TIDMG4M
RNS Number : 1128E
Gear4music (Holdings) PLC
16 October 2018
16 October 2018
Gear4music (Holdings) plc
Interim results for the six months ended 31 August 2018
Continued momentum with strong revenue growth heading into the
Christmas period
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 31 August 2018 ("the Period").
Financial and Operational Highlights:
GBP'000 6-months ended 6-months ended Change
31 August 2018 31 August 2017
---------------- ----------------
Revenue 42,521 31,219 +36%
Gross profit 9,636 7,811 +23%
Gross margin 22.7% 25.0% -230bps
EBITDA 652 717 (65)
Net profit (362) 4 (366)
-- Revenues increased by GBP11.3m driven by strong UK (34%) and International (39%) growth
-- Gross margin of 22.7% reflects a strategy to gain market
share of branded products during a highly competitive period, early
indication of increase in H2
-- Own-brand revenue growth of 28%; Other brand growth of 40%
-- UK warehouse upgrades and transition into new Swedish
distribution centre progressing to plan
-- Strong growth in Key KPIs including:
- 40% increase in active customers
- 38bps increase in conversion rate
- 26% increase in own-brand product sales
-- Very strong revenue growth in H2 to date, and trading in line to meet full year expectations
Commenting on the results, Andrew Wass, Chief Executive Officer
said:
"During the Period we are pleased to have achieved further
market share gains, with revenue growth of 36% and strong growth
both in the UK and internationally.
As the market for musical instruments and music equipment
continues to transform and consolidate, we have strengthened our
position as the UK's leading retailer within the market, having
invested into our customer proposition, market leading e-commerce
platform, and scalable infrastructure.
As we continue to invest and focus on gaining market share, I am
pleased to report that we have seen particularly strong revenue
growth since 1 September 2018 alongside notable gross margin
improvements on the H1 period. As such, we remain confident of
delivering another year of strong revenue growth and EBITDA in line
with our full year expectations."
Gear4music will issue a trading statement in early January
2019.
Enquiries:
Gear4music
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer +44 20 3865 9668
Panmure Gordon
(Joint Financial Adviser, Joint Broker,
and Nominated Adviser)
Adam James - Investment Banking
Erik Anderson - Corporate Broking +44 20 7886 2500
Peel Hunt
(Joint Financial Adviser and Joint Broker)
Adrian Trimmings
George Sellar +44 20 7418 8900
Alma PR (Financial PR) +44 20 3865 9668
Josh Royston/Rebecca Sanders-Hewett/Helena Gear4Music@almapr.co.uk
Bogle
About Gear4music.com
Operating from a Head Office in York, a Software Development
office in Manchester, and Distribution Centres and showrooms in
York, Sweden and 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, more recently, into the Rest of the World.
Having developed its own e-commerce platform, with multilingual,
multicurrency and fully responsive design websites delivering to
over 190 countries, the Group has rapidly expanded its database and
continues to build its overseas presence.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Business Review
The business reports the Group's results for the six months to
31 August 2018, and updates on the strategic and commercial
progress made in the Period.
Strategy
We have made significant strides towards our goal of becoming a
leading global retailer of musical instruments and equipment. We
know what we need to do to achieve this and in line with this, we
continue to invest in our people, our processes, our platform and
our products to continually improve our customer experience and
competitive position.
The Group continues to deliver strong revenue growth founded on
an attractive and continually improving customer proposition based
on good product breadth and availability at competitive prices,
with excellent delivery options and highly rated pre and post-sales
support.
We have made good progress against the four pillars of our
progressive e-commerce strategy, and outline developments in each
area below:
E-commerce Excellence
H1 FY19 H1 FY18 Change
Revenue GBP42.5m GBP31.2m +36%
Total unique website visitors 10.04m 7.10m +41%
Conversion rate 3.22% 2.84% +38bps
Average order value GBP127.48 GBP131.66 -3.2%
Active customers * 546,940 390,790 +40%
Proportion of repeat customers
** 24.8% 25.8% -100bps
Email subscriber database 789,160 725,594 +9%
Trustpilot rating 9.5/10 9.6/10
* 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 increased by GBP11.3m (36%) during the Period to
GBP42.5m, compared to growth of GBP9.6m in FY18 H1. Revenue growth
in our core UK market where our proposition is more mature was
especially strong at 34%, compared to 39% International growth that
was, as previously communicated, in part limited by slower than
anticipated stock build-up in our European distribution centres,
and physical limitations in our Swedish distribution centre, that
will be addressed with the relocation to a new, larger
facility.
Website visitor numbers increased by 41% to 10.04m (FY18 H1:
7.10m), with visitors to the UK website increasing 26% and visitor
numbers to the Group's 19 international websites growing by 55%.
Conversion rates continue to improve from 3.59% to 4.61% in the UK,
and from 2.14% to 2.20% in Europe.
The Group served 261,000 customers in the Period, up 41% on last
year. The numbers of new customers increased by 44% as the Group
leveraged its marketing strength.
