
and Novation hardware and is a great first immersive learning step into the
world of audio creation and production. Our iOS music creation apps are
considered industry leading, including functionality to emulate our Launchpad
hardware and easily create great sounding tracks. All the apps have paid
feature upgrades, which include enhanced editing tools as well as access to a
large suite of royalty-free sounds and loops in a wide range of musical
genres. This library of sounds is constantly increasing, with new sound
packs coming out approximately every two weeks.
Over the past year, our Ampify iOS App had 1.4 million downloads, with roughly
565,000 in-App purchases. The number of in-App purchases declined year over
year as we introduced a subscription service for content and features for the
most popular iOS App, Launchpad, as well as for Ampify Studio. The total
number of active subscriptions ended the year at 5,700 and is growing every
month.
ADAM Audio:
The ADAM Audio brand of professional studio monitors and headphones are
utilised by every customer persona in the audio creation customer sectors
described earlier. ADAM Audio's reputation for best-of-breed monitoring
solutions across all their offerings and price points continues to grow. ADAM
Audio achieved a 37% growth in revenue for the year ended 2021. Additionally,
the ADAM Audio sales and marketing team took over distribution of FAEL
(Focusrite, Focusrite Pro and Novation) products for Germany. Having a local
team with strong ties to the reseller community has paid off, with ADAM Audio
growing the German FAEL business by over 23%.
This success comes from every department within ADAM Audio stepping up and
showing great initiative. Our sales and marketing teams have refined past
campaigns whilst also developing new and cutting-edge ways to showcase our
products to our passionate and growing audience. Our AAAP (ADAM Audio Academic
Program) has been expanded into new regions and markets while our 'Women in
Music' initiative is progressing strongly, shedding a much-needed light on the
under-representation of women within the audio industry. These campaigns,
alongside our sales and marketing initiatives, are devoted to our core vision:
being as close to and relational as possible with our end customers. Lastly,
the ADAM Audio research and development team has also been hard at work
developing new, groundbreaking technologies; some of this work will reveal
itself with product launches in 2022.
Martin Audio:
Martin Audio remains the UK's largest manufacturer of professional
loudspeakers for both live and installed sound. 2021 saw the brand enter its
50th year, during which time Martin Audio's equipment has been found
supporting acts from Pink Floyd in the early days through to major artists at
some of the world's largest festivals such as All Points East, BST Hyde Park
and Rock in Rio. Alongside this, since the early 1990s, Martin Audio has been
manufacturing high-end professional installed sound systems which can be found
in some of the most prestigious facilities in the world, such as the Nobu
Hotel in Chicago which was fitted out with Martin Audio's recently revamped
CDD enclosures in October 2020.
FY20 gave the Martin Audio team a huge challenge as many markets went into
lockdown, but the resilience of the team delivered a positive EBITDA 2
(#_ftn2) in an eight-month period. In FY21 the team set the ambitious task of
rebuilding the business to pre-COVID-19 levels. This was achieved with the
team at Martin Audio contributing £3.8 million EBITDA(2) in FY21.
The team refocused the short-term roadmap throughout the pandemic focusing on
bolstering and growing the smaller installed sound business. This was
particularly true in China where local small entertainment venues have seen a
boom; the net result being significant revenue growth in APAC.
Closer to home, as we entered the second half of the year Martin Audio
announced the launch of the TORUS constant curvature array series for use in
both live sound and installed sound for throws of up to 30 metres, applying
core Martin Audio IP to this new market sector for the brand.
Alongside TORUS, and in support of all users, Martin Audio unveiled the
company's first truly 3D system design software - Display3 - a sound system
design tool allowing users to import complex 3D renderings from SketchUp and
map the coverage of a sound system as a heat map, clearly displaying the
coverage of sound to the client. This is of use to all sound system designers,
and it felt particularly apt to be offering rental partners a free design tool
allowing them to better understand the performance of a sound system as live
sound began to return in the second half of 2021.
FY21 saw a strong performance from the team, carefully managing cost and
rebuilding the sales channels through COVID-19. This was alongside bringing
the Optimal Audio brand to market and supporting the #WeMakeEvents campaign.
Additionally, Martin Audio was honoured with a Queens Award for Enterprise in
Innovation this year for our Wavefront Precision optimised line arrays.
Optimal Audio:
Optimal Audio offers a one-stop solution of control, amplification and
loudspeakers for small to medium-sized commercial installations, with a focus
on supporting multi-zone venues. The portfolio provides a streamlined product
offering working seamlessly together to deliver high-quality sound that is
easy to install and can be operated by anyone, not just engineers. There is
currently nothing else at this price point on the market which has the
functionality and versatility to allow such a quick and simple setup.
Alongside its own dedicated staff, a number of colleagues from across the
Group - most notably within Martin Audio - helped to bring Optimal Audio to
fruition with the long-term ambition that the brand will have its own distinct
team. Feedback from the commercial install community has been very positive,
with a number of premier distributors and system integrators signing on
shortly after public launch.
Sequential:
Sequential is a premium synthesiser maker and has been a leading force in the
resurgent popularity of analogue synthesisers over the last decade. They are a
mainstay of performing and recording artists and can be seen and heard on
countless stages and recordings. Sequential also brings the first US-based
research and development team into the Group.
The Sequential portfolio of high-end analogue synthesisers perfectly
complements the Group's existing Novation brand of synthsesisers: greatly
expanding the number of solutions we have for professional musicians looking
for new ways to enhance their sonic palette. Sequential's product offerings
are deeply rooted in the history of synthesisers, with a number of modern-day
versions of classic instruments known and coveted by professional musicians.
The acquisition has been warmly received by the industry and performed well
and to expectations in the four months since becoming part of the Group.
Routes to market:
The Group utilises a multi-pronged approach to market, including brick and
mortar shops, e-tail focused resellers, system integrators, rental companies,
distributors and our own direct-to-end user e-store. We continue to invest
in more people in local regions, allowing us to service our resellers and
customers locally and in their own language. Additionally, the Group has
reaped benefits from having the major regions handle their own demand
generation and marketing collateral, ensuring that our products resonate with
the local community and cultures.
Regional review:
I am very pleased to report that once again our success was global, with all
major regions and brands reporting strong growth and overall Group gross
margin increasing as well.
North America:
North America, including the US and Canada, is still our biggest market and
accounts for 43% of total Group revenue. This past year, North America grew by
47%, which included a full year of Martin Audio and four months of Sequential.
On an organic 3 (#_ftn3) basis, North America revenue was up 46% year over
year, with all brands experiencing strong growth. With circa 60 employees now
in North America across sales, marketing, tech support and R&D, our North
America operations continue to grow. Effective from 1 September 2021, we have
consolidated all our individual business units under one company: Focusrite
Group US. Under this umbrella, we will be able to leverage the talent and
scale of the individual brands' presence in North America to provide lift for
the entire Group efforts in the region. This will include cross-selling of the
various brands utilising the skills and relationships of each sales member,
and the scale of our tech support teams to provide more coverage to all
brands, as well as more unified marketing efforts and scalable back-office
functions.
Europe, Middle East and Africa ('EMEA'):
Our European operations continue to grow, with dedicated offices in the UK and
Berlin. Additionally, last year saw the Group move to a new distribution
strategy for the UK and Germany: ADAM Audio, with their local German team,
began distributing FAEL products for Germany. Likewise, the FAEL UK team took
over distribution of ADAM Audio products in the UK. Both changes netted
considerable growth in the brands for these respective regions. Overall,
EMEA accounted for 40% of Group revenue last year. EMEA Group revenue grew 23%
year over year, with all brands reporting growth; organic 4 (#_ftn4) growth
was 15%.
Rest of World ('ROW'):
The ROW region comprises Asia Pacific ('APAC') and Latin America ('LATAM').
Overall ROW represents 17% of the Group's revenue and grew by 32% year on
year; organic4 growth was 25%.
Latin America continues to be a region where the Group invests resources to
get closer to the customer. The team, located throughout Mexico and Brazil, is
focused on all demand generation and reseller/distribution relationships for
the various countries. Marketing materials, seminars, social media and artist
relationships are managed locally, ensuring that our products resonate well
with the local artist and audio community. The net result for these efforts
has shown another strong year for Latin America, growing 59% year over year.
Like Latin America, the APAC region has seen increased focus and investment
from the Group. With offices in Hong Kong and Australia supporting demand
generation, account management and customer support, the APAC region has grown
into a structure that will support the many regional markets in the territory
and allows for future expansion as we look to increase our presence in areas
with high growth potential. For this past year, the APAC region experienced
28% growth year over year.
Summary and outlook
Since the year end, demand for the vast majority of our Group products has
remained strong, and those sectors negatively impacted by COVID-19 are showing
ongoing signs of recovery. All the Group's acquisitions are settling in well,
numerous cross business initiatives have already been completed and many more
are slated to occur later this year, the benefit of which we expect in the
latter part of FY22 and into FY23. Our roadmap across all the brands remains
robust, with many new product introductions planned to occur later in FY22.
