REG - Gear4music - Final Results
20/06/2023 07:00
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RNS Number : 2225D Gear4music (Holdings) PLC 20 June 2023
20 June 2023
Gear4music (Holdings) plc
Audited results for the year ended 31 March 2023
"Laying the foundation for long-term success"
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 2023.
FY23 Highlights ((1)):
£m Year ended 31 March 2023 Year ended 31 March 2022 Year ended 31 March 2020 Change on FY22 Change on FY20
("FY23") ("FY22") ("FY20")
Revenue 152.0 147.6 120.3 +3% +26%
Gross profit 39.0 41.1 31.2 -5% +25%
Gross margin 25.7% 27.9% 25.9% -220bps -20bps
EBITDA 7.4 11.2 7.8 -34% -5%
(LBT)/PBT (0.4) 5.0 3.1 (5.4m) (3.5m)
· FY23 revenues were 3% ahead of FY22 in a difficult consumer
environment, and 26% ahead of FY20
· Gross margin of 25.7% reflects a significant reduction in inventory
through a challenging period for discretionary retail
· Reported EBITDA of £7.4m is 34% below FY22 and 5% below FY20
· Net debt at year end of £14.5m reduced from £24.2m at 31 March 2022
· Committed borrowing facility renewed with HSBC at £30m for a further
3 years
· Active customers of 0.81m is 6% behind FY22 and 7% ahead of FY20
· Conversion decreased to 4.0% from 4.1% in FY22, and 70bps ahead of
3.3% in FY20
( )
((1)) FY20 shown for comparison as FY21 was exceptional due to the positive
impact of Covid lockdowns.
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"I am pleased to be reporting FY23 full year results that are in line with
guidance provided in April, with the business generating revenues of £152m
and EBITDA of £7.4m.
Throughout what has been a challenging year, we continued to make good
progress in building the technical and operational infrastructure required for
our long-term success as the UKs leading retailer of musical instruments and
equipment. A particular recent highlight has been the launch of our
second-hand system, which whilst still in 'soft launch' stage, has traded over
1,000 products within the first three months.
We have continued to make good progress in reducing our bank debt and to
provide certainty and headroom for the medium term, we have renewed our
committed borrowing facility with HSBC at £30m for a further three-years.
Market conditions have continued to be challenging since our last update in
April, and we are taking the appropriate and necessary actions to ensure our
business is correctly configured, resourced and positioned strategically for
long term success. To ensure the Group can return to profitability during FY24
H2, we will focus on product margins, efficiency and overhead cost reduction
ahead of revenue growth, whilst we continue to develop new growth initiatives
for the longer term."
ENDS
Enquiries:
Gear4music +44 (0)20 3405 0205
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer
Singer Capital Markets - Nominated Adviser and Sole Broker Peter Steel/Sam +44 (0)20 7496 3000
Butcher, Corporate Finance
Tom Salvesen, Corporate Broking
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, Bacup,
Sweden, Germany, Ireland & Spain, and showrooms in York, Bacup, 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.
Chairman's Statement
The year ended 31 March 2023 was a difficult period for many retailers, with
high levels of inflation and increasing interest rates impacting consumer
confidence and disposable income. Whilst our drive for long-term growth
remains unchanged, in response to these macro-economic challenges our focus
has been on debt reduction and disciplined cost-management to provide the
platform for the Group to return to profitable growth.
Operational and Commercial progress
Whilst the last 12 months have been challenging, the Group has increased its
addressable market, and refocused on operational efficiency and the customer
journey. Taking a longer term view the Group has made significant progress and
we believe we are well positioned to deliver our long-term profitable growth
ambitions. Since FY20, the Group has:
- increased revenue by 26% to £152m led by a 70bps increase in
conversion and 7% increase in active customers;
- added three new distribution centres including operations in Spain
and Ireland to further enhance our localised customer proposition in mainland
Europe, creating an operational infrastructure capable of delivering revenue
in excess of £250m;
- extended our target addressable market through strategic
acquisitions in the AV-market, in particular, through the purchase of AV.com,
opening up an estimated additional addressable market of £2.7bn;
- leveraged our significant software development capability to deliver
several growth and efficiency focused projects, including various Brexit
mitigations, the launch of AV.com and most recently the launch of our
second-hand platform; and
- navigated periods of worldwide supply chain disruption, cost price
inflation, and weakening consumer confidence, underlining the Group's
resilience.
Having successfully reduced net debt by £9.7m to £14.5m at 31 March 2023,
since the year-end the Group has renewed its committed Revolving Capital
Facility ('RCF') at £30m for a further three-year period, enabling the Group
to plan into the medium term with certainty and take advantage of
opportunities as and when they arise.
Environmental, Social and Governance
As a business and Board, we are committed to having a positive impact on our
society, the environment, and our team. We acknowledge there is increasing
interest from a wide range of stakeholders on the various positive impacts
that the business has and what we are doing to improve outcomes. We will
report under TCFD in the financial year ending 31 March 2024.
The launch of our second-hand platform in March 2023 is our timely advancement
into recycling and the circular economy, offering customers the opportunity to
sell their pre-loved musical instruments and equipment quickly and easily.
