REG - Gear4music - Final Results
21/06/2022 07:00
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RNS Number : 5565P Gear4music (Holdings) PLC 21 June 2022
21 June 2022
Gear4music (Holdings) plc
Audited results for the year ended 31 March 2022
"Good progress following an exceptional prior year"
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the
largest UK based online retailer of musical instruments and music equipment,
today announces its financial results for the year ended 31 March 2022.
FY22 Highlights ((1)):
£m Year ended 31 March 2022 Year ended 31 March 2021 Year ended 31 March 2020 Change on FY21 Change on FY20
("FY22") ("FY21") ("FY20")
Revenue 147.6 157.5 120.3 -6% +23%
Gross profit 41.1 46.4 31.2 -11% +32%
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
EBITDA 11.2 19.8 7.8 -43% +44%
PBT 5.0 14.6 3.1 -66% +61%
· Gross profit of £41.1m was 11% below an exceptional, Covid boosted
FY21 and 32% ahead of FY20
· Reported EBITDA ((2)) of £11.2m is 43% below FY21 and 44% ahead of
FY20
· Net debt at year end of £24.2m (31 March 2021: net cash £2.7m) with
new £35m RCF, partially used for M&A (£11.4m) and an increase in stock
(£17.1m) to protect the business against supply chain issues and price
inflation. Net debt expected to reduce in FY23 with reduction in stock.
· Active customers of 0.92m is 13% behind FY21 and 14% ahead of FY20
· Conversion improved to 4.1% from 3.7% in FY21 and 3.4% in FY20
· Trading in line with consensus market expectations for FY23
( )
((1)) FY20 shown for comparison as FY21 was exceptional due to the positive
impact of COVID-19 lockdowns.
((2)) Includes £0.2m of one-off M&A costs and £0.3m share option costs.
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"During FY21, Gear4music was reportedly the world's fastest growing large
online retailer of musical instruments and music equipment*, being uniquely
positioned to serve customers during Covid lockdowns. As previously reported,
this meant our FY21 financial results were exceptional, and comparing FY22
against FY20 pre-pandemic levels provides a better indication of the progress
the business has made.
I am pleased to be reporting FY22 full year results today that are slightly
ahead of our previous expectations, with EBITDA of £11.2m and pre-tax profit
of £5m. These results are a significant improvement on FY20 pre-pandemic
levels, showing the continued growth and development of our business, and are
a testament to the hard work and determination of our talented teams.
In April 2021, we agreed a new £35m borrowing facility with HSBC which, as
planned, was partially utilised by making acquisitions totalling £11.4m to
help drive future growth. We also deliberately invested over £17m into
additional short-term inventory, to ensure continuing high levels of customer
service and strong website conversion during what has been a prolonged period
of supply chain disruption. We continue to have a significant amount of
headroom within our banking facilities and covenants, and during FY23 we
expect the additional inventory will reduce, and our year-end net debt
position will decrease accordingly.
We have a strong pipeline of growth orientated projects due to be deployed
during FY23, including the launch of AV.com into Europe and our second-hand
platform, alongside multiple new product releases, including from the recently
acquired Premier brand which celebrates its 100th anniversary.
As previously stated, weaker consumer confidence across the broader retail
landscape is likely to continue impacting our progress during H1, although
alongside careful overhead cost management we believe our growth initiatives
will help offset these headwinds and provide opportunities for stronger growth
during H2. We continue to trade in line with market expectations for FY23**
and remain confident in our medium and long-term profitable growth strategy."
* Source = Music Trades: Worldwide largest 20 online retailers; 2021 sales
data
** Gear4music believes that consensus market expectations for the year ending
31 March 2023 are currently revenue of £163.9 million and EBITDA of £11.9
million.
ENDS
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 Peter Steel/Amanda +44 (0)20 7496 3000
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
Rebecca Sanders-Hewett Gear4Music@almapr.co.uk
David Ison
Joe Pederzolli
Josh Royston
About Gear4music (Holdings) plc
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.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the
publication of this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public domain.
Chairman's statement
I am pleased to report on what we consider to be a strong set of results
during what has been an unusual and challenging period. The year started with
us all having to come to terms with life post Covid, and ended with war in
Eastern Europe and the highest rate of inflation seen in recent times,
impacting on consumer confidence and discretionary spending.
Operational and Commercial progress
The FY22 financial results were always going to pale in comparison to what was
an exceptional FY21, but represent continued improvement relative to a more
normal trading period in FY20. Achieving these results reflects on the
significant efforts of the Executive and Senior Management team, and the hard
work, passion and dedication of all our colleagues across the business.
Post Covid, we remain vigilant and have rolled out a phased return to the
office as we strongly believe working closely together across teams and
departments, collaborating and communicating together, is best done in person
and is fundamental to the long-term success of our Group. We have retained
some flexible working practices and are well set to respond to any future
developments.
The addition of a committed three-year £35m Revolving Credit Facility in
April 2021 enabled the Group to progress acquisition opportunities and make
investments positioning the Group well to be able to thrive in the future. The
addition of the Premier brand to the growing own-brand stable, and the
diversification into the large Audio-Visual ('AV') market, albeit early stage,
makes for exciting times ahead.
In FY22, the Group faced and addressed lingering challenges of the UK leaving
the EU. The addition of two new distribution centres in Europe has improved
the Group's European proposition, increased capacity and puts the Group in a
stronger position heading into FY23.
The competitive retail landscape in musical instruments and equipment is
seeing a continued channel shift to online, albeit understandably at lower
online penetration levels than during lockdowns. We expect the current
challenging economic environment will add further pressure to less agile
competitors already struggling post-Covid, thereby allowing us to take further
market share. This, in turn, may present future growth opportunities for the
Group.
Environmental, Social and Governance
We understand the importance of sustainable business practices on our physical
and social environments and the role we must play. We acknowledge there is
increasing interest from a wide range of stakeholders on the various impacts
that the business has, and what it is doing to improve the outcomes.
During the year, we combined all of the relevant work already being done
across our business and formalised it in our ESG policy. We look forward to
reporting continued progress in FY23.
Outlook
Against a backdrop of significant geo-political and macro-economic
uncertainties affecting consumer confidence across Europe, and having just
come out of a global pandemic makes predicting the year ahead less
straightforward. Nevertheless, alongside our new growth initiatives, the Board
remains confident that our customer proposition, enhanced operational
infrastructure and balance sheet will enable the Group to achieve its business
objectives, namely accelerating market share gains and delivering operational
efficiencies, during the current financial year and beyond.
Ken Ford
Chairman
20 June 2022
Chief Executive's Statement
Financial KPIs
FY22 FY21 FY20 Change on FY21 Change on FY20
Revenue * £147.6m £157.5m £120.3m -6% +23%
UK Revenue * £82.6m £78.7m £61.8m +5% +34%
International Revenue * £65.0m £78.8m £58.5m -18% +11%
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
Gross profit £41.1m £46.4m £31.2m -11% +32%
Total Admin expenses * £35.9m £31.6m £27.7m +13% +30%
European Admin expenses * £4.6m £3.8m £2.5m +21% +84%
EBITDA £11.2m £19.8m £7.8m -43% +44%
Profit before tax £5.0m £14.6m £3.1m -66% +63%
Net (debt)/cash ** (£24.2m) £2.7m (£5.5m) -£26.9m -18.7m
* See note 3 of the Financial information
** See notes 14 and 15 of the Financial information
Commercial KPIs
FY22 FY21 FY20 Change on FY21 Change on FY20
Website visitors 28.8m 36.0m 28.4m -20% +1%
Conversion rate 4.06% 3.69% 3.29% +37bps +77bps
Average order value £125 £116 £117 +8% +7%
Active customers 921,000 1,064,000 807,000 -13% +14%
Products listed 62,400 57,900 54,200 +8% +15%
Business review
Compared with pre-pandemic levels, the business made solid progress during
FY22, with tangible improvements in revenues, margins and profitability being
achieved despite the challenging macro environment and significant operational
difficulties that were created by the new UK-EU customs border, as a result of
Brexit.
