REG - Gear4music - Final Results
25/06/2024 07:15
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RNS Number : 6773T Gear4music (Holdings) PLC 25 June 2024
25 June 2024
Gear4music (Holdings) plc
Audited results for the year ended 31 March 2024
"Key financial and strategic objectives met in FY24; Refreshed growth strategy
in place to drive profitable growth in FY25"
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 2024.
FY24 Highlights:
£m Year ended 31 March 2024 Year ended 31 March 2023 Change on FY23
("FY24") ("FY23")
Revenue 144.4 152.0 -5%
Gross profit 39.4 39.0 +1%
Gross margin 27.3% 25.7% +160bps
EBITDA 9.4 7.4 +28%
Adjusted* EBITDA 9.9 7.4 +34%
PBT/(LBT) 0.6 (0.4) +1.0m
Adjusted* PBT/(LBT) 1.1 (0.4) +1.5m
* Adjusted for £487,000 of one-off redundancy costs
· FY24 revenues in line with market expectations reflecting
prioritisation of increasing gross margins and cost base reductions to improve
profitability, ahead of revenue growth
· Gross margin of 27.3% (FY23: 25.7%; FY22: 27.8%)
· Adjusted EBITDA of £9.9m is 34% ahead of FY23 and in line with
market expectation
· Continued progress in reducing net debt to £7.3m at year-end,
reduced from £14.5m at 31 March 2023 and £24.2m at 31 March 2022, ahead of
market expectation
· First full year of second-hand business already demonstrating strong
growth potential
· Refreshed growth strategy in place, with enhanced product offering
and operational efficiency to drive profitable growth in FY25
Post-period Board update:
The following Board changes will take effect from Friday 5 July 2024, as
announced on 24 April and today:
· Ken Ford to step down as Non-Executive Chair and retire from the
Board
· Dean Murray to step down as Non-Executive Director and retire from
the Board
· Andrew Wass to move from CEO to Executive Chair
· Gareth Bevan, current CCO, to be appointed CEO
· Neil Catto to join the board as Senior Independent Director and Audit
Committee chair
· Sharon Daly to join the board as Non-Executive Director
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"We are pleased to be reporting FY24 financial results in line with market
expectations**, with adjusted EBITDA of £9.9m representing a 34% increase on
£7.4 million in FY23 highlighting the successful execution of our strategy to
prioritise and protect margins.
The Group has also delivered on another strategy priority with net debt
reducing to £7.3m as of 31 March 2024, almost halving since 31 March 2023 and
being 0.7x FY24 adjusted EBITDA. In addition, we improved gross margins by
160bps to 27.3% during FY24 whilst at the same time reducing overhead costs,
delivering a £1.5m improvement in adjusted profit before tax.
Having delivered the key objectives we set ourselves at the beginning of FY24,
the Group is well positioned to relaunch its profitable growth strategy for
FY25. This will focus on expanding sales verticals and channels to market
whilst further enhancing and leveraging our unique bespoke e-commerce platform
and product offering.
International revenue growth faced some localised challenges in FY24; however,
the Board is confident that, through our ongoing actions and new initiatives,
such as our second-hand proposition, European sales are set to start
recovering in FY25.
The cost reductions implemented through FY24 are now delivering full-year
benefits as we commence FY25. Alongside this, based on trading performance
since our last update in April, the Board remains confident in delivering
further improvements in financial performance during FY25 in line with market
expectations."
** Gear4music believes that, prior to publication of this announcement,
current consensus market expectations (i) for the year ended 31 March 2024
were revenue of £144.2 million, adjusted EBITDA of £9.8 million, adjusted
profit before tax of £1.3 million, and pre-IFRS16 net debt of £9.4 million;
and (ii) for the year ending 31 March 2025 were revenue of £154.8 million,
EBITDA of £11.8 million, profit before tax of £2.8 million, and pre-IFRS16
net debt of £6.6 million. Note Gear4music believes that adjusted profit
before tax consensus market expectations do not take into account foreign
exchange gains or losses. £0.2m foreign exchange losses were recognised in
FY24.
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 - Financial PR +44 (0)20 3405 0205
Rebecca Sanders-Hewett Gear4Music@almastrategic.com
Joe Pederzolli
David Ison
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
As we stated heading into the year, whilst our drive for long-term growth
remains unabated, our focus in FY24 was on reducing our cost-base and
increasing efficiency, and delivering working capital improvements to
materially improve our net debt position. This was reflective of a period of
uncertainty for many retailers and consumers, with high inflation and interest
rates weighing on consumer confidence and disposable income, and therefore we
shifted our short-term focus accordingly to address these challenges.
Operational and Commercial progress
I am pleased that the Group has delivered the affirmative action that we set
out to, delivering a cost reduction programme to improve underlying
profitability, which puts us in a strong position to deliver our long-term
profitable growth ambitions when markets return to more 'normal' conditions.
As a result of these actions the Group has delivered a second significant
annual net debt reduction, from a year-end peak of £24.2m at 31 March 2022
down to £7.3m at 31 March 2024. With a committed £30m Revolving Capital
Facility ('RCF') in place until at least June 2026 secured by £75.2m of
assets including £7.6m of freehold properties, the Group has the certainty
and resources required to take advantage of opportunities as and when they
arise.
Environmental, Social and Governance
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 impacts that our business has, and what we are
doing to improve outcomes, and this year we are pleased to include our first
TCFD-aligned Climate Report for the financial year ending 31 March 2024. We
aim to improve the depth and quality of our reporting over the coming years,
better informing and enabling us to reduce our environmental impact wherever
there is the opportunity.
