REG - Gear4music - Interim Results
16/11/2021 07:05
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RNS Number : 4587S Gear4music (Holdings) PLC 16 November 2021
16 November 2021
Gear4music (Holdings) plc
Interim results for the six months ended 30 September 2021
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the
largest UK based online retailer of musical instruments and music equipment,
today announces its unaudited financial results for the six months ended 30
September 2021 ("the Period").
Highlights:
£m 6-months ended 30 Sept 2021 ('FY22 H1') 6-months ended 30 Sept 2020 ('FY21 H1') 6-months ended 30 Sept 2019 ('FY20 H1') Change on FY21 H1 Change on FY20 H1
Revenue 64.7 70.2 49.4 -8% +31%
Gross profit 18.1 20.1 12.5 -10% +45%
Gross margin 28.0% 28.6% 25.2% -60bps +280bps
EBITDA 4.8 8.5 2.0 -£3.7m +£2.8m
Operating profit 2.4 6.4 0.2 -£4.0m +£2.2m
Net profit/(loss) 1.1 4.9 (0.1) -£3.8m +£1.2m
· FY22 H1 Revenues and Profits in-line with Board expectations
· Gross margins remain strong reflecting continued focus on higher margin
products
· EBITDA of £4.8m is £3.7m lower than an exceptional FY21 H1 as expected due
to the impact of Covid, but £2.8m higher than the more comparable period in
FY20 H1
· FY22 Q3 revenue to date slower than expected due to on-going Brexit related
supply chain challenges, leading the Board to revise FY22 full year EBITDA
guidance to not less than £12m (FY21 EBITDA: £18.9m, FY20: £7.8m)
· Sustained improvement in operational performance with enhanced website
conversion, average order value and active customers
· Acquisition of AV Distribution Ltd due to complete in December 2021;
significant growth opportunity identified
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"I am pleased to report that following the exceptional period of trading
during FY21, Group financial performance during FY22 H1 was in-line with the
Board's expectations, retaining strong margins and achieving significantly
improved profitability compared with the more comparable FY20 H1 trading
period.
FY22 Q1 sales were stronger than expected, which provided the basis for the
Board to upgrade its expectations on 22 June 2021. However, Brexit related
supply chain challenges are persisting for longer than we had previously
anticipated, and European Q3 sales to date have been slower than previously
expected. As a result, the Group is trading below FY22 consensus market
expectations*, with the Board now expecting that FY22 EBITDA will be not less
than £12m.
As our new hubs in Ireland and Spain scale-up to build upon our existing
European infrastructure, we are confident that the remaining Brexit related
challenges will be resolved by FY22 Q4 and our European customer proposition
will be significantly strengthened.
With the acquisition of AV Distribution Ltd due to complete in December 2021
followed by the launch of AV.com in January 2022, which will significantly
increase our addressable market size, alongside multiple planned upgrades to
our E-Commerce platform during FY23, we remain confident in our profitable
growth strategy."
* Gear4music believes that consensus market expectations for the year ending
31 March 2022 (i) prior to release of this announcement are currently revenue
of £156.6 million and EBITDA of £14 million; and (ii) before 22 June 2021
were revenues of £152.3 million and EBITDA of £11.5 million.
Gear4music will issue a trading statement on 20 January 2022.
Investor presentation
Andrew Wass, Chief Executive Officer, and Chris Scott, Chief Financial
Officer, will provide a live presentation relating to the results on 17
November 2021 at 4.30pm GMT.
The presentation is open to all existing and potential shareholders. Investors
can sign up to Investor Meet Company for free and add themselves to the
meeting via:
https://www.investormeetcompany.com/gear4music-holdings-plc/register-investor
(https://www.investormeetcompany.com/gear4music-holdings-plc/register-investor)
.
Investors who already follow Gear4music on the Investor Meet Company platform
will be automatically invited.
Enquiries:
Gear4music +44 (0)20 3405 0205
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer
Singer Capital Markets - Nominated Adviser and Joint Broker +44 (0)20 7496 3000
Peter Steel/Amanda Gray, Corporate Finance
Tom Salvesen, Corporate Broking
Investec Bank plc - Joint Broker +44 (0)20 7597 5970
David Flin
Alex Wright
Harry Hargreaves
Alma PR - Financial PR +44 (0)20 3405 0205
Harriet Jackson Gear4music@almapr.co.uk
Rebecca Sanders-Hewett
Josh Royston
Faye Calow
About Gear4music.com
Operating from a Head Office in York, Distribution Centres in York, Sweden,
Germany, Ireland & Spain, and showrooms in York, Sweden & Germany, the
Group sells own-brand musical instruments and music equipment alongside
premium third-party brands including Fender, Yamaha and Roland, to customers
ranging from beginners to musical enthusiasts and professionals, in the UK,
Europe and the Rest of the World.
Having developed its own e-commerce platform, with multilingual, multicurrency
websites delivering to over 190 countries, the Group continues to build its
overseas presence.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the
publication of this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public domain.
Business Review
The business reports the Group's results for the six months to 30 September
2021, and updates on the strategic and commercial progress made in the Period.
Strategy
As previously reported our FY21 results were exceptional, as store-based
competitors were adversely impacted by COVID lockdowns, and e-commerce
transactions significantly increased as people took up activities in which to
participate whilst spending more time at home. Gross margins also increased as
prices were managed relative to stock levels, and marketing returns
particularly in FY21 Q1 were strong as marketing was curtailed to manage
already high levels of demand, and we transformed our distribution centres to
be COVID-secure.
