TIDMG4M
RNS Number : 5565P
Gear4music (Holdings) PLC
21 June 2022
21 June 2022
Gear4music (Holdings) plc
Audited results for the year ended 31 March 2022
"Good progress following an exceptional prior year"
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE:
G4M), the largest UK based online retailer of musical instruments
and music equipment, today announces its financial results for the
year ended 31 March 2022.
FY22 Highlights (1) :
GBPm Year ended Year ended Year ended Change on Change
31 March 31 March 31 March FY21 on FY20
2022 2021 2020
("FY22") ("FY21") ("FY20")
----------- ----------- -----------
Revenue 147.6 157.5 120.3 -6% +23%
Gross profit 41.1 46.4 31.2 -11% +32%
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
EBITDA 11.2 19.8 7.8 -43% +44%
PBT 5.0 14.6 3.1 -66% +61%
-- Gross profit of GBP41.1m was 11% below an exceptional, Covid
boosted FY21 and 32% ahead of FY20
-- Reported EBITDA (2) of GBP11.2m is 43% below FY21 and 44% ahead of FY20
-- Net debt at year end of GBP24.2m (31 March 2021: net cash
GBP2.7m) with new GBP35m RCF, partially used for M&A (GBP11.4m)
and an increase in stock (GBP17.1m) to protect the business against
supply chain issues and price inflation. Net debt expected to
reduce in FY23 with reduction in stock.
-- Active customers of 0.92m is 13% behind FY21 and 14% ahead of FY20
-- Conversion improved to 4.1% from 3.7% in FY21 and 3.4% in FY20
-- Trading in line with consensus market expectations for FY23
(1) FY20 shown for comparison as FY21 was exceptional due to the
positive impact of COVID-19 lockdowns.
(2) Includes GBP0.2m of one-off M&A costs and GBP0.3m share
option costs.
Commenting on the results, Andrew Wass, Chief Executive Officer
said:
"During FY21, Gear4music was reportedly the world's fastest
growing large online retailer of musical instruments and music
equipment*, being uniquely positioned to serve customers during
Covid lockdowns. As previously reported, this meant our FY21
financial results were exceptional, and comparing FY22 against FY20
pre-pandemic levels provides a better indication of the progress
the business has made.
I am pleased to be reporting FY22 full year results today that
are slightly ahead of our previous expectations, with EBITDA of
GBP11.2m and pre-tax profit of GBP5m. These results are a
significant improvement on FY20 pre-pandemic levels, showing the
continued growth and development of our business, and are a
testament to the hard work and determination of our talented
teams.
In April 2021, we agreed a new GBP35m borrowing facility with
HSBC which, as planned, was partially utilised by making
acquisitions totalling GBP11.4m to help drive future growth. We
also deliberately invested over GBP17m into additional short-term
inventory, to ensure continuing high levels of customer service and
strong website conversion during what has been a prolonged period
of supply chain disruption. We continue to have a significant
amount of headroom within our banking facilities and covenants, and
during FY23 we expect the additional inventory will reduce, and our
year-end net debt position will decrease accordingly.
We have a strong pipeline of growth orientated projects due to
be deployed during FY23, including the launch of AV.com into Europe
and our second-hand platform, alongside multiple new product
releases, including from the recently acquired Premier brand which
celebrates its 100th anniversary.
As previously stated, weaker consumer confidence across the
broader retail landscape is likely to continue impacting our
progress during H1, although alongside careful overhead cost
management we believe our growth initiatives will help offset these
headwinds and provide opportunities for stronger growth during H2 .
We continue to trade in line with market expectations for FY23**
and remain confident in our medium and long-term profitable growth
strategy."
* Source = Music Trades: Worldwide largest 20 online retailers;
2021 sales data
** Gear4music believes that consensus market expectations for
the year ending 31 March 2023 are currently revenue of GBP163.9
million and EBITDA of GBP11.9 million.
S
Enquiries:
Gear4music
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer +44 (0)20 3405 0205
Singer Capital Markets - Nominated Adviser
and Joint Broker Peter Steel/Amanda Gray,
Corporate Finance
Tom Salvesen, Corporate Broking +44 (0)20 7496 3000
Investec Bank plc - Joint Broker
David Flin
Alex Wright
Alice King +44 (0)20 7597 5970
Alma PR - Financial PR +44 (0)20 3405 0205
Rebecca Sanders-Hewett Gear4Music@almapr.co.uk
David Ison
Joe Pederzolli
Josh Royston
About Gear4music (Holdings) plc
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.
Chairman's statement
I am pleased to report on what we consider to be a strong set of
results during what has been an unusual and challenging period. The
year started with us all having to come to terms with life post
Covid, and ended with war in Eastern Europe and the highest rate of
inflation seen in recent times, impacting on consumer confidence
and discretionary spending.
Operational and Commercial progress
The FY22 financial results were always going to pale in
comparison to what was an exceptional FY21, but represent continued
improvement relative to a more normal trading period in FY20.
Achieving these results reflects on the significant efforts of the
Executive and Senior Management team, and the hard work, passion
and dedication of all our colleagues across the business.
Post Covid, we remain vigilant and have rolled out a phased
return to the office as we strongly believe working closely
together across teams and departments, collaborating and
communicating together, is best done in person and is fundamental
to the long-term success of our Group. We have retained some
flexible working practices and are well set to respond to any
future developments.
The addition of a committed three-year GBP35m Revolving Credit
Facility in April 2021 enabled the Group to progress acquisition
opportunities and make investments positioning the Group well to be
able to thrive in the future. The addition of the Premier brand to
the growing own-brand stable, and the diversification into the
large Audio-Visual ('AV') market, albeit early stage, makes for
exciting times ahead.
In FY22, the Group faced and addressed lingering challenges of
the UK leaving the EU. The addition of two new distribution centres
in Europe has improved the Group's European proposition, increased
capacity and puts the Group in a stronger position heading into
FY23.
The competitive retail landscape in musical instruments and
equipment is seeing a continued channel shift to online, albeit
understandably at lower online penetration levels than during
lockdowns. We expect the current challenging economic environment
will add further pressure to less agile competitors already
struggling post-Covid, thereby allowing us to take further market
share. This, in turn, may present future growth opportunities for
the Group.
Environmental, Social and Governance
We understand the importance of sustainable business practices
on our physical and social environments and the role we must play.
We acknowledge there is increasing interest from a wide range of
stakeholders on the various impacts that the business has, and what
it is doing to improve the outcomes.
During the year, we combined all of the relevant work already
being done across our business and formalised it in our ESG policy.
We look forward to reporting continued progress in FY23.
Outlook
Against a backdrop of significant geo-political and
macro-economic uncertainties affecting consumer confidence across
Europe, and having just come out of a global pandemic makes
predicting the year ahead less straightforward. Nevertheless,
alongside our new growth initiatives, the Board remains confident
that our customer proposition, enhanced operational infrastructure
and balance sheet will enable the Group to achieve its business
objectives, namely accelerating market share gains and delivering
operational efficiencies, during the current financial year and
beyond.