During the year, we have had to navigate a period of worldwide supply chain
disruption, cost price inflation, and weakening consumer confidence, which
makes the level of retained gross margins following the exceptional FY21 a
notable achievement that reflects the tenacity of our commercial teams.
Highlights from the year included securing a new £35m committed banking
facility that enabled the acquisitions of AV distribution Ltd and Premier, the
opening of two new distribution hubs in Ireland and Spain, and launching
AV.com, our new retail brand focusing on the Home Audio Visual market.
Revenues were supported through FY22 by a good recovery in live-sound
categories such as PA, DJ and Lighting products as musicians return to gigging
and festivals have opened up again. Our Home Audio Visual category has also
grown following the launch of AV.com in January 2022.
We deliberately invested into additional inventory during FY22, utilising our
banking facilities, to help mitigate the consequences of supply chain
disruption. Alongside funding acquisitions, this meant our levels of borrowing
increased during the period, and we expect to see this reducing as the
financial year progresses.
We look forward to building on the progress of FY22 and maintaining the high
levels of service our new and returning customers have come to expect,
supported by the deployment of multiple e-commerce platform upgrades and
ongoing growth initiatives.
Growth Strategy & Acquisitions
Development of our bespoke platform remains central to our digital growth
strategy, and during FY23 we plan to launch some significant new features and
developments. Having grown our in-house team of software developers to 90
people, we are in a strong position to evolve and improve our customer
proposition at pace.
Our second-hand platform is due to launch during FY23 and is designed to
extend the lifecycle of musical instruments and equipment by providing a quick
and easy way for customers to release value from products they no longer use,
whilst making good quality, warrantied second hand products accessible to
those who may not necessarily want or be able to purchase a new product.
Helping us achieve a more circular and environmentally sustainable business,
this platform has the potential to significantly increase our addressable
market size.
Following a successful UK launch, AV.com will be launched across Europe,
utilising our existing European e-commerce platform, localisation technology
and distribution infrastructure to significantly increase our addressable
market size.
With own-brand products generating over £38m in sales last year we have a
proven track record of success in sourcing and developing unique products that
fit alongside the world's best-known brands. Following on from the
acquisitions of Premier and Eden, we will further refine and accelerate our
own-brand strategy with the launch of G4M, a new premium own-brand range
suitable for worldwide distribution, and AVCOM, featuring products focused on
the Home Audio Visual market.
Trading outlook
As a result of Brexit, Covid, and now the war in Ukraine, the general outlook
for many retailers during 2022 remains challenging and difficult to predict,
with increasing product and overhead costs forcing up product retail prices
and potentially impacting profits.
To help combat these challenges, we have a strong pipeline of growth
orientated projects launching in FY23, and we will retain a sharp focus on
productivity, efficiency and overhead cost control.
Inflationary pressures and weaker consumer confidence are likely to constrain
growth in profitability in the short term. However, with the strategies and
actions we are taking, along with our strong balance sheet and significant
working capital headroom, we believe we remain well positioned to take market
share and are confident in our medium and longer-term profitable growth
strategy.
Andrew Wass
Chief Executive Officer
20 June 2022
Chief Financial Officer's statement
Overview
As an online retailer, following on from an exceptional FY21 trading period
boosted by the effects of COVID lockdowns was always going to be a tough act
to follow. However, relative to FY20, a more normal trading period, our FY22
results are strong and show good improvement, with revenue growth of 23%, a
gross margin improvement of 200bps, and an increase of £3.4m and £1.9m in
EBITDA and PBT respectively.
We started the year by securing a £35m RCF facility with HSBC to enable us to
capitalise on M&A opportunities as and when they arose, and to invest in
stock during a period of supply chain uncertainty and ahead of inflationary
price increases. We report good progress on both fronts putting us in a strong
position heading into FY23.
Post-Brexit challenges limited our ability to cost-effectively ship products
from the UK to customers in Europe in a timely manner. This materially
affected our UK-EU cross-border revenue, contributing to a reduction in
international revenue of £13.8m (18%) during FY22. We responded by opening
new distribution centres in Ireland and Spain in H2 and we expect to see a
meaningful impact in FY23.
In December 2021, we acquired AV Distribution Ltd and re-platforming on to and
the launch of AV.com is an exciting first step diversifying into the
significant Audio-Visual market.
Revenue
FY22 FY21 FY20
£m £m £m
UK revenue 82.6 78.7 61.8
International revenue 65.0 78.8 58.5
Revenue 147.6 157.5 120.3
Revenue decreased £9.9m (6%) on an exceptional FY21 period that had benefited
from unusually high demand as physical stores closed during COVID lockdowns
and the benefits of playing musical instruments and equipment on mental health
and wellbeing were recognised. Revenue increased £27.3m (23%) relative to a
more normal trading period in FY20, equating to compound growth of 10.8% per
annum.
UK revenue continued to grow, being less impacted by Brexit and temporarily
boosted by European competitors facing similar shipping challenges into the
UK. UK revenue of £82.6m was £3.9m (5%) ahead of a COVID impacted FY21, and
£20.8m (34%) ahead of FY20. This takes our estimated UK market share up to
9.2% (FY21: 8.9%; FY20: 7.2%).
After the UK left the EU, our European sales that would previously have been
fulfilled from the UK markedly decreased as it took longer and cost more to
ship to European customers, weakening our proposition relative to local
retailers. As a consequence, international revenue decreased by £13.8m (18%)
on FY21 and increased £6.5m (11%) on FY20. The addition and scaling up of two
new distribution centres in Ireland and Spain has improved our proposition
heading into FY23.
Revenues from sales outside of Europe accounted for 1.4% of total revenue in
FY22 compared to 1.3% in both FY21 and FY20.
Revenue in H1 was considered a stronger result by management, being just 8%
down on peak COVID numbers and 31% up on FY20 H1, whereas H2 revenue was 5%
down against a weaker comparative and 17% up on FY20 H2.
FY22 FY21 FY20
£m £m £m
Other-brand product revenue 102.5 104.2 79.4
Own-brand product revenue 38.1 45.4 35.4
Carriage income 6.3 7.1 4.9
Other 0.7 0.8 0.6
Revenue 147.6 157.5 120.3
We continue to make good progress in our own-brand business with revenues of
£38.1m accounting for 26% of total revenue (FY21: 29%) from just 4,200 SKUs
representing 7% of the total range (FY21: 3,800 SKUs). The addition of the
Premier brand in particular is an exciting addition and opportunity heading in
to its centenary year.
