TIDMG4M
RNS Number : 4587S
Gear4music (Holdings) PLC
16 November 2021
16 November 2021
Gear4music (Holdings) plc
Interim results for the six months ended 30 September 2021
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE:
G4M), the largest UK based online retailer of musical instruments
and music equipment, today announces its unaudited financial
results for the six months ended 30 September 2021 ("the
Period").
Highlights:
GBPm 6-months ended 6-months 6-months Change Change
30 Sept 2021 ended 30 ended 30 on FY21 on FY20
('FY22 H1') Sept 2020 Sept 2019 H1 H1
('FY21 H1') ('FY20 H1')
--------------- ------------- ------------- ---------
Revenue 64.7 70.2 49.4 -8% +31%
Gross profit 18.1 20.1 12.5 -10% +45%
Gross margin 28.0% 28.6% 25.2% -60bps +280bps
EBITDA 4.8 8.5 2.0 -GBP3.7m +GBP2.8m
Operating profit 2.4 6.4 0.2 -GBP4.0m +GBP2.2m
Net profit/(loss) 1.1 4.9 (0.1) -GBP3.8m +GBP1.2m
-- FY22 H1 Revenues and Profits in-line with Board expectations
-- Gross margins remain strong reflecting continued focus on
higher margin products
-- EBITDA of GBP4.8m is GBP3.7m lower than an exceptional FY21
H1 as expected due to the impact of Covid, but GBP2.8m higher
than the more comparable period in FY20 H1
-- FY22 Q3 revenue to date slower than expected due to on-going
Brexit related supply chain challenges, leading the Board
to revise FY22 full year EBITDA guidance to not less than
GBP12m (FY21 EBITDA: GBP18.9m, FY20: GBP7.8m)
-- Sustained improvement in operational performance with enhanced
website conversion, average order value and active customers
-- Acquisition of AV Distribution Ltd due to complete in December
2021; significant growth opportunity identified
Commenting on the results, Andrew Wass, Chief Executive Officer
said:
"I am pleased to report that following the exceptional period of
trading during FY21, Group financial performance during FY22 H1 was
in-line with the Board's expectations, retaining strong margins and
achieving significantly improved profitability compared with the
more comparable FY20 H1 trading period.
FY22 Q1 sales were stronger than expected, which provided the
basis for the Board to upgrade its expectations on 22 June 2021.
However, Brexit related supply chain challenges are persisting for
longer than we had previously anticipated, and European Q3 sales to
date have been slower than previously expected. As a result, the
Group is trading below FY22 consensus market expectations*, with
the Board now expecting that FY22 EBITDA will be not less than
GBP12m.
As our new hubs in Ireland and Spain scale-up to build upon our
existing European infrastructure, we are confident that the
remaining Brexit related challenges will be resolved by FY22 Q4 and
our European customer proposition will be significantly
strengthened.
With the acquisition of AV Distribution Ltd due to complete in
December 2021 followed by the launch of AV.com in January 2022,
which will significantly increase our addressable market size,
alongside multiple planned upgrades to our E-Commerce platform
during FY23, we remain confident in our profitable growth
strategy."
* Gear4music believes that consensus market expectations for the
year ending 31 March 2022 (i) prior to release of this announcement
are currently revenue of GBP156.6 million and EBITDA of GBP14
million; and (ii) before 22 June 2021 were revenues of GBP152.3
million and EBITDA of GBP11.5 million.
Gear4music will issue a trading statement on 20 January
2022.
Investor presentation
Andrew Wass, Chief Executive Officer, and Chris Scott, Chief
Financial Officer, will provide a live presentation relating to the
results on 17 November 2021 at 4.30pm GMT.
The presentation is open to all existing and potential
shareholders. Investors can sign up to Investor Meet Company for
free and add themselves to the meeting via:
https://www.investormeetcompany.com/gear4music-holdings-plc/register-investor
.
Investors who already follow Gear4music on the Investor Meet
Company platform will be automatically invited.
Enquiries:
Gear4music +44 (0)20 3405 0205
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer
Singer Capital Markets - Nominated Adviser
and Joint Broker +44 (0)20 7496 3000
Peter Steel/Amanda Gray, Corporate Finance
Tom Salvesen, Corporate Broking
Investec Bank plc - Joint Broker +44 (0)20 7597 5970
David Flin
Alex Wright
Harry Hargreaves
Alma PR - Financial PR +44 (0)20 3405 0205
Harriet Jackson Gear4music@almapr.co.uk
Rebecca Sanders-Hewett
Josh Royston
Faye Calow
About Gear4music .com
Operating from a Head Office in York, Distribution Centres in
York, Sweden, Germany, Ireland & Spain, and showrooms in York,
Sweden & Germany, the Group sells own-brand musical instruments
and music equipment alongside premium third-party brands including
Fender, Yamaha and Roland, to customers ranging from beginners to
musical enthusiasts and professionals, in the UK, Europe and the
Rest of the World.
Having developed its own e-commerce platform, with multilingual,
multicurrency websites delivering to over 190 countries, the Group
continues to build its overseas presence.
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"). Upon the publication of this
announcement via the Regulatory Information Service, this inside
information is now considered to be in the public domain.
Business Review
The business reports the Group's results for the six months to
30 September 2021, and updates on the strategic and commercial
progress made in the Period.
Strategy
As previously reported our FY21 results were exceptional, as
store-based competitors were adversely impacted by COVID lockdowns,
and e-commerce transactions significantly increased as people took
up activities in which to participate whilst spending more time at
home. Gross margins also increased as prices were managed relative
to stock levels, and marketing returns particularly in FY21 Q1 were
strong as marketing was curtailed to manage already high levels of
demand, and we transformed our distribution centres to be
COVID-secure.
