REG - Focusrite PLC - Half year results
26/04/2022 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220426:nRSZ2693Ja&default-theme=true
RNS Number : 2693J Focusrite PLC 26 April 2022
Strictly embargoed until 07:00, 26 April 2022
Focusrite plc ("Focusrite" or "the Group")
Half year results for the period ended 28 February 2022
Focusrite plc, the global music and audio products company supplying hardware
and software used by professional and amateur musicians and the entertainment
industry, today announces its half year results for the six months ended 28
February 2022.
Commenting on the results, Tim Carroll CEO said:
"Demand for the Group's portfolio of products has remained strong, and the
Group's overall performance in the half year was in line with our expectations
and remains on track for the full year. As anticipated, demand and sales
volumes for home creation solutions has tapered off from the unprecedented
high levels during the peak of lockdown but remain materially ahead of pre
pandemic levels. This is further supported by many trade sources citing
continued growth in streaming services and content creation. In addition, the
Group has seen the installed sound market continue to grow with positive signs
towards a full recovery of live events. The Group's continued diversification
of its portfolio, routes to market, and logistics served us well during the
first half, enabling us to perform well despite many challenging global
macro-economic issues at play."
Key financial metrics
HY22 HY21 HY20
Group Revenue (£ million) 92.9 95.3 49.9
Gross Margin 46.6% 48.0% 46.1%
Adjusted(1) EBITDA(2) (£ million) 22.2 29.3 9.1
Adjusted(1) EBITDA(2) as a % of sales 23.9% 30.7% 18.3%
Operating profit (£ million) 16.3 24.2 3.0
Adjusted(1) operating profit (£ million) 19.1 26.3 6.4
Net cash3 (debt) (£ million) 18.0 19.1 (19.9)
Basic earnings per share (p) 23.1 33.2 3.6
Adjusted(1) diluted earnings per share (p) 27.1 36.3 9.3
Interim dividend per share (p) 1.85 1.5 1.3
Highlights
· Group revenue remains significantly ahead of HY20 pre-pandemic levels and
is also higher than the second half of FY21 (£78.6 million), despite ongoing
COVID and component supply issues
o Focusrite brands revenue down by 11.7% to £65.4 million (HY21: £74.0
million)
o ADAM Audio revenue down by 33.1% to £8.4 million (HY21: £12.6 million)
with component shortages delaying a product range transition and reducing
supply
o Martin Audio revenue up by 44.0% to £12.5 million (HY21: £8.7 million)
benefiting from both strong installed sound sales and the
start of the return of live events
o Sequential revenue of £6.6 million (acquired in April 2021) in line with
the Board's expectations
· Gross margin at 46.6% is higher than pre pandemic (HY20: 46.1%). Compared
to HY21 pricing actions have more than offset material cost increases but
short-term freight cost impacts resulted in a reduction of 1.4% points
· Adjusted(1) EBITDA(2) at £22.2 million was 23.9% of sales,
significantly ahead of pre pandemic levels of 18.3% (HY20) of sales, although
lower than HY21 of 30.7%, which was boosted by COVID savings, and now
reflecting a cost infrastructure supporting a larger international Group
· Launch of seven new products, including Clarett Plus ranges, Circuit
Tracks groovebox, Optimal Audio speakers, Prophet 5 expansion card and Ampify
new features all expected to contribute in H2
· Strong production levels of Scarlett interfaces enabling inventory levels
to begin to rebuild
· Interim dividend of 1.85 pence, 23.3% growth compared to HY21 dividend of
1.5 pence announced in May 2021
· Acquisition of Linea Research on 10 March 2022 for £12.6 million, which
had approximately £1million of cash within net assets
Trading since the half year has continued in line with the Board's
expectations. The outlook for our industry remains positive, pointing towards
continued growth in the content creation market, as well as a robust return to
live events. With our current portfolio, planned product introductions and
continued focus on our growth strategy, including acquisitions, such as Linea
Research acquired in March, we believe the Group is well positioned for a
successful second half and remains on track to meet our expectations for the
full year against an easier year on year comparator. As always, we remain
vigilant in view of the ongoing uncertain global situation, but continue to
remain optimistic about the future prospects for the Group.
(1) Adjusted for items which relate to costs of recent acquisitions, sale of
trademarks and amortisation of acquired intangibles, see note 4 for more
details.
(2) Comprising profit before tax adjusted for interest, taxation,
depreciation, amortisation and adjusting items. This is shown on the face of
the income statement.
(3) Net cash/(debt) - comprised of cash and cash equivalents, overdrafts and
amount drawn against the RCF including the costs of arranging the RCF.
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Nominated Adviser and Joint Broker
Investec Bank plc
David Flin
William Brinkley
Charlotte Young
Peel Hunt LLP (Joint broker)
Edward Knight
Michael Burke
James Smith
Belvedere Communications
John West +44 20 3687 2753
Llew Angus +44 20 3687 2754
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 nine established brands:
Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal
Audio, Sequential and Linea acquired on 10(th) March 2022.
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. Sequential designs and manufactures high end analogue
synthesizers. Linea designs, develops, manufactures and sells market
innovative professional audio equipment globally.
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
Business and operating review
Overview
We are pleased to report our financial results and summary of operations for
the six months ended 28 February 2022. Demand for the Group's portfolio of
products has remained strong, and the Group's overall performance in the half
year was in line with our expectations and remains on track for the full
year. As anticipated, demand and sales volumes for home creation solutions
has tapered off from the unprecedented high levels during the peak of lockdown
but remain materially ahead of pre pandemic levels. This is further supported
by many trade sources citing continued growth in streaming services and
content creation. In addition, the Group has seen the installed sound market
continue to grow with positive signs towards a full recovery of live events.
The Group's continued diversification of its portfolio, routes to market, and
logistics served us well during the first half, enabling us to perform well
despite many challenging global macro-economic issues at play.
These industry wide global factors, referred to at the time of the 2021
Final Results and subsequently at our AGM in December 2021, include the
shortage of electronic components and high freight costs. These have not
abated and the result has been some short-term downward pressure on gross
margin. The Group has proactively managed these challenges including
increasing prices on some elements of the portfolio, leveraging the scale of
the Group for component purchases, and optimising our logistics and routes to
market. Pleasingly, the result has been that we finished the first half with
results as anticipated.
COVID continues to be a factor, with several delays and temporary closures of
contract manufacturers occurring over the reported period. The Group has
navigated these issues well and with offices beginning to return to normal, we
are now formulating a longer-term plan to support hybrid work arrangements
that align with our employees' ongoing needs and wishes.
In March 2022, the Group suspended all sales to the Russian Federation and to
the Republic of Belarus, with sales to Ukraine not currently possible. Trade
with these countries is transacted via distributors and makes up only around
1% of the Group's total revenue. This is not expected to have a material
impact on our performance and will likely be replaced by demand from other
regions.
On 10 March 2022, post the end of the half year period, the Group acquired
Linea Research (Linea), a market leading specialist amplifier designer and
manufacturer, already a supplier to Martin Audio. The consideration was
£12.6m in cash, including £1m of cash on Linea's balance sheet. The
acquisition is anticipated to be earnings enhancing in the current year.
People, Culture and Strategy
At the heart of our business is a talented and passionate group of employees
working for industry leading brands. They are dedicated to audio excellence
and have rallied around a common mission of 'Removing Barriers to Creativity'.
Our customer base continues to grow, encompassing a much wider range of
customers from the beginner/enthusiast right through to professionals and
enterprise facilities. At all levels, our customers depend on our solutions to
provide the highest quality audio possible in an environment where technology
aids the process instead of getting in the way.
We remain focused on our growth strategy that is centred around innovation,
market expansion, lifetime value for our customers and being a great place to
work. The Group has executed well on all of these, adding a number of new
products to our portfolio, expanding our global reach in strategic areas, and
maintaining industry leading Net Promoter Scores ('NPS').
Environmental, Social and Governance ('ESG') priorities form an important and
growing pillar of the culture across the Group, centred around the objective
of creating a 'Great Place to Work', not just for employees but also within
society and the environment. We have expanded our efforts on eNPS (employee
net promoter score), talent acquisition, Diversity and Inclusion (D&I)
initiatives, wellness programmes, community employment opportunities and
charitable work to involve all of our business units across the globe.
Additionally, and as mentioned in our report for the year ended FY21, we are
working with Ricardo PLC ahead of our first Task Force on Climate-related
Financial Disclosures ('TCFD') disclosure at the end of FY22. We already have
existing governance structures and our newly formed ESG committee will manage
the TCFD process. We remain committed to reducing our Scope 1, 2 and 3 GHG
emissions to Net Zero in line with the UK Climate Change Act. A great step
forward in this goal has been the work in this half year to manufacture part
of our core Focusrite Scarlett range with recycled aluminium reducing the
carbon footprint of this product by almost 50%.