Outlook
Customer demand across our markets remains volatile and difficult to predict,
reflecting the continuing impact of geo-political and macro-economic
uncertainties affecting consumer confidence across Europe. Nevertheless,
having delivered several development-led growth initiatives in FY23 and
markedly reduced net debt, the Board is confident that the Group's customer
proposition, enhanced operational infrastructure and balance sheet will enable
the Group to achieve its long-term business objectives, namely taking market
share and delivering operational efficiencies providing the platform for
profitable growth.
Ken Ford
Chairman
19 June 2023
Chief Executive's Statement
Financial KPIs
FY23 FY22 FY20 Change on FY22 Change on FY20
Revenue * £152.0m £147.6m £120.3m +3% +26%
UK Revenue * £82.1m £82.6m £61.8m -1% +33%
International Revenue * £70.0m £65.0m £58.5m +8% +20%
Gross margin 25.7% 27.9% 25.9% -220bps -20bps
Gross profit £39.0m £41.1m £31.2m -5% +25%
Total Admin expenses * £38.7m £35.9m £27.7m +8% +40%
European Admin expenses * £5.0m £4.6m £2.5m +9% +100%
EBITDA £7.4m £11.2m £7.8m -34% -5%
(Loss)/profit before tax (£0.4m) £5.0m £3.1m (£5.4m) (£3.5m)
Net debt ** (£14.5m) (£24.2m) (£5.5m) £9.7m (£9.0m)
* See note 2 of the Financial Information
** See notes 13 and 14 of the Financial Information
Commercial KPIs
FY23 FY22 FY20 Change on FY22 Change on FY20
Website visitors 26.5m 28.8m 28.4m -8% -7%
Conversion rate 3.95% 4.06% 3.29% -11bps +66bps
Average order value £150 £125 £117 +20% +28%
Active customers 865,000 921,000 807,000 -6% +7%
Products listed 64,200 62,400 54,200 +3% +18%
Note: Change on FY20, three years ago, compares current trading to the
pre-pandemic period to give a better understanding of performance when
compared to the growth and characteristics of trade which continued to be
distorted by pandemic-related factors in FY22.
Business review
During FY23 we made good progress with our long-term objective of making
musical instruments and equipment accessible and affordable for as many people
as possible, delivering a wide range of customer centric improvements
throughout the business.
Progress has included improving our consumer finance proposition, upgrading
our digital downloads sales platform, launching AV.com in Europe, alongside
what has been our largest and most ambitious development project to date - our
second-hand system.
Our second-hand system simplifies the process for consumers of selling used
musical instruments and equipment and provides value and peace of mind for our
customers when buying second hand products. It ensures the lifespan of
products is maximised, whilst enabling enhanced margin opportunities for the
business.
These new growth initiatives will strengthen our position as the UK's leading
retailer of musical instruments and equipment. However, due to the current
environment of squeezed discretionary consumer spending, FY23 proved to be a
commercially challenging year for Gear4music and across the industry.
Reducing our net debt and inventory level has been a priority, and achieving
these objectives in challenging market conditions is testament to the tenacity
of our teams, whilst still generating revenue growth and limiting the impact
on margin.
Strategy
Whilst FY23 was a period of rapid unwinding of inventory, our focus for FY24
will be to improve efficiency and product margins.
We intend to leverage our operational infrastructure to launch our second-hand
system across Europe, increasing the number of markets we trade in, expanding
the products available and launching the system on AV.com later in the year.
In addition to the second-hand system, we have a wide range of further
initiatives planned to support product margins, including significant
own-brand product launches, licencing agreements and system improvements.
Whilst we continue to develop and launch longer term growth initiatives, our
short-term focus will be on overhead cost reduction, efficiency, and improving
productivity by adopting the latest technologies. Further net debt reduction
will be targeted by optimising inventory, reducing development costs and
limiting capital expenditure, as we diversify our sales and fulfilment
channels.
Outlook
Anticipating the persistence of challenging market conditions throughout FY24,
we continue to take proactive measures to ensure the business is well
configured to withstand further economic headwinds and remain well positioned
for the future.
With a new three-year banking facility agreed, we are confident in our
strategic vision, making the most of recent acquisitions and new initiatives,
alongside an emphasis on optimising inventory, product margins, and
implementing efficiency and cost reduction strategies.
As consumer confidence returns in the UK and mainland Europe, we look forward
to capitalising on the opportunities in our markets, serving our customers and
continuing our journey of long-term profitable growth.
Andrew Wass
Chief Executive Officer
19 June 2023
Chief Financial Officer's statement
Overview
The financial year ended 31 March 2023 was a difficult period for many
retailers of discretionary products, and against a backdrop of cost-led
inflation and increasing interest rates it was important we delivered on our
stated ambition of bringing down our net debt and taking a disciplined
approach to cost management. Until the macro-economic climate and consumer
confidence show sustained signs of recovery, cost control will continue to be
a priority through FY24.
FY23 profitability was impacted by our active reduction in stock levels during
a period of weak demand contributing to a lower than planned gross margin, and
by cost-base inflation across marketing, labour and energy. Relative to FY20,
the last normal trading period unaffected by the pandemic, our results show
good revenue growth at a comparable gross margin, but lower operating profits
and profitability reflecting the increased size and scale of the business
reinforced by the aforementioned inflationary factors.
Since the year-end we have renewed our banking facilities with HSBC to provide
a £30m committed facility to 2026, giving us certainty and confidence to plan
into the medium term.
