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REG - Gear4music - Interim Results

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RNS Number : 3699G  Gear4music (Holdings) PLC  15 November 2022

 

15 November 2022

Gear4music (Holdings) plc

Interim results for the six months ended 30 September 2022

 

Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the
largest UK based online retailer of musical instruments and music equipment,
today announces its unaudited financial results for the six months ended 30
September 2022 ("the Period").

 

 £m                       6-months ended 30 Sept 2022 ('FY23 H1')  6-months ended 30 Sept 2021 ('FY22 H1')  Change on FY22 H1
 Revenue                  66.3                                     64.7                                     +2%
 Gross profit             17.4                                     18.1                                     (4%)
 Gross margin             26.3%                                    28.0%                                    -170bps
 EBITDA                   2.7                                      4.8                                      (44%)
 Operating (loss)/profit  (0.3)                                    2.4                                      (2.7)
 Net (loss)/profit        (1.1)                                    1.1                                      (2.2)

FY23 H1 Highlights:

·    Revenue growth of 2% includes a 3% decrease in UK sales due to a
strong FY22 H1 comparative and a more normalised trading environment post
Covid

·    Stronger European growth of 10% reflects an improving localised
customer proposition

·    As previously reported, gross margins reflect targeted stock
reductions and challenging market conditions during July and August in
particular

·    EBITDA was in-line with the Board's revised expectations at £2.7m.
This was £2.1m behind FY22 H1 but reflects 35% growth on FY20 H1 (£2.0m),
being the last full uninterrupted H1 trading period pre-Covid

·    Net debt of £21.8m (31 March 2022: £24.2m, 30 September 2021:
£13.4m)

·    £13.2m cash headroom within the Group's banking facilities at Period
end, at what is historically a low point in the annual cash cycle

Trading Outlook:

·    Improved trading momentum during FY23 H2 has continued into November,
maintaining the Board's expectation of a return to pre-Covid, H2 weighted
trading seasonality*

·    Net debt and on-hand inventory expected to reduce by 31 March 2023

·    Full-year outlook in-line with consensus market expectations**

 

Commenting on the results, Andrew Wass, Chief Executive Officer said:

"Our FY23 H1 trading results reflect previously reported challenges, including
inflationary pressures on our cost base, the cost-of-living crisis affecting
consumer confidence, unusually hot weather during the summer months, and
comparison to the last of the Covid-enhanced figures in FY22 Q1.

Whilst we have adapted to the challenges of the last six months, we have also
remained focused on our longer-term growth strategy, delivering a wide range
of customer centric improvements throughout the business.  Progress has
included several website upgrades, such as the ability for customers to create
their own customised audio packages and cables, extending evening cut-off
times for next day delivery, improving our consumer finance proposition, and
upgrading our digital downloads sales platform.

I am pleased to report that we have seen a consistent improvement in trading
momentum during the last two months, despite continuing macro volatility. We
are also well prepared for our peak seasonal trading period. The board
therefore remains confident that results for the full financial year will be
in-line with current consensus market expectations**."

* H1 sales as % of full-year sales were 44% in FY22, 45% in FY21, 41% in FY20,
36% in FY19 and 39% in FY18.

** Gear4music believes that current consensus market expectations for the year
ending 31 March 2023 are revenue of £155.1 million, EBITDA of £8.9 million
and profit before tax of £1.1 million.

The Group plans to issue a trading statement for the three months ending 31
December 2022 on 19 January 2023.

 

Enquiries:

 

 Gear4music                                                   +44 (0)20 3405 0205

 Andrew Wass, Chief Executive Officer

 Chris Scott, Chief Financial Officer

 Singer Capital Markets - Nominated Adviser and Joint Broker  +44 (0)20 7496 3000

 Peter Steel/Amanda Gray, Corporate Finance

 Tom Salvesen, Corporate Broking

 Investec Bank plc - Joint Broker                             +44 (0)20 7597 5970

 David Flin

 Alex Wright

 Alice King

 Alma PR - Financial PR                                       +44 (0)20 3405 0205

 David Ison                                                   Gear4music@almapr.co.uk

 Lily Soares Smith

 Joe Pederzolli

 Josh Royston

 

About Gear4music.com

Operating from a Head Office in York, Distribution Centres in York, Sweden,
Germany, Ireland & Spain, and showrooms in York, Sweden & Germany, the
Group sells own-brand musical instruments and music equipment alongside
premium third-party brands including Fender, Yamaha and Roland, to customers
ranging from beginners to musical enthusiasts and professionals, in the UK,
Europe and the Rest of the World.

 

Having developed its own e-commerce platform, with multilingual, multicurrency
websites delivering to over 190 countries, the Group continues to build its
overseas presence.

 

Business Review

 

The business reports the Group's results for the six months to 30 September
2022, and updates on the strategic and commercial progress made in the Period.

Strategy

Our focus in FY22 H1 has been on managing the business to meet the impacts
that the current macro-economic situation is having on consumer confidence and
spending across Europe, through cost control and working capital management.
This has included a focus on stock management and active reduction of slower
moving product lines that impacted gross margins, particularly in Q1. These
measures have contributed to an improvement in the cash position since the
financial year-end, resulting in net debt of £21.8m at 30 September 2022,
relative to a £35m facility at what is traditionally a low point in the
annual cash cycle.

We have continued our measured investment in our European distribution centres
and improved our proposition to customers in those and adjacent territories
with a broader on-hand stock offering and more and improved delivery options,
resulting in relatively high growth in these markets.

