REG - Focusrite PLC - Interim Results
25/04/2024 07:00
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RNS Number : 9429L Focusrite PLC 25 April 2024
Focusrite plc ("Focusrite" or "the Group")
Half year results for the six months ended 29 February 2024
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 29
February 2024 ('HY24').
Commenting on the results and outlook, Tim Carroll CEO said:
"Focusrite plc has evolved into a global business, encompassing 13 distinct
yet synergistic brands, operating across varied markets. This diversification
strategy has proved successful, as seen by the near doubling of revenue from
£40 million in HY19, the half-year preceding the global COVID-19 pandemic, to
£77 million in the first half of this year. Demand for our flagship
Scarlett product range is 50% higher than FY19 levels with end user
registrations in line with the previous half year, such that we believe we are
continuing to take market share.
The Content Creation division has faced a particular set of challenges in
HY24, with both macro-economic weakness and an oversupply in the channel,
particularly as we navigate the transition of our Scarlett range from the
3(rd) to the 4(th) generation. Conversely, our Audio Reproduction division has
seen significant growth, bolstered by successful product launches in the
previous year and the inclusion of new brands within its portfolio.
Though the industry outlook, particularly for Content Creation, remains tough,
we remain encouraged by our product registration data which is comfortably
outperforming the market. The sustained robust performance of our expanding
Audio Reproduction division offers a positive counterbalance to the ongoing
headwinds in Content Creation. With a series of planned product launches in
the coming months and a continued emphasis on our strategic growth
initiatives, which will lead to a greater weighting of sales in the second
half, we remain confident of meeting our full-year expectations."
Key financial metrics
HY24 HY23
Revenue (£ million) 76.9 86.2
Gross Margin 45.8% 47.1%
Adjusted(1) EBITDA(2) (£ million) 12.1 18.1
Operating profit (£ million) 4.7 11.5
Adjusted(1) operating profit (£ million) 7.5 14.2
Basic earnings per share (p) 4.2 14.4
Adjusted(1) diluted earnings per share (p) 7.7 18.0
Interim dividend per share (p) 2.1 2.1
Net debt(3) (£ million) (27.3) (13.2)
Financial and Operating Highlights
· Revenue decreased by 10.9% or 8.4% on an organic constant currency(4)
(OCC) basis, with ongoing challenges in the Content Creation market,
outweighing the strength seen in our Audio Reproduction division.
o Content Creation brands' revenue was down by 19.8% (17.3% on an OCC(4)
basis) to £54.1 million (HY23: £67.4 million) with Focusrite impacted by an
ongoing soft market and oversupply in the sales channel. However, the ADAM
brand has shown growth helped by leveraging the Focusrite routes to market.
o Audio Reproduction brands' revenue was up by 21.4% (23.6% on an OCC(4)
basis) to £22.8 million (HY23: £18.8 million) benefitting from strong
end-user demand and an improved supply chain following the acquisition of
Linea Research in March 2022.
· Gross margin at 45.8% (HY23: 47.1%) is 1.3% points lower than HY23, but
with underlying margins flat and a one-off impact relating to provisions
mainly for excess Vocaster stock reducing the reported gross margin. Margins
in H2 are predicted to remain broadly stable with the underlying margin
achieved in HY24 in H2.
· Adjusted(1) EBITDA(2 )at £12.1 million, down from £18.1 million in
HY23, reflecting lower sales, and the excess stock provision within margin,
with costs under control and savings offsetting inflationary impacts.
· Operating profit of £4.7 million (HY23: £11.5 million) reflects the
reduced EBITDA and increased amortisation from acquisitions and new product
launches.
· Net debt(3) of £27.3 million (HY23: net debt £13.2 million) has
increased due to higher working capital levels, with higher stock in Audio
Reproduction to support growth and higher debtors in Content Creation both of
which are expected to largely reverse in the second half of the year.
· Interim dividend of 2.1 pence, unchanged on HY23.
· Sheriff Technology acquired on 19 December 2023 for cash consideration
of £2.3 million (net of cash acquired of £0.1 million) has performed to plan
and is contributing positively to the Audio Reproduction division.
· Global end-user registrations for the Scarlett range remain in line with
prior year and are 50% higher than pre pandemic levels.
· Launch of 11 new products across the Group.
1 Adjusted for amortisation of acquired intangible assets and other adjusting
items detailed in note 4 to the Interim Statement.
2 Comprising earnings adjusted for interest, taxation, depreciation and
amortisation.
3 Net debt/cash defined as cash and cash equivalents, overdrafts and amounts
drawn against the RCF including the costs of arranging the RCF.
4 Organic constant currency growth. This is calculated by comparing HY24
revenue to HY23 revenue adjusted for HY24 exchange rates and the impact of
acquisitions.
- ends -
Enquiries:
Focusrite plc +44 (0) 1494 462246
Tim Carroll (CEO) / Sally McKone (CFO)
Investec Bank plc (Nominated Adviser and Joint Broker) +44 (0) 20 7597 5970
David Flin / Edward Knight / William Brinkley
Peel Hunt LLP (Joint Broker) +44 (0) 20 7418 8900
Paul Gillam / Adam Telling
Belvedere Communications (Financial PR) +44 (0) 20 7653 8702
John West / Llewellyn Angus / Lily Pearce
Notes to Editors
Focusrite plc is a global audio products group that develops and markets
proprietary hardware and software products. Used by audio professionals and
musicians, its solutions facilitate the high-quality production of recorded
and live sound. The Focusrite Group trades under thirteen established brands:
Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal
Audio, Linea Research Sequential, Oberheim, Sonnox, OutBoard and TiMax.
With a high-quality reputation and a rich heritage spanning decades, its
brands are category leaders in the music-making and audio recording
industries. Focusrite and Focusrite Pro offer audio interfaces and other
products for recording musicians, producers and professional audio facilities.
Novation and Ampify products are used in the creation of electronic music,
from synthesizers and grooveboxes to industry-shaping controllers and
inspirational music-making apps. ADAM Audio studio monitors have earned a
worldwide reputation based on technological innovation in the field of studio
loudspeaker technology. Martin Audio designs and manufactures
performance-ready systems across the spectrum of sound reinforcement
applications. Linea designs, develops, manufactures and sells market
innovative professional audio equipment globally. Sequential designs and
manufactures high end analogue synthesizers under the Sequential and Oberheim
brands. Sonnox is a leading designer of innovative, high-quality,
award-winning audio processing software plug-ins for professional audio
engineers. TiMax specialises in innovative immersive audio and show control
technologies. OutBoard manufactures and sells industry standard rigging
control products for live events, together with enterprise-level safety test,
preparation and quality management for global rental companies and venues.
The Company has offices in four continents and a global customer base with a
distribution network covering approximately 240 territories.
Focusrite plc is traded on the AIM market, London Stock Exchange.
Business and operating review
Overview
We are pleased to report our financial results and summary of operations for
the six months ended 29 February 2024. Despite the challenging macroeconomic
environment affecting the Content Creation sector at large, demand for the
Group's products within our Content Creation and Audio Reproduction divisions
remains at levels comfortably surpassing those of the pre-pandemic period.
However, despite this, the current adverse macroeconomic conditions and
oversupply in the sales channel have necessitated a revision to our original
full-year expectations.
Our Content Creation brands experienced a 19.8% revenue decline, yet they
continue to demonstrate strong end-user registrations, comparable to last year
and a 50% increase over pre-pandemic figures (FY19). Furthermore, various
reports on sales rankings(1) and market share indicate that our strategic
category shares have either been maintained or expanded in the past six
months. The Audio Reproduction product portfolio has seen significant growth,
bolstered by new product introductions and the addition of Sheriff Technology
with the TiMax and OutBoard brands, with a 21.4% revenue increase compared to
HY23. Diversifying across these two divisions has proven to be a successful
strategy over the past four years, providing stability amid the differing
economic pressures each division faces.
Total Group revenue for HY24 declined by 10.9% compared to HY23. On an organic
constant currency basis, the Audio Reproduction division grew by 23.6%, while
the Content Creation division saw a 17.3% decrease, resulting in an 8.4% drop
in overall Group revenue.
The Group's gross margin for HY24 was 45.8% (HY23: 47.1%), with a one-off
stock provision relating to the Vocaster range causing the 1.3 percentage
point decline from the prior year. Excluding this provision, gross margins
have remained in line with HY23. This is despite aggressive promotional
campaigns by competitors and a challenging period for the Content Creation
business together with increased freight costs across both divisions.
In December 2023, the Group announced that it had acquired Sheriff Technology,
a UK-based company specialising in innovative entertainment technologies for a
global client base. Operating under two brands, TiMax and OutBoard,
Sheriff's products are vital to many professionals in the audiovisual
industry, particularly in live performance, event management, and the rapidly
expanding sector of immersive sound experiences. This acquisition broadens the
Audio Reproduction division's reach to deliver exceptional audio experiences
within live environments and the acquired technology will be further
integrated into our many diverse offerings for live sound.
Operating review
Our Group's portfolio consists of thirteen leading brands, which are
categorised into two divisions, Content Creation and Audio Reproduction.