The UK leaving the EU on 1 January 2021 brought a number of
cross-border challenges that have impacted our business,
manifesting in a decline of European sales that would previously
have been fulfilled from our UK distribution centre. Complementing
our existing Swedish and German hubs and to address these issues
more substantially and improve our European customer proposition,
we opened Irish and Spanish distribution centres in September 2021,
which will be fully operational by FY22 Q4.
We continue to deliver on our commitment to sustain strong gross
margins, and our FY22 H1 gross margin of 28.0% compares favourably
to an exceptional 28.6% in FY21 H1, and 25.2% in FY20 H1.
In FY21 a significant proportion of our software development
resource was focused on preparing for Brexit, and in FY22 this
resource was redeployed to work on growth-related projects,
preparing to integrate AV Distribution Ltd, and launching
AV.com.
We continue to make progress against the three pillars of our
progressive e-commerce strategy, and outline developments in each
area below:
E-commerce Excellence
FY22 H1 FY21 H1 FY20 H1 Change Change
on FY21 on FY20
H1 H1
Revenue GBP64.7m GBP70.2m GBP49.4m -8% +31%
Total unique website users 13.5m 15.2m 13.4m -11% +1%
Mobile site unique users
(inc. tablet) 8.7m 8.8m 8.6m -1% +1%
Conversion rate 4.00% 3.90% 3.02% +10bps +98bps
Average order value GBP128 GBP117 GBP120 +9% +6%
Active customers * 993,000 954,000 773,000 +4% +28%
Proportion of repeat customers
** 24.4% 24.9% 26.9% -50bps -250bps
Email subscriber database 725,000 708,000 717,000 +2% +1%
Trustpilot rating 4.8/5 4.8/5 4.8/5 - -
* Active customers are those that have purchased products within
the last 12 months
** Repeat customers are those that have made a purchase in the
defined period and have historically made at least one purchase
Revenue in the Period totalled GBP64.7m, GBP5.5m (8%) lower than
the exceptional FY21 H1, and GBP15.3m (31%) ahead of a more normal
FY20 H1 trading period. UK revenue was flat on FY21 H1 and
international revenue down 16% largely due to a fall-off in
European orders as a result of the on-going disruption caused to
supply chains and order fulfilment post-Brexit. The Group continues
to actively monitor and manage the evolving situation and, outside
of our existing sites in Sweden and Germany, the setting-up and
rapid scaling of our new Irish and Spanish distribution centres
will further localise and enhance our customer offer, and are
expected to remedy the current challenges in FY22 Q4 and
beyond.
Website user numbers decreased by 11% to 13.5m year-on-year,
with visitors to the UK site decreasing by 5% and visitor numbers
to the Group's 19 international websites decreasing by 15%.
Organic and direct website traffic accounted for 38% of total
visitors (FY21 H1: 42%; FY20 H1: 38%) as the growth in mobile
continues, and competition for screen space increases the relevance
of 'Pay-per-Click' ('PPC'). In line with our stated strategy,
improved PPC returns were maintained above pre-FY21 levels and
marketing spend equated to 6.9% of sales compared to an exceptional
5.3% last year that reflected a lower PPC spend to manage capacity
during COVID lockdowns, and 8% in FY20 H1 and 8.2% in FY19 H1.
The increasing prominence of mobile continues to be a key theme
with the proportion of users from this channel increasing from 58%
last year to 65% of all users this year (FY20 H1: 65%), with last
year's temporary decrease reflecting COVID lockdown and an
associated rise in desktop use. Mobile website development remains
an important focus area for the Group.
Conversion rates improved again from 3.9% last year to 4.0%
(FY20 H1: 3.0%) reflecting an on-going targeted, higher return
approach to marketing, and less people browsing. Conversion in the
UK improved from 6.1% last year to 6.4% (FY20 H1: 4.8%) whilst
European conversion decreased from 2.6% to 2.4% (FY20 H1: 2.1%).
Mobile conversion fell from 2.6% to 2.3% (FY20 H1: 2.0%).
The Group served 404,000 customers in the Period (-16%) through
its websites and Active customers, being those that have purchased
products within the last 12 months, increased by 4% reflecting a
strong FY21 H2. The proportion of repeat customers was 24.4% (FY21
H1: 24.9%; FY20 H1: 26.9%) reflecting the 328,000 new customers
that purchased during the Period. The level of repeat custom
reflects the Group's product range and high average order value,
and re-affirms the important differentiator that the Group is
profitable from the first customer transaction.
The number of subscribers on our email database increased to
725,000 (+2%). Further segmentation improvements to our email
retargeting platform are being developed with the objective of
increasing the number of repeat customers.
We continue to invest in our customer proposition and service
teams, resulting in a positive overall customer experience,
reflected in Gear4music.com's Trustpilot score of 4.8 and
'Excellent' rating from over 97,000 reviews.
The Group invested GBP2.0m in its e-commerce platform in the
Period (FY21 H1: GBP1.4m; FY20 H1: GBP1.4m) which included on-going
Brexit related projects, and work ahead of the integration of the
soon to be acquired AV business. Deployments in the Period
included:
-- Additional hubs launched in Spain and Ireland
-- AV.com site and system construction - most systems ready
-- Moved to a new card payment system providing better
security and 3D Secure V2
-- Partial deployments for 3(rd) -party drop shipping and
2(nd) hand platform systems, ahead of coming online
next year
-- Upgrading the platform to PHP v7.4
Development into key growth-related projects remains
on-going.