The proportion of repeat customers was 26.6% (FY18 H1: 25.8%),
reflecting the high number of new customers. The Group's high
average order value means the business achieves immediate payback
on new customer recruitment. Active customers increased by 40%, and
the number of subscribers on our email database increased by 9% to
over 789,000.
Organic and Direct website traffic accounted for 46% of total
visitors (FY18 H1: 47%).
Mobile momentum continued with the proportion of visitors
accessing Gear4music websites from this channel increasing from 42%
in FY17 H1 to 53% last year, to 58% this year. Mobile website
development remains an important and ongoing focus.
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 9.5 from over
40,000 reviews.
Supply Chain Evolution
H1 FY19 H1 FY18 Change
Own-brand product sales GBP8.98m GBP7.14m +26%
Other brand product sales GBP31.96m GBP22.90m +40%
Products listed 50,031 40,021 +25%
Brands listed 842 758 +11%
The Group remains committed to leveraging its financial assets
and distribution centres to invest in stock and add increasing
breadth and depth to the range, to support continuing revenue
growth.
The number of SKUs available increased from 40,000 at 31 August
2017 to 44,700 at 28 February 2018 and 50,000 at 31 August 2018,
representing a 25% increase over the year.
Own-brand revenue growth of 26% represents continuing good
progress in developing our range of high-quality instruments and
equipment at affordable prices, and it was pleasing to see the
number of own-brand products listed increase from 2,500 at 31
August 2017 to 3,200 at 31 August 2018. New products that have been
developed and launched include:
-- New Gear4music lighting range
-- New 'Hartwood' premium guitar and bass brand and range
-- Expanded range of SubZero wireless audio products
International Expansion
In FY17 we committed to setting up European distribution centres
in Sweden and Germany to deliver on our European expansion
ambitions and improve and localise our customer proposition. We
opened our first European distribution centre in Sweden in Autumn
2016, in a 38,000 square foot leased unit near Stockholm to service
the Scandinavian market. It became clear that due to sustained
growth the current configuration would not be able to meet FY19
peak trading requirements and in May 2018 we announced plans to
relocate to a new 78,000 square foot unit. I am pleased to report
this project is progressing to plan and we are well-placed to meet
peak demand in FY19 H2.
Our German distribution centre has been deliberately scaled-up
behind the Swedish operation to spread the cost and resource
requirements. Our 72,000 square foot unit in Mulheim is
well-positioned to service Central and Southern Europe and the
number of orders fulfilled out of this operation increased by 230%
in FY19 H1.
Both operations continue to contribute to the Group's
profitability.
In October 2017 the Group launched a US$ website
(www.gear4music.com/us) to better serve customers around the world
wishing to pay in US$, and sales outside of Europe have increased
by 60%.
Bespoke Platform Development
The Group invested GBP1.10m in its e-commerce platform in the
period (FY18 H1: GBP0.77m), and made good progress on a number of
key projects including:
-- Competitor price tracking upgrade
-- Amazon Seller Fulfilled Prime
-- Website refresh with new logo and product page design
-- Warehouse and distribution upgrades
Current trading and prospects
As ever, trading in the second half of the year is very
significant to our results for the year as a whole and given recent
revenue growth and improving gross margin, coupled with on-going
operational and commercial progress, the Board considers the Group
to be well-placed to deliver EBITDA for the full-year in-line with
expectations.
The Group will issue a Christmas trading update in early January
2018.
Financial Review
H1 FY19 H1 FY18 Change
Revenue GBP42.5m GBP31.2m +36%
Product margin 27.5% 29.8% -230bps
Gross margin 22.7% 25.0% -230bps
Operating (loss)/profit -GBP331,000 GBP28,000 -GBP359,000
Marketing costs GBP3.50m GBP2.54m +38%
Marketing costs as % of
sales 8.2% 8.1% +10bps
Total Labour costs GBP3.75m GBP2.86m +31%
Total Labour costs as %
of sales 8.8% 9.2% -40bps
Revenue
Revenue in the six-month Period increased by 36%, equating to
two-year growth of 96%.
Revenue growth was very strong in our more-established UK market
with a GBP6.1m (34%) increase, to GBP24.0m in the Period, taking
our estimated share of the UK-market to 6.7%.
Revenue into International markets increased by GBP5.2m (39%) to
GBP18.5m (FY18 H1: GBP5.5m increase; 70% growth), representing an
increasing proportion of our revenue, rising from 36% in FY17 H1 to
43% in FY18 H1, to 45% in FY19 H1. International growth was limited
by Swedish distribution capacity constraints that will be removed,
and low stock levels in the European distribution centres that is
being improved.
Gross Profit
Gross profit increased by GBP1.8m (+23%) to GBP9.6m.
Gross margin reduced from 25.0% to 22.7% reflecting a highly
competitive other-brand market and the Group focusing on rapidly
gaining market share, and growth in higher margin own-brand sales
falling behind growth in other-brand sales, with the proportion of
product sales decreasing from 23.8% in FY18 H1 to 21.9% in FY19
H1.