Accordingly, we are now cautiously optimistic about the prospects for modest
revenue growth in the current year.
Our growth strategy continues to pay off; providing focus and clarity on where
we should invest and deploy our resources. This focus has been a crucial
element in enabling us to navigate through the myriad of macroeconomic and
pandemic-related issues we have encountered across this past year. Whilst
there remains considerable opportunity for operational leverage across the
Group as revenue increases, in FY22 operating costs will increase to reflect
current tightness in supply chains, travel resuming and our intention to
increase investment, where appropriate, in order to fuel future growth in the
business.
Our teams have worked passionately and diligently through these continuing
uncertain times and delivered impressive financial and operational results for
our investors. We look forward to another year of innovation and expansion.
Tim Carroll
Chief Executive Officer
15 November 2021
Financial Review
Overview
Overall the Group has had a highly successful year, delivering impressive
revenue growth of 34%, adjusted EBITDA 5 (#_ftn5) growth of 67%, and 75% in
adjusted diluted earnings per share (EPS) 6 (#_ftn6) .
Income statement
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Adjusted Adjusting items Reported Adjusted Adjusting items Reported
Revenue 173.9 - 173.9 130.1 - 130.1
Cost of sales (89.8) - (89.8) (70.2) - (70.2)
Gross profit 84.1 - 84.1 59.9 - 59.9
Administrative expenses (42.7) (5.6) (48.3) (36.9) (15.1) (52.0)
Operating profit 41.4 (5.6) 35.8 23.0 (15.1) 7.9
Net finance cost (0.8) - (0.8) (0.9) - (0.9)
Profit before tax 40.6 (5.6) 35.0 22.1 (15.1) 7.0
Income tax expense (6.9) 0.2 (6.7) (2.9) - (2.9)
Profit for the period 33.7 (5.4) 28.3 19.2 (15.1) 4.1
Revenue
Revenue for the Group grew 34% from £130.1 million to £173.9 million; and
after adjusting for acquisitions and constant currency this represents an
organic growth of 28%. In FY21 Martin Audio contributed a full 12 months
compared to just eight months in FY20. Sequential was acquired at the end of
April 2021 and FY21 includes four months of revenue contribution.
The Euro average exchange rate was €1.14 (FY20: €1.14). The USD weakened
from $1.27 in FY20 to $1.36 in FY21. This has reduced revenue by £3 million
but is neutral at a gross profit level as the majority of cost of sales are
also charged in USD.
£m FY20 Revenue FY20 Exchange FY20 Organic 7 (#_ftn7) FY21 FY21 Acquisition FY21 Organic(7) Revenue growth Organic growth
Revenue
FAEL 100.7 (3.1) 97.6 124.4 - 124.4 24% 28%
ADAM Audio 17.4 0.1 17.5 23.8 - 23.8 37% 36%
Martin Audio 12.0 (0.2) 11.8 20.4 (5.9) 14.5 70% 23%
Sequential - - - 5.3 (5.3) - - -
Total 130.1 (3.2) 126.9 173.9 (11.2) 162.7 34% 28%
Growth of 34% for the full year has slowed since the half year (HY21: 91%
reported), in part due to the strong comparators in H2 FY20 during the initial
lockdowns, but also due to the supply constraints experienced and widely
reported in the second-half of this year, in particular for electronic chips
used in many of the Group's products. Whilst our operations teams have
secured supply and largely prevented stock outages with our supply partners,
this has inevitably been a drag on our second half results and we expect this
to continue throughout at least the first half of next financial year.
The FAEL segment comprises the products used in the recording and broadcasting
of music or voice. The primary ranges are Scarlett and Clarett, our biggest
selling products. In this segment, revenue increased by 24% to £124.4 million
(FY20: £100.7 million), driven by ongoing strong demand across our user base.
ADAM Audio makes studio monitors of the type used by many of the Group's
customers. Revenue has grown by 37% in the year to £23.8 million (FY20:
£17.4 million), with demand remaining strong across the range and
particularly for the more competitive T series monitors.
Martin Audio has returned to growth in the second half of the year, as live
sound begins to return to pre-COVID-19 levels. Growth for the full year was
70%, and on an organic basis 23%, with revenue of £20.4 million for 12
months, compared to £12.0 million for eight months in FY20.
Sequential was acquired at the end of April 2021 and had revenue in the period
of £5.3 million.
FY20 Revenue FY20 Exchange FY20 Organic 8 (#_ftn8) FY21 FY21 Acquisition FY21 Organic(8) Revenue growth Organic growth
Revenue
North America 50.8 (2.8) 48.0 74.6 (4.6) 70.0 47% 46%
EMEA 56.5 0.8 57.3 69.3 (3.6) 65.7 23% 15%
Rest of the World 22.8 (1.2) 21.6 30.0 (3.0) 27.0 32% 25%
Total 130.1 (3.2) 126.9 173.9 (11.2) 162.7 34% 28%
All the major geographic regions grew for each of the major product categories
year on year. North America represents 43% of the Group's revenue and grew at
47% (organic: 46%) to £74.6 million and is now the largest region for the
Group. Within this region, FAEL grew at 43% for the year, despite demand in
the second half constrained by supply. Martin Audio saw markets begin to
open and reported growth of 73% for the second half of the year.
EMEA, which represents 40% of Group revenue, grew by 23% (organic: 15%) to
£69.3 million. This growth was led by ADAM Audio products at 35% for the
year, which were less impacted by the components shortage than Focusrite,
which grew at 12% for the year.
The ROW comprises mainly Asia and South America and represents the remaining
17% of Group revenue. Revenue in ROW grew by 32% (organic: 25%). APAC grew at
28% year over year and was particularly strong for Martin Audio, with 76%
growth across the year due to strong demand in the installed sector.
Investments in sales and marketing delivered growth of 58% in Latin America.
Segment profit
Segment profit is disclosed in more detail in note 8 to the Group's financial
statements 'Business segments'. The revenue is compared with the directly
attributable costs to create a segment profit. The only major change has been
the inclusion of Sequential upon acquisition.
Gross profit
In FY21, the gross margin was 48.4%, up from 46.0% in FY20, which was an
increase from 42.2% in FY19. This steady increase is the result of several
short and long-term factors. FY21 includes the one-off benefit of a refund of
US duty of £1.5 million, following a reassessment of duty codes in 2020.
Historically there have been a number of factors at play. One factor is routes
to market, with more products being sold either directly to dealers rather
than distributors or directly to the consumer. Over the long term the change
in business mix, with the removal of the lower margin distribution business
and the growth of the higher margin ADAM Audio business at approximately 58%
has also been another structural factor. Focused cost and price management,
reducing royalties and tariffs, and management of margin to get the best value
within the reseller channel are other longer-term factors. Going forward the
Group is mindful of the impact of components shortages and increased freight
charges on future revenue and underlying gross margin.
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 were £48.3 million,
down from £52.0 million last year. These costs include depreciation and
amortisation of acquired intangible assets, £4.0 million (FY20: £3.0
million), a goodwill impairment in FY20 of £10.2 million relating to Martin
Audio and adjusting items of £1.6 million (FY20: £1.9 million), which are
explained below in the adjusting items section. Excluding these items,
administrative costs were £42.7 million (FY20: £36.9 million), an increase
of £5.8 million over the prior year.
Acquisitions contributed to this increase with the annualisation of Martin
Audio, contributing £1.6 million and the inclusion of Sequential a further
£1.0 million. In addition, the Group has invested in IT systems to provide
secure and scalable platforms to enable teams working at home for much of the
year. To support the growth of the Group we expect this investment to continue
to strengthen our IT controls and allow teams across our brands to collaborate
effectively on new projects. Offsetting these increases were COVID-19 related
savings of approximately £2 million due to lower travel costs and an almost
complete lack of trade shows during the period. These costs are expected to
return as markets reopen.
EBITDA(7)
EBITDA is a non-GAAP measure but it is widely recognised in the financial
markets and it is used within the Group as the basis for some of the
incentivisation of senior management. Adjusted EBITDA increased from £28.6
million in FY20 to £47.5 million in FY21, an increase of 67% (see table
below).
2021 2021 2021 2020 2020 2020
£m £m £m £m £m £m
Adjusted Adjusting items Reported Adjusted Adjusting items Reported
Operating profit 41.4 (5.6) 35.8 23.0 (15.1) 7.9
Add - amortisation of intangible assets 4.1 4.0 8.1 3.7 3.0 6.7
Add - depreciation of tangible assets 2.0 - 2.0 1.9 - 1.9
Add - goodwill impairment - - - - 10.2 10.2
EBITDA 9 (#_ftn9) 47.5 (1.6) 45.9 28.6 (1.9) 26.7
Depreciation and amortisation
Depreciation of £2.0 million (FY20: £1.9 million) is charged on tangible
fixed assets on a straight-line basis over the assets' estimated useful lives.
Amortisation is mainly charged on capitalised development costs, writing-off
the development cost over the life of the resultant product. Development costs
related to an individual product are written-off over a period up to three
years for Focusrite and Novation, up to eight years for ADAM Audio and up to
11 years for Martin Audio, reflecting the different lifespans of the products.
