REG - Gear4music - Interim Results
14/11/2023 07:15
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RNS Number : 3073T Gear4music (Holdings) PLC 14 November 2023
14 November 2023
Gear4music (Holdings) plc
Interim results for the six months ended 30 September 2023
"Progressing against our strategic objectives amidst a challenging backdrop"
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 2023 ("the Period").
£m 6-months ended 30 Sept 2023 ('FY24 H1') 6-months ended 30 Sept 2022 ('FY23 H1') Change on FY23 H1
UK Revenues 36.5 35.5 +3%
European & Rest of World revenues 26.1 30.8 (15%)
Total revenues 62.6 66.3 (6%)
Gross profit 17.0 17.4 (1%)
Gross margin 27.1% 26.3% +80bps
Adjusted EBITDA* 2.9 2.7 +6%
Operating loss (0.9) (0.3) (0.6m)
Net loss (1.6) (1.1) (0.5m)
* Adjusted EBITDA is defined as EBITDA ('Earnings before interest, tax,
depreciation and amortisation') adjusted for exceptional items. In FY24 H1
EBITDA adjusted for £0.5m one-off redundancy costs (FY23 H1: £nil).
FY24 H1 Highlights:
- Results reflect delivery against previously stated prioritisation
of improved gross margins and reduced costs over sales growth in a continuing
challenging retail environment, particularly in our European markets:
o A 6% decline in revenue resulted from a planned focus on prioritising
gross margins which improved by 80bps, with the Group benefiting from an
improved stock profile and lower delivery costs in FY24 H1; and
o Cost reduction initiatives to achieve £4.0m of annualised cash savings
were delivered in FY24 H1, with the benefit from FY24 H2 onwards - associated
one-off exceptional cost of £0.5m.
- Good progress against the objective of reducing Group net debt to
£18.1m, £3.7m lower than last year (30 September 2022: £21.8m),
representing a high-point in the annual cash cycle as the business starts to
build stock ahead of the peak trading period.
- Second Hand system continues to show good potential following
European launch during FY24 H1.
- Well prepared ahead of the seasonal peak trading period, with a
continuing focus on efficiency and margin improvements.
Trading Outlook:
· Whilst profit expectations remain the same, we are moderating our
revenue expectation for the year to £144m, to reflect sales run rates and the
actions taken to prioritise profits over growth. This has been offset by an
increase in gross margins and lower costs contributing to higher overall
profit margins. As such, full-year adjusted/underlying profit outlook
remains in-line with current consensus market expectations**.
· Net debt and on-hand inventory expected to be further reduced by 31
March 2024.
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"We are pleased to have made good progress during the period against our
strategic objectives of increasing gross margins, reducing our cost base, and
further enhancing our customer proposition with the launch of our Second-Hand
system in Europe.
Although consumer demand has remained subdued this year due to the weaker
environment, our FY24 H1 revenues were 27% higher than our pre-Covid FY20 H1
revenues, and we remain confident in our long-term growth strategy.
The decisive actions we have taken will ensure the business can return to
stronger profitable growth by the next financial year, as we leverage
efficiencies driven by AI, build upon our platform for growth, and diversify
our channels to market.
We are well prepared for our seasonal peak trading period with a range of
recently developed great value music products, and we look forward to
providing a further trading update after Christmas on the 18 January 2024."
** Gear4music believes that current consensus market expectations for the year
ending 31 March 2024 prior to the publication of this announcement are
revenues of £161.7 million, adjusted EBITDA of £9.8 million and adjusted
profit before tax of £1.2 million.
Enquiries:
Gear4music +44 (0)20 3405 0205
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer
Singer Capital Markets - Nominated Adviser and Broker +44 (0)20 7496 3000
Peter Steel/Sam Butcher, Corporate Finance
Tom Salvesen, Corporate Broking
Alma - Financial PR +44 (0)20 3405 0205
Rebecca Sanders-Hewett Gear4music@almastrategic.co.uk
Joe Pederzolli
David Ison
About Gear4music.com
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.
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
2023, and updates on the strategic and commercial progress made in the Period.
Strategy
The business was in an improved position heading into FY24 having achieved
material reductions in stock and net debt in FY23 H2, albeit at a lower gross
margin than would normally be the case. Our focus in FY24 H1 pivoted to
improving gross margin and cutting costs to provide the platform to restore
profitability back towards the levels reached in previous periods, whilst
maintaining a disciplined approach to working capital management.
Consumer confidence remains low across the UK and many European markets which
in some cases has created a highly price competitive situation for certain
products. As the largest UK-based retailer in our sector, our focus is
maintaining a disciplined approach to product pricing, whilst reconfiguring
the business to ensure the Group is profitable irrespective of market
conditions.