Own-brand revenue was £7.3m (16%) below an exceptional FY21 which was boosted
by high demand for beginner-level products during COVID lockdowns, and limited
availability of certain other-branded products. Furthermore, many bulky
own-brand packs would traditionally have been shipped from the UK into Europe,
and this was a category impacted post-Brexit and has since improved with
increased stock held locally in Europe and more, better local carrier options.
Relative to a more normal trading period, own-brand sales were £2.7m (8%) up
on FY20.
Other brand revenue was £1.7m (2%) down on FY21 and £23.1m (29%) up on FY20.
Carriage income decreased by £0.8m (11%) to £6.3m linked to lower product
sales, and less cross UK-EU border shipments.
Other revenue comprises paid for extended warranty income, and commissions
earned on facilitating point-of-sale credit for retail customers. The
proportion of revenues coming from these sources was 0.5% of total revenue in
FY22, FY21 and FY20.
Gross profit
FY22 FY21 FY20 Change on FY21 Change on FY20
Product sales (£m) 140.6 149.6 114.8
Product profit (£m) 45.2 50.9 35.1 -11% +29%
Product margin 32.1% 34.1% 30.5% -200bps +160bps
Carriage costs (£m) 10.3 11.7 8.8 -12% +17%
Carriage costs as % of sales 7.0% 7.4% 7.3% -40bps -30bps
Gross profit (£m) 41.1 46.4 31.2 -11% +32%
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
In FY22, we maintained our pricing discipline established in FY20 and carried
through FY21, and delivered a gross margin of 27.9% which was 250bps behind an
exceptional FY21 period where prices were increased to manage demand, and
200bps ahead of FY20.
We significantly invested in stock throughout the year as a precautionary
measure against supply chain disruption, and to lock in cost prices early in a
period of increasing cost-price inflation. This created margin opportunities
in FY22 and puts us in a strong position heading into FY23.
Product margin in FY22 was impacted by sales mix, with relatively less
own-brand sales (26% of total sales) than in FY21 and FY20 (both 29%).
The Group benefits from buying scale relative to its UK competitors, and its
ability to source other-branded products in Swedish Krona and Euros, and
receive product directly into its European distribution centres is an
important point of differentiation.
The Group purchases its own-brand products in US Dollars and product margin
can be impacted by exchange rate fluctuations.
Gear4music includes 'costs of delivery' within cost of sales which is a
different accounting treatment to some other e-commerce retailers. Delivery
costs were £10.3m in the period and represented 7.0% of total revenue (FY21:
7.4%), and an illustrative adjusted gross margin would be 34.9% (FY21: 36.8%).
Administrative expenses and Operating profit
Operating profit of £6.1m is £9.3m (60%) below FY21, and a £2.0m (49%)
improvement on FY20.
FY22 FY21 FY20
£m £m £m
UK Administrative expenses (31.3) (27.8) (25.2)
European Administrative expenses (4.6) (3.8) (2.5)
Total Administrative expenses (35.9) (31.6) (27.7)
Other income 0.8 0.7 0.6
Operating profit 6.1 15.4 4.1
Depreciation and amortisation 5.1 4,4 3.7
EBITDA 11.2 19.8 7.8
Total administrative expenses increased by 13% (£4.3m) on FY21 relative to a
revenue decrease of 6%, principally due to a more normal marketing return and
continued investment in our people.
Combined marketing and labour costs of £23.9m (FY21: £21.5m) accounted for
67% of total administrative expenses (FY21: 68%):
- Marketing expenditure increased in FY22 to £10.8m
(FY21: £9.2m) equating to 7.3% of revenue compared to 5.9% last year and 7.7%
in FY20, as the business returned to more normal trading and competitive
conditions; and
- Labour costs increased 7% in FY22 to £13.1m
(FY21: £12.3m) reflecting an 8% increase in average headcount. Labour costs
accounted for 8.9% of revenue (FY21: 7.8%).
FY22 EBITDA of £11.2m is £8.6m lower than FY21 and £3.4m higher than FY20.
Other expenses and net profit
Financial expenses of £1.1m (FY21: £0.8m) include £0.5m bank interest as
the new RCF was increasingly utilised as the year progressed (FY21: £0.2m),
£0.4m of IFRS16 lease interest (FY21: £0.4m), and a £0.2m net foreign
exchange loss (FY21: £0.2m loss).
The Group reports profit before tax of £5.0m (FY21: £14.6m) that after tax
translates into a basic EPS of 17.8p (FY21: 60.3p) and diluted EPS of 17.3p
(FY21: 59.7p).
Cash-flow
FY22 FY21 FY20
£m £m £m
Opening cash 6.2 7.8 5.3
Profit for the year 3.7 12.6 2.6
Movement in working capital (16.2) (4.9) (0.9)
Depreciation and amortisation 5.1 4.4 3.7
Financial expense 1.1 0.8 1.0
Tax and Other operating adjustments (1.3) 2.0 1.0
Net cash (used in)/from operating activities: (7.6) 14.9 7.4
Net cash used in investing activities: (16.5) (4.5) (3.9)
Net cash from/(used in) financing activities: 21.8 (12.0) (1.0)
Decrease in cash in the year (2.3) (1.6) 2.5
Closing cash 3.9 6.2 7.8
In April 2021 the Group secured a £35m RCF with its bankers, HSBC, to enable
it to invest in opportunities if, as and when they arose.
Group indebtedness increased £26.9m from a £2.7m net cash position at the
start of the year to a £24.2m net debt position at the end, reflecting
acquisitions totalling £11.4m and a deliberate £17.1m increase in stock:
- Acquisitions: The Group acquired the Premier drum
brand for £1.7m, the AV.com domain for £3.0m, and AV Distribution Ltd for
£7.1m (£0.4m deferred); and
- Stock: the business actively invested in stock
throughout the year to protect against potential supply chain disruption,
secure cost prices ahead of inflationary price increases, and increase stock
in European distribution centres. This higher level of stock is a response to
broader market and macro uncertainties rather than a structural requirement,
and is expected to decrease in the normal course of business in FY23.
Reported net cash outflow from investing activities of £16.5m includes £7.4m
of business acquisitions, net of cash acquired, including a £1.3m freehold
property acquired with AV Distribution Ltd, £4.4m of capitalised software
development costs (FY21: £3.2m), the £3.0m acquisition of the AV.com domain,
and £1.8m tangible fixed asset additions. Depreciation and amortisation of
£3.7m (FY21: £3.2m) is added back in 'net cash from operating activities'
with respect to these asset categories.
Net cash inflow from financing activities of £21.7m (FY21: £12.0m outflow)
represents a £28.0m RCF drawdown net of £3.5m repayment of borrowings (FY21:
£9.9m repayment), £1.9m payment of lease liabilities (FY21: £1.4m), and
£0.9m interest paid (FY21: £0.7m).