Efforts are on-going to improve gross margins including
negotiations with certain suppliers, potentially removing very low
margin products, and taking advantage of any tactical buying
opportunities as and when they arise. Early indications in FY19 H2
are that gross margins are improving.
The Group has started sourcing some products locally in Europe,
in Euros and Swedish Krona, but still purchases the majority of its
other-branded products in GB pounds.
Operating Profit and Administrative Expenses
An operating loss of GBP0.33m represents a GBP0.36m reduction on
FY18 H1 principally due to the 230bps reduction in gross margin in
addition to increased depreciation and amortisation charges. To
illustrate, a 100bps improvement in gross margin in FY19 H1 would
have added GBP0.43m to gross profit and operating profit.
Marketing and people costs continue to be key business drivers
and the main component parts of our overhead base, accounting for a
combined 73% of total administrative expenses in the Period (FY18
H1: 69%). Marketing costs increased by GBP0.96m to GBP3.50m
representing a 38% increase that is broadly in line with the
revenue increase. Labour costs rose by GBP0.89m (31%) to
GBP3.75m.
Administrative expenses include a GBP421,000 credit relating to
the release of a rent accrual for the difference between cash paid
and the average rent charge as expensed in relation to the
leasehold distribution centre at Clifton Moor, York. The signing of
a new lease in March 2018 triggered this release.
European distribution centre administrative expenses increased
by GBP0.21m on FY18 H1, to GBP0.85m.
Depreciation and Amortisation in the period totalled GBP0.98m
which is GBP0.30m (43%) up on FY18 H1, and includes GBP0.53m (FY18
H1: GBP0.37m) of amortisation relating to our bespoke e-commerce
platform.
Net Profit
A net loss of GBP0.37m for the Period represents a GBP0.37m
reduction on last year, principally due to the GBP0.33m reduction
in Operating profit.
Financial expenses include GBP0.13m of bank interest (FY18 H1:
GBP0.06m) relating to Trade Finance loans and term loans linked to
the freehold acquisition in 2017, and a GBP0.07m foreign exchange
loss (FY18 H1: GBP0.03m).
Cash Flow and Balance Sheet
In common with many retailers, August represents a low point in
the annual cash cycle. In May 2017 the Group raised GBP4.2m growth
capital, which was reflected in the cash figure at 31 August 2017
(GBP4.1m). Cash as at 31 August 2018 cash was GBP2.7m.
Net debt at 31 August 2018 of GBP7.6m (31 August 2017, post
equity raise: GBP3.7m) includes GBP4.3m of long-term debt linked to
the freehold property acquisition in 2017, and GBP5.4m of 180-day
Trade Finance loans supporting the investment in stock. The Group
has an GBP8m Trade Finance facility in place.
The Group continues to invest in stock without drawing all
available Trade Finance loans to mitigate finance costs, and
settles other-brand debts so as to maximise all available
settlement discounts. The carrying value of stock at 31 August 2018
was GBP21.3m (31 August 2017: GBP13.0m) including GBP4.3m of
inbound stock-in-transit (FY18 H1: GBP1.3m), being the early
shipment of stock for peak season to secure improved margins, and
boost stock-on-hand early in our key trading period. Adjusting for
stock-in-transit, stock at 31 August 2018 is 46% up on last
year.
Trade and other receivables have increased from GBP2.3m last
year to GBP3.8m, and includes cash lodged with payment providers,
Amazon and the Group's consumer finance partners, and trade and
education accounts where standard credit terms range from 0-30
days.
Trade and other payables have increased from GBP8.8m last year
to GBP15.3m and includes the associated liability for the GBP4.3m
of inbound stock-in-transit (FY18 H1: GBP1.3m).
Capitalised software development costs totalled GBP1.10m (FY18
H1: GBP0.77m) in the Period, taking total spend to date to
GBP7.64m. Amortisation in the Period was GBP0.50m leading to a
GBP0.60m increases in net book value.
Property, plant and equipment capital expenditure in the Period
was GBP0.21m (FY18 H1: GBP7.05m including GBP5.63m debt-financed
freehold acquisition), with the main additions relating to the new
Swedish and the upgraded UK-distribution centres to come in H2.
Dividend Policy
The Group repeats its intention to revisit its shareholder
distribution policy at the end of this financial year.