Normally, the capitalised development costs are slightly greater than the
amortisation, reflecting the continued investment in product development in a
growing group of companies.
During FY21, the capitalised development costs were £4.9 million (FY20: £4.6
million), compared with the amortisation of £3.5 million (FY20: £3.0
million). In FY21 the Group's engineering teams refocused on meeting demand
and then supply constraint issues, and as a result direct investment into new
products decreased as a percentage of revenue. This is expected to
recalibrate in FY22 back to historic levels, as the Group's R&D teams
build out the future product roadmap, leveraging teams across all the Group
brands.
Adjusting items
In FY21 the Group acquired Sequential with associated acquisition costs
relating to the transaction of £0.7 million. In addition, as part of the
acquisition price, the Group has agreed to pay employee bonuses in relation to
agreed gross profit targets to December 2022; £0.8 million of adjusting item
costs has been included for these bonuses, which are expected to increase pro
rata in FY22. A further £0.1 million of employee-related costs associated
with restructuring have also been included in adjusting costs in FY21.
In FY20 the acquisition of Martin Audio had associated acquisition costs
totalling £1.7 million. Adjusting items also include amortisation of the
intangible assets from acquisitions of £4.0 million (FY20: £3.0 million).
This has increased due to the inclusion of amortisation on the Sequential
brands and is expected to increase next year due to annualisation. For
further explanation please see note 15 to the Group's financial statements.
In FY20, at the height of the pandemic, the Group reassessed the £12.6
million of goodwill relating to the acquisition of Martin Audio. Taking into
consideration the impact of the consequential lockdowns on the industry and
the uncertainty over the impact on future margins, and despite a clear belief
that the live sound market would recover in the foreseeable future, the Board
recognised an impairment of £10.2 million. This has been reassessed at the
current year end, and no further impairment is considered necessary, with
Martin Audio returning to growth in H2 FY21 and performing in line with
expectations.
Foreign exchange and hedging
Euro exchange rates have been consistent over the last year, with more
volatility in the Dollar rates.
Exchange rates 2021 2020
Average
USD:GBP 1.36 1.27
EUR:GBP 1.14 1.14
Year end
USD:GBP 1.38 1.34
EUR:GBP 1.12 1.12
The average USD rate has weakened from $1.27 to $1.36. The USD accounts for
over 50% of Group revenue but over 70% of cost of sales, so this has decreased
revenue but is neutral in terms of gross profit.
The Euro comprises approximately a quarter of revenue but little cost. The
Group has continued entering into forward contracts to convert Euro to GBP.
The policy adopted by the Group is to hedge approximately 75% of the Euro
flows for the current financial year (year ended August 2022) and
approximately 50% of the Euro flows for the following financial year (FY23).
In FY20, approximately three-quarters of Euro flows were hedged at €1.11,
and the average transaction rate was €1.14, thereby creating a blended
exchange rate of approximately €1.12. In FY21, the equivalent hedging
contracts were at €1.11, again close to the transactional rate of €1.14
and so creating a blended exchange rate of €1.12.
Elsewhere, within finance income and finance costs, there is the interest paid
on the revolving credit facility.
Corporation tax
Historically, the effective corporation tax rate as a proportion of profit
before tax has been 10-12% due largely to enhanced tax relief on development
costs. In FY20, the corporation tax charge was £2.9 million on reported
profit before tax of £7.0 million; at an underlying level the effective tax
rate was 13.3% on adjusted profit before tax of £23.0 million.
In FY21, the corporation tax charge totals £6.7 million on reported profit
before tax of £35.0 million, an effective tax rate of 19.3%. Allowing for
adjusting items, the effective tax rate is 17.0% on adjusted profit before tax
of £40.6 million. This increase in effective tax rate is due to the Group
moving to the Research and Development Expenditure Credit ('RDEC') basis of
relief in which the Group receives smaller credit to operating costs and the
profit is then taxed at the headline rate (19% in the UK). Previously to
this, the Group was able to claim relief for research and development in the
UK as a small or medium-sized enterprise ('SME').
Moving forward we expect the effective tax rate to remain closer to the UK
headline rate of 19%, increasing to 25% in April 2023 in line with the
proposals outlined by the Chancellor.
Earnings per share
The basic EPS for the year was 48.8 pence, up 587% from 7.1 pence in FY20.
This increase is due to the strong growth in operating profits and the impact
of the goodwill impairment of £10.2 million in profits in FY20. The more
comparable measure of the growth of the trading profits including the dilutive
effect of share options, is the adjusted diluted EPS. This grew to 57.5 pence,
up 75% from 32.8 pence in FY20.
2021 2020 Growth
pence pence
Basic 48.8 7.1 587%
Diluted 48.2 7.0 589%
Adjusted basic 58.2 33.2 75%
Adjusted diluted 57.5 32.8 75%
More information on the adjustments included to calculate adjusted basic and
adjusted diluted EPS is in note 9 of the financial statements.
Balance sheet
2021 2020
£m £m
Non-current assets 62.8 52.3
Current assets
Inventories 20.8 19.4
Trade and other receivables 16.3 18.0
Cash 17.3 15.0
Current liabilities (25.6) (26.0)
Non-current liabilities (7.3) (21.8)
Net assets 84.3 56.9
Non-current assets
The non-current assets comprise: goodwill of £10.1 million, other intangible
assets of £49.1 million and property, plant and equipment of £3.6 million.
The goodwill of £10.1 million (FY20: £7.9 million) relates to acquisitions
as follows: £0.4 million for Novation purchased in 2004, £4.9 million for
ADAM Audio purchased in July 2019, £2.4 million for Martin Audio purchased in
December 2019 and £2.4 million for Sequential purchased in April 2021.
The other intangible assets of £49.1 million consist mainly of capitalised
research and development costs and acquired intangible assets relating to
product development and brand. The capitalised development costs have a
carrying value of £30.3 million (FY20: £26.0 million). This increase of
£4.3 million comprises the excess during the year of capitalised development
costs over the amortisation (£1.4 million) and acquired capitalised
development costs (consisting of acquired designs and designs in development
with a year end net book value of £6.0 million). Approximately 70% of
development costs are capitalised and it is intended that they are amortised
over the life of the relevant products.
In addition, the remaining intangible assets, totalling £18.8 million (FY20:
£14.4 million), include brands acquired as part of the acquisitions, to be
amortised over ten years for ADAM Audio, 20 years for Martin Audio and 15
years for Sequential.
Working capital
At the end of the year, working capital was 6.6% of revenue (FY20: 8.8%). In
both years this is much lower than the historic norm of approximately 20%. The
ongoing substantial increase in demand and the supply constraints seen in the
latter half of FY21 have meant that inventory levels have remained low at the
year end. Manufacturing capacity has been increased and we believe that supply
constraints will ease such that stock will be replenished towards the
mid-point of FY22. In addition, the Group has continued to place great
emphasis on the timely collection of debts. Consequently, overdue debtors,
especially within FAEL, have been very low. Creditors continue to be paid on
time.
The working capital at ADAM Audio and Martin Audio has remained broadly stable
across the year. ADAM Audio has seen a slight increase in levels of stock in
order to support the distribution of Focusrite products, and Martin Audio has
seen an increase in the overall level of debtors, reflecting the higher level
of sales at the end of FY21 compared to FY20.
Cash flow
( )
2021 2020
£m £m
Cash and cash equivalents at beginning of year 15.0 14.9
Cash and cash equivalents at end of year 17.3 15.0
Net increase in cash and cash equivalents (per Cash Flow Statement) 2.3 0.1
Add - equity dividends paid (per Cash Flow Statement) 2.6 2.3
Free cash flow(8) 4.9 2.4
Add - adjusting item cash outflows:
Acquisition of subsidiary (net of cash acquired) (per Cash Flow Statement) 13.9 35.3
Bank loan (net of arrangement fee) (per Cash Flow Statement) 11.9 (11.6)
Adjusting items (cash outflow) 0.8 2.1
Underlying free cash flow 31.5 28.2
( )
( )
(8) Defined as net cash from operating activities less net cash used in
investing activities less the amount of the revolving credit facility
utilised.
In FY21, the net cash balance at the year end was £17.3 million (FY20: £15
million). The Group also has a £40 million revolving credit facility with
HSBC and NatWest due to expire in December 2024, taken on to fund the Martin
Audio acquisition in 2019. In April 2021 the Group drew down $10 million (£8
million) of debt to fund the acquisition of Sequential, this has now been
repaid, leaving the Group with a net cash position at the end of the year.
During the second half, the strong increase in revenue contributed to both
higher profits and lower stock. Therefore, the underlying free cash flow for
the full year was £31.5 million (FY20: £28.2 million) leading to a year end
net cash position of £17.3 million. Within this, the movement in working
capital was an inflow of £1.7 million (FY20: inflow of £13.7 million). With
the intended rebuilding of stock within the Group in the next financial year
there will be a marked outflow of working capital to return closer to historic
levels of 20% working capital compared to revenue. Capital investment this
year totalled £7.0 million (FY20: £9.6 million), of this £4.9 million
related to capitalised R&D reflecting the Group's ongoing commitment to
product development. We expect this to increase in FY22, as we develop further
several major new initiatives on our product roadmap.