Supply Chain Evolution
FY22 H1 FY21 H1 FY20 H1 Change Change
on FY21 on FY20
H1 H1
Own-brand product sales GBP15.3m GBP18.4m GBP12.9m -17% +19%
Other brand product
sales GBP46.2m GBP48.4m GBP34.4m -4% +34%
Product margin 32.0% 32.8% 29.6% -80bps +240bps
Products listed 60,500 55,200 52,700 +10% +15%
Brands listed 951 894 889 +6% +6%
Retaining strong gross margins remains a key business objective,
and much of last year's improvement has been retained with gross
margin in the Period of 28.0% compared to 28.6% last year, and
25.2% in FY20 H1.
Product margins decreased 80bps from 32.8% to 32.0% (FY20 H1:
29.6%), reflecting a 30bps decrease in both own-brand and
other-brand product margins, and a sales mix effect as own-brand
sales accounted for 24.9% of total product sales compared to 27.6%
last year (FY20 H1: 27.3%; FY19 H1: 21.9%).
The number of SKUs listed increased from 55,200 at 30 September
2020 to 57,900 at 31 March 2021 and 60,500 at 30 September 2021,
representing a net 15% increase in 12 months.
The number of own-brand products increased from 3,600 at 30
September 2020 to 3,900 at 30 September 2021, with own-brand
revenue accounting for 24.9% of total product sales from just 6.5%
of SKUs reflecting the effort expended in developing our range of
high-quality instruments and equipment at affordable prices. New
products continue to be developed and during the Period we
launched:
-- A large range of SubZero, RedSub & Hartwood guitar
& bass amplifiers
-- A range of SubZero Guitar Pedals
-- 18x SubZero speakers & PA systems
-- DP-12 Digital Pianos
-- DD500 Range of Digital Drum Kits
-- sideKIK Personal Musician's Amp
-- VISIONKEY Keyboards
Progress continues to be made in developing the Premier brand
that we acquired earlier in the year, with the imminent launch of
Premier digital drum kits. We have also been shaping the future of
Premier Acoustic Drum Kits with several exciting new ranges due to
launch Summer/Autumn 2022 to coincide with Premier's centenary
celebrations.
We have deliberately and significantly increased stock by
GBP8.7m (30%) from GBP28.7 million at 30 September 2020, to GBP37.5
million, to put the business in a strong position heading into peak
trading, and as a precautionary measure against potential supply
chain issues and increased container costs.
International Expansion
Although we were well prepared ahead of Brexit, the cost,
administrative burden and time to deliver products to our European
customers from the UK significantly increased as a result of the
Brexit deal announced on 24 December 2020, causing our overall
customer proposition to decline across these cross-border SKUs.
To help mitigate these challenges, we further scaled and
invested into stock in our Swedish and German distribution centres,
and in September 2021 added 15,000 square feet of distribution
space in Ireland and 45,000 square feet in Spain. Whilst factored
into our expectation, the impact on FY22 H1 revenue was significant
with a marked decline in cross UK-EU border sales.
These operational challenges have continued to impact our
business post period end. However, in line with strategy we now
have a European distribution infrastructure capable of handling
over GBP120m of sales per annum meaning that the Group remains well
positioned to capitalise on the medium-term growth opportunity.
Current trading and outlook
As planned, our new European hubs in Ireland and Spain became
operational in September, but due to some short-term supply chain
challenges, these new hubs are taking longer to scale-up than we
originally anticipated. As a result, ongoing Brexit related
challenges are impacting for longer than we had hoped, and our
European Q3 sales to date have been lower than previously expected
. As such the Board believes that results for the financial year
will be lower than recently upgraded consensus market
expectations.
The Board is confident that the Group now has the European
infrastructure to resolve these issues, and further localise and
improve our customer proposition in mainland Europe.
The acquisition of AV Distribution Ltd is expected to complete
in December 2021 and the launch of AV.com in January 2022,
alongside planned upgrades to our e-Commerce platform during FY23,
provides the Board with the basis for reiterating its confidence in
the Group's growth strategy.
The Group will issue a Christmas trading update on 20 January
2022.
Financial Review
FY22 H1 FY21 H1 FY20 H1 Change Change
on FY21 on FY20
H1 H1
Revenue GBP64.7m GBP70.2m GBP49.4m -8% +31%
Gross profit GBP18.1m GBP20.1m GBP12.5m -10% +45%
Gross margin 28.0% 28.6% 25.2% -60bps +280bps
EBITDA GBP4.8m GBP8.5m GBP2.0m -GBP3.7m +GBP2.8m
EBITDA margin 7.4% 12.1% 4.0% -470bps +340bps
Operating profit GBP2.4m GBP6.4m GBP0.2m -GBP4.0m +GBP2.2m
Marketing costs GBP4.4m GBP3.7m GBP3.9m +19% +13%
Marketing costs as % of
revenue 6.9% 5.3% 8.0% +160bps -110bps
Total Labour costs GBP6.1m GBP5.5m GBP4.7m +11% +30%
Total Labour costs as
% of revenue 9.4% 7.8% 9.4% +160bps -
Cash GBP3.6m GBP5.4m GBP3.4m -GBP1.8m +GBP0.2m
Net bank debt GBP13.4m GBP5.7m GBP9.7m +GBP7.7m +GBP3.7m
Revenue
Revenue in the six months to 30 September 2021 decreased by 8%
on a COVID-boosted exceptional trading period last year, when
revenue increased by 42%. FY22 H1 revenue of GBP64.7m was GBP15.3m
(31%) ahead of a more normal FY20 H1 trading period.