Balance sheet
31 March 2022 31 March 2021 31 March 2020
£m £m £m
Property, plant and equipment 13.0 11.2 11.2
Right-of-use assets 8.2 7.9 9.0
Software platform 10.5 8.4 7.1
Goodwill 5.3 1.9 1.9
Other intangible assets 4.0 0.1 0.1
Total non-current assets 41.0 29.5 29.3
Stock 45.5 28.4 22.0
Cash 3.9 6.2 7.8
Other current assets 3.9 3.6 2.5
Total current assets 53.3 38.2 32.3
Trade payables (9.5) (11.4) (10.1)
Loans and Borrowings - (0.6) (10.0)
Lease liabilities (1.2) (1.1) (1.1)
Other current liabilities (6.7) (7.5) (4.3)
Total current liabilities (17.4) (20.6) (25.5)
Loans and Borrowings (28.0) (2.9) (3.4)
Lease liabilities (8.5) (8.3) (9.5)
Other non-current liabilities (2.3) (1.6) (1.6)
Total non-current liabilities (38.8) (12.8) (14.5)
Net assets 38.0 34.3 21.6
Capital expenditure on property, plant and equipment of £3.1m includes the
addition of a freehold warehouse valued at £1.3m as part of the AV
Distribution Ltd acquisition, £0.8m investment on the new distribution
centres in Ireland and Spain, and £0.6m and £0.4m investment in the UK and
Sweden respectively.
The Group capitalised £4.4m (FY21: £3.2m) of software development costs
relating to our bespoke e-commerce platform, including projects linked to the
opening of new distribution centres, the re-platforming of the AV Distribution
Ltd business and launching AV.com. Platform amortisation in the year was
£2.3m (FY21: £1.9m) taking net book value to £10.5m (31 March 2021:
£8.4m).
Other intangible assets include £5.3m goodwill and £3.0m of domains.
The Group had net debt of £24.2m at the year-end (31 March 2021 net cash:
£2.7m) having used its facilities to invest in acquisitions and stock.
Dividends
The Board is confident in the prospects for the business and recognises the
importance of generating and retaining cash reserves to support future growth,
and as such, the Board does not consider it appropriate to declare a dividend
at this time but will continue to review this position on an annual basis.
On behalf of the Board
Chris Scott Chief Financial Officer 20 June 2022
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Year ended Year ended
31 March 2021
31 March
Note 2022
£000 £000
Revenue 147,630 157,451
Cost of sales (106,500) (111,097)
Gross profit 41,130 46,354
Administrative expenses 3,4 (35,881) (31,633)
Other income 5 820 688
Operating profit 6,069 15,409
Financial expenses 7 (1,055) (770)
Profit before tax 5,014 14,639
Taxation 8 (1,291) (1,998)
Profit for the year 3,723 12,641
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment
9
- -
Deferred tax movements
(109) 8
Items that are or may be reclassified subsequently to profit or loss:
(23) (17)
Foreign currency translation differences - foreign operations
Total comprehensive income for the year
3,591 12,632
Basic profit per share 6 17.8p 60.3p
Diluted profit per share 6 17.3p 59.7p
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Financial Position
Year ended Year ended
31 March 2022 31 March 2021
Note £000 £000
Non-current assets
Property Plant and Equipment 9 12,958 11,190
Right-of-use assets 10 8,235 7,871
Intangible assets 11 19,812 10,395
41,005 29,456
Current assets
Inventories 12 45,516 28,430
Trade and other receivables 13 3,841 3,647
Cash and cash equivalents 14 3,903 6,203
53,260 38,280
Total assets 94,265 67,736
Current liabilities
Interest-bearing loans and borrowings 15 - (575)
Trade and other payables 16 (16,183) (18,938)
Lease liabilities 17 (1,229) (1,099)
(17,412) (20,612)
Non-current liabilities
Interest-bearing loans and borrowings 15 (28,000) (2,901)
Other payables 16 (64) (110)
Lease liabilities 17 (8,455) (8,315)
Deferred tax liability (2,298) (1,486)
(38,817) (12,812)
Total liabilities (56,229) (33,424)
Net assets 38,036 34,312
Equity
Share capital 18 2,098 2,095
Share premium 18 13,286 13,165
Foreign currency translation reserve 18 (74) (51)
Revaluation reserve 18 1,606 1,640
Retained earnings 18 21,120 17,463
Total equity 38,036 34,312
The notes 1 to 19 form part of the consolidated financial report.
Company registered number: 0778670.
Consolidated 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 31 March 2020 2,095 13,152 (34) 1,674 4,722 21,609
Comprehensive income for the year
Profit for the year - - - - 12,641 12,641
Other comprehensive income - - (17) - 10 (7)
Deferred tax adjustment - timing difference - - - - (8) (8)
Share based payments charge - - - - 64 64
Depreciation transfer - - - (34) 34 -
Total comprehensive income for the year - - (17) (34) 12,741 12,690
Transactions with owners
Issue of shares - 13 - - - 13
Total transactions with owners - 13 - - - 13
Balance at 31 March 2021 2,095 13,165 (51) 1,640 17,463 34,312
Comprehensive income for the year
Profit for the year - - - - 3,723 3,723
Other comprehensive income - - (23) - (109) (132)
Deferred tax adjustment - - - - (46) (46)
Share based payments charge - - - - 55 55
Depreciation transfer - - - (34) 34 -
Total comprehensive income for the year - - (23) (34) 3,657 3,600
Transactions with owners
Issue of shares 3 121 - - - 124
Total transactions with owners 3 121 - - - 124
Balance at 31 March 2022 2,098 13,286 (74) 1,606 21,120 38,036
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Cash flows from operating activities
Profit for the year 3,723 12,641
Adjustments for:
Depreciation and amortisation 9,10,11 5,138 4,372
Financial expense 7 1,055 770
(Profit)/loss on sale of property, plant and equipment (12) (4)
Share based payment charge 55 64
Taxation 8 1,243 1,998
11,202 19,841
Increase in trade and other receivables 13 302 (1,181)
Increase in inventories 12 (14,195) (6,415)
Increase in trade and other payables 16 (2,187) 2,687
(4,878) 14,932
Tax (paid)/received 8 (2,709) (37)
Net cash from operating activities (7,587) 14,895
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 95 14
Acquisition of property, plant and equipment 9 (1,773) (1,166)
Capitalised development expenditure 11 (4,439) (3,186)
Acquisition of a business 11 (7,360) (200)
Acquisition of domains 11 (3,023) -
Net cash from investing activities (16,500) (4,538)
Cash flows from financing activities
Cash from share issue 124 13
Proceeds from new borrowings 15 28,000 29
Interest paid (917) (692)
Repayment of borrowings 15 (3,445) (9,948)
Payment of lease liabilities 17 (1,952) (1,379)
Net cash from financing activities 21,810 (11,977)
Net (decrease)/increase in cash and cash equivalents (2,277) (1,620)
Cash and cash equivalents at beginning of year 6,203 7,839
Foreign exchange movement (23) (16)
Cash and cash equivalents at end of year 14 3,903 6,203
The accompanying notes form an integral part of the consolidated financial
report.
Notes
(forming part of the financial statements)
General Information
Gear4music (Holdings) plc is a public limited company, is incorporated and
domiciled in the United Kingdom, and is listed on the Alternative Investment
Market ('AIM') of the London Stock Exchange.
The Group financial statements consolidate those of the Company and its
subsidiaries (collectively referred to as the "Group").
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.
At the financial year-end the Group has four trading European subsidiaries:
Gear4music Sweden AB, Gear4music GmbH, Gear4music Europe Limited (formerly
known as Gear4music Ireland Limited), and Gear4music Spain SL. The Group has
one dormant European subsidiary, Gear4music Norway AS. All five are 100%
subsidiaries of Gear4music Limited.