Content Creation consists of:
o Focusrite Audio Engineering (FAEL): Focusrite, Focusrite Pro, Novation and
Ampify
o ADAM Audio
o Sequential: Sequential and Oberheim
o Sonnox
Audio Reproduction consists of:
o Martin Audio: Martin Audio, Optimal Audio
o Linea Research: Linea Power amplification
o Sheriff Technologies: OutBoard and TiMax brands
(1) See Music Trades Annual Census 2023 and sales rankings on key reseller
websites (Thomann and Sweetwater)
Six months to 29 February 2024 Six months to 28 February 2023 Reported Growth OCC Growth(1) Year to
31 August
2023
Revenue from external customers £'000 £'000 % % £'000
Focusrite 29,360 40,084 (26.8)% (23.6)% 86,317
Novation 7,859 8,241 (4.6)% 0.0% 16,565
ADAM Audio 11,296 10,161 11.2% 15.3% 18,449
Sequential 4,539 8,679 (47.7)% (44.4)% 14,480
Sonnox(2) 1,047 306 242.2% 0.0% 1,139
Content Creation 54,101 67,471 (19.8)% (17.3)% 136,950
Audio Reproduction 22,783 18,772 21.4% 23.6% 41,515
Total 76,884 86,243 (10.9)% (8.4)% 178,465
(1) Organic constant currency (OCC) growth rate is calculated by comparing
HY24 revenue to HY23 revenue adjusted for HY24 exchange rates and the impact
of acquisitions
2 Revenue from date of acquisition
Content Creation
Six months to 29 February 2024 Six months to 28 February 2023 Reported Growth OCC Growth(1) Year to
31 August
2023
Content Creation £'000 £'000 £'000 £'000 £'000
North America 24,518 31,112 (21.2)% (17.1)% 64,979
EMEA 24,021 28,224 (14.9)% (14.7)% 52,918
ROW 5,562 8,135 (31.6)% (27.6)% 19,053
Total 54,101 67,471 (19.8)% (17.3)% 136,950
(1) Organic constant currency (OCC) growth rate is calculated by comparing
HY24 revenue to HY23 revenue adjusted for HY24 exchange rates and the impact
of acquisitions
Our Content Creation brands bring best in class audio recording hardware
technology, software, electronic music instruments and controllers, and studio
reference monitors to content creators at all levels.
Our products are showcased in the finest recording and post-production studios
in the world, as well as in the homes of millions of hobbyists and aspiring
professionals. During the financial years 2020 and 2021, the pandemic drove
unparalleled growth for our Focusrite, Novation, and ADAM brands as
individuals sought advanced home content creation and streaming solutions.
However, the subsequent period presented numerous hurdles, such as component
shortages, price hikes, increased shipping costs, worldwide inflation, and
geopolitical tensions, affecting all aspects of recording technology. Despite
a stabilisation in prices and availability, these challenges, coupled with a
softer macroeconomic landscape, have led to the current excessive inventory
levels across various product segments in FY24.
During the HY24, the market's ongoing adjustment to macroeconomic conditions
and global inventory rebalancing has continued, with Focusrite and Sequential
facing the brunt of the impact. Nevertheless, ADAM and Sonnox have performed
as anticipated in line with original expectations. Despite a 19.8% decline in
revenue compared to the first half of the previous year, demand from end-users
has significantly exceeded pre-pandemic levels, with an average 50% increase
in external customer registrations in key product areas compared to the same
period in 2019, maintaining consistency with last year's figures.
Geographically, all regions have reported softer than expected results, with
our Rest of World region (comprising APAC and Latin America) showing the
largest declines compared to the prior year. Our sales into China faced
particular challenges due to diminished consumer confidence and consumers
choosing, following prolonged lockdowns, to allocate their spending from
home-based to outdoor activities.
Our direct to customer E-commerce business, covering all Content Creation
brands, but predominantly the Focusrite brand, has grown year over year. It is
now over 5% of total Group turnover and is continuing to grow. The Group
continues to invest more into this channel as it sees this becoming an
increasingly important route to market.
Focusrite audio interfaces, comprised of our Scarlett, Clarett and Vocaster
ranges, are a suite of audio interfaces 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.
This past half year, the Group debuted the 4(th) generation of the lower
input/output (IO) Scarletts, those with 1, 2 or 4 inputs (Scarlett Solo, 2i2
and 4i4) interfaces. These new interfaces are a completely re-engineered
range, with many new features designed to deliver unprecedented ease of use
while offering professional studio level technical specifications. This new
range has received numerous accolades from the press and our global channel,
including winning the prestigious Sound on Sound annual award for Best Audio
Interface.
These 4(th) generation Scarletts became available for public sale at the
beginning of this fiscal year, coinciding with ongoing efforts alongside our
global channel partners to phase out the remaining stock of the 3(rd)
generation models. This overlap was strategic, aiming to cater to our most
price-sensitive customers during the Christmas holiday season-a period
traditionally known for heightened sales activity. This strategy paid off,
yielding a robust sell-through of the 3(rd) generation stock. Nonetheless, the
transition to the 4(th) generation encountered a slower-than-anticipated
uptake and a delay in reorder activity leading to a dampened sales performance
in the second quarter, a trend we anticipate may extend into the latter half
of the year. However, as the market continues to absorb the remaining 3(rd)
generation inventory, we are observing an encouraging increase in 4(th)
generation sales across all regions, signalling a positive shift in consumer
purchasing patterns.
As further evidence of this trend, we track sales to our end user customers
through our registration data, with the vast majority of purchases being
registered in order to utilise our easy start process and bundle of free
software tools. This data reveals that the overall registrations of Scarlett
interfaces have closely mirrored those of the previous year over the first six
months. This is in stark contrast to industry data, which shows a 10% to 15%
decline in this product category overall compared to 2023. Additionally, our
registration data verifies that units sold have consistently stayed around 50%
above the levels seen in the last pre-pandemic reporting period of FY19,
highlighting the enduring appeal and resilience of our products in a
fluctuating market.
*FY23 and FY24 lines are close to each other but have different markers
Vocaster sales have followed the industry reported slowdown of new podcasts
post-pandemic. As a result the Group has carried more stock than necessary to
meet demand and has recently decided to reduce the pricing on Vocaster
products to appeal to more entry level users to help move through the balance
of overstock carried over the past few years. This has resulted in a one-off
inventory provision of just over £1 million in the period.
Clarett, our mid-range interface offering, has performed in line with
expectations for the first half and continues to be a sought-after solution
for more experienced musicians and recording engineers.
Focusrite Pro offers a suite of solutions for professionals that employ "audio
over internet protocol" (AOIP) technology for scale in enterprise solutions,
both in live events and in permanent installations such as recording and
post-production studios. Some of the most prestigious events across the world,
including the US Superbowl and the Grammys utilise our Pro products as the
backbone of the audio systems deployed. Additionally, many recording and
post-production studios have adopted our products to produce and deliver
content in enhanced formats, such as Dolby ATMOS. As noted previously, a wide
scale re-engineering effort took place over 2022 and 2023 as a result of the
AKM chip factory fire, which curtailed the supply of key components across the
industry. The re-engineering of these products was finally completed at the
end of 2023 and sales are starting to recover from a long lull due to low
product availability.
Our Novation brand is dedicated to the art of the electronic musician, and
offers a range of solutions including groove boxes, controllers, synthesizers
and desktop and iOS creation apps. These segments are also seeing overall
weaker demand in the market, driven by similar macroeconomic factors referred
to above. However, the Group did not have to deal with any material channel
destocking issues with Novation, resulting in overall sales of Novation
products being down 4.6% versus the prior year, which is slightly ahead of
industry-wide levels for this product category.
ADAM Audio, based in Berlin and acquired in July 2019, is a globally
recognised brand with a passionate team focused on delivering world-class
monitor 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 installed
in some of the most prestigious audio production facilities in the world. Both
the A-series and S-Series speakers are seeing wide adoption in upgraded
facilities to integrate immersive mixing. ADAM has had a strong first half,
due to increased market share for the lower priced T-series and the benefits
of aligning ADAM with the Focusrite distribution channel in the US.
Sequential, based in San Francisco, was acquired in April 2021. The Sequential
brand is legendary in the industry and is synonymous with iconic analogue
synthesizers. It has been at the forefront of electronic music innovation for
over 40 years. Additionally, in May 2023, the Group acquired the exclusive
rights to another prestigious synthesizer brand, Oberheim, which now operates
under the Sequential entity as a separate brand.
The majority of products from Sequential and Oberheim are positioned at the
US$3,000 price point and above, catering primarily to aspiring and
professional musicians and composers. This segment has faced significant
challenges this year, as part of the overall industry decline exacerbated by
global cost-of-living pressures, and strong trading in HY23 which included the
impact of the launch of the OBX8 synthesizer in the summer of 2022. Despite
these challenges, Sequential's more affordably priced products, aimed at home
studios and hobbyists, have performed relatively close to initial
expectations. Anticipating continued strong demand at these lower price
points, we are preparing to launch new products in the second half of the
year, aiming to meet the robust demand in this more resilient segment.
Sonnox, based outside of Oxford and acquired in December 2022, creates
software plug-ins for audio production. These plug-ins, normally residing
inside a DAW (Digital Audio Workstation) allow the user to refine their audio
to create professional sounding recordings.
Sonnox had a strong first half, its legacy offerings performing well and
augmented by the release of Voca, a vocal enhancement tool, designed for both
professionals and home recordists alike. Additionally, the Group has been
actively promoting Sonnox solutions to the entire Content Creation userbase,
which has also benefitted its performance during the first half.