Revenue from the UK market was maintained at GBP36.7m taking our
estimated share of the UK market to 8.9% (FY21 H1 estimate:
8.6%).
Revenue into international markets has been hampered by Brexit
related factors and decreased by GBP5.5m (16%) to GBP28.0m (FY20
H1: GBP24.6m), accounting for 43% of Group revenue compared to 48%
in FY21 H1 and 50% in FY20 H1.
Gross Profit
The Group considers changes in gross profit, being a function of
strong sales growth and gross margins that make good commercial
sense, to be the primary measure of growth.
Gross profit decreased by GBP2.0m (10%) from the exceptional
GBP20.1m last year, to GBP18.1m, as the Group sought to retain much
of the FY21 H1 gross margin improvement, with an FY22 H1 margin of
28.0% being just 60bps down on last year.
Operating Profit and Administrative Expenses
Operating profit of GBP2.4m represents a GBP4.0m decrease on an
exceptional FY21 H1, reflecting a GBP2.0m decrease in gross profit
driven by lower revenue, and a GBP2.0m increase in administrative
costs.
The increase in administrative costs of GBP2.0m (15%) includes a
GBP0.7m (19%) increase in marketing costs, a GBP0.6m (11%) increase
in labour costs, a GBP0.3m increase in depreciation and
amortisation and increases in other activity-linked variable
costs.
Marketing and labour costs continue to be key business drivers
and the main component parts of our cost base, accounting for a
combined 67% of total administrative expenses in the Period (FY21
H1: 67%).
In FY21, H1 marketing costs as a percentage of revenue reached
5.3% compared to 6.9% in FY22 H1, with expenditure in the prior
period restricted particularly in FY21 Q1 to help manage capacity
as new health and safety measures were introduced into our
warehouses. FY22 H1 has been a more 'normal' trading period with a
focus on maintaining a strong, pre-defined return on
investment.
Total labour costs increased by GBP0.6m (11%) on last year
reflecting pay increases, recruitment to respond to Brexit, and the
full-year effect of FY21 new hires.
European distribution centre local administrative expenses
increased by GBP0.3m (24%) on FY21 H1, to GBP2.0m.
Depreciation and amortisation in the Period totalled GBP2.4m
(FY21 H1: GBP2.1m) including GBP1.1m (FY21 H1: GBP0.9m) of
amortisation relating to our bespoke e-commerce platform, and
GBP0.6m depreciation of 'Right of Use' assets (FY21 H1:
GBP0.6m).
Net Profit
Financial expenses of GBP0.5m include GBP0.2m bank interest
(FY21 H1: GBP0.1m), GBP0.2m interest on lease liabilities (FY20 H1:
GBP0.2m), and a small foreign exchange loss (FY21 H1: GBP0.3m
loss).
Net profit of GBP1.1m (FY21 H1: GBP4.9m; FY20 H1: GBP0.1m loss)
represents a good result to take into the second half of the
financial year. The business reported a net profit in every month
in FY22 H1.
Cash Flow and Balance Sheet
September generally represents a low point in the annual cash
cycle as stock builds ahead of the peak Christmas trading period,
and this has been amplified in response to potential supply chain
issues. Nevertheless, net bank debt of GBP13.4m (30 September 2020:
GBP5.7m), leaves headroom of GBP21.6m including GBP18m within the
Group's GBP35m RCF three-year committed Revolving Credit Facility
('RCF') with HSBC Bank plc.
In the Period the business has utilised its debt facility to
significantly invest in stock (+GBP8.7m), make GBP4.7m of brand and
domain acquisitions (AV.com domain GBP3.0m; Premier business and
certain assets GBP1.7m), and invest GBP2.0m in software
development.
The carrying value of stock at 30 September 2021 was GBP37.5m
(30 September 2020: GBP28.7m) including GBP6.2m of inbound
stock-in-transit (30 September 2020: GBP5.1m) arriving ahead of
peak trading.
Trade and other payables decreased from GBP18.7m last year to
GBP15.6m as stock was brought in and suppliers paid earlier, and
includes the associated liability for the GBP6.2m of inbound
stock-in-transit (30 September 2020: GBP5.1m).
Capitalised software development costs totalled GBP2.0m in the
Period taking total spend to date to GBP15.5m. Amortisation in the
Period was GBP1.1m leading to a GBP0.9m increase in net book value
since the start of the financial year.
Property, plant and equipment capital expenditure was GBP0.7m in
the Period (FY21 H1: GBP0.5m), relating principally to the new
Irish and Spanish distribution centres.
Dividend Policy
Consistent with its previous approach, the Group repeats its
intention to revisit its shareholder distribution policy
periodically, including at the end of this financial year.