In June 2023 we renewed our banking facilities, entering into a committed
three-year £30m 'Revolving Credit Facility' ('RCF') with HSBC, providing a
good level of headroom to meet our requirements. Nevertheless, the Board
remains focused on prioritising a reduction in net debt, which we are doing
focusing on cash generation, reducing our investment in software development,
and actively managing stock levels across our distribution centres to reflect
the evolving demand.
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
FY24 H1 FY23 H1 Change on FY23 H1
Revenue £62.6m £66.3m (6%)
Total unique website users 9.8m 9.1m +7%
Mobile site unique users 6.6m 6.6m -
Conversion rate 3.97% 4.90% (93bps)
Average order value £161 £151 +7%
Active customers * 823,000 903,000 (9%)
Proportion of repeat customers ** 26.3% 26.5% -20bps
Email subscriber database 1,720,200 1,408,200 +22%
Trustpilot rating 4.7/5 4.7/5 -
* 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
UK revenue in the Period was 3% ahead of last year, effectively reversing a 3%
decrease last year on FY22 H1. The UK market in FY24 H1 was more resilient
than other territories, reflecting Gear4music's brand recognition and scale in
our core market.
International revenue in the Period was 15% behind FY23 H1 reversing a 10%
increase last year, as certain markets became highly price competitive at
times, and Gear4music held its pricing levels in-line with strategy.
'Cost-per-Click' ('CPC') continues to be high relative to where it has
historically been, with competition for less traffic in the current economic
climate. We are successfully using automated AI models to maximise revenue at
any defined level of return on investment, and we purposefully held marketing
costs as a proportion of revenue flat on last year and FY22 H1 at 6.9%. As a
consequence, the proportion of visitors from organic and direct sources
increased to 51% from 46% in FY23 H1, and 38% in FY22 H1.
Website user numbers increased 7% to 9.8m reflecting an increase in browsing
and visits from lower-intent to purchase prospective customers coming from
direct and organic sources. Visitors to our UK sites increased by 24%
offsetting a 5% reduction in visitor numbers to the Group's international
websites. This shift, alongside Gear4music keeping certain prices higher than
the overall market during periods of heightened competition, contributed to a
reduction in conversion rate from 4.9% in FY23 H1 to 4.0%. UK conversion fell
from 5.8% to 4.4% whilst European conversion reduced from 4.2% to 3.6%. Mobile
conversion also fell from 2.8% to 2.4%.
Mobile continues to be a major theme with 68% of users coming through this
channel (FY23 H1: 72%; FY22 H1: 65%).
'Average Order Value' ('AOV') increased by 7% to £161 further to a 19%
increase last year reflecting a return to normalised pricing, and inflationary
price increases, meaning the business processes fewer orders to achieve an
equivalent level of sales.
The Group served 341,000 customers in the Period (-11% on FY23 H1) and 'Active
customers', being those that have purchased products within the last 12
months, similarly decreased by 9%.
The proportion of repeat customers remained broadly flat at 26.3% (FY23 H1:
26.5%), having increased from 24.4% in FY22 H1, reflecting a proportionally
lower level of paid-for new customers. The level of repeat custom is lower
than in other e-commerce sectors, reflecting the nature of the Group's product
range and high average order value, and re-affirms the importance of the Group
being profitable from the first customer transaction.
The number of subscribers on our email database increased by 0.3 million to
1.7 million and we continue to make improvements to our email retargeting with
the objective of cost-efficiency increasing the number of repeat customers.
We continue to invest in our customer proposition and service teams, resulting
in a great overall customer experience, reflected in Gear4music.com's
Trustpilot score of 4.7/5 and 'Excellent' rating from over 125,000 reviews.
The Group invested £2.4m in its e-commerce platform in the Period (FY23 H1:
£2.8m) with deployments including:
· European launch of second-hand
· European third-party fulfilment
· Enhanced website product configurator
Supply Chain Evolution
FY24 H1 FY23 H1 Change on FY23 H1
Own-brand product sales £15.2m £15.0m +2%
Other brand product sales £44.7m £48.3m (8%)
Product margin 30.9% 30.9% -
Products listed 63,900 62,500 +2%
Brands listed 1,134 1,109 +2%
FY24 H1 gross margin of 27.1% is an 80bps improvement on FY23 H1, with the
improvement coming from relatively lower costs on shipping products to our
customers linked to a high proportion of UK-sales and a higher AOV.
Achieving strong gross margins is critical to the overall profitability of the
Group and as such is a key business objective. In H2 last year, a period when
traditionally margins would be expected to have improved on H1, product margin
became a secondary priority as we focused on reducing stock and net debt, and
product margins decreased from 30.9% down to 29.4%. As such it was important
in FY24 H1 we improved product margins back to historical levels, irrespective
of the tough consumer environment.