Audio Reproduction
Six months to 29 February 2024 Six months to 28 February 2023 Reported Growth OCC Growth(1) Year to
31 August
2023
Audio Reproduction £'000 £'000 £'000 £'000 £'000
North America 4,284 5,197 (17.6)% (12.2)% 12,684
EMEA 10,447 8,420 24.1% 20.2% 16,601
ROW 8,052 5,155 56.2% 65.3% 12,230
Total 22,783 18,772 21.4% 23.6% 41,515
(1) Organic constant currency (OCC) growth rate is calculated by comparing
HY24 revenue to HY23 revenue adjusted for HY24 exchange rates and the impact
of acquisitions
The Audio Reproduction brands provide high quality, professional solutions for
both permanent installations and live sound events. The Group started its
investment in this segment with the acquisition of Martin Audio in December
2019. Since then, the portfolio has grown significantly, both organically and
through strategic acquisitions, resulting in a strong lineup of solutions
tailored for the touring, theatre, and installation markets. The first half of
the year has demonstrated continued growth across these segments, supported by
a strong project pipeline which is expected to continue throughout the year.
In December 2023, the division's capabilities were further enhanced by
acquiring Sheriff Technology, building on the previous acquisition of Linea
Research in March 2022. These strategic moves have strengthened the division's
position and expanded the offerings in the dynamic field of audio reproduction
and immersive sound.
Martin Audio was founded in 1972 to deliver world class touring systems for
the supergroups of the day. The ethos of "Uniting the Audience" has remained
core to the company's mission and success. Martin's stature in the market is
earned from the extreme detail in its loudspeakers sonic performance, further
enhanced through software and digital signal processing (DSP) which allows
further shaping and control of the overall sound. When considering Martin's
portfolio, the easiest way to think of the various solutions is by how much
space needs to be covered (known as throw) to provide an ideal listening
experience. Martin offers solutions across its Flexpoint, TORUS, Wavefront
Precision, Blackline X and CDD Live ranges to address any size requirement for
either a permanent installation or live event.
Optimal Audio, the commercial audio brand, also saw growth year over year as
it began shipping completed systems after a period of unavailability due to
component shortages late last year.
Linea Research, founded in 2003 and acquired by the Group in 2023, has
established itself as a trusted and innovative industry leader in high quality
power amplification. Linea Research's portfolio includes integrated digital
signal processing, a unique combination of high-quality sound and power that
professional installations and events require. Linea Research has integrated
well into the wider Group, providing a consistent supply of power
amplification technology for Martin Audio's solutions as well as continuing to
offer its own product line to a range of OEM customers. Additionally, Linea
Research was the proud recipient of a King's Award for innovation this year.
The Group's latest acquisition, Sheriff Technologies, is comprised of two
different brands that service the Audio Reproduction market: TiMax and
OutBoard. TiMax are pioneers in the rapidly expanding sector of immersive
sound experiences, specialising in innovative audio and show control
techniques through their SoundHub and TrackerD4 products. These solutions
cater to a wide range of applications including entertainment, events,
branding, themed environments, and exhibition spaces. Formulated from
exhaustive experience of touring and event rigging professionals, OutBoard
offers a comprehensive range of compact and robust chain-host motor
controllers, alongside enterprise-level safety test, preparation and quality
management for global rental companies and venues. Although only acquired in
December of this financial year, the Sheriff brands have integrated well and
are on track to deliver incremental value to the Group over the long term.
The cumulative impact of the above has led to a 23.6% increase in overall
revenue for the Audio Reproduction division on an organic constant currency
basis year-over-year. Regionally, there has been strong performance in the
APAC and EMEA regions, buoyed by a resurgence in live events across recent
festival and tour seasons, alongside numerous permanent installation venues
upgrading for new immersive audio experiences. The US region has seen a
decline, aligning with industry insights that highlight the effects of
cost-of-living increases, political uncertainties due to upcoming elections,
and the resumption of student loan payments affecting a significant portion of
our target audience. With a strong sales pipeline across all sectors the Group
is confident that performance will continue in line with expectations for the
second half.
Research and development
R&D remains a cornerstone of our Group's strategy. In this period, the
Group launched 11 new products to market as well as a host of software and
hardware upgrades. Across many of the Brands, the Group has product
introductions scheduled for the second half of this financial year, being a
combination of refreshes and new products.
Financial Review
Overview
As referenced above, in a period characterised by challenging market
conditions, the Group reported revenues of £76.9 million, a decrease of 10.9%
compared to the six months ending on 28 February 2023. When adjusted for
organic constant currency ("OCC") effects, the underlying decrease is 8.4%.
The adjusted(1) EBITDA (2) of £12.1million was 33% lower than in the
corresponding period, attributed to reduced sales volumes and gross profits,
notably influenced by a one-off stock provision of £1 million associated with
our Vocaster product line.
The reported operating profit also saw a reduction to £4.7 million (HY23:
£11.5 million) due to similar factors affecting the overall financial
performance. Similarly, adjusted(1) diluted EPS of 7.7 pence is lower than
the prior year's of 18.0 pence.
Income statement
HY24 HY24 HY24 HY23 HY23 HY23
£m £m £m £m £m £m
Adjusted Adjusting items(1) Reported Adjusted Adjusting items(1) Reported
Revenue 76.9 - 76.9 86.2 - 86.2
Cost of sales (41.7) - (41.7) (45.6) - (45.6)
Gross profit 35.2 - 35.2 40.6 - 40.6
Administrative overheads (23.1) (0.1) (23.2) (22.5) (1.2) (23.7)
EBITDA(2) 12.1 (0.1) 12.0 18.1 (1.2) 16.9
Amortisation of intangible assets (3.1) (2.7) (5.8) (2.9) (1.5) (4.4)
Depreciation of tangible assets (1.5) - (1.5) (1.0) (1.0)
Operating profit 7.5 (2.8) 4.7 14.2 (2.7) 11.5
Net finance expense (1.3) - (1.3) (0.6) - (0.6)
Profit before tax 6.2 (2.8) 3.4 13.6 (2.7) 10.9
Income tax expense (1.6) 0.7 (0.9) (3.0) 0.6 (2.4)
Profit for the period 4.6 2.1 2.5 10.6 (2.1) 8.5
Memo: Total administrative expenses (27.7) (2.8) (30.5) (26.5) (2.7) (29.2)
1 Adjusted for amortisation of acquired intangible assets and other adjusting
items detailed in note 4 to the Interim Financial Statements
2 Earnings Before Interest, Tax, Depreciation and Amortisation
Revenue analysis
HY24 Reported HY24 Acquisitions(2) HY24 As adjusted HY23 Reported HY23 Exchange(1) HY23 As adjusted Reported Growth OCC Growth(1)
Focusrite 29.4 - 29.4 40.1 (1.6) 38.5 (26.8)% (23.6)%
Novation 7.9 - 7.9 8.2 (0.3) 7.9 (4.6)% 0.0%
ADAM 11.3 - 11.3 10.2 (0.4) 9.8 11.2% 15.3%
Sequential 4.5 - 4.5 8.6 (0.5) 8.2 (47.7)% (44.4)%
Sonnox 1.0 (0.7) 0.3 0.3 - 0.3 242.2% 0.0%
Content Creation 54.1 (0.7) 53.4 67.4 (2.8) 64.6 (19.8)% (17.3)%
Audio Reproduction 22.8 (0.3) 22.5 18.8 (0.6) 18.2 21.4% 23.6%
Total 76.9 (1.0) 75.9 86.2 (3.4) 82.8 (10.9)% (8.4)%
1 Organic constant currency (OCC) growth rate is calculated by comparing FY24
revenue to FY23 revenue adjusted for FY24 exchange rates and the impact of
acquisitions
2 Sonnox acquired in December 2022, Sheriff Technologies acquired December
2023
Revenue for the Group declined by 10.9% to £76.9 million (HY23: £86.2
million) which, adjusting for acquisitions and constant currency, represents
an organic constant currency (OCC) decline of 8.4%. Sheriff Technology was
acquired in December 2023 and contributed £0.3 million of revenue in line
with expectation. Sonnox was acquired in December 2022 and contributed £1.0
million in HY23 compared to £0.3 million in the prior period. Currency was
a headwind, reducing reported revenue by £3.4 million mainly due to the
weakening of the US dollar.
This period has been marked by challenges, especially within the Content
Creation division, which saw a decline in revenue not fully counterbalanced by
the strength in Audio Reproduction. Specifically, Focusrite witnessed a 26.8%
drop compared to HY23 (23.6% on an OCC basis).
This was primarily due to high channel stock levels, despite stable sell-out
rates to end users of our key products compared to the previous year and a
consistent 50% improvement over pre-pandemic FY19 levels. The planned
continuation of lower-cost 3rd generation Scarlett models in the channel, and
the strategic decision to offer both generations during a price-sensitive
holiday period, helped Focusrite maintain market leadership and compete
effectively at lower price points, including offering a $99 product through
selected resellers. Initially, this strategy reduced the demand for the newer
4th generation models, with sales now picking up for the newer models as 3(rd)
generation products sell out of the channel. Inventory of the 3(rd) generation
has reduced significantly during the first half of the year, and we expect
sales in the second half to be predominantly of the 4(th) generation. We do
not expect markets to improve in the second half, but we expect a greater
weighting of sales in this period compared with HY24 due to the introduction
of new products later in the year as well as in HY25.