Operating review
Our Group is comprised of nine leading brands across four main businesses
· Focusrite Audio Engineering (FAEL): Focusrite, Focusrite Pro,
Novation and Ampify
· Martin Audio: Martin Audio, Optimal Audio and newly acquired
Linea Research
· ADAM Audio
· Sequential
With the acquisition of ADAM Audio the Group ended its distribution of third
party monitors.
Six months to Six months to Six months to Year to
28 February 2022
28 February 2021
29 February 2020
31 August
2021
£'000 £'000 £'000 £'000
Revenue from external customers
Focusrite 52,404 58,325 25,574 97,218
Focusrite Pro 2,510 2,675 1,884 4,877
Novation (including Ampify) 10,511 13,043 9,935 22,262
Focusrite Subtotal 65,425 74,043 37,393 124,357
ADAM Audio 8,420 12,582 7,041 23,865
Martin Audio (including Optimal Audio) 12,459 8,651 4,5264 20,398
Sequential 6,589 - - 5,2994
Distribution - 10 966 16
Total 92,893 95,286 49,926 173,935
(4 )Revenue from date of acquisition
Focusrite brands
The Focusrite branded Scarlett and Clarett audio interfaces are a suite of
products designed to allow both beginners and professionals alike to create
the best quality audio possible. These products are core to home recording and
audio streaming, which experienced large increases in demand during the height
of the pandemic and lockdowns. Demand for these solutions remains
significantly higher than pre-pandemic periods: whilst sales are down 10% on
last year's exceptionally strong first half during the lockdown they are still
up 105% over the first half of HY20, prior to the pandemic.
Focusrite Pro offers a suite of solutions for professionals in both the
creation and audio reproduction sectors. Revenue was down versus prior year by
6%, but up on HY20 by 33%. This sector of our business was the hardest hit
by the AKM chip manufacturer's fire that resulted in a required rework of much
of the portfolio, causing product shortages during the first half. Demand for
the products has continued to be strong, fuelled by the ever-increasing amount
of new content being generated for consumers, wider acceptance of enhanced
formats, such as Dolby ATMOS, and more and more professionals adopting
networked audio.
Our Novation brand is dedicated to the electronic musician and offer a range
of solutions from groove boxes, grid controllers, keyboards, and synthesizers.
Novation products, like Focusrite, experienced unusually high demand levels
during the first half of last year. Revenue for Novation products was down 19%
compared to HY21, but up 6% compared to HY20.
Ampify has continued to develop, refine, and add to the features on its
cross-platform music creation solution, Ampify Studio, as well with our iOS
music creation apps. As well as offering in-app and subscription revenue
streams, both continue to be a great funnel for new users interested in
electronic music. Although still relatively small in comparison to the other
brands, the number of subscribers grew 245% with a 175% increase in MRR
(monthly recurring revenue). App revenue also increased year over year by
44%.
ADAM Audio
ADAM Audio, based in Berlin, is a globally recognised brand with a passionate
team focused on delivering world-class monitors (speakers) for audio content
creators. ADAM Audio's portfolio of reference monitors encompasses the
T-Series, A-Series and S-Series. The T-Series speakers are award winning
reference monitors designed for the home studio market. The A-Series are used
in both high-end home studios and professional facilities alike, and the
enterprise level S-Series are showcased in some of the most prestigious audio
production facilities in the world.
ADAM had a difficult first half: component and manufacturing delays caused a
material reduction in available quantities of the T-Series product for the
holiday period and delayed a major product transition resulting in stock outs.
The net impact of these issues resulted in ADAM finishing the first half 33%
down from the previous year, albeit 20% up over HY20. Coming into the second
half, both issues have been resolved. The T-series is back in stock and a
major revision to the A series has been launched to positive industry reviews
and with orders already ahead of forecast with shipping due to start in April
2022.
Martin Audio (including Optimal Audio)
During the first half of the year Martin Audio has seen strong growth in
installations as well as positive signs of a global return in live sound
purchases. As a result, revenues are up 44% compared to the prior year with a
strong sales pipeline across all sectors. The broad portfolio of installation
specific product alongside the strong market acceptance of the medium throw
(15m-30m) TORUS systems are fuelling this growth in installed sound. Touring
sales are slowly returning as customers come out of the pandemic and here
again, TORUS is proving to be popular with its versatility and performance
being well received by rental companies. The latest Display 3 software is also
exciting our customer base as they see the benefits of 3D visualisation of
sound system design.
Our new commercial audio brand, Optimal Audio, now has systems shipping with
distribution signed up in over 30 countries and production ramping up through
the year. At the beginning of March 2022, we acquired Linea. Linea is a market
leader in the specialist amplifier and processing technology required to power
live sound loudspeakers and they are already a major supplier to Martin Audio
with the successful IKON Series. The addition of Linea to the Group helps us
to secure this supply chain alongside growing the distribution and customer
base for their own products, and enhance our research and development
capabilities.
Sequential
Sequential, based in San Francisco, was acquired in April of last year. The
Sequential brand is synonymous with world class analogue synthesizers and has
been at the forefront of electronic music innovation for over 40 years.
Sequential had a very strong first half, finishing ahead of expectations
despite component shortage issues. Sequential has several new product releases
scheduled for the second half that are expected to strengthen its performance
further. Additionally, the Group has been expanding Sequential's distribution
and demand generation activities by leveraging the scale of the FAEL and
ADAM's global sales teams. We expect to continue these efforts through the
second half.
Research and development
R&D remains a cornerstone of our Group's strategy. In this period, the
Group launched seven new products to market as well as a host of software and
hardware upgrades. In addition, the Group has a very robust set of product
introductions scheduled for the second half of this financial year with major
launches planned in most brands across the portfolio.
Regional review
Six months to 28 February 2022 Six months to 28 February 2021 Six months to 29 February 2020 Year to
31 August 2021
£'000 £'000 £'000 £'000
North America 39,763 41,845 18,094 74,633
Europe, Middle East and Africa ('EMEA') 35,424 36,945 23,115 69,292
Rest of World ('ROW') 17,706 16,496 8,717 30,010
Total 92,893 95,286 49,926 173,935
North America
North America remains the largest region for the Group representing 43% of
total revenue in the period. FAEL, ADAM Audio and Sequential products are sold
through similar sales channels, and Martin Audio's North America business is
transacted through a mix of live/tour sound rental companies, system
integrators and direct to end-users. In North America we have invested in
sales, marketing, logistics and customer service to support the expanded
business. At the beginning of this year, the Group set up a new entity to
allow our US based teams to cross-sell products in the Group's portfolio and
scale our finance, logistics, and support as a shared service. This has
settled in well and having the desired impact.
Revenue for Focusrite brands in North America was down 12% compared to H1 FY21
but up 117% compared to the same period pre-pandemic in H1 FY20. ADAM
Audio's performance was down 42% year-on-year, largely as a result of the
reasons cited above. Compared to H1 FY20, ADAM Audio was up 8%. Sequential
had a strong first half continuing the sales volumes seen in the second half
of last year. Martin Audio's North America business was up 56% on the
prior year, highlighting great momentum due to the return of live events.
EMEA
EMEA represented 38% of the Group's revenue for the first half of FY22. Like
North America, FAEL, ADAM Audio and Sequential utilise a very similar set of
distributors and resellers. The Group has been undertaking initiatives in
certain countries to begin selling directly to the reseller channel as opposed
to selling to a distributor. To date, these actions have proven beneficial in
terms of margin and connectedness to the local channel and customers. Martin
transacts through a combination of distributors, system integrators and live
sound rental companies.
For Focusrite brands, the region was down 17% compared to H1 FY21 but up 31%
on H1 FY20. ADAM Audio's EMEA business was down 26% on the prior first half
but up 27% over H1 FY20. Sequential had a strong first half, trading ahead
of our expectations. Martin also delivered a strong performance in EMEA,
finishing 68% up over the prior year. Like North America, a great signal of
the return of live events as well as continued strength in installed sound.
ROW
ROW comprises all other regions outside of EMEA and North America, principally
made up of Asia Pacific ('APAC') and Latin America ('LATAM') and constitutes
19% of total Group revenue. Targeted as key areas for growth, the Group
continues to invest resources into these regions and now has over 20 people
dedicated to ROW demand generation and support activities.
As with North America and EMEA, APAC utilises similar channels for the
Focusrite, Novation, ADAM Audio and Sequential brands and a combination of
distributors, system integrators and rental companies for Martin. In the first
half, the Group initiated a direct-to-reseller structure for Australia,
replacing our existing distributor and setting up our own logistics. This has
performed well, and we are planning to adopt this structure in other strategic
markets over the next few years. For Focusrite brands, APAC was up 9% over
the prior year. ADAM Audio was down 27%, mainly due to the same issues
outlined above relating to component supply. Trading for Sequential in this
region was ahead of expectations and going forward will be supported through
our internal distributor. Martin Audio had a satisfactory performance in APAC,
finishing 22% up over the prior year. It is worth noting that for Martin, the
APAC region recovered quickly from pandemic/lockdowns last year, so the
comparisons over last year had minimal pandemic impact unlike EMEA and North
America.