A flat product margin of 30.9% reflects a 20bps improvement in own-brand
margin to 44.1%, a 50bps fall in other-branded margin, and a positive sales
mix effect as own-brand accounted for 25.4% of product sales compared to 23.6%
in FY23 H1.
The number of 'Stock-Keeping-Units' ('SKUs') listed increased from 62,500 at
30 September 2022 to 64,200 at 31 March 2023 and decreased to 63,900 at 30
September 2023 as we removed less profitable, slow-moving SKUs, representing a
net 2% increase in 12 months (1 October 2021 to 30 September 2022: +3%).
Stock at 30 September 2023 of £39.0m is £4.4m (10%) lower than at 30
September 2022 reflecting a continued focus on reducing both stock levels in
light of lower customer demand, and net debt.
Own-brand
It has been an exciting period for own-brand product development with a number
of new product lines coming to fruition, alongside establishing our new brand
architecture with a fresh approach to branding and customer experience. We
have made significant improvements to elevate brand identity and perception
with a strong emphasis on the customer journey through improved brand assets
including lifestyle imagery and video content, and updating existing product
lines such as specifications, price points, packaging and supporting
documents.
The number of our own-brand products increased from 4,250 at 30 September 2022
to 5,200 (+22%) at 30 September 2023, with own-brand revenue accounting for
25.4% of total product sales from just 8.1% of SKUs, reflecting the
significant on-going efforts of our in-house team in developing our range of
high-quality instruments and equipment at affordable prices.
International Expansion
Our international customer proposition continues to be improved from our
existing footprint, with improving stock profiles better reflecting local and
adjacent territory demand, and increasing the number of cost effective and
premium delivery options.
The Group estimates it has a European distribution infrastructure capable of
handling £150m of revenue per annum, and is well placed to capitalise on the
medium-term growth opportunity as and when consumer markets improve.
Current trading and outlook
Continuing macro-economic uncertainties have impacted the consumer in the UK
and across Europe. Whilst profit expectations remain the same, we are
moderating our revenue expectation for the year to £144m, to reflect sales
run rates and the actions taken to prioritise profits over growth. The impact
on the bottom line has been offset by an increase in gross margins and lower
costs. We are well-prepared ahead of the seasonal peak trading period and
our full-year adjusted/underlying profit outlook remains in-line with current
consensus market expectations.
We remain confident in the enduring consumer demand for Gear4Music products,
and we are well-placed to benefit once the consumer discretionary spend
environment improves.
The Group plans to issue a Christmas trading update on 18 January 2024.
Financial Review
FY24 H1 FY23 H1 Change on FY23 H1
Revenue £62.6m £66.3m (6%)
Gross profit £17.0m £17.4m (2%)
Gross margin 27.1% 26.3% +80bps
Unadjusted EBITDA £2.4m £2.7m (12%)
Exceptional item - Redundancy costs (£0.5m) - (£0.5m)
Adjusted EBITDA £2.9m £2.7m +6%
Adjusted EBITDA margin 4.6% 4.1% +50bps
Operating loss (£0.9m) (£0.3m) (£0.6m)
Marketing costs £4.3m £4.6m (6%)
Marketing costs as % of revenue 6.9% 6.9% -
Total Labour costs £6.9m £7.0m (1%)
Total Labour costs as % of revenue 11.0% 10.5% (50bps)
Cash and cash equivalents £5.9m £7.2m (£1.3m)
Net bank debt £18.1m £21.8m (£3.7m)
Revenue
Revenue in the Period of £62.6m was £3.7m (6%) lower than last year. UK
revenue was up 3% taking our estimated share of a flat UK market to 9.3% (FY23
H1: 9.1%). International revenues of £26.1m were 15% down on last year
reflecting difficult trading conditions, and accounted for 42% of Group
revenue compared to 47% in FY23 H1.
Gross Margin and Gross Profit
As outlined above in the 'Business Review' gross margin improved 80bps from
26.3% last year to 27.1%, reflecting a product margin that was flat on FY23 H1
but importantly 150bps higher than FY23 H2, and a relative reduction in
delivery costs reflecting a 7% higher AOV, and a greater proportion of
UK-sales where delivery costs are typically lower.
Net result of revenue and gross margin movements is gross profit of £17.0m,
being £0.4m (2%) lower than last year.
Exceptional items
Exceptional costs of £0.5m relate to redundancy costs incurred during the
restructure of various Head Office teams, principally Software Development.
These costs were paid in full in FY24 H1.
Operating Loss and Administrative Expenses
The operating loss before exceptional items of £0.4m represents a £0.1m
decrease on FY23 H1 reflecting a fall of £0.4m in gross profit mitigated by a
net £0.3m reduction in admin expenses.
Admin expenses increased from 27.4% of sales in FY23 H1 to 28.5% in FY24 H1.