We continue to make progress against the three pillars of our progressive
e-commerce strategy, and outline developments in each area below:

E-commerce Excellence

 

                                         FY23 H1    FY22 H1  Change on FY22 H1

 Revenue                                 £66.3m     £64.7m   +2%

 Total unique website users              9.1m       13.5m    -32%

 Mobile site unique users (inc. tablet)  6.6m       8.7m     -25%

 Conversion rate                         4.90%      4.00%    +90bps

 Average order value                     £151       £128     +19%

 Active customers *                      903,000    993,000  -9%

 Proportion of repeat customers **       26.5%      24.4%    +210bps

 Email subscriber database               1,408,200  725,000  +94%

 Trustpilot rating                       4.8/5      4.8/5    -

* Active customers are those that have purchased products within the last 12
months

** Repeat customers are those that have made a purchase in the defined period
and have historically made at least one purchase

 

Revenue in the Period of £66.3m was £1.6m (2%) ahead of last year, £3.9m
(6%) behind an exceptional Covid period in FY21 H1, and £16.9m (34%) ahead of
a more normal and comparable, pre-Covid, FY20 H1 trading period.

 

UK revenue was 3% down relative to a strong FY22 H1 comparative, and
international revenues were 10% ahead of last year reflecting an improved
local customer proposition in Europe as our new distribution centres became
increasingly well established.

 

Website user numbers decreased by 32% to 9.3m, with visitors to the UK sites
decreasing by 26% and visitor numbers to the Group's international websites
decreasing by 36% reflecting a drop-off in browsing and visits from low-intent
to purchase prospective customers. This trend has contributed to a marked
improvement in conversion rate from 4.0% to 4.9%, delivered by our targeted,
return-based approach to investment in marketing. The introduction of further
consumer finance options on a non-recourse basis to the business has made
products more accessible to more people.

 

Conversion in the UK fell from a peak of 6.4% last year to 5.8%, still well
ahead of a pre-pandemic rate of 4.8%, whilst European conversion improved
significantly from 2.4% to 4.2%, reflecting good stock availability and
improved and lower cost delivery options in mainland Europe. Mobile conversion
also improved from 2.3% to 2.8%.

 

'Costs-per-Click' ('CPC') have increased in the Period as competitors compete
for less ad space and traffic in the current economic climate. We use
automated models to maximise revenue at any defined level of return on
investment, and as such marketing costs as a proportion of revenue were held
flat on last year at 6.9%, and the proportion of visitors from organic and
direct sources increased from 38% to 46%.

 

Growth in mobile continues to be a major theme with the proportion of users
from this channel increasing from 65% last year to 72% this year, and mobile
site development is a priority focus in all our development work.

 

'Average Order Value' ('AOV') increased by 19% from £128 in FY22 H1 to £151,
reflecting inflationary price increases and proportionally less own-brand
sales that are typically at lower price points.

 

The Group served 384,000 customers in the Period (-5% on FY22 H1) and 'Active
customers', being those that have purchased products within the last 12
months, similarly decreased by 9%.

 

The proportion of repeat customers increased to 26.5% (FY22 H1: 24.4%),
reflecting proportionally less paid-for new customers. The level of repeat
custom is lower than in other e-commerce sectors, reflecting the nature of the
Group's product range and high average order value, and re-affirms the
importance of the Group being profitable from the first customer transaction.

 

The number of subscribers on our email database increased to 1.4 million and
we continue to make improvements to our email retargeting with the objective
of increasing the number of repeat customers.

 

We continue to invest in our customer proposition and service teams, resulting
in a great overall customer experience, reflected in Gear4music.com's
Trustpilot score of 4.8 and 'Excellent' rating from over 111,000 reviews.

 

The Group invested £2.8m in its e-commerce platform in the Period (FY22 H1:
£2.0m) representing a peak level, and annualised costs will start to reduce
from FY22 H2. Deployments to the date of this report include:

 

·    Digital downloads extension

·    Updated consumer finance

·    Customer bundle builder

·    Custom cable builder

Development of key growth-related projects remains on-going, including
investment into our second-hand platform and enabling AV.com European launch.

 

Supply Chain Evolution

 

                                            FY23 H1  FY22 H1  Change on FY22 H1

 Own-brand product sales                    £15.0m   £15.3m   -2%

 Other brand product sales                  £48.3m   £46.2m   +5%

 Product margin                             30.9%    32.0%    -110bps

 Products listed                            62,500   60,500   +3%

 Brands listed                              1,109    951      +17%

 

FY23 H1 gross margin of 26.3% was 170bps below FY22 H1's result of 28.0% that
reflected some Covid-related upside particularly in the earlier months, but is
90bps ahead of the last pre-Covid comparative (FY20 H1) of 25.2%. Achieving
higher gross margins is critical to the overall profitability of the Group and
as such remains a key business objective. In FY23 Q1 this was balanced with
targeted reductions in certain slower moving stock lines, and reflects a sales
mix effect across the Period, with own-brand products accounting for 23.6% of
total product sales compared to 24.9% in FY22 H1 as demand for entry-level
products slowed.

 

Product margins decreased 110bps from 32.0% last year to 30.9%, and compares
to 29.6% in pre-Covid FY20 H1. This reflects a 180bps decrease in own-brand
product margin to 43.9% as certain slower moving lines were moved through in
FY23 Q1, and a 60bps decrease in other-brand margin to 26.9% reflecting
heightened competition in the market at the start of the Period.

 

The number of SKUs listed increased from 60,500 at 30 September 2021 to 62,400
at 31 March 2022 and 62,500 at 30 September 2022, representing a net 3%
increase in 12 months.

 

We reduced stock by £2.1m from £45.5m at 31 March 2022 to £43.4m at 30
September 2022 which provides good availability across our distribution
centres heading into peak and, subject to demand, levels will be actively
managed to ensure we have an appropriate level of stock heading into January
2023 and FY24.

 

The number of our own-brand products increased from 3,900 at 30 September 2021
to 4,250 at 30 September 2022, with own-brand revenue accounting for 23.6% of
total product sales from just 6.8% of SKUs, reflecting the significant
on-going efforts of our in-house team in developing our range of high-quality
instruments and equipment at affordable prices.