ADAM had a successful first half, with the entry-level T-series seeing strong
growth supported by the brand moving to the same route to market in the US as
the Focusrite brands. Sequential continues to suffer in a weak market, with
higher price point synthesizers being particularly hard hit.
Audio Reproduction continues to perform well with growth supported by stock
availability and a range of new product launches in FY23. Growth was
particularly strong in APAC, where demand for live and installed sound is
benefitting from the bounce back from COVID.
Currency impact
The US Dollar weakened during the period (with detail of rate movements
provided on the following pages). This has resulted in the majority of the
£3.4 million negative translation impact on revenue for the Group for HY24
relative to HY23. However, at the profit level the USD effect is mitigated by
the purchases of inventory in USD from the manufacturers in China and Malaysia
and the Euro effect on profit is largely mitigated by the Group's hedging
policy, such that the translation impact between periods is not material.
Segment Profit
Segment profit is disclosed in more detail in note 3 to the Interim Financial
Statements 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 Analysis
The gross margin decreased to 45.8% in HY24, down from 47.1% in HY23. This
reduction in gross margin was primarily due to a one-off stock provision
associated with the Vocaster range, with underlying margins remaining stable.
Underlying margins reflected a 0.7 percentage point increase in product
margins with a reduced level of promotions compared to the prior year. This
positive impact was somewhat counterbalanced, however, by a negative 0.6
percentage point impact due to higher freight costs, attributed to logistical
challenges in the Red Sea that escalated freight rates. The adverse stock
provision impact of £1 million (1.3 percentage points) was necessitated by
slower than expected market demand for the Vocaster range. This product,
despite its positive reception, faced launch delays of 12 months due to
component availability issues during the pandemic, leading to initial launch
quantities that exceeded market demand, as the market for podcasts
unexpectedly significantly softened. Consequently, measures have been taken to
adjust the stock holding to its realisable value.
Looking ahead, we anticipate the continuation of promotional activities
throughout the year and are assuming that freight costs will stabilise.
Therefore, we project that underlying margins will remain broadly stable for
the remainder of the fiscal year, underpinning our financial health and
operational resilience amidst fluctuating market conditions.
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 of
£0.4 million) and central functions such as legal, finance and the Group
Board. These expenses were £23.2 million, down from £23.7 million last
year. Excluding adjusting costs of £0.1 million (HY23: £1.2 million) (see
Adjusting items below), the operating costs were £23.1 million (HY23: £22.5
million).
The increase in adjusted administrative expenses of £0.6 million resulted
from the annualisation impacts of the two recent acquisitions, Sonnox and
Sheriff Technology, of £0.4 million, inflationary impacts, primarily labour
costs, of £0.6 million and increased share options costs of £0.5 million
offset by cost reductions from the prior year reorganisation and reduced bonus
costs.
Adjusted EBITDA
Adjusted EBITDA is an alternative performance measure which 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 £18.1
million in HY23 to £12.1 million in HY24, a decrease of 33%. The decrease of
£6.0 million was due to lower sales volumes and the impact of the Vocaster
provision with underlying operating costs remaining relatively stable. A
reconciliation of adjusted EBITDA to operating profit can be found in Note 4
to the Interim Financial Statements.
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, up to eleven years for Martin Audio and fifteen for Sequential.
Across the Group, £4.5 million of development costs were capitalised (HY23:
£4.3 million) and the amortisation of capitalised development costs was £3.1
million (HY23: £2.3 million). This increase was due to the acceleration of
£0.8 million of amortisation on capitalised development costs relating to the
Vocaster range, £0.5m of which would have been amortised in the second half
of this year. Further details are shown in note 8, with disclosure to
highlight the movement from technology, products and patents in development to
those now in use.
The amortisation of the acquired intangible assets totalled £2.7 million
during the period (HY23: £1.5 million) and has been disclosed within
adjusting items. The prior year amount included a reversal of £1.0 million
due to the impact of an amendment to our accounting policy relating to the
commencement of amortisation of acquired intangibles under development.
Adjusting for this the underlying increase in amortisation of acquired
intangibles is £0.2 million and relates to the full period impact of Sonnox,
acquired in FY23 and the commencement of amortisation relating to Sheriff
Technology.
Adjusting items
In HY24 adjusting items totalled £0.1 million (HY23 £1.2 million),
comprising £0.1 million which related to the due diligence costs for the
acquisition of Sheriff Technology that was completed on 19 December 2023.
£2.7 million related to amortisation of acquired intangible assets is also
shown as an adjusting item.
In HY23, the adjusting items of £1.2 million included £0.3 million which
related to the due diligence costs for the acquisition of Sonnox that was
completed on 19 December 2022, £0.5 million related to earn-outs put in place
after the acquisitions of Sequential and Linea Research in prior years and
£0.4 million related to restructuring activities in the half year. £1.5
million related to amortisation of acquired intangible assets was also
disclosed as an adjusting item.
Foreign exchange and hedging
The exchange rates were as follows:
Exchange rates HY24 HY23 FY23
Average
USD:GBP 1.25 1.19 1.21
EUR:GBP 1.16 1.15 1.15
Period end
USD:GBP 1.26 1.21 1.16
EUR:GBP 1.17 1.14 1.16
The average USD rate has weakened to $1.25 for HY24 (HY23: $1.19). 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 2024) and approximately 50% of the
Euro flows for the following financial year (year ending August 2025).
In HY24, approximately three-quarters of Euro flows were hedged at €1.12,
and the average transaction rate was €1.16, thereby creating a blended
exchange rate of approximately €1.14. In HY23, the equivalent hedging
contracts were at €1.17, versus the transactional rate of €1.15 so
creating a blended exchange rate of €1.16. 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 has increased to 27.7% (HY23: 22.4%).
This is largely due to the increases in the UK corporate tax rate from 19%
to 25% in April 2023. In addition, there has been a prior year adjustment
which has increased the tax rate relating to the reduction in patent box
claims in the prior year. The effective tax rate excluding the prior year
adjustments is 23.5%. The headline effective tax rate is expected to return
to the UK corporate tax rate in future years.
Earnings per share ('EPS')
The basic EPS for the half year was 4.2 pence, down 71% from 14.4 pence in
HY23. This decrease has largely resulted from the change in reported profit
after tax, which was impacted by lower EBITDA and increased amortisation due
to the accelerated amortisation relating to Vocaster and the higher tax charge
noted above. The weighted average number of shares used for the calculation
has increased marginally compared to the prior year at 58,872,000 shares
(HY23: 58,494,000 shares). The more comparable measure, excluding adjusting
items and including the dilutive effect of share options, is the adjusted
diluted EPS. This decreased to 7.7 pence, from 18.0 pence in HY23, a
decrease of 57%.
HY24 HY23 FY23
Pence Pence Pence
Basic 4.2 14.4 30.4
Diluted 4.1 14.3 30.2
Adjusted basic 7.8 18.2 38.7
Adjusted diluted 7.7 18.0 38.4
Balance sheet
HY24 HY23 FY23
£m £m £m
Non-current assets 98.9 95.2 95.9
Current assets
Inventories 55.3 50.7 55.3
Trade and other receivables 37.5 27.5 33.4
Cash 8.9 13.5 26.8
Current liabilities
Trade, other payables and provisions (30.2) (30.3) (45.4)
Bank loan or overdraft (36.2) (26.8) (28.1)
Non-current liabilities
Deferred tax (10.3) (10.6) (10.8)
Other non-current liabilities (5.6) (8.6) (8.1)
Net assets 118.3 110.6 118.5
Working capital(1) 62.6 47.9 42.8
(1) Working capital is defined as Inventories plus trade and other receivables
less trade and other payables and provisions
Non-current assets
The non-current assets comprise: goodwill, brands, patents and capitalised
development costs; property, plant and equipment; and software.
The goodwill totals £16.9 million (HY23: £16.4 million). The increase is
due to the addition of Sheriff Technology at £0.7 million, together with
foreign exchange movements on the existing items.
The total cost of the brands is £25.7 million (HY23: £26.4 million). The
majority of brands are being amortised over 10 and 15 years with Martin over
20 years. At 29 February 2024 the brands had carrying value, net of
amortisation, of £19.2 million compared to £21.6 million as at 28 February
2023.
Acquired technology and patent costs comprise developments now in use and
brought into the Group as part of an acquisition. These are amortised over
similar periods to internally generated assets and as at 29 February 2024
comprised £37.3 million at cost, increasing by £2.0 million due to the
acquisition of Sheriff Technology. The net book value of these assets at the
period end was £24.9 million (FY23: £24.2 million).
The internally generated technology and patent costs comprise capitalised
research and development costs for products currently in use. The
amortisation periods range from three years to fifteen 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, Martin Audio live speakers and Sequential synthesisers. The
capitalised technology and patent costs as at 29 February 2024 had a carrying
value, net of amortisation, of £10.7 million (HY23: £9.2 million).
Capitalised technology and patent costs still under development comprise
acquired and internally generated technology and patent costs for products
currently still in development. The cost of these items has increased from
£8.5 million at 1 September 2023 to £9.4 million as at 29 February 2024, as
a result of our £2.8 million ongoing investment in new products, net of the
transfer of £2.0 million of costs to products now in use.
