TIDMTUNE
RNS Number : 9648D
Focusrite PLC
03 May 2017
Strictly embargoed until 07:00: 3 May 2017
Focusrite Plc ('Focusrite' or 'the Group')
Half Year Results for the period ended 28 February 2017
Focusrite Plc, the global music and audio products company
supplying hardware and software products used by professional and
amateur musicians, announces its Half Year Results for the six
months ended 28 February 2017.
Financial highlights for the six months ended 28 February
2017
-- Strong organic growth across all key financial metrics and
KPIs
-- Group revenue up by 23.7% to GBP32.0 million (HY16: GBP25.9
million)
-- Adjusted EBITDA(1) up by 27.2% to GBP6.1 million (HY16:
GBP4.8 million)
-- Operating profit up by 44.9% to GBP4.6 million (HY16: GBP3.2
million)
-- Profit before tax up by 89.1% to GBP4.6 million (HY16: GBP2.4
million)
-- Basic earnings per share 7.3p, up by 82.5% (HY16: 4.0p)
-- Adjusted(2) diluted earnings per share 7.0p, up by 52.2%
(HY16: 4.6p)
-- Net cash of GBP9.4 million (HY16: GBP4.0 million)
-- Interim dividend of 0.75p, up 15.4% from 0.65p in HY16
Operational highlights
-- Appointment of Tim Carroll as new Group CEO.
-- The Group has traded well, with continued growth in all
geographies across both the Focusrite and Novation brands.
-- Strong growth in the US market, with revenue increasing by
25% (on a constant currency(3) basis), driven primarily by an
increase in Novation (Launchpad) sales.
-- EMEA revenue up by 5% and ROW revenue up by 8% (on a constant
currency(3) basis).
-- Strong sales of the second generation Scarlett USB audio
interface range, which continues to gain market share.
-- Six new products launched.
-- Further progress in Novation Apps with cumulative downloads
now exceeding 6 million and over 500,000 active users.
-- Strategic wins in the post-production/broadcast market with
the RedNet suite of solutions.
Philip Dudderidge, Executive Chairman, commented:
"We have enjoyed another period of significant growth. We strive
to develop further innovative market-leading products and to be the
most recognised brand in our market place. In these aims, our
people continue to be our key asset and I am delighted that we have
now hired Tim Carroll as the Group's new CEO to guide us through
our next phase of development. I am confident that the future of
the Group remains in good hands."
Commenting on current trading and outlook, Tim Carroll, CEO
said:
"We have firmly established ourselves as a market leader and our
aim is to capitalise further on this by continuing to excite and
empower our customers. By improving the product and customer
experience, we will seek to extend the customer lifecycle, keeping
them using our products longer throughout their music making
lifetime.
Since the half year end, revenue and cash have both continued to
grow strongly. The new products introduced in the period and the
second generation of our market-leading Scarlett range continue to
sell well, and we look forward with confidence to the second half
of the current financial year and beyond."
(1) Comprising of earnings adjusted for interest, taxation,
depreciation, amortisation and non-underlying items.
(2) Adjusted for non-underlying items which were GBPnil in HY17
and GBP0.5 million legal costs in HY16.
(3) Where we make reference to constant currency growth rates,
these are prepared by retranslating the current year revenues using
exchange rates that prevailed in the prior year rather than the
actual exchange rates that applied in the current year.
Dividend timetable
The timetable for the interim dividend is as follows:
11 May 2017 Ex-dividend Date
12 May 2017 Record Date
9 June 2017 Dividend payment date
Enquiries:
Focusrite Plc: +44 1494 836301
Tim Carroll (CEO)
Jeremy Wilson (CFO)
Panmure Gordon +44 20 7886 2500
Freddy Crossley
Tom Salvesen
Belvedere Communications +44 20 3567 0510
John West
Kim Van Beeck
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Notes to Editors
Focusrite is a global music and audio technology group,
supplying hardware and software solutions to musicians and sound
professionals.
The Group has two established and growing brands: Focusrite and
Novation. The Focusrite brand makes audio interface and other
products for audio recording musicians. The Novation brand allows
its customers to make electronic music using synthesisers and
computer-enabled technology.
The Group has a global customer base with a distribution network
covering approximately 160 territories. Focusrite is headquartered
in High Wycombe, United Kingdom with marketing subsidiaries in Los
Angeles, United States and Hong Kong, and has around 170
employees.
Business and operating review
Overview
Focusrite is pleased to report interim results that show
continued strong organic growth across all our key financial
metrics. Year-on-year growth in the first half of the current
financial year continued with revenue growing by 23.7%.
Total revenue for the period grew to GBP32.0 million (HY16:
GBP25.9 million), resulting in an operating profit of GBP4.6
million (HY16: GBP3.2 million), with adjusted EBITDA up to GBP6.1
million (HY16: GBP4.8 million). This growth was driven by a number
of factors, including a strong performance in our Novation
business, as well as continued growth of the second generation
Scarlett USB audio interface range. Notwithstanding the benefit of
recent currency trends, revenue growth on a constant currency basis
accelerated further to 12% (FY16: 7.5%).