 

Product development has been focused on bringing Premier to market and
longer-term projects that will come to fruition in FY24 and improve our
offering at both the value and premium end of the scale with our new G4M
brand. Products launched during the Period include:

 

·    Further development of our new look electronic drum kit range

·    First products in our VISIONKEY keyboard range

·    Hartwood Sonata electro acoustic guitars

·    SubZero HICAST column PA system

Premier

 

Ahead of Premier celebrating its 100-year anniversary, our focus has been on
the design, development and marketing of a revamped acoustic kit offering,
with launch to coincide with the centenary celebrations.

 

Four core ranges from entry-level to professional kits, incorporating
attributes that reimagine original Premier features, alongside some special
centenary edition variants and a UK-made limited edition collector's snare
drum, were brought to market.

 

The launch was supported by an extensive content project including the launch
of new dedicated brand website https://www.premier-percussion.com/
(https://www.premier-percussion.com/) , drawing on resources from multiple
departments, including video, photography, UX, copy and marketing, culminating
in a successful and far-reaching launch that was received very positively by
the market.

 

Our efforts to establish a global distribution network are ongoing.

 

 

International Expansion

As we reported last year our European business has been adversely impacted by
the UK leaving the EU. In response we added new distribution centres in
Ireland and Spain, increased the breadth and depth of stock held across all
our European distribution centres, and added more local delivery options to
restore a comparable customer proposition in mainland Europe. The Group
estimates it has a European distribution infrastructure capable of handling
£150m of revenue per annum, and is well placed to capitalise on the
medium-term growth opportunity.

In FY23 H2 the Group plans to launch fully-translated and localised European
versions of AV.com.

 

Current trading and outlook

 

Whilst mindful of the current heightened macro-economic uncertainties and the
impact on the consumer in the UK and across Europe, trading in October and
November to date gives the Board further confidence that results for the
financial year will be in line with the recently updated consensus market
expectations.

 

The Group plans to issue a Christmas trading update on 19 January 2023.

 

 

Financial Review

 

                                                                   FY23 H1  FY22 H1  Change on FY22 H1

 Revenue                                                           £66.3m   £64.7m   +2%

 Gross profit                                                      £17.4m   £18.1m   -4%

 Gross margin                                                      26.3%    28.0%    -170bps

 EBITDA                                                            £2.7m    £4.8m    -44%

 EBITDA margin                                                     4.1%     7.4%     -330bps

 Operating (loss)/profit                                           -£0.3m   £2.4m    -£2.7m

 Marketing costs                                                   £4.6m    £4.4m    +3%

 Marketing costs as % of revenue                                   6.9%     6.9%     -

 Total Labour costs                                                £7.0m    £6.1m    +14%

 Total Labour costs as % of revenue                                10.5%    9.4%     +110bps

 Cash                                                              £7.2m    £3.6m    +£3.6m

 Net bank debt                                                     £21.8m   £13.4m   +£8.4m

Revenue

 

Revenue in the Period of £66.3m was £1.6m (2%) higher than last year and
included growth in both Q1 and Q2. We maintain our expectation of a return to
a pre-Covid, H2 weighted trading seasonality.

 

UK revenue was down 3% relative to a strong FY22 H1 comparative that included
the last Covid-boosted months, and represents growth of 43% on pre-Covid FY20
H1 numbers taking our estimated share of the UK market to 9.1% (FY22 H1:
8.9%).

 

In FY23 H1 Europe and Rest of the World revenues of £30.8m were 10% ahead of
FY22 H1, reflecting an improved local customer proposition in Europe, and
accounting for 47% of Group revenue compared to 43% in FY22 H1. Growth of 25%
relative to pre-Covid FY20 H1 numbers is lower than achieved in the UK as it
took time to adapt our business to the UK being outside of the EU.

Gross Margin and Gross Profit

As outlined above in the 'Business Review' gross margin decreased 170bps from
28.0% last year to 26.3%, reflecting a 110bps decrease in product margin and a
reduction in delivery cost borne by the customer, reflecting part-absorption
of cost inflation.

Gross profit of £17.4m is £0.7m (4%) lower than last year and compares to
£12.5m in the more normal pre-Covid FY20 H1.

 

 

Operating Loss and Administrative Expenses

An operating loss of £0.3m represents a £2.7m decrease on FY22 H1,
reflecting a £2.0m increase in administrative costs including a £0.9m
increase in labour costs, £0.5m increase in depreciation and amortisation,
and a £0.2m increase in marketing costs

Marketing and labour costs continue to be the main component parts of our cost
base, accounting for a combined 65% of total administrative expenses in the
Period (FY22 H1: 67%).

Our marketing spend continues to be heavily invested in direct 'Pay-per-click'
('PPC') marketing and our approach focuses on delivering a strong, pre-defined
return on investment. In a period of increasing cost-per-click it is important
we invest in enhancing our organic and direct marketing capabilities which in
the longer term will support our ambition to reduce marketing spend as a
proportion of sales, and we have made two senior appointments to support our
plans.

Total labour costs increased 14% on FY22 H1 reflecting an estimated 6%
increase in average salary, and an increase in headcount of 37.

European distribution centre local administrative expenses increased by £0.4m
(18%) on FY22 H1, to £2.4m reflecting the addition of two new distribution
centres in FY22 H2.

Depreciation and amortisation in the Period totalled £3.0m (FY22 H1: £2.4m)
including amortisation of £1.4m (FY22 H1: £1.1m) relating to our bespoke
e-commerce platform, and £0.8m depreciation of 'Right of Use' assets (FY22
H1: £0.6m).

EBITDA margin of 4.1% compares to 7.4% in FY22 H1, and 4.0% in pre-Covid FY20
H1.