LATAM finished 24% down over the prior year, although 46% ahead of HY20. The
results this year were impacted by supply issues into the region, with both
ADAM and FAEL brands reporting declines.
In summary, the Group has performed well and mitigated many of the problems
caused by global macro-economic issues. Going forward, several industry data
points support continued growth in the content creation market and a robust
return to live events. With our current portfolio, planned product
introductions and continued focus on our growth strategy, we believe the Group
is well positioned for a successful second half and full year.
Financial Review
Overview
Against strong comparators the Group has retained much of the sales volume
gained during the pandemic, delivering revenue only 2.5% lower than the six
months to February 2021, with adjusted(1) EBITDA at £22.2 million (24% of
sales). This is lower than HY21 adjusted EBITDA of £29.3 million, due to a
reduction in the gross margin as a result of short-term factors increasing
freight costs, together with prior year COVID savings reversing and the Group
investing to support growth and expansion. Reported operating profit at £16.3
million (HY21: £24.2 million) has reduced for the same reasons, together with
a slightly higher depreciation charge. Similarly, adjusted(1) diluted EPS of
27.1p is lower than the prior year's 36.3p whilst almost three times that of
HY20 (9.3p).
Income statement
HY22 HY22 HY22 HY21 HY21 HY21 HY20 HY20 HY20
£m £m £m £m £m £m £m £m £m
Adjusted Adjusting items Reported Adjusted Adjusting items Reported Adjusted Adjusting items Reported
Revenue 92.9 - 92.9 95.3 - 95.3 49.9 - 49.9
Cost of sales (49.6) - (49.6) (49.6) - (49.6) (26.9) - (26.9)
Gross profit 43.3 - 43.3 45.7 - 45.7 23.0 - 23.0
Administrative expenses (24.2) (2.8) (27.0) (19.4) (2.1) (21.5) (16.6) (3.4) (20.0)
Operating profit 19.1 (2.8) 16.3 26.3 (2.1) 24.2 6.4 (3.4) 3.0
Net finance income/(expense) 0.2 - 0.2 (0.6) - (0.6) (0.3) - (0.3)
Profit before tax 19.3 (2.8) 16.5 25.7 (2.1) 23.6 6.1 (3.4) 2.7
Income tax expense (3.3) 0.3 (3.0) (4.3) - (4.3) (0.7) - (0.7)
Profit for the period 16.0 (2.5) 13.5 21.4 (2.1) 19.3 5.4 (3.4) 2.0
HY22 HY22 HY22 HY21 HY21 HY21 HY20 HY20 HY20
£m £m £m £m £m £m £m £m £m
Adjusted Adjusting items Reported Adjusted Adjusting items Reported Adjusted Adjusting items Reported
Operating profit 19.1 (2.8)(1) 16.3 26.3 (2.1) (1) 24.2 6.4 (3.4) (1) 3.0
Add - amortisation of intangible assets 1.9 2.2(1) 4.1 2.0 1.8(1) 3.8 2.0 1.2(1) 3.2
Add - depreciation of tangible assets 1.2 - 1.2 1.0 - 1.0 0.7 - 0.7
EBITDA 22.2 (0.6) 21.6 29.3 (0.3) 29.0 9.1 (2.2) 6.9
(1 )Adjusting items comprise costs relating to the recent acquisitions, sale
of trademarks and amortisation of acquired intangibles. They are further
detailed in note 4 of the interim statements.
Revenue
Revenue for the Group declined by 2.5% to £92.9 million (HY21: £95.3
million) which, adjusting for acquisitions and constant currency, represents
an organic decline of 8.7%. Sequential was purchased in April 2021 and
contributed £6.6 million, ahead of our expectations, in the first half year
(HY21: nil). This first half year the Group faced very strong comparators,
together with the ongoing challenges of managing through COVID and component
supply issues. Despite this, demand has remained at levels significantly
higher than pre pandemic, and although down on the prior year, the first half
of this year is 18% higher than the second half of FY21, where component
availability restricted supply. These ongoing issues particularly impacted
ADAM in the first half of this year, contributing to the decline of 33%.
Conversely, Martin grew by 44% with the successful focus on installed sound
and the return of live markets delivering strong growth.
HY20 Revenue Reported HY21 Revenue Exchange As adjusted HY22 HY22 OCC growth (%)(4)
Reported Revenue
Reported HY22 Reported
Growth (%)
Focusrite 38.4 74.0 (0.4) 73.6 65.4 (11.7) % (11.1) %
ADAM Audio 7.0 12.6 (0.3) 12.3 8.4 (33.1) % (31.7) %
Martin Audio (3) 4.5 8.7 (0.1) 8.6 12.5 44.0 % 45.3 %
Total organic 49.9 95.3 (0.8) 94.5 86.3 (8.6) % (8.7) %
Sequential (3) - - - - 6.6 N/A N/A
Total 49.9 95.3 (0.8) 94.5 92.9 (2.5) % (8.7) %
(3)( )Martin Audio acquired December 2019 Sequential acquired in April 2021.
(4)( )Organic constant currency (OCC) growth rate is calculated by comparing
FY22 revenue to FY21 revenue adjusted for FY22 exchange rates and the impact
of acquisitions.
Exchange rates were mixed in the period. The Euro average rate strengthened
to €1.18 (HY21: €1.14) and the USD average rate weakened slightly from
$1.36 in HY21 to $1.35 in HY22. The effect of the Dollar movement is to
decrease the revenue for HY22 relative to HY21. However, at the profit level
the USD effect is mitigated by the purchases of stock in USD from the
manufacturers in China and Malaysia and the Euro effect is largely mitigated
by the Group's hedging policy (approximately 75% of Euro exposure is hedged in
the current financial year and approximately 50% is hedged in the following
financial year).
Segment profit
Segment profit is disclosed in more detail in note 3 to the accounts named,
'Operating Segments'. These segments compare the revenue of the products of
the relevant brands with the directly attributable costs to create segment
profit.
Gross profit
In HY22, the gross margin was 46.6%, down from 48.0% in HY21. Although all
brands implemented price increases which more than offset underlying cost
increases, short term freight and component supply issues added to downward
pressures. Freight costs have increased by approximately 2% of sales in this
half year, exacerbated by a greater mix of air freight to ensure supply during
the busy holiday period. In addition, the operations teams have secured
components for production through several spot buys at higher prices, which is
not expected to continue once supply normalises.
HY22 and HY21 both include benefits from US duty refunds, £0.4 million this
year and £0.6 million in HY21. All brands across the Group monitor the impact
of component price increases on our margin and have taken action to increase
sales prices to mitigate this in the second half, whilst ensuring that product
remains competitive and value for money in the market.
Administrative expenses
Administrative expenses consist of sales, marketing, operations, the
uncapitalised element of research and development (partially offset by the
Research and Development Expenditure Credit regime ('RDEC') tax credit) and
central functions such as legal, finance and the Group Board. These expenses
were £27.0 million, up from £21.5 million last year. Excluding adjusting
costs of £2.8 million (HY21: £2.1 million) (see Adjusting items section),
the operating costs were £24.2 million (HY21: £19.4 million). Sequential
contributed a full six months of costs of £1.6 million.
The underlying increase in administrative expenses, excluding the impact of
Sequential, of 16% has been a result of several factors. HY21 at the height
of the lockdowns included significant savings relating to lower travel,
marketing and office running costs. During FY21 the Group invested to
support the higher volumes, with extra employees in service and product teams
resulting in a step up in costs in H2 FY21 which has continued at a similar
level in this half year as sales volumes have continued at the same levels.
In addition, the Group has strengthened central infrastructure and security,
including IT, to support an expanded international group with increased
requirements for remote working. Much of this one off investment was made in
the second half of FY21, which had administrative expenses totalling £19.9
million. Inflation has further impacted this half year, with cost increases
being mitigated by cost savings and efficiencies where possible.
Adjusted EBITDA
Adjusted EBITDA is an alternative performance measure, and is widely used by
securities analysts, investors and other interested parties to evaluate the
profitability of companies. It is also used within the Group as the basis
for some of the incentivisation of senior management at both the operating
company level and the Group level. Adjusted EBITDA decreased from £29.3
million in HY21 to £22.2 million in HY22, a decrease of 24%. The decrease of
£7.1 million was due to the lower gross margin and the increase in costs to
support the ongoing strong demand for our products and the Group's
expansion. Adjusted EBITDA as a percentage of sales is 24%, lower than HY21
but ahead of the pre pandemic level in HY20 of 18.3%. A reconciliation to
operating profit can be found in note 4.