Marketing and labour costs continue to be key components of our cost base,
accounting for a combined 63% of total administrative expenses in the Period
(FY23 H1: 65%):
- Our marketing spend continues to be heavily invested in direct
'Pay-per-click' ('PPC') marketing and our approach focuses on delivering a
pre-defined return on investment. Marketing costs of £4.3m equated to 6.9% of
sales, the same as in FY23 H1 and FY22 H1. Alongside this it is important we
invest in enhancing our organic and direct marketing capabilities which in the
longer term will support our ambition to reduce marketing spend as a
proportion of sales.
- Total labour costs decreased 1% on FY23 H1 with an estimated 8%
increase in average salary offset by a reduction in average headcount of 72.
Headcount at 30 September 2023 (including Software Development team) of 434
was 20% lower than as at 30 September 2022 (541).
European distribution centre local admin expenses increased £0.1m (4%) on
FY23 H1, to £2.5m reflecting inflationary cost increases limited by reduced
activity.
Depreciation and amortisation in the Period totalled £3.3m (FY23 H1: £3.0m)
including amortisation of £1.8m (FY23 H1: £1.4m) relating to our bespoke
e-commerce platform, and £0.9m depreciation of 'Right of Use' assets (FY23
H1: £0.8m).
An adjusted EBITDA margin of 4.6% compares to 4.1% last year and 7.4% in FY22
H1.
Net Loss and Financial Expenses
Financial expenses of £1.0m include £0.8m bank interest (FY23 H1: £0.5m)
reflecting increased interest rates and the level of debt in the business, and
£0.2m interest on lease liabilities (FY23 H1: £0.2m).
A tax credit of £0.4m restricted the loss in the Period to £1.6m, compared
to a £1.1m net loss in FY23 H1.
Cash Flow and Balance Sheet
In FY23 the business successfully reduced its stockholding to better reflect
the level of sales and as such FY24 has seen a return to a more usual trading
pattern, with a stock increase of £4.6m since 31 March 2023 ahead of the peak
Christmas trading period. Stock at 30 September 2023 includes £4.4m of
inbound stock-in-transit (30 September 2022: £4.1m) that will arrive ahead of
peak trading.
Trade and other payables of £20.3m were £1.4m (7%) higher than last year
reflecting stock deals on pre-agreed terms, and includes £1.4m of customer
prepayments (30 September 2022: £2.2m).
Net bank debt was £18.1m at what is historically a low point in the annual
cash cycle, leaving headroom of £11.9m within the Group's £30m RCF, and is
expected to reduce further by 31 March 2024.
Capitalised software development costs totalled £2.4m in the Period (FY23 H1:
£2.8m), taking total capitalisation to date to £27.4m. Amortisation in the
Period was £1.8m leading to a £0.6m increase in net book value since the
start of the financial year to £13.4m. In FY23 we capitalised £5.3m of
software development costs. The post-restructure annualised capitalisation run
rate based on the current team, is £2.8m compared to amortisation of £3.1m
in FY23.
Property, plant and equipment capital expenditure was limited to £36,000 in
the Period (FY23 H1: £0.6m).
Dividend Policy
The Board does not recommend the payment of a dividend (FY23 H1: nil).
Consistent with its previous stated approach, the Group will revisit its
shareholder distribution policy at the appropriate time.
Unaudited consolidated interim statement of profit and loss and other
comprehensive income
6 months ended 30 September 6 months ended 30 September 2022 (unaudited) Year ended
31 March 2023 (audited)
2023 (unaudited)
Note
£000 £000 £000
Revenue 3 62,641 66,305 152,039
Cost of sales (45,656) (48,892) (112,996)
Gross profit 16,985 17,413 39,043
Administrative expenses 3,4 (18,324) (18,138) (38,705)
Other income 4 407 459 949
Operating (loss)/profit before exceptional items 4 (445) (266) 1,287
Exceptional items 5 (487) - -
Operating (loss)/profit after exceptional items (932) (266) 1,287
Financial expenses 7 (981) (777) (1,694)
Loss before tax (1,913) (1,043) (407)
Taxation 8 353 (66) (237)
Loss for the Period (1,560) (1,109) (644)
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment - - (550)
Deferred tax movements - - 147
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations 272 (101) -
_______ _______ _______
Total comprehensive loss for the Period (1,288) (1,210) (1,047)
Loss per share attributable to equity shareholders of the company
Basic loss per share 6 (7.4p) (5.3p) (3.1p)
Diluted loss per share 6 (7.4p) (5.3p) (3.1p)
Unaudited consolidated interim statement of financial position
30 September 30 September 31 March 2023 (audited)
2023 2022 (unaudited)
(unaudited)