On 1 December 2021 the Group acquired AV Distribution Ltd and on 13 January
2022 the business, assets and liabilities were hived-up into Gear4music
Limited.
1 Accounting policies
1.1 Basis of preparation
The financial information set out in this announcement does not constitute
statutory accounts as defined by section 434 of the Companies Act 2006.
It has been prepared in accordance with the recognition and measurement
principles of UK-adopted International Accounting Standards, including IFRIC
interpretations issued by the International Accounting Standards Board, and in
accordance with the AIM rules and is not therefore in full compliance with
IFRS. The principal accounting policies of the Group have remained unchanged
from those set out in the Group's 2021 annual report. The financial statements
have been prepared under the historical cost convention with the exception of
land and buildings which are accounted for at fair value.
The results for the year ended 31 March 2022 have been extracted from the full
accounts of the Group for that year which have not yet been delivered to the
Registrar of Companies. Grant Thornton UK LLP has reported on those accounts
and their report is (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The financial information for the year ended 31 March 2021 is derived from the
statutory accounts for that year, which have been delivered to the Registrar
of Companies. Grant Thornton UK LLP reported on those accounts and their
report was (i) unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
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.
The announcement will be published on the Company's website. The maintenance
and integrity of the website is the responsibility of the directors. The work
carried out by the auditors does not involve consideration of these matters.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
The Group's accounting policies are set out below and have been applied
consistently in the consolidated financial statements.
Accounting period
The financial statements presented cover the years ended 31 March 2022 and 31
March 2021.
1.2 Adoption of new and revised standards
Various new or revised accounting standards have been issued which are not yet
effective.
The following new standards, and amendments to standards, have been adopted by
the group for the first time during the year ending 31 March 2022, and the
impact is not material:
- Amendments to References to the Conceptual
Framework in IFRS Standards
- Amendments to IFRS 3: Business Combinations
- Amendments to IAS 1 and IAS 8: Definition of
Material
- Amendments to IFRS 9, IAS 39 and IFRS7: Interest
Rate Benchmark Reform
- Amendment to IFRS 16: COVID-19-Related Rent
Concessions
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16: Interest Rate Benchmark Reform - Phase 2
1.3 Going concern
The Group's business activities and position in the market, and principal
risks, uncertainties and mitigations are described in the Strategic Report.
In FY21 the Group successfully managed the challenges of operating
distribution centres through the COVID pandemic, and as a result reported a
significant increase in profits and profitability, a stronger balance sheet,
and net cash at 31 March 2021.
In FY22 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 heading in to FY23.
The Directors have considered the Group's position and prospects in the period
to 31 March 2023 based on its offering in the UK and improved proposition in
Europe and concluded that potential growth rates remain strong.
There is a diverse supply chain with no key dependencies.
The Group's policy is to ensure that it has sufficient facilities to cover its
future funding requirements. At 31 March 2022 the Group had net debt of
£24.2m (31 March 2021: net cash of £2.7m), with £3.9m cash (31 March 2021:
£6.2m cash), with a good and appropriate level of headroom that has been
factored into the Directors going concern assessment. The Group has conducted
various budget flexes principally on a reduction in revenue, and performed a
reverse stress test. There is no plausible scenario where the Group breaches
its covenants, re-affirming the assessment of the Group as a going concern.
Having duly considered all of these factors and having reviewed the forecasts
for the period to 30 June 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 Business Combinations
Premier
On 21 June 2021 Gear4music Limited acquired the business and assets of Premier
Music International Limited and High House 123 Limited Liability Partnership
for £1.685m paid in full in cash on completion. The acquisition was funded
through the Group's revolving credit facility.
The addition of Premier, a Drums and Percussion brand with a rich musical
heritage dating back to 1922, is a significant addition to the Group's
own-brand portfolio. This included the worldwide rights to Premier's products,
including all related intellectual property, as well as all the existing
customer contracts, customer relationships, supply contracts and supplier
relationships with the manufacturers of all Premier product. The revenue,
EBITDA and PBT of this acquisition is immaterial to the results of the Group.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised assets on acquisition:
Recognised values on acquisition Note Pre-acquisition book value Fair value adjustments Recognised value on acquisition
£000 £000 £000
Brand 11 - 715 715
Total other intangible assets - 715 715
Property, plant and equipment 9 10 - 10
Net identifiable assets and liabilities at fair value 10 715 725
Goodwill recognised on acquisition 11 - - 960
Consideration paid and accrued 10 1,675 1,685
Measure of fair values
The 'Income approach - Relief from Royalty method' valuation technique was
used for measuring the fair value of the Brand acquired. Management
commissioned an independent accountants' report to support the fair values of
intangible assets.
Acquisition-related costs
The Group incurred acquisition-related costs of £0.04m on legal fees and due
diligence costs. These are not included as part of the consideration
transferred and have been recognised as an expense in the consolidated
statement of profit or loss, as part of Administrative expenses.
AV Distribution Ltd
On 1 December 2021 Gear4music Limited acquired 100% of the share capital of AV
Distribution Ltd (Company number: 05385699) trading as 'AV Online', an online
retailer of Home Cinema and HiFi equipment, for total consideration of £6.05m
(on a cash free, debt free basis), of which £5.65m was paid in cash on
completion and £0.4m deferred for six months subject to final agreement of
tax balances. The acquisition was funded through the Group's revolving credit
facility, and the Group acquired a freehold property valued at £1.25m as part
of the transaction.
Founded in 2003 AV Online operates from a 26,000 sq. ft. freehold warehouse,
offices and showroom in Bacup, Lancashire, and is an online retailer of
audio-visual equipment, including home cinema systems, HiFi systems, speakers,
cables, headphones and accessories. AV Online had 21 members of staff, and
generated sales principally from its main website audiovisualonline.co.uk,
with further sales channels including Amazon, the showroom in Bacup, and
several smaller websites operated by the business, including hificables.co.uk.
This acquisition significantly increases the Group's addressable market size
and brings synergies between the market in which Gear4music operates, and the
closely related but separate AV market, which is currently dominated by
high-street based retailers. By moving the AV Online business onto
Gear4music's highly scalable bespoke ecommerce platform, rebranding the
business to AV.com, developing its product ranges, and expanding into Europe,
AV.com can quickly grow its revenues and profits.
On 13 January 2022 the AV Distribution business was re-platformed on to the
AV.com domain and the Group's proprietary e-commerce system, and hived up into
Gear4music Limited.
In the period between completion on 1 December 2021 and hive-up into
Gear4music Limited on 13 January 2022, it contributed revenue of £0.6m,
EBITDA of £0.1m, and PBT of £0.1m.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and
liabilities assumed on acquisition:
Recognised values on acquisition Note Pre-acquisition book value Fair value adjustments Recognised value on acquisition
£000 £000 £000
Other intangibles 11 - 149 149
Total other intangible assets - 149 149
Freehold property 9 1,251 - 1,251
Other property, plant and equipment 9 106 - 106
Inventories 14 2,813 78 2,891
Trade and Other receivables 15 64 - 64
Cash and cash equivalents 16 1,110 - 1,110
Trade and Other payables 18 (879) - (879)
Deferred tax 13 (48) - (48)
Net identifiable assets and liabilities 4,417 227 4,644
Goodwill recognised on acquisition 11 2,516
Total consideration 7,160
Other intangibles comprise customer relationships, trademarks, and domain
names.