Depreciation and amortisation
Depreciation is charged on tangible fixed assets on a straight-line basis over
the assets' estimated useful lives, normally ranging between two and five
years. Amortisation is mainly charged on capitalised development costs,
writing-off the development cost over the life of the resultant product. The
life spans of the products vary across our brands, from three years for
Focusrite and Novation and up to eleven years for Martin Audio and fifteen for
Sequential, reflecting the different lifespans of the products.
The amortisation of the acquired intangible assets totalled £2.2 million
during the period (HY21: £1.8 million) and has been disclosed within
adjusting items.
Across the Group, £3.2 million of development costs were capitalised (HY21:
£2.6 million) and the amortisation of capitalised development costs was £1.5
million (HY21: £1.6 million).
Adjusting items
In HY22 adjusting items totalled £2.8 million (HY21 £2.1 million), £0.3
million relating to the diligence costs for the acquisition of Linea that was
completed on 10 March 2022, £1.1 million for the earn out relating to the
Sequential acquisition, and £2.2 million relating to amortisation of acquired
intangible assets, offset by £0.8 million of income from the sale of a
trademark. In HY21, the adjusting items included £0.3 million relating to
the diligence costs for the acquisition of Sequential that was completed 26
April 2021 and £1.8 million relating to amortisation of acquired intangible
assets.
Foreign exchange and hedging
The exchange rates were as follows:
Exchange rates HY22 HY21 HY20 FY21
Average
USD:GBP 1.35 1.36 1.28 1.36
EUR:GBP 1.18 1.14 1.16 1.14
Period end
USD:GBP 1.34 1.39 1.28 1.38
EUR:GBP 1.20 1.15 1.16 1.17
The average USD rate has weakened slightly at $1.35:£1.00 for HY22 (HY21:
$1.36). The USD accounts for over half of Group revenue but nearly all of
the cost of sales so there is a useful natural hedge.
The Group enters 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 ending August 2022) and approximately 50% of the
Euro flows for the following financial year (FY23).
In HY22, approximately three-quarters of Euro flows were hedged at €1.13,
and the average transaction rate was €1.18, thereby creating a blended
exchange rate of approximately €1.15. In HY21, the equivalent hedging
contracts were at €1.12, versus the transactional rate of €1.14 and so
creating a blended exchange rate of €1.13.
Hedge accounting is used, meaning that the hedging contracts have been matched
to income flows and, providing the hedging contracts remain effective,
movements in fair value are shown in a hedging reserve in the balance sheet,
until the hedge transaction occurs.
Corporation tax
The effective tax rate for the period is 18.6% (HY21: 18.2%), increasing
slightly as brought forward losses are now utilised. In both years the rate
has been impacted by the disallowance of certain adjusting item costs for
corporation tax, including depreciation of acquired intangibles and costs
relating to diligence on acquisitions. Adjusting for these, the underlying
effective rate is 16.4% (HY21: 16.7%). Since September 2020 the Group has been
part of the RDEC tax scheme for R&D credits, and as a result a credit of
£0.2 million has been recognised against uncapitalised R&D costs within
Administrative expenses, which is taxable. The effective tax rate is
expected to move to be broadly in line with the UK headline rate, which is due
to increase on 1 April 2023 to 25% as outlined by the Chancellor.
Earnings per share ('EPS')
The basic EPS for the half year was 23.1 pence, down 30% from 33.2 pence in
HY21. This decrease has largely followed the change in reported profit after
tax. The weighted average number of shares used for the calculation has
increased marginally compared to the prior year at 58,215,504 shares (HY21:
58,077,283 shares). The more comparable measure, excluding adjusting items and
including the dilutive effect of share options, is the adjusted diluted EPS.
This decreased to 27.1 pence, from 36.3 pence in HY21, a decrease of 25%.
HY22 HY21 HY20 FY21
Pence Pence Pence Pence
Basic 23.1 33.2 3.6 48.8
Diluted 22.8 32.7 3.5 48.2
Adjusted basic 27.4 36.9 9.4 58.2
Adjusted diluted 27.1 36.3 9.3 57.5
Balance sheet
HY22 HY21 HY20 FY21
£m £m £m £m
Non-current assets 66.2 51.2 63.3 62.8
Current assets
Inventories 25.7 15.9 18.6 20.7
Trade and other receivables 23.7 18.2 19.3 16.3
Cash 17.8 18.8 12.8 17.3
Current liabilities
Trade, other payables and provisions (29.9) (20.5) (15.7) (25.5)
Non-current liabilities
Bank loan or overdraft 0.2 0.3 (32.7) 0.3
Other non-current liabilities (9.6) (8.6) (10.6) (7.6)
Net assets 94.1 75.3 55.0 84.3
Non-current assets
The non-current assets comprise: goodwill, brands, patents and capitalised
development costs; property, plant and equipment; and software.
Goodwill totals £9.7 million (HY21: £7.9 million). This comprises Martin
Audio's £2.3 million, ADAM Audio's £4.8 million, Novation's £0.4 million
and Sequential's £2.2 million.
The brands were initially valued at £20.4 million. This comprises Martin
Audio's £6.8 million, which is being amortised over twenty years, ADAM
Audio's £7.5 million, which is being amortised over ten years and Sequential
at £6.1 million similarly between ten and fifteen years. At 28 February 2022
the brands had carrying value, net of amortisation, of £16.8 million (HY21:
£12.7 million).
The capitalised development costs comprise acquired developments in relation
to both completed products and products currently in development, and
internally generated development costs for products currently on sale and
currently in development. The amortisation periods range from three years to
eleven years depending on the expected life of the products. The shorter
amortisation periods are more usual for Focusrite and Novation products and
the longer periods for the ADAM Audio monitors and the Martin Audio live
speakers. The capitalised development costs have a carrying value, net of
amortisation, of £31.0 million (HY21: £25.6 million).
Based on current trading and management forecasts, no impairments to the
carrying value of the intangible assets have been deemed necessary. This will
be reassessed at the year-end for evidence of any permanent diminution in
value.
Overall, the amortisation of the intangible assets totals £4.1 million (HY21:
£3.8 million). This is split between amortisation of intangible assets
acquired as part of the acquisitions of £2.2 million (HY21: £1.8 million),
and other amortisation of £1.9 million (HY21: £2.0 million). The
amortisation of acquired intangible assets has been treated as an adjusting
item. The ongoing amortisation relates to the capitalised development costs
for new products. The difference in the period between ongoing amortisation
and capitalised development costs is £1.7 million (HY21: £1.2 million).
The remaining £8.7 million (HY21: £5.0 million) of non-current assets
consist mainly of right of use assets relating to the Group's leased offices
and warehouses, tooling equipment for the manufacture of products and other
intangible assets such as software and trademarks. The lease for the Martin
premises was renewed in this half year adding an asset of £3.5 million and a
liability of £3.5 million to the balance sheet.
Working capital
Working capital was 11.4% of revenue (HY21: 7.7%). Inventory has increased,
as supply for Focusrite products has improved, allowing us to rebuild from
very low stock positions, a trend which is expected to continue in the second
half of the year enabling the Group to return to historic and more resilient
levels of working capital at around 20% of revenue. As is our practice,
creditors continue to be paid on time.
Cash flow
HY22 HY21 HY20 FY21
£m £m £m £m
Free cash flow(4) 2.7 5.5 (0.6) 4.9
Adjusted for the following items
Acquisition of subsidiary (net of cash acquired) - - 4.3 13.9
Bank loan (net of arrangement fee) - 12.0 - 11.9
Adjusting items (cash outflow)( 5) 0.2 - 0.7 0.8
Underlying free cash flow 2.9 17.5 4.4 31.5
( )
(4)Defined as net cash from operating activities less net cash used in
investing and financing activities, excluding dividends paid.
(5)Defined as net cash payments for Adjusting costs and income.
The underlying free cash flow in HY22 was £2.9 million, which was 3.1% of
revenue. In the comparative period, the underlying free cash flow was £17.5
million which was 18.4% of revenue. Underlying free cash flow as a percentage
of revenue is a key performance measure within the Group and forms an element
of the incentivisation metrics for senior management across the Group. As
referenced in the FY21 year end results, we expect underlying free cashflow
this year to be lower than our historic average of approximately 12% of
revenue as we rebuild stock levels which were depleted due to high demand and
component shortages and other supply constraints in FY21.
Free cash flow is 2.9% of revenue and is impacted by similar issues as
underlying free cashflow. In the prior year adjusting items related to the
acquisition of Sequential and the repayment of loans relating to both this and
the Martin acquisition. In the current first half year they relate to the
payment of the first part of the Sequential earn out and the income received
from the sale of a trademark.