Note £000 £000 £000
Non-current assets
Property, plant and equipment 9 11,326 12,805 11,934
Right of use assets 10 9,088 7,438 7,288
Intangible assets 11 22,616 21,184 22,049
43,030 41,427 41,271
Current assets
Inventories 12 38,954 43,378 34,381
Trade and other receivables 13 4,083 3,270 3,434
Corporation tax receivable 371 1,019 1,066
Cash and cash equivalents 5,919 7,199 4,460
49,327 54,866 43,341
Total assets 92,357 96,293 84,612
Current liabilities
Trade and other payables 15 (20,303) (18,912) (17,647)
Lease liabilities 16 (1,057) (1,171) (1,130)
(21,360) (20,083) (18,777)
Non-current liabilities
Interest bearing loans and borrowings 14 (24,000) (29,000) (19,000)
Other payables 15 (89) (81) (83)
Lease liabilities 16 (9,215) (7,822) (7,470)
Deferred tax liability (1,679) (2,335) (2,048)
(34,983) (39,238) (28,601)
Total liabilities (56,343) (59,321) (43,478)
Net assets 36,014 36,972 37,234
Equity
Share capital 2,098 2,098 2,098
Share premium 13,286 13,286 13,286
Foreign currency translation reserve 198 (175) (74)
Revaluation reserve 1,203 1,589 1,203
Retained earnings 19,229 20,174 20,721
Total equity 36,014 36,972 37,234
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended
31 March 2023 (audited)
30 September 30 September 2022
2023 (unaudited)
(unaudited)
£000 £000 £000
Cash flows from operating activities
Loss for the Period: (1,560) (1,109) (644)
Adjustments for:
Depreciation and amortisation 9-11 3,313 2,970 6,081
Financial expense 7 978 701 1,694
(Profit)/loss on sales of property, plant and equipment (6) 17 17
Share-based payment charge 71 146 282
Tax expense 8 (353) 66 (208)
2,443 2,791 7,222
(Increase)/decrease in trade and other receivables (649) (92) 14
(Increase)/decrease in inventories (4,573) 2,138 11,135
Increase in trade and other payables 2,342 3,134 1,865
(437) 7,971 20,236
Tax received/(paid) 824 (385) (530)
Net cash from operating activities 387 7,586 19,706
Cash flows from investing activities
Proceeds from sales of property, plant and equipment 14 32 31
Acquisition of property, plant and equipment 9 (36) (612) (989)
Acquisition of domains 11 - (8) (8)
Capitalised development expenditure 11 (2,382) (2,822) (5,319)
Payment of deferred consideration - (388) (419)
Net cash from investing activities (2,404) (3,798) (6,704)
Cash flows from financing activities
Proceeds from new borrowings 14 5,000 1,000 -
Repayment of borrowings - - (9,000)
Interest paid 7 (880) (702) (1,694)
Payment of lease liabilities (644) (689) (1,713)
Net cash from financing activities 3,476 (391) (12,407)
Net increase in cash and cash equivalents 1,459 3,397 595
Cash at beginning of Period 4,460 3,903 3,903
Foreign exchange movement - (101) (38)
Cash at end of Period 5,919 7,199 4,460
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 2023 2,098 13,286 (74) 1,203 20,721 37,234
Loss for the Period - - - - (1,560) (1,560)
Other comprehensive income - - 272 - - 272
Share based payments charge - - - - 68 68
Balance at 30 September 2023 2,098 13,286 198 1,203 19,229 36,014
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
Capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2022 2,098 13,286 (74) 1,606 21,120 38,036
Loss for the Period - - - - (1,109) (1,109)
Other comprehensive income - - (101) - - (101)
Share based payments charge - - - - 146 146
Depreciation transfer - - - (17) 17 -
Balance at 30 September 2022 2,098 13,286 (175) 1,589 20,174 36,972
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2022 2,098 13,286 (74) 1,606 21,120 38,036
Loss for the year - - - - (644) (644)
Other comprehensive income - - - - - -
Freehold property revaluation - - - (550) - (550)
Deferred tax impact of revaluation - - - 147 - 147
Share based payments charge - - - - 245 245
Balance at 31 March 2023 2,098 13,286 (74) 1,203 20,721 37,234
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company incorporated and
domiciled in the United Kingdom, and is listed on the Alternative Investment
Market ('AIM') of the London Stock Exchange.
The Group financial information consolidates the financial information of the
Company and its subsidiaries (collectively referred to as the "Group"). The
Group has 100% owned trading subsidiaries in the UK ('Gear4music Limited'),
Sweden ('Gear4music Sweden AB'), Germany ('Gear4music GmbH'), Ireland
('Gear4music Ireland Limited') and Spain ('Gear4music Spain S.L.'). The Group
also has two 100% owned dormant subsidiaries in the UK ('Cagney Limited' and
'AV Distribution Limited') and one 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)
and Gear4music Limited (company number: 03113256) is Holgate Park Drive, York,
YO26 4GN.