The UK leaving the EU on 1 January 2021 brought a number of cross-border
challenges that have impacted our business, manifesting in a decline of
European sales that would previously have been fulfilled from our UK
distribution centre. Complementing our existing Swedish and German hubs and to
address these issues more substantially and improve our European customer
proposition, we opened Irish and Spanish distribution centres in September
2021, which will be fully operational by FY22 Q4.
We continue to deliver on our commitment to sustain strong gross margins, and
our FY22 H1 gross margin of 28.0% compares favourably to an exceptional 28.6%
in FY21 H1, and 25.2% in FY20 H1.
In FY21 a significant proportion of our software development resource was
focused on preparing for Brexit, and in FY22 this resource was redeployed to
work on growth-related projects, preparing to integrate AV Distribution Ltd,
and launching AV.com.
We continue to make progress against the three pillars of our progressive
e-commerce strategy, and outline developments in each area below:
E-commerce Excellence
FY22 H1 FY21 H1 FY20 H1 Change on FY21 H1 Change on FY20 H1
Revenue £64.7m £70.2m £49.4m -8% +31%
Total unique website users 13.5m 15.2m 13.4m -11% +1%
Mobile site unique users (inc. tablet) 8.7m 8.8m 8.6m -1% +1%
Conversion rate 4.00% 3.90% 3.02% +10bps +98bps
Average order value £128 £117 £120 +9% +6%
Active customers * 993,000 954,000 773,000 +4% +28%
Proportion of repeat customers ** 24.4% 24.9% 26.9% -50bps -250bps
Email subscriber database 725,000 708,000 717,000 +2% +1%
Trustpilot rating 4.8/5 4.8/5 4.8/5 - -
* Active customers are those that have purchased products within the last 12
months
** Repeat customers are those that have made a purchase in the defined period
and have historically made at least one purchase
Revenue in the Period totalled £64.7m, £5.5m (8%) lower than the exceptional
FY21 H1, and £15.3m (31%) ahead of a more normal FY20 H1 trading period. UK
revenue was flat on FY21 H1 and international revenue down 16% largely due to
a fall-off in European orders as a result of the on-going disruption caused to
supply chains and order fulfilment post-Brexit. The Group continues to
actively monitor and manage the evolving situation and, outside of our
existing sites in Sweden and Germany, the setting-up and rapid scaling of our
new Irish and Spanish distribution centres will further localise and enhance
our customer offer, and are expected to remedy the current challenges in FY22
Q4 and beyond.
Website user numbers decreased by 11% to 13.5m year-on-year, with visitors to
the UK site decreasing by 5% and visitor numbers to the Group's 19
international websites decreasing by 15%.
Organic and direct website traffic accounted for 38% of total visitors (FY21
H1: 42%; FY20 H1: 38%) as the growth in mobile continues, and competition for
screen space increases the relevance of 'Pay-per-Click' ('PPC'). In line with
our stated strategy, improved PPC returns were maintained above pre-FY21
levels and marketing spend equated to 6.9% of sales compared to an exceptional
5.3% last year that reflected a lower PPC spend to manage capacity during
COVID lockdowns, and 8% in FY20 H1 and 8.2% in FY19 H1.
The increasing prominence of mobile continues to be a key theme with the
proportion of users from this channel increasing from 58% last year to 65% of
all users this year (FY20 H1: 65%), with last year's temporary decrease
reflecting COVID lockdown and an associated rise in desktop use. Mobile
website development remains an important focus area for the Group.
Conversion rates improved again from 3.9% last year to 4.0% (FY20 H1: 3.0%)
reflecting an on-going targeted, higher return approach to marketing, and less
people browsing. Conversion in the UK improved from 6.1% last year to 6.4%
(FY20 H1: 4.8%) whilst European conversion decreased from 2.6% to 2.4% (FY20
H1: 2.1%). Mobile conversion fell from 2.6% to 2.3% (FY20 H1: 2.0%).
The Group served 404,000 customers in the Period (-16%) through its websites
and Active customers, being those that have purchased products within the last
12 months, increased by 4% reflecting a strong FY21 H2. The proportion of
repeat customers was 24.4% (FY21 H1: 24.9%; FY20 H1: 26.9%) reflecting the
328,000 new customers that purchased during the Period. The level of repeat
custom reflects the Group's product range and high average order value, and
re-affirms the important differentiator that the Group is profitable from the
first customer transaction.
The number of subscribers on our email database increased to 725,000 (+2%).
Further segmentation improvements to our email retargeting platform are being
developed with the objective of increasing the number of repeat customers.
We continue to invest in our customer proposition and service teams, resulting
in a positive overall customer experience, reflected in Gear4music.com's
Trustpilot score of 4.8 and 'Excellent' rating from over 97,000 reviews.
The Group invested £2.0m in its e-commerce platform in the Period (FY21 H1:
£1.4m; FY20 H1: £1.4m) which included on-going Brexit related projects, and
work ahead of the integration of the soon to be acquired AV business.
Deployments in the Period included:
· Additional hubs launched in Spain and Ireland
· AV.com site and system construction - most systems ready
· Moved to a new card payment system providing better security and 3D Secure V2
· Partial deployments for 3(rd)-party drop shipping and 2(nd) hand platform
systems, ahead of coming online next year
· Upgrading the platform to PHP v7.4
Development into key growth-related projects remains on-going.