Revenue
FY23 FY22 FY20
£m £m £m
UK revenue 82.0 82.6 61.8
International revenue 70.0 65.0 58.5
Revenue 152.0 147.6 120.3
Revenue increased £4.4m (3%) on FY22 and £31.7m (26%) relative to a more
normal trading period in FY20, equating to compound growth of 8.1% per annum.
UK revenue of £82.0m was £0.6m (1%) behind FY22 and £20.2m (33%) ahead of
FY20, reflecting cost-of-living challenges impacting sales of discretionary
products. This takes our estimated UK market share to 9.1% (FY22: 9.2%; FY20:
7.2%).
International revenues of £70.0m were £5.0m (8%) ahead of FY22 and £11.5m
(20%) higher than FY20 reflecting the distribution centres we opened in
Ireland and Spain last year becoming increasingly well-established and
offering an improved localised customer proposition in those and adjacent
markets.
Revenues from sales outside of Europe accounted for 2.0% of total revenue in
FY23 compared to 1.4% in FY22 and 1.3% in FY20.
FY23 FY22 FY20
£m £m £m
Other-brand product revenue 106.2 102.5 79.4
Own-brand product revenue 38.9 38.1 35.4
Carriage income 6.2 6.3 4.9
Other 0.7 0.7 0.6
Revenue 152.0 147.6 120.3
Own-brand revenue of £38.9m was up £0.8m (2%) on FY22 and £3.5m (10%) on
FY20, and accounted for 25.6% of total revenue from 8% of total SKUs, which is
a lower proportion than has historically been the case (FY20: 29.4%). This is
in part due to a post-Covid slow-down in demand for entry-level products, and
secondly due to increased competition from Far East manufacturers selling
direct into Europe through Amazon. We have responded by increasing own-brand
SKU count from 4,200 to 4,900 including revamped entry level and premium
ranges, and the expansion of Premier branded-products.
Other brand revenue was £3.7m (4%) ahead of FY22 and £26.8m (34%) ahead of
FY20.
Carriage income was broadly flat on FY22 and £1.3m ahead of FY20,
representing 4.1%, 4.3% and 4.1% of sales in FY23, FY22 and FY20 respectively,
reflecting the Group offering more localised, cheaper delivery options and
less cross UK-EU border shipments in FY23 and FY22 than was possible in FY20.
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
FY23, FY22 and FY20.
Gross profit
FY23 FY22 FY20
Product sales (£m) 145.1 140.6 114.8
Product profit (£m) 43.6 45.2 35.1
Product margin 30.0% 32.1% 30.5%
Carriage costs (£m) 10.5 10.3 8.8
Carriage costs as % of sales 6.9% 7.0% 7.3%
Gross profit (£m) 39.0 41.1 31.2
Gross margin 25.7% 27.9% 25.9%
In FY22 we built-up a high level of stock for precautionary and opportunistic
reasons. In FY23 with a return to reliable supply, higher interest rates and
against a backdrop of weaker customer demand, our focused moved to reducing
stock to a more appropriate level through resetting re-ordering levels and
involved targeted price reductions. These factors contributed to a 210bps
decrease in product margin to 30.0%.
In a similar vein to FY22, product margin in FY23 was impacted by sales mix
with relatively lower sales of higher margin own-brand products (26% of total
sales) than has historically been the case (FY20: 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 a point of
differentiation. The Group purchases its own-brand products in US Dollars and
product margin can be impacted by exchange rate fluctuations.
Administrative expenses and Operating profit
Operating profit of £1.3m is £4.8m below FY22 and £2.8m below FY20,
reflecting a low gross margin and a larger cost base reflecting the size and
scale of the business.
FY23 FY22 FY20
£m £m £m
UK Administrative expenses (33.7) (31.3) (25.2)
European Administrative expenses (5.0) (4.6) (2.5)
Total Administrative expenses (38.7) (35.9) (27.7)
Other income 0.9 0.8 0.6
Operating profit 1.3 6.1 4.1
Depreciation and amortisation 6.1 5.1 3.7
EBITDA 7.4 11.2 7.8
Total administrative expenses increased by £2.8m (8%) on FY22 relative to a
revenue increase of 3%, including a £1.3m (10%) increase in labour costs,
£0.9m (18%) increase in depreciation and amortisation, and a £0.5m (24%)
increase in card processing costs.
Admin expenses have increased from 23.0% of sales in FY20 and 24.3% in FY22,
to 25.5% in FY23.
Combined marketing and labour costs of £25.0m (FY22: £23.9m) accounted for
65% of total administrative expenses (FY22: 67%):
- Marketing expenditure decreased in FY23 to £10.6m (FY22: £10.8m)
equating to 7.0% of revenue compared to 7.3% last year and 7.7% in FY20, as
the business targeted a higher return on investment; and
- Labour costs increased 10% in FY23 to £14.4m (FY22: £13.1m)
reflecting a 3% increase in average headcount. Labour costs accounted for 9.5%
of revenue (FY22: 8.9%).
FY23 EBITDA of £7.4m was £3.8m lower than FY22 and £0.4m lower than FY20.
Other expenses and net profit
Financial expenses of £1.7m (FY22: £1.1m) include £1.1m bank interest
(FY22: £0.5m) reflecting higher interest rates, £0.4m of IFRS16 lease
interest (FY22: £0.4m), and a £0.2m net foreign exchange loss (FY22: £0.1m
loss).