The net cash balance at the period end was £18.0 million (HY21: net cash of
19.1 million and FY21: net cash of £17.6 million). This includes the
arrangement fee for the RCF of £0.2m which is being amortised across the
period of the facility. The Group has a £40 million revolving credit loan
facility split evenly between HSBC and NatWest due for renewal in December
2024. As at the balance sheet date there were no amounts drawn down from the
facility (HY21: nil, FY21 nil).
Dividend
The Board has approved an interim dividend of 1.85 pence (HY21: 1.5 pence) a
growth of 23%, in line with the Group's progressive dividend policy, and
reflecting the Board's confidence in the Group's prospects.
Summary and outlook
Demand for the Group's portfolio of products has remained strong, and the
Group's overall performance in the half year was in line with our expectations
and remains on track for the full year. As anticipated, demand and sales
volumes for home creation solutions has tapered off from the unprecedented
high levels during the peak of lockdown but remain materially ahead of pre
pandemic levels. This is further supported by many trade sources citing
continued growth in streaming services and content creation. In addition, the
Group has seen the installed sound market continue to grow with positive signs
towards a full recovery of live events. The Group's continued diversification
of its portfolio, routes to market, and logistics served us well during the
first half, enabling us to perform well despite many challenging global
macro-economic issues at play.
Trading since the half year has continued in line with the Board's
expectations. The outlook for our industry remains positive, pointing towards
continued growth in the content creation market, as well as a robust return to
live events. With our current portfolio, planned product introductions and
continued focus on our growth strategy, including acquisitions, such as Linea
research acquired in March, we believe the Group is well positioned for a
successful second half and remains on track to meet our expectations for the
full year against an easier year on year comparator. As always, we remain
vigilant in view of the ongoing uncertain global situation, but continue to
remain optimistic about the future prospects for the Group.
Tim Carroll Sally McKone
Chief Executive Officer Chief Financial Officer
25 April 2022 25 April 2022
Risks and Uncertainties
The Board has considered the principal risks and uncertainties for the
remaining half of the financial year and determined that a number of the risks
presented in the 2021 Annual Report, described as follows, also remain
relevant to the rest of this financial year and could have a material impact
on the Group's performance although they are not expected to cause the Group's
actual results to differ materially from the expected results:
· Business strategy development and implementation;
· Product supply;
· Information security, data privacy and business continuity and cyber
risk; and
· Climate Change.
Conflict in Ukraine
The tragic war in Ukraine makes for extraordinary uncertainty and potentially
serious economic consequences. The Group trades through distributors in
Russia, Ukraine and Belarus, and has ceased trading within all these
markets. Annual revenue in these markets was approximately £2 million last
year and the Group has no employees or significant suppliers based in these
countries.
COVID
The threat of general disruption to operations, including from government
restrictions, the impact on the supply chain and on people availability as a
result of COVID has continued to be felt although to a lesser extent than in
the first year of the pandemic. Whilst demand has stayed strong, it is less
than in the prior year and the volatility, uncertainty and disruption arising
in connection with COVID remains. In particular, sporadic shut-downs of our
contract manufacturers in order to halt the spread of the disease,
particularly in China, and shipping and container delays present a threat to
the Group's ability to deliver products across the world and make for an
unknown trading outlook.
People
We understand the effect the COVID pandemic has had on our people's mental
health. As stories of longer hours, the inability to switch off and feelings
of insecurity in relation to the return - albeit on a hybrid basis - to office
working abound in the press we have continued with our efforts to support the
good health and wellbeing of our people. Earlier this year we introduced our
first wellbeing forum and partnered with Music Support - a mental health
charity for people in the music industry, run by people in the music industry.
Working with them we have been training a number of mental health first aiders
and offering all our people mental health awareness training all with the aim
of remaining a great place to work.
The job market has changed during the pandemic with candidates having more
choice and we are responding to this. We are taking steps to accelerate our
recruitment process so that offers can quickly be made to candidates and
continually monitor the packages we offer to ensure we can attract, retain and
motivate our people.
ESG and our sustainability strategy
As a responsible and trusted business, we are proactively addressing
environmental, social and governance risks and our pace of change in this area
has only intensified. Our overarching ambition is for the Group to be an
industry leader on sustainability issues and to that end we have conducted an
extensive materiality assessment to develop our detailed sustainability
objectives and targets. This is outlined in our 2021 Annual Report on pages 38
to 52.
Cost inflation
The rate of cost inflation has been widely reported and is prevalent in most
of our major markets. Our operations teams constantly work to build our
products as efficiently and cost effectively as possible and our brand
strength helps us to mitigate cost increases with price increases, whilst
still striving to remain competitive in the market.
Ongoing severe cost inflation may also impact the discretionary income
available to our customers. By remaining competitive in the market and
offering premium desirable products we aim to mitigate this by being the first
choice for customers.
Forward looking statements
Forward-looking statements in this first half year report must not be relied
upon as guarantees or predictions of future performance. The business
continues to face known and unknown risks, uncertainties and other factors,
many of which are beyond our control, which may mean our actual results differ
from those expressed in this first half year report.
Condensed Consolidated Income Statement
For the six months ended 28 February 2022
Note Six months to Six months to 28 February Year to
28 February 2022
31 August 2021
2021
£'000 £'000 £'000
Revenue 2 92,893 95,286 173,935
Cost of sales (49,630) (49,594) (89,805)
Gross profit 43,263 45,692 84,130
Administrative expenses (27,809) (21,541) (48,356)
Other income 829 - -
Adjusted EBITDA (non-GAAP measure) 22,222 29,236 47,548
Depreciation and amortisation (3,146) (2,946) (6,133)
Adjusting items for Adjusted EBITDA:
Amortisation of acquired intangible assets (2,236) (1,869) (4,013)
Adjusting items 4 (557) (270) (1,628)
Operating profit 16,283 24,151 35,774
Finance income 351 - 48
Finance costs (106) (589) (784)
Profit before tax 16,528 23,562 35,038
Income tax expense 5 (3,075) (4,296) (6,759)
Profit for the period from continuing operations 13,453 19,266 28,279
Earnings per share
From continuing operations
Basic (pence per share) 7 23.1 33.2 48.8
Diluted (pence per share) 7 22.8 32.7 48.2
Condensed Consolidated Statement of Other Comprehensive Income
For the six months ended 28 February 2022
Six months to Six months to Year to
28 February 2022
28 February 2021
31 August 2021
£'000 £'000 £'000
Profit for the period 13,453 19,266 28,279
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (1,375) (265) (726)
(Loss)/gain on forward foreign exchange contracts designated and effective as (144) 626 445
a hedging instrument
Tax on hedging instrument 27 (151) (85)
Total comprehensive income for the period 11,961 19,476 27,913
Profit attributable to:
Equity holders of the Company 11,961 19,476 27,913
Condensed Consolidated Statement of Financial Position
Note 28 February 2022 28 February 2021 31 August 2021
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 9,710 7,882 10,054
Other intangible assets 8 49,984 39,500 49,066
Property, plant and equipment 6,466 3,833 3,646
Total non-current assets 3 66,160 51,215 62,766
Current assets
Inventories 25,717 15,908 20,749
Trade and other receivables 22,404 17,326 14,775
Derivative financial instruments 9 572 846 716
Current tax asset 702 - 869
Cash and cash equivalents 9 17,813 18,792 17,339
Total current assets 67,208 52,872 54,448
Current liabilities
Trade and other payables (27,168) (14,938) (23,673)
Other liabilities (987) (888) (774)
Current tax liabilities - (3,390) -
Provisions (1,711) (1,319) (1,092)
Total current liabilities (29,866) (20,535) (25,539)
Net current assets 37,342 32,337 28,909
Total assets less current liabilities 103,502 83,552 91,675
Non-current liabilities
Deferred tax (6,182) (6,311) (5,996)
Other liabilities (3,442) (681) (511)
Provisions - (1,519) (1,069)
Bank loan and arrangement fee 9 211 303 248
Total non-current liabilities (9,413) (8,208) (7,328)
Total liabilities (39,279) (28,743) (32,867)
Net assets 94,089 75,344 84,347
Equity and liabilities 59 59
Capital and reserves
Share capital
59
Share premium 115 115 115
Merger reserve 14,595 14,595 14,595
Merger difference reserve (13,147) (13,147) (13,147)
Translation reserve (1,904) (68) (529)
Hedging reserve 572 846 716
EBT reserve - (1) (1)
Retained earnings 93,799 72,945 82,539
Equity attributable to owners of the Company 94,089 75,344 84,347
Total equity 94,089 75,344 84,347
Condensed Consolidated Statements of Changes in Equity
For the six months ended 28 February 2022 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 2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
Profit for the period - - - - - - - 13,453 13,453
Other comprehensive (expense)/income for the period - - - - (1,375) (144) - 27 (1,492)
Total comprehensive (expense)/income for the period - - - - (1,375) (144) - 13,480 11,961
Transactions with owners of the Company:
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - - (1,091) (1,091)
Share-based payment current tax deduction in excess of remuneration expense - - - - - - - 598 598
Shares from EBT exercised - - - - - - 1 591 592
Share-based payments - - - - - - - 499 499