1 Accounting policies
Basis of preparation
The consolidated interim financial information, which has been neither audited
nor reviewed by the auditor, has been prepared under the historical cost
convention, except for land and buildings that are stated at their fair value,
and in accordance with the recognition and measurement requirements of
UK-adopted International Accounting Standards. The condensed consolidated
interim financial information does not constitute financial statements within
the meaning of Section 434 of the Companies Act 2006 and does not include all
of the information and disclosures required for full annual financial
statements and is thus not in full compliance with UK-adopted international
accounting standards. It should therefore be read in conjunction with the
Group's Annual Report for the year ended 31 March 2023, which has been
prepared in accordance with UK-adopted 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 2023, as detailed on pages 69 to 74 of the Group's Annual
Report and Financial Statements for the year ended 31 March 2023, a copy of
which is available on the Group's website, www.gear4musicplc.com.
As permitted, this interim report has been prepared in accordance with the AIM
rules and not in accordance with IAS 34 "Interim financial reporting".
The comparative financial information contained in the condensed consolidated
financial information in respect of the year ended 31 March 2023 has been
extracted from the 2023 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 2023.
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. The presentation is consistent
with the way Financial Performance is measured by management and reported to
the Board. Further information is disclosed in note 5.
Notes to the Interim Financial Information (continued)
Going concern
The Group's business activities and position in the market, and principal
risks, uncertainties and mitigations are described in detail in the Strategic
Report included on pages 1 to 45 of the Group's 2023 Annual Report and
Financial Statements.
On 15 June 2023 the Group renewed its RCF with HSBC at £30m for a further
three-year period. This facility provides a good and appropriate level of
headroom that has been factored into the Directors going concern assessment.
The Group's policy is to ensure that it has sufficient facilities to cover its
future funding requirements.
At 30 September 2023 the Group had net debt of £18.1m (30 September 2022:
£21.8m) including £5.9m cash (30 September 2023: £7.2m), with a good and
appropriate level of headroom that has been factored into the Directors going
concern assessment.
The Directors have considered the Group's prospects based on its current
proposition and online offering in
the UK and Europe, strategic developments delivered and in progress, and
concluded that there are significant opportunities for profitable growth as
channel shift continues and customers move online.
There is a diverse supply chain with no key dependencies.
Having duly considered all of these factors and having reviewed the forecasts
for the period to 31 December 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 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 2024
to be unchanged from those set out in the group's Annual Report and Financial
Statements for the year ended 31 March 2023, and can be summarised as:
- Macroeconomic and geopolitical factors
- Climate risk and sustainability
- UK outside the EU
- Change management - Operational, Regulatory and Technological
- IT and Cyber Security
- Management of Warehousing and Distribution
- Global pandemics
- Brand and proposition
- Competition
- Supplier relationships
- Financial risk
- ESG
These are set out in detail on pages 36 to 42 of the Group's Annual Report and
Financial Statements for the year ended 31 March 2023, 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 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
UK 36,535 35,459 82,084
Europe and Rest of the World 26,106 30,846 69,955
62,641 66,305 152,039
Administrative Expenses by Geography:
6 months ended 6 months ended 30 September 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
UK 15,330 15,718 33,678
Europe and Rest of the World 2,507 2,420 5,027
Exceptional items - UK 487 - -
18,324 18,138 38,705
Revenue by Category:
6 months ended 6 months ended 30 September 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
Other-brand products 44,682 48,329 106,189
Own-brand products 15,219 14,966 38,860
Carriage income 2,484 2,672 6,187
Warranty income 184 220 452
Other 72 118 351
62,641 66,305 152,039
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 2022 Year ended
31 March 2023
2023
£000 £000 £000
Depreciation of property, plant and equipment 634 716 1,414
Depreciation of right-of-use assets 863 797 1,577
Amortisation of intangible assets 1,815 1,457 3,090
Amortisation of government grants - 3 3
(Profit)/loss on disposal of property, plant and equipment (6) 17 17
R&D expenditure recognised as an expense 117 141 280
Other income
6 months ended 6 months ended 30 September 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
RDEC tax credits 145 231 445
Rental income 99 96 239
Other 163 132 265
Total other income 407 459 949
Rental income relates to our freehold Head Office in York. 'Other' includes
income from on-site café at our Head Office in York, grants and marketing
support.
5 Exceptional items
Costs incurred comprise redundancies relating to the restructure and
reorganisation of various Head Office teams, principally Software Development.
6 months ended 30 September 6 months ended 30 September 2022 Year ended
31 March 2023
2023
£000 £000 £000
Redundancy costs 487 - -
Notes to the Interim Financial Information (continued)
6 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 earnings 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.
Dilutive shares are not included as where their effect is anti-dilutive.