Measure of fair values
A fair value for the property was performed on 10 August 2021 prior to
acquisition, and value at £1.265m by an independent chartered surveyor on
behalf of HSBC Bank plc.
Other intangibles were identified and valued at fair value based on valuation
modelling performed by independent accountants.
Stock was valued at fair value reflecting the additional value added prior to
acquisition.
Acquisition-related costs
The Group incurred acquisition-related costs of £0.20m on legal fees and due
diligence costs. These are not included as part of the consideration
transferred and have been recognised as an expense in the consolidated
statement of profit or loss, as part of Administrative expenses.
3 Segmental reporting
The Group's revenue and profit was derived from its principal activity which
is the sale of musical instruments and equipment.
In accordance with IFRS 8 'Operating segments', the Group has made the
following considerations to arrive at the disclosure made in these financial
statements. IFRS 8 requires consideration of the 'Chief Operating Decision
Maker ('CODM') within the Group, which in the Group's case is the Executive
Board. Operating segments have been identified based on the internal reporting
information and management structures with the Group. Based on this
information it has been noted that the CODM reviews the business as one
segment and receives internal information on this basis. Therefore, it has
been concluded that there is only one reportable segment.
Revenue by Geography
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
UK 82,639 78,690
Europe and Rest of the World 64,991 78,761
147,630 157,451
Administrative expenses by Geography
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
UK 31,253 27,797
Europe 4,628 3,836
35,881 31,633
The majority of Group assets are held in the UK except for local right of use
assets and property, plant and equipment, and cash in Sweden (31 March 2022:
£4.0m; 31 March 2021: £4.3m), Germany (31 March 2022: £2.2m; 31 March 2021:
£2.5m), Ireland (31 March 2022: £0.7m) and Spain (31 March 2022: £1.7m).
Revenue by Product category
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Other-brand products 102,473 104,199
Own-brand products 38,121 45,368
Carriage income 6,266 7,135
Warranty income 483 545
Other 287 204
147,630 157,451
4 Staff numbers and costs
The average number of persons employed by the Group (including directors)
during the year, analysed by category, was as follows:
Year ended Year ended
31 March 2022 31 March 2021
Nos. Nos.
Administration 242 196
Selling and Distribution 316 323
558 519
The aggregate payroll costs of these persons were as follows:
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Wages and salaries 11,620 10,105
Social security costs 598 1,451
Contributions to defined contribution plans 928 691
13,146 12,247
Directors' remuneration
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Directors' remuneration 680 641
Company contributions to money purchase pension schemes 22 19
702 660
The three Executive Directors are paid through Gear4music Limited, and the
three Non-Executive Directors are paid through Gear4music (Holdings) plc. The
remuneration of all six Directors is included above.
The aggregate remuneration of the highest paid director was £229,000 during
the year (2021: £228,000), including company pension contributions of £8,000
that were made to a money purchase scheme on their behalf.
There are five directors (2021: four) for whom retirement benefits are
accruing under a money purchase pension scheme.
5 Other income
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Other income 820 688
Other income comprises rental income on our freehold property, Research and
Development Expenditure credits, and marketing support.
6 Earnings per share
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 CSOP and LTIP
dilutive potential ordinary shares into ordinary shares.
Year ended Year ended
31 March 2022 31 March 2021
Profit attributable to equity shareholders of the parent (£'000) 3,723 12,641
Basic weighted average number of shares 20,967,831 20,948,595
Dilutive potential ordinary shares 570,440 218,033
Diluted weighted average number of shares 21,538,271 21,166,628
Basic profit per share 17.8p 60.3p
Diluted profit per share 17.3p 59.7p
7 Finance expenses
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Bank interest 524 196
IFRS16 lease interest 403 403
Net foreign exchange loss 97 161
Unwinding of discount on deferred consideration 31 10
Total finance expense 1,055 770
8 Taxation
Recognised in the income statement
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Current tax expense
UK Corporation tax 574 1,201
Overseas Corporation tax 55 94
Adjustments for prior periods 7 625
Current tax expense 636 1,919
Deferred tax expense
Origination and reversal of temporary differences 326 989
Deferred tax rate change impact 345 -
Adjustments for prior periods (16) (903)
Deferred tax expense 655 86
Total tax expense 1,291 2,005
The corporation tax rate applicable to the company was 19% for the year ended
31 March 2022, and 19% for the period ended 31 March 2021. At the Budget
announcement on 3 March 2021 the UK government has stated its intention to
raise the corporation tax rate to 25% from 1 April 2023. The deferred tax
assets and liabilities at 31 March 2022 have been calculated based on that
rate. An effect of rate change has been calculated on opening balances to
reflect the change of rate from 19% to 25%.
Reconciliation of effective tax rate
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Profit for the year 12,641 12,641
Total tax charge 1,998 1,998
Profit excluding taxation 14,639 14,639
Current tax at 19% (2020: 19.0%)
Tax using the UK corporation tax rate for the relevant period: 943 2,781
Non-deductible expenses (73) (27)
Deferred tax rate change impact 345 -
Adjustments relating to prior year - deferred tax (16) (903)
Adjustments relating to prior year - current tax 7 624
R&D claim additional deduction - (470)
Impact of overseas tax rate 2 (1)
Deferred tax assets not recognised 1 1
R&D credit 12 -
Difference between current and deferred tax rates 100 -
Impact of capital allowances super deduction (31) -
Total tax charge 1,291 2,005
9 Tangible fixed assets
Property, plant and equipment
Plant and Fixtures and fittings Motor Computer equipment Land and Buildings Total
equipment Vehicles
£000 £000 £000 £000 £000 £000
Cost or Valuation
At 1 April 2020 1,632 4,942 62 900 7,500 15,036
Additions 215 757 - 194 - 1,166
Disposals - - (32) - (32)
Balance at 31 March 2021 1,847 5,699 30 1,094 7,500 16,170
Additions 460 1,101 - 212 1,773
Additions through business combinations (see note 2) 29 13 68 6 1,251 1,367
Disposals (61) (14) (30) - - (105)
Balance at 31 March 2022 2,275 6,799 68 1,312 8,751 19,205
Depreciation and impairment
At 1 April 2020 908 2,264 36 609 - 3,817
Depreciation charge for the year 314 556 5 160 150 1,185
Disposals - - (22) - - (22)
Balance at 31 March 2021 1,222 2,820 19 769 150 4,980
Depreciation charge for the year 326 625 15 166 155 1,287
Disposals (13) (9) - - - (22)
Balance at 31 March 2022 1,536 3,437 34 935 305 6,247
Net book value as at 31 March 2022 739 3,362 34 377 8,446 12,958
Net book value as at 31 March 2021 625 2,879 11 325 7,350 11,190
Net book value as at 31 March 2020 724 2,678 26 291 7,500 11,219
Freehold property valuation - Holgate Park Head Office
At 31 March 2020 the freehold office premises at Holgate Park were revalued at
market value using information provided by an independent chartered surveyor.
The valuation was carried out in accordance with the provisions of RICS
Appraisal and Valuation Standards ('The Red Book'). The appraisal was carried
out using level 3 inputs observable inputs including prices for recent market
transactions for similar properties and incorporates adjustments for factors
specific to the property in question, including plot size, location,
encumbrances and current use.