Supply Chain Evolution
FY22 H1 FY21 H1 FY20 H1 Change on FY21 H1 Change on FY20 H1
Own-brand product sales £15.3m £18.4m £12.9m -17% +19%
Other brand product sales £46.2m £48.4m £34.4m -4% +34%
Product margin 32.0% 32.8% 29.6% -80bps +240bps
Products listed 60,500 55,200 52,700 +10% +15%
Brands listed 951 894 889 +6% +6%
Retaining strong gross margins remains a key business objective, and much of
last year's improvement has been retained with gross margin in the Period of
28.0% compared to 28.6% last year, and 25.2% in FY20 H1.
Product margins decreased 80bps from 32.8% to 32.0% (FY20 H1: 29.6%),
reflecting a 30bps decrease in both own-brand and other-brand product margins,
and a sales mix effect as own-brand sales accounted for 24.9% of total product
sales compared to 27.6% last year (FY20 H1: 27.3%; FY19 H1: 21.9%).
The number of SKUs listed increased from 55,200 at 30 September 2020 to 57,900
at 31 March 2021 and 60,500 at 30 September 2021, representing a net 15%
increase in 12 months.
The number of own-brand products increased from 3,600 at 30 September 2020 to
3,900 at 30 September 2021, with own-brand revenue accounting for 24.9% of
total product sales from just 6.5% of SKUs reflecting the effort expended in
developing our range of high-quality instruments and equipment at affordable
prices. New products continue to be developed and during the Period we
launched:
· A large range of SubZero, RedSub & Hartwood guitar & bass amplifiers
· A range of SubZero Guitar Pedals
· 18x SubZero speakers & PA systems
· DP-12 Digital Pianos
· DD500 Range of Digital Drum Kits
· sideKIK Personal Musician's Amp
· VISIONKEY Keyboards
Progress continues to be made in developing the Premier brand that we acquired
earlier in the year, with the imminent launch of Premier digital drum kits. We
have also been shaping the future of Premier Acoustic Drum Kits with several
exciting new ranges due to launch Summer/Autumn 2022 to coincide with
Premier's centenary celebrations.
We have deliberately and significantly increased stock by £8.7m (30%) from
£28.7 million at 30 September 2020, to £37.5 million, to put the business in
a strong position heading into peak trading, and as a precautionary measure
against potential supply chain issues and increased container costs.
International Expansion
Although we were well prepared ahead of Brexit, the cost, administrative
burden and time to deliver products to our European customers from the UK
significantly increased as a result of the Brexit deal announced on 24
December 2020, causing our overall customer proposition to decline across
these cross-border SKUs.
To help mitigate these challenges, we further scaled and invested into stock
in our Swedish and German distribution centres, and in September 2021 added
15,000 square feet of distribution space in Ireland and 45,000 square feet in
Spain. Whilst factored into our expectation, the impact on FY22 H1 revenue was
significant with a marked decline in cross UK-EU border sales.
These operational challenges have continued to impact our business post period
end. However, in line with strategy we now have a European distribution
infrastructure capable of handling over £120m of sales per annum meaning that
the Group remains well positioned to capitalise on the medium-term growth
opportunity.
Current trading and outlook
As planned, our new European hubs in Ireland and Spain became operational in
September, but due to some short-term supply chain challenges, these new hubs
are taking longer to scale-up than we originally anticipated. As a result,
ongoing Brexit related challenges are impacting for longer than we had hoped,
and our European Q3 sales to date have been lower than previously expected. As
such the Board believes that results for the financial year will be lower than
recently upgraded consensus market expectations.
The Board is confident that the Group now has the European infrastructure to
resolve these issues, and further localise and improve our customer
proposition in mainland Europe.
The acquisition of AV Distribution Ltd is expected to complete in December
2021 and the launch of AV.com in January 2022, alongside planned upgrades to
our e-Commerce platform during FY23, provides the Board with the basis for
reiterating its confidence in the Group's growth strategy.
The Group will issue a Christmas trading update on 20 January 2022.
Financial Review
FY22 H1 FY21 H1 FY20 H1 Change on FY21 H1 Change on FY20 H1
Revenue £64.7m £70.2m £49.4m -8% +31%
Gross profit £18.1m £20.1m £12.5m -10% +45%
Gross margin 28.0% 28.6% 25.2% -60bps +280bps
EBITDA £4.8m £8.5m £2.0m -£3.7m +£2.8m
EBITDA margin 7.4% 12.1% 4.0% -470bps +340bps
Operating profit £2.4m £6.4m £0.2m -£4.0m +£2.2m
Marketing costs £4.4m £3.7m £3.9m +19% +13%
Marketing costs as % of revenue 6.9% 5.3% 8.0% +160bps -110bps
Total Labour costs £6.1m £5.5m £4.7m +11% +30%
Total Labour costs as % of revenue 9.4% 7.8% 9.4% +160bps -
Cash £3.6m £5.4m £3.4m -£1.8m +£0.2m
Net bank debt £13.4m £5.7m £9.7m +£7.7m +£3.7m
Revenue
Revenue in the six months to 30 September 2021 decreased by 8% on a
COVID-boosted exceptional trading period last year, when revenue increased by
42%. FY22 H1 revenue of £64.7m was £15.3m (31%) ahead of a more normal FY20
H1 trading period.