Board Changes
Having served the Group since IPO in 2015 and been part of the remarkable
growth journey in that time, I am approaching the end of my nine-year tenure
and intend to step down on 5 July 2024. It has been an honour and privilege to
serve and want to extend my heartfelt thanks to Andrew and the Board, our
whole team, and all stakeholders for their commitment to the business and
enthusiasm. Looking back, this period has seen significant growth with
challenges to overcome along the way but, today, our business stands
significantly stronger, a testament to the collective efforts and dedication
of our team.
Having also served as a Non-Executive Director for over nine years, Dean
Murray has decided to retire from the Board. I wish Dean well for the future
and on behalf of the whole Gear4music team thank him for his significant
contributions dating back to 2012, and particularly for his efforts since IPO
as Audit Committee Chair and as a member of the Remuneration and Nomination
Committees.
Ahead of these changes the Board and Nominations committee diligently
evaluated revised board structures to ensure the best outcomes for all
stakeholders and, having consulted with our advisors and certain of the
Company's major shareholders, we concluded matters and announced that Andrew
Wass will move from CEO to Executive Chair and Gareth Bevan, current CCO, will
move to CEO. Chris Scott's and Harriet Williams' (CFO and NED respectively)
roles and responsibilities remain unchanged.
To underpin the new structure and provide strong, independent challenge and
support, I am delighted to report that Neil Catto and Sharon Daly have agreed
to join the Board as Senior Independent Director and Non-Executive Director
respectively. Both bring significant relevant experience, and skills that will
complement and improve the capability of the existing Board.
I am confident that the diverse skills and experience of the restructured
Board will continue to drive transformative change. I extend my best wishes to
the new team on their journey towards sustainable and profitable growth and I
am confident that they will continue to drive Gear4music forward.
Outlook
The Board is confident that the Group's customer proposition, operational
infrastructure and balance sheet will enable the Group to achieve its
long-term business objectives, namely delivering profitable growth and
maintaining its market leading position in the UK and Europe.
Ken Ford
Chairman
24 June 2024
Chief Executive's Statement
Financial KPIs
FY24 FY23 Change on FY23
Revenue * £144.4m £152.0m -5%
UK Revenue * £83.1m £82.0m +1%
International Revenue * £61.3m £70.0m -12%
Gross margin 27.3% 25.7% +160bps
Gross profit £39.4m £39.0m +1%
Total Admin expenses including redundancy costs * £37.7m £38.7m -3%
European Admin expenses * £4.9m £5.0m -2%
Reported EBITDA £9.4m £7.4m +28%
Adjusted EBITDA ** £9.9m £7.4m +34%
Profit/(loss) before tax £0.6m (£0.4m) +£1.0m
Adjusted profit/(loss) before tax £1.1m (£0.4m) +£1.5m
Net debt *** (£7.3m) (£14.5m) +£7.2m
* See note 2 of the Financial Information
** Defined as Reported EBITDA less one-off redundancy
costs. See note 1.3 to the Financial Information
*** See notes 13 and 14 of the Financial Information
Commercial KPIs
FY24 FY23 Change on FY23
Website users 23.7m 26.5m -11%
Conversion rate 3.93% 3.95% -2bps
Average order value £153 £150 +2%
Active customers 799,000 865,000 -8%
Products listed 63,000 64,200 -2%
Business review
I am incredibly grateful to our entire team for their outstanding performance
in achieving our key objectives during FY24. Our primary goals were to enhance
our margins and profitability and at the same time reduce net debt and lower
our cost base. Thanks to their dedication and hard work, we have successfully
met these targets.
At the beginning of FY24, we communicated our intention to prioritise these
objectives over revenue growth. Having now achieved two consecutive years of
significant Net Debt reduction, the Group is well-positioned to focus on
growth initiatives, whilst continuing to improve profitability.
A highlight of the year was the launch of our unique Second-Hand proposition
in March 2023. From a standing start, we have acquired over 7,500 second-hand
items from consumers. The resale of these products is already a high-growth
sales vertical in FY25, with significant potential for expansion.
We also implemented several significant upgrades to our website throughout the
year. These enhancements include improved on-site search functionality and an
upgraded customer review platform. With a view to boosting productivity, we
integrated multiple AI-based systems and process enhancements.
The expansion of our in-house product design and development capacity allowed
us to launch 485 new own-brand products. This aligns with our strategy of
enhancing our proposition and improving product margins, further reinforcing
the strength of our market position.
In summary, FY24 has been a year of strategic progress and laying the
groundwork for future growth. We are well-equipped to pursue our growth
initiatives from a solid foundation of reduced debt, enhanced efficiency, and
a strong product offering.
Strategy
Our refreshed Profitable Growth Strategy for FY25 is built on four key pillars
designed to drive growth and enhance our market position:
1. Transform our platform by integrating artificial intelligence at its
core
2. Enhance our product offerings
3. Diversify our channels to market
4. Expand our sales verticals by establishing new operations in Europe
Transform our platform by integrating artificial intelligence at its core
This will boost productivity and elevate the customer experience through
unique solutions in our market, such as our innovative second-hand system,
which we expect to significantly increase our market share.
Enhance our product offerings
This includes scaling up our second-hand and digital download propositions,
developing and launching a greater number of best-in-class own-brand products,
and exploring additional strategic brand partnerships. These initiatives are
designed to ensure value for money while simultaneously strengthening our
market share. Additionally, we will evaluate opportunities to acquire legacy
brands as they arise, such as Premier, to further broaden our own-brand
portfolio.