Management have reviewed the fair value as at 31 March 2022 and concluded that
this would not be materially different. If the property had not been revalued
the net book value would have been £5.1m.
Freehold property valuation - Bacup distribution centre
On 1 December 2021 the Group acquired a 25,145 sq ft freehold warehouse
property in Bacup, Lancashire as part of the acquisition of AV Distribution
Ltd (see note 2). The property was valued on 10 August 2021 at £1.26m by an
independent chartered surveyor on behalf of HSBC Bank plc for loan security
purposes.
Security
The Group's bank borrowings are secured by fixed and floating charges over the
Group's assets.
10 Right of use assets
Leasehold properties
The Group has six leased properties:
- four properties carried forward from 2021 being Distribution Centres
and Showrooms in York, Sweden and Germany, and a software development office
in Manchester; and
- two new properties in 2022 being Distribution Centres in Ireland and
Spain
The associated right-of-use assets are as follows:
Short leasehold properties
£000
Cost
At 1 April 2020 10,177
Additions 128
Balance at 31 March 2021 10,305
Additions 1,830
Balance at 31 March 2022 12,135
Depreciation
At 1 April 2020 1,215
Depreciation charge for the year 1,219
Balance at 31 March 2021 2,434
Depreciation charge for the year 1,466
Balance at 31 March 2022 3,900
Net book value as at 31 March 2022 8,235
Net book value as at 31 March 2021 7,871
Net book value as at 31 March 2020 8,962
11 Intangible assets
Goodwill Software platform Brand Domains Other Intangibles Total
£000 £000 £000 £000 £000 £000
Cost
At 1 April 2020 1,848 12,061 564 - - 14,473
Additions - 3,186 93 - - 3,279
Balance at 31 March 2021 1,848 15,247 657 - - 17,752
Additions - 4,439 - 3,023 - 7,462
Additions through business combinations (see note 2) 3,476 - 715 - 149 4,340
Balance at 31 March 2022 5,324 19,686 1,372 3,023 149 29,554
Amortisation
At 1 April 2020 - 4,934 455 - - 5,389
Amortisation for the year - 1,912 56 - - 1,968
Balance at 31 March 2021 - 6,846 511 - - 7,357
Amortisation for the period - 2,321 52 - 12 2,385
Balance at 31 March 2022 - 9,167 563 - 12 9,742
Net book value as at 31 March 2022 5,324 10,519 809 3,023 137 19,812
Net book value as at 31 March 2021 1,848 8,401 146 - - 10,395
Net book value as at 31 March 2020 1,848 7,127 109 - - 9,084
The amortisation charge is recognised in Administrative expenses profit and
loss account.
Other intangibles
Other intangibles comprise customer relationships, trademarks, and domain
names acquired on acquisition of AV Distribution Limited.
Goodwill
On 19 March 2012 goodwill arose on the acquisition of the entire share capital
of Gear4music Limited (formerly known as Red Submarine Limited).
On 1 January 2017 goodwill arose on the acquisition of a software development
business from Venditan Limited, which effectively brought development of the
group's proprietary software platform in-house
On 21 June 2021 goodwill arose on the acquisition of the business and assets
of Premier Music International Limited and High House 123 LLP - see note 2.
On 1 December 2021 goodwill arose on the acquisition of the entire share
capital of AV Distribution Ltd - see note 2.
Goodwill balances are denominated in Sterling:
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Gear4music Limited 417 417
Software development business 1,431 1,431
Premier business 960 -
AV Distribution Ltd 2,516 -
5,324 1,848
Impairment testing
In accordance with IAS 36 Impairment of Assets, the Group reviews the carrying
value of its intangible assets. A detailed review was undertaken at 31 March
2022 to assess whether the carrying value of assets was supported by the net
present value in use calculations based on cash-flow projections from formally
approved budgets and longer-term forecasts.
Intangible assets include the proprietary software platform, the Gear4music
and Premier brand names, the AV.com domain, goodwill and 'other intangibles'.
A Cash Generating Unit ("CGU") is defined as the smallest group of assets that
generate cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups thereof. Further to the acquisitions
in the year the Group has considered its operational and commercial
configuration at 31 March 2022 and concluded it has a single CGU to which all
intangibles are allocated. The carrying value of these intangibles, the Bacup
freehold acquired in the year, the right-of-use assets, and all other PPE was
£33.8m. An impairment review has been performed on this CGU. The recoverable
amount of this CGU has been determined based on value-in-use calculations. In
assessing value in use, a two-year forecast to 31 March 2024 was used to
provide cash-flow projections that have been discounted at a pre-tax discount
rate of 9.55% (2021: 10.00%). The cash flow projections are subject to key
assumptions in respect of revenue growth, gross margin performance, overhead
expenditure, and capital expenditure. Management has reviewed and approved the
assumptions inherent in the model:
· FY23-24 Revenue forecasts based on growth by geographical market,
based on market size and estimate of opportunity, trends, and Management's
experience and expectation.
· FY25-27 and into perpetuity revenue growth of 2%;
· Gross margins are forecast to be slightly behind FY22; and
· Wage increases are a function of recruitment and review of
current staff, with a range of % increases.
No impairment loss was identified in the current year (2021: £nil). The
valuation indicates significant headroom and a number of reasonable revenues,
profitability and capital expenditure-based sensitivities were put through the
model, and the results did not result in an impairment.
12 Inventories
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Finished goods 45,516 28,430
The cost of inventories recognised as an expense and included in cost of sales
in the period amounted to £96.9m (2021: £101.5m).
Management has included a provision of £55,000 (31 March 2021: £143,000),
representing a 100% provision against returns stock subsequently found to be
faulty, that is retained to be used for spare parts on the basis there is no
direct NRV value, and a provision based on the expected product loss on
dealing with returns stock.
13 Trade and other receivables
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Trade receivables 1,772 1,579
Prepayments 2,069 2,068
3,841 3,647
Credit risk and impairment
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The carrying amount of trade receivables represents the maximum
credit exposure. The Group does not take collateral in respect of trade
receivables.
Trade receivables comprise balances dues from schools and colleges, and funds
lodged with payment providers.
Customer receivables
The Group faces low credit risk as customers typically pay for their orders in
full on shipment of the product, with the only exception being a small number
of education accounts with schools and colleges that have 30-day terms (2.4%
of 2022 revenues; 1.3% of 2021 revenues).
Funds lodged with payment providers
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance
totalled £378,000 on 31 March 2022 (31 March 2021: £331,000) and are
included in Trade debtors. Credit risk in relation to cash held with financial
institutions is considered very low risk, given the credit rating of these
organisations.
14 Cash and cash equivalents
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Cash and cash equivalents per balance sheet and cash flow statements 3,903 6,203
Cash-in-transit to the Group at 31 March 2022 was £336,000 (31 March 2021:
nil) representing uncleared lodgements where money providers have notified
transfers pre-year-end.
15 Interest-bearing loans and borrowings
This note contains information about the Group's interest-bearing loans and
borrowing which are carried at amortised cost.
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Non-current liabilities
Bank loans 28,000 2,901
28,000 2,901
Current liabilities
Bank loans - 575
- 575
Total liabilities
Bank loans 28,000 3,476
28,000 3,476
Revolving Credit Facility
Bank loans are drawn loans under the Group's three-year £35m revolving credit
facility with HSBC.