 

Net Loss

 

Financial expenses of £0.8m include £0.5m bank interest (FY22 H1: £0.2m)
reflecting the level of debt in the business, £0.2m interest on lease
liabilities (FY22 H1: £0.2m), and a small foreign exchange loss.

 

A net loss of £1.1m in the Period (FY22 H1: £1.1m net profit) reflects a
return to a more normal seasonal pattern where the majority of our profits are
made in H2.

 

Cash Flow and Balance Sheet

 

The business has deliberately maintained a high level of stock through FY22
and FY23 to date and as such the usual increase in September ahead of the peak
Christmas trading period has not been required. Reported stock has decreased
£2.1m since 31 March 2022 and is planned to decrease further by the end of
FY23 H2. Stock at 30 September 2022 of £43.4m (30 September 2021: £37.5m)
includes £4.1m of inbound stock-in-transit (30 September 2021: £6.2m)
scheduled to arrive ahead of peak trading.

 

Net bank debt was £21.8m, at what has historically been a low point in the
annual cash cycle, leaving headroom of £13.2m within the Group's £35m
Revolving Credit Facility ('RCF'), and is expected to reduce further by 31
March 2023.

 

Trade and other payables of £18.9m were £3.3m (21%) higher than last year
and £0.2m (1%) higher than 30 September 2020, and included a £1.3m increase
in customer prepayments and stock deals on pre-agreed terms.

 

Capitalised software development costs totalled £2.8m in the Period (FY22 H1:
£2.0m) taking total capitalisation to date to £22.5m. Amortisation in the
Period was £1.4m leading to a £1.4m increase in net book value since the
start of the financial year to £11.9m.

 

Property, plant and equipment capital expenditure was £0.6m in the Period
(FY22 H1: £0.7m), relating principally to the on-going development of our
distribution centres.

 

Dividend Policy

 

Consistent with its previous approach, the Group repeats its intention to
revisit its shareholder distribution policy periodically.

 

 

Unaudited consolidated interim statement of profit and loss and other
comprehensive income

 

                                                                                                                                        6 months                                                                 6 months                                                                                Year ended

ended 30
ended 30
31 March

September
2022

                                                                    September
2021
(audited)
                                                                   Note

(unaudited)
                                                                                                                                        2022

(unaudited)
                                                                                                                                        £000                                                                     £000                                                                                    £000

 Revenue                                                           3                                                                    66,305                                                                   64,694                                                                                  147,630
 Cost of sales                                                                                                                          (48,892)                                                                 (46,573)                                                                                (106,500)

 Gross profit                                                                                                                           17,413                                                                   18,121                                                                                  41,130

 Administrative expenses                                           4                                                                    (17,679)                                                                 (15,728)                                                                                (35,061)

 Operating (loss)/profit                                           4                                                                    (266)                                                                    2,393                                                                                   6,069

 Financial expenses                                                6                                                                    (777)                                                                    (463)                                                                                   (1,055)

 (Loss)/profit before tax                                                                                                               (1,043)                                                                  1,930                                                                                   5,014

 Taxation                                                          7                                                                    (66)                                                                     (850)                                                                                   (1,291)

 (Loss)/profit for the period                                                                                                           (1,109)                                                                  1,080                                                                                   3,723

 Other comprehensive income
 Items that will not be reclassified to profit or loss:
 Deferred tax movements                                                                                                                 -                                                                        (120)                                                                                   (109)

 Items that are or may be reclassified subsequently to profit or loss:
 Foreign currency translation differences - foreign operations                                                                          (101)                                                                    (36)                                                                                    (23)

 Total comprehensive income for the period                                                                                              (1,210)                                                                  924                                                                                     3,591

 (Loss)/profit per share attributable to equity shareholders of the company
 Basic profit per share                                                       5                                           (5.3p)                                                                                 5.2p                                                                                    17.8p
 Diluted profit per share                                                     5                                           (5.3p)                                                                                 5.1p                                                                                    17.3p

Total comprehensive income for the period

 

 

 

(1,210)

924

3,591

 

 

 

 

 

 

 

 

 

 

(Loss)/profit per share attributable to equity shareholders of the company

Basic profit per share

 

5

 

(5.3p)

5.2p

17.8p

 

Diluted profit per share

 

5

 

(5.3p)

5.1p

17.3p

 

 

 

 

 

 

 

 

 

Unaudited consolidated interim statement of financial position

 

                                                  30 September          30 September          31 March 2022 (audited)

                                                  2022                  2021 (unaudited)

                                                  (unaudited)
                                        Note      £000                  £000                  £000
 Non-current assets
 Property, plant and equipment          8         12,805                11,289                12,958
 Right of use assets                    9         7,438                 8,953                 8,235
 Intangible assets                      10        21,184                15,901                19,812

                                                  41,427                36,143                41,005

 Current assets
 Inventories                            11        43,378                37,452                45,516
 Trade and other receivables            12        4,289                 3,317                 3,841
 Cash and cash equivalents                        7,199                 3,648                 3,903

                                                  54,866                44,417                53,260

 Total assets                                     96,293                80,560                94,265

 Current liabilities
 Interest bearing loans and borrowings  13        -                     -                     -
 Trade and other payables               14        (18,912)              (15,591)              (16,183)
 Lease liabilities                      15        (1,171)               (1,158)               (1,229)

                                                  (20,083)              (16,749)              (17,412)

 Non-current liabilities
 Interest bearing loans and borrowings  13        (29,000)              (17,000)              (28,000)
 Other payables                         14        (81)                  (78)                  (64)
 Lease liabilities                      15        (7,822)               (9,221)               (8,455)
 Deferred tax liability                           (2,335)               (2,206)               (2,298)

                                                  (39,238)              (28,505)              (38,817)

 Total liabilities                                (59,321)              (45,254)              (56,229)

 Net assets                                       36,972                35,306                38,036