Revenue from the UK market was maintained at £36.7m taking our estimated
share of the UK market to 8.9% (FY21 H1 estimate: 8.6%).
Revenue into international markets has been hampered by Brexit related factors
and decreased by £5.5m (16%) to £28.0m (FY20 H1: £24.6m), accounting for
43% of Group revenue compared to 48% in FY21 H1 and 50% in FY20 H1.
Gross Profit
The Group considers changes in gross profit, being a function of strong sales
growth and gross margins that make good commercial sense, to be the primary
measure of growth.
Gross profit decreased by £2.0m (10%) from the exceptional £20.1m last year,
to £18.1m, as the Group sought to retain much of the FY21 H1 gross margin
improvement, with an FY22 H1 margin of 28.0% being just 60bps down on last
year.
Operating Profit and Administrative Expenses
Operating profit of £2.4m represents a £4.0m decrease on an exceptional FY21
H1, reflecting a £2.0m decrease in gross profit driven by lower revenue, and
a £2.0m increase in administrative costs.
The increase in administrative costs of £2.0m (15%) includes a £0.7m (19%)
increase in marketing costs, a £0.6m (11%) increase in labour costs, a £0.3m
increase in depreciation and amortisation and increases in other
activity-linked variable costs.
Marketing and labour costs continue to be key business drivers and the main
component parts of our cost base, accounting for a combined 67% of total
administrative expenses in the Period (FY21 H1: 67%).
In FY21, H1 marketing costs as a percentage of revenue reached 5.3% compared
to 6.9% in FY22 H1, with expenditure in the prior period restricted
particularly in FY21 Q1 to help manage capacity as new health and safety
measures were introduced into our warehouses. FY22 H1 has been a more 'normal'
trading period with a focus on maintaining a strong, pre-defined return on
investment.
Total labour costs increased by £0.6m (11%) on last year reflecting pay
increases, recruitment to respond to Brexit, and the full-year effect of FY21
new hires.
European distribution centre local administrative expenses increased by £0.3m
(24%) on FY21 H1, to £2.0m.
Depreciation and amortisation in the Period totalled £2.4m (FY21 H1: £2.1m)
including £1.1m (FY21 H1: £0.9m) of amortisation relating to our bespoke
e-commerce platform, and £0.6m depreciation of 'Right of Use' assets (FY21
H1: £0.6m).
Net Profit
Financial expenses of £0.5m include £0.2m bank interest (FY21 H1: £0.1m),
£0.2m interest on lease liabilities (FY20 H1: £0.2m), and a small foreign
exchange loss (FY21 H1: £0.3m loss).
Net profit of £1.1m (FY21 H1: £4.9m; FY20 H1: £0.1m loss) represents a good
result to take into the second half of the financial year. The business
reported a net profit in every month in FY22 H1.
Cash Flow and Balance Sheet
September generally represents a low point in the annual cash cycle as stock
builds ahead of the peak Christmas trading period, and this has been amplified
in response to potential supply chain issues. Nevertheless, net bank debt of
£13.4m (30 September 2020: £5.7m), leaves headroom of £21.6m including
£18m within the Group's £35m RCF three-year committed Revolving Credit
Facility ('RCF') with HSBC Bank plc.
In the Period the business has utilised its debt facility to significantly
invest in stock (+£8.7m), make £4.7m of brand and domain acquisitions
(AV.com domain £3.0m; Premier business and certain assets £1.7m), and invest
£2.0m in software development.
The carrying value of stock at 30 September 2021 was £37.5m (30 September
2020: £28.7m) including £6.2m of inbound stock-in-transit (30 September
2020: £5.1m) arriving ahead of peak trading.
Trade and other payables decreased from £18.7m last year to £15.6m as stock
was brought in and suppliers paid earlier, and includes the associated
liability for the £6.2m of inbound stock-in-transit (30 September 2020:
£5.1m).
Capitalised software development costs totalled £2.0m in the Period taking
total spend to date to £15.5m. Amortisation in the Period was £1.1m leading
to a £0.9m increase in net book value since the start of the financial year.
Property, plant and equipment capital expenditure was £0.7m in the Period
(FY21 H1: £0.5m), relating principally to the new Irish and Spanish
distribution centres.
Dividend Policy
Consistent with its previous approach, the Group repeats its intention to
revisit its shareholder distribution policy periodically, including at the end
of this financial year.