Dividend
In line with the Group's progressive dividend policy, the Board is proposing a
final dividend of 3.7 pence per share (FY20 final dividend: 2.9 pence), an
increase of 28%, which would result in a total of 5.2 pence per share for the
year (FY20: 4.2 pence). This represents an adjusted earnings dividend cover of
11.1 times (FY20: 7.8 times).
Summary
The Group has again performed well, showing substantial financial improvement
despite facing several external headwinds. The ongoing successful integration
of Martin Audio and ADAM Audio into the Group has continued, with the launch
of the Optimal brand, and the distribution of each other's brands in ADAM
Audio and FAEL. The acquisition of Sequential in April 2021 has further added
to the Group portfolio of world-leading brands, with plans to support the
growth through our common US entity, which caters for all Group brands.
Despite the challenges of 2021 the Group has grown significantly and continues
to put down strong foundations to support future development.
Sally McKone
Chief Financial Officer
15 November 2021
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 2021
Note 2021 2020
£'000 £'000
Revenue 3 173,935 130,141
Cost of sales (89,805) (70,248)
Gross profit 84,130 59,893
Administrative expenses (48,355) (51,485)
Impairment (loss) on trade and other receivables (1) (474)
Adjusted EBITDA (non-GAAP measure) 47,548 28,565
Depreciation and amortisation (6,133) (5,530)
Adjusting items for adjusted EBITDA:
Amortisation of acquired intangible assets (4,013) (3,013)
Impairment of goodwill on acquisition 10 - (10,200)
Adjusting items 6 (1,628) (1,888)
Operating profit 35,774 7,934
Finance income 48 36
Finance costs (784) (945)
Profit before tax 35,038 7,025
Income tax expense 7 (6,759) (2,934)
Profit for the period from continuing operations 28,279 4,091
Earnings per share
From continuing operations
Basic (pence per share) 9 48.8 7.1
Diluted (pence per share) 9 48.2 7.0
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2021
2021 2020
Note £'000 £'000
Profit for the period (attributable to equity holders of the Company) 28,279 4,091
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (726) 105
Gain on forward foreign exchange contracts designated and effective as a 445 459
hedging instrument
Tax on hedging instrument (85) (87)
Total comprehensive income for the period 27,913 4,568
Total comprehensive income attributable to:
Equity holders of the Company 27,913 4,568
27,913 4,568
Consolidated Statement of Financial Position
As at 31 August 2021
Note 2021 2020
£'000 £'000
Assets
Non-current assets
Goodwill 10 10,054 7,882
Other intangible assets 49,066 40,374
Property, plant and equipment 3,646 4,082
Total non-current assets 62,766 52,338
Current assets
Inventories 20,749 19,372
Trade and other receivables 14,775 17,744
Cash and cash equivalents 17,339 14,975
Current tax asset 869 -
Derivative financial instruments 716 271
Total current assets 54,448 52,362
Current liabilities
Trade and other payables (23,673) (23,417)
Other liabilities (774) (1,018)
Current tax liabilities - (452)
Provisions (1,092) (1,094)
Total current liabilities (25,539) (25,981)
Net current assets 28,909 26,381
Total assets less current liabilities 91,675 78,719
Non-current liabilities
Deferred tax (5,996) (7,772)
Other liabilities (511) (889)
Provisions (1,069) (1,519)
Bank loan 248 (11,641)
Total non-current liabilities (7,328) (21,821)
Total liabilities (32,867) (47,802)
Net assets 84,347 56,898
Equity and liabilities
Capital and reserves
Share capital 59 58
Share premium 115 115
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve (529) 197
Hedging reserve 716 220
EBT reserve (1) (1)
Retained earnings 82,539 54,861
Equity attributable to owners of the Company 84,347 56,898
Total equity 84,347 56,898
The financial statements were approved by the Board of Directors and
authorised for issue on 15 November 2021. 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 2021
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 1 September 2019 58 115 14,595 (13,147) 92 (152) (1) 51,827 53,387
Profit for the period - - - - - - - 4,091 4,091
Other comprehensive income for the period - - - - 105 372 - - 477
Total comprehensive income for the period - - - - 105 372 - 4,091 4,568
Transactions with owners of the Company:
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - 162 162
-
Share-based payment current tax deduction in excess of remuneration expense - - - - - - 457 457
-
Shares from EBT exercised - - - - - - - 252 252
Share-based payments - - - - - - - 537 537
Shares withheld to settle employees' tax obligations - - - - - - - (192) (192)
Premium on shares issued in lieu of bonuses - - - - - - - (22) (22)
Dividends paid - - - - - - - (2,251) (2,251)
Balance at 1 September 2020 58 115 14,595 (13,147) 197 220 (1) 54,861 56,898
Profit for the period - - - - - - - 28,279 28,279
Transfer of reserve - - - - - 51 - (51) -
Other comprehensive income for the period - - - - (726) 445 - (85) (366)
Total comprehensive income for the period - - - - (726) 496 - 28,143 27,913
Shares issued to EBT 1 - - - - - (1) - -
Transactions with owners of the Company:
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - 786 786
-
Share-based payment current tax deduction in excess of remuneration expense - - - - - - 690 690
-
Shares from EBT exercised - - - - - - 1 660 661
Share-based payments - - - - - - - 632 632
Shares withheld to settle employees' tax obligations - - - - - - - (739) (739)
Premium on shares issued in lieu of bonuses - - - - - - - 60 60
Dividends paid - - - - - - - (2,554) (2,554)
Balance at 31 August 2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
Consolidated Cash Flow Statement
For the year ended 31 August 2021
2021 2020
Note £'000 £'000
Operating activities
Profit for the financial year 28,279 4,091
Adjustments for:
Income tax expense 7 6,759 2,934
Net interest 736 909
Loss on disposal of property, plant and equipment 4 -
Loss on disposal of intangible assets 498 -
Amortisation of intangibles 8,126 6,780
Impairment of goodwill - 10,200
Depreciation of property, plant and equipment 2,022 1,777
Share-based payments charge 973 537
Operating cash flows before movements in working capital 47,397 27,228
Decrease in trade and other receivables 3,533 3,852
(Increase)/decrease in inventories (1,023) 1,914
(Decrease)/ increase in trade and other payables (773) 7,932
Operating cash flows before interest and tax paid 49,134 40,926
Net interest paid (311) (441)
Income taxes paid (9,741) (3,539)
Cash generated by operations 39,082 36,946
Net foreign exchange movements (566) (322)
Net cash from operating activities 38,516 36,624
Investing activities
Purchases of property, plant and equipment (1,126) (3,966)
Purchases of intangible assets (5,485) (5,649)
Acquisition of subsidiary, net of cash acquired (13,948) (35,309)
Net cash used in investing activities (20,559) (44,924)
Financing activities
Proceeds from loans and borrowings 7,353 36,000
Repayments of loans and borrowings (19,335) (24,000)
Loan arrangement fee - (372)
Payment of right-of-use liabilities (1,057) (980)
Equity dividends paid (2,554) (2,251)
Net cash used in financing activities (15,593) 8,397
Net increase in cash and cash equivalents 2,364 97
Cash and cash equivalents at beginning of year 14,975 14,878
Cash and cash equivalents at end of year 17,339 14,975
Principal Risks and Uncertainties
Effective risk management is a priority for the Group in order to sustain the
future success of the business. The Board has overall responsibility for the
Group's risk management process but has delegated responsibility for its
implementation, the system of internal controls which reduce risk and for
reviewing their effectiveness, to the business leaders best qualified in each
area of the business.
The risks and uncertainties that the Group faces evolve over time, therefore
the business leaders review the risk register in order to monitor key risks,
identify emerging risks and update mitigation efforts.
COVID-19
Unsurprisingly, and for a consecutive year, a summary of the risks that
COVID-19 poses to the business and the actions being taken feature highly in
this risk report.
COVID-19 is changing and has already changed how we view uncertainty due to
the unique set of circumstances the pandemic has created. Acting in the face
of uncertainty has been a defining theme during the financial year. Against a
backdrop of rapidly changing restrictions, short time-frames within which to
make decisions and contextual uncertainty, the principal, emerging and
operational risk landscape has been re-evaluated in light of the effects of
the COVID-19 pandemic.
The Group has been careful to maintain its awareness of uncertainty and not
become complacent or hardened in its attitude to the balance between
enterprise risk and opportunity in relation to the stress of the situation.
Decisions taken have been assessed with regard to liquidity, balance sheet
strength and financial forecasts through scenario lenses.
Risk identification and assessment
Risk management is coordinated by the legal team. Each Group company has its
own risk register. Each business leader is responsible for updating the risk
register for their Group company and for identifying, analysing, evaluating,
managing and monitoring the risks and emerging risks in their respective
areas. These risks are then evaluated for their significance as a Group-level
risk.