 Equity
 Share capital                                    2,098                 2,098                 2,098
 Share premium                                    13,286                13,286                13,286
 Foreign currency translation reserve             (175)                 (87)                  (74)
 Revaluation reserve                              1,589                 1,640                 1,606
 Retained earnings                                20,174                18,369                21,120

 Total equity                                     36,972                35,306                38,036

 

Unaudited consolidated interim statement of cash flows

 

                                                                                  Note          6 months ended                     6 months ended        Year ended

31 March 2022 (audited)
                                                                                                30 September                       30 September 2021

                                                                                                2022                               (unaudited)

                                                                                                (unaudited)
                                                                                                £000                               £000                  £000
                         Cash flows from operating activities
                         (Loss)/profit for the period:                                          (1,109)                            1,080                 3,723
                         Adjustments for:
                         Depreciation and amortisation                            8-10          2,970                              2,424                 5,138
                         Financial expense                                        6             701                                425                   1,055
                         Loss/(profit) on sales of property, plant and equipment                17                                 (8)                   (12)
                         Share-based payment charge/(credit)                                    146                                (54)                  55
                         Tax expense                                              7             66                                 850                   1,243

                                                                                                2,791                              4,717                 11,202
                         (Increase)/decrease in trade and other receivables                     (92)                               916                   302
                         Decrease/(increase) in inventories                                     2,138                              (9,022)               (14,195)
                         Increase/(decrease) in trade and other payables                        3,134                              (1,533)               (2,187)

                                                                                                7,971                              (4,922)               (4,878)
                         Tax paid                                                               (385)                              (2,535)               (2,709)

                         Net cash from operating activities                                     7,586                              (7,457)               (7,587)

                         Cash flows from investing activities
                         Proceeds from sales of property, plant and equipment                   32                                 57                    95
                         Acquisition of property, plant and equipment             8             (612)                              (738)                 (1,773)
                         Acquisition of domains                                   10            (8)                                (3,013)               (3,023)
                         Acquisition of a business (net of cash acquired)         10            -                                  (1,685)               (7,360)
                         Capitalised development expenditure                      10            (2,822)                            (1,996)               (4,439)
                         Payment of deferred consideration                                      (388)                              -                     -

                         Net cash from investing activities                                     (3,798)                            (7,375)               (16,500)

                         Cash flows from financing activities
                         Cash from share issue                                                               -                     -                     124
                         Proceeds from new borrowings                             13                         1,000                 17,000                28,000
                         Repayment of borrowings                                                             -                     (3,476)               (3,445)
                         Interest paid (including lease interest)                 6                          (702)                 (427)                 (917)
                         Lease payments                                                                      (689)                 (784)                 (1,952)

                         Net cash from financing activities                                                  (391)                 12,313                21,810

                         Net increase/(decrease) in cash and cash equivalents                                3,397                 (2,519)               (2,277)

                         Cash and cash equivalents at beginning of period                                    3,903                 6,203                 6,203
                         Foreign exchange movement                                                           (101)                 (36)                  (23)

 Cash and cash equivalents at end of period                                                                  7,199                 3,648                 3,903

Unaudited consolidated interim statement of changes in equity

 

                               Share                 Share                 Foreign currency translation reserve  Revaluation reserve   Retained              Total

                               capital               premium                                                                           earnings              equity
                               £000                  £000                  £000                                  £000                  £000                  £000

 Balance at 1 April 2022       2,098                 13,286                (74)                                  1,606                 21,120                38,036

 Profit for the period         -                     -                     -                                     -                     (1,109)               (1,109)
 Other comprehensive income    -                     -                     (101)                                 -                     -                     (101)
 Deferred tax adjustment       -                     -                     -                                     -                     -                     -
 Share based payments charge   -                     -                     -                                     -                     146                   146
 Depreciation transfer         -                     -                     -                                     (17)                  17                    -

 Balance at 30 September 2022  2,098                 13,286                (175)                                 1,589                 20,174                36,972

 

                                  Share                 Share                 Foreign currency translation reserve  Revaluation reserve   Retained              Total

                                  Capital               premium                                                                           earnings              equity
                                  £000                  £000                  £000                                  £000                  £000                  £000

 Balance at 1 April 2021          2,095                 13,165                (51)                                  1,640                 17,463                34,312
 Profit for the period            -                     -                     -                                     -                     1,080                 1,080
 Other comprehensive income       -                     -                     (36)                                  -                     -                     (36)
 Deferred tax adjustment          -                     -                     -                                     -                     (120)                 (120)
 Issue of shares net of expenses  3                     121                   -                                     -                     -                     124
 Share based payments charge      -                     -                     -                                     -                     (54)                  (54)

 Balance at 30 September 2021     2,098                 13,286                (87)                                  1,640                 18,369                35,306

 

                                              Share                 Share                 Foreign currency translation reserve  Revaluation reserve   Retained              Total

                                              capital               premium                                                                           earnings              equity
                                              £000                  £000                  £000                                  £000                  £000                  £000

 Balance at 1 April 2021                      2,095                 13,165                (51)                                  1,640                 17,463                34,312
 Profit for the year                          -                     -                     -                                     -                     3,723                 3,723
 Other comprehensive income                   -                     -                     (23)                                  -                     (109)                 (132)
 Deferred tax adjustment - timing difference  -                     -                     -                                     -                     (46)                  (46)
 Issue of shares net of expenses              3                     121                   -                                     -                     -                     124
 Share based payments charge                  -                     -                     -                                     -                     55                    55
 Depreciation transfer                        -                     -                     -                                     (34)                  34                    -

 Balance at 31 March 2022                     2,098                 13,286                (74)                                  1,606                 21,120                38,036

Notes to the Interim Financial Information

General Information

Gear4music (Holdings) plc is a public limited company incorporated and
domiciled in the United Kingdom, and is listed on the Alternative Investment
Market ('AIM') of the London Stock Exchange.