Unaudited consolidated interim statement of profit and loss and
other comprehensive income
6 months 6 months Year ended
ended 31 ended 31 28 February
Note August August 2018 (audited)
2018 (unaudited) 2017 (unaudited)
GBP000 GBP000 GBP000
Revenue 42,521 31,219 80,100
Cost of sales (32,885) (23,408) (59,781)
Gross profit 9,636 7,811 20,319
Administrative expenses 1,2 (9,967) (7,783) (18,358)
Operating (loss)/profit 1,2 (331) 28 1,961
Financial expense 4 (214) (97) (461)
(Loss)/profit before tax (545) (69) 1,500
Taxation 5 177 73 (114)
(Loss)/profit for the period (368) 4 1,386
Other comprehensive income
Items that will not be reclassified to profit
or loss:
Revaluation of property, plant
and equipment - - 1,716
Deferred tax movements (48) - (203)
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation
differences - foreign operations (2) 9 2
_______ _______ _______
Total comprehensive income
for the year (418) 13 2,901
Profit per share attributable to equity shareholders
of the company
Basic (loss)/profit
per share 3 (1.8p) 0.0p 6.7p
Diluted (loss)/profit
per share 3 (1.8p) 0.0p 6.7p
Unaudited consolidated interim statement of financial
position
31 August 31 August 28 February
2018 (unaudited) 2017 (unaudited) 2018 (audited)
Note GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 6 9,811 7,550 10,054
Intangible assets 7 6,951 5,910 6,378
16,762 13,460 16,432
Current assets
Inventories 8 21,326 13,001 17,055
Trade and other receivables 9 3,825 2,279 2,704
Cash and cash equivalents 2,655 4,107 3,540
27,806 19,387 23,299
Total assets 44,568 32,847 39,731
Current liabilities
Other interest-bearing
loans and borrowings 10 (5,912) (2,909) (3,914)
Trade and other payables 11 (14,874) (7,893) (10,916)
(20,786) (10,802) (14,830)
Non-current liabilities
Other interest-bearing
loans and borrowings 10 (4,343) (4,893) (4,616)
Other payables 11 (427) (944) (751)
Deferred tax liability 5 (516) (251) (649)
(5,286) (6,088) (6,016)
Total liabilities (26,072) (16,890) (20,846)
Net assets 18,496 15,957 18,885
Equity
Share capital 2,095 2,087 2,087
Share premium 13,152 13,055 13,055
Foreign currency translation
reserve 10 19 12
Revaluation reserve 1,424 - 1,424
Retained earnings 1,815 796 2,307
Total equity 18,496 15,957 18,885
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended
31 August
31 August 2017 (unaudited) 28 February
2018 (audited)
2018
(unaudited)
GBP000 GBP000 GBP000
Cash flows from operating
activities
Profit for the period: (368) 4 1,386
Adjustments for:
Depreciation and amortisation 2,6,7 983 688 1,497
Foreign exchange losses (2) 9 2
Financial expense 4 140 64 196
Loss on sales of property,
plant and equipment - - 6
Share-based payment charge 12 (76) 29 69
Taxation 5 (177) (73) 114
500 721 3,270
Increase in trade and other
receivables (1,121) (931) (1,356)
Increase in inventories (4,271) (1,315) (5,369)
Increase in trade and other
payables 3,823 495 3,602
(1,069) (1,030) 147
Tax paid (4) 94 10
Net cash from operating activities (1,073) (936) 157
Cash flows from investing
activities
Proceeds from sales of property,
plant and equipment - - 19
Acquisition of property, plant
and equipment 6 (209) (6,278) (7,443)
Development costs capitalised 7 (1,104) (768) (1,693)
Deferred consideration (200) (200) (400)
Net cash from investing activities (1,513) (7,246) (9,517)
Cash flows from financing
activities
Proceeds from the issue of
share capital 105 4,193 4,193
Proceeds from new borrowings 10 1,746 5,211 5,986
Net interest paid 4 (130) (62) (178)
Payment of finance lease liabilities 10 (20) (54) (102)
Net cash from financing activities 1,701 9,288 9,899
Net (decrease)/increase in
cash and cash equivalents (885) 1,106 539
Cash and cash equivalents
at beginning of period 3,540 3,001 3,001
Cash and cash equivalents at
end of period 2,655 4,107 3,540
Unaudited consolidated interim statement of changes in
equity
6 months 6 months Year ended
ended 31 ended 31 28 February
August August 2018 (audited)
2018 (unaudited) 2017 (unaudited)
GBP000 GBP000 GBP000
Share Capital
Opening 2,087 2,016 2,016
Issue of shares 8 71 71
2,095 2,087 2,087
Share Premium
Opening 13,055 8,933 8,933
Issue of shares 97 4,278 4,278
Share issue costs - (156) (156)
13,152 13,055 13,055
Foreign currency translation
reserve
Opening 12 10 10
Other comprehensive income (2) 9 2
10 19 12
Revaluation reserve
Opening 1,424 - -
Freehold property revaluation - - 1,716
Deferred tax movement - - (292)
1,424 - 1,424
Retained earnings
Previous periods 2,307 763 763
Share based payment charge (76) 29 69
Deferred tax prior year adjustment
re: share-based payments (48) - 89
Profit for the period (368) 4 1,386
1,815 796 2,307
Total equity 18,496 15,957 18,885
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 Sweden
('Gear4music Sweden AB') and Germany ('Gear4music GmbH'). The Group
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 Kettlestring Lane, Clifton Moor, York, YO30 4XF.