The Group reports a small loss before tax of £0.4m (FY22: profit before tax
of £5.0m) that after tax translates into a basic and diluted loss per share
of 3.1p (FY22: 17.8p basic profit per share; 17.3p diluted profit per share).
Cash-flow
FY23 FY22 FY20
£m £m £m
Opening cash 3.9 6.2 5.3
(Loss)/profit for the year (0.6) 3.7 2.6
Movement in working capital 13.0 (16.2) (0.9)
Depreciation and amortisation 6.0 5.1 3.7
Financial expense 1.7 1.1 1.0
Tax and Other operating adjustments (0.4) (1.3) 1.0
Net cash from/(used in) operating activities: 19.7 (7.6) 7.4
Net cash used in investing activities: (6.7) (16.5) (3.9)
Net cash (used in)/from financing activities: (12.4) 21.8 (1.0)
Increase/(decrease) in cash in the year 0.6 (2.3) 2.5
Closing cash 4.5 3.9 7.8
Post year-end the Group renewed its RCF at £30m for three more years with its
bankers, HSBC, providing the headroom to invest in opportunities as and when
they arise.
Group indebtedness decreased by £9.7m to £14.5m (40%) largely down to the
deliberate and planned £11.1m reduction in stock. Net debt of £24.2m at 31
March 2022 was a peak year-end figure reflecting an £11.4m investment in
acquisitions in FY22, and a £17.1m investment in stock that was largely
unwound in FY23.
Reported net cash outflow in investing activities of £6.7m includes £5.3m of
capitalised software development costs (FY22: £4.4m) and £1.0m property,
plant and equipment additions (FY22: £1.8m). Depreciation and amortisation of
£4.4m (FY22: £3.7m) is added back in 'net cash from operating activities'
with respect to these asset categories.
Net cash outflow from financing activities of £12.4m (FY22: £21.8m inflow)
represents a £9.0m lower RCF drawdown (FY22: £24.6m net inflow), £1.7m
payment of lease liabilities (FY22: £1.9m), and £1.7m interest paid (FY22:
£0.9m).
Balance sheet
31 March 2023 31 March 2022 31 March 2020
£m £m £m
Property, plant and equipment 11.9 13.0 11.2
Right-of-use assets 7.3 8.2 9.0
Software platform 12.8 10.5 7.1
Goodwill 5.3 5.3 1.8
Other intangible assets 3.9 4.0 0.2
Total non-current assets 41.2 41.0 29.3
Stock 34.4 45.5 22.0
Cash 4.5 3.9 7.8
Other current assets 4.5 3.9 2.5
Total current assets 43.4 53.3 32.3
Trade payables (9.3) (9.5) (10.1)
Loans and Borrowings - - (10.0)
Lease liabilities (1.1) (1.2) (1.1)
Other current liabilities (8.4) (6.7) (4.3)
Total current liabilities (18.8) (17.4) (25.5)
Loans and Borrowings (19.0) (28.0) (3.4)
Lease liabilities (7.5) (8.5) (9.5)
Other non-current liabilities (2.1) (2.3) (1.6)
Total non-current liabilities (28.6) (38.8) (14.5)
Net assets 37.2 38.0 21.6
Capital expenditure on property, plant and equipment totalled £1.0m spread
across all eight sites.
The Group capitalised £5.3m (FY22: £4.4m) of software development costs
relating to our bespoke e-commerce platform, including projects linked to
AV.com, third-party fulfilment, and the launch of our second-hand platform.
Platform amortisation in the year was £3.0m (FY22: £2.3m) taking net book
value to £12.8m (31 March 2022: £10.5m).
Other intangible assets include £5.3m goodwill and £3.0m domain names.
Stock of £34.4m is £11.1m (24%) lower than at 31 March 2022 reflecting
planned reductions. The Board considers this to be a good level to take into
FY24, providing breadth and depth across categories across our distribution
centres.
The Group carried net debt of £14.5m at the year-end (31 March 2022 net debt:
£24.2m), having reduced stock by £11.1m (24%) over FY23.
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
19 June 2023
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Year ended Year ended
31 March 2022
31 March
Note 2023
£000 £000
Revenue 152,039 147,630
Cost of sales (112,996) (106,500)
Gross profit 39,043 41,130
Administrative expenses 3,4 (38,705) (35,881)
Other income 3 949 820
Operating profit 1,287 6,069
Financial expenses 6 (1,694) (1,055)
(Loss)/profit before tax (407) 5,014
Taxation 7 (237) (1,291)
(Loss)/profit for the year (644) 3,723
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment (550) -
Deferred tax movements 147 (109)
8
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations
- (23)
Total comprehensive (loss)/income for the year
(1,047) 3,591
Basic (loss)/profit per share 5 (3.1p) 17.8p
Diluted (loss)/profit per share 5 (3.1p) 17.3p
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Financial Position
Year ended Year ended
31 March 2023 31 March 2022
Note £000 £000
Non-current assets
Property Plant and Equipment 8 11,934 12,958
Right-of-use assets 9 7,288 8,235
Intangible assets 10 22,049 19,812
41,271 41,005
Current assets
Inventories 11 34,381 45,516
Trade and other receivables 12 3,434 3,409
Corporation tax receivable 1,066 432
Cash and cash equivalents 13 4,460 3,903
43,341 53,260
Total assets 84,612 94,265
Current liabilities
Trade and other payables 15 (17,647) (16,183)
Lease liabilities 16 (1,130) (1,229)
(18,777) (17,412)
Non-current liabilities
Interest-bearing loans and borrowings 14 (19,000) (28,000)
Other payables 15 (83) (64)
Lease liabilities 16 (7,470) (8,455)
Deferred tax liability (2,048) (2,298)
(28,601) (38,817)
Total liabilities (47,378) (56,229)
Net assets 37,234 38,036
Equity
Share capital 17 2,098 2,098
Share premium 17 13,286 13,286
Foreign currency translation reserve 17 (74) (74)
Revaluation reserve 17 1,203 1,606
Retained earnings 17 20,721 21,120
Total equity 37,234 38,036
The notes 1 to 18 form part of the consolidated financial report.