Research and development remains the engine room of our growth,
and six new products were launched during the period across a range
of price points and market segments. Further progress was also made
within our existing product base, most notably strong sales of our
Launchpad product from Novation, which was driven by greater market
awareness and the increased adoption of grid controllers,
particularly among younger customers.
Sales grew in all regions, but importantly to the USA, which is
our largest market, grew by 25% on a constant currency basis.
Our strategy of innovation and expansion continues to underpin
our growth and we remain committed to making music easier to make
for professionals and hobbyists alike. Our success is driven by our
entrepreneurial and pioneering team, many of whom are themselves
musicians and their skill and loyalty is the bedrock of our
success. The team now has new leadership, following the appointment
of Tim Carroll as Chief Executive Officer. Tim, a former
professional musician, has enjoyed a distinguished career in the
industry, most notably with Avid Technologies, and we look forward
to a bright future with him as he works with the executive team to
execute on our strategic goals.
Operating review
We continue to exceed our core growth KPI benchmarks and the
Group continues to perform well both operationally and financially.
The management team is committed to pursuing its stated goals of
innovation; disruption; making music easier to make; and expanding
our addressable market. We have firmly established ourselves as a
market leader and our aim is to capitalise further on this by
continuing to excite and empower our customers. By improving the
product and customer experience, we will seek to extend the
customer lifecycle, keeping them using our products longer
throughout their music making lifetime.
Segmental analysis - markets
Six months to Six months to Year to
28 February 2017 (unaudited) 29 February 2016 (unaudited) 31 August 2016 (audited)
--------------
GBP'000 GBP'000 GBP'000
-------------- ----------------------------------- ----------------------------------- ----------------------------------
Continuing
operations
USA 13,246 9,069 21,382
Europe, Middle
East and
Africa 12,958 12,064 22,582
Rest of World 5,816 4,747 10,337
Consolidated
revenue 32,020 25,880 54,301
--------------- ----------------------------------- ----------------------------------- ----------------------------------
Regionally, the USA grew by 25% on a constant currency basis.
This was driven by a number of factors, including significant
growth against a weaker comparable period in our Novation segment,
as well as a continued acceleration of demand for our
commercial/pro audio RedNet products, which enable numerous
high-quality audio signals to be distributed via 'Audio over IP'
based technology. These products are targeted at the live sound and
broadcast business-to-business market, and it is an area where we
hope to make more inroads in the coming years. Widespread
acceptance and strong sales of our second generation Scarlett USB
audio interface range also contributed to the overall growth.
In Europe, Middle East and Africa, sales were up by 5% on a
constant currency basis. This growth was achieved despite facing
tough competition and experiencing some reductions in distributor
stocks of Focusrite products. Within the region, UK revenue grew by
16%, boosted by Amazon, which is now 13% of the EMEA region.
The Rest of World grew at 8% on a constant currency basis, with
Asia in particular showing a healthy increase following our
investment in establishing an office there. Within Asia, China is
growing and Japan and South Korea both declined. Asia remains a key
focus for the management team and, as we become more established
there, we will seek to expand further, adding to the team in the
year ahead. Similarly, Latin America is another region of
significant interest for the Group as a potential area of growth,
which to date has remained a largely untapped market.
Segmental analysis - products
Six months to Six months to Year to
28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------- ------------------ ---------------------------------- -----------------------------
Revenue from external
customers
Focusrite 20,856 16,946 37,563
Novation 9,604 7,287 13,683
Distribution 1,560 1,647 3,055
Total 32,020 25,880 54,301
------------------------------- ------------------ ---------------------------------- -----------------------------
Alongside engineering, innovation is paramount to success and we
continue to spend between 6% and 7% of revenue on research and
development so as to provide a constant stream of new and relevant
products for our various channels.
We launched six new products during the period namely: Red 8
Pre, Clarett Octopre, Scarlett Octopre, Scarlett Octopre Dynamic,
iTrack One Pre, Launch Control XL MK2, as well as a Circuit
Components Update. These new products are across different price
segments and target customer markets, giving us further penetration
and reach. Feedback from the consumer, retailer and distribution
channels has been positive and acceptance so far has been
pleasing.
Focusrite
Among existing products, our second generation Scarlett USB
audio interface range has continued to gain market share since its
launch in June 2016. The Clarett and Red brands have also shown
good growth, albeit slightly lower than expected, due to price
competition from established competitor brands in the more mature
markets. Management has identified this trend and continues to
watch it closely with a view to taking a more proactive stance if
required.
Our commercial and pro audio segment, led by RedNet, is gaining
momentum as applications for its use and potential customers grow,
especially in post-production, education and broadcast
segments.
Novation
Launchpad, Novation's grid instrument that comes pre-loaded with
Ableton Live Lite software, has shown a significant worldwide
uplift in demand, with sales quantity increasing by 40% over the
period. This is due in part to a wider market acceptance of grid
controllers, especially amongst younger musicians and the addition
of Amazon to the distribution channel. This move has created
greater reach into both new and existing mainstream audiences.