1 Accounting policies
1.1 Basis of preparation
The unaudited consolidated interim financial information for the
period ended 31 August 2018 has been prepared in accordance with
the AIM rules for Companies, comply with IAS 34 'Interim Financial
Reporting' as adopted by the European Union. 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' Annual
Report which have been prepared in accordance with International
Financial Reporting Standards and is available on the Group's
investor website.
The comparative financial information contained in the condensed
consolidated financial information in respect of the year ended 28
February 2018 has been extracted from the 2018 Financial
Statements. Those financial statements have been reported on by
KPMG 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 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 28 February 2018.
The Group's accounting policies are set out below. Except as
described in section 1.2, the accounting policies applied in this
interim financial information are the same as those applied in the
Group's consolidated financial statements as at and for the year
ended 28 February 2018.
The financial information has been prepared on the historical
cost basis.
1.2 Changes in accounting standards
The Group has adopted IFRS 9 'Financial Instruments' and IFRS 15
'Revenue from contracts with customers' from 1 March 2018. Neither
have a material impact on the Group's financial statements:
IFRS 9 'Financial instruments'
IFRS 9 sets out requirements for the classification and
measurement of financial assets and financial liabilities, and a
basis for recognising provisions based on expected credit losses,
and simplified hedge accounting. Management has reviewed the
Group's business, its debt structure and absence of hedging and
determined the new standard does not have a material impact on the
Income statement or Balance sheet.
IFRS 15 'Revenue from contracts with customers'
IFRS15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. Management have
determined that, given the industry in which the Group operates,
the significant majority of the Group's revenue come from products
sales made direct to customers at standard prices, and estimates
are already made of anticipated returns, the new standard does not
have a material impact on the timing or measurement of revenue
recognition in comparison to the standard previously applied.
1.3 Going concern
The Group has significant financial resources and has access to
further debt funding should it be required. The business continues
to trade well and Management considers it to be well positioned
going into its critical trading period. The Group operates a
rolling monthly reforecast providing trading and financial
visibility to the financial year end.
Accordingly, and further to due consideration of all financial
and commercial information available, the Directors have concluded
that the Group has adequate resources to continue to trade for the
foreseeable future and it is therefore appropriate to continue to
adopt the going concern basis of accounting in the preparation of
this consolidated interim financial information.
1.4 Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights that are currently exercisable. The acquisition date
is the date on which control is transferred to the acquirer. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are
eliminated.
1.5 Foreign currency
International transactions that are denominated in foreign
currencies are recorded in the respective foreign currencies, and
translated into the functional currency of the Group, Sterling, at
the exchange rate ruling at the date of the transaction.
Translational accounting gains and losses are recognised in the
income statement in the period they arise.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are retranslated to the
functional currency at the exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised
in the income statement. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the
transaction.
Functional currency
The consolidated financial information is presented in Sterling
which is the Company's functional currency.
1.6 Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a) they include no contractual obligations upon the Company (or
Group as the case may be) to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with
another party under conditions that are potentially unfavourable to
the Company (or Group); and
(b) where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company's own shares, the
amounts presented in this financial information for called up share
capital and share premium account exclude amounts in relation to
those shares.
1.7 Non-derivative financial instruments
Non-derivative financial instruments comprise investments in
trade and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose only of the
cash flow statement.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributed transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost using the effective interest method.
1.8 Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of
property, plant and equipment.
Depreciation is charged to the income statement on either a
straight-line basis or a reducing balance basis over the estimated
useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
-- Freehold property 50 years straight line
-- Plant and equipment 4-5 years' straight line
-- Fixtures and fittings 20-25% on reducing balance
-- Motor vehicles 25% on reducing balance
-- Computer equipment 3-5 years' straight line
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Leases in which the Group assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Leased assets acquired by way of finance lease are
stated at an amount equal to the lower of their fair value and the
present value of the minimum lease payments at inception of the
lease, less accumulated depreciation and less accumulated
impairment losses. Lease payments are accounted for as described
below in 1.15.
1.9 Business combinations
All business combinations are accounted for by applying the
acquisition method. Business combinations are accounted for using
the acquisition method as at the acquisition date, which is the
date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the fair value of the existing equity interest in the acquiree; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
Costs related to the acquisition are expensed as incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. Subsequent changes to the fair value of
the contingent consideration are recognised in profit or loss.
Goodwill impairment testing
Goodwill is not amortised but tested annually for impairment.
For the purpose of impairment testing, the Goodwill is allocated to
cash-generating units, or ("CGU"). Subject to an operating segment
ceiling test, for the purposes of Goodwill impairment testing, CGUs
to which Goodwill has been allocated are aggregated so that the
level at which impairment is tested reflects the lowest level at
which Goodwill is monitored for internal reporting purposes.
1.10 Intangible assets
Software platform
Computer software development costs that generate economic
benefits beyond one year and meet the development asset recognition
criteria as laid out in IAS 38 'Intangible Assets', are capitalised
as Intangible assets.
These costs include the payroll costs of employees directly
associated with the development, and other direct external material
and service costs. Costs are capitalised only where there is an
identifiable development that will bring future economic benefit.