6 months ended 6 months ended 30 September Year ended
31 March 2023
30 September 2022
2023
Loss attributable to equity shareholders of the parent (£'000) (1,560) (1,109) (644)
Basic weighted average number of shares 20,976,938 20,976,938 20,976,938
_________ _________ _________
Basic loss per share (7.4p) (5.3p) (3.1p)
Diluted loss per share (7.4p) (5.3p) (3.1p)
7 Finance expenses
6 months ended 6 months ended 30 September 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
Bank interest 754 508 1,127
IFRS16 lease interest 225 193 375
Net foreign exchange loss 2 76 190
Net fair value movements - - 2
Total finance expense 981 777 1,694
Notes to the Interim Financial Information (continued)
8 Taxation
6 months ended 6 months ended 30 September 2022 Year ended
31 March 2023
30 September
2023
£000 £000 £000
Current tax expense 15 29 342
Deferred tax (credit)/expense (368) 37 (105)
Total tax (credit)/expense (353) 66 237
The deferred tax liability has been decreased by £368,000 to £1,679,000
reflecting the recognition of a £466,000 deferred tax asset arising on the
tax losses in the Period.
Deferred tax balances have been provided at 25% which was the tax rate which
was substantively enacted at 30 September 2023.
Notes to the Interim Financial Information (continued)
9 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 2022 8,751 2,311 7,178 39 1,385 19,664
Additions - 127 214 - 36 377
Revaluation decrease (550) - - - - (550)
Balance at 31 March 2023 8,201 2,438 7,392 39 1,421 19,491
Additions - - 32 - 4 36
Disposals - - - (9) (17) (26)
Balance at 30 September 2023 8,201 2,438 7,424 30 1,408 19,501
Depreciation
Balance at 1 October 2022 393 1,741 3,669 32 1,024 6,859
Charge for the Period 87 126 504 4 81 802
Disposals - - (101) (3) - (104)
Balance at 31 March 2023 480 1,867 4,072 33 1,105 7,557
Charge for the Period 139 133 268 2 94 636
Disposals - - - (5) (13) (18)
Balance at 30 September 2023 619 2,000 4,340 30 1,186 8,175
Net book value as at 30 September 2023 7,582 438 3,084 - 222 11,326
Net book value as at 31 March 2023 7,721 571 3,320 6 316 11,934
Net book value as at 30 September 2022 8,358 570 3,509 7 361 12,805
Notes to the Interim Financial Information (continued)
10 Right-of-use Assets
Leasehold properties
At 30 September 2023 the Group had six leased properties: Distribution centres
and showrooms in York, Sweden and Germany, Distribution centres in Ireland and
Spain, and a software development office in Manchester.
On 28 July 2023 the Group agreed a Rent Review in relation to its York
distribution centre.
As at 30 September 2023 the associated right of use assets are as follows:
Land and Buildings
£000
Cost
Balance at 1 October 2022 12,135
Modifications 567
Additions 63
Balance at 31 March 2023 12,765
Modifications 2,663
Balance at 30 September 2023 15,428
Depreciation
Balance at 1 October 2022 4,697
Charge for the Period 780
Balance at 31 March 2023 5,477
Charge for the Period 863
Balance at 30 September 2023 6,340
Net book value as at 30 September 2023 9,088
Net book value as at 31 March 2023 7,288
Net book value as at 30 September 2022 7,438
Notes to the Interim Financial Information (continued)
11 Intangible assets
Goodwill Software Brand Domain names Other Intangibles Total
platform
£000 £000 £000 £000 £000 £000
Cost
Balance at 1 October 2022 5,324 22,509 1,372 3,031 149 32,385
Additions - 2,496 - - - 2,496
Balance at 31 March 2023 5,324 25,005 1,372 3,031 149 34,881
Additions - 2,382 - - - 2,382
Balance at 30 September 2023 5,324 27,387 1,372 3,031 149 37,263
Amortisation
Balance at 1 October 2022 - 10,605 563 2 30 11,200
Amortisation for the Period - 1,612 - 1 19 1,632
Balance at 31 March 2023 - 12,217 563 3 49 12,832
Amortisation for the Period - 1,761 - 1 53 1,815
Balance at 30 September 2023 - 13,978 563 4 102 14,647
Net book value as at 30 September 2023 5,324 13,409 809 3,027 47 22,616
Net book value as at 31 March 2023 5,324 12,788 809 3,028 100 22,049
Net book value as at 30 September 2022 5,324 11,904 809 3,029 118 21,184
12 Inventories
30 September 2023 30 September 2022 31 March 2023
£000 £000 £000
Finished goods 38,954 43,378 34,381
The cost of inventories recognised as an expense and included in cost of sales
in the period ended 30 September 2023 amounted to £41.8m (FY23 H1: £44.6m).
Inventories include £4.4m of predominantly Own-brand stock-in-transit (30
September 2022: £4.1m) from Far East manufacturers.