Unaudited consolidated interim statement of profit and loss and other
comprehensive income
6 months ended 30 September 6 months ended 30 September 2020 (unaudited) Year ended
31 March 2021 (audited)
2021 (unaudited)
Note
£000 £000 £000
Revenue 3 64,694 70,217 157,451
Cost of sales (46,573) (50,121) (111,097)
Gross profit 18,121 20,096 46,354
Administrative expenses 4 (15,728) (13,685) (30,945)
Operating profit 4 2,393 6,411 15,409
Financial expenses 6 (463) (660) (770)
Profit before tax 1,930 5,751 14,639
Taxation 7 (850) (802) (1,998)
Profit for the period 1,080 4,949 12,641
Other comprehensive income
Items that will not be reclassified to profit or loss:
Deferred tax movements (120) - 8
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations (36) (8) (17)
Total comprehensive income for the period 924 4,941 12,632
Profit per share attributable to equity shareholders of the company
Basic profit per share 5 5.2p 23.6p 60.3p
Diluted profit per share 5 5.1p 23.4p 59.7p
Unaudited consolidated interim statement of financial position
30 September 30 September 31 March 2021 (audited)
2021 2020 (unaudited)
(unaudited)
Note £000 £000 £000
Non-current assets
Property, plant and equipment 8 11,289 11,125 11,190
Right of use assets 9 8,953 8,743 7,871
Intangible assets 10 15,901 9,585 10,395
36,143 29,453 29,456
Current assets
Inventories 11 37,452 28,732 28,430
Trade and other receivables 12 3,317 4,453 3,647
Cash and cash equivalents 3,648 5,434 6,203
44,417 38,619 38,820
Total assets 80,560 68,072 67,736
Current liabilities
Interest bearing loans and borrowings 13 - (7,520) (575)
Trade and other payables 14 (15,591) (18,675) (18,938)
Lease liabilities 15 (1,158) (1,184) (1,099)
(16,749) (27,379) (20,612)
Non-current liabilities
Interest bearing loans and borrowings 13 (17,000) (3,166) (2,901)
Other payables 14 (78) (124) (110)
Lease liabilities 15 (9,221) (9,205) (8,315)
Deferred tax liability (2,206) (1,589) (1,486)
(28,505) (14,084) (12,812)
Total liabilities (45,254) (41,463) (33,424)
Net assets 35,306 26,609 34,312
Equity
Share capital 2,098 2,095 2,095
Share premium 13,286 13,165 13,165
Foreign currency translation reserve (87) (42) (51)
Revaluation reserve 1,640 1,674 1,640
Retained earnings 18,369 9,717 17,463
Total equity 35,306 26,609 34,312
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended
30 September 30 September 31 March
2021 2020 2021
(unaudited) (unaudited) (audited)
£000 £000 £000
Cash flows from operating activities
Profit for the period: 1,080 4,949 12,641
Adjustments for:
Depreciation and amortisation 8-10 2,424 2,100 4,372
Financial expense 6 425 322 770
Profit on sales of property, plant and equipment (8) - (4)
Share-based payment (credit)/charge (54) 46 64
Tax expense 7 850 802 1,998
4,717 8,219 19,841
Increase/(decrease) in trade and other receivables 916 (1,952) (1,181)
Increase in inventories (9,022) (6,717) (6,415)
(Decrease)/increase in trade and other payables (1,533) 3,917 2,687
(4,922) 3,467 14,932
Tax paid (2,535) (92) (37)
Net cash from operating activities (7,457) 3,375 14,895
Cash flows from investing activities
Proceeds from sales of property, plant and equipment 57 - 14
Acquisition of property, plant and equipment 8 (738) (467) (1,166)
Acquisition of intangible assets 10 (3,013) - -
Acquisition of a business (net of cash acquired) 10 (1,685) - -
Capitalised development expenditure 10 (1,996) (1,433) (3,186)
Payment of deferred consideration - (200) (200)
Net cash from investing activities (7,375) (2,100) (4,538)
Cash flows from financing activities
Cash from share issue - 13 13
Proceeds from new borrowings 13 17,000 - 29
Repayment of borrowings (3,476) (2,702) (9,948)
Interest paid (including lease interest) 6 (427) (319) (692)
Lease payments (784) (664) (1,379)
Net cash from financing activities 12,313 (3,672) (11,977)
Net decrease in cash and cash equivalents (2,519) (2,397) (1,620)
Cash and cash equivalents at beginning of period 6,203 7,839 7,839
Foreign exchange movement (36) (8) (16)
Cash and cash equivalents at end of period 3,648 5,434 6,203
Unaudited consolidated interim statement of changes in equity
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2021 2,095 13,165 (51) 1,640 17,463 34,312
Profit for the period - - - - 1,080 1,080
Other comprehensive income - - (36) - - (36)
Deferred tax adjustment - - - - (120) (120)
Issue of shares net of expenses 3 121 - - - 124
Share based payments charge - - - - (54) (54)
Balance at 30 September 2021 2,098 13,286 (87) 1,640 18,369 35,306
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2020 2,095 13,152 (34) 1,674 4,722 21,609
Profit for the period - - - - 4,949 4,949
Other comprehensive income - - (8) - - (8)
Issue of shares net of expenses - 13 - - - 13
Share based payments charge - - - - 46 46
Balance at 30 September 2020 2,095 13,165 (42) 1,674 9,717 26,609
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2020 2,095 13,152 (34) 1,674 4,722 21,609
Profit for the year - - - - 12,641 12,641
Other comprehensive income - - (17) - 10 (7)
Deferred tax adjustment - timing difference - - - - (8) (8)
Issue of shares net of expenses - 13 - - - 13
Share based payments charge - - - - 64 64
Depreciation transfer - - - (34) 34 -
Balance at 31 March 2021 2,095 13,165 (51) 1,640 17,463 34,312
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company incorporated and
domiciled in the United Kingdom, and is listed on the Alternative Investment
Market ('AIM') of the London Stock Exchange.
The Group financial information consolidates those of the Company and its
subsidiaries (collectively referred to as the "Group"). The Group has 100%
owned trading subsidiaries in the UK ('Gear4music Limited'), Sweden
('Gear4music Sweden AB') and Germany ('Gear4music GmbH'). In the six-month
period ended 30 September 2021 Gear4music Limited set-up a 100% owned Irish
subsidiary ('Gear4music Ireland Limited) and a 100% owned Spanish subsidiary
('Gear4music Spain S.L.'). The Group also has 100% owned dormant subsidiaries
in the UK ('Cagney Limited') and in Norway ('Gear4music Norway').