 

The Group financial information consolidates the financial information of the
Company and its subsidiaries (collectively referred to as the "Group"). The
Group has 100% owned trading subsidiaries in the UK ('Gear4music Limited'),
Sweden ('Gear4music Sweden AB'), Germany ('Gear4music GmbH'), Ireland
('Gear4music Ireland Limited) and Spain ('Gear4music Spain S.L.'). The Group
also has 100% owned dormant subsidiaries in the UK ('Cagney Limited') and in
Norway ('Gear4music Norway').

 

The principal activity of the Group is the retail of musical instruments and
equipment.

 

The registered office of Gear4music (Holdings) plc (company number: 07786708),
Gear4music Limited (company number: 03113256) and Cagney Limited (dormant
subsidiary; company number: 04493300) is Holgate Park Drive, York, YO26 4GN.

1             Accounting policies

Basis of preparation

The unaudited consolidated interim financial information has been prepared
under the historical cost convention, except for land and buildings that are
stated at their fair value, and in accordance with the recognition and
measurement requirements of UK Adopted Financial Reporting Standards, IFRIC
interpretations, and with those parts of the Companies Act 2006 applicable to
companies reporting under UK Adopted Financial Reporting Standards.  The
condensed consolidated interim financial information does not constitute
financial statements within the meaning of Section 434 of the Companies Act
2006 and does not include all of the information and disclosures required for
full annual financial statements. It should therefore be read in conjunction
with the Group's Annual Report for the year ended 31 March 2022, which has
been prepared in accordance with International Financial Reporting Standards
and is available on the Group's investor website.

The accounting policies used in the financial information are consistent with
those used in the Group's consolidated financial statements as at and for the
year ended 31 March 2022, as detailed on pages 72 to 77 of the Group's Annual
Report and Financial Statements for the year ended 31 March 2022, a copy of
which is available on the Group's website, www.gear4musicplc.com.

The comparative financial information contained in the condensed consolidated
financial information in respect of the year ended 31 March 2022 has been
extracted from the 2022 Financial Statements. Those financial statements have
been reported on by Grant Thornton UK LLP, and delivered to the Registrar of
Companies. The report was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under Section 498(2)
or 498(3) of the Companies Act 2006.

Selected explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in financial position
and performance of the Group since the last annual consolidated financial
statements as at the year ended 31 March 2022.

 

 

 

Notes to the Interim Financial Information (continued)

Going concern

The Group's business activities and position in the market, and principal
risks, uncertainties and mitigations are described in detail in the Strategic
Report included on pages 1 to 47 of the Group's 2022 Annual Report and
Financial Statements.

 

In April 2021 the Group secured a £35m three-year committed Revolving Credit
Facility with its bankers, HSBC, to make acquisitions and invest in stock for
precautionary reasons during a period of potential supply chain disruption,
and early in a period of inflationary cost price increases, putting the Group
in a strong competitive position.

 

The Group's policy is to ensure that it has sufficient facilities to cover its
future funding requirements.

 

At 30 September 2022 the Group had net debt of £21.8m (31 March 2022:
£24.2m), with £7.2m cash (31 March 2022: £3.9m cash), with a good and
appropriate level of headroom that has been factored into the Directors going
concern assessment.

 

The Directors have considered the Group's growth prospects based on its
current proposition and online offering in

the UK and Europe, strategic developments in the pipeline, and entry to the
European AV market, and concluded that there are significant opportunities for
profitable growth as channel shift continues and customers move online.

 

There is a diverse supply chain with no key dependencies.

 

Having duly considered all of these factors and having reviewed the forecasts
for the period to 31 December 2023, the Directors have a reasonable
expectation that the Group has adequate resources to continue trading for the
foreseeable future, and as such continue to adopt the going concern basis of
accounting in preparing the financial statements.

2              Principal risks and uncertainties

The Board considers the principal risks and uncertainties which could impact
the Group over the remaining six months of the financial year to 31 March 2023
to be unchanged from those set out in the group's Annual Report and Financial
Statements for the year ended 31 March 2022, and can be summarised as:

-       Macroeconomic and geopolitical factors

-       UK outside EU

-       COVID-19 - new variants and/or other pandemics

-       Change management of growth, new markets and/or mergers and
acquisitions

-       Management of Warehousing and Distribution

-       IT and Cyber reliability

-       Brand and proposition

-       Competition

-       Supplier relationships

-       Dependence on key personnel

These are set out in detail on pages 40 to 44 of the Group's Annual Report and
Financial Statements for the year ended 31 March 2022, a copy of which is
available on the Group's Plc website, www.gear4musicplc.com.

 

Notes to the Interim Financial Information (continued)

3              Segmental analysis

Revenue by Geography:

                                       6 months ended        6 months ended 30 September 2021  Year ended

31 March     2022
                                       30 September

                                       2022
                                       £000                  £000                              £000

 UK                                    35,459                36,704                            82,639
 Europe and Rest of the World          30,846                27,990                            64,991

                                       66,305                64,694                            147,630

 

Administrative Expenses by Geography:

                                       6 months ended        6 months ended 30 September 2021  Year ended

31 March     2022
                                       30 September

                                       2022
                                       £000                  £000                              £000

 UK                                    15,259                13,685                            31,253
 Europe and Rest of the World          2,420                 2,043                             4,628

                                       17,679                15,728                            35,881

Revenue by Product Category:

                               6 months ended        6 months ended 30 September 2021  Year ended

31 March     2022
                               30 September

                               2022
                               £000                  £000                              £000

 Other-brand products          48,329                46,228                            102,473
 Own-brand products            14,966                15,339                            38,121
 Carriage income               2,672                 2,757                             6,266
 Warranty income               220                   246                               483
 Other                         118                   124                               287