Overall, amortisation of the intangible assets totals £5.8 million (HY23:
£4.4 million). This is split between amortisation of intangible assets
acquired as part of the acquisitions of £2.7 million (HY23: £1.5 million),
and other amortisation of £3.1 million (HY23: £2.9 million). This has
increased due to the accelerated amortisation relating to Vocaster of £0.8m,
£0.5m of which would have been included in H2. The amortisation of acquired
intangible assets has been treated as an adjusting item. The difference in
the period between ongoing amortisation of development costs and capitalised
development costs is £1.4 million (HY23: £2.0 million).
Based on current trading and management forecasts, we have conducted
impairment reviews for those subsidiaries impacted by difficult markets with
no impairments to the carrying value of the intangible assets being deemed
necessary. This will be reassessed at the year-end for any evidence of any
permanent diminution in value.
The remaining £6.0 million net book value of intangible assets (HY23: £3.0
million) is in respect of software and trademarks. This has increased due to
the further stage payments relating to investment in licencing and acquired
technology to enhance our future product functionality.
Tangible non-current assets consist mainly of right of use assets relating to
the Group's leased offices and warehouses, and tooling equipment for the
manufacture of products. This has increased since February 2023 due to
inception of a new lease and fit out costs as Focusrite has moved to a new
headquarters in High Wycombe.
Working Capital Analysis
As of 29 February 2024, working capital represented 37.0% of the last 12
months' revenue, a significant increase from 27.0% in the comparable period of
the previous year (HY23). This uptick in working capital at the half-year can
be attributed to several factors.
Inventory Increase in Audio Reproduction: A notable inventory buildup occurred
within the Audio Reproduction segment, particularly for Linea Research. This
increase was strategic, aimed at supporting growth and ensuring a stable
component supply amidst industry-wide shortages. This inventory expansion is
anticipated to reverse in the latter half of the year as the stock is deployed
to meet the demands of the current order book.
Rise in Debtors: There has been a £4.7 million increase in debtors since the
end of the previous fiscal year, which included significant balances from the
sell-in to the sales channel for holiday season. This increase primarily
stems from a delayed payment from a significant US customer, in accordance
with a distribution agreement that postpones payments until the distributor's
stock levels decrease. This situation is anticipated to improve significantly
in the second half of the year as we actively manage and reduce stock levels
with our distribution partners.
Creditor Payments: There has been a £17.4 million outflow in H1, relating to
seasonal payments for stock purchased for the winter holiday season. This is
usually offset by large debtor inflows which have been delayed this year as
noted above. Consistent with our financial management practices, we have
continued to pay creditors promptly and efficiently. There have been no
significant changes in this area, underscoring our commitment to maintaining
strong relationships with our suppliers.
Stock Levels and Scarlett Transition: Stock levels have remained elevated,
particularly due to managing the transition within the Scarlett range. We
expect a significant reduction as we streamline the stock position with our
distribution partners.
Overall, the increase in working capital in HY24 is viewed as a temporary
phase. We anticipate a significant improvement in the second half of the
year as the actions outlined above take effect.
Cash Flow Analysis
HY24 HY23 FY23
£m £m £m
Cash and cash equivalents at the beginning of the year 26.8 12.8 12.8
Foreign exchange movements (0.2) 0.1 (1.0)
Cash and cash equivalents at the end of the year 8.9 13.5 26.8
Net(decrease)/ increase in cash and cash equivalents (per Cash Flow Statement) (17.7) 0.6 15.0
Change in bank loan (8.1) (13.7) (15.2)
Increase in net debt (25.8) (13.1) (0.2)
Add back equity dividend paid 2.6 2.4 3.6
Add back acquisition of subsidiary (net of cash acquired) 2.3 7.2 7.2
Free cash (outflow)/inflow (20.9) (3.5) 10.6
Add back non underlying items (cash outflow) 0.1 1.2 1.7
Underlying free cash (outflow)/inflow (1) (20.8) (2.3) 12.3
( )
(1)Defined as cashflow before equity dividends, acquisition of subsidiary (net
of cash acquired) and adjusting items.
The underlying free cash outflow in HY24 was £20.8 million, compared to a
cash outflow of £2.3 million in HY23. We expect underlying free cashflow
for FY24 to be a small outflow, with the temporary impacts on working capital
outlined above expected to largely reverse in the second half of the year.
The Group remains inherently cash generative, and the aim is to return to the
historic norm of strong free cashflow generation in future years.
Free cash outflow in HY24 is £20.9 million compared to cash outflow of £3.5
million in HY23 and is impacted by similar issues as underlying free cashflow.
In the current first half year adjusting items relate to the due diligence
costs of the acquisition of Sheriff Technology as outlined in Note 4 to the
Interim Financial Statements. In the prior year they related to payment of
the of the Sequential earn out and the due diligence costs relating to the
acquisition of Sonnox.
The net debt balance at the period end was £27.3 million (HY23: net debt of
£13.2 million and FY23: net debt of £1.3 million). The net debt includes
the arrangement fee for the revolving credit facility (RCF) of £0.6 million
which is being amortised across the period of the facility. The increase in
net debt since the beginning of HY24 principally reflects the increase in
working capital noted above and the acquisition of Sheriff Technology for
£2.3 million in December 2023. The Group has a £50 million RCF facility
split evenly between HSBC and NatWest which was renewed in September 2023 and
is due to expire at September 2028, with an optional one year extension,
together with an uncommitted facility for a further £50 million. As at the
balance sheet date £36.2 million was drawn down from the facility (HY23:
£26.9 million, FY23 £26.8 million).
Dividend
The Board has approved an interim dividend of 2.1p (HY23: 2.1p) which is in
line with the previous year, despite the reduction in profits and reflects the
Board's confidence in the future profit and cash generation prospects of the
Group.
Summary and Outlook
Focusrite plc has evolved into a global business, encompassing 13 distinct yet
synergistic brands, operating across varied markets. This diversification
strategy has proved successful, as seen by the near-doubling of Group revenue
from £40 million in HY19, the half-year preceding the global COVID-19
pandemic, to £77 million in the first half of this year. Demand for our
flagship Scarlett product range is 50% higher than FY19 levels with end user
registrations in line with the previous half year, such that we believe we are
continuing to take market share.
The Content Creation division has faced a particular set of challenges in
HY24, with both macro-economic weakness and an oversupply in the channel,
particularly as we navigate the transition of our Scarlett range from the
3(rd) to the 4(th) generation. Conversely, our Audio Reproduction division has
seen significant growth, bolstered by successful product launches in the
previous year and the inclusion of new brands within its portfolio.
Though the industry outlook, particularly for Content Creation, remains tough,
we remain encouraged by our product registration data which is comfortably
outperforming the market. The sustained robust performance of our expanding
Audio Reproduction division offers a positive counterbalance to the ongoing
headwinds in Content Creation. With a series of planned product launches in
the coming months and a continued emphasis on our strategic growth
initiatives, which will lead to a greater weighting of sales in the second
half, we remain confident of meeting our full-year expectations.
Tim Carroll Sally
McKone
Chief Executive Officer Chief Financial Officer
Risks and Uncertainties
The Board has considered the principal risks and uncertainties as presented in
the 2023 Annual Report and has determined that they broadly remain relevant to
the rest of this financial year, with the updates as set out below. Such risks
and uncertainties 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.
ESG and our sustainability strategy
Our aim is to become industry leaders in environmental sustainability.
Alongside our 2023 Annual Report we also published our first Environment and
Climate Report, providing a deep dive into our climate-related risks and
opportunities identified as part of the UK's Climate-related Financial
Disclosures (CFD) framework. In the year to date since publication, we do not
expect to see any significant shifts in risk levels, with Climate Change
broadly a low-medium risk to the Group in the short term (up to 2030). More
information about our CFD report can be seen across pages 16-35 of our 2023
Environment and Climate Report.
In the first half of this year, we have made good progress incorporating more
recycled materials into our products, with Martin Audio making notable
progress switching an initial set of 10 products across to recycled plastic to
be completed by the end of this financial year, with more to follow
subsequently.
We are also pleased to share that we have submitted our commitment letter to
the Science Based Targets Initiative, starting our 24-month target setting
process to define Near-term and Net Zero targets for the Group.
Macro-economic/Geopolitical conditions
Developments in politics, laws and regulations affect our supply chains and
operations. Currently many countries are facing economic and fiscal challenges
and growing pressure on cost-of-living standards, though these have started to
ease somewhat in recent months. These issues impact our business as
governments, in response to political and social pressures, pursue policies
that could have a material adverse effect on our operations and subsequently
our earnings, cash flows and financial condition.
The world continues to face geopolitical instability. The broader consequences
of the conflict in Gaza remain uncertain and a wider regional escalation could
have greater impacts on our operations.
We continually monitor geopolitical developments and societal issues relevant
to our interests. With regard to the current threat to the Red Sea shipping
route, we have made adjustments to our freight paths to reduce our exposure
and are closely monitoring the risk of a wider regional escalation.
Cost inflation
Cost inflation continues to be widely reported and remains prevalent in most
of our major markets, although easing somewhat in recent months. Indications
of how cost inflation is impacting the discretionary income available to
customers has been felt across all industries and revenue growth has been
impacted by macro-economic uncertainty. By remaining competitive in the market
and offering premium and desirable products we aim to mitigate this by
continuing to be the first choice for customers.