The risk register is prepared using consistent risk factors and an impact and
likelihood evaluation and includes key controls, mitigating activities and/or
controls and action plans in respect of the principal risks which form the
basis of the principal risks and uncertainties disclosed in this report.
In light of the COVID-19 pandemic the Group has conducted a wider-ranging view
of its risks during the financial year with members of the management team
reviewing risks in relation to:
• cyber and data security and the impact of home working;
• disruption to the supply of components and logistics;
• health and safety;
• financial controls;
• business resilience and liquidity levers;
• lessons learned from the Group's response to the first two
national lockdowns; and
• business continuity.
As in all sectors, the music industry continues to experience profound and
lasting structural changes. The Group has seen a transition away from bricks
and mortar retail to online shopping, therefore our efforts to learn new ways
to serve customers, collaborate with partners and create value for our
shareholders are included in the mitigation plans for each risk.
Approach to risk management
1. Risk identification and assessment
2. Entry into the Group's risk register
3. Regular review and mitigation strategy by business leaders
4. Board review/approval
Assessment of principal risks and uncertainties
The business leaders have carried out a robust assessment of the principal
risks and uncertainties facing the Group, including any emerging risks, and
those that would threaten its business model, future performance, solvency or
liquidity. The following updates have been made to the principal risks and
uncertainties reported in the previous year as a result of this assessment.
• Risks are no longer solely assessed on a potential financial
impact but also the effect on the Group's EPS, NPS and reputation;
• Supplier concentration has been transformed into a product
supply risk to better reflect the risk that we might be unable to service
customer demand or provide products of a suitable quality in today's uncertain
world.
• Trust in the Group's brands helps enhance its worldwide
reputation for quality and innovation and therefore the Group is enhancing the
protection of its intellectual property portfolio so that customers can be
assured they are purchasing a genuine product. To support appropriate
protections of all intellectual property and other proprietary rights:
o the Group has hired an experienced intellectual property lawyer who is
designing an active programme to protect our intellectual property rights; and
o a brand protection programme has been solidified in order to identify and
tackle trademark and design infringements
· therefore the risk is being mitigated but remains a matter for
vigilance;
• The Group recognises that, as with all businesses, it is
vulnerable to faceless crimes. Therefore ensuring the security of our
customers' data remains a key priority, with action being taken to adopt a
Group-level approach for customers to exercise their right of freedoms as data
subjects to ensure a consistent level of data security. Learning from cyber
incidents is shared across the Group so that any weaknesses in the Group's
cyber defences are immediately rectified.
• The Group's approach to ESG reflects the traction it is gaining
globally. The Group has appointed a full-time Head of Sustainability and
engaged an external sustainability consultancy company that has conducted an
ESG materiality review that revealed no red flags. Going forward, the Group
will be implementing a series of recommendations that will not only help
position the Group as an ESG leader in our industry but also ensure that
climate change does not increase as a material threat to the Group.
• In the post-COVID-19 world, attracting and retaining key talent
remains critical to the Group's success. Unconscious bias training has been
rolled out to ensure that hiring managers bring an equality-lead approach when
reviewing potential candidates.
• Whilst not a standalone risk, freight is both more expensive and
less available than pre-pandemic. There is an emerging risk that we may be
able to produce the goods but not get them to retail. We continue to actively
monitor the situation as all businesses are affected and so to mitigate the
risk, the Group ensures that our long-standing 3PL partners have visibility of
anticipated sea and air freight volumes months in advance, giving us the best
probability of securing space from Asia into other global regions.
Principal risk/uncertainty Mitigation
Business strategy development and implementation • The Group reviews its business strategy on a regular basis
through (restrictions permitting) face-to-face meetings to determine what
strategies are needed to maximise sales and profit and efficiencies in
business operations.
As the world emerges from the COVID-19 pandemic, uncertainty remains.
Therefore ensuring that the Group's business strategy is attuned to customer • The Executive Directors present the Group's rolling three-year
requirements and emerging opportunities and is effectively implemented will business plan to the Board once a year for review and challenge by the
protect the business. Therefore the Group needs to understand and properly Non-executive Directors.
manage strategic risk, taking into account sector-specific risk factors (which
differ between the different brands in the business), in order to deliver • The varying brands within the business provide geographic and
long-term growth for the benefit of the Group's stakeholders. product diversity; coupled with a disciplined approach to sales, budgeting and
cost control, the Group ensures the generation of strong profits and cash
flow.
• Business leaders consider strategic risk factors, wider economic
and industry-specific trends that affect the competitive position of its
products.
Product innovation • Research and development continues to be one of the Group's
largest investments.
• Continually reviewing the design and performance of the various
The market for the Group's products remains characterised by continued product ranges and pushing our designers to keep our products at the cutting
evolution in technology, evolving industry standards, frequent new competitive edge of innovation is a key strategy in the Group's resilience.
product introductions and, particularly in the post-pandemic environment,
changes in customer needs. The Group invests in designing and developing • Teams dedicated to product refreshes have been enlarged and a
products that customers want to buy, at appropriate price points. Failure to wide range of research participants provide feedback on test products.
meet the design, quality and value expectations will quickly see customers
turn away from our products.
Product Supply • During the past year, the Group has moved to regularly
communicating directly with key semi-conductor companies instead of via
distributors which has helped to ensure the availability of materials to the
Group.
Due to the global supply chain issues, risks to our ability to service
customer demand are real and present. • The Group has provided an extended production forecast of 12
months (rolling) to our manufacturing partners and key material suppliers
which has enabled them to better manage the sourcing of materials and fulfil
orders.
• Where possible, the Group makes spot purchases of components in
order to ensure their future availability.
Customer-facing systems • The Group has strengthened its documented arrangements with its
resellers and distributors to ensure they are holding sufficient stock levels
and are motivated to promote the brands.
By customers, the Group refers to its reseller and distributor partners on • The Group works with its resellers to incentivise them to be
whom it depends to take products to market. The Group's performance depends on able to offer a comparable in-store and online experience for end users.
the high-quality engagement of those customers, and on their ability to drive
and service customer demand, particularly in markets where the Group operates • The Group has continued to increase its direct-to-market
via a single distributor or has large individual reseller customers. offering and plans for further expansion in the coming year.
• Continued investment in the Group's e-commerce platform has led
to growth in the Group's direct-to-consumer offering
There is a risk that the business fails to adopt
• There is also continual monitoring of performance of the Group's
and/or make effective and efficient use of new software, hardware and Net Promoter Score, with a particular focus by the customer support team on
mechanisation to provide its customers with service levels that allow them to improving the user experience.
meet or exceed end users' expectations. These systems, software and platforms
are ever changing, as technology evolves. A failure of, or breakdown in, the • The Group also works effectively with influencers to promote its
relationship with a key reseller or distributor, or even the failure of a brands.
major customer of a distributor, could significantly and adversely affect the
Group's business.
Information security, data privacy, business continuity and cyber risks • The Group's Privacy Council and Committee are now well
established and are effective in the operation of privacy protection.
• The Group has adopted a global approach for its customers to
The unencumbered availability and integrity of the Group's IT systems is exercise their rights of freedom as data subjects. This process is handled by
ever critical to successful trading. The Group continues to invest our customer support team who respond to requests as to the data the Group
heavily in order to ensure a system that can record and process processes on their behalf.
substantial volumes of data, prevent obsolescence and maintain
responsiveness. • The Group has run several spoof exercises to promote awareness
of the increasingly sophisticated methods of attack cyber criminals deploy.
• Systems vulnerability and penetration testing continues to be
The threat of a cyber security breach or an unauthorised or malicious attack carried out regularly by both internal and external resources to ensure that
is an ongoing and increasingly sophisticated risk that the Group believes data is protected from corruption or unauthorised access or use
would negatively impact its reputation. Similarly, the inadvertent processing
of customer or employee data in a manner deemed unethical or unlawful could • Critical systems backup facilities and business continuity plans
result in significant financial penalties, remediation costs, reputational are reviewed and updated regularly
damage and/or restrictions on our ability to operate. The Group is
noticing: • IT risks are managed through the application of internal
policies and change management procedures as well as enshrining security
· a changing attitude by global users towards their data and how requirements and service level agreements on third-party suppliers in
it is used; contractual documentation
· increasingly complex and fast-evolving data protection laws and • The Group's data protection and information security policies
regulation; and are mandatory reading and are kept under regular review
· rapid technological advances delivering an enhanced ability to • The Group has prepared a roadmap to address gaps between current
gather, draw insight from and monetise personal data. and target risk exposures
• Each major incident that arises around the Group is followed by
a Major Incident Report and submitted to the Board for review. Transparency
in IT operations is key to protecting the Group from risks and
accountability for the remediation of risk
• Major Threat reports are generated as threats to the Group
emerge. They are submitted to the Board for review
Intellectual property • The Group has an ongoing programme to support appropriate
protections of all intellectual property and other proprietary rights.