Ken Ford
Chairman
20 June 2022
Chief Executive's Statement
Financial KPIs
FY22 FY21 FY20 Change Change
on FY21 on FY20
Revenue * GBP147.6m GBP157.5m GBP120.3m -6% +23%
----------- ---------- ---------- ---------- ---------
UK Revenue * GBP82.6m GBP78.7m GBP61.8m +5% +34%
----------- ---------- ---------- ---------- ---------
International Revenue
* GBP65.0m GBP78.8m GBP58.5m -18% +11%
----------- ---------- ---------- ---------- ---------
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
----------- ---------- ---------- ---------- ---------
Gross profit GBP41.1m GBP46.4m GBP31.2m -11% +32%
----------- ---------- ---------- ---------- ---------
Total Admin expenses
* GBP35.9m GBP31.6m GBP27.7m +13% +30%
----------- ---------- ---------- ---------- ---------
European Admin expenses
* GBP4.6m GBP3.8m GBP2.5m +21% +84%
----------- ---------- ---------- ---------- ---------
EBITDA GBP11.2m GBP19.8m GBP7.8m -43% +44%
----------- ---------- ---------- ---------- ---------
Profit before tax GBP5.0m GBP14.6m GBP3.1m -66% +63%
----------- ---------- ---------- ---------- ---------
Net (debt)/cash ** (GBP24.2m) GBP2.7m (GBP5.5m) -GBP26.9m -18.7m
----------- ---------- ---------- ---------- ---------
* See note 3 of the Financial information
** See notes 14 and 15 of the Financial information
Commercial KPIs
FY22 FY21 FY20 Change Change
on FY21 on FY20
Website visitors 28.8m 36.0m 28.4m -20% +1%
-------- ---------- -------- --------- ---------
Conversion rate 4.06% 3.69% 3.29% +37bps +77bps
-------- ---------- -------- --------- ---------
Average order value GBP125 GBP116 GBP117 +8% +7%
-------- ---------- -------- --------- ---------
Active customers 921,000 1,064,000 807,000 -13% +14%
-------- ---------- -------- --------- ---------
Products listed 62,400 57,900 54,200 +8% +15%
-------- ---------- -------- --------- ---------
Business review
Compared with pre-pandemic levels, the business made solid
progress during FY22, with tangible improvements in revenues,
margins and profitability being achieved despite the challenging
macro environment and significant operational difficulties that
were created by the new UK-EU customs border, as a result of
Brexit.
During the year, we have had to navigate a period of worldwide
supply chain disruption, cost price inflation, and weakening
consumer confidence, which makes the level of retained gross
margins following the exceptional FY21 a notable achievement that
reflects the tenacity of our commercial teams.
Highlights from the year included securing a new GBP35m
committed banking facility that enabled the acquisitions of AV
distribution Ltd and Premier, the opening of two new distribution
hubs in Ireland and Spain, and launching AV.com, our new retail
brand focusing on the Home Audio Visual market.
Revenues were supported through FY22 by a good recovery in
live-sound categories such as PA, DJ and Lighting products as
musicians return to gigging and festivals have opened up again. Our
Home Audio Visual category has also grown following the launch of
AV.com in January 2022.
We deliberately invested into additional inventory during FY22,
utilising our banking facilities, to help mitigate the consequences
of supply chain disruption. Alongside funding acquisitions, this
meant our levels of borrowing increased during the period, and we
expect to see this reducing as the financial year progresses.
We look forward to building on the progress of FY22 and
maintaining the high levels of service our new and returning
customers have come to expect, supported by the deployment of
multiple e-commerce platform upgrades and ongoing growth
initiatives.
Growth Strategy & Acquisitions
Development of our bespoke platform remains central to our
digital growth strategy, and during FY23 we plan to launch some
significant new features and developments. Having grown our
in-house team of software developers to 90 people, we are in a
strong position to evolve and improve our customer proposition at
pace.
Our second-hand platform is due to launch during FY23 and is
designed to extend the lifecycle of musical instruments and
equipment by providing a quick and easy way for customers to
release value from products they no longer use, whilst making good
quality, warrantied second hand products accessible to those who
may not necessarily want or be able to purchase a new product.
Helping us achieve a more circular and environmentally sustainable
business, this platform has the potential to significantly increase
our addressable market size.
Following a successful UK launch, AV.com will be launched across
Europe, utilising our existing European e-commerce platform,
localisation technology and distribution infrastructure to
significantly increase our addressable market size.
With own-brand products generating over GBP38m in sales last
year we have a proven track record of success in sourcing and
developing unique products that fit alongside the world's
best-known brands. Following on from the acquisitions of Premier
and Eden, we will further refine and accelerate our own-brand
strategy with the launch of G4M, a new premium own-brand range
suitable for worldwide distribution, and AVCOM, featuring products
focused on the Home Audio Visual market.
Trading outlook
As a result of Brexit, Covid, and now the war in Ukraine, the
general outlook for many retailers during 2022 remains challenging
and difficult to predict, with increasing product and overhead
costs forcing up product retail prices and potentially impacting
profits.
To help combat these challenges, we have a strong pipeline of
growth orientated projects launching in FY23, and we will retain a
sharp focus on productivity, efficiency and overhead cost
control.
Inflationary pressures and weaker consumer confidence are likely
to constrain growth in profitability in the short term. However,
with the strategies and actions we are taking, along with our
strong balance sheet and significant working capital headroom, we
believe we remain well positioned to take market share and are
confident in our medium and longer-term profitable growth
strategy.
Andrew Wass
Chief Executive Officer
20 June 2022
Chief Financial Officer's statement
Overview
As an online retailer, following on from an exceptional FY21
trading period boosted by the effects of COVID lockdowns was always
going to be a tough act to follow. However, relative to FY20, a
more normal trading period, our FY22 results are strong and show
good improvement, with revenue growth of 23%, a gross margin
improvement of 200bps, and an increase of GBP3.4m and GBP1.9m in
EBITDA and PBT respectively.
We started the year by securing a GBP35m RCF facility with HSBC
to enable us to capitalise on M&A opportunities as and when
they arose, and to invest in stock during a period of supply chain
uncertainty and ahead of inflationary price increases. We report
good progress on both fronts putting us in a strong position
heading into FY23.
Post-Brexit challenges limited our ability to cost-effectively
ship products from the UK to customers in Europe in a timely
manner. This materially affected our UK-EU cross-border revenue,
contributing to a reduction in international revenue of GBP13.8m
(18%) during FY22. We responded by opening new distribution centres
in Ireland and Spain in H2 and we expect to see a meaningful impact
in FY23.
In December 2021, we acquired AV Distribution Ltd and
re-platforming on to and the launch of AV.com is an exciting first
step diversifying into the significant Audio-Visual market.
Revenue
FY22 FY21 FY20
GBPm GBPm GBPm
------ ------ ------
UK revenue 82.6 78.7 61.8
------ ------ ------
International revenue 65.0 78.8 58.5
------ ------ ------
Revenue 147.6 157.5 120.3
------ ------ ------
Revenue decreased GBP9.9m (6%) on an exceptional FY21 period
that had benefited from unusually high demand as physical stores
closed during COVID lockdowns and the benefits of playing musical
instruments and equipment on mental health and wellbeing were
recognised. Revenue increased GBP27.3m (23%) relative to a more
normal trading period in FY20, equating to compound growth of 10.8%
per annum.
UK revenue continued to grow, being less impacted by Brexit and
temporarily boosted by European competitors facing similar shipping
challenges into the UK. UK revenue of GBP82.6m was GBP3.9m (5%)
ahead of a COVID impacted FY21, and GBP20.8m (34%) ahead of FY20.
This takes our estimated UK market share up to 9.2% (FY21: 8.9%;
FY20: 7.2%).
After the UK left the EU, our European sales that would
previously have been fulfilled from the UK markedly decreased as it
took longer and cost more to ship to European customers, weakening
our proposition relative to local retailers. As a consequence,
international revenue decreased by GBP13.8m (18%) on FY21 and
increased GBP6.5m (11%) on FY20. The addition and scaling up of two
new distribution centres in Ireland and Spain has improved our
proposition heading into FY23.
Revenues from sales outside of Europe accounted for 1.4% of
total revenue in FY22 compared to 1.3% in both FY21 and FY20.
Revenue in H1 was considered a stronger result by management,
being just 8% down on peak COVID numbers and 31% up on FY20 H1,
whereas H2 revenue was 5% down against a weaker comparative and 17%
up on FY20 H2.
FY22 FY21 FY20
GBPm GBPm GBPm
------ ------ ------
Other-brand product revenue 102.5 104.2 79.4
------ ------ ------
Own-brand product revenue 38.1 45.4 35.4
------ ------ ------
Carriage income 6.3 7.1 4.9
------ ------ ------
Other 0.7 0.8 0.6
------ ------ ------
Revenue 147.6 157.5 120.3
------ ------ ------
We continue to make good progress in our own-brand business with
revenues of GBP38.1m accounting for 26% of total revenue (FY21:
29%) from just 4,200 SKUs representing 7% of the total range (FY21:
3,800 SKUs). The addition of the Premier brand in particular is an
exciting addition and opportunity heading in to its centenary
year.