The principal activity of the Group is the retail of musical instruments and
equipment.
The registered office of Gear4music (Holdings) plc (company number: 07786708),
Gear4music Limited (company number: 03113256) and Cagney Limited (dormant
subsidiary; company number: 04493300) is Holgate Park Drive, York, YO26 4GN.
1 Accounting policies
Basis of preparation
The unaudited consolidated interim financial information has been prepared
under the historical cost convention, except for land and buildings that are
stated at their fair value, and in accordance with the recognition and
measurement requirements of International Financial Reporting Standards
("IFRS") as adopted by the European Union, IFRIC interpretations, and with
those parts of the Companies Act 2006 applicable to companies reporting under
IFRS. The condensed consolidated interim financial information does not
constitute financial statements within the meaning of Section 434 of the
Companies Act 2006 and does not include all of the information and disclosures
required for full annual financial statements. It should therefore be read in
conjunction with the Group's Annual Report for the year ended 31 March 2021,
which has been prepared in accordance with International Financial Reporting
Standards and is available on the Group's investor website.
The accounting policies used in the financial information are consistent with
those used in the Group's consolidated financial statements as at and for the
year ended 31 March 2021, as detailed on pages 62 to 67 of the Group's Annual
Report and Financial Statements for the year ended 31 March 2021, a copy of
which is available on the Group's website, www.gear4musicplc.com.
The comparative financial information contained in the condensed consolidated
financial information in respect of the year ended 31 March 2021 has been
extracted from the 2021 Financial Statements. Those financial statements have
been reported on by Grant Thornton UK LLP, and delivered to the Registrar of
Companies. The report was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under Section 498(2)
or 498(3) of the Companies Act 2006.
Selected explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in financial position
and performance of the Group since the last annual consolidated financial
statements as at the year ended 31 March 2021.
Notes to the Interim Financial Information (continued)
Going concern
The Group's business activities and position in the market are described in
detail in the Strategic Report included on pages 1 to 39 of the Group's 2021
Annual Report and Financial Statements
The Directors are confident that the Group has sufficient financial resources
and is well placed to manage its business risks, and flourish.
The financial year ended 31 March 2021 was a period of exceptionally strong
trading and the Group reported a further strengthened balance sheet with net
assets of £34.3m (31 March 2020: £21.6m), and net cash at the year-end of
£2.7m (31 March 2020: net debt of £5.5m).
The Group's policy is to ensure that it has sufficient facilities to cover its
future funding requirements. On 21 April 2021 the Group secured a £35m
three-year committed Revolving Credit Facility with its bankers, HSBC. At 30
September 2021 the Group had net debt of £13.4m and £21.6m of headroom
including £18m within its facilities. This significant headroom has been
factored into the Directors going concern assessment.
The Directors have considered the Group's growth prospects based on its
current proposition and online offering in
the UK and Europe, strategic developments in the pipeline, and an M&A-led
entry to the European AV market, and concluded that there are significant
opportunities for profitable growth as channel shift continues and
customers move online.
There is a diverse supply chain with no key dependencies.
Having duly considered all of these factors and having reviewed the forecasts
for the coming year, the Directors have
a reasonable expectation that the Group has adequate resources to continue
trading for the foreseeable future, and
as such continue to adopt the going concern basis of accounting in preparing
the financial statements.
2 Principal risks and uncertainties
The Board considers the principal risks and uncertainties which could impact
the Group over the remaining six months of the financial year to 31 March 2022
to be unchanged from those set out in the group's Annual Report and Financial
Statements for the year ended 31 March 2021, and can be summarised as:
- Impact of the UK having left the EU
- COVID-19
- Change management of rapid growth, new markets and/or mergers and acquisitions
- Management of Warehousing and Distribution
- IT and Cyber reliability
- Brand and proposition
- Competition
- Supplier relationships
- Dependence on key personnel
These are set out in detail on pages 32 to 35 of the Group's Annual Report and
Financial Statements for the year ended 31 March 2021, a copy of which is
available on the Group's Plc website, www.gear4musicplc.com.
Notes to the Interim Financial Information (continued)
3 Segmental analysis
Revenue by Geography:
6 months ended 6 months ended 30 September 2020 Year ended
31 March 2021
30 September
2021
£000 £000 £000
UK 36,704 36,686 78,690
Europe and Rest of the World 27,990 33,531 78,761
64,694 70,217 157,451
Administrative Expenses by Geography:
6 months ended 6 months ended 30 September 2020 Year ended
31 March 2021
30 September
2021
£000 £000 £000
UK 13,685 12,034 27,109
Europe and Rest of the World 2,043 1,651 3,836
15,728 13,685 30,945
Revenue by Product Category:
6 months ended 6 months ended 30 September 2020 Year ended
31 March 2021
30 September
2021
£000 £000 £000
Other-brand products 46,228 48,353 104,199
Own-brand products 15,339 18,428 45,368
Carriage income 2,757 3,042 7,135
Warranty income 246 268 545
Other 124 126 204
64,694 70,217 157,451
Notes to the Interim Financial Information (continued)
4 Expenses and other income
Included in profit/loss are the following:
6 months ended 30 September 6 months ended 30 September 2020 Year ended
31 March 2021
2021
£000 £000 £000
Depreciation of property, plant and equipment 590 561 1,185
Depreciation of right-of-use assets 646 607 1,219
Amortisation of intangible assets 1,188 932 1,968
Amortisation of government grants 4 3 11
Profit on disposal of property, plant and equipment (8) - (4)
R&D expenditure recognised as an expense 102 73 155
6 months ended 30 September 6 months ended 30 September 2020 Year ended
31 March 2021
2021
£000 £000 £000
Other income 350 329 688
5 Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for
the period attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted profit per share is calculated by dividing the net profit for the
period attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all dilutive
potential ordinary shares into ordinary shares.