Company registered number: 07786708
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 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
Comprehensive loss for the year
Loss for the year - - - - (644) (644)
Other comprehensive income - - - - - -
Freehold property revaluation - - - (550) - (550)
Deferred tax impact of revaluation - - - 147 - 147
Share based payments charge - - - - 245 245
Total comprehensive loss for the year - - - (403) (399) (802)
Transactions with owners
Issue of shares - - - - - -
Total transactions with owners - - - - - -
Balance at 31 March 2023 2,098 13,286 (74) 1,203 20,721 37,234
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Cash flows from operating activities
(Loss)/profit for the year (644) 3,723
Adjustments for:
Depreciation and amortisation 3 6,081 5,138
Financial expenses 6 1,694 1,055
Loss/(profit) on sale of property, plant and equipment 17 (12)
Share based payment charge 282 55
Taxation 7 (208) 1,243
7,222 11,202
(Increase)/decrease in trade and other receivables 12 14 302
Decrease/(increase) in inventories 11 11,135 (14,195)
Increase/(decrease) in trade and other payables 15 1,865 (2,187)
20,236 (4,878)
Tax paid 7 (530) (2,709)
Net cash from operating activities 19,706 (7,587)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 31 95
Acquisition of property, plant and equipment 8 (989) (1,773)
Capitalised development expenditure 10 (5,319) (4,439)
Acquisition of a business, net of cash acquired 10 - (7,360)
Business combinations: Deferred consideration 10 (419) -
Acquisition of domains 10 (8) (3,023)
Net cash from investing activities (6,704) (16,500)
Cash flows from financing activities
Cash from share issue - 124
Proceeds from new borrowings 14 - 28,000
Interest paid (1,694) (917)
Repayment of borrowings 14 (9,000) (3,445)
Payment of lease liabilities 16 (1,713) (1,952)
Net cash from financing activities (12,407) 21,810
Net increase/(decrease) in cash and cash equivalents 595 (2,277)
Cash at beginning of year 3,903 6,203
Foreign exchange movement (38) (23)
Cash at end of year 13 4,460 3,903
The accompanying notes form an integral part of the consolidated financial
report.
Notes to the consolidated financial statements
(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 parent company
financial statements present information about the Company as a separate
entity and not about its 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), Cagney Limited (dormant
subsidiary; company number: 04493300), and AV Distribution Ltd (dormant
subsidiary; company number: 05385699) 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.
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 2022 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 2023 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 2022 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.
Accounting period
The financial statements presented cover the years ended 31 March 2023 and 31
March 2022.
Measurement convention
The financial statements have been prepared on the historical cost basis
except for land and buildings that are stated at their fair value.
Monetary amounts are expressed in Sterling (GBP) and rounded to the nearest
£1,000.
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 during the year ending 31 March 2023, and the impact was not
material:
- Amendments to IFRS 3: Business Combinations
- Amendments to IAS 16: Property, Plant and Equipment
- Amendments to IAS 37: Provisions, Contingent Liabilities and
Contingent Assets
1.3 Going concern presumption for the period to 30 June 2024
The Group's business activities and position in the market, and principal
risks, uncertainties and mitigations are described in the Strategic Report.
The Group sets an annual budget against which performance is compared, and
operates a monthly reporting and rolling forecasting cycle, which the board
uses to ensures that the profitability, cash flow and capital requirements of
the business are sufficient to ensure its ongoing viability. Management relies
on weekly and monthly financial, commercial and operational reporting to
monitor, assess and control performance through the financial year. These
reports form the basis upon which the board satisfies its requirements to
update stakeholders with relevant financial performance and prospects.
In FY22 the Group secured a £35m three-year committed Revolving Credit
Facility ('RCF') 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.
As supply chain pressures eased in FY23, the Group focused on reducing its
investment in stock, thereby significantly reducing its net debt by £9.7m to
£14.5m at 31 March 2023. On 16 June 2023, and well ahead of the 21 June 2024
renewal date, the Group renewed its RCF with HSBC at £30m for a further
three-year period. This facility provides a good and appropriate level of
headroom that has been factored into the Directors going concern assessment.
The Group has conducted reverse stress tests where revenue was assumed to
decrease 21% on a six-month basis and 13% on a 15-month basis below a
reasonable base case, and the Group was able to rely on cost reduction and
working capital mitigations to continue to trade. The Group has therefore
concluded that there is no plausible scenario where the Group breaches its
covenants, re-affirming the assessment of the Group as a going concern.