Own-brand revenue was GBP7.3m (16%) below an exceptional FY21
which was boosted by high demand for beginner-level products during
COVID lockdowns, and limited availability of certain other-branded
products. Furthermore, many bulky own-brand packs would
traditionally have been shipped from the UK into Europe, and this
was a category impacted post-Brexit and has since improved with
increased stock held locally in Europe and more, better local
carrier options. Relative to a more normal trading period,
own-brand sales were GBP2.7m (8%) up on FY20.
Other brand revenue was GBP1.7m (2%) down on FY21 and GBP23.1m
(29%) up on FY20.
Carriage income decreased by GBP0.8m (11%) to GBP6.3m linked to
lower product sales, and less cross UK-EU border shipments.
Other revenue comprises paid for extended warranty income, and
commissions earned on facilitating point-of-sale credit for retail
customers. The proportion of revenues coming from these sources was
0.5% of total revenue in FY22, FY21 and FY20.
Gross profit
FY22 FY21 FY20 Change Change
on FY21 on FY20
Product sales (GBPm) 140.6 149.6 114.8
------ ------ ------ --------- ---------
Product profit (GBPm) 45.2 50.9 35.1 -11% +29%
------ ------ ------ --------- ---------
Product margin 32.1% 34.1% 30.5% -200bps +160bps
------ ------ ------ --------- ---------
Carriage costs (GBPm) 10.3 11.7 8.8 -12% +17%
------ ------ ------ --------- ---------
Carriage costs as
% of sales 7.0% 7.4% 7.3% -40bps -30bps
------ ------ ------ --------- ---------
Gross profit (GBPm) 41.1 46.4 31.2 -11% +32%
------ ------ ------ --------- ---------
Gross margin 27.9% 29.4% 25.9% -150bps +200bps
------ ------ ------ --------- ---------
In FY22, we maintained our pricing discipline established in
FY20 and carried through FY21, and delivered a gross margin of
27.9% which was 250bps behind an exceptional FY21 period where
prices were increased to manage demand, and 200bps ahead of
FY20.
We significantly invested in stock throughout the year as a
precautionary measure against supply chain disruption, and to lock
in cost prices early in a period of increasing cost-price
inflation. This created margin opportunities in FY22 and puts us in
a strong position heading into FY23.
Product margin in FY22 was impacted by sales mix, with
relatively less own-brand sales (26% of total sales) than in FY21
and FY20 (both 29%).
The Group benefits from buying scale relative to its UK
competitors, and its ability to source other-branded products in
Swedish Krona and Euros, and receive product directly into its
European distribution centres is an important point of
differentiation.
The Group purchases its own-brand products in US Dollars and
product margin can be impacted by exchange rate fluctuations.
Gear4music includes 'costs of delivery' within cost of sales
which is a different accounting treatment to some other e-commerce
retailers. Delivery costs were GBP10.3m in the period and
represented 7.0% of total revenue (FY21: 7.4%), and an illustrative
adjusted gross margin would be 34.9% (FY21: 36.8%).
Administrative expenses and Operating profit
Operating profit of GBP6.1m is GBP9.3m (60%) below FY21, and a
GBP2.0m (49%) improvement on FY20.
FY22 FY21 FY20
GBPm GBPm GBPm
------- ------- -------
UK Administrative expenses (31.3) (27.8) (25.2)
------- ------- -------
European Administrative expenses (4.6) (3.8) (2.5)
------- ------- -------
Total Administrative expenses (35.9) (31.6) (27.7)
------- ------- -------
Other income 0.8 0.7 0.6
------- ------- -------
Operating profit 6.1 15.4 4.1
------- ------- -------
Depreciation and amortisation 5.1 4,4 3.7
------- ------- -------
EBITDA 11.2 19.8 7.8
------- ------- -------
Total administrative expenses increased by 13% (GBP4.3m) on FY21
relative to a revenue decrease of 6%, principally due to a more
normal marketing return and continued investment in our people.
Combined marketing and labour costs of GBP23.9m (FY21: GBP21.5m)
accounted for 67% of total administrative expenses (FY21: 68%):
- Marketing expenditure increased in FY22 to GBP10.8m (FY21:
GBP9.2m) equating to 7.3% of revenue compared to 5.9% last year and
7.7% in FY20, as the business returned to more normal trading and
competitive conditions; and
- Labour costs increased 7% in FY22 to GBP13.1m (FY21: GBP12.3m)
reflecting an 8% increase in average headcount. Labour costs
accounted for 8.9% of revenue (FY21: 7.8%).
FY22 EBITDA of GBP11.2m is GBP8.6m lower than FY21 and GBP3.4m
higher than FY20.
Other expenses and net profit
Financial expenses of GBP1.1m (FY21: GBP0.8m) include GBP0.5m
bank interest as the new RCF was increasingly utilised as the year
progressed (FY21: GBP0.2m), GBP0.4m of IFRS16 lease interest (FY21:
GBP0.4m), and a GBP0.2m net foreign exchange loss (FY21: GBP0.2m
loss).
The Group reports profit before tax of GBP5.0m (FY21: GBP14.6m)
that after tax translates into a basic EPS of 17.8p (FY21: 60.3p)
and diluted EPS of 17.3p (FY21: 59.7p).
Cash-flow
FY22 FY21 FY20
GBPm GBPm GBPm
------- ------- ------
Opening cash 6.2 7.8 5.3
------- ------- ------
Profit for the year 3.7 12.6 2.6
------- ------- ------
Movement in working capital (16.2) (4.9) (0.9)
------- ------- ------
Depreciation and amortisation 5.1 4.4 3.7
------- ------- ------
Financial expense 1.1 0.8 1.0
------- ------- ------
Tax and Other operating adjustments (1.3) 2.0 1.0
------- ------- ------
Net cash (used in)/from operating
activities: (7.6) 14.9 7.4
------- ------- ------
Net cash used in investing
activities: (16.5) (4.5) (3.9)
------- ------- ------
Net cash from/(used in) financing
activities: 21.8 (12.0) (1.0)
------- ------- ------
Decrease in cash in the year (2.3) (1.6) 2.5
------- ------- ------
Closing cash 3.9 6.2 7.8
------- ------- ------
In April 2021 the Group secured a GBP35m RCF with its bankers,
HSBC, to enable it to invest in opportunities if, as and when they
arose.
Group indebtedness increased GBP26.9m from a GBP2.7m net cash
position at the start of the year to a GBP24.2m net debt position
at the end, reflecting acquisitions totalling GBP11.4m and a
deliberate GBP17.1m increase in stock:
- Acquisitions: The Group acquired the Premier drum brand for
GBP1.7m, the AV.com domain for GBP3.0m, and AV Distribution Ltd for
GBP7.1m (GBP0.4m deferred); and
- Stock: the business actively invested in stock throughout the
year to protect against potential supply chain disruption, secure
cost prices ahead of inflationary price increases, and increase
stock in European distribution centres. This higher level of stock
is a response to broader market and macro uncertainties rather than
a structural requirement, and is expected to decrease in the normal
course of business in FY23.
Reported net cash outflow from investing activities of GBP16.5m
includes GBP7.4m of business acquisitions, net of cash acquired,
including a GBP1.3m freehold property acquired with AV Distribution
Ltd, GBP4.4m of capitalised software development costs (FY21:
GBP3.2m), the GBP3.0m acquisition of the AV.com domain, and GBP1.8m
tangible fixed asset additions. Depreciation and amortisation of
GBP3.7m (FY21: GBP3.2m) is added back in 'net cash from operating
activities' with respect to these asset categories.