6 months ended 6 months ended 30 September Year ended
31 March 2021
30 September 2020
2021
Profit attributable to equity shareholders of the parent (£'000) 1,080 4,949 12,641
Basic weighted average number of shares 20,958,821 20,947,015 20,948,595
Dilutive potential ordinary shares 193,452 218,299 218,033
_________ _________ _________
Diluted weighted average number of shares 21,152,273 21,165,314 21,166,628
_________ _________ _________
Basic profit per share 5.2p 23.6p 60.3p
Diluted profit per share 5.1p 23.4p 59.7p
Notes to the Interim Financial Information (continued)
6 Finance expenses
6 months ended 6 months ended 30 September 2020 Year ended
31 March 2021
30 September
2021
£000 £000 £000
Bank interest 201 109 196
IFRS16 lease interest 193 210 403
Net foreign exchange loss 38 338 161
Net fair value movements 31 3 10
Total finance expense 463 660 770
7 Taxation
6 months ended 6 months ended 30 September 2020 Year ended
31 March 2021
30 September
2021
£000 £000 £000
Current tax expense 249 620 1,919
Deferred tax expense 601 182 86
Total tax expense 850 802 2,005
The deferred tax liability has been increased by £721,000 to £2,206,000.
The £721,000 movement consists of a P&L charge of £601,000 and a
£120,000 charge to other comprehensive income. The increase in the
deferred tax liability is due to a restatement of deferred tax liabilities
relating to the freehold revaluation, from the rate it was initially included
at, to the tax rate substantively enacted at the Balance Sheet date, and the
acceleration of tax relief for intangible assets as a result of an R&D
claim. The claim results in an R&D tax credit.
The corporation tax rate applicable to the company was 19% in the period to 30
September 2021. An increase in the corporation tax rate to 25% with effect
from 1 April 2023 was substantively enacted in legislation on 24 May 2021.
Therefore, the company's deferred tax assets and liabilities at 30 September
2021 have been recognised / provided at that rate.
Notes to the Interim Financial Information (continued)
8 Property, plant and equipment
Freehold property Plant and Fixtures Motor vehicles Computer equipment Total
equipment and fittings
£000 £000 £000 £000 £000 £000
Cost
Balance at 1 October 2020 7,500 1,688 5,238 62 1,015 15,503
Additions - 159 461 - 79 699
Disposals - - - (32) - (32)
Balance at 31 March 2021 7,500 1,847 5,699 30 1,094 16,170
Additions - 185 470 - 83 738
Disposals - (61) - - - (61)
Balance at 30 September 2021 7,500 1,971 6,169 30 1,177 16,847
Depreciation
Balance at 1 October 2020 75 1,079 2,499 39 686 4,378
Charge for the period 75 143 321 2 83 624
Disposals - - - (22) - (22)
Balance at 31 March 2021 150 1,222 2,820 19 769 4,980
Charge for the period 75 176 256 1 82 590
Disposals - (12) - - - (12)
Balance at 30 September 2021 225 1,386 3,076 20 851 5,558
Net book value as at 30 September 2021 7,275 573 3,093 10 338 11,289
Net book value as at 31 March 2021 7,350 625 2,879 11 325 11,190
Net book value as at 30 September 2020 7,425 609 2,739 23 329 11,125
Notes to the Interim Financial Information (continued)
9 Right-of-use Assets
Leasehold properties
At 31 March 2021 the Group had four leased properties: Distribution centres
and showrooms in York, Sweden and Germany, and a software development office
in Manchester).
In August 2021 the Group added an Irish property lease for a new distribution
centre, and in September 2021 added a Spanish property lease for a new
distribution centre.
As at 30 September 2021 the associated right of use assets are as follows:
Land and Buildings
£000
Cost
Balance at 1 October 2020 10,566
Foreign exchange movement (261)
Balance at 31 March 2021 10,305
Foreign exchange movement 14
Additions 1,714
Balance at 30 September 2021 12,033
Depreciation
Balance at 1 October 2020 1,823
Charge for the period 611
Balance at 31 March 2021 2,434
Charge for the period 646
Balance at 30 September 2021 3,080
Net book value as at 30 September 2021 8,953
Net book value as at 31 March 2021 7,871
Net book value as at 30 September 2020 8,743
Notes to the Interim Financial Information (continued)
10 Intangible assets
Goodwill Software Brand Domain names Total
platform
£000 £000 £000 £000 £000
Cost
Balance at 1 October 2020 1,848 13,494 564 - 15,906
Additions - 1,753 93 - 1,846
Balance at 31 March 2021 1,848 15,247 657 - 17,752
Additions - 1,996 - - 1,996
Additions by acquisition 1,525 - 160 3,013 4,698
Balance at 30 September 2021 3,373 17,243 817 3,013 24,446
Amortisation
Balance at 1 October 2020 - 5,838 483 - 6,321
Amortisation for the period - 1,008 28 - 1,036
Balance at 31 March 2021 - 6,846 511 - 7,357
Amortisation for the period - 1,081 32 75 1,188
Balance at 30 September 2021 - 7,927 543 75 8,545
Net book value as at 30 September 2021 3,373 9,316 274 2,938 15,901
Net book value as at 31 March 2021 1,848 8,401 146 - 10,395
Net book value as at 30 September 2020 1,848 7,656 81 - 9,585
Acquisitions
On 21 June 2021 the Group completed the acquisition of the 'Premier' drum and
percussion brand, business and certain assets from Premier Music International
Limited and High House 123 Limited liability partnership, for £1.685m.