The Directors have considered the Group's position and prospects in the period
to 30 June 2024 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 2023 the Group had net debt of
£14.5m (31 March 2022: £24.2m), with £4.5m cash (31 March 2022: £3.9m
cash).
Having duly considered all of these factors and having reviewed the forecasts
for the period to 30 June 2024, 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 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 2023 31 March 2022
£000 £000
UK 82,084 82,639
Europe 66,967 62,843
Rest of the World 2,988 2,148
152,039 147,630
Administrative expenses by Geography
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
UK 33,678 31,253
Europe 5,027 4,628
38,705 35,881
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 2023: £3.5m; 31 March 2022: £4.0m), Germany (31 March 2023: £2.3m; 31 March 2022: £2.2m), Ireland (31 March 2023: £0.6m; 31 March 2022: £0.7m) and Spain (31 March 2023: £1.5m; 31 March 2022: £1.7m).
Revenue by Product category
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Other-brand products 106,189 102,473
Own-brand products 38,860 38,121
Carriage income 6,187 6,266
Warranty income 452 483
Other 351 287
152,039 147,630
3 Expenses and other income
Included in profit/loss are the following:
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Expenses
Rentals - short-term rentals of plant & machinery 41 21
Equity-settled share-based payment charges 208 55
Depreciation of property, plant and equipment 1,414 1,254
Depreciation of right-of-use assets 1,577 1,466
Amortisation of Intangible assets 3,090 2,385
Amortisation of government grants 3 7
Loss/(profit) on disposal of property, plant and equipment 17 (12)
R&D expenditure recognised as an expense 280 230
Auditor remuneration - audit of these financial statements 65 65
Auditor remuneration - this year's audit of financial statements of 74 74
subsidiaries
Auditor remuneration - non-audit fees - Other audit related services 5 5
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Other income
RDEC tax credits 445 365
Rental income 239 247
Other 265 208
949 820
Rental income relates to our freehold Head-office in York. 'Other' includes
income from on-site café at York Head-office, grants, marketing support.
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 2023 31 March 2022
Nos. Nos.
Administration 255 242
Selling and Distribution 318 316
573 558
The aggregate payroll costs of these persons were as follows:
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Wages and salaries 11,840 10,982
Social security costs 1,474 1,236
Contributions to defined contribution plans 1,111 928
14,425 13,146
Wages and salaries, social security costs, and staff pension costs of
£5,205,000 (2022: £4,400,000) relating to software developers are
capitalised and not included in the figures above.
Directors' remuneration
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Directors' emoluments 717 680
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 £232,000 during
the year (2022: £229,000), including company pension contributions of £9,000
(2022: £8,000) that were made to a money purchase scheme on their behalf.
There are five directors (2022: five) for whom retirement benefits are
accruing under a money purchase pension scheme.
On 3 August 2021 and further to confirmation all performance conditions
relating to the conditional share awards granted under the Long-Term Incentive
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.
5 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. In FY23 the diluted
loss per share has been restricted to the basic loss per share to prevent
having an anti-dilutive effect.
Year ended Year ended
31 March 2023 31 March 2022
(Loss)/profit attributable to equity shareholders of the parent (£'000) (644) 3,723
Basic weighted average number of shares 20,976,938 20,967,831
Dilutive potential ordinary shares 549,269 570,440
Diluted weighted average number of shares 21,526,207 21,538,271
Basic (loss)/profit per share (3.1p) 17.8p
Diluted (loss)/profit per share (3.1p) 17.3p
6 Finance expenses
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Bank interest 1,127 524
IFRS16 lease interest 375 403
Net foreign exchange loss 190 97
Unwinding of discount on deferred consideration 2 31
Total finance expense 1,694 1,055
7 Taxation
Recognised in the income statement
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Current tax expense
UK Corporation tax - 574
Overseas Corporation tax 66 55
Adjustments for prior periods 277 7
Current tax expense 342 636
Deferred tax expense
Origination and reversal of temporary differences (79) 326
Deferred tax rate change impact - 345
Adjustments for prior periods (26) (16)
Deferred tax expense (105) 655
Total tax expense 237 1,291
The corporation tax rate applicable to the company was 19% for the year ended
31 March 2023, and 19% for the period ended 31 March 2022. 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 2023 have been calculated based on that
rate.
Reconciliation of effective tax rate
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
(Loss)/profit for the year (644) 3,723
Total tax charge 237 1,291
(Loss)/profit before taxation (407) 5,014
Current tax at 19% (2022: 19.0%)
Tax using the UK corporation tax rate for the relevant period: (61) 943
Non-deductible expenses 120 (73)
Deferred tax rate change impact - 345
Adjustments relating to prior year - deferred tax 36 (16)
Adjustments relating to prior year - current tax 214 7
Impact of overseas tax rate 1 2
Deferred tax assets not recognised 1 1
R&D credit (11) 12
Difference between current and deferred tax rates (19) 100
Impact of capital allowances super deduction (44) (31)
Total tax charge 237 1,291
8 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 2021 1,847 5,699 30 1,094 7,500 16,170
Additions 460 1,101 - 212 - 1,773
Additions through business combinations 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
Additions 163 717 - 109 - 989
Revaluation decrease - - - - (550) (550)
Disposals (124) (29) - - (153)
Balance at 31 March 2023 2,438 7,392 39 1,421 8,201 19,491
Depreciation and impairment
At 1 April 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
Depreciation charge for the year 331 736 2 170 175 1,414
Disposals - (101) (3) - - (104)
Balance at 31 March 2023 1,867 4,072 33 1,105 480 7,557
Net book value as at 31 March 2023 571 3,320 6 316 7,721 11,934
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
Freehold property valuation - Holgate Park Head Office
At 31 March 2023 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.