Net cash inflow from financing activities of GBP21.7m (FY21:
GBP12.0m outflow) represents a GBP28.0m RCF drawdown net of GBP3.5m
repayment of borrowings (FY21: GBP9.9m repayment), GBP1.9m payment
of lease liabilities (FY21: GBP1.4m), and GBP0.9m interest paid
(FY21: GBP0.7m).
Balance sheet
31 March 2022 31 March 2021 31 March 2020
GBPm GBPm GBPm
-------------- -------------- --------------
Property, plant and equipment 13.0 11.2 11.2
-------------- -------------- --------------
Right-of-use assets 8.2 7.9 9.0
-------------- -------------- --------------
Software platform 10.5 8.4 7.1
-------------- -------------- --------------
Goodwill 5.3 1.9 1.9
-------------- -------------- --------------
Other intangible assets 4.0 0.1 0.1
-------------- -------------- --------------
Total non-current assets 41.0 29.5 29.3
-------------- -------------- --------------
Stock 45.5 28.4 22.0
-------------- -------------- --------------
Cash 3.9 6.2 7.8
-------------- -------------- --------------
Other current assets 3.9 3.6 2.5
-------------- -------------- --------------
Total current assets 53.3 38.2 32.3
-------------- -------------- --------------
Trade payables (9.5) (11.4) (10.1)
-------------- -------------- --------------
Loans and Borrowings - (0.6) (10.0)
-------------- -------------- --------------
Lease liabilities (1.2) (1.1) (1.1)
-------------- -------------- --------------
Other current liabilities (6.7) (7.5) (4.3)
-------------- -------------- --------------
Total current liabilities (17.4) (20.6) (25.5)
-------------- -------------- --------------
Loans and Borrowings (28.0) (2.9) (3.4)
-------------- -------------- --------------
Lease liabilities (8.5) (8.3) (9.5)
-------------- -------------- --------------
Other non-current liabilities (2.3) (1.6) (1.6)
-------------- -------------- --------------
Total non-current liabilities (38.8) (12.8) (14.5)
-------------- -------------- --------------
Net assets 38.0 34.3 21.6
-------------- -------------- --------------
Capital expenditure on property, plant and equipment of GBP3.1m
includes the addition of a freehold warehouse valued at GBP1.3m as
part of the AV Distribution Ltd acquisition, GBP0.8m investment on
the new distribution centres in Ireland and Spain, and GBP0.6m and
GBP0.4m investment in the UK and Sweden respectively.
The Group capitalised GBP4.4m (FY21: GBP3.2m) of software
development costs relating to our bespoke e-commerce platform,
including projects linked to the opening of new distribution
centres, the re-platforming of the AV Distribution Ltd business and
launching AV.com. Platform amortisation in the year was GBP2.3m
(FY21: GBP1.9m) taking net book value to GBP10.5m (31 March 2021:
GBP8.4m).
Other intangible assets include GBP5.3m goodwill and GBP3.0m of
domains.
The Group had net debt of GBP24.2m at the year-end (31 March
2021 net cash: GBP2.7m) having used its facilities to invest in
acquisitions and stock.
Dividends
The Board is confident in the prospects for the business and
recognises the importance of generating and retaining cash reserves
to support future growth, and as such, the Board does not consider
it appropriate to declare a dividend at this time but will continue
to review this position on an annual basis.
On behalf of the Board
Chris Scott Chief Financial Officer 20 June 2022
Consolidated Statement of Profit and Loss and Other
Comprehensive Income
Year ended Year ended
31 March 31 March 2021
Note 2022
GBP000 GBP000
Revenue 147,630 157,451
Cost of sales (106,500) (111,097)
Gross profit 41,130 46,354
Administrative expenses 3,4 (35,881) (31,633)
Other income 5 820 688
Operating profit 6,069 15,409
Financial expenses 7 (1,055) (770)
Profit before tax 5,014 14,639
Taxation 8 (1,291) (1,998)
Profit for the year
Other comprehensive income
Items that will not be reclassified 3,723 12,641
to profit or loss:
Revaluation of property, plant
and equipment
Deferred tax movements
Items that are or may be - -
reclassified subsequently (109) 8
to profit or loss:
Foreign currency translation
differences - foreign operations (23) (17)
Total comprehensive income
for the year 9 3,591 12,632
Basic profit per share 6 17.8p 60.3p
Diluted profit per
share 6 17.3p 59.7p
The accompanying notes form an integral part of the consolidated
financial report.
Consolidated Statement of Financial Position
Year ended Year ended
31 March 31 March
2022 2021
Note GBP000 GBP000
Non-current assets
Property Plant and Equipment 9 12,958 11,190
Right-of-use assets 10 8,235 7,871
Intangible assets 11 19,812 10,395
41,005 29,456
Current assets
Inventories 12 45,516 28,430
Trade and other receivables 13 3,841 3,647
Cash and cash equivalents 14 3,903 6,203
53,260 38,280
Total assets 94,265 67,736
Current liabilities
Interest-bearing loans
and borrowings 15 - (575)
Trade and other payables 16 (16,183) (18,938)
Lease liabilities 17 (1,229) (1,099)
(17,412) (20,612)
Non-current liabilities
Interest-bearing loans
and borrowings 15 (28,000) (2,901)
Other payables 16 (64) (110)
Lease liabilities 17 (8,455) (8,315)
Deferred tax liability (2,298) (1,486)
(38,817) (12,812)
Total liabilities (56,229) (33,424)
Net assets 38,036 34,312
Equity
Share capital 18 2,098 2,095
Share premium 18 13,286 13,165
Foreign currency translation
reserve 18 (74) (51)
Revaluation reserve 18 1,606 1,640
Retained earnings 18 21,120 17,463
Total equity 38,036 34,312
The notes 1 to 19 form part of the consolidated financial
report.
Company registered number: 0778670.
Consolidated 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 31 March
2020 2,095 13,152 (34) 1,674 4,722 21,609
Comprehensive income
for the year
Profit for the year - - - - 12,641 12,641
Other comprehensive income - - (17) - 10 (7)
Deferred tax adjustment
- timing difference - - - - (8) (8)
Share based payments
charge - - - - 64 64
Depreciation transfer - - - (34) 34 -
Total comprehensive
income for the year - - (17) (34) 12,741 12,690
Transactions with owners
Issue of shares - 13 - - - 13
Total transactions with
owners - 13 - - - 13
Balance at 31 March
2021 2,095 13,165 (51) 1,640 17,463 34,312
Comprehensive income
for the year
Profit for the year - - - - 3,723 3,723
Other comprehensive income - - (23) - (109) (132)
Deferred tax adjustment - - - - (46) (46)
Share based payments
charge - - - - 55 55
Depreciation transfer - - - (34) 34 -
Total comprehensive
income for the year - - (23) (34) 3,657 3,600
Transactions with owners
Issue of shares 3 121 - - - 124
Total transactions with
owners 3 121 - - - 124
Balance at 31 March
2022 2,098 13,286 (74) 1,606 21,120 38,036
The accompanying notes form an integral part of the consolidated
financial report.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Cash flows from operating activities
Profit for the year 3,723 12,641
Adjustments for:
Depreciation and amortisation 9,10,11 5,138 4,372
Financial expense 7 1,055 770
(Profit)/loss on sale of property,
plant and equipment (12) (4)
Share based payment charge 55 64
Taxation 8 1,243 1,998
11,202 19,841
Increase in trade and other
receivables 13 302 (1,181)
Increase in inventories 12 (14,195) (6,415)
Increase in trade and other
payables 16 (2,187) 2,687
(4,878) 14,932
Tax (paid)/received 8 (2,709) (37)
Net cash from operating activities (7,587) 14,895
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 95 14
Acquisition of property, plant
and equipment 9 (1,773) (1,166)
Capitalised development expenditure 11 (4,439) (3,186)
Acquisition of a business 11 (7,360) (200)
Acquisition of domains 11 (3,023) -
Net cash from investing activities (16,500) (4,538)
Cash flows from financing activities
Cash from share issue 124 13
Proceeds from new borrowings 15 28,000 29
Interest paid (917) (692)
Repayment of borrowings 15 (3,445) (9,948)
Payment of lease liabilities 17 (1,952) (1,379)
Net cash from financing activities 21,810 (11,977)
Net (decrease)/increase in cash
and cash equivalents (2,277) (1,620)
Cash and cash equivalents at
beginning of year 6,203 7,839
Foreign exchange movement (23) (16)
Cash and cash equivalents at
end of year 14 3,903 6,203
The accompanying notes form an integral part of the consolidated
financial report.