Unaudited consolidated interim statement of profit and loss and
other comprehensive income
6 months 6 months Year ended
ended 30 ended 30 31 March
Note September September 2021 (audited)
2021 (unaudited) 2020 (unaudited)
GBP000 GBP000 GBP000
Revenue 3 64,694 70,217 157,451
Cost of sales (46,573) (50,121) (111,097)
Gross profit 18,121 20,096 46,354
Administrative expenses 4 (15,728) (13,685) (30,945)
Operating profit 4 2,393 6,411 15,409
Financial expenses 6 (463) (660) (770)
Profit before tax 1,930 5,751 14,639
Taxation 7 (850) (802) (1,998)
Profit for the period 1,080 4,949 12,641
Other comprehensive income
Items that will not be reclassified to profit or loss:
Deferred tax movements (120) - 8
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation differences
- foreign operations (36) (8) (17)
Total comprehensive income for
the period 924 4,941 12,632
Profit per share attributable to equity shareholders
of the company
Basic profit per share 5 5.2p 23.6p 60.3p
Diluted profit per share 5 5.1p 23.4p 59.7p
Unaudited consolidated interim statement of financial
position
30 September 30 September 31 March
2021 (audited)
2021 2020 (unaudited)
(unaudited)
Note GBP000 GBP000 GBP000
Non-current assets
Property, plant and equipment 8 11,289 11,125 11,190
Right of use assets 9 8,953 8,743 7,871
Intangible assets 10 15,901 9,585 10,395
36,143 29,453 29,456
Current assets
Inventories 11 37,452 28,732 28,430
Trade and other receivables 12 3,317 4,453 3,647
Cash and cash equivalents 3,648 5,434 6,203
44,417 38,619 38,820
Total assets 80,560 68,072 67,736
Current liabilities
Interest bearing loans
and borrowings 13 - (7,520) (575)
Trade and other payables 14 (15,591) (18,675) (18,938)
Lease liabilities 15 (1,158) (1,184) (1,099)
(16,749) (27,379) (20,612)
Non-current liabilities
Interest bearing loans
and borrowings 13 (17,000) (3,166) (2,901)
Other payables 14 (78) (124) (110)
Lease liabilities 15 (9,221) (9,205) (8,315)
Deferred tax liability (2,206) (1,589) (1,486)
(28,505) (14,084) (12,812)
Total liabilities (45,254) (41,463) (33,424)
Net assets 35,306 26,609 34,312
Equity
Share capital 2,098 2,095 2,095
Share premium 13,286 13,165 13,165
Foreign currency translation
reserve (87) (42) (51)
Revaluation reserve 1,640 1,674 1,640
Retained earnings 18,369 9,717 17,463
Total equity 35,306 26,609 34,312
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended
30 September 30 September 31 March
2021 2020 2021
(unaudited) (unaudited) (audited)
GBP000 GBP000 GBP000
Cash flows from operating
activities
Profit for the period: 1,080 4,949 12,641
Adjustments for:
Depreciation and amortisation 8-10 2,424 2,100 4,372
Financial expense 6 425 322 770
Profit on sales of property,
plant and equipment (8) - (4)
Share-based payment (credit)/charge (54) 46 64
Tax expense 7 850 802 1,998
4,717 8,219 19,841
Increase/(decrease) in trade
and other receivables 916 (1,952) (1,181)
Increase in inventories (9,022) (6,717) (6,415)
(Decrease)/increase in trade
and other payables (1,533) 3,917 2,687
(4,922) 3,467 14,932
Tax paid (2,535) (92) (37)
Net cash from operating activities (7,457) 3,375 14,895
Cash flows from investing
activities
Proceeds from sales of property,
plant and equipment 57 - 14
Acquisition of property, plant
and equipment 8 (738) (467) (1,166)
Acquisition of intangible
assets 10 (3,013) - -
Acquisition of a business
(net of cash acquired) 10 (1,685) - -
Capitalised development expenditure 10 (1,996) (1,433) (3,186)
Payment of deferred consideration - (200) (200)
Net cash from investing activities (7,375) (2,100) (4,538)
Cash flows from financing
activities
Cash from share issue - 13 13
Proceeds from new borrowings 13 17,000 - 29
Repayment of borrowings (3,476) (2,702) (9,948)
Interest paid (including lease
interest) 6 (427) (319) (692)
Lease payments (784) (664) (1,379)
Net cash from financing activities 12,313 (3,672) (11,977)
Net decrease in cash and cash
equivalents (2,519) (2,397) (1,620)
Cash and cash equivalents
at beginning of period 6,203 7,839 7,839
Foreign exchange movement (36) (8) (16)
Cash and cash equivalents at
end of period 3,648 5,434 6,203
Unaudited consolidated interim statement of changes in
equity
Foreign
currency
Share Share translation Revaluation Retained Total
capital premium reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 April 2021 2,095 13,165 (51) 1,640 17,463 34,312
Profit for the period - - - - 1,080 1,080
Other comprehensive income - - (36) - - (36)
Deferred tax adjustment - - - - (120) (120)
Issue of shares net of
expenses 3 121 - - - 124
Share based payments
charge - - - - (54) (54)
Balance at 30 September
2021 2,098 13,286 (87) 1,640 18,369 35,306
Foreign
currency
Share Share translation Revaluation Retained Total
capital premium reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 April 2020 2,095 13,152 (34) 1,674 4,722 21,609
Profit for the period - - - - 4,949 4,949
Other comprehensive income - - (8) - - (8)
Issue of shares net of
expenses - 13 - - - 13
Share based payments
charge - - - - 46 46
Balance at 30 September
2020 2,095 13,165 (42) 1,674 9,717 26,609
Foreign
currency
Share Share translation Revaluation Retained Total
capital premium reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 April 2020 2,095 13,152 (34) 1,674 4,722 21,609
Profit for the year - - - - 12,641 12,641
Other comprehensive income - - (17) - 10 (7)
Deferred tax adjustment
- timing difference - - - - (8) (8)
Issue of shares net of
expenses - 13 - - - 13
Share based payments
charge - - - - 64 64
Depreciation transfer - - - (34) 34 -
Balance at 31 March 2021 2,095 13,165 (51) 1,640 17,463 34,312
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company
incorporated and domiciled in the United Kingdom, and is listed on
the Alternative Investment Market ('AIM') of the London Stock
Exchange.