The Group's customers continue to operate in a range of different sectors
which reduces the risk of a downturn in a particular sector. As a global Group
we operate in different countries and therefore are less exposed if particular
countries are impacted.
Forward looking statements
The risks and uncertainties facing the Group were reported in detail in the
2023 Annual Report and are monitored closely by the Group. The forward-looking
statements in this 2024 Half Year Report cannot be relied upon as a guarantee
or prediction of future performance. We, like all businesses, continue 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 29 February 2024
Note Six months to Six months to Year to
29 February 2024
28 February 2023
31 August 2023
£'000 £'000 £'000
Revenue 2 76,884 86,243 178,465
Cost of sales (41,683) (45,619) (93,616)
Gross profit 35,201 40,624 84,849
Administrative expenses (30,544) (29,163) (60,506)
Adjusted EBITDA (non-GAAP measure) 12,098 18,053 38,568
Depreciation and amortisation (4,609) (3,858) (8,087)
Adjusting items for Adjusted EBITDA:
Amortisation of acquired intangible assets (2,734) (1,504) (4,451)
Adjusting items 4 (98) (1,230) (1,687)
Operating profit 4,657 11,461 24,343
Finance income 83 712 770
Finance costs (1,318) (1,290) (2,365)
Profit before tax 3,422 10,883 22,748
Income tax expense 5 (949) (2,434) (4,951)
Profit for the period from continuing operations 2,473 8,449 17,797
Earnings per share
From continuing operations
Basic (pence per share) 7 4.2 14.4 30.4
Diluted (pence per share) 7 4.1 14.3 30.2
Condensed Consolidated Statement of Other Comprehensive Income
For the six months ended 29 February 2024
Six months to Six months to Year to
29 February 2024
28 February 2023
31 August 2023
£'000 £'000 £'000
Profit for the period 2,473 8,449 17,797
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (77) (999) (1,742)
(Loss)/gain on forward foreign exchange contracts designated and effective as (190) 194 784
a hedging instrument
Exchange loss on acquired amortisation - - (18)
Tax on hedging instrument 47 (38) (186)
Total comprehensive income for the period 2,253 7,606 16,635
Profit attributable to:
Equity holders of the Company 2,253 7,606 16,635
Condensed Consolidated Statement of Financial Position
Note 29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 16,888 16,377 16,138
Other intangible assets 8 70,169 67,909 66,709
Property, plant and equipment 11,375 10,865 12,495
Deferred tax assets 452 - 533
Total non-current assets 3 98,884 95,151 95,875
Current assets
Inventories 55,298 50,681 55,256
Trade and other receivables 37,186 27,470 32,384
Derivative financial instruments 9 301 - 491
Cash and cash equivalents 9 8,924 13,527 26,787
Total current assets 101,709 91,678 114,918
Current liabilities
Trade and other payables (25,299) (26,451) (39,703)
Other liabilities (956) (1,448) (1,761)
Current tax liabilities (2,681) (990) (2,619)
Provisions (1,270) (1,327) (1,270)
Bank loans and arrangement fee 9 (36,228) (26,760) (28,093)
Derivative financial instruments 9 - (99) -
Total current liabilities (66,434) (57,075) (73,446)
Net current assets 35,275 34,603 41,472
Total assets less current liabilities 134,159 129,754 137,347
Non-current liabilities
Deferred tax (10,213) (10,561) (10,824)
Other liabilities (5,639) (8,550) (8,071)
Total non-current liabilities (15,852) (19,111) (18,895)
Total liabilities (82,286) (76,186) (92,341)
Net assets 118,307 110,643 118,452
Capital and reserves 59
Share capital
59 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 (2,834) (2,014) (2,757)
Hedging reserve 301 (99) 491
EBT reserve (1) (1) (1)
Retained earnings 119,219 111,135 119,097
Equity attributable to owners of the Company 118,307 110,643 118,452
Total equity 118,307 110,643 118,452
Condensed Consolidated Statements of Changes in Equity
For the six months ended 29 February 2024 Share capital Share premium Merger reserve Merger difference reserve Translation reserve Hedging reserve EBT reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 September 2023 59 115 14,595 (13,147) (2,757) 491 (1) 119,097 118,452
Profit for the period 2,473 2,473
Other comprehensive income/(expense) for the period (77) (190) 47 (220)
Total comprehensive income/(expense) for the period - - - - (77) (190) - 2,520 2,253
Transactions with owners of the Company:
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - - (81) (81)
Shares from EBT exercised - - - - - - - 22 22
Share-based payments - - - - - - - 192 192
Shares withheld to settle employees' tax obligations associated with - - - - - - - (105) (105)
share-based payments
Premium on shares awarded in lieu of bonuses - - - - - - - 212 212
Dividends paid - - - - - - - (2,638) (2,638)
Balance at 29 February 2024 59 115 14,595 (13,147) (2,834) 301 (1) 119,219 118,307
Condensed Consolidated Statements of Changes in Equity (Continued)
For the six months ended 28 February 2023 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 2022 59 115 14,595 (13,147) (1,015) (293) (1) 105,003 105,316
Profit for the period - - - - - - - 8,449 8,449
Other comprehensive (expense)/income for the period - - - - (999) 194 - (38) (843)
Total comprehensive (expense)/income for the period - - - - (999) 194 - 8,411 7,606
Transactions with owners of the Company:
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - - (12) (12)
Share-based payment current tax deduction in excess of remuneration expense - - - - - - - 25 25
Shares from EBT exercised - - - - - - - 556 556
Share-based payments - - - - - - - (341) (341)
Shares withheld to settle employees' tax obligations associated with - - - - - - - (185) (185)
share-based payments
Premium on shares awarded in lieu of bonuses - - - - - - - 106 106
Dividends paid - - - - - - - (2,428) (2,428)
59 115 14,595 (13,147) (2,014) (99) (1) 111,135 110,643
Balance at 28 February 2023
Condensed Consolidated Statements of Changes in Equity (Continued)
For the year ended 31 August 2023 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 2022 59 115 14,595 (13,147) (1,015) (293) (1) 105,003 105,316
Profit for the period - - - - - - - 17,797 17,797
Other comprehensive (expense)/ income for the period - - - - (1,742) 784 - (204) (1,162)
Total comprehensive (expense)/ income for the period - - - - (1,742) 784 - 17,593 16,635
Share-based payment deferred tax deduction in excess of remuneration expense - - - - - - - 5 5
Share-based payment current tax deduction - - - - - - - (123) (123)
EBT shares issued - - - - - - 1 584 585
Share-based payments - - - - - - (1) (246) (247)
Shares withheld to settle employees' tax obligations associated with - - - - - - - (216) (216)
share-based payments
Premium on shares awarded in lieu of bonuses - - - - - - - 106 106
Dividends paid - - - - - - - (3,609) (3,609)
Balance at 31 August 2023 59 115 14,595 (13,147) (2,757) 491 (1) 119,097 118,452
Consolidated Statement of Cash Flow
For the six months ended 29 February 2024
Note Six months to Six months to Year to
29 February 2024
28 February 2023
31 August 2023
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period 2,473 8,449 17,797
Adjustments for:
Income tax expense 949 2,434 4,951
Net interest charge 1,235 578 1,595
Loss on disposal of property, plant and equipment - - 187
Loss on disposal of intangible assets - 27 27
Amortisation of intangibles 8 5,824 4,389 9,861
Depreciation of property, plant and equipment 1,516 1,085 2,677
Other non-cash items (43) (377) (229)
Share-based payments charge 192 (341) (246)
Operating cash flow before movements in working capital 12,146 16,244 36,620
(Increase)/decrease in trade and other receivables (4,703) 1,315 (3,599)
Decrease/ (increase) in inventories 331 (2,341) (6,916)
(Decrease)/increase in trade and other payables (17,362) (9,421) 2,922
Operating cash flow before interest and tax (9,588) 5,797 29,027
Net interest paid (1,250) (636) (1,699)
Income tax paid (1,368) (915) (1,856)
Cash flow generated by operations (12,206) 4,246 25,472
Net foreign exchange movements (95) (878) 860
Net cash (outflow)/inflow from operating activities (12,301) 3,368 26,332
Cash flows from investing activities
Purchases of property, plant and equipment (398) (1,078) (3,204)
Purchases of intangible assets 8 (2,524) (1,079) (2,024)
Capitalised R&D costs 8 (5,094) (4,296) (9,163)
Proceeds from disposal of intangible assets - - 5
Acquisition of subsidiary, net of cash acquired 10 (2,276) (7,153) (7,153)
Net cash used in investing activities (10,292) (13,606) (21,539)
Cash flows from financing activities
Proceeds from loans and borrowings 8,136 15,706 15,226
Repayments of loans and borrowings - (2,000) -
Payment of right of use liabilities (616) (405) (1,427)
Equity dividends paid (2,638) (2,428) (3,609)
Net cash generated from financing activities 4,882 10,873 10,190
Net (decrease)/increase in cash and cash equivalents (17,711) 635 14,983
Cash and cash equivalents at beginning of the period 26,787 12,758 12,758
Net foreign exchange movement (152) 134 (954)
Cash and cash equivalents at end of the period 8,924 13,527 26,787
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 29 February 2024 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 29
February 2024 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 ending 31 August
2024 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 2023 which were prepared in accordance with
UK-adopted 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 2023.