Notes
(forming part of the financial statements)
General Information
Gear4music (Holdings) plc is a public limited company, is
incorporated and domiciled in the United Kingdom, and is listed on
the Alternative Investment Market ('AIM') of the London Stock
Exchange.
The Group financial statements consolidate those of the Company
and its subsidiaries (collectively referred to as the "Group").
The principal activity of the Group is the retail of musical
instruments and equipment.
The registered office of Gear4music (Holdings) plc (company
number: 07786708), Gear4music Limited (company number: 03113256)
and Cagney Limited (dormant subsidiary; company number: 04493300)
is Holgate Park Drive, York, YO26 4GN.
At the financial year-end the Group has four trading European
subsidiaries: Gear4music Sweden AB, Gear4music GmbH, Gear4music
Europe Limited (formerly known as Gear4music Ireland Limited), and
Gear4music Spain SL. The Group has one dormant European subsidiary,
Gear4music Norway AS. All five are 100% subsidiaries of Gear4music
Limited.
On 1 December 2021 the Group acquired AV Distribution Ltd and on
13 January 2022 the business, assets and liabilities were hived-up
into Gear4music Limited.
1 Accounting policies
1.1 Basis of preparation
The financial information set out in this announcement does not
constitute statutory accounts as defined by section 434 of the
Companies Act 2006.
It has been prepared in accordance with the recognition and
measurement principles of UK-adopted International Accounting
Standards, including IFRIC interpretations issued by the
International Accounting Standards Board, and in accordance with
the AIM rules and is not therefore in full compliance with IFRS.
The principal accounting policies of the Group have remained
unchanged from those set out in the Group's 2021 annual report. The
financial statements have been prepared under the historical cost
convention with the exception of land and buildings which are
accounted for at fair value.
The results for the year ended 31 March 2022 have been extracted
from the full accounts of the Group for that year which have not
yet been delivered to the Registrar of Companies. Grant Thornton UK
LLP has reported on those accounts and their report is (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The financial information for the year ended 31 March 2021 is
derived from the statutory accounts for that year, which have been
delivered to the Registrar of Companies. Grant Thornton UK LLP
reported on those accounts and their report was (i) unqualified,
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
Selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in financial position and performance of the Group.
The announcement will be published on the Company's website. The
maintenance and integrity of the website is the responsibility of
the directors. The work carried out by the auditors does not
involve consideration of these matters. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Group's accounting policies are set out below and have been
applied consistently in the consolidated financial statements.
Accounting period
The financial statements presented cover the years ended 31
March 2022 and 31 March 2021 .
1.2 Adoption of new and revised standards
Various new or revised accounting standards have been issued
which are not yet effective.
The following new standards, and amendments to standards, have
been adopted by the group for the first time during the year ending
31 March 2022, and the impact is not material:
- Amendments to References to the Conceptual Framework in IFRS Standards
- Amendments to IFRS 3: Business Combinations
- Amendments to IAS 1 and IAS 8: Definition of Material
- Amendments to IFRS 9, IAS 39 and IFRS7: Interest Rate Benchmark Reform
- Amendment to IFRS 16: COVID-19-Related Rent Concessions
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16:
Interest Rate Benchmark Reform - Phase 2
1.3 Going concern
The Group's business activities and position in the market, and
principal risks, uncertainties and mitigations are described in the
Strategic Report.
In FY21 the Group successfully managed the challenges of
operating distribution centres through the COVID pandemic, and as a
result reported a significant increase in profits and
profitability, a stronger balance sheet, and net cash at 31 March
2021.
In FY22 the Group secured a GBP35m three-year committed
Revolving Credit Facility with its bankers, HSBC, to make
acquisitions and invest in stock for precautionary reasons during a
period of potential supply chain disruption, and early in a period
of inflationary cost price increases, putting the Group in a strong
competitive position heading in to FY23.
The Directors have considered the Group's position and prospects
in the period to 31 March 2023 based on its offering in the UK and
improved proposition in Europe and concluded that potential growth
rates remain strong.
There is a diverse supply chain with no key dependencies.
The Group's policy is to ensure that it has sufficient
facilities to cover its future funding requirements. At 31 March
2022 the Group had net debt of GBP24.2m (31 March 2021: net cash of
GBP2.7m), with GBP3.9m cash (31 March 2021: GBP6.2m cash), with a
good and appropriate level of headroom that has been factored into
the Directors going concern assessment. The Group has conducted
various budget flexes principally on a reduction in revenue, and
performed a reverse stress test. There is no plausible scenario
where the Group breaches its covenants, re-affirming the assessment
of the Group as a going concern.
Having duly considered all of these factors and having reviewed
the forecasts for the period to 30 June 2023, 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 Business Combinations
Premier
On 21 June 2021 Gear4music Limited acquired the business and
assets of Premier Music International Limited and High House 123
Limited Liability Partnership for GBP1.685m paid in full in cash on
completion. The acquisition was funded through the Group's
revolving credit facility.
The addition of Premier, a Drums and Percussion brand with a
rich musical heritage dating back to 1922, is a significant
addition to the Group's own-brand portfolio. This included the
worldwide rights to Premier's products, including all related
intellectual property, as well as all the existing customer
contracts, customer relationships, supply contracts and supplier
relationships with the manufacturers of all Premier product. The
revenue, EBITDA and PBT of this acquisition is immaterial to the
results of the Group.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised assets on
acquisition:
Recognised values on acquisition Note Pre-acquisition Fair value Recognised
book value adjustments value on
acquisition
GBP000 GBP000 GBP000
Brand 11 - 715 715
Total other intangible assets - 715 715
Property, plant and equipment 9 10 - 10
Net identifiable assets and
liabilities at fair value 10 715 725
Goodwill recognised on acquisition 11 - - 960
Consideration paid and accrued 10 1,675 1,685
Measure of fair values
The 'Income approach - Relief from Royalty method' valuation
technique was used for measuring the fair value of the Brand
acquired. Management commissioned an independent accountants'
report to support the fair values of intangible assets.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP0.04m on
legal fees and due diligence costs. These are not included as part
of the consideration transferred and have been recognised as an
expense in the consolidated statement of profit or loss, as part of
Administrative expenses.
AV Distribution Ltd
On 1 December 2021 Gear4music Limited acquired 100% of the share
capital of AV Distribution Ltd (Company number: 05385699) trading
as 'AV Online', an online retailer of Home Cinema and HiFi
equipment, for total consideration of GBP6.05m (on a cash free,
debt free basis), of which GBP5.65m was paid in cash on completion
and GBP0.4m deferred for six months subject to final agreement of
tax balances. The acquisition was funded through the Group's
revolving credit facility, and the Group acquired a freehold
property valued at GBP1.25m as part of the transaction.
Founded in 2003 AV Online operates from a 26,000 sq. ft.
freehold warehouse, offices and showroom in Bacup, Lancashire, and
is an online retailer of audio-visual equipment, including home
cinema systems, HiFi systems, speakers, cables, headphones and
accessories. AV Online had 21 members of staff, and generated sales
principally from its main website audiovisualonline.co.uk, with
further sales channels including Amazon, the showroom in Bacup, and
several smaller websites operated by the business, including
hificables.co.uk.
This acquisition significantly increases the Group's addressable
market size and brings synergies between the market in which
Gear4music operates, and the closely related but separate AV
market, which is currently dominated by high-street based
retailers. By moving the AV Online business onto Gear4music's
highly scalable bespoke ecommerce platform, rebranding the business
to AV.com, developing its product ranges, and expanding into
Europe, AV.com can quickly grow its revenues and profits.