                               66,305                64,694                            147,630

 

 

 

Notes to the Interim Financial Information (continued)

4              Expenses and other income

Included in profit/loss are the following:

                                                                     6 months ended 30 September  6 months ended 30 September 2021  Year ended

31 March 2022
                                                                     2022
                                                                     £000                         £000                              £000

 Depreciation of property, plant and equipment                       716                          590                               1,254
 Depreciation of right-of-use assets                                 797                          646                               1,466
 Amortisation of intangible assets                                   1,457                        1,188                             2,385
 Amortisation of government grants                                   3                            4                                 7
 Loss/(profit) on disposal of property, plant and equipment          17                           (8)                               (12)
 R&D expenditure recognised as an expense                            141                          102                               230

 
                       6 months ended 30 September  6 months ended 30 September 2021  Year ended

31 March 2022
                       2022
                       £000                         £000                              £000

 Other income          459                          350                               820

 

Other income comprises rental income on our freehold property, Research and
Development Expenditure credits, and marketing support.

5             Earnings per share

 

Basic earnings per share is calculated by dividing the net profit or loss for
the period attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.

 

Diluted profit per share is calculated by dividing the net profit for the
period attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all dilutive
potential ordinary shares into ordinary shares.

 

                                                                                   6 months ended  6 months ended 30 September  Year ended

31 March     2022
                                                                                   30 September    2021

                                                                                   2022

 (Loss)/profit attributable to equity shareholders of the parent (£'000)           (1,109)         1,080                        3,723

 Basic weighted average number of shares                                           20,976,938      20,958,821                   20,967,831
 Dilutive potential ordinary shares                                                549,374         193,452                      570,440
                                                                                   _________       _________                    _________
 Diluted weighted average number of shares                                         20,976,938      21,152,273                   21,538,271
                                                                                   _________       _________                    _________
 Basic (loss)/profit per share                                                     (5.3p)          5.2p                         17.8P
 Diluted (loss)/profit per share                                                   (5.3p)          5.1p                         17.3P

Notes to the Interim Financial Information (continued)

6              Finance expenses
                                    6 months ended        6 months ended 30 September 2021  Year ended

31 March     2022
                                    30 September

                                    2022
                                    £000                  £000                              £000

 Bank interest                      508                   201                               524
 IFRS16 lease interest              193                   193                               403
 Net foreign exchange loss          76                    38                                97
 Net fair value movements            -                    31                                31

 Total finance expense              777                   463                               1,055

 

7             Taxation
                               6 months ended        6 months ended 30 September 2021  Year ended

31 March     2022
                               30 September

                               2022
                               £000                  £000                              £000

 Current tax expense           29                    249                               636
 Deferred tax expense          37                    601                               655

 Total tax expense             66                    850                               1,291

 

The deferred tax liability has been increased by £37,000 to £2,335,000.
 The £37,000 movement consists of a P&L charge of £37,000.   The
increase in the deferred tax liability is due to a change of deferred tax
liabilities relating to the freehold revaluation, from the rate it was
initially included at, to the tax rate substantively enacted at the Balance
Sheet date, and the acceleration of tax relief for intangible assets as a
result of an R&D claim.  The claim results in an R&D tax credit.

 

The substantively enacted rate at 30 September 2022 was 25% and this will be
in force and effect from 1 April 2023.

Deferred tax has been recognised at a mixture of 19% and 25% based on the
expected unwind of the deferred tax balances.

 

Notes to the Interim Financial Information (continued)

8              Property, plant and equipment
                                         Freehold property     Plant and             Fixtures              Motor vehicles        Computer equipment    Total

                                                                equipment            and fittings
                                         £000                  £000                  £000                  £000                  £000                  £000

 Cost
 Balance at 1 October 2021               7,500                 1,971                 6,169                 30                    1,177                 16,847
 Additions                               1,251                 304                   630                   38                    135                   2,358

 Balance at 31 March 2022                8,751                 2,275                 6,799                 68                    1,312                 19,205

 Additions                               -                     41                    498                   -                     73                    612
 Disposals                               -                     (5)                   (119)                 (29)                  -                     (153)

 Balance at 30 September 2022            8,751                 2,311                 7,178                 39                    1,385                 19,664

 Depreciation
 Balance at 1 October 2021               225                   1,386                 3,076                 20                    851                   5,558
 Charge for the period                   80                    150                   361                   14                    84                    689

 Balance at 31 March 2022                305                   1,536                 3,437                 34                    935                   6,247

 Charge for the period                   88                    209                   329                   1                     89                    716
 Disposals                               -                     (4)                   (97)                  (3)                   -                     (104)

 Balance at 30 September 2022            393                   1,741                 3,669                 32                    1,024                 6,859

 Net book value as at 30 September 2022  8,358                 570                   3,509                 7                     361                   12,805

 Net book value as at 31 March 2022      8,446                 739                   3,362                 34                    377                   12,958

 Net book value as at 30 September 2021  7,275                 573                   3,093                 10                    338                   11,289

 

 

 

Notes to the Interim Financial Information (continued)

9              Right-of-use Assets

Leasehold properties

 

At 30 September 2022 the Group had five leased properties: Distribution
centres and showrooms in York, Sweden and Germany, and Distribution centres in
Ireland and Spain.

 

In September 2022 the Group vacated a software development office in
Manchester at the end of the lease.