These interim financial statements were authorised for issue by the Company's
Board of Directors on 24 April 2024.
The comparative figures for the financial year ended 31 August 2023 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
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 29 February
2024.
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 12 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 £50.0 million which was renewed in
September 2023. The availability of the revolving credit facility is subject
to continued compliance with certain covenants. In addition the Group has
agreed a further £50 million uncommitted facility on similar terms.
The Directors have prepared projected cash flow forecasts for the period
ending 12 months from the date of their approval of these financial
statements. These forecasts include a severe but plausible downside scenarios,
including the impact of a recession, loss of a major distributor and
significant decline in a major product category.
The base case covers the period to April 2025 and includes demanding but
achievable forecast growth. The forecast has been extracted from the Group's
FY24 forecast. Key assumptions include:
· Future growth assumptions in line with market growth assumptions
and new product introductions and adjusted for the annualisation of recent
acquisitions' results.
· Continued investments in research and development in all areas of
the Group.
· No further acquisitions
· Dividends consistent with the Group's dividend policy.
Throughout the period the forecast cash flow information indicates that the
Group will have sufficient liquidity and comply with the leverage and interest
cover covenants contained within the facility.
The Directors have modelled severe but plausible downside scenarios of the
risks identified above. This model assumes that purchases of stock would, in
time, reduce to reflect reduced sales, if they occurred. The Group would also
respond to a revenue shortfall by taking reasonable steps to reduce overheads
within its control. In these scenarios, the Group would be expected to remain
well within the terms of its loan facility with the leverage covenant (net
debt to adjusted EBITDA) in the period not exceeding the maximum of 2.5x.
Separately, as a reverse stress test, the Directors estimate that if the Group
were to experience a shortfall in revenue of greater than 25% than the
current expectations permanently from the start of the forecast period,
leverage could rise to the upper limits allowed by the banking covenants by
April 2025. This scenario includes consequential reductions in the purchases
of stock and dividends. However, the Directors' view is that any scenario of a
revenue shortfall of greater than the severe yet plausible scenario above
is not realistic. In practice, the Group's revenue levels are lower than the
prior period but consumer registrations and underlying end-user customer
demand remain stable. During the second half of the year the Group expects to
see cashflows improve, and net debt has now reduced from a net debt position
of £27.3 million reported at the end of H1 to approximately net debt of
£25.1 million at 22 April 2024.
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 12
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
2023.
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
amortisation on acquired intangibles, together with some non-recurring costs
and benefits and so should not be regarded as a complete picture of the
Group's financial performance.
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 HY23) and restructuring
costs, together with amortisation of acquired intangible assets.
The following APMs have been used in these financial results:
· Organic constant currency growth - this is calculated by
comparing current period revenue to prior period revenue adjusted for current
period exchange rates and the impact of acquisitions, shown within the
Financial Review.
· Adjusted EBITDA - comprising earnings (operating profit) adjusted
for interest, taxation, depreciation, amortisation and adjusting items. This
is shown on the face of the income statement.
· Adjusted operating profit - operating profit adjusted for
adjusting items. See reconciliation following
· Adjusted earnings per share ('EPS') - earnings per share
excluding adjusting items. See reconciliation following
· Free cash flow - net increase/(decrease) in cash and cash
equivalents excluding net cash used acquisitions, movements on the bank loan
and dividends paid. See reconciliation following
· Underlying free cash flow - as free cash flow but adding back
adjusting items. See reconciliation following
· Net debt - comprised of cash and cash equivalents, overdrafts and
amounts drawn against the RCF including the costs of arranging the RCF. See
reconciliation following
Reconciliation of Alternative Performance Measures to Statutory Reported
Measures
Six months ended Six months ended
29 February 2024
28 February 2023
Adjusted EBITDA Adjusted Operating Profit Adjusted Diluted EPS Adjusted EBITDA Adjusted Operating Profit Adjusted Diluted EPS
£'000 £'000 £'000 £'000 £'000 £'000
Reported Operating Profit 4,657 4,657 11,461 11,461
Reported Profit after tax 2,474 8,449
Add back/(deduct):
Underlying depreciation and amortisation 4,609 3,858 - -
Amortisation on acquired intangibles 2,734 2,734 2,734 1,504 1,504 1,504
Acquisition costs 98 98 98 328 328 328
Earnout in relation to acquisition - - - 523 523 523
Restructuring - - - 379 379 379
Tax on adjusting items (708) - - (565)
Adjusted 12,098 7,489 4,598 18,053 14,195 10,618
Weighted average number of total ordinary shares including dilutive impact 59,749 58,935
Adjusted diluted EPS (p) 7.7 18.0
Year ended
31 August 2023
Adjusted Adjusted
EBITDA Operating Profit Adjusted
£'000 £'000 Diluted EPS
£'000
Reported Operating Profit 24,343 24,343
Reported Profit after tax 17,797
Add back (deduct):
Underlying depreciation and amortisation 8,087 - -
Amortisation on acquired intangibles 4,451 4,451 4,451
Acquisition costs 367 367 367
Earnout in relation to acquisition 786 786 786
Restructuring 534 534 534
Tax on adjusting items - - (1,319)
Adjusted 38,568 30,481 22,616
58,953
Weighted average number of total ordinary shares including dilutive impact
Adjusted diluted EPS (p) 38.4
Six months ended Six months ended Year ended
29 February 2024
28 February 2023
31 August 2023
Free cash flow Adjusted free cash flow Free cash flow Adjusted free cash flow Free cash flow Adjusted free cash flow
£'000 £'000 £'000 £'000 £'000 £'000
Net (decrease)/increase in cash and cash equivalents during the year (17,711) (17,711) 635 635 14,983 14,983
Add back: dividends paid 2,638 2,638 2,428 2,428 3,609 3,609
Add back: cash outflow in relation to acquisition of business 2,276 2,276 7,153 7,153 7,153 7,153
Change in bank loan (8,136) (8,136) (13,706) (13,706) (15,226) (15,226)
Add back: adjusting items - 98 - 1,230 - 1,687
Free cashflow/Adjusted Free cashflow (20,933) (20,835) (3,490) (2,260) 10,519 12,206
Definition of net debt 29 February 2024 28 February 2023 31 August 2023
Net debt Net debt Net debt
Cash and cash equivalents 8,924 13,527 26,787
Bank loan (36,851) (26,897) (28,192)
RCF arrangement fee 623 137 99
Net debt (27,304) (13,233) (1,306)
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to 29 February 2024 Six months to 28 February 2023
North America EMEA Rest of World Total North America EMEA Rest of World Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Focusrite 14,370 11,633 3,357 29,360 20,669 14,309 5,106 40,084
Novation 2,907 3,789 1,163 7,859 2,838 4,060 1,343 8,241
ADAM Audio 4,743 5,985 568 11,296 3,194 6,087 880 10,161
Sequential 2,062 2,149 328 4,539 4,295 3,638 746 8,679
Sonnox 436 465 146 1,047 116 130 60 306
Content Creation 24,518 24,021 5,562 54,101 31,112 28,224 8,135 67,471
Audio Reproduction - Martin Audio 4,284 10,447 8,052 22,783 5,197 8,420 5,155 18,772
Total 28,802 34,468 13,614 76,884 36,309 36,644 13,290 86,243
Year to 31 August 2023
North America EMEA Rest of World Total
£'000 £'000 £'000 £'000
Focusrite 45,724 29,334 11,259 86,317
Novation 6,078 6,711 3,776 16,565
ADAM Audio 5,657 10,072 2,720 18,449
Sequential 7,115 6,309 1,056 14,480
Sonnox 405 492 242 1,139
Content Creation 64,979 52,918 19,053 136,950
Martin Audio 12,684 16,601 12,230 41,515
Total 77,663 69,519 31,283 178,465
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 and Focusrite Pro branded
products
Novation
- Sales of Novation and Ampify branded products
ADAM
Audio
- Sale of ADAM Audio products
Sequential
- Sale of Sequential products.
Sonnox
- Sale of Sonnox software plug ins (acquired 19
December 2022)
Martin
Audio
- Sale of Martin Audio, Optimal Audio, Linea
Research and Sheriff Technology trading brands TiMax and OutBoard (acquired 19
December 2023) products.
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
29 February 2024
28 February
31 August
2023 2023
£'000 £'000 £'000
Revenue from external customers
Focusrite 29,360 40,084 86,317
Novation 7,859 8,241 16,565
ADAM Audio 11,296 10,161 18,449
Sequential 4,539 8,679 14,480
Sonnox 1,047 306 1,139
Content Creation 54,101 67,471 136,950
Martin Audio 22,783 18,772 41,515
Audio Reproduction 22,783 18,772 41,515
Total revenue from external customers 76,884 86,243 178,465
Segment profit
Focusrite 11,273 19,148 40,130
Novation 4,387 4,485 9,133
ADAM Audio 5,505 4,738 9,570
Sequential 1,719 3,779 6,705
Sonnox 994 290 1,125
Martin Audio 11,323 8,184 18,186
Total segment profit 35,201 40,624 84,849
Central sales and administrative expenses (30,446) (27,933) (58,819)
Adjusting items (98) (1,230) (1,687)
Operating profit 4,657 11,461 24,343
Finance income 83 712 770
Finance costs (1,318) (1,290) (2,365)
Profit before tax 3,422 10,883 22,748
Tax (949) (2,434) (4,951)
Profit after tax 2,473 8,449 17,797
Segment profit represents the profit earned by each segment without allocation
of the share of central administration costs, other income, 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 a charge relating to the share option scheme of
£192,000 for the six-month period to 29 February 2024 (six months to 28
February 2023: credit of £341,000; year to 31 August 2023: credit of
£282,000).