Market value at 31 March 2023 was confirmed at £6.5m compared to a book value
at 31 March 2023 of £7.05m, and market value at 31 March 2020 of £7.5m.
If the property had not been revalued the net book value would have been
£5.0m.
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. 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.
Management have reviewed the fair value as at 31 March 2023 and concluded that
this would not be materially different.
Security
The Group's bank borrowings are secured by fixed and floating charges over the
Group's assets.
9 Right-of-use assets
Leasehold properties
The Group has six leased properties comprising Distribution Centres and
Showrooms in York, Sweden and Germany, Distribution Centres in Ireland and
Spain, and a software development office in Manchester.
In September 2022 the Group vacated the previous software development office
and moved into a smaller office on flexible terms.
The associated right-of-use assets are as follows:
Short leasehold properties
£000
Cost
At 1 April 2021 10,305
Additions 1,830
Balance at 31 March 2022 12,135
Modifications 567
Additions 63
Balance at 31 March 2023 12,765
Depreciation
At 1 April 2021 2,434
Depreciation charge for the year 1,466
Balance at 31 March 2022 3,900
Depreciation charge for the year 1,577
Balance at 31 March 2023 5,477
Net book value as at 31 March 2023 7,288
Net book value as at 31 March 2022 8,235
Net book value as at 31 March 2021 7,871
10 Intangible assets
FY23 Software platform additions comprise £5,205,000 of internally developed
additions being 95% of software developer wages and salaries, £87,000 of
capitalised interest, and £27,000 of software licences for tools used in
development.
The amortisation charge is recognised in Administrative expenses profit and
loss account.
Goodwill Software platform Brand Domains Other Intangibles Total
£000 £000 £000 £000 £000 £000
Cost
At 1 April 2021 1,848 15,247 657 - - 17,752
Additions - 4,439 - 3,023 - 7,462
Additions through business combinations 3,476 - 715 - 149 4,340
Balance at 31 March 2022 5,324 19,686 1,372 3,023 149 29,554
Additions - 5,319 - 8 - 5,327
Balance at 31 March 2023 5,324 25,005 1,372 3,031 149 34,881
Amortisation
At 1 April 2021 - 6,846 511 - - 7,357
Amortisation for the year - 2,321 52 - 12 2,385
Balance at 31 March 2022 - 9,167 563 - 12 9,742
Amortisation for the year - 3,050 - 3 37 3,090
Balance at 31 March 2023 - 12,217 563 3 49 12,832
Net book value as at 31 March 2023 5,324 12,788 809 3,028 100 22,049
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
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 Limited Liability
Partnership for £1.685m.
On 1 December 2021 goodwill arose on the acquisition of the entire share
capital of AV Distribution Ltd 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).
Goodwill balances are denominated in Sterling:
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Gear4music Limited 417 417
Software development business 1,431 1,431
Premier business 960 960
AV Distribution Ltd 2,516 2,516
5,324 5,324
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
2023 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'.
Goodwill and the AV.com domain have an indefinite useful life.
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. The Group has considered its
operational and commercial configuration at 31 March 2023 and concluded it has
a single CGU to which all intangibles are allocated. The carrying value of
these intangibles, the Bacup freehold, the right-of-use assets, and all other
PPE was £35.9m. 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 2025
was used to provide cash-flow projections that have been discounted at a
pre-tax discount rate of 13.22% (2022: 9.55%). 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:
· FY24-26 annual forecast revenue growth of 7% based on growth by
geographical market, based on market size and estimate of opportunity, trends,
and Management's experience and expectation.
· FY27-28 and into perpetuity revenue growth of 2%;
· Gross margins are forecast to improve on FY23; 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 (2022: £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.
11 Inventories
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Finished goods 34,381 45,516
The cost of inventories recognised as an expense and included in cost of sales
in the period amounted to £102.6m (2022: £96.9m).
Management has included a provision of £50,000 (31 March 2022: £55,000),
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.
12 Trade and other receivables
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Trade receivables 1,243 1,772
Social security and other taxes 260 122
Prepayments 1,931 1,515
3,434 3,409
Corporation tax asset of £1,066,000 (31 March 2022: £432,000) has been disclosed separately on the face of balance sheet in both years, in accordance with IAS 1.54(n).
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 (2.9%
of 2023 revenues; 2.4% of 2022 revenues).
Funds lodged with payment providers
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance
totalled £581,000 on 31 March 2023 (31 March 2022: £378,000) 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.
13 Cash and cash equivalents
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Cash and cash equivalents 4,460 3,903
Cash-in-transit to the Group at 31 March 2023 was £354,000 (31 March 2022: £336,000) and is included above, representing uncleared lodgements where money providers have notified transfers pre-year-end.