 

As at 30 September 2022 the associated right of use assets are as follows:

 

                                                             Land and Buildings

                                                             £000

 Cost
 Balance at 1 October 2021                                   12,033

 Foreign exchange movement                                   80

 Additions                                                   22

 Balance at 31 March 2022                                    12,135

 Foreign exchange movement                                   -
 Additions                                                   -

 Balance at 30 September 2022                                12,135

 Depreciation
 Balance at 1 October 2021                                   3,080
 Charge for the period                                       820

 Balance at 31 March 2022                                    3,900

 Charge for the period                                       797

 Balance at 30 September 2022                                4,697

 Net book value as at 30 September 2022                      7,438

 Net book value as at 31 March 2022                          8,235

 Net book value as at 30 September 2021                      8,953

 

 

 

 

 

Notes to the Interim Financial Information (continued)

10           Intangible assets

 

                                                 Goodwill              Software              Brand                 Domain names          Other Intangibles     Total

                                                                       platform
                                                 £000                  £000                  £000                  £000                  £000                  £000

 Cost
 Balance at 1 October 2021                       3,373                 17,243                817                   3,013                 -                     24,446
 Additions                                       1,950                 2,444                 555                   10                    150                   5,109

 Balance at 31 March 2022                        5,323                 19,687                1,372                 3,023                 150                   29,555

 Additions                                       -                     2,822                 -                     8                     -                     2,830

 Balance at 30 September 2022                    5,323                 22,509                1,372                 3,031                 150                   32,385

 Amortisation
 Balance at 1 October 2021                       -                     7,927                 543                   -                     -                     8,470
 Amortisation for the period                     -                     1,240                 21                    -                     12                    1,273

 Balance at 31 March 2022                        -                     9,167                 564                   -                     12                    9,743

 Amortisation for the period                     -                     1,438                 -                     2                     18                    1,458

 Balance at 30 September 2022                    -                     10,605                564                   2                     30                    11,201

 Net book value as at 30 September 2022          5,323                 11,904                809                   3,029                 120                   21,184

 Net book value as at 31 March 2022              5,323                 10,519                809                   3,023                 138                   19,812

 Net book value as at 30 September 2021          3,373                 9,316                 274                   2,938                 -                     15,901

 

 

Notes to the Interim Financial Information (continued)

11           Inventories
                         30                    30                      31

September
September
March

2021

                         2022                                        2022
                         £000                  £000                  £000

 Finished goods          43,378                37,452                 45,516

The cost of inventories recognised as an expense and included in cost of sales
in the period ended 30 September 2022 amounted to £44.6m (2021: £42.6m).

Inventories include £4.1m of predominantly Own-brand stock-in-transit (30
September 2021: £6.2m) from Far East manufacturers.

12           Trade and other receivables

 

                            30 September 2022     30 September 2021     31 March    2022
                            £000                  £000                  £000

 Trade receivables          1,516                 1,099                 1,772
 Prepayments                2,773                 2,218                 2,069

                            4,289                 3,317                 3,841

Trade receivables includes cash lodged with payment providers, Amazon and the Group's consumer finance partner, and UK and International education and trade accounts where standard credit terms are 30-days.
13           Interest bearing loans and borrowings
                                  30 September 2022     30 September 2021     31 March    2022
                                  £000                  £000                  £000
 Non-current liabilities
 Bank loans                       29,000                17,000                28,000

                                  29,000                17,000                28,000

 Current liabilities
 Bank loans                       -                     -                     -

                                  -                     -                     -

 Total liabilities
 Bank loans                       29,000                17,000                28,000

                                  29,000                17,000                28,000

In April 2021 the Group entered into a £35m Revolving Credit facility with
HSBC. The facility expires in April 2024 and is secured by a debenture over
the Group's assets.

 

Notes to the Interim Financial Information (continued)

 

14           Trade and other payables

                                                            30 September 2022     30 September 2021     31 March    2022
                                                            £000                  £000                  £000

 Current
 Trade payables                                             10,585                10,013                9,472
 Accruals and deferred income                               5,341                 2,985                 3,164
 Deferred consideration                                     36                    24                    424
 Other creditors including tax and social security          2,950                 2,569                 3,122

                                                            18,912                15,591                16,182

 Non-current
 Accruals and deferred income                               42                    9                     24
 Deferred consideration                                     39                    69                    39

                                                            81                    78                    63

Accruals at 30 September 2022 include £42,000 (2021: £9,000) relating to the
estimated cash bonuses accrued relating to the CSOP schemes.

Deferred consideration

In March 2021 the Group acquired the Eden brand and associated assets from
Marshall Amplification plc for £140,000 of which £100,000 was deferred and
payable in four equal instalments of £25,000 on the first, second, third and
fourth anniversary of the completion date, with £75,000 outstanding at 30
September 2022. These amounts are valued in the accounts at fair value and
subsequently amortised.

The Directors consider the carrying amount of other 'trade and other payables'
to approximate their fair value.

 

15           Leases

 

The Group has leases for plant and machinery (£0.02m) and five properties
(£8.9m).

 

Each lease is reflected on the statement of financial position as a
right-of-use asset and a lease liability. The Group classifies its
right-of-use assets in a consistent manner to its property, plant and
equipment.

 

Lease liabilities are presented in the statement of financial position as
follows:

 

                      30 September 2022     30 September 2021     31 March    2022
                      £000                  £000                  £000

 Current              1,171                 1,158                 1,229
 Non-current          7,822                 9,221                 8,455

                      8,993                 10,379                9,684

 

 

 

 

Notes to the Interim Financial Information (continued)

16           Share based payments

The Group operates share option plans for qualifying employees of the Group.
Options in the plans are settled in equity in the Company and are subject to
vesting conditions.

Lapsed options - LTIP (2018)

On 1 July 2022 and further to the performance conditions specified in the Plan
not being met, options over a total of 29,400 ordinary shares lapsed,
including options of 7,350, 6,300, and 6,300 to Gareth Bevan, Andrew Wass and
Chris Scott respectively.

Options granted

On 3 August 2022 options over a total of 8,334 Ordinary shares were granted to
2 employees under the Company's CSOP scheme.

17           Related party transactions

There were no significant related party transactions during the six months to
30 September 2022 (30 September 2021: none).

 

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