On 15 July 2021 the Group acquired the AV.com domain name for £3.01m. Domain
names are being amortised over 10-years.
On completion of the Group's acquisition of AV Distribution Limited which is
expected in December 2021, Management will commission independent reporting
accountants to assist their assessment of the fair values of the assets and
liabilities acquired, intangible assets recognised and the associated goodwill
arising from all the acquisitions in the year. The information required to be
disclosed under IFRS 3 will be included in the Group's Financial statements
for the year ending 31 March 2022.
Notes to the Interim Financial Information (continued)
11 Inventories
30 September 30 September 2020 31 March
2021 2021
£000 £000 £000
Finished goods 37,452 28,732 28,430
The cost of inventories recognised as an expense and included in cost of sales
in the period ended 30 September 2021 amounted to £42.6m (30 September 2020:
£45.5m).
Inventories include £6.2m of predominantly Own-brand stock-in-transit (30
September 2020: £5.1m) from Far East manufacturers.
12 Trade and other receivables
30 September 2021 30 September 2020 31 March 2021
£000 £000 £000
Trade receivables 1,099 3,554 1,579
Prepayments 2,218 899 2,068
3,317 4,453 3,647
Trade receivables includes cash lodged with payment providers, Amazon and the Group's consumer finance partner, and UK and International education and trade accounts where standard credit terms are 30-days.
Notes to the Interim Financial Information (continued)
13 Interest bearing loans and borrowings
30 September 2021 30 September 2020 31 March 2021
£000 £000 £000
Non-current liabilities
Bank loans 17,000 3,166 2,901
17,000 3,166 2,901
Current liabilities
Bank loans - 7,520 575
- 7,520 575
Total liabilities
Bank loans 17,000 10,686 3,476
17,000 10,686 3,476
On 21 April 2021 the Group entered into a £35m Revolving Credit facility with
HSBC. This replaced the commercial property loans and import loan facility
operated prior to this date. The facility expires in April 2024 and is secured
by a debenture over the Group's assets.
Notes to the Interim Financial Information (continued)
14 Trade and other payables
30 September 2021 30 September 2020 31 March 2021
£000 £000 £000
Current
Trade payables 10,013 13,887 11,390
Accruals and deferred income 2,985 1,847 3,033
Deferred consideration 24 - 24
Government grants - 7 7
Other creditors including tax and social security 2,569 2,934 4,484
15,591 18,675 18,938
Non-current
Accruals and deferred income 9 117 38
Deferred consideration 69 - 69
Government grants - 7 3
78 124 110
Accruals at 30 September 2021 include £9,000 (2020: £118,000) relating to
the estimated cash bonuses accrued relating to the CSOP schemes.
Deferred consideration
On 10 March 2021 the Group acquired the Eden brand and associated assets from
Marshall Amplification plc for £140,000 of which £100,000 is deferred and
payable in four equal instalments of £25,000 on the first, second, third and
fourth anniversary of the completion date. These amounts are valued in the
accounts at fair value and subsequently amortised.
The Directors consider the carrying amount of other 'trade and other payables'
to approximate their fair value.
15 Leases
The Group has leases for plant and machinery (£0.1m) and six properties
(£10.3m).
Each lease is reflected on the statement of financial position as a
right-of-use asset and a lease liability. The Group classifies its
right-of-use assets in a consistent manner to its property, plant and
equipment.
Lease liabilities are presented in the statement of financial position as
follows:
30 September 2021 30 September 2020 31 March 2021
£000 £000 £000
Current 1,158 1,184 1,099
Non-current 9,221 9,205 8,315
10,379 10,389 9,414
Notes to the Interim Financial Information (continued)
16 Share based payments
The Group operates share option plans for qualifying employees of the Group.
Options in the plans are settled in equity in the Company and are subject to
vesting conditions.
Exercised options
On 30 July 2021 5,312 ordinary shares were issued pursuant to the exercise of
options by 39 employees under the Company's 2018 CSOP Scheme, taking the total
number of Ordinary Shares in issue to 20,955,488.
On 3 August 2021 21,450 ordinary shares were issued pursuant to exercise of
options by employees under the Company's LTIP, including awards of 6,825 and
5,850 Ordinary Shares to Gareth Bevan and Chris Scott, taking their
shareholdings to 91,585 and 80,690 Ordinary shares respectively. Andrew Wass's
entitlement was exercised and settled in a cash award of £55,575.
These awards represented a combined dilution of 0.1%.
Options granted
On 6 August 2021 options over a total of 8,649 Ordinary shares were granted to
31 employees under the Company's CSOP scheme.
17 Related party transactions
There were no significant related party transactions during the six months to
30 September 2021 (30 September 2020: none).
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