All other website and maintenance costs are expenses in the
statement of comprehensive income.
Capitalised software development costs are amortised over their
estimated useful lives and charged to administrative expenses in
the statement of comprehensive income.
Other intangible assets
Expenditure on internally generated Goodwill and brands is
recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are
stated at cost less accumulated amortisation and less accumulated
impairment losses.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of intangible
assets unless such lives are indefinite. Intangible assets with an
indefinite useful life and Goodwill are systematically tested for
impairment at each balance sheet date. Other intangible assets are
amortised from the date they are available for use. The estimated
useful lives are as follows:
-- Brand 10 years; and
-- Software Platform 3-8 years
1.11 Inventories
Inventories are stated at the lower of cost and net realisable
value ("NRV"). Cost is based on the first-in first-out principle
and includes expenditure incurred in acquiring the inventories and
other costs in bringing them to their existing location and
condition. Stock is neither fashionable nor perishable.
A provision is made in respect of inventories as follows:
-- 100% against returns stock 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 previous 12-months retail experience
for the expected product loss on dealing with returns stock.
1.12 Impairment excluding inventories and deferred tax assets
Financial assets (including receivables)
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows.
The effect of discounting is not material. When a subsequent event
causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other
than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. For Goodwill, and intangible
assets that have indefinite useful lives or that are not yet
available for use, the recoverable amount is estimated each year at
the same time.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset.
For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups
of assets (the "cash-generating unit"). The Goodwill acquired in a
business combination, for the purpose of impairment testing, is
allocated to cash-generating units, or ("CGU"). Subject to an
operating segment ceiling test, for the purposes of Goodwill
impairment testing, CGUs to which Goodwill has been allocated are
aggregated so that the level at which impairment is tested reflects
the lowest level at which Goodwill is monitored for internal
reporting purposes. Goodwill acquired in a business combination is
allocated to groups of CGUs that are expected to benefit from the
synergies of the combination.
An impairment loss would be recognised if the carrying amount of
an asset or its CGU exceeds its estimated recoverable amount. No
impairments have been recognised in the periods presented.
1.13 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution pension plans are recognised as an expense in the
income statement in the periods during which services are rendered
by employees.
Share-based payments
The Group operates share option plans for qualifying employees
of the Group. The fair value of the shares is determined using the
Black Scholes option pricing model and is expensed in the statement
of comprehensive income on a straight-line basis over the vesting
period after allowing for an estimate of the number of shares that
are expected to vest. The level of vesting is reviewed annually and
the expense adjusted to reflect any changes in estimates.
1.14 Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects risks specific to
the liability.
1.15 Revenue
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods have passed
to the buyer. Revenue is measured at the fair value of the
consideration received, including freight charges and duty where
applicable, excluding discounts, rebates, VAT and other sales taxes
or duty. Carriage income is recognised on recognition of the
associated product sale. Returns are dealt with on receipt of the
product into the warehouse, which triggers an automatic credit.
The Group offers retail point of sale credit through an
agreement with an external credit provider. The Group does not
retain any credit risk and commissions are recognised on
recognition of the credit sale.
1.16 Expenses
Operating lease payments
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance
charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining
balance of the liability.
Exceptional items
Items which are significant by virtue of their size or nature
and which are considered to be non-recurring are classified as
exceptional operating items. Such items are included within the
appropriate consolidated income statement category but are
highlighted separately in the notes to the financial information.
Exceptional operating items are excluded from the profit measures
used by the Board to monitor and measure the underlying performance
of the Group.
Government and other forms of grant
Government and other grants from third parties are recognised
where there is reasonable assurance that the grant will be received
and all attached conditions will be complied with. When the grant
relates to an expense item, it is recognised as a reduction in the
costs incurred, on a systematic basis over the periods that the
costs, for which it is intended to compensate, are expensed. Where
the grant relates to an asset, it is recognised on a systematic
basis over the UEL of the related asset.
Financing income and expenses
Financing expenses comprise interest payable and finance leases
recognised in profit or loss using the effective interest method,
unwinding of the discount on provisions, and net foreign exchange
losses that are recognised in the income statement (see foreign
currency accounting policy). Financing income comprises interest
receivable on funds invested and net foreign exchange gains.
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
1.17 Taxation
Tax on the profit or loss for the year comprises current and
deferred tax.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. A temporary
difference on the initial recognition of goodwill is not provided
for. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
1.18 Adopted IFRS not yet applied
Various new or revised accounting standards have been issued
which are not yet effective. The key standard to affect the Group
will be IFRS 16 'Leases', effective for year ending 2020. The Group
does intend to early adopt.
IFRS 16 fundamentally changes the accounting for leases by
lessees and eliminates the current IAS 17 dual accounting model,
which distinguishes between on-balance sheet finance leases and
off-balance sheet operating leases and, instead, introduces a
single, on-balance sheet accounting model that is similar to
current finance lease accounting.