The Group financial information consolidates those of the
Company and its subsidiaries (collectively referred to as the
"Group"). The Group has 100% owned trading subsidiaries in the UK
('Gear4music Limited'), Sweden ('Gear4music Sweden AB') and Germany
('Gear4music GmbH'). In the six-month period ended 30 September
2021 Gear4music Limited set-up a 100% owned Irish subsidiary
('Gear4music Ireland Limited) and a 100% owned Spanish subsidiary
('Gear4music Spain S.L.'). The Group also has 100% owned dormant
subsidiaries in the UK ('Cagney Limited') and in Norway
('Gear4music Norway').
The principal activity of the Group is the retail of musical
instruments and equipment.
The registered office of Gear4music (Holdings) plc (company
number: 07786708), Gear4music Limited (company number: 03113256)
and Cagney Limited (dormant subsidiary; company number: 04493300)
is Holgate Park Drive, York, YO26 4GN.
1 Accounting policies
Basis of preparation
The unaudited consolidated interim financial information has
been prepared under the historical cost convention, except for land
and buildings that are stated at their fair value, and in
accordance with the recognition and measurement requirements of
International Financial Reporting Standards ("IFRS") as adopted by
the European Union, IFRIC interpretations, and with those parts of
the Companies Act 2006 applicable to companies reporting under
IFRS. The condensed consolidated interim financial information does
not constitute financial statements within the meaning of Section
434 of the Companies Act 2006 and does not include all of the
information and disclosures required for full annual financial
statements. It should therefore be read in conjunction with the
Group's Annual Report for the year ended 31 March 2021, which has
been prepared in accordance with International Financial Reporting
Standards and is available on the Group's investor website.
The accounting policies used in the financial information are
consistent with those used in the Group's consolidated financial
statements as at and for the year ended 31 March 2021, as detailed
on pages 62 to 67 of the Group's Annual Report and Financial
Statements for the year ended 31 March 2021, a copy of which is
available on the Group's website, www.gear4musicplc.com.
The comparative financial information contained in the condensed
consolidated financial information in respect of the year ended 31
March 2021 has been extracted from the 2021 Financial Statements.
Those financial statements have been reported on by Grant Thornton
UK LLP, and delivered to the Registrar of Companies. The report was
unqualified, did not include a reference to any matters to which
the auditor drew attention by way of emphasis without qualifying
their report, and did not contain a statement under Section 498(2)
or 498(3) of the Companies Act 2006.
Selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in financial position and performance of the Group since
the last annual consolidated financial statements as at the year
ended 31 March 2021.
Notes to the Interim Financial Information (continued)
Going concern
The Group's business activities and position in the market are
described in detail in the Strategic Report included on pages 1 to
39 of the Group's 2021 Annual Report and Financial Statements
The Directors are confident that the Group has sufficient
financial resources and is well placed to manage its business
risks, and flourish.
The financial year ended 31 March 2021 was a period of
exceptionally strong trading and the Group reported a further
strengthened balance sheet with net assets of GBP34.3m (31 March
2020: GBP21.6m), and net cash at the year-end of GBP2.7m (31 March
2020: net debt of GBP5.5m).
The Group's policy is to ensure that it has sufficient
facilities to cover its future funding requirements. On 21 April
2021 the Group secured a GBP35m three-year committed Revolving
Credit Facility with its bankers, HSBC. At 30 September 2021 the
Group had net debt of GBP13.4m and GBP21.6m of headroom including
GBP18m within its facilities. This significant headroom has been
factored into the Directors going concern assessment.
The Directors have considered the Group's growth prospects based
on its current proposition and online offering in
the UK and Europe, strategic developments in the pipeline, and
an M&A-led entry to the European AV market, and concluded that
there are significant opportunities for profitable growth as
channel shift continues and
customers move online.
There is a diverse supply chain with no key dependencies.
Having duly considered all of these factors and having reviewed
the forecasts for the coming year, the Directors have
a reasonable expectation that the Group has adequate resources
to continue trading for the foreseeable future, and
as such continue to adopt the going concern basis of accounting
in preparing the financial statements.
2 Principal risks and uncertainties
The Board considers the principal risks and uncertainties which
could impact the Group over the remaining six months of the
financial year to 31 March 2022 to be unchanged from those set out
in the group's Annual Report and Financial Statements for the year
ended 31 March 2021, and can be summarised as:
- Impact of the UK having left the EU
- COVID-19
- Change management of rapid growth, new markets and/or
mergers and acquisitions
- Management of Warehousing and Distribution
- IT and Cyber reliability
- Brand and proposition
- Competition
- Supplier relationships
- Dependence on key personnel
These are set out in detail on pages 32 to 35 of the Group's
Annual Report and Financial Statements for the year ended 31 March
2021, a copy of which is available on the Group's Plc website,
www.gear4musicplc.com.