14 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 2023 31 March 2022
£000 £000
Non-current and Total liabilities
Bank loans 19,000 28,000
19,000 28,000
Revolving Credit Facility
At 31 March 2023 bank loans were drawn loans under the Group's three-year
£35m Revolving Credit Facility ('RCF') with HSBC. This facility was due to
expire in April 2024 and is secured by a debenture over the Group's assets.
On 15 June 2023 the Group renewed its banking facilities entering into a three
year £30m RCF with HSBC. This facility expires in June 2026 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 interest-bearing loans and borrowings
Year ended 31 March 2023 Year ended 31 March 2022
£000 £000
Opening balance 28,000 3,476
Changes from financing cash flows
Proceeds from loans and borrowings - 28,000
Repayment of borrowings (9,000) (3,507)
Total changes from financing cash flows (9,000) 24,493
Other changes
Interest expense (note 7) 1,127 524
Interest paid (1,080) (413)
Movement in interest accrual (included in accruals and deferred income - note (49) (111)
18)
Fair value movement on loans 2 31
Total other changes - 31
Closing balance 19,000 28,000
Other bank facilities
Gear4music has a number of guarantees in relation to VAT, and issues letter of
credits to its suppliers. At 31 March 2023 the Group had guarantees of
£654,000 in place (31 March 2022: £1,011,000) and letters of credit of
£63,000 (31 March 2022: £317,000).
15 Trade and other payables
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Current
Trade payables 9,300 9,472
Accruals and deferred income 5,099 3,164
Deferred consideration 23 424
Government grants - 3
Other taxation and social security 3,225 3,119
17,647 16,182
Non-current
Accruals and deferred income 61 25
Deferred consideration 22 39
83 64
Year-end accruals and deferred income included:
- £1,907,000 (31 March 2022: £710,000) relating to customer
prepayments; and
- £61,000 (31 March 2022: £24,000) relating to the estimated cash
bonuses accrued relating to the CSOP schemes.
The Directors consider the carrying amount of other 'trade and other payables'
to approximate their fair value. The interest expense of £2,000 (2022:
£31,000) in relation to the unwinding of the discount is disclosed in note 6.
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 2023 two 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 on a
cash-free debt-free basis of which £400,000 was deferred for six months
whilst final tax matters were resolved. On 1 June 2022, £388,000 was paid in
full and final settlement.
16 Lease liabilities
Short-term leases and leases of low value of £41,000 (31 March 2022:
£21,000) are included in administrative expenses.
The Group has leases for motor vehicles, and six properties (31 March 2022:
six). 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 8 to 65-months 45-months - - 1
Motor vehicles 2 7 to 18-months 13-months - 2 -
Future minimum lease payments due at 31 March 2023 were as follows:
Within 1 year 1-5 years More than 5 years
£000 £000 £000
Lease payments 2,093 7,634 117
Finance charge (223) (1,021) -
Net present value 1,870 6,613 117
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 2023 31 March 2022
£000 £000
Current 1,130 1,229
Non-current 7,470 8,455
Total 8,600 9,684
Changes in lease liabilities:
Year ended 31 March 2023 Year ended 31 March 2022
£000 £000
Opening balance 9,684 9,414
Cash flow lease payments (1,713) (1,952)
New leases 63 1,812
Modifications 566 410
Total changes (1,084) 270
Closing balance 8,600 9,684
17 Share capital and reserves
Year ended Year ended
31 March 2023 31 March 2022
Share capital Number Number
Authorised, called up and fully paid:
Ordinary shares of 10p each 20,976,938 20,976,938
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.
Share premium
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Opening 13,286 13,165
Issue of shares - 121
Closing 13,286 13,286
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 2023 31 March 2022
£'000 £'000
Opening (74) (51)
Translation loss - (23)
Closing (74) (74)
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 2023 31 March 2022
£'000 £'000
Opening 1,606 1,640
Freehold revaluation (550) -
Deferred tax 147 -
Depreciation transfer - (34)
Closing 1,203 1,606
The revaluation reserve represents the unrealised gain generated on revaluation of the freehold office property in York on 28 February 2018, 31 March 2020 and 31 March 2023. It represents the excess of the fair value over historic net book value.
Retained earnings
Year ended Year ended
31 March 2023 31 March 2022
£'000 £'000
Opening 21,120 17,463
Share based payment charge 245 55
Deferred tax - (155)
Depreciation transfer - 34
(Loss)/profit for the year (644) 3,723
Closing 20,721 21,120
Retained earnings represents the cumulative net profits recognised in the
consolidated income statement.
18 Related parties
Transactions with key management personnel
The compensation of key management personnel is as follows:
Year ended Year ended
31 March 2023 31 March 2022
£000 £000
Key management emoluments including social security costs 711 674
Short-term employee benefits 6 6
Company contributions to money purchase pension plans 31 21
748 701
Key management personnel comprise the Chairman, CEO, CFO, CCO and NEDs. 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
(2022: five).
Compensation includes share-based payments of £110,000 (2022: £118,000) in
relation to the two LTIPs.
Share based payments
LTIP (2018)
On 31 July 2022 and further to confirmation the performance conditions
relating to the conditional share awards granted under the Plan were not met,
awards of 7,350 shares to Gareth Bevan, 6,300 shares to Andrew Wass and 6,300
shares to Chris Scott lapsed.
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