Notes to the Interim Financial Information (continued)
13 Trade and other receivables
30 September 2023 30 September 2022 31 March 2023
£000 £000 £000
Trade receivables 1,563 1,516 1,243
Prepayments 2,520 1,754 2,191
4,083 3,270 3,434
Corporation tax asset of £371,000 (30 September 2022: £1,019,000) has been disclosed separately on the face of balance sheet in all three periods, in accordance with IAS 1.54(n).
Trade receivables includes cash lodged with payment providers, Amazon and the Group's consumer finance partners, and UK and International education and trade accounts where standard credit terms are 30-days.
14 Interest bearing loans and borrowings
30 September 2023 30 September 2022 31 March 2023
£000 £000 £000
Non-current liabilities
Bank loans 24,000 29,000 19,000
24,000 29,000 19,000
Current liabilities
Bank loans - - -
- - -
Total liabilities
Bank loans 24,000 29,000 19,000
24,000 29,000 19,000
Revolving Credit Facility
On 15 June 2023 the Group renewed its banking facilities entering into a three
year £30m RCF with HSBC. This facility expires in June 2026 and is secured by
a debenture over the Group's assets.
Loans incur interest at variables rates linked to SONIA, with a margin
non-utilisation fee.
Notes to the Interim Financial Information (continued)
15 Trade and other payables
30 September 2023 30 September 2022 31 March 2023
£000 £000 £000
Current
Trade payables 13,120 10,585 9,300
Accruals and deferred income 4,519 5,341 5,099
Deferred consideration 23 36 23
Other creditors including tax and social security 2,641 2,950 3,225
20,303 18,912 17,647
Non-current
Accruals and deferred income 67 42 61
Deferred consideration 22 39 22
89 81 83
Accruals at 30 September 2023 include:
- £1,445,000 (30 September 2022: £2,151,000) relating to
customer prepayments; and
- £66,000 (30 September 2022: £42,000) relating to the estimated
cash bonuses accrued relating to the CSOP schemes.
Deferred consideration
In March 2021 the Group acquired the Eden brand and associated assets from
Marshall Amplification plc for £140,000 of which £100,000 was deferred and
payable in four equal instalments of £25,000 on the first, second, third and
fourth anniversary of the completion date, with £50,000 outstanding at 30
September 2023. 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.
16 Leases
The Group has six property leases. 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 2023 30 September 2022 31 March 2023
£000 £000 £000
Current 1,057 1,171 1,130
Non-current 9,215 7,822 7,470
10,272 8,993 8,600
Notes to the Interim Financial Information (continued)
17 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. Relevant events in the Period include:
Options granted - CSOP (2023)
On 9 May 2023 options over a total of 56,023 Ordinary shares were granted to
22 non-Director employees under the Company's CSOP scheme.
LTIP (2023) replacing LTIP (2021) and LTIP (2018)
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. The
Group's Remuneration Committee made these awards so that the key people to
lead the business into the future are appropriately incentivised in a manner
that aligns with the interests of the Group's shareholders. 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.
Under the new LTIP, Gear4music Limited, ('G4M Ltd'), a wholly owned subsidiary
of Gear4music (Holdings) plc issued 1,038,000 'E' ordinary shares of one-pence
each ('E-Shares'), which are non-voting, non-dividend, restricted shares to
the relevant individuals. The initial subscription cost was paid by the
relevant individual with the proceeds received from the redemption by G4M Ltd
of the 'C' ordinary shares of one-pence each and 'D' ordinary shares of ten
pence each from the 2018 and 2021 LTIPs respectively at their nominal value.
Any excess owed to the relevant individual was paid in cash; any excess owed
by the relevant individual for the subscription cost of E Shares was paid by
way of a small cash bonus.
These E Shares vest subject to achieving certain share price targets between
2026 and 2030, at which point the E Shares can be exchanged on a one-for-one
basis for new ordinary shares in Gear4music (Holdings) plc. The weighted
average vesting period over the life of the new LTIP is five years from the
date of grant.
Further details of the new LTIP are as follows:
Financial year ending 31 March Vesting date
Share price
target No. E Shares vesting
2026
27 July 2026 £3
207,600
2027
26 July 2027 £5
207,600
2028
24 July 2028 £7
207,600
2029
30 July 2029 £10
207,600
2030
29 July 2030 £13
207,600
Total 1,038,000
The Group's executive directors participate in the new LTIP as detailed below:
Individual
Title /
role
No. E Shares
awarded
Andrew Wass
Chief Executive
Officer
250,000
Chris Scott
Chief Financial
Officer
250,000
Gareth Bevan
Chief
Commercial Officer
250,000
Total 750,000
18 Related party transactions
There were no significant related party transactions during the six months to
30 September 2023 (30 September 2022: none).
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