Notes to the Interim Financial Information (continued)
3 Segmental analysis
Revenue by Geography:
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
GBP000 GBP000 GBP000
UK 36,704 36,686 78,690
Europe and Rest of the
World 27,990 33,531 78,761
64,694 70,217 157,451
Administrative Expenses by Geography:
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
GBP000 GBP000 GBP000
UK 13,685 12,034 27,109
Europe and Rest of the
World 2,043 1,651 3,836
15,728 13,685 30,945
Revenue by Product Category:
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
GBP000 GBP000 GBP000
Other-brand products 46,228 48,353 104,199
Own-brand products 15,339 18,428 45,368
Carriage income 2,757 3,042 7,135
Warranty income 246 268 545
Other 124 126 204
64,694 70,217 157,451
Notes to the Interim Financial Information (continued)
4 Expenses and other income
Included in profit/loss are the following:
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2021
2021 2020
GBP000 GBP000 GBP000
Depreciation of property, plant
and equipment 590 561 1,185
Depreciation of right-of-use
assets 646 607 1,219
Amortisation of intangible assets 1,188 932 1,968
Amortisation of government grants 4 3 11
Profit on disposal of property,
plant and equipment (8) - (4)
R&D expenditure recognised as
an expense 102 73 155
6 months 6 months Year ended
ended 30 ended 30 31 March
September September 2021
2021 2020
GBP000 GBP000 GBP000
Other income 350 329 688
5 Earnings per share
Basic earnings per share is calculated by dividing the net
profit or loss for the period attributable to ordinary shareholders
by the weighted average number of ordinary shares outstanding
during the period.
Diluted profit per share is calculated by dividing the net
profit for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all dilutive potential
ordinary shares into ordinary shares.
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
Profit attributable to equity
shareholders of the parent (GBP'000) 1,080 4,949 12,641
Basic weighted average number
of shares 20,958,821 20,947,015 20,948,595
Dilutive potential ordinary shares 193,452 218,299 218,033
_________ _________ _________
Diluted weighted average number
of shares 21,152,273 21,165,314 21,166,628
_________ _________ _________
Basic profit per share 5.2p 23.6p 60.3p
Diluted profit per share 5.1p 23.4p 59.7p
Notes to the Interim Financial Information (continued)
6 Finance expenses
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
GBP000 GBP000 GBP000
Bank interest 201 109 196
IFRS16 lease interest 193 210 403
Net foreign exchange loss 38 338 161
Net fair value movements 31 3 10
Total finance expense 463 660 770
7 Taxation
6 months 6 months Year ended
ended ended 30 31 March
30 September September 2021
2021 2020
GBP000 GBP000 GBP000
Current tax expense 249 620 1,919
Deferred tax expense 601 182 86
Total tax expense 850 802 2,005
The deferred tax liability has been increased by GBP721,000 to
GBP2,206,000. The GBP721,000 movement consists of a P&L charge
of GBP601,000 and a GBP120,000 charge to other comprehensive
income. The increase in the deferred tax liability is due to a
restatement of deferred tax liabilities relating to the freehold
revaluation, from the rate it was initially included at, to the tax
rate substantively enacted at the Balance Sheet date, and the
acceleration of tax relief for intangible assets as a result of an
R&D claim. The claim results in an R&D tax credit.
The corporation tax rate applicable to the company was 19% in
the period to 30 September 2021. An increase in the corporation tax
rate to 25% with effect from 1 April 2023 was substantively enacted
in legislation on 24 May 2021. Therefore, the company's deferred
tax assets and liabilities at 30 September 2021 have been
recognised / provided at that rate.
Notes to the Interim Financial Information (continued)
8 Property, plant and equipment
Freehold Plant and Fixtures Computer
property equipment and fittings Motor vehicles equipment Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
Balance at 1 October
2020 7,500 1,688 5,238 62 1,015 15,503
Additions - 159 461 - 79 699
Disposals - - - (32) - (32)
Balance at 31 March
2021 7,500 1,847 5,699 30 1,094 16,170
Additions - 185 470 - 83 738
Disposals - (61) - - - (61)
Balance at 30 September
2021 7,500 1,971 6,169 30 1,177 16,847
Depreciation
Balance at 1 October
2020 75 1,079 2,499 39 686 4,378
Charge for the
period 75 143 321 2 83 624
Disposals - - - (22) - (22)
Balance at 31 March
2021 150 1,222 2,820 19 769 4,980
Charge for the
period 75 176 256 1 82 590
Disposals - (12) - - - (12)
Balance at 30 September
2021 225 1,386 3,076 20 851 5,558
Net book value
as at 30 September
2021 7,275 573 3,093 10 338 11,289
Net book value
as at 31 March
2021 7,350 625 2,879 11 325 11,190
Net book value
as at 30 September
2020 7,425 609 2,739 23 329 11,125
Notes to the Interim Financial Information (continued)
9 Right-of-use Assets
Leasehold properties
At 31 March 2021 the Group had four leased properties:
Distribution centres and showrooms in York, Sweden and Germany, and
a software development office in Manchester).
In August 2021 the Group added an Irish property lease for a new
distribution centre, and in September 2021 added a Spanish property
lease for a new distribution centre.