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:
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
Non-current assets
North America 10,242 9,423 8,937
Europe, Middle East and Africa 88,584 85,615 86,725
Rest of World 58 113 213
Total non-current assets 98,884 95,151 95,875
UK 69,759 69,560 68,867
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
29 February 28 February 31 August
2024 2023 2023
£'000 £'000 £'000
Adjusting costs
Acquisition and due diligence costs 98 328 367
Earnout accrual in relation to acquisitions - 523 786
Restructuring - 379 534
Total adjusting items for adjusted EBITDA 98 1,230 1,687
Amortisation of acquired intangible assets 2,734 1,504 4,451
Total adjusting items for adjusted operating profit 2,832 2,734 6,138
Tax on adjusting items (708) (565) (1,319)
Total adjusting items for adjusted profit after tax 2,124 2,169 4,819
Adjusting items charged to the income statement in the six months to 29
February 2024 relate to the work associated with the acquisition of Sheriff
Technology Ltd trading under the principal brands of OutBoard and TiMax.
5. Taxation
The tax charge for the six months to 29 February 2024 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
29 February 2024
28 February 2023
31 August 2023
Dividend per qualifying ordinary share 2.1p 2.1p 6.6p
During the period, the Company paid a final dividend in respect of the year
ended 31 August 2023 of 4.5 pence per share. The Board has approved an
interim dividend of 2.1 pence per ordinary share (HY23: 2.1 pence). This
will be payable on 10 June 2024 to ordinary shareholders on the register on 10
May 2024. The ex-dividend date will be 9th May 2024.
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
29 February
28 February 2023
31 August
2024 2023
£'000 £'000 £'000
Earnings for the purposes of basic and diluted EPS being net profit for the 2,474 17,797
period
8,449
Adjusting items (see note 4) 2,832 2,734 6,138
Tax on adjusting items (708) (565) (1,319)
Total adjusted profit for adjusted EPS calculation 4,598 10,618 22,616
Number of shares Six Months to 29 February Year to
31 August
2024 Six months to
2023
28 February
2023
Weighted average number of ordinary shares for the purposes of basic EPS 58,872 58,494
calculation
58,506
Effect of dilutive potential ordinary shares:
Employee and Director share option plans 877 441 447
Weighted average number of ordinary shares for the purposes of diluted EPS 59,749 58,936 58,953
calculation
Pence
EPS Pence Pence
Basic EPS 4.2 14.4 30.4
Diluted EPS 4.1 14.3 30.2
Adjusted basic EPS(1) 7.8 18.2 38.7
Adjusted diluted EPS(1) 7.7 18.0 38.4
( )
At 29 February 2024, the total number of ordinary shares issued and fully paid
was 59,211,639. This included 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 less the weighted average number of shares held by the EBT. 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
Brands Acquired technology and patents costs Technology and patents under Development Internally generated technology and patents costs Intellectual property, Licences and Trademarks Computer software Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 September 2022 26,318 30,178 8,310 27,708 3,726 1,384 97,624
Additions - acquired separately - - - - 1,706 318 2,024
Additions - products developed during the period - - 6,085 2,514 - - 8,599
Additions through business combination 400 4,700 450 - - 3 5,553
Transfer - 801 (6,261) 5,600 - (140) -
Disposals - - - (4,108) - - (4,108)
Foreign exchange (1,010) (628) (55) (183) (2) (1,878)
At 31 August 2023 25,708 35,051 8,529 31,531 5,430 1,565 107,814
Additions - acquired separately - - - - 2,523 1 2,524
Additions - products developed during the period - - 2,819 1,729 - - 4,548
Additions through business combination - 2,025 - - - - 2,025
Transfer - 250 (1,961) 1,711 - - -
Foreign exchange 36 13 (9) 2 - - 42
At 29 February 2024 25,744 37,339 9,378 34,973 7,953 1,566 116,953
Amortisation
At 1 September 2022 3,909 7,377 970 20,562 1,683 1,159 35,660
Charge for the period 1,885 3,536 - 4,824 342 244 10,831
Transfer - - - 239 - (239) -
Eliminated on disposal - - - (4,081) - - (4,081)
Reversal of amortisation - - (970) - - - (970)
Foreign exchange (196) (116) - (22) (1) - (335)
At 31 August 2023 5,598 10,797 - 21,522 2,024 1,164 41,105
Charge for the year 911 1,823 - 2,779 202 109 5,824
Foreign Exchange - (144) - (1) - - (145)
At 29 February 2024 6,509 12,476 - 24,300 2,226 1,273 46,784
Carrying amount
At 29 February 2024 19,235 24,863 9,378 10,673 5,727 293 70,169
At 31 August 2023 20,110 24,254 8,529 10,009 3,406 401 66,709
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 the 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:
29 February 2024 28 February 2023 31 August 2023
£'000 £'000 £'000
Financial assets
Fair value
Cash and cash equivalents 8,924 13,527 26,787
Trade and other receivables 37,186 23,130 28,617
Designated cash flow hedge relationships
Derivative financial assets designated and effective as cash flow hedging 301 - 491
instruments
46,411 36,657 55,895
Financial liabilities
Fair value
Trade and other payables 12,080 12,246 26,044
Bank loan and arrangement fee 36,228 26,760 28,093
Amounts payable in relation to staged acquisition payments 2,790 3,486 2,621
Designated cash flow hedge relationships
Derivative financial liabilities designated and effective as cash flow hedging - 99 -
instruments
51,098 42,591 56,758
10. Acquisition of a subsidiary
On 19 December 2023, the Group completed the acquisition of 100% of the share
capital of Sheriff Technology Limited (Sheriff), which trades principally
under the OutBoard and TiMax brands. The total consideration has been
calculated as £2.8 million, with £2.4 million paid on completion. An
additional amount of up to £1.2 million is due in January 2025 upon the
achievement of agreed gross profit targets, with a forecast discounted amount
of £0.4 million being included as additional consideration. The acquisition
was funded by a drawdown of £2.3 million on the existing revolving credit
facility of £50 million with HSBC and Natwest. Sheriff had £0.1m of cash at
the acquisition date such that the net cash consideration was £2.3 million.
Sheriff is a UK-based company specialising in innovative entertainment
technologies, which it sells globally. Operating under two sub-brands-TiMax
and OutBoard-their products are vital for professionals in the audiovisual
industry, particularly in live performances, event management, and the rapidly
expanding sector of immersive sound experiences.
For the period between the acquisition date and 29 February 2024, Sheriff
contributed revenue of £0.3 million and a profit before tax of £0.1 million
to the Group. If the acquisition had occurred on 1 September 2023, management
estimates that Out Board's revenue would have been £1.8 million and profit
before tax for the period would have been £0.6 million.
Acquisition-related costs
The Group incurred acquisition-related costs of £0.1 million on legal fees
and due diligence costs relating to the acquisition of Sheriff. These have
been included in adjusting item costs to give investors a better understanding
of the costs related to the acquisition of Sheriff. Additionally, because of
their size, nature and the fact that they vary from acquisition to
acquisition, the Group considers it a better reflection of the trading
performance to show these separately.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired, and
liabilities assumed at the date of acquisition:
Recognised values on acquisition £000
SoundHub technology 1,600
Motor control technology 425
Intangible assets 2,025
Property, plant and equipment 2
Working capital (including cash) 584
Deferred tax liability (506)
Net identifiable assets and liabilities at fair value 2,105
Goodwill recognised on acquisition 750
Consideration recognised 2,855
The acquired deferred tax liability has been estimated by applying the uplift
in asset fair value to the average expected corporate tax rates over the life
of the assets.
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets
acquired were as follows:
Assets acquired Valuation technique
Property, plant and equipment Cost approach
Developed technology Income approach (multi-period excess earnings method "MEEM")
The key assumption used is the forecast revenues attributable to the
existing asset.
Goodwill
The goodwill recognised is attributable to:
· the skills and technical talent of the Sheriff
workforce;
· income growth potential from new products, future
relationships;
· alignment to the Group's existing customer base; and
· strong strategic fit.
Intangible assets sensitivity analysis
In assessing the estimated useful life of the intangible assets, management
considered the sensitivity in the forecast sales on the valuation of the
developed technology and brand. The following table details the sensitivity to
a 10% increase and decrease in the sales forecast and related cost of sales
impact this would have on the valuation of the assets.
Valuation impact
Asset Cost 10% sales increase 10% sales decrease
Developed technology 2,025 292 (262)
In December 2022 the Group purchased Sonnox Ltd for £9,095,000, resulting in
acquired intangible assets additions of £5,553,000 and goodwill of
£2,683,000 arising due to this business combination.
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 29 February 2024
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 29 February 2024 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.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
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 annual financial statements of the group are
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.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
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.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion section of this report.
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
24 April 2024
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