The Group has four leased properties (in York, Manchester,
Sweden and Germany) and a small number of warehouse equipment items
on operating leases scheduled to be repaid in full in the financial
year ended February 2019, and as such will only be relevant for
comparative purposes.
On the adoption of IFRS 16, lease agreements will give rise to
both a right-of-use asset and a lease liability for future lease
payables. The right-of-use asset will be depreciated on a
straight-line basis over the life of the lease. Interest will be
recognised on the lease liability, resulting in a higher interest
expense in the earlier years of the lease term. The total expense
recognised in the Income Statement over the life of the lease will
be unaffected by the new standard. However, IFRS 16 will result in
the timing of lease expense recognition being accelerated for
leases which would be currently accounted for as operating
leases.
There will be no impact on cash flows, although the presentation
of the Cash Flow Statement will change significantly, with an
increase in cash flows from operating activities being offset by an
increase in cash flows from financing activities. The Group is
working to ensure that relevant data is collected and key
assumptions such as discount rates are duly considered and agreed.
The Group will take all necessary steps to comply with the
requirements of IFRS 16 and expects to make further disclosure in
the next Annual Report.
1.19 Segmental Reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. The Group's
Chief Operating Decision Maker has been identified as the Board of
Directors.
2 Expenses
Included in profit/loss are the following:
6 months 6 months Year ended
ended 31 ended 31 28 February
August August 2018
2018 2017
GBP000 GBP000 GBP000
Depreciation of tangible fixed
assets 452 293 645
Amortisation of intangible assets 531 395 852
Amortisation of government grants 17 20 31
Loss on disposal of property,
plant and equipment - - 6
Share based payment charge (76) 29 69
3 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 6 months Year ended
ended ended 31 28 February
31 August August 2018
2018 2017
(Loss)/profit attributable to
equity shareholders of the parent
(GBP'000) (368) 4 1,386
Basic weighted average number
of shares 20,906,055 20,542,973 20,713,281
Dilutive potential ordinary shares 20,733 93,213 88,155
_________ _________ _________
Diluted weighted average number
of shares 20,926,788 20,636,186 20,801,436
_________ _________ _________
Basic (loss)/profit per share (1.8p) 0.0p 6.7p
Diluted (loss)/profit per share (1.8p) 0.0p 6.7p
4 Finance expense
6 months 6 months Year ended
ended ended 31 28 February
31 August August 2018
2018 2017
GBP000 GBP000 GBP000
Bank interest 129 60 169
Finance leases 1 2 9
Net foreign exchange loss 74 33 265
Fair value on deferred
consideration 10 2 18
Total finance expense 214 97 461
Bank interest comprises GBP31,400 of Trade finance loan interest
and GBP28,300 of term loan interest.
5 Taxation
6 months 6 months Year ended
ended ended 31 28 February
31 August August 2018
2018 2017
GBP000 GBP000 GBP000
Current tax expense/(credit) 4 (2) (10)
Deferred tax (credit)/expense (181) (71) 124
Total tax (credit)/expense (177) (73) 114
The deferred tax liability has been decreased by GBP133,000 to
GBP516,000. The GBP133,000 movement consists of a P&L credit of
GBP181,000 and a charge to other comprehensive income of GBP48,000.
The decrease in the deferred tax liability is due to a deferred tax
asset being recognised on tax losses arising in the interim period
which will unwind against future taxable profits. The GBP48,000
charge to other comprehensive income is due to a reversal of a
deferred tax asset recognised in relation to share options which
were exercised in the interim period.
The corporation tax rate applicable to the company was 19% in
the period to 31 August 2018.
6 Property, plant and equipment
Freehold Plant and Fixtures Computer
property equipment and fittings Motor vehicles equipment Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
Balance at 1 September
2017 5,634 655 2,378 64 520 9,251
Additions - 132 913 29 91 1,165
Disposals - - - (31) - (31)
Revaluation 1,716 - - - - 1,716
Balance at 28
February 2018 7,350 787 3,291 62 611 12,101
Additions - - 156 - 53 209
Balance at 31
August 2018 7,350 787 3,447 62 664 12,310
Depreciation
Balance at 1 September
2017 28 365 985 13 310 1,701
Charge for the
period - 79 245 8 48 380
Disposals - - - (6) - (6)
Revaluation (28) - - - - (28)
Balance at 28
February 2018 - 444 1,230 15 358 2,047
Charge for the
period 74 76 243 6 53 452
Balance at 31
August 2018 74 520 1,473 21 411 2,499
Net book value
as at 31 August
2018 7,276 267 1,974 41 253 9,811
Net book value
as at 1 March
2018 7,350 343 2,061 47 253 10,054
Net book value
as at 31 August
2017 5,606 290 1,393 51 210 7,550
7 Intangible assets
Software
Goodwill platform Brand Total
GBP000 GBP000 GBP000 GBP000
Cost
Balance at 1 September
2017 1,848 5,613 564 8,025
Additions - 925 - 925
Balance at 28 February
2018 1,848 6,538 564 8,950
Additions - 1,104 - 1,104
Balance at 31 August
2018 1,848 7,642 564 10,054
Amortisation
Balance at 1 September
2017 - 1,805 310 2,115
Amortisation for the
period - 429 28 457
Balance at 28 February
2018 - 2,234 338 2,572
Amortisation for the
period - 503 28 531
Balance at 31 August
2018 - 2,737 366 3,103
Net book value as at
31 August 2018 1,848 4,905 198 6,951
Net book value as at
1 March 2018 1,848 4,304 226 6,378
Net book value as at
31 August 2017 1,848 3,808 254 5,910
8 Inventories
31 August 31 August 28 February
2018 2017 2018
GBP000 GBP000 GBP000
Finished goods 21,326 13,001 17,055
The cost of inventories recognised as an expense and included in
cost of sales in the period ended 31 August 2018 amounted to
GBP30.3m, and in the period ended 31 August 2017 totalled
GBP22.0m.