As at 30 September 2021 the associated right of use assets are
as follows:
Land and
Buildings
GBP000
Cost
Balance at 1 October
2020 10,566
Foreign exchange movement (261)
Balance at 31 March 2021 10,305
Foreign exchange movement 14
Additions 1,714
Balance at 30 September
2021 12,033
Depreciation
Balance at 1 October
2020 1,823
Charge for the period 611
Balance at 31 March 2021 2,434
Charge for the period 646
Balance at 30 September
2021 3,080
Net book value as at
30 September 2021 8,953
Net book value as at
31 March 2021 7,871
Net book value as at
30 September 2020 8,743
Notes to the Interim Financial Information (continued)
10 Intangible assets
Software Domain
Goodwill platform Brand names Total
GBP000 GBP000 GBP000 GBP000 GBP000
Cost
Balance at 1 October
2020 1,848 13,494 564 - 15,906
Additions - 1,753 93 - 1,846
Balance at 31 March
2021 1,848 15,247 657 - 17,752
Additions - 1,996 - - 1,996
Additions by acquisition 1,525 - 160 3,013 4,698
Balance at 30 September
2021 3,373 17,243 817 3,013 24,446
Amortisation
Balance at 1 October
2020 - 5,838 483 - 6,321
Amortisation for the
period - 1,008 28 - 1,036
Balance at 31 March
2021 - 6,846 511 - 7,357
Amortisation for the
period - 1,081 32 75 1,188
Balance at 30 September
2021 - 7,927 543 75 8,545
Net book value as at
30 September 2021 3,373 9,316 274 2,938 15,901
Net book value as at
31 March 2021 1,848 8,401 146 - 10,395
Net book value as at
30 September 2020 1,848 7,656 81 - 9,585
Acquisitions
On 21 June 2021 the Group completed the acquisition of the
'Premier' drum and percussion brand, business and certain assets
from Premier Music International Limited and High House 123 Limited
liability partnership, for GBP1.685m.
On 15 July 2021 the Group acquired the AV.com domain name for
GBP3.01m. Domain names are being amortised over 10-years.
On completion of the Group's acquisition of AV Distribution
Limited which is expected in December 2021, Management will
commission independent reporting accountants to assist their
assessment of the fair values of the assets and liabilities
acquired, intangible assets recognised and the associated goodwill
arising from all the acquisitions in the year. The information
required to be disclosed under IFRS 3 will be included in the
Group's Financial statements for the year ending 31 March 2022.
Notes to the Interim Financial Information (continued)
11 Inventories
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
Finished goods 37,452 28,732 28,430
The cost of inventories recognised as an expense and included in
cost of sales in the period ended 30 September 2021 amounted to
GBP42.6m (30 September 2020: GBP45.5m).
Inventories include GBP6.2m of predominantly Own-brand
stock-in-transit (30 September 2020: GBP5.1m) from Far East
manufacturers.
12 Trade and other receivables
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
Trade receivables 1,099 3,554 1,579
Prepayments 2,218 899 2,068
3,317 4,453 3,647
Trade receivables includes cash lodged with payment providers,
Amazon and the Group's consumer finance partner, and UK and
International education and trade accounts where standard credit
terms are 30-days.
Notes to the Interim Financial Information (continued)
13 Interest bearing loans and borrowings
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
Non-current liabilities
Bank loans 17,000 3,166 2,901
17,000 3,166 2,901
Current liabilities
Bank loans - 7,520 575
- 7,520 575
Total liabilities
Bank loans 17,000 10,686 3,476
17,000 10,686 3,476
On 21 April 2021 the Group entered into a GBP35m Revolving
Credit facility with HSBC. This replaced the commercial property
loans and import loan facility operated prior to this date. The
facility expires in April 2024 and is secured by a debenture over
the Group's assets.
Notes to the Interim Financial Information (continued)
14 Trade and other payables
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
Current
Trade payables 10,013 13,887 11,390
Accruals and deferred income 2,985 1,847 3,033
Deferred consideration 24 - 24
Government grants - 7 7
Other creditors including tax
and social security 2,569 2,934 4,484
15,591 18,675 18,938
Non-current
Accruals and deferred income 9 117 38
Deferred consideration 69 - 69
Government grants - 7 3
78 124 110
Accruals at 30 September 2021 include GBP9,000 (2020:
GBP118,000) relating to the estimated cash bonuses accrued relating
to the CSOP schemes.
Deferred consideration
On 10 March 2021 the Group acquired the Eden brand and
associated assets from Marshall Amplification plc for GBP140,000 of
which GBP100,000 is deferred and payable in four equal instalments
of GBP25,000 on the first, second, third and fourth anniversary of
the completion date. These amounts are valued in the accounts at
fair value and subsequently amortised.
The Directors consider the carrying amount of other 'trade and
other payables' to approximate their fair value.
15 Leases
The Group has leases for plant and machinery (GBP0.1m) and six
properties (GBP10.3m).
Each lease is reflected on the statement of financial position
as a right-of-use asset and a lease liability. The Group classifies
its right-of-use assets in a consistent manner to its property,
plant and equipment.
Lease liabilities are presented in the statement of financial
position as follows:
30 September 30 September 31 March
2021 2020 2021
GBP000 GBP000 GBP000
Current 1,158 1,184 1,099
Non-current 9,221 9,205 8,315
10,379 10,389 9,414
Notes to the Interim Financial Information (continued)
16 Share based payments
The Group operates share option plans for qualifying employees
of the Group. Options in the plans are settled in equity in the
Company and are subject to vesting conditions.
Exercised options
On 30 July 2021 5,312 ordinary shares were issued pursuant to
the exercise of options by 39 employees under the Company's 2018
CSOP Scheme, taking the total number of Ordinary Shares in issue to
20,955,488.
On 3 August 2021 21,450 ordinary shares were issued pursuant to
exercise of options by employees under the Company's LTIP,
including awards of 6,825 and 5,850 Ordinary Shares to Gareth Bevan
and Chris Scott, taking their shareholdings to 91,585 and 80,690
Ordinary shares respectively. Andrew Wass's entitlement was
exercised and settled in a cash award of GBP55,575.
These awards represented a combined dilution of 0.1%.
Options granted
On 6 August 2021 options over a total of 8,649 Ordinary shares
were granted to 31 employees under the Company's CSOP scheme.
17 Related party transactions
There were no significant related party transactions during the
six months to 30 September 2021 (30 September 2020: none).
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IR LELLFFFLBFBB
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