Diversifying our channels to market
We will integrate with new European marketplaces and develop affiliate
programs, leveraging influencers to expand our reach. Where appropriate, these
efforts will be driven and informed by AI to maximise their effectiveness.
Expand our sales verticals by establishing new operations in Europe
This expansion, focused on our hub network, aims to drive market share in
Europe and enhance our purchasing, marketing, and fulfilment operations within
the region. Furthermore, we will explore new opportunities in the USA, India,
and Southeast Asia to broaden our global footprint.
Board Changes
I would like to extend my heartfelt thanks to Ken and Dean for their
invaluable contributions over the past nine years. Their wise counsel and
dedication have been instrumental to our success, and we are deeply
appreciative of their service.
We are excited to welcome Neil Catto as Senior Independent Director and Sharon
Daly as a Non-Executive Director, effective 05 July 2024. We are eager to work
with Neil and Sharon and are confident that their expertise and insights will
significantly enhance our Board's capabilities.
Additionally, I look forward to collaborating with Gareth in his new role as
CEO. The transition will ensure seamless continuity within our leadership
team, and after twelve years of working with Gareth in his role as Chief
Commercial Officer, I firmly believe there is no better person to be
Gear4music's CEO.
In my new role as Executive Chair, I will continue to spearhead our strategic
initiatives and oversee our growth strategy. I am committed to providing
support to our team and stakeholders wherever needed, ensuring that we achieve
our goals and maintain our long-term trajectory of success.
Thank you for your continued support during this exciting transition.
Outlook
During FY24, we implemented a wide range series of strategic actions designed
to mitigate the impact of a weaker consumer environment. This was the right
thing to do, and these measures have paid off, strengthening our foundation
ensuring we are well positioned to capitalise on emerging opportunities and
leaving us well-prepared for the future.
We are optimistic about our prospects for further profitable growth during
FY25 and have launched our refreshed growth strategy with strategic priorities
aligned to driving growth and continuing our commitment to driving innovation,
expanding our market reach, and delivering exceptional value to our customers.
Our strategic initiatives are beginning to bear fruit, and our efforts to
strengthen our financial position and operational capabilities have set the
stage for sustainable long-term growth.
Andrew Wass
Chief Executive Officer
24 June 2024
Chief Financial Officer's statement
Overview
As stated in our FY23 Financial Review, and against a continuing backdrop of
higher inflation and interest rates than has historically been the case, it
was important that we built on the good work done in FY23 in terms of reducing
our cost base and inventory levels to reflect demand, sustainably improving
gross margins, and materially reducing net debt. In FY24 we delivered on these
priorities:
- notwithstanding inflationary pressures, Administrative expenses
(excluding redundancy costs) remained 4% lower than FY23 broadly in line with
sales as average headcount was reduced by 89 (16%);
- investment in software development was reduced to £3.7m (FY23:
£5.3m) following the successful delivery of a number of large projects in
FY23; and
- inventory reduced by £8.8m (25%) further to an £11.1m reduction in
FY23.
These improvements combined to generate a £7.2m reduction in net bank debt,
down to £7.3m representing 0.7x FY24 adjusted EBITDA (£9.9m) and secured by
£7.6m of freehold properties within the Group.
Our underlying cost base is lower heading into FY25 and until the
macro-economic climate and consumer confidence show sustained signs of
recovery, tight cost control will remain a priority.
Revenue
FY24 FY23 Change on FY23
£m £m %
UK revenue 83.1 82.0 +1%
European revenue 59.2 67.0 -12%
Rest of the World revenue 2.1 3.0 -31%
Revenue 144.4 152.0 -5%
Revenue decreased £7.6m (5%) on FY23 with a 6% decrease in H1 and 5% in H2.
UK revenue of £83.1m was £1.1m (1%) ahead of last year reflecting the
strength of brand and proposition in our most mature market, and new
initiatives such as second-hand being launched in the UK first. This takes our
estimated UK market share to 9.5% (FY23: 9.1%).
European revenues of £59.2m were £7.8m (12%) behind FY23, reversing the
£5.0m increase last year and reflecting a challenging market in certain
European territories.
Revenues from sales outside of Europe accounted for 1.4% of total revenue
(FY23: 2.0%).
FY24 FY23 Change on FY23
£m £m %
Other-brand product revenue 100.4 106.2 -5%
Own-brand product revenue 37.6 38.9 -3%
Carriage income 5.8 6.2 -6%
Other 0.6 0.7 -29%
Revenue 144.4 152.0 -5%
Own-brand revenue of £37.6m was 3% (£1.3m) down on FY23, slightly better
than the overall result, and accounted for 26.0% of total revenue (FY23:
25.6%) from 8.5% (FY23: 8.0%) of SKUs. It is our ambition to grow our
own-brand business and to support this we have invested in our own-brand team.
Other brand revenue of £100.4m was £5.8m (5%) behind FY23.
Carriage income of £5.8m was £0.4m (6%) behind last year, representing 4.0%
of total sales compared to 4.1% last year, reflecting the Group offering more
localised, cheaper delivery options.
Other revenue comprises paid for extended warranty income, and commissions
earned on facilitating point-of-sale credit for retail customers. The
proportion of revenue coming from these sources was 0.4% of total revenue in
FY24, compared to 0.5% in FY23.
