REG - Gear4music - Interim Results
15/11/2022 07:00
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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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