Shares withheld to settle employees' tax obligations associated with - - - - - - - (865) (865)
share-based payments
Premium on shares awarded in lieu of bonuses - - - - - - - 202 202
Dividends paid - - - - - - - (2,154) (2,154)
Balance at 28 February 2022 59 115 14,595 (13,147) (1,904) 572 - 93,799 94,089
Condensed Consolidated Statements of Changes in Equity (Continued)
For the six months ended 28 February 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 2020 58 115 14,595 (13,147) 197 220 (1) 54,861 56,898
Profit for the period - - - - - - - 19,266 19,266
Other comprehensive (expense)/income for the period - - - - (265) 626 - (151) 210
Total comprehensive (expense)/income for the period - - - - (265) 626 - 19,115 19,476
Transactions with owners of the Company:
Shares issued to EBT 1 - - - - - (1) - -
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - - 259 259
Share-based payment current tax deduction in excess of remuneration expense - - - - - - - 447 447
Shares from EBT exercised - - - - - - 1 300 301
Share-based payments - - - - - - - 305 305
Shares withheld to settle employees' tax obligations associated with - - - - - - - (720) (720)
share-based payments
Premium on shares awarded in lieu of bonuses - - - - - - - 60 60
Dividends paid - - - - - - - (1,682) (1,682)
Balance at 28 February 2021 59 115 14,595 (13,147) (68) 846 (1) 72,945 75,344
Condensed Consolidated Statements of Changes in Equity (Continued)
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 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 (expense)/income for the period - - - - (726) 445 - (85) (366)
Total comprehensive (expense)/ income for the period - - - - (726) 496 - 28,143 27,913
Transactions with owners of the Company:
Shares issued to EBT 1 - - - - - (1) - -
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 associated with - - - - - - - (739) (739)
share-based payments
Premium on shares awarded 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 Statement of Cash Flow
For the six months ended 28 February 2022
Six months to Six months to Year to
28 February 2022
28 February 2021
31 August 2021
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period 13,453 19,266 28,279
Adjustments for:
Income tax expense 3,075 4,296 6,759
Net interest (income)/charge (228) 574 736
Loss on disposal of property, plant and equipment 15 - 4
(Gain)/loss on disposal of intangible assets (854) - 498
Amortisation of intangibles 4,093 3,786 8,126
Depreciation of property, plant and equipment 1,289 1,029 2,022
Share-based payments 515 416 973
Operating cash flow before movements in working capital 21,358 29,367 47,397
(Increase)/decrease in trade and other receivables (7,592) 527 3,533
(Increase)/decrease in inventories (4,966) 3,465 (1,023)
Increase/(decrease) in trade and other payables 2,491 (8,169) (773)
Operating cash flow before interest and tax paid 11,291 25,190 49,134
Net interest received/(paid) 246 (145) (311)
Income tax paid (2,722) (2,819) (9,741)
Net foreign exchange movement (1,285) (700) (566)
Net cash inflow from operating activities 7,530 21,526 38,516
Cash flows from investing activities
Purchases of property, plant and equipment (378) (779) (1,126)
Proceeds from disposal of intangible assets 978 - -
Development of intangible assets (5,024) (2,911) (5,485)
Acquisition of subsidiary, net of cash acquired - - (13,948)
Net cash used in investing activities (4,424) (3,690) (20,559)
Cash flows from financing activities
Issue of equity shares - 1 -
Proceeds from loans and borrowings - - 7,353
Repayments of loans and borrowings - (12,000) (19,335)
Payment of right of use liabilities (478) (338) (1,057)
Equity dividends paid (2,154) (1,682) (2,554)
Net cash used in financing activities (2,632) (14,019) (15,593)
Net increase in cash and cash equivalents 474 3,817 2,364
Cash and cash equivalents at beginning of the period 17,339 14,975 14,975
Cash and cash equivalents at end of the period 17,813 18,792 17,339
Notes to the Condensed Consolidated Interim Financial Statements
1. Basis of preparation and significant accounting policies
Focusrite plc (the 'Company') is a company incorporated in the UK. The
condensed consolidated interim financial statements ('interim financial
statements') as at and for the six months ended 28 February 2022 comprised the
Company and its subsidiaries (together referred to as the 'Group').
The Group is a business engaged in the development, manufacture and marketing
of professional audio and electronic music products.
Statement of compliance
The condensed set of financial statements are for the six months ended 28
February 2022 and are presented in Pounds ('GBP' thousands; £'000). This is
the functional currency of the Group.
The condensed set of financial statements has been prepared in accordance with
the recognition and measurement requirements of UK-adopted international
accounting standards and the AIM rules.
The annual financial statements of the Group for the year ended 31 August 2022
will be prepared in accordance with UK-adopted international accounting
standards. The condensed set of financial statements has been prepared
applying the accounting policies and presentation that were applied in the
preparation of the company's published consolidated financial statements for
the year ended 31 August 2021 which were prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
AIM listed companies are not required to comply with IAS 34 'Interim Financial
Reporting' and accordingly the Company has taken advantage of this exemption.
The condensed financial statements do not include all the information required
for a complete set of IFRS financial statements. However, selected explanatory
notes are included to explain events and transactions that are significant to
an understanding of the changes in the Group's financial position and
performance since the last annual consolidated financial statements as at and
for the year ended 31 August 2021.
These interim financial statements were authorised for issue by the Company's
Board of Directors on 25 April 2022.
The comparative figures for the financial year ended 31 August 2021 are the
Company's statutory accounts for that financial year. Those accounts have been
reported on by the Company's auditor and delivered to the registrar of
companies. The report of the auditor was (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.
Significant accounting policies
The condensed set of financial statements has been prepared applying the
accounting policies and presentation that were applied in the preparation of
the company's published consolidated financial statements for the year ended
31 August 2021 which were prepared in accordance with International Accounting
Standards (IAS) in conformity with the requirements of the Companies Act 2006.
1.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and subsidiaries controlled by the Company drawn up to 28 February
2022.
1.2 Subsidiaries
Subsidiaries are entities controlled by the Group. Control exists when the
Group has the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. In assessing control, the
Group takes into consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is transferred
to the acquirer. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until
the date control ceases.
1.3 Going concern
The Board of Directors have 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 16 months from the
date of approval of these interim financial statements ("the going concern
period"). Accordingly, the interim 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 period
ending 16 months from the date of their approval of these financial
statements. These forecasts include a severe but plausible downside scenario.
The base case covers the period to August 2023 and includes demanding but
achievable forecast growth. The forecast has been extracted from the Group's
FY22 forecast and three-year plan. Key assumptions include:
· Future growth assumptions consistent with those recently achieved by
the business and adjusted for the annualization of Linea's (new acquisition)
results.
· Continued investments 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 other
than the acquisition of Linea Research Holdings Ltd that was completed in
March 2022.
Throughout the period the forecast cash flow information indicates that the
Group will have sufficient cash reserves and comply with the leverage and
interest cover covenants contained within the facility.
The Directors' view is that a severe yet plausible downside assumption against
their base case forecasts is estimated to be a revenue shortfall of 30% on the
base case for a 13-month period commencing May 2022 with a slow return of 5%
per month thereafter. 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. As an additional measure, the Directors could also cancel
the dividend. Even at that level, 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 0.3x compared to the
maximum of 2.5x. The Group's net debt position under this severe plausible
downside scenario would still be expected to improve at the end of the
13-month period.
In reality, the Group is still experiencing levels of consumer registrations
and customer demand significantly higher than pre-pandemic. This is
evidenced by Group's net cash position which was approximately £7.4 million
at 1 April 2022 even after funding the acquisition of Linea as indicated
above. Consequently, the Directors are confident that the Group will have
sufficient funds to continue to meet their liabilities as they fall due for at
least 16 months from the date of approval of the financial statements and
therefore have prepared the financial statements on a going concern basis.
1.4 Earnings per share
The Group presents basic and diluted earnings per share ('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.
1.5 Accounting estimates and judgements
In application of the Group's accounting policies, the Directors are required
to make judgements, estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may differ
from these estimates.
In preparing these condensed consolidated interim financial statements, the
significant judgements made by the Directors in applying the Group's
accounting policies and key sources of estimation uncertainty were the same as
those applied to the Group's financial statements for the year ended 31 August
2021.
1.6 Foreign currencies
The individual financial statements of each subsidiary are presented in the
currency of the primary economic environment in which it operates (its
functional currency). Sterling is the predominant functional currency of the
Group and presentation currency for the consolidated financial information.