Gross profit
FY24 FY23 Change on FY23
Product revenue (£m) 138.0 145.1 (7.1)
Product profit (£m) 43.2 43.6 (0.4)
Product margin 31.3% 30.0% +130bps
Carriage costs (£m) 9.4 10.5 (0.9)
Carriage costs as % of sales 6.5% 6.9% -40bps
Gross profit (£m) 39.4 39.0 0.4
Gross margin 27.3% 25.7% +160bps
Notwithstanding a 5% decrease in revenue, gross profit was ahead of last year,
reflecting improved product margins. In FY24 we benefited from the work done
in FY23 on reducing stock and were able to further reduce inventory through
resetting re-ordering levels rather than through price reductions, resulting
in a product margin of 31.3%, 130 basis points ahead of FY23.
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 £2.8m is £1.5m ahead of FY23 reflecting an improved
gross margin and a tightly controlled cost base and includes £0.5m of
one-off, non-recurring redundancy costs.
Adjusted EBITDA of £9.9m was £2.5m (34%) ahead of FY23, equating to an
adjusted EBITDA margin of 6.9%.
FY24 FY23 Change on FY23
£m £m £m
UK Administrative expenses (32.2) (33.7) 1.5
European Administrative expenses (4.9) (5.0) 0.1
Administrative expenses excluding redundancy costs (37.1) (38.7) 1.6
Other income 0.9 0.9 -
Operating profit 2.8 1.3 1.5
Depreciation and amortisation 6.6 6.1 0.5
Unadjusted EBITDA 9.4 7.4 2.0
Exceptional item - Redundancy costs 0.5 -
Adjusted EBITDA 9.9 7.4 2.5
Adjusted EBITDA margin 6.9% 4.8% +210bps
Administrative expenses decreased by £1.6m (4%) on FY23 in-line with the 5%
decrease in revenue, increasing slightly as a % of sales up from 25.5% in FY23
to 25.7%.
Combined marketing and labour costs of £23.6m (FY23: £25.0m) accounted for
64% of administrative expenses (FY23: 65%):
- Marketing expenditure decreased 5% in FY24 to
£10.1m (FY23: £10.6m) equating to 7.0% of revenue in both FY24 and FY23; and
- Labour costs decreased £0.9m (6%) in FY24 to
£13.5m (FY23: £14.4m) reflecting a 16% decrease in average headcount. Labour
costs accounted for 9.4% of revenue (FY23: 9.5%).
Other expenses and net profit
Financial expenses of £2.2m (FY23: £1.7m) include £1.5m bank interest
(FY23: £1.1m) reflecting higher SONIA interest rates, £0.4m of IFRS16 lease
interest (FY23: £0.4m), and a £0.2m net foreign exchange loss (FY23: £0.2m
loss).
The Group reports a profit before tax of £0.6m (FY23: loss before tax of
£0.4m) that after tax translates into basic profit per share of 3.1p and
diluted profit per share of 3.0p (FY23: 3.1p basic and diluted loss per
share).
Cash-flow
Net debt halved from £14.5m at the start of the year down to £7.3m,
representing 0.7x FY24 adjusted EBITDA (£9.9m), and secured by two freehold
properties with a combined carrying value of £7.6m.
FY24 FY23 Change on FY23
£m £m £m
Opening cash 4.5 3.9 0.6
Profit/(loss) for the year 0.7 (0.6) 1.3
Movement in working capital 4.7 13.0 (8.3)
Depreciation and amortisation 6.6 6.0 0.7
Financial expense 2.1 1.7 0.4
Tax and Other operating adjustments 0.5 (0.4) 0.9
Net cash from operating activities: 14.6 19.7 (5.1)
Net cash used in investing activities: (3.9) (6.7) 2.8
Net cash used in financing activities: (10.5) (12.4) 1.9
Increase in cash in the year 0.2 0.6 (0.4)
Closing cash 4.7 4.5 0.2
In June 2023 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 net debt was actively managed down by £7.2m (50%) to £7.3m following a
£9.7m reduction last year, driven in large part by an £8.7m reduction in
inventory. Year-end net debt peaked at £24.2m at 31 March 2022 reflecting an
£11.4m investment in acquisitions, and a £17.1m investment in inventory that
has been unwound in FY23 and FY24.
Net cash outflow in investing activities has been reduced to £3.9m (FY23:
£6.7m outflow) including £3.7m of capitalised software development costs
(FY23: £5.3m) and £0.2m property, plant and equipment additions (FY23:
£1.0m). Depreciation and amortisation of £6.6m (FY23: £6.0m) is added back
in 'net cash from operating activities'.
Net cash outflow from financing activities of £10.5m (FY23: £12.4m outflow)
represents a £7.0m lower RCF drawdown (FY23: £9.0m decreased drawdown),
£1.4m payment of lease liabilities (FY23: £1.7m), and £2.1m interest paid
(FY23: £1.7m).
Balance sheet
31 March 2024 31 March 2023 Change on 31 March 2023
£m £m £m
Property, plant and equipment 10.9 11.9 (1.0)
Right-of-use assets 8.1 7.3 0.8
Software platform 12.8 12.8 -
Other intangible assets 9.2 9.2 -
Total non-current assets 41.0 41.2 (0.2)
Inventory 25.6 34.4 (8.8)
Cash 4.7 4.5 0.2
Other current assets 3.9 4.5 (0.6)
Total current assets 34.2 43.4 (9.2)
Trade payables (6.9) (9.3) 2.4
Lease liabilities (1.8) (1.1) (0.7)
Other current liabilities (6.6) (8.4) 1.8
Total current liabilities (15.3) (18.8) 3.5
Loans and Borrowings (12.0) (19.0) 7.0
Lease liabilities (7.6) (7.5) (0.1)
Other non-current liabilities (1.9) (2.1) (0.2)
Total non-current liabilities (21.5) (28.6) 7.1
Net assets 38.4 37.2 1.2
Capital expenditure on property, plant and equipment totalled £0.2m across
all sites.