This facility expires in April 2024 and is secured by a debenture over the
Group's assets.
Loans incur interest at variables rates linked to SONIA, with a margin
non-utilisation fee.
Changes in liabilities from financing activities
Year ended 31 March 2022 Year ended 31 March 2021
£000 £000
Opening balance 3,476 13,388
Changes from financing cash flows
Proceeds from loans and borrowings 28,000 29
Repayment of borrowings (3,507) (9,948)
Total changes from financing cash flows 24,493 (9,919)
Other changes
Interest expense (note 6) 524 196
Interest paid (413) (289)
Movement in interest accrual (included in accruals and deferred income - note (111) 93
17)
Fair value movement on loans 31 7
Total other changes 31 7
Closing balance 28,000 3,476
Other bank facilities
Gear4music has a number of guarantees in relation to VAT, and issues letter of
credits to its suppliers. At 31 March 2022 the Group had letters of credit of
£317,000 (31 March 2021: £315,000) and guarantees of £1,011,000 in place
(2021: £415,000).
16 Trade and other payables
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Current
Trade payables 9,472 11,390
Accruals and deferred income 3,164 3,033
Deferred consideration 424 24
Government grants 3 7
Other taxation and social security 3,119 4,484
16,182 18,938
Non-current
Accruals and deferred income 25 38
Deferred consideration 39 69
Government grants - 3
64 110
Accruals at 31 March 2022 include £24,000 (2021: £38,000) relating to the
estimated cash bonuses accrued relating to the CSOP schemes (see note 21).
Government grants are being spread over the useful economic life of the
associated asset, and relate to Regional Growth Fund and Leeds City Enterprise
Partnership grants towards the acquisition of various capital items. Grant
conditions exist and are linked to job creation, and these criteria have been
satisfied.
The Directors consider the carrying amount of other 'trade and other payables'
to approximate their fair value. The interest expense of £31,000 (2021:
£10,000) in relation to the unwinding of the discount is disclosed in note 7.
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 anniversary of the
completion date. At 31 March 2022 three instalments remain unpaid. These
amounts are valued in the accounts at fair value and subsequently amortised.
In December 2022 the Group acquired AV Distribution Ltd for £6,050,000
cash-free debt-free of which £400,000 was deferred for six months whilst
final tax matters were resolved, and £388,000 was paid on 1 June 2022 in full
and final settlement.
17 Lease liabilities
Short-term leases and leases of low value are included in administrative
expenses.
The Group has leases for plant and machinery, motor vehicles, and six
properties (2021: four). 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.
The table below describes the nature of the Group's leasing activities by type
of right-of-use asset:
Right-of-use asset No of right-of-use assets leased Range of remaining term Average remaining lease term No of leases with extension options No of leases with options to purchase No of leases with termination options
Property 6 6mths - 6yrs 4.5yrs - - 1
Plant and equipment 4 2mths - 9mths 6mths - 4 -
Motor vehicles 2 19mths - 30mnths 25mths - 2 -
Future minimum lease payments due at 31 March 2022 were as follows:
Within 1 year 1-5 years More than 5 years
£000 £000 £000
Lease payments 2,102 7,926 1,178
Finance charge (435) (1,056) (31)
Net present value 1,667 6,870 1,147
Lease liabilities are presented in the statement of financial position as
follows:
31 March 2022 31 March 2021
£000 £000
Current 1,229 1,099
Non-current 8,455 8,315
Total 9,684 9,414
Changes in lease liabilities:
Year ended 31 March 2022 Year ended 31 March 2021
£000 £000
Opening balance 9,414 10,667
Cash flow lease payments (1,952) (1,379)
New leases 1,812 -
Other items 410 126
Total changes 270 (1,253)
Closing balance 9,684 9,414
18 Share capital and reserves
Year ended Year ended
31 March 2022 31 March 2021
Share capital Number Number
Authorised, called up and fully paid:
Ordinary shares of 10p each 20,976,938 20,950,176
The Company has one class of ordinary share and each share carries one vote
and ranks equally with the other ordinary shares in all respects including as
to dividends and other distributions.
On 30 July 2021, the Company issued and allotted 5,312 new Ordinary shares of
10p each on exercise of options under the Company's 2018 CSOP Scheme (see note
22). This took the number of Ordinary shares in issue from 20,950,176 to
20,955,488, representing dilution of 0.03%.
On 3 August 2021, the Company issued and allotted 21,450 new Ordinary shares
of 10p each on exercise of options under the Company's Long Term Incentive
Plan (see note 22). This took the number of Ordinary shares in issue from
20,955,488 to 20,976,938, representing dilution of 0.1%.
Share premium
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Opening 13,165 13,152
Issue of shares 121 13
Closing 13,286 13,165
Proceeds received in addition to the nominal value of the shares issued have
been included in share premium, less registration and other regulatory fees
and net of related tax benefits.
Foreign currency translation reserve
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Opening (51) (34)
Translation loss (23) (17)
Closing (74) (51)
The foreign currency translation reserve comprises exchange differences
relating to the translation of the net assets of the Group's foreign
subsidiaries from their functional currency into the parent's functional
currency.
Revaluation reserve
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Opening 1,640 1,674
Depreciation transfer (34) (34)
Closing 1,606 1,640
The revaluation reserve represents the unrealised gain generated on
revaluation of the freehold office property on 28 February 2018 and 31 March
2020. It represents the excess of the fair value over historic net book value.
Retained earnings
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Opening 17,463 4,722
Share based payment charge 55 64
Deferred tax (155) 2
Depreciation transfer 34 34
Profit for the year 3,723 12,641
Closing 21,120 17,463
Retained earnings represents the cumulative net profits recognised in the
consolidated income statement.
19 Related parties
Transactions with key management personnel
The compensation of key management personnel is as follows:
Year ended Year ended
31 March 2022 31 March 2021
£000 £000
Key management emoluments including social security costs 606 597
Company contributions to money purchase pension plans 20 18
626 615
Key management personnel comprise the Chairman, CEO, CFO and CCO. All
transactions with key management personnel have been made on an arms-length
basis.
Five directors are accruing retirement benefits under a money purchase scheme
(2021: four).
Share based payments
LTIP (2018)
On 3 August 2021 and further to confirmation all performance conditions
relating to the conditional share awards granted under the Plan were fully
met, Gareth Bevan received 6,825 shares, Chris Scott received 5,850 shares,
and Andrew Wass received a £55,575 cash equivalent.
LTIP (2021)
On 14 October 2021 a new long-term incentive plan involving Andrew Wass, Chris
Scott, and Gareth Bevan was put in place and involved the issue of 377,100 'D'
Ordinary shares in Gear4music Limited, a subsidiary of the Company. The D
Shares are capable of vesting between 2023 and 2027 and can be exchanged on a
one-for-one basis for new ordinary shares of ten pence each in the capital of
the Company, subject to achieving minimum specified fully diluted earnings per
share targets (see page 103).
Gareth Bevan, Andrew Wass and Chris Scott are participants in the scheme, with
113,130, 75,420 and 37,710 D-shares respectively.
The initial subscription cost was covered by way of bonus and Gareth Bevan,
Andrew Wass, and Chris Scott received bonuses of £21,345, £14,230 and
£7,115 respectively.
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