In preparing the financial statements of the individual companies,
transactions in currencies other than the entity's functional currency
(foreign currencies) are recognised at the rates of exchange prevailing on the
dates of the transactions. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the
rates prevailing at that date. Non-monetary items carried at fair value that
are denominated in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences are recognised in profit or loss in the period in which
they arise. Exchange differences on revenue are recognised within revenue.
Exceptions to this are as follows:
· Exchange differences on transactions entered into to hedge certain
foreign currency risks (see below under cash flow hedges/financial
instruments); and
· For the purpose of presenting consolidated financial information,
exchange differences on monetary items receivable from or payable to a foreign
operation for which settlement is neither planned nor likely to occur
(therefore forming part of the net investment in the foreign operation), which
are recognised initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
For the purpose of presenting consolidated financial information, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the exchange rates
at the date of the transactions are used. Exchange differences arising, if
any, are recognised in the income statement.
1.7 Hedge accounting
The Group has adopted hedge accounting for qualifying transactions.
Derivatives are initially recognised at fair value at the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each balance sheet date. The resulting gain or loss is recognised in profit
or loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in profit or
loss depends on the nature of the hedge relationship. The Group designates
certain derivatives as either hedges of the fair value of recognised assets or
liabilities of firm commitments (fair value hedges), hedges of highly probable
forecast transactions or hedges of foreign currency risk of firm commitments
(cash flow hedges), or hedges of net investments in foreign operations.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or a highly
probable forecast transaction, the effective part of any gain or loss on the
derivative financial instrument is recognised directly in the hedging
reserve. Any ineffective portion of the hedge is recognised immediately in
the income statement.
When the forecast transaction subsequently results in the recognition of a
non-financial item, the associated cumulative gain or loss is removed from the
hedging reserve and is included in the initial carrying amount of the
non-financial asset or liability.
For all other hedged forecast transactions, the associated cumulative gain or
loss is removed from equity and recognised in the income statement in the same
period during which the hedged expected future cash flows affects profit or
loss.
When the hedging instrument is sold, expires, is terminated or exercised, or
the entity revokes designation of the hedge relationship but the hedged
forecast transaction is still expected to occur, the cumulative gain or loss
at that point remains in equity and is recognised in accordance with the above
policy when the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealised gain or loss recognised in
equity is recognised in the income statement immediately.
1.8 Alternative Performance Measures (APMs) and Adjusting items
The Group has disclosed certain alternative performance measures ('APMs')
within these interim 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
considers that the term 'Adjusted' together with an adjusting items category,
provides a helpful view of the ongoing trading performance of the Group.
Adjusted results will therefore exclude certain significant costs such as
intangible amortisation, together with some non-recurring benefits and so
should not be regarded as a complete picture of the Group's financial
performance. These measures are not defined terms under IFRS and therefore
they may not be comparable with similarly titled measures reported by other
companies. They are not intended to be a substitute for, or superior to, IFRS
measures.
Adjusting items are those items that are unusual because of their size, nature
or incidence, and are applied consistently year on year. The Directors
consider that these items should be separately identified within their
relevant income statement category to enable full understanding of the Group's
results. Items included are acquisition costs, earnout payable to employees
of acquired businesses, sale of trademark (only in HY22) and restructuring
costs, together with amortisation of acquired intangible assets.
The following APMs have been used in these interim results:
· Organic growth - the organic constant currency growth rate is
calculated by comparing HY22 revenue to HY21 revenue adjusted for HY22
exchange rates and the impact of acquisitions.
· Adjusted EBITDA - comprising profit before tax 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 Linea
Research Holdings Ltd (£0.3 million), earnout payable to employees of
Sequential (£1.1 million), gain on sale of trademark (£0.8 million) and
amortisation of acquired intangibles (£2.2 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 the
net cash effect of adjusting items
· Net cash/(debt) - comprised of cash and cash equivalents,
overdrafts and amount drawn against the RCF including the costs of arranging
the RCF.
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to February 2022 Six months to February 2021
North America EMEA Rest of World Total North America EMEA Rest of World Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Focusrite 25,530 18,177 8,697 52,404 28,578 21,787 7,960 58,325
Focusrite Pro 1,322 869 319 2,510 1,324 919 432 2,675
Novation 4,525 4,280 1,706 10,511 5,880 5,253 1,910 13,043
ADAM Audio 2,381 4,702 1,337 8,420 4,111 6,356 2,115 12,582
Martin Audio 3,041 4,397 5,021 12,459 1,952 2,620 4,079 8,651
Sequential 2,964 2,999 626 6,589 - - - -
Distribution - - - - - 10 - 10
Total 39,763 35,424 17,706 92,893 41,845 36,945 16,496 95,286
Year to August 2021
North America EMEA Rest of World Total
£'000 £'000 £'000 £'000
Focusrite 47,200 37,403 12,615 97,218
Focusrite Pro 2,238 1,635 1,004 4,877
Novation 9,706 9,242 3,314 22,262
ADAM Audio 8,073 11,849 3,943 23,865
Martin Audio 4,787 6,983 8,628 20,398
Sequential 2,629 2,164 506 5,299
Distribution - 16 - 16
Total 74,633 69,292 30,010 173,935
3. Operating segments
Products and services from which reportable segments derive their revenue
Information reported to the Group's Chief Executive Officer (who has been
determined to be the Group's Chief Operating Decision Maker) for the purposes
of resource allocation and assessment of segment performance is focused on the
main product groups which the Group sells. While the results of Novation and
Ampify are reported separately to the Board, they meet the aggregation
criteria set out in IFRS 8 'Operating Segments'. 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 and Ampify branded products
ADAM
Audio
- Sale of ADAM Audio products
Martin
Audio
- Sale of Martin Audio and Optimal Audio products.
Sequential
- Sale of Sequential products. (Acquired 27 April
2021)
Distribution
- Sale of third party monitors, ceased following the
acquisition of ADAM
The revenue and profit generated by each of the Group's operating segments are
summarised as follows:
Six months to Six months to Year to
28 February 2022
28 February
31 August
2021 2021
Restated* Restated*
£'000 £'000 £'000
Revenue from external customers
Focusrite 52,404 58,325 97,218
Focusrite Pro 2,510 2,675 4,877
Novation 10,511 13,043 22,262
ADAM Audio 8,420 12,582 23,865
Martin Audio 12,459 8,651 20,398
Sequential 6,589 - 5,299
Distribution - 10 16
Total 92,893 95,286 173,935
Segment profit
Focusrite 24,455 28,970 49,387
Focusrite Pro 1,489 1,348 2,453
Novation 4,464 5,196 8,686
ADAM Audio 4,081 6,219 11,789
Martin Audio 5,995 3,968 9,493
Sequential 2,779 - 2,341
Distribution - (9) (19)
43,263 45,692 84,130
Central sales and administrative expenses (27,252) (46,728)
(21,271)
Other income 829 - -
Adjusting items (557) (270) (1,628)
Operating profit 16,283 24,151 35,774
Finance income 351 - 48
Finance costs (106) (589) (784)
Profit before tax 16,528 23,562 35,038
Tax (3,075) (4,296) (6,759)
Profit after tax 13,453 19,266 28,279
Segment profit represents the profit earned by each segment without allocation
of the share of central administration costs, finance income and finance
costs, and income tax expense. This is the measure reported to the Group's
Chief Executive Officer 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
£515,000 for the six-month period to 28 February 2022 (six months to 28
February 2021: £416,000; year to 31 August 2021: £973,000).
* From 1 September 2021, "other cost of sales" cost allocations across
intercompany sales have been realigned to better reflect the allocation of
freight and warehousing costs between segments. This has resulted in changes
to segmental profit as previously reported in the six months to 28 February
2021 and the year to 31 August 2021. As required by IFRS 8, comparative
information has been restated as indicated by "restated" in the Operating
segments note. The revision does not result in any changes to the condensed
consolidated income statement, condensed consolidated statement of financial
position or consolidated statement of cash flows.
Segment net assets and other segment information
Management does not make use of segmental data relating to net assets and
other balance sheet information for the purposes of monitoring segment
performance and allocating resources between segments. Accordingly, other
than the analysis of the Group's non-current assets by region shown below,
this information is not available for disclosure in the condensed consolidated
financial information.