On 13 January 2022 the AV Distribution business was
re-platformed on to the AV.com domain and the Group's proprietary
e-commerce system, and hived up into Gear4music Limited.
In the period between completion on 1 December 2021 and hive-up
into Gear4music Limited on 13 January 2022, it contributed revenue
of GBP0.6m, EBITDA of GBP0.1m, and PBT of GBP0.1m.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired and liabilities assumed on acquisition:
Recognised values on acquisition Note Pre-acquisition Fair value Recognised
book value adjustments value on
acquisition
GBP000 GBP000 GBP000
Other intangibles 11 - 149 149
Total other intangible assets - 149 149
Freehold property 9 1,251 - 1,251
Other property, plant and equipment 9 106 - 106
Inventories 14 2,813 78 2,891
Trade and Other receivables 15 64 - 64
Cash and cash equivalents 16 1,110 - 1,110
Trade and Other payables 18 (879) - (879)
Deferred tax 13 (48) - (48)
Net identifiable assets and liabilities 4,417 227 4,644
Goodwill recognised on acquisition 11 2,516
Total consideration 7,160
Other intangibles comprise customer relationships, trademarks,
and domain names.
Measure of fair values
A fair value for the property was performed on 10 August 2021
prior to acquisition, and value at GBP1.265m by an independent
chartered surveyor on behalf of HSBC Bank plc.
Other intangibles were identified and valued at fair value based
on valuation modelling performed by independent accountants.
Stock was valued at fair value reflecting the additional value
added prior to acquisition.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP0.20m on
legal fees and due diligence costs. These are not included as part
of the consideration transferred and have been recognised as an
expense in the consolidated statement of profit or loss, as part of
Administrative expenses.
3 Segmental reporting
The Group's revenue and profit was derived from its principal
activity which is the sale of musical instruments and
equipment.
In accordance with IFRS 8 'Operating segments', the Group has
made the following considerations to arrive at the disclosure made
in these financial statements. IFRS 8 requires consideration of the
'Chief Operating Decision Maker ('CODM') within the Group, which in
the Group's case is the Executive Board. Operating segments have
been identified based on the internal reporting information and
management structures with the Group. Based on this information it
has been noted that the CODM reviews the business as one segment
and receives internal information on this basis. Therefore, it has
been concluded that there is only one reportable segment.
Revenue by Geography
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
UK 82,639 78,690
Europe and Rest of the World 64,991 78,761
147,630 157,451
Administrative expenses by Geography
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
UK 31,253 27,797
Europe 4,628 3,836
35,881 31,633
The majority of Group assets are held in the UK except for local
right of use assets and property, plant and equipment, and cash in
Sweden (31 March 2022: GBP4.0m; 31 March 2021: GBP4.3m), Germany
(31 March 2022: GBP2.2m; 31 March 2021: GBP2.5m), Ireland (31 March
2022: GBP0.7m) and Spain (31 March 2022: GBP1.7m).
Revenue by Product category
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Other-brand products 102,473 104,199
Own-brand products 38,121 45,368
Carriage income 6,266 7,135
Warranty income 483 545
Other 287 204
147,630 157,451
4 Staff numbers and costs
The average number of persons employed by the Group (including
directors) during the year, analysed by category, was as
follows:
Year Year ended
ended 31 March
31 March 2021
2022
Nos. Nos.
Administration 242 196
Selling and Distribution 316 323
558 519
The aggregate payroll costs of these persons were as
follows:
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Wages and salaries 11,620 10,105
Social security costs 598 1,451
Contributions to defined contribution
plans 928 691
13,146 12,247
Directors' remuneration
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Directors' remuneration 680 641
Company contributions to money
purchase pension schemes 22 19
702 660
The three Executive Directors are paid through Gear4music
Limited, and the three Non-Executive Directors are paid through
Gear4music (Holdings) plc. The remuneration of all six Directors is
included above.
The aggregate remuneration of the highest paid director was
GBP229,000 during the year (2021: GBP228,000), including company
pension contributions of GBP8,000 that were made to a money
purchase scheme on their behalf.
There are five directors (2021: four) for whom retirement
benefits are accruing under a money purchase pension scheme.
5 Other income
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Other income 820 688
Other income comprises rental income on our freehold property,
Research and Development Expenditure credits, and marketing
support.
6 Earnings per share
Diluted profit per share is calculated by dividing the net
profit for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of CSOP and LTIP dilutive
potential ordinary shares into ordinary shares.
Year ended Year ended
31 March 31 March
2022 2021
Profit attributable to equity
shareholders of the parent (GBP'000) 3,723 12,641
Basic weighted average number
of shares 20,967,831 20,948,595
Dilutive potential ordinary shares 570,440 218,033
Diluted weighted average number
of shares 21,538,271 21,166,628
Basic profit per share 17.8p 60.3p
Diluted profit per share 17.3p 59.7p
7 Finance expenses
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Bank interest 524 196
IFRS16 lease interest 403 403
Net foreign exchange loss 97 161
Unwinding of discount on
deferred consideration 31 10
Total finance expense 1,055 770
8 Taxation
Recognised in the income statement
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Current tax expense
UK Corporation tax 574 1,201
Overseas Corporation tax 55 94
Adjustments for prior periods 7 625
Current tax expense 636 1,919
Deferred tax expense
Origination and reversal
of temporary differences 326 989
Deferred tax rate change
impact 345 -
Adjustments for prior periods (16) (903)
Deferred tax expense 655 86
Total tax expense 1,291 2,005
The corporation tax rate applicable to the company was 19% for
the year ended 31 March 2022, and 19% for the period ended 31 March
2021. At the Budget announcement on 3 March 2021 the UK government
has stated its intention to raise the corporation tax rate to 25%
from 1 April 2023. The deferred tax assets and liabilities at 31
March 2022 have been calculated based on that rate. An effect of
rate change has been calculated on opening balances to reflect the
change of rate from 19% to 25%.
Reconciliation of effective tax rate
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Profit for the year 12,641 12,641
Total tax charge 1,998 1,998
Profit excluding taxation 14,639 14,639
Current tax at 19% (2020: 19.0%)
Tax using the UK corporation tax
rate for the relevant period: 943 2,781
Non-deductible expenses (73) (27)
Deferred tax rate change impact 345 -
Adjustments relating to prior year
- deferred tax (16) (903)
Adjustments relating to prior year
- current tax 7 624
R&D claim additional deduction - (470)
Impact of overseas tax rate 2 (1)
Deferred tax assets not recognised 1 1
R&D credit 12 -
Difference between current and
deferred tax rates 100 -
Impact of capital allowances super
deduction (31) -
Total tax charge 1,291 2,005
9 Tangible fixed assets
Property, plant and equipment
Plant Land Total
and Fixtures Motor Computer and Buildings
equipment and fittings Vehicles equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost or Valuation
At 1 April 2020 1,632 4,942 62 900 7,500 15,036
Additions 215 757 - 194 - 1,166
Disposals - - (32) - (32)
Balance at 31 March 2021 1,847 5,699 30 1,094 7,500 16,170
Additions 460 1,101 - 212 1,773
Additions through business
combinations (see note
2) 29 13 68 6 1,251 1,367
Disposals (61) (14) (30) - - (105)
Balance at 31 March 2022 2,275 6,799 68 1,312 8,751 19,205
Depreciation and impairment
At 1 April 2020 908 2,264 36 609 - 3,817
Depreciation charge for
the year 314 556 5 160 150 1,185
Disposals - - (22) - - (22)
Balance at 31 March 2021 1,222 2,820 19 769 150 4,980
Depreciation charge for
the year 326 625 15 166 155 1,287
Disposals (13) (9) - - - (22)
Balance at 31 March 2022 1,536 3,437 34 935 305 6,247
Net book value as at
31 March 2022 739 3,362 34 377 8,446 12,958
Net book value as at 31
March 2021 625 2,879 11 325 7,350 11,190
Net book value as at 31
March 2020 724 2,678 26 291 7,500 11,219
Freehold property valuation - Holgate Park Head Office
At 31 March 2020 the freehold office premises at Holgate Park
were revalued at market value using information provided by an
independent chartered surveyor. The valuation was carried out in
accordance with the provisions of RICS Appraisal and Valuation
Standards ('The Red Book'). The appraisal was carried out using
level 3 inputs observable inputs including prices for recent market
transactions for similar properties and incorporates adjustments
for factors specific to the property in question, including plot
size, location, encumbrances and current use.