Right-of-use assets increased to £8.1m reflecting the conclusion of a rent
review at our York distribution centre in July 2023. This lease expires in
2033.
The Group capitalised £3.7m (FY23: £5.3m) of software development costs
relating to our bespoke e-commerce platform, of which £2.4m was in H1 and
£1.3m in H2 reflecting the reduced team-size going forward. Platform
amortisation in the year of £3.7m (FY23: £3.0m) was split £1.8m in H1 and
£1.9m in H2. Year-end net book value of our software platform remained at
£12.8m.
Other intangible assets include £5.3m goodwill and £3.0m domain names.
Inventory of £25.6m is £8.8m (26%) lower than at 31 March 2023 reflecting
planned reductions. The Board considers this to be an appropriate level to
take into FY25, providing breadth and depth across categories across our
distribution centres.
The Group carried net bank debt of £7.3m at the year-end (31 March 2023 net
bank debt: £14.5m).
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.
Chris Scott
Chief Financial Officer
24 June 2024
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Year ended Year ended
31 March 2023
31 March
Note 2024
£000 £000
Revenue 2 144,384 152,039
Cost of sales (104,947) (112,996)
Gross profit 39,437 39,043
Administrative expenses 2,3,4 (37,609) (38,705)
Other income 3 935 949
Operating profit before exceptional items 3,250 1,287
Exceptional items 1.3 (487) -
Operating profit 2,763 1,287
Financial expenses 6 (2,223) (1,694)
Financial income 6 44 -
Profit/(loss) before tax 584 (407)
Taxation 7 67 (237)
Profit/(loss) for the year 651 (644)
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment 8 - (550)
Deferred tax movements 150 147
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations
Total comprehensive income/(loss) for the year 177 -
978 (1,047)
Basic profit/(loss) per share 5 3.1p (3.1p)
Diluted profit/(loss) per share 5 3.0p (3.1p)
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Financial Position
Year ended Year ended
31 March 2024 31 March 2023
Note £000 £000
Non-current assets
Property Plant and Equipment 8 10,862 11,934
Right-of-use assets 9 8,099 7,288
Intangible assets 10 22,049 22,049
41,010 41,271
Current assets
Inventories 11 25,643 34,381
Trade and other receivables 12 3,079 3,434
Corporation tax receivable 768 1,066
Cash and cash equivalents 13 4,696 4,460
34,186 43,341
Total assets 75,196 84,612
Current liabilities
Trade and other payables 15 (13,478) (17,647)
Lease liabilities 16 (1,794) (1,130)
(15,272) (18,777)
Non-current liabilities
Interest-bearing loans and borrowings 14 (12,000) (19,000)
Other payables 15 (91) (83)
Lease liabilities 16 (7,599) (7,470)
Deferred tax liability (1,868) (2,048)
(21,558) (28,601)
Total liabilities (36,830) (47,378)
Net assets 38,366 37,234
Equity
Share capital 17 2,098 2,098
Share premium 17 13,286 13,286
Foreign currency translation reserve 17 103 (74)
Revaluation reserve 17 1,171 1,203
Retained earnings 17 21,708 20,721
Total equity 38,366 37,234
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 2022 2,098 13,286 (74) 1,606 21,120 38,036
Comprehensive loss for the year
Loss for the year - - - - (644) (644)
Share based payments charge - - - - 245 245
Other Comprehensive income:
Freehold property revaluation - - - (550) - (550)
Deferred tax impact of revaluation - - - 147 - 147
Total comprehensive loss for the year - - - (403) (399) (802)
Balance at 31 March 2023 2,098 13,286 (74) 1,203 20,721 37,234
Comprehensive income for the year
Profit for the year - - - - 651 651
Share based payments charge - - - - 154 154
Other Comprehensive income:
Foreign currency translation difference - - 177 - - 177
Deferred tax adjustment - - - - 150 150
Depreciation transfer - - - (32) 32 -
Total comprehensive income for the year - - 177 (32) 987 1,132
Balance at 31 March 2024 2,098 13,286 103 1,171 21,708 38,366
The accompanying notes form an integral part of the consolidated financial
report.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Cash flows from operating activities
Profit/(loss) for the year 651 (644)
Adjustments for:
Depreciation and amortisation 3 6,642 6,081
Financial expenses and financial income 6 2,173 1,694
(Profit)/loss on sale of property, plant and equipment (16) 17
Share based payment charge 184 282
Taxation income 7 (456) (208)
9,178 7,222
Decrease in trade and other receivables 12 355 14
Decrease in inventories 11 8,738 11,135
(Decrease)/increase in trade and other payables 15 (4,383) 1,865
13,888 20,236
Tax received/(paid) 7 736 (530)
Net cash from operating activities 14,624 19,706
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 26 31
Acquisition of property, plant and equipment 8 (166) (989)
Capitalised development expenditure 10 (3,726) (5,319)
Business combinations: Deferred consideration 10 (25) (419)
Acquisition of domains 10 (12) (8)
Interest received 6 44 -
Net cash from investing activities (3,859) (6,704)
Cash flows from financing activities
Interest paid (2,106) (1,694)
Repayment of borrowings 14 (7,000) (9,000)
Payment of lease liabilities 16 (1,401) (1,713)
Net cash from financing activities (10,507) (12,407)
Net increase in cash and cash equivalents 258 595
Cash at beginning of year 4,460 3,903
Foreign exchange movement (22) (38)
Cash at end of year 13 4,696 4,460
The accompanying notes form an integral part of the consolidated financial
report.