• The Group is conducting trademark searches before the launch of
The Group sees the protection of its intellectual property and proprietary new products in order to reduce the risks of infringing third-party rights,
rights as a key strength in protecting the Group's brand and maintaining end and is applying for trademark, design and/or patent protection in order to
users' trust in our products. obtain timely and appropriate protection of its IP assets.
• The Group has started a brand protection programme in order to
identify and tackle trademark and design infringements, and it documents the
terms on which it will allow the use of its registered rights.
• The Group has also hired an experienced intellectual property
lawyer who is designing an active programme to protect our intellectual
property rights and is in the constant process of raising awareness within the
Group on the importance of protecting the Group's IP assets, and not to
infringe intellectual property rights from third parties.
People • Making Focusrite a great place to work remains central to the
Group's strategy.
• The Group actively promotes diverse and inclusive thinking in
People are critical to the Group's ability to meet the needs of its customers its recruitment process, shying away from using automated recruitment software
and end users and achieve its goals as a business. This requires the retention and instead having hiring managers consider each application individually.
of senior managers and technical personnel as well as on our ability to
attract, motivate and retain highly qualified people. • The Group is implementing ways of sharing people resources
across the Group, allowing for flexibility in employment and standardisation
of the benefits offered across the Group.
• The Board continues to consider the development of senior
management to ensure there are opportunities for career development and
promotion.
• The Remuneration Committee reviews Executive Director and senior
management remuneration at least annually and formulates packages to retain
and motivate these employees, including long-term incentive schemes.
• The Nomination Committee considers and reviews the skills,
diversity, experience and succession planning of the Board.
Climate change · The Group will create an action plan following the conclusion of
the planned Climate Materiality Assessment to demonstrate our climate
leadership and values and define good environmental practice.
The impact of climate change is integral to the Group's risk management · In the next financial year we will work across individual
approach. Climate change is leading to increasing frequency of severe weather business units to measure scope 3 emissions, and define a roadmap to reduce
e.g. drought, high rainfall, flooding and heatwaves. Failure to deliver on our carbon footprint as well as work with our teams and external partners on
climate change initiatives, particularly around the reduction in the use of the impact we can have on this important issue.
energy and carbon within required timescales, will have medium and long-term
climate change risks to residents, businesses and infrastructure.
Notes to the Final Results
For the year ended 31 August 2021
These condensed preliminary financial statements of the Company and its
subsidiaries ("the Group") for the year ended 31 August 2021 have been
prepared using accounting policies consistent with International Accounting
Standards Board ('IASB') in conformity with the requirements of the Companies
Act 2006.
The information contained within this announcement has been extracted from the
audited financial statements which have been prepared in accordance with
International Accounting Standards ('IAS') in conformity with the requirements
of the Companies Act 2006. They have been prepared using the historical cost
convention except where the measurement of balances at fair value is required.
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 £40.0 million which is due for renewal in
December 2024. 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 a severe but plausible downside
scenario, which includes potential impacts from risks identified from the
business including
· Loss of or reduction in key revenue streams,
· Component shortages extending further into the future than
budgeted,
· Loss of key distribution contracts.
The base case covers the period to February 2023 and includes demanding but
achievable forecast growth. The forecast has been extracted from the Group's
FY22 budget and three-year plan for the period from September 2022 to August
2024. Key assumptions include:
· Future growth assumptions consistent with those recently achieved
by the business, reduced for estimated component shortages and adjusted for
the annualisation of Sequential's results.
· Free cash flow as a percentage of revenue 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.
Throughout the period the forecast cash flow information indicates that the
Group will have sufficient cash reserves. No drawdown from the facility would
be required.
The Directors' have modelled a severe but plausible downside scenario which
combines the three risks identified above, including the Group experiencing
all three downsides simultaneously. This model assumes that purchases of stock
would, in time, reduce to reflect reduced sales, if they occurred, and the
Group would respond to a revenue shortfall by taking reasonable steps to
reduce overheads within its control. In this scenario, a draw down from the
loan facility of around £3.5 million for a period of 6 months is expected,
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 -0.2x compared to the maximum of -2.5x.
Separately, the Directors estimate that if the Group were to experience a
shortfall in revenue of greater than 60% permanently from the start of the
forecast period, debt and leverage could rise to the upper limits allowed by
the banking covenants by August 2022. This scenario includes consequential
reductions in the purchases of stock and overheads. As an additional measure,
the Directors could also cancel the dividend. 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 reality, the Group is still experiencing high levels of consumer
registrations and customer demand, and therefore the high levels of revenue
have been maintained since year end. This is evidenced by improvements in the
Group's net cash position which has increased from the £17.3 million reported
at year end to approximately £21.9 million at 1 November 2021. Consequently,
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.
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 August 2021 or 2020 but is derived
from those accounts. Statutory accounts for 2020 have been delivered to the
registrar of companies, and those for 2021 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.
Availability of audited accounts:
Copies of the 31 August 2021 audited accounts will be available on 15 November
2021 on the Company's website (www.focusriteplc.com/investors) for the
purposes of AIM Rule 26 and will be posted to shareholders in due course.
1 ALTERNATIVE PERFORMANCE MEASURES ('APMs')
The Group has applied certain alternative performance measures ('APMs') within
these financial results. 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
and restructuring costs.
The following APMs have been used in these financial results:
· Organic growth - the organic constant currency growth rate is
calculated by comparing FY21 revenue to FY20 revenue adjusted for FY21
exchange rates and the impact of acquisitions.
· Adjusted EBITDA - comprising earnings 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 which comprise costs relating to the acquisition of
Sequential LLC (£0.7 million), earnout payable to employees of Sequential
(£0.8 million), restructuring of the US (£0.1 million) and amortisation
of acquired intangibles (£4.0 million).
· Adjusted earnings per share ('EPS') - earnings per share
excluding adjusting items.
· Free cash flow - defined as net cash from operating activities
less net cash used in investing and financing activities, excluding
dividends paid.
· Underlying free cash flow - as free cash flow but adding back
adjusting item cash flows relating to repayment of RCF drawn down for
acquisitions.
· Net debt - comprised of cash and cash equivalents, overdrafts and
amounts drawn against the RCF including the costs of arranging the RCF.
2 acquisition of a subsidiary
On 26 April 2021 the Group completed the acquisition of 100% of the share
capital of Sequential LLC. The total consideration paid was $20 million
(£14.5 million) on completion, with a potential for $4 million further. This
$4 million has been classed as employee remuneration rather than contingent
consideration as it is payable directly to employees and is subject to their
continuing employment with Sequential until December 2022. The acquisition was
funded through a combination of existing cash resources and an £8 million
drawdown on the existing revolving credit facility of £40 million with HSBC
and NatWest. This borrowing was repaid before year end.
Sequential is headquartered in San Francisco, California in the historically
and culturally rich North Beach neighbourhood from where it continues to
operate and is led by legendary instrument designer and Grammy winner Dave
Smith, who founded Sequential Circuits in 1974.
The Sequential portfolio of high-end analogue synthesisers dramatically
expands the footprint the Group has with its Novation branded instruments,
offering more premium priced solutions for electronic artists. By extending
the Group's business into new products and markets, which complement its
existing offerings, the acquisition is strategically aligned with the
Company's previously communicated aims of growing the core customer base,
expanding into new markets and increasing lifetime value for customers.
The Group also sees the possibility of future synergies between the Sequential
and Novation's R&D teams to bring new innovative products to market that
will further the Group's mission of 'removing barriers to creativity'.
For the four-month period between the acquisition and 31 August 2021,
Sequential contributed revenue of £5,299,000 and a profit before tax of
£1,314,000 to the Group. If the acquisition had occurred on 1 September 2020,
management estimates that Sequential's revenue would have been £18,158,000
and profit before tax for the year would have been £4,769,000. In determining
these amounts management has assumed that the fair value adjustments,
determined provisionally, that arose on the date of acquisition would have
been the same if the acquisition had occurred on 1 September 2020.
Acquisition-related costs
The Group incurred acquisition-related costs of £716,000 on legal fees and
due diligence costs. These have been included in adjusting item costs to give
investors a better understanding of the costs related to the acquisition of
Sequential. Additionally, because of their size, nature and the fact they vary
from acquisition to acquisition, the Group considers it a better reflection of
the trading performance of the Group 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
Brand 6,070
Developed technology 5,961
Technology in development 181
Other intangible assets 12,212
Property, plant and equipment 23
Cash 547
Inventories 354
Trade and other receivables 518
Trade and other payables (1,556)
Net identifiable assets and liabilities at fair value 12,098
Goodwill recognised on acquisition 2,397
Consideration paid and accrued 14,495
No deferred tax liability arises on the acquisition of Sequential as the Group
is anticipating full tax relief on amortisation of goodwill and intangibles
within the US.
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
Intangible assets- developed technology and technology in development Income approach (multi-period excess earnings method)
Key assumptions used include:
· Ongoing development of new products
· Operating margins are in line with existing margins for that
operation
· Discount rates of 16.5%
Useful economic life ranges from 10 to 15 years
Intangible assets- brand Income approach (relief from royalty method)
Key assumptions used include:
· Revenue forecasts have been allocated to individual brands
· Royalty rates of 2% to 5% applied
· Discount rate of 15.5%
Useful economic life ranges from 10 to 15 years
Inventories Cost approach
Fair values measure on a provisional basis
Sequential was acquired four months prior to the end of this reporting period.