Management have reviewed the fair value as at 31 March 2022 and
concluded that this would not be materially different. If the
property had not been revalued the net book value would have been
GBP5.1m.
Freehold property valuation - Bacup distribution centre
On 1 December 2021 the Group acquired a 25,145 sq ft freehold
warehouse property in Bacup, Lancashire as part of the acquisition
of AV Distribution Ltd (see note 2). The property was valued on 10
August 2021 at GBP1.26m by an independent chartered surveyor on
behalf of HSBC Bank plc for loan security purposes.
Security
The Group's bank borrowings are secured by fixed and floating
charges over the Group's assets.
10 Right of use assets
Leasehold properties
The Group has six leased properties:
- four properties carried forward from 2021 being Distribution
Centres and Showrooms in York, Sweden and Germany, and a software
development office in Manchester; and
- two new properties in 2022 being Distribution Centres in Ireland and Spain
The associated right-of-use assets are as follows:
Short
leasehold
properties
GBP000
Cost
At 1 April 2020 10,177
Additions 128
Balance at 31 March 2021 10,305
Additions 1,830
Balance at 31 March 2022 12,135
Depreciation
At 1 April 2020 1,215
Depreciation charge for the year 1,219
Balance at 31 March 2021 2,434
Depreciation charge for the year 1,466
Balance at 31 March 2022 3,900
Net book value as at 31 March
2022 8,235
Net book value as at 31 March
2021 7,871
Net book value as at 31 March
2020 8,962
11 Intangible assets
Goodwill Software Brand Domains Other Intangibles Total
platform
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 April 2020 1,848 12,061 564 - - 14,473
Additions - 3,186 93 - - 3,279
Balance at 31 March
2021 1,848 15,247 657 - - 17,752
Additions - 4,439 - 3,023 - 7,462
Additions through business
combinations (see note
2) 3,476 - 715 - 149 4,340
Balance at 31 March
2022 5,324 19,686 1,372 3,023 149 29,554
Amortisation
At 1 April 2020 - 4,934 455 - - 5,389
Amortisation for the
year - 1,912 56 - - 1,968
Balance at 31 March
2021 - 6,846 511 - - 7,357
Amortisation for the
period - 2,321 52 - 12 2,385
Balance at 31 March
2022 - 9,167 563 - 12 9,742
Net book value as at
31 March 2022 5,324 10,519 809 3,023 137 19,812
Net book value as at
31 March 2021 1,848 8,401 146 - - 10,395
Net book value as at
31 March 2020 1,848 7,127 109 - - 9,084
The amortisation charge is recognised in Administrative expenses
profit and loss account.
Other intangibles
Other intangibles comprise customer relationships, trademarks,
and domain names acquired on acquisition of AV Distribution
Limited.
Goodwill
On 19 March 2012 goodwill arose on the acquisition of the entire
share capital of Gear4music Limited (formerly known as Red
Submarine Limited).
On 1 January 2017 goodwill arose on the acquisition of a
software development business from Venditan Limited, which
effectively brought development of the group's proprietary software
platform in-house
On 21 June 2021 goodwill arose on the acquisition of the
business and assets of Premier Music International Limited and High
House 123 LLP - see note 2.
On 1 December 2021 goodwill arose on the acquisition of the
entire share capital of AV Distribution Ltd - see note 2.
Goodwill balances are denominated in Sterling:
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Gear4music Limited 417 417
Software development business 1,431 1,431
Premier business 960 -
AV Distribution Ltd 2,516 -
5,324 1,848
Impairment testing
In accordance with IAS 36 Impairment of Assets, the Group
reviews the carrying value of its intangible assets. A detailed
review was undertaken at 31 March 2022 to assess whether the
carrying value of assets was supported by the net present value in
use calculations based on cash-flow projections from formally
approved budgets and longer-term forecasts.
Intangible assets include the proprietary software platform, the
Gear4music and Premier brand names, the AV.com domain, goodwill and
'other intangibles'.
A Cash Generating Unit ("CGU") is defined as the smallest group
of assets that generate cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups
thereof. Further to the acquisitions in the year the Group has
considered its operational and commercial configuration at 31 March
2022 and concluded it has a single CGU to which all intangibles are
allocated. The carrying value of these intangibles, the Bacup
freehold acquired in the year, the right-of-use assets, and all
other PPE was GBP33.8m. An impairment review has been performed on
this CGU. The recoverable amount of this CGU has been determined
based on value-in-use calculations. In assessing value in use, a
two-year forecast to 31 March 2024 was used to provide cash-flow
projections that have been discounted at a pre-tax discount rate of
9.55% (2021: 10.00%). The cash flow projections are subject to key
assumptions in respect of revenue growth, gross margin performance,
overhead expenditure, and capital expenditure. Management has
reviewed and approved the assumptions inherent in
the model:
-- FY23-24 Revenue forecasts based on growth by geographical
market, based on market size and estimate of opportunity, trends,
and Management's experience and expectation.
-- FY25-27 and into perpetuity revenue growth of 2%;
-- Gross margins are forecast to be slightly behind FY22; and
-- Wage increases are a function of recruitment and review of
current staff, with a range of % increases.
No impairment loss was identified in the current year (2021:
GBPnil). The valuation indicates significant headroom and a number
of reasonable revenues, profitability and capital expenditure-based
sensitivities were put through the model, and the results did not
result in an impairment.
12 Inventories
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Finished goods 45,516 28,430
The cost of inventories recognised as an expense and included in
cost of sales in the period amounted to GBP96.9m (2021:
GBP101.5m).
Management has included a provision of GBP55,000 (31 March 2021:
GBP143,000), representing a 100% provision against returns stock
subsequently found to be faulty, that is retained to be used for
spare parts on the basis there is no direct NRV value, and a
provision based on the expected product loss on dealing with
returns stock.
13 Trade and other receivables
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Trade receivables 1,772 1,579
Prepayments 2,069 2,068
3,841 3,647
Credit risk and impairment
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The carrying amount of trade
receivables represents the maximum credit exposure. The Group does
not take collateral in respect of trade receivables.
Trade receivables comprise balances dues from schools and
colleges, and funds lodged with payment providers.
Customer receivables
The Group faces low credit risk as customers typically pay for
their orders in full on shipment of the product, with the only
exception being a small number of education accounts with schools
and colleges that have 30-day terms (2.4% of 2022 revenues; 1.3% of
2021 revenues).
Funds lodged with payment providers
Funds lodged with Amazon, Digital River, Klarna and V12 Retail
Finance totalled GBP378,000 on 31 March 2022 (31 March 2021:
GBP331,000) and are included in Trade debtors. Credit risk in
relation to cash held with financial institutions is considered
very low risk, given the credit rating of these organisations.
14 Cash and cash equivalents
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Cash and cash equivalents
per balance sheet and cash
flow statements 3,903 6,203
Cash-in-transit to the Group at 31 March 2022 was GBP336,000 (31
March 2021: nil) representing uncleared lodgements where money
providers have notified transfers pre-year-end.
15 Interest-bearing loans and borrowings
This note contains information about the Group's
interest-bearing loans and borrowing which are carried at amortised
cost.
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Non-current liabilities
Bank loans 28,000 2,901
28,000 2,901
Current liabilities
Bank loans - 575
- 575
Total liabilities
Bank loans 28,000 3,476
28,000 3,476
Revolving Credit Facility
Bank loans are drawn loans under the Group's three-year GBP35m
revolving credit facility with HSBC.