The Group's non-current assets, analysed by region, were as follows:
28 February 28 February 31 August
2022 2021 2021
£'000 £'000 £'000
Non-current assets
North America 16,033 590 15,104
Europe, Middle East and Africa 49,339 49,278 45,277
Rest of World 788 1,347 2,385
Total non-current assets 66,160 51,215 62,766
4. Adjusting items
The following adjusting items have been charged/(credited) to the income
statement in the period
Six months to Six months to Year to
28 February 28 February 31 August
2022 2021 2021
£'000 £'000 £'000
Adjusting income
Gain on sale of trademark (829) - -
Adjusting costs
Acquisition and due diligence costs 300 270 716
Earnout accrual in relation to acquisition 1,086 - 788
Restructuring - - 124
Total adjusting items for adjusted EBITDA 557 270 1,628
Amortisation of acquired intangible assets 2,236 1,869 4,013
Total adjusting items for adjusted operating profit 2,793 2,139 5,641
Tax on adjusting items (287) - (165)
Total adjusting items for adjusted profit after tax 2,506 2,139 5,476
Acquisition and due diligence costs in the six months to 28 February 2022
related to fees accrued for due diligence work associated with the acquisition
of Linea Research Holdings Ltd. The earnout accrual relates to that part of
the US$4 million consideration that was classed as employee remuneration
rather than contingent consideration as part of the Sequential acquisition in
April 2021. It is payable directly to employees and is subject to their
continuing employment with Sequential until December 2022.
Below is a reconciliation from operating profit to adjusted EBITDA
Six months to Six months to Year to
28 February 28 February 31 August
2022 2021 2021
£'000 £'000 £'000
Operating profit 16,283 24,151 35,774
Depreciation and amortisation 3,146 2,946 6,133
Adjusting items 2,793 2,139 5,641
Adjusted EBITDA 22,222 29,236 47,548
5. Taxation
The tax charge for the six months to 28 February 2022 is based on the
estimated tax rate for the full year in each jurisdiction.
6. Dividends
The following equity dividends have been declared:
Six months to Six months to Year to
28 February 2022
28 February 2021
31 August 2021
Dividend per qualifying ordinary share 1.85p 1.5p 5.2p
During the period, the Company paid a final dividend in respect of the year
ended 31 August 2021 of 3.7 pence per share. The Board has approved an
interim dividend of 1.85 pence per ordinary share (HY21: 1.5 pence).
This will be payable on 10 June 2022 to ordinary shareholders on the register
on 13 May 2022. The ex-dividend date will be 12 May 2022.
7. Earnings per share
Reported EPS
The calculation of the basic and diluted EPS is based on the following data: Six months to Six months to Year to
28 February
28 February 2021
31 August
2022 2021
Earnings £'000 £'000 £'000
Earnings for the purposes of basic and diluted EPS being net profit for the 13,453 19,266 28,279
period
Adjusting items 2,793 2,139 5,641
Tax on adjusting items (287) - (165)
Total adjusted profit for adjusted EPS calculation 15,959 21,405 33,755
Six months to Year to
28 February
31 August
Six months to
2021 2021
28 February
2022
number number number
Number of shares '000 '000 '000
Weighted average number of ordinary shares for the purposes of basic EPS 58,216 58,077 57,993
calculation
Effect of dilutive potential ordinary shares:
Employee and Director share option plans 694 890 725
Weighted average number of ordinary shares for the purposes of diluted EPS 58,910 58,967 58,718
calculation
EPS Pence Pence Pence
Basic EPS 23.1 33.2 48.8
Diluted EPS 22.8 32.7 48.2
Adjusted basic EPS 27.4 36.9 58.2
Adjusted diluted EPS 27.1 36.3 57.5
At 28 February 2022, the total number of ordinary shares issued and fully paid
was 58,661,639. This included 291,186 shares held by the Employee Benefit
Trust ('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 (58,661,639) less the weighted average number of shares
held by the EBT (446,135). 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.
8. Other intangible assets
Intellectual property Internally generated development costs Acquired development costs Licences Trademark Computer software Brands Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 September 2020 580 23,690 19,943 166 826 1,527 14,300 61,032
Additions - products previously under development 2 488 - 30 229 330 - 1,079
Additions - products developed during the year - 2,802 - - - - - 2,802
Additions - from development in progress - 1,604 - - - - - 1,604
Additions through business combination - - 6,142 - - - 6,070 12,212
Foreign exchange - - (188) - - - (350) (538)
Transfer (175) 175 -
Disposals - (2,839) - - - (447) - (3,286)
At 31 August 2021 407 25,745 25,897 196 1,055 1,585 20,020 74,905
Additions - products previously under development 21 3,186 - - 193 21 - 3,421
Additions - products developed during the period - - - 1,603 - - - 1,603
Foreign exchange (4) - (465) - - 190 (240) (519)
Disposals - - - (13) - - (13)
At 28 February 2022 424 28,931 25,432 1,799 1,235 1,796 19,780 79,397
As at the 28 February 2022, there were £3,186,000 of assets under
construction within internally generated development costs (HY21:
£2,808,000).
Intellectual property Internally generated development costs Acquired development costs Licences Trademark Computer software Brands Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Amortisation
At 1 September 2020 520 15,506 2,152 122 464 826 1,068 20,658
Charge for the year 1 3,463 2,780 41 287 321 1,233 8,126
Foreign exchange - 9 (81) - - 27 (74) (119)
Transfer (114) - 114 -
Eliminated on disposal - (2,371) - - - (455) - (2,826)
At 1 September 2021 407 16,607 4,851 163 751 833 2,227 25,839
Charge for the period 18 1,518 1,400 29 158 252 718 4,093
Foreign exchange (1) - (997) - 3 462 14 (519)
Eliminated on disposal - - - - - - - -
At 28 February 2022 424 18,125 5,254 192 912 1,547 2,959 29,413
Carrying amount
At 28 February 2022 - 10,806 20,178 1,607 323 249 16,821 49,984
At 31 August 2021 - 9,138 21,046 33 304 752 17,793 49,066
9. Financial instruments
The fair value of the Group's derivative financial instruments is calculated
using the quoted prices. Where such prices are not available, a discounted
cash flow analysis is performed using applicable yield curve for the duration
of the instruments for non-optional derivatives, and an option pricing model
for optional derivatives. Foreign currency forward contracts are measured
using quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contract.
IFRS 13 'Fair Value Measurements' requires the Group's derivative financial
instruments to be disclosed at fair value and categorised in three levels
according to the inputs used in the calculation of their fair value.
Financial instruments carried at fair value should be measured with reference
to the following levels:
· Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
· Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from
prices); and
· Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial instruments held by the Group that are measured at fair value
all related to financial assets/(liabilities) measured using a Level 2
valuation method.
The fair value of financial assets and liabilities held by the Group are:
28 February 2022 28 February 2021 31 August 2021
£'000 £'000 £'000
Financial assets
Amortised cost
Cash and cash equivalents 17,813 18,792 17,339
Trade and other receivables 18,641 14,638 11,782
Designated cash flow hedge relationships
Derivative financial assets designated and effective as cash flow hedging 572 846 716
instruments
37,026 34,276 29,837
Financial liabilities
Amortised cost
Trade and other payables 19,381 7,459 12,028
Bank loan and arrangement fee (211) (303) (248)
19,170 7,156 11,780
The £0.2 million recorded against bank loan and arrangement fee is the
unamortised element of the amount paid to arrange the RCF in December 2020.
The cost is being written down over the term of the RCF, which is five years.
In previous periods it has been shown net with the loan amount, however as at
28 February 2022 no amount is drawn down against the RCF.
10. Subsequent events
On 10 March 2022, the Group completed the acquisition of 100% of the share
capital of Linea Research Holdings Ltd. The total consideration paid was
£12.6 million for Linea, which had approximately £1 million of cash within
net assets at the date of acquisition. The initial consideration is £12.1
million of cash paid on completion and the remaining £0.5 million to be paid
in cash subject to certain performance conditions relating to the period
ending May 2023. This has been funded through a combination of existing cash
resources and a £5 million drawdown on the existing revolving credit facility
of £40 million with HSBC and NatWest.
Independent Review Report to Focusrite plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly report for the six months ended 28 February 2022
which comprises the Condensed Consolidated Income Statement, Condensed
Consolidated Statement of Other Comprehensive Income, Condensed Consolidated
Statement of Financial Position, Condensed Consolidated Statements of Changes
in Equity, Consolidated Statement of Cash Flow and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
report for the six months ended 28 February 2022 is not prepared, in all
material respects, in accordance with the recognition and measurement
requirements of UK-adopted international accounting standards and the AIM
Rules.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly report and consider
whether it contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half-yearly
report in accordance with the AIM Rules.
As disclosed in note 1, the latest annual financial statements of the group
were prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and the next annual
financial statements will be prepared in accordance with UK-adopted
international accounting standards. The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly report in accordance with the recognition and measurement
requirements of UK-adopted international accounting standards.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement. Our review has been undertaken so that we might state to the
company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company for our review work,
for this report, or for the conclusions we have reached.
James Tracey
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
25 April 2022
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR IAMFTMTTTBRTRecent news on Focusrite
See all newsREG - Focusrite PLC - Interim Results
AnnouncementREG - Focusrite PLC - TR-1
AnnouncementREG - Focusrite PLC - Investor Presentation via Investor Meet Company
AnnouncementREG - Focusrite PLC - Notice of Interim Results
AnnouncementREG - Focusrite PLC - Notification of PDMR Transactions
Announcement