If new information is obtained within one year of the date of acquisition
about the facts and circumstances that existed at the date of acquisition that
identifies adjustments to the above amounts or any additional provisions that
existed at the date of acquisition, then the accounting for the acquisition
will be revised.
Goodwill
The goodwill is attributable to:
· the skills and technical talent of the Sequential workforce;
· worldwide reputation based on patent design and technological
innovation;
· alignment to the Group's existing customer base;
· strong strategic fit to grow the core customer base; and
· expand into new markets and increase lifetime value for
customers.
Intangible assets sensitivity analysis
In assessing the estimated useful life of the intangible assets, management
considered the sensitivity in the estimated life of the brand and patent
development. The following table details the sensitivity to a one-year
increase and decrease in the amortisation period, and ultimately reflecting
the impact on the net profit (or loss).
Amortisation is calculated based on the constant that brand is recognised at
cost of £6,070,000, developed technology at £5,961,000 and technology in
development at £181,000.
Brand (Sequential & Prophet) Brand (OB6 & OB-X)
14 years 15 years 16 years 9 years 10 years 11 years
£'000 £'000 £'000 £'000 £'000 £'000
Annual amortisation 413 395 379 16 14 13
Impact on profit (18) - 16 (2) - 1
Developed technology Technology in development
14 years 15 years 16 years 9 years 10 years 11 years
£'000 £'000 £'000 £'000 £'000 £'000
Annual amortisation 423 397 375 20 18 16
Impact on profit (26) - 22 (2) - 2
The following table assesses the impact of differing estimated useful lives of
products on the valuation of the intangible assets.
Brand (Sequential & Prophet) Brand (OB6 & OB-X)
14 years 15 years 16 years 9 years 10 years 11 years
£'000 £'000 £'000 £'000 £'000 £'000
Fair value - 5,925 - - 145 -
Impact on valuation (145) - 145 - - -
Developed technology Technology in development
14 years 15 years 16 years 9 years 10 years 11 years
£'000 £'000 £'000 £'000 £'000 £'000
Fair value - 5,961 - - 181 -
Impact on valuation (36) - 36 - - -
Based on the above, we concluded that the impact would not be material, and
therefore a more detailed sensitivity analysis has not been done.
3 Revenue
An analysis of the Group's revenue is as follows:
Year ended 31 August 2021 Year ended 31 August 2020
EMEA North America Rest of World Total EMEA North America Rest of World Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Focusrite 37,403 47,200 12,615 97,218 32,128 32,782 11,268 76,178
Focusrite Pro 1,635 2,238 1,004 4,877 1,071 1,625 796 3,492
Focusrite combined 39,038 49,438 13,619 102,095 33,199 34,407 12,064 79,670
Novation 9,242 9,706 3,314 22,262 8,290 7,013 4,080 19,383
ADAM Audio 11,849 8,073 3,943 23,865 8,784 6,352 2,245 17,381
Martin Audio 6,983 4,787 8,628 20,398 4,493 3,089 4,432 12,014
Sequential 2,164 2,629 506 5,299 - - - -
Distribution 16 - - 16 1,693 - - 1,693
Total 69,292 74,633 30,010 173,935 56,459 50,861 22,821 130,141
4 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 branded
products
Focusrite Pro - Sales of 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 branded
products
Sequential - Sales of Sequential branded
products
Distribution - Distribution of third-party
brands including KRK, Stanton, Cerwin-Vega,
and sE
Electronics (ceased August 2020)
Segment revenues and results
The following is an analysis of the Group's revenue and results by reportable
segment:
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in note 3 of the full 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 charge relating to the share option scheme of
£973,000 for the year ended 31 August 2021 (20209: £537,000).
Year ended 31 August
2021 2020
£'000 £'000
Revenue from external customers
Focusrite 97,218
76,178
Focusrite Pro 4,877 3,492
Novation 22,262 19,383
ADAM Audio 23,865 17,381
Martin Audio 20,398 12,014
Sequential 5,299 -
Distribution 16 1,693
Total 173,935 130,141
Segment profit
Focusrite 47,798 35,602
Focusrite Pro 2,540 1,916
Novation 7,965 8,458
ADAM Audio 14,040 8,828
Martin Audio 9,471 5,032
Sequential 2,341 -
Distribution (25) 57
84,130 59,893
Central distribution costs and administrative expenses (46,728) (39,871)
Goodwill impairment - (10,200)
Adjusting items (note 6) (1,628) (1,888)
Operating profit 35,774 7,934
Finance income 48 36
Finance costs (784) (945)
Profit before tax 35,038 7,025
Tax (6,759) (2,934)
Profit after tax 28,279 4,091
The Group's non-current assets, analysed by geographical location, were as
follows:
2021 2020
£'000 £'000
Non-current assets
North America 15,104 760
Europe, Middle East and Africa 45,277 49,611
Rest of the World 2,385 1,967
Total non-current assets 62,766 52,338
Assets held within North America have increased significantly since FY20 due
to the acquisition of Sequential.
Information about major customers
Included in revenues shown for 2021 is £53.2 million (2019: £35.4 million)
attributed to the Group's largest customer, which is located in the USA.
Amounts owed at the year end were £4.2 million (2020: £6.4 million).
5 Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Year ended 31 August
2021 2020
£'000 £'000
Net foreign exchange losses 333 427
Research and development costs (excluding costs capitalised) 2,374 2,441
Depreciation and impairment of property, plant and equipment 2,022 1,777
Amortisation of intangibles 8,126 6,690
Impairment of goodwill on acquisition - 10,200
Cost of inventories recognised as an expense 76,488 61,419
Staff costs (excluding share-based payments) 22,138 17,737
Movement in expected credit loss 1 474
Share-based payments charged to profit and loss 973 537
6 Adjusting ITEMS
The following adjusting items have been declared in the period
Year ended 31 August
2021 2020
£'000 £'000
Acquisition costs 716 1,737
Earnout accrual in relation to acquisition 788 -
Restructuring 124 151
Adjusting items 1,628 1,888
Amortisation of acquired intangible assets 4,013 3,013
Impairment of goodwill on acquisition - 10,200
Total adjusting items for adjusted EBITDA 5,641 15,101
Acquisition costs in FY21 relate solely to the acquisition of Sequential and
the earnout accrual relates to the $4 million classed as employee remuneration
rather than contingent consideration. It is payable directly to employees and
is subject to their continuing employment with Sequential until December 2022.
Restructuring costs relate to the merger of the US-based subsidiaries into one
operating company from 1 September 2021.
Acquisition costs in the 12 months to 31 August 2020 included costs of
£1,644,000 relating to Martin Audio. Restructuring costs related to the costs
of people changes following the ADAM Audio acquisition.
7 Tax
Year ended 31 August
2021 2020
£'000 £'000
Corporation tax charges
Over/(under) provision in prior year (367) 75
Current year 8,099 3,362
7,732 3,437
Deferred taxation
Current year (973) (503)
6,759 2,934
Corporation tax is calculated at 19% (2019: 19%) of the estimated taxable
profit for the year. Taxation for the US and Germany 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
2021 2020
£'000 £'000
Current taxation
Profit before tax on continuing operations 35,038 7,025
Tax at the UK corporation tax rate of 19% (2020: 19%) 6,657 1,335
Effects of:
Expenses not deductible for tax purposes 615 2,582
Deferred tax assets recognition (1,385) -
Other differences (28) -
R&D tax credit - (1,219)
Prior period adjustment (367) 75
Effect of change in standard rate of deferred tax 1,147 -
Impact of foreign tax rates 120 161
Tax charge for the year 6,759 2,934
Expenses not deductible relate to the costs of acquiring Sequential LLC.
The prior period adjustment arose as a result of an over-accrual of the tax
provision. This was due to the changes in capital allowances not being fully
incorporated into the prior year estimate.
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:
2021 2020
£'000 £'000
Share-based payment deferred tax deduction in excess of remuneration expense 786 162
Share-based payment current tax deduction in excess of remuneration expense 690 457
1,476 619
The corporation tax debtor of £869,000 (2020: liability £452,000) relates to
overpayments to tax authorities throughout the year, as well as an advance
made the German tax authorities, in respect of the US reorganisation
(discussed in note 11). €469,000 was advanced to the German tax authorities
in the form of withholding tax. This is expected to be recoverable and will
offset our future tax liability.
The Finance Act 2021 enacted legislation to maintain the current rate of
corporation tax at 19%, up until at least the end of tax year ended 31 March
2023. Thereafter, the headline rate of corporation tax will rise to 25%.
8 Dividends
The following equity dividends have been declared:
Year to Year to
31 August 2021
31 August 2021
Dividend per qualifying ordinary share 5.2p 4.2p
During the year, the Company paid an interim dividend in respect of the year
ended 31 August 2021 of 1.5 pence per share.