This facility expires in April 2024 and is secured by a
debenture over the Group's assets.
Loans incur interest at variables rates linked to SONIA, with a
margin non-utilisation fee.
Changes in liabilities from financing activities
Year ended 31 March 2022 Year ended 31 March 2021
GBP000 GBP000
Opening balance 3,476 13,388
Changes from financing cash flows
Proceeds from loans and borrowings 28,000 29
Repayment of borrowings (3,507) (9,948)
Total changes from financing cash flows 24,493 (9,919)
Other changes
Interest expense (note 6) 524 196
Interest paid (413) (289)
Movement in interest accrual (included in accruals and deferred
income - note 17) (111) 93
Fair value movement on loans 31 7
Total other changes 31 7
Closing balance 28,000 3,476
Other bank facilities
Gear4music has a number of guarantees in relation to VAT, and
issues letter of credits to its suppliers. At 31 March 2022 the
Group had letters of credit of GBP317,000 (31 March 2021:
GBP315,000) and guarantees of GBP1,011,000 in place (2021:
GBP415,000).
16 Trade and other payables
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Current
Trade payables 9,472 11,390
Accruals and deferred
income 3,164 3,033
Deferred consideration 424 24
Government grants 3 7
Other taxation and social
security 3,119 4,484
16,182 18,938
Non-current
Accruals and deferred
income 25 38
Deferred consideration 39 69
Government grants - 3
64 110
Accruals at 31 March 2022 include GBP24,000 (2021: GBP38,000)
relating to the estimated cash bonuses accrued relating to the CSOP
schemes (see note 21).
Government grants are being spread over the useful economic life
of the associated asset, and relate to Regional Growth Fund and
Leeds City Enterprise Partnership grants towards the acquisition of
various capital items. Grant conditions exist and are 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. The interest
expense of GBP31,000 (2021: GBP10,000) in relation to the unwinding
of the discount is disclosed in note 7.
Deferred consideration
In March 2021 the Group acquired the Eden brand and associated
assets from Marshall Amplification plc for GBP140,000 of which
GBP100,000 was deferred and payable in four equal instalments of
GBP25,000 on the anniversary of the completion date. At 31 March
2022 three instalments remain unpaid. These amounts are valued in
the accounts at fair value and subsequently amortised.
In December 2022 the Group acquired AV Distribution Ltd for
GBP6,050,000 cash-free debt-free of which GBP400,000 was deferred
for six months whilst final tax matters were resolved, and
GBP388,000 was paid on 1 June 2022 in full and final
settlement.
17 Lease liabilities
Short-term leases and leases of low value are included in
administrative expenses.
The Group has leases for plant and machinery, motor vehicles,
and six properties (2021: four). Each lease is reflected on the
statement of financial position as a right-of-use asset and a lease
liability. The Group classifies its right-of-use assets in a
consistent manner to its property, plant and equipment.
The table below describes the nature of the Group's leasing
activities by type of right-of-use asset:
Right-of-use No of Range of Average No of leases No of leases No of leases
asset right-of-use remaining remaining with extension with options with termination
assets term lease term options to purchase options
leased
6mths
Property 6 - 6yrs 4.5yrs - - 1
Plant and 2mths
equipment 4 - 9mths 6mths - 4 -
19mths
Motor vehicles 2 - 30mnths 25mths - 2 -
Future minimum lease payments due at 31 March 2022 were as
follows:
Within 1 1-5 years More than
year 5 years
GBP000 GBP000 GBP000
Lease payments 2,102 7,926 1,178
Finance charge (435) (1,056) (31)
Net present value 1,667 6,870 1,147
Lease liabilities are presented in the statement of financial
position as follows:
31 March 2022 31 March 2021
GBP000 GBP000
Current 1,229 1,099
Non-current 8,455 8,315
Total 9,684 9,414
Changes in lease liabilities:
Year ended Year ended
31 March 31 March
2022 2021
GBP000 GBP000
Opening balance 9,414 10,667
Cash flow lease payments (1,952) (1,379)
New leases 1,812 -
Other items 410 126
Total changes 270 (1,253)
Closing balance 9,684 9,414
18 Share capital and reserves
Year ended Year ended
31 March 31 March
2022 2021
Share capital Number Number
Authorised, called
up and fully paid:
Ordinary shares of
10p each 20,976,938 20,950,176
The Company has one class of ordinary share and each share
carries one vote and ranks equally with the other ordinary shares
in all respects including as to dividends and other
distributions.
On 30 July 2021, the Company issued and allotted 5,312 new
Ordinary shares of 10p each on exercise of options under the
Company's 2018 CSOP Scheme (see note 22). This took the number of
Ordinary shares in issue from 20,950,176 to 20,955,488,
representing dilution of 0.03%.
On 3 August 2021, the Company issued and allotted 21,450 new
Ordinary shares of 10p each on exercise of options under the
Company's Long Term Incentive Plan (see note 22). This took the
number of Ordinary shares in issue from 20,955,488 to 20,976,938,
representing dilution of 0.1%.
Share premium
Year Year
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
Opening 13,165 13,152
Issue of shares 121 13
Closing 13,286 13,165
Proceeds received in addition to the nominal value of the shares
issued have been included in share premium, less registration and
other regulatory fees and net of related tax benefits.
Foreign currency translation reserve
Year ended Year ended
31 March 31 March
2022 2021
GBP'000 GBP'000
Opening (51) (34)
Translation loss (23) (17)
Closing (74) (51)
The foreign currency translation reserve comprises exchange
differences relating to the translation of the net assets of the
Group's foreign subsidiaries from their functional currency into
the parent's functional currency.
Revaluation reserve
Year Year
ended ended
31 March 31 March
2022 2021
GBP'000 GBP'000
Opening 1,640 1,674
Depreciation transfer (34) (34)
Closing 1,606 1,640
The revaluation reserve represents the unrealised gain generated
on revaluation of the freehold office property on 28 February 2018
and 31 March 2020. It represents the excess of the fair value over
historic net book value.
Retained earnings
Year ended Year
31 March ended
2022 31 March
2021
GBP'000 GBP'000
Opening 17,463 4,722
Share based payment
charge 55 64
Deferred tax (155) 2
Depreciation transfer 34 34
Profit for the year 3,723 12,641
Closing 21,120 17,463
Retained earnings represents the cumulative net profits
recognised in the consolidated income statement.
19 Related parties
Transactions with key management personnel
The compensation of key management personnel is as follows:
Year Year ended
ended 31 March
31 March 2021
2022
GBP000 GBP000
Key management emoluments including
social security costs 606 597
Company contributions to money
purchase pension plans 20 18
626 615
Key management personnel comprise the Chairman, CEO, CFO and
CCO. All transactions with key management personnel have been made
on an arms-length basis.
Five directors are accruing retirement benefits under a money
purchase scheme (2021: four).
Share based payments
LTIP (2018)
On 3 August 2021 and further to confirmation all performance
conditions relating to the conditional share awards granted under
the Plan were fully met, Gareth Bevan received 6,825 shares, Chris
Scott received 5,850 shares, and Andrew Wass received a GBP55,575
cash equivalent.
LTIP (2021)
On 14 October 2021 a new long-term incentive plan involving
Andrew Wass, Chris Scott, and Gareth Bevan was put in place and
involved the issue of 377,100 'D' Ordinary shares in Gear4music
Limited, a subsidiary of the Company. The D Shares are capable of
vesting between 2023 and 2027 and can be exchanged on a one-for-one
basis for new ordinary shares of ten pence each in the capital of
the Company, subject to achieving minimum specified fully diluted
earnings per share targets (see page 103).
Gareth Bevan, Andrew Wass and Chris Scott are participants in
the scheme, with 113,130, 75,420 and 37,710 D-shares
respectively.
The initial subscription cost was covered by way of bonus and
Gareth Bevan, Andrew Wass, and Chris Scott received bonuses of
GBP21,345, GBP14,230 and GBP7,115 respectively.
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END
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