9 Trade and other receivables
31 August 31 August 28 February
2018 2017 2018
GBP000 GBP000 GBP000
Trade receivables 2,837 1,713 1,645
Prepayments 988 566 1,059
3,825 2,279 2,704
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.
10 Other interest-bearing loans and borrowings
31 August 31 August 28 February
2018 2017 2018
GBP000 GBP000 GBP000
Non-current liabilities
Bank loans 4,343 4,889 4,616
Finance lease liabilities - 4 -
4,343 4,893 4,616
Current liabilities
Bank loans and overdraft 5,909 2,842 3,890
Finance lease liabilities 3 67 23
5,912 2,909 3,913
Total liabilities
Bank loans and overdraft 10,252 7,731 8,506
Finance lease liabilities 3 71 23
10,255 7,802 8,529
Bank loans comprise a Trade Finance facility, and term loans all
provided by the Group's bankers, HSBC, and are secured against the
by fixed and floating charges over the Group's assets. All
borrowings are denominated in Sterling.
The interest rate on 180-day import loans drawn under the Trade
Finance agreement is 2.45% per annum over HSBC's Sterling Base
Rate, and on an overdraft if drawn, is 3.25% over base. Interest on
import loans is paid at the maturity of the relevant loan. Interest
on an overdraft would be paid monthly in arrears. Trade finance and
overdraft facilities were approved for renewal in May 2018 for a
12-month period.
There are two term loans that were drawn around the time of the
freehold property acquisition in June 2017:
-- The first loan was for GBP3,727,500 equating to a 70% LTV
against the property valuation and is a five-year loan with capital
repayments scheduled over 20-years, and interest is 2.04% over
LIBOR; and
-- The second loan was for GBP1,797,500 and is a five-year loan
with interest of 2.85% over LIBOR
11 Trade and other payables
31 August 31 August 28 February
2018 2017 2018
GBP000 GBP000 GBP000
Current
Trade payables 11,761 4,934 7,325
Accruals and deferred income 1,301 1,248 1,456
Contingent consideration 393 393 393
Government grants 28 28 35
Other creditors including tax
and social security 1,391 1,290 1,707
14,874 7,893 10,916
Non-current
Accruals and deferred income 47 187 169
Contingent consideration 365 740 555
Government grants 15 17 27
427 944 751
Accruals at 28 February 2018 included GBP446,000 of rent accrued
but not paid, being the difference in cash paid and the average
rent charge as expensed, as per the commercial agreement reached
with the landlord of the leasehold distribution centre at Clifton
Moor, York. On 21 March 2018 the Group entered into a new 15-year
lease with a 10-year clean break clause and this accrual was
released in full resulting in a GBP421,000 credit that is included
in administrative expenses.
Contingent consideration is due in relation to the acquisition
of the software development team in January 2017 and comprises ten
quarterly instalments of GBP100,000 payable on 1(st) of
January/April/July/October. These amounts are valued in the
accounts at fair value and subsequently amortised. Contingent
consideration is valued at fair value.
Government grants are being spread over the useful economic life
of the associated asset, relate to Regional Growth Fund and Leeds
City Enterprise Partnership grants towards the acquisition of
various capital items. Grant conditions exist linked to job
creation, and these criteria have been satisfied.
The Directors consider the carrying amount of other 'trade and
other payables' to approximate their fair value.
12 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.
In May and June 2018 options totalling 78,207 shares vested
including 9,978 shares to Gareth Bevan (CCO) and Chris Scott (CFO),
taking their shareholdings to 110,360 and 100,440 respectively.
Under the Director Cash Plan, Andrew Wass (CEO) exercised his
entitlement to an award of GBP72,041, settled in cash.
In June 2018 awards totalling 7,403 shares were made taking the
number of shares under option to 20,733. These shares have an
exercise price equal to the nominal value of the shares (10p) that
the Group will subsidise by way of a bonus, and subject to certain
conditions will be automatically exercised on the third anniversary
of the date of grant as prescribed in the scheme rules.
13 Related party transactions
There were no significant related party transactions during the
six months to 31 August 2018.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DELFFVBFBFBZ
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