On 15 November 2021, the Directors recommended a final dividend of 3.7 pence
per share (2020: 2.9 pence per share), making a total of 5.2 pence per share
for the year (2020: 4.2 pence per share).
9 Earnings per share ('EPS')
The calculation of the basic and diluted EPS is based on the following data:
Year ended 31 August
Earnings 20210 2020
£'000 £'000
Earnings for the purposes of basic and diluted EPS, being net profit for the 28,279 4,091
period
Adjusting items (note 6) 5,641 15,101
Tax on adjusting items (165) (26)
Total underlying profit for adjusted EPS calculation 33,755 19,166
Year ended 31 August
2021 2020
Number Number
'000 '000
Number of shares
Weighted average number of ordinary shares for the purposes of basic EPS 57,993 57,680
calculation
Effect of dilutive potential ordinary shares:
Share option plans 725 812
Weighted average number of ordinary shares for the purposes of diluted EPS 58,718 58,492
calculation
EPS Pence Pence
Basic EPS 48.8 7.1
Diluted EPS 48.2 7.0
Adjusted basic EPS 58.2 33.2
Adjusted diluted EPS 57.5 32.8
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 2021, the total number of ordinary shares issued and fully paid
was 58,661,639. This included 554,712 (2020: 359,483) 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 (58,488,351) less the weighted average number of shares held by the EBT
(495,323). 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.
10 Goodwill AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
Sequential Martin Audio ADAM Audio Novation Digital Music Systems Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 September 2019 - - 4,852 419 5,271
Additional goodwill recognised on business combinations - 12,564 247 - 12,811
At 31 August 2020 - 12,564 5,099 419 18,082
Additional goodwill recognised on business combinations 2,397 - - - 2,397
Foreign exchange - - (225) - (225)
At 31 August 2021 2,397 12,564 4,874 419 20,254
Sequential Martin Audio ADAM Audio Novation Digital Music Systems Total
£'000 £'000 £'000 £'000 £'000
Carrying amount
At 1 September 2019 - - 4,852 419 5,271
Additional goodwill recognised on business combinations - 12,564 247 - 12,811
Loss on impairment - (10,200) - - (10,200)
At 31 August 2020 - 2,364 5,099 419 7,882
Additional goodwill recognised on business combinations 2,397 - - - 2,397
Loss on impairment - - - - -
Foreign exchange - - (225) - (225)
At 31 August 2021 2,397 2,364 4,874 419 10,054
In note 20 'Other intangible assets' to the Group Financial Statements, there
are £3,268,000 of development costs which have not started amortisation.
These are projects in development and are considered to be intangible assets
that have not yet started amortisation.
The goodwill shown in the table above and intangible assets with indefinite
useful life are allocated to the CGUs per the schedule below:
Goodwill Intangible assets with indefinite useful life
CGUs £'000 £'000
Focusrite 419 1,411
Focusrite Pro - 653
Novation - 447
ADAM Audio 4,874 757
Martin Audio 2,364 -
Sequential 2,397 -
Total 10,054 3,268
Assumptions for assessment of impairment
The discount rate applied against future cash flows has been calculated with
reference to a WACC calculated by reference to an industry peer group relevant
to each of the operating entities. Inputs include 20-year nominal risk-free
rate and market risk premium.
All CGUs have applied a perpetual 1% growth rate based on International
Monetary Fund ('IMF') estimates of long-term inflation.
To review the sensitivity of the key assumptions, all impairment assessments
have been tested using the following sensitivities
· 1% increase or reduction to perpetual growth rate.
· 3% increase or reduction to Compound Annual Growth Rate ('CAGR')
· 1% increase or decrease to discount rate.
The impairment review undertaken as described below for all CGUs covers
goodwill, intangible assets with indefinite useful lives and other internally
generated assets totalling £5.8 million.
Focusrite, Focusrite Pro and Novation
An impairment assessment in relation to each of these CGUs was performed by
management. The recoverable amounts of these CGUs have been determined based
on the value in use method. The calculations use cash flow projections based
on financial budgets approved by management covering a three-year period over
which a CAGR of 9% was applied. Cash flows beyond that three-year period have
been extrapolated to achieve a 6% CAGR overall to the end of FY26, and a
perpetual 1% growth rate (FY20: 2%) based on IMF estimates of long-term
inflation thereafter. A pre-tax discount rate of 9.4% (2020: 9.3%) has been
assumed. These assumptions have been applied against Focusrite, Focusrite Pro
and Novation CGUs.
Management believes that any reasonably possible change in the key assumptions
on which these three CGUs' recoverable amounts are based would not cause the
carrying amount to exceed their respective recoverable amounts.
ADAM Audio
The recoverable amount of ADAM Audio has been determined based on a value in
use calculation. That calculation uses cash flow projections based on
financial budgets approved by management covering a three-year period which
and a consistent growth rate in the two financial years following the
management forecasts, leading to an applied CAGR of 11% over the five-year
period. A pre-tax discount rate of 12.1% has been assumed, compared to the
rate applied in FY20 of 13.8%. The reduction in discount rate is due to
updated assumptions based on technical and current market conditions due to
strong performance in the sector since acquisition; risk has reduced therefore
the discount rate has reduced.
Cash flows beyond that five-year period have been extrapolated using a
perpetual 1% growth rate (FY20: 2%) based on IMF estimates of long-term
inflation. Management believes that any reasonably possible change in the key
assumptions on which ADAM Audio's recoverable amount is based would not cause
ADAM Audio's carrying amount to exceed its recoverable amount.
Martin Audio
The recoverable amount of Martin Audio has been determined based on a value in
use calculation. That calculation uses cash flow projections based on
financial budgets approved by management covering a three-year period and a
consistent growth rate in the two financial years following the management
forecasts leading to an applied CAGR of 13% over the five-year period. A
pre-tax discount rate of 12.8% has been assumed compared to the discount rate
applied in FY20 of 13.8%. The reduction in discount rate is due to updated
assumptions based on technical and current market conditions and reduction to
market risk to reflect membership of the Group. Any uncertainty risks are
reflected within the base cash flows and not the discount rate.
Cash flows beyond that five-year period have been extrapolated using a
perpetual 1% growth rate based on IMF estimates of long-term inflation.
Management believes that any reasonably possible change in the key assumptions
on which Martin Audio's recoverable amount is based would not cause Martin
Audio's carrying amount to exceed its recoverable amount.
Sequential
The recoverable amount of Sequential has been determined based on a value in
use calculation. That calculation uses cash flow projections based on
financial budgets approved by management covering a three-year period and a
consistent growth rate in the two financial years following the management
forecasts leading to an applied CAGR of 6% over the five-year period. A
pre-tax discount rate of 12.3% has been applied. The discount rate has been
calculated with reference to WACC calculated with reference to an industry
peer group adjusted for Group-applied 20-year nominal risk-free rate and
market risk premium. Any uncertainty risks are reflected within the base cash
flows and not the discount rate.
Cash flows beyond that five-year period have been extrapolated using a
perpetual 1% growth rate based on IMF estimates of long-term inflation.
Management believes that any reasonably possible change in the key assumptions
on which Sequential's recoverable amount is based would not cause Sequential's
carrying amount to exceed its recoverable amount.
11 POST BALANCE SHEET EVENTS
During FY21, Focusrite Group commenced an exercise to reorganise the US based
entities held across the Group, consisting of Focusrite Group US (formally
known as Focusrite Novation Inc), Martin Audio US LLC and ADAM Audio US to
form a single US entity called Focusrite Group US. As at 31 August 2021, these
entities had changed ownership to be owned directly by Focusrite plc. As all
investments were initially owned indirectly by Focusrite plc and all
transactions are between members of the Group, there is no material impact to
these financial statements.
As at 1 September 2021, these entities merged into one US entity, and from 2
September 2021 ownership changed from Focusrite plc to the Focusrite plc owned
subsidiary Focusrite Investment Inc to ensure that all US entities are under
common ownership. This will be completed through the issue of 7,404 additional
shares in Focusrite Group US worth £6.6 million, and the issue of eight
additional shares in Focusrite Investment Inc, again worth £6.6 million. As
all transactions are between members of the Group, no material impact will be
shown in these Group accounts.
As the reorganisation is only from a legal perspective there will be no change
to the CGUs reported in these financial statements.
1 (#_ftnref1) Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting items.
2 (#_ftnref2) Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting items.
3 (#_ftnref3) The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange rates and
the impact of acquisitions.
4 (#_ftnref4) The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange rates and
the impact of acquisitions.
5 (#_ftnref5) Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting items.
6 (#_ftnref6) Adjusted for amortisation of acquired intangible assets,
goodwill impairment and other adjusting items.
7 (#_ftnref7) The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange rates and
the impact of acquisitions.
8 (#_ftnref8) The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange rates and
the impact of acquisitions.
9 (#_ftnref9) EBITDA is defined as earnings before tax, interest,
depreciation, amortisation and goodwill impairment. The items treated as
adjusting items are explained in note 6.
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