Notes to the consolidated financial report
(forming part of the financial report)
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. All four are
100% subsidiaries of Gear4music Limited.
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 2023 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 2024 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 2023 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 report presented covers the years ended 31 March 2024 and 31
March 2023.
Measurement convention
The financial report has 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 2024, and the impact was not
material:
- IFRS 17 Insurance Contracts
- Amendments to IFRS 17
- Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS
Practice Statement 2
- Deferred Tax related to Assets and Liabilities arising from a Single
Transaction - Amendments to IAS 12
- Definition of Accounting Estimates - Amendments to IAS 8
1.3 Exceptional items
The business classifies certain events as exceptional items due to their size
and nature where it feels that separate disclosure would help understand the
underlying performance of the business. Restructuring and transformational
costs are considered on a case-by-case basis as to whether they meet the
exceptional criteria. Other items are considered against the exceptional
criteria based on the specific circumstances. In order for an item to be
presented as exceptional items, it should typically meet at least one of the
following criteria:
- It is unusual in nature or outside the normal course of business and
significant in value.
- Items directly incurred as a result of either a significant
acquisition or a divestment, or arising from a major business change or
restructuring programme which of itself has significant impact on the Income
Statement.
The presentation is consistent with the way Financial Performance is measured
by management and reported to the Board. The exceptional costs in these
financial statements of £487,000 relate to redundancy costs incurred during
the restructure of various Head Office teams, principally Software
Development. These costs were paid in full in FY24.
1.4 Going concern presumption for the period to 30 June 2025
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 FY24 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.
In FY23 and FY24 the Group focused on reducing its investment in inventory,
thereby significantly reducing its net debt by initially £9.7m to £14.5m at
31 March 2023, and then by a further £7.2m to £7.3m at 31 March 2024.
The Group has conducted a reverse stress test where revenue was assumed to
decrease 20% 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 2025 based on its offering in the UK and 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 2024 the Group had net debt of £7.4m
(31 March 2023: £14.5m), with £4.7m cash (31 March 2023: £4.5m 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 2024 31 March 2023
£000 £000
UK 83,109 82,084
Europe 59,222 66,967
Rest of the World 2,053 2,988
144,384 152,039
Administrative expenses by Geography
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
UK 32,669 33,678
Europe 4,940 5,027
37,609 38,705
UK Administrative expenses of £32.7m include £487,000 of exceptional redundancy costs.
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 2024: £3.2m; 31 March 2023: £3.5m), Germany (31 March 2024: £2.2m; 31 March 2023: £2.3m), Spain (31 March 2024: £1.2m; 31 March 2023: £1.5m), and Ireland (31 March 2024: £0.6m; 31 March 2023: £0.6m).
Revenue by Product category
All revenue is recognised on a point-in-time basis except for warranty income
which is spread over time.
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Other-brand products 100,404 106,189
Own-brand products 37,607 38,860
Carriage income 5,809 6,187
Warranty income 411 452
Other 153 351
144,384 152,039
3 Expenses and other income
Included in profit/loss are the following:
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Expenses
Rentals - short-term rentals of plant & machinery 10 41
Equity-settled share-based payment charges 184 208
Depreciation of property, plant and equipment 1,227 1,414
Depreciation of right-of-use assets 1,677 1,577
Amortisation of Intangible assets 3,739 3,090
Amortisation of government grants - 3
(Profit)/loss on disposal of property, plant and equipment (16) 17
R&D expenditure recognised as an expense 183 280
Auditor remuneration - audit of these financial statements 72 65
Auditor remuneration - this year's audit of financial statements of 80 74
subsidiaries
Auditor remuneration - non-audit fees - Other audit related services 6 5
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Other income
RDEC tax credits 389 445
Rental income 244 239
Other 302 265
935 949
Rental income relates to our freehold Head-office in York. 'Other' includes
income from on-site café at York Head-office, grants, and 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 2024 31 March 2023
Nos. Nos.
Administration 198 255
Selling and Distribution 286 318
484 573
The aggregate payroll costs of these persons were as follows:
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Wages and salaries 14,319 16,421
Social security costs 1,681 1,948
Contributions to defined contribution plans 994 1,213
Less: capitalised as development costs (3,473) (5,156)
13,521 14,426
Wages and salaries, social security costs, and staff pension costs of
£487,000 (2023: nil) relating to redundancy costs are reported as
'exceptional costs' and not included in the figures above.
Directors' remuneration
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Directors' emoluments 723 717
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 £230,000 during
the year (2023: £232,000), including company pension contributions of £8,000
(2023: £9,000) that were made to a money purchase scheme on their behalf.
There are five directors (2023: five) for whom retirement benefits are
accruing under a money purchase pension scheme.
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 was restricted to the basic loss per share to prevent having an
anti-dilutive effect.
Year ended Year ended
31 March 2024 31 March 2023
Profit/(loss) attributable to equity shareholders of the parent (£'000) 651 (644)
Basic weighted average number of shares 20,976,938 20,976,938
Dilutive potential ordinary shares 1,102,450 549,269
Diluted weighted average number of shares 22,079,388 21,526,207
Basic profit/(loss) per share 3.1p (3.1p)
Diluted profit/(loss) per share 3.0p (3.1p)
6 Financial expenses and Financial income
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Bank interest 1,545 1,127
IFRS16 lease interest 490 375
Net foreign exchange loss 185 190
Unwinding of discount on deferred consideration 3 2
Total financial expenses 2,223 1,694
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Bank interest 44 -
Total financial income 44 -
7 Taxation
Recognised in the income statement
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Current tax expense
UK Corporation tax - -
Overseas Corporation tax 32 66
Adjustments for prior periods (82) 277
Current tax (credit)/expense (50) 342
Deferred tax expense
Origination and reversal of temporary differences 215 (79)
Adjustments for prior periods (232) (26)
Deferred tax credit (17) (105)
Total tax (credit)/expense (67) 237
The corporation tax rate applicable to the company was 25% for the year ended
31 March 2024, and 19% for the period ended 31 March 2023. The deferred tax
assets and liabilities at 31 March 2024 have been calculated based on that
rate.
Reconciliation of effective tax rate
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Profit/(loss) for the year 651 (644)
Total tax (credit)/charge (67) 237
Profit/(loss) before taxation 584 (407)
Current tax at 25% (2023: 19.0%)
Tax using the UK corporation tax rate for the relevant period: 146 (61)
Non-deductible expenses 94 120
Adjustments relating to prior year - deferred tax (232) 36
Adjustments relating to prior year - current tax (82) 214
Impact of overseas tax rate (4) 1
Deferred tax assets not recognised - 1
R&D credit 11 (11)
Difference between current and deferred tax rates - (19)
Impact of capital allowances super deduction - (44)
Total tax (credit)/charge (67) 237
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 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
Additions - 157 - 8 - 165
Disposals - - (9) (33) - (42)
Balance at 31 March 2024 2,438 7,549 30 1,396 8,201 19,614
Depreciation and impairment
At 1 April 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
Depreciation charge for the year 235 682 1 144 165 1,227
Disposals - - (9) (23) - (32)
Balance at 31 March 2024 2,102 4,754 25 1,226 645 8,752
Net book value as at 31 March 2024 336 2,795 5 170 7,556 10,862
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
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.
Management have reviewed the fair value at 31 March 2024 and concluded that
this would not be materially different. If the property had not been revalued
the net book value would have been £5.0m.
Freehold property valuation - Bacup distribution centre
In 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 2024 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
At 31 March 2024 the Group has five leased properties comprising Distribution
Centres and Showrooms in York, Sweden and Germany, and Distribution Centres in
Ireland and Spain.
In July 2023 the Group concluded a rent review in relation to its York
distribution centre resulting in a right-of-use asset and lease modification.
In November 2023 the Group vacated the software development office in
Manchester.
The associated right-of-use assets are as follows:
Short leasehold properties
£000
Cost
At 1 April 2022 12,135
Modifications 567
Additions 63
Balance at 31 March 2023 12,765
Modifications 2,666
Net exchange differences (178)
Disposals -
Balance at 31 March 2024 15,253
Depreciation
At 1 April 2022 3,900
Depreciation charge for the year 1,577
Balance at 31 March 2023 5,477
Depreciation charge for the year 1,677
Balance at 31 March 2024 7,154
Net book value as at 31 March 2024 8,099
Net book value as at 31 March 2023 7,288
Net book value as at 31 March 2022 8,235
10 Intangible assets
FY24 Software platform additions comprise £3,473,000 (2023: £5,205,000) of
internally developed additions being 95% of software developer wages and
salaries, £149,000 (2023: £87,000) of capitalised interest, £78,000 (2023:
nil) of externally developed additions, and £26,000 (2023: £27,000) of
software licences for tools used in development.
The amortisation charge is recognised in Administrative expenses within the
profit and loss account
Goodwill Software platform Brand Domains Other Intangibles Total
£000 £000 £000 £000 £000 £000
Cost
At 1 April 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
Additions -_____ 3,726 - 12 - 3,738
Balance at 31 March 2024 5,324 28,731 1,372 3,043 149 38,619
Amortisation
At 1 April 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
Amortisation for the year - 3,699 - 3 37 3,739
Balance at 31 March 2024 - 15,916 563 6 85 16,570
Net book value as at 31 March 2024 5,324 12,814 809 3,037 64 22,049
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
Other intangibles
Other intangibles comprise customer relationships, trademarks, and domain
names acquired on acquisition of AV Distribution Ltd.
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 share capital of
AV Distribution Ltd, 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 2024 31 March 2023
£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
2024 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 2024 and concluded it has
a single CGU to which all intangibles are allocated. The carrying value of the
CGU includes these intangibles, the Bacup freehold, the right-of-use assets,
and all other PPE was £36.0m (2023: £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 2026 was used to provide cash-flow projections that have
been discounted at a pre-tax discount rate of 13.58% (2023: 13.22%). 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:
· Annual forecast revenue growth of 6% in FY25; 5% in FY26 and 2% from
FY27 based on growth by geographical market, based on market size and estimate
of opportunity, trends, and Management's experience and expectation.
· FY28-29 and into perpetuity revenue growth of 2%;
· Gross margins are forecast to be maintained in the FY25-FY26 forecast
period; 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 (2023: £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 2024 31 March 2023
£000 £000
Finished goods 25,643 34,381
The cost of inventories recognised as an expense and included in cost of sales
in the year amounted to £95.8m (2023: £102.6m).
Management has included a provision of £52,000 (31 March 2023: £50,000),
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 2024 31 March 2023
£000 £000
Trade receivables 1,125 1,243
Social security and other taxes 538 260
Prepayments 1,416 1,931
3,079 3,434
Corporation tax asset of £768,000 (31 March 2023: £1,066,000) 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. The value of the Expected Credit Loss ('ECL')
is immaterial.
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 (2.7%
of 2024 revenues; 2.9% of 2023 revenues).
Funds lodged with payment providers
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance
totalled £508,000 on 31 March 2024 (31 March 2023: £581,000) and are
included in Trade receivables. 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 2024 31 March 2023
£000 £000
Cash and cash equivalents 4,696 4,460
Cash-in-transit to the Group at 31 March 2024 was £434,000 (31 March 2023:
£354,000) 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 2024 31 March 2023
£000 £000
Bank loans 12,000 19,000
12,000 19,000
Revolving Credit Facility
At 31 March 2024 bank loans were drawn loans under the Group's three-year
£30m Revolving Credit Facility ('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 2024 Year ended 31 March 2023
£000 £000
Opening balance 19,000 28,000
Changes from financing cash flows
Proceeds from loans and borrowings - -
Repayment of borrowings (7,000) (9,000)
Total changes from financing cash flows (7,000) (9,000)
Other changes
Interest expense (note 6) 1,545 1,127
Interest expense capitalised into intangible assets (note 10) 149 88
Interest paid (1,667) (1,080)
Movement in interest accrual (included in accruals and deferred income - note (30) (137)
15)
Fair value movement on loans 3 2
Total other changes - -
Closing balance 12,000 19,000
Other bank facilities
Gear4music has a number of guarantees in relation to VAT, and issues letter of
credits to its suppliers. At 31 March 2024 the Group had guarantees of
£724,000 in place (31 March 2023: £654,000) and letters of credit of
£57,000 (31 March 2023: £63,000).
15 Trade and other payables
Year ended Year ended
31 March 2024 31 March 2023
£000 £000
Current
Trade payables 6,895 9,300
Accruals and deferred income 3,585 5,099
Deferred consideration 23 23
Other taxation and social security 2,975 3,225
13,478 17,647
Non-current
Accruals and deferred income 91 61
Deferred consideration - 22
91 83
Year-end accruals and deferred income included:
£1,353,000 (31 March 2023: £1,907,000) relating to customer prepayments; and
£90,000 (31 March 2023: £61,000) 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 (2023:
£2,000) 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 2024 one instalment remain unpaid. These amounts
are valued in the accounts at fair value and subsequently amortised.
16 Lease liabilities
Short-term leases and leases of low value of £10,000 (31 March 2023:
£41,000) are included in administrative expenses.
The Group has leases for motor vehicles, and five properties (31 March 2023:
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 5 28 to 108-months 52-months - - -
Motor vehicles 2 6 to 20-months 13-months - 2 -
Future minimum lease payments due at 31 March 2024 were as follows:
Within 1 year 1-5 years More than 5 years
£000 £000 £000
Lease payments 2,138 7,011 1,923
Finance charge (394) (1,124) (161)
Net present value 1,744 5,887 1,762
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
Lease liabilities are presented in the statement of financial position as
follows:
31 March 2024 31 March 2023
£000 £000
Current 1,794 1,130
Non-current 7,599 7,470
Total 9,393 8,600
Changes in lease liabilities:
Year ended 31 March 2024 Year ended 31 March 2023
£000 £000
Opening balance 8,600 9,684
Cash flow lease payments (1,350) (1,713)
New leases - 63
Modifications 2,143 566
Total changes 793 (1,084)
Closing balance 9,393 8,600
In July 2023 the Group concluded a rent review in relation to its York
distribution centre resulting in a lease modification.
17 Share capital and reserves
Year ended Year ended
31 March 2024 31 March 2023
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 2024 31 March 2023
£'000 £'000
Opening 13,286 13,286
Issue of shares - -
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 2024 31 March 2023
£'000 £'000
Opening (74) (74)
Translation gain 177 -
Closing 103 (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 2024 31 March 2023
£'000 £'000
Opening 1,203 1,606
Freehold revaluation - (550)
Deferred tax - 147
Depreciation transfer (32) -
Closing 1,171 1,203
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 2024 31 March 2023
£'000 £'000
Opening 20,721 21,120
Share based payment charge 154 245
Deferred tax 150 -
Depreciation transfer 32 -
Profit/(loss) for the year 651 (644)
Closing 21,708 20,721
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 2024 31 March 2023
£000 £000
Key management emoluments including social security costs 716 711
Short-term employee benefits 7 6
Company contributions to money purchase pension plans 25 31
748 748
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
(2023: five).
Share based payments
LTIP (2023)
On 21 July 2023 the Group adopted a replacement long term incentive plan
('LTIP') with share awards made to key members of the management team (note
22). Andrew Wass, Gareth Bevan and Chris Scott are participating with 250,000
'E' ordinary shares awarded in Gear4music Limited.
The new LTIP replaced the two existing LTIPs established in 2018 (and
subsequently re-based in 2020) and in 2021 in full, with all awards made under
those LTIPs replaced and cancelled.
The initial subscription cost for Andrew Wass and Gareth Bevan was paid with
the proceeds received from the redemption by G4M Ltd of the 'C' ordinary
shares and 'D' ordinary shares from the 2018 and 2021 LTIPs respectively at
their nominal value. The initial subscription cost for Chris Scott was paid
with the proceeds received from the redemption by G4M Ltd of the 'C' ordinary
shares and 'D' ordinary shares from the 2018 and 2021 LTIPs respectively at
their nominal value, and £1,580 in cash paid by way of a cash bonus.
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