Online sales remain an area of importance for the Group, as we seek
to stay relevant to the way consumers shop and spend.
Additionally, within the Novation business, Launchkey, the
easy-to-use MIDI keyboard controller, has benefitted from the
success of Launchpad. As music making increasingly becomes digital
and portable, innovative and cutting edge products such as these
can capture the imaginations of musicians and allow them to create
wherever they might be and at a touch of a button.
Circuit, the inspirational grid-based groove box, continues to
establish itself in the market. We are pleased with its progress,
but believe that there is an opportunity to define the scope of
this product better to improve its alignment with market
demand.
The London app team continues to support the Novation brand with
the Launchpad app, which has now reached an impressive 6,000,000
downloads, with downloads increasing at approximately 100,000 per
month. The Blocs Wave app is entering a new phase of its
development, moving towards a 'freemium' model (in which the
initial download of the app is free but further sound and feature
packs are charged for). We hope this will encourage users, who
might not be interested in music making, to begin their journey to
creativity and so develop an interest that can be commercialised in
the future. A number of app and software updates have been
introduced and the total number of active users across both
platforms is now in excess of 500,000. The division is operating at
broadly breakeven and we will continue to invest further as we
believe it offers significant potential for both disruption and
differentiation for the future.
Distribution and logistics initiatives
Focusrite's distribution of adjacent products, such as KRK
monitors and sE microphones, remains a small overall proportion of
Group revenue, but it is profitable and stable. It remains
important to us as it offers add-on products within the music
making industry and provides us with invaluable market feedback,
insight and knowledge.
eCommerce initiatives
The Group's eCommerce store, which launched in March last year,
now accounts for over 1% of the Group's revenue and this continues
to grow. Initially, the store was created to sell refurbished
products ('B stock') direct to end-users. In fact, the store
creates improved conversion through all sales channels so,
subsequently, we have expanded it and it now ships a wider range of
products globally, with targeted regional strategies in place to
support operations.
Financial review
Revenue and profit
Group revenue increased to GBP32.0 million, up 23.7% on the
previous year and up 12% on a constant currency basis. This was
driven principally by an improved performance at Novation, as well
as continued strong sales from the next generation of Scarlett, and
was underpinned by strong sales of existing products.
Pleasingly, despite the higher purchase prices of product caused
by the strength of the US Dollar, the Group maintained a similar
gross margin as in the previous year at around 40.1% (HY16: 39.8%).
This was, in part, due to actions taken by management, including
price increases and tighter discount controls. Operating costs were
increased at a rate lower than the revenue growth and therefore
adjusted EBITDA for the period grew by 27.2% to GBP6.1 million
(HY16: GBP4.8 million).
Brexit and foreign currency
Six months Six months
to to Year to
28 February 29 February 31 August
2017 2016 2016
Exchange rates
Average $:GBP 1.26 1.50 1.45
-------------------- ------------- ------------- -----------
Average EUR:GBP 1.16 1.37 1.29
-------------------- ------------- ------------- -----------
Period end $:GBP 1.24 1.43 1.31
-------------------- ------------- ------------- -----------
Period end EUR:GBP 1.17 1.29 1.18
-------------------- ------------- ------------- -----------
The Group experienced no significant impact on demand for its
products as a result of the Brexit vote in the UK. However, the
resulting volatility in the foreign exchange markets had the
following effects:
-- A stronger US Dollar against Sterling led to a higher cost of
sales, but was largely offset by higher US Dollar sales as a result
of the strong operating performance in the USA and Asia. As
referred to above, we did experience some gross margin pressure
caused by higher product cost, but this was countered by management
increasing selling prices.
-- A stronger Euro (the relevant currency for approximately a
quarter of Group revenue) led to higher Sterling revenue without a
significant matching cost increase. Overall, the Group's hedging
policy is to hedge 75% of Euro flows one financial year in advance
and, for FY17, the exchange rate is EUR1.28. The fact that this
hedged rate was higher than the average Euro rate for the period
reduced the revenue benefit of the stronger Euro. This policy has
now been extended to include approximately 50% coverage for the
following financial year (FY18) at a rate of EUR1.14.
Net financing charges
Last year, the movement in fair value of hedging contracts was
disclosed as the major part of the net financing charges in the
income statement and was a charge of GBP0.8 million. As disclosed
in the Annual Report for FY16, the Group has now adopted hedge
accounting and, consequently, the movement in fair value of the
foreign exchange hedging contracts has been disclosed in
reserves.
Non-underlying costs
The Group did not experience any non-underlying costs in this
period. The legal cases relating to intellectual property and
distribution contracts, for which a provision of GBP0.5 million was
made last year, have now been settled.
Profit before tax
Overall, as a result of the higher revenue, improved margin,
lack of non-underlying costs and application of hedge accounting,
reported profit before tax almost doubled to GBP4.6 million (HY16:
GBP2.4 million).
Tax
The Group gains tax credits on research and development as well
as tax relief from the vesting of share options. Consequently, the
effective tax rate has been estimated to be 12% for the period,
which is lower than the standard Corporation Tax rate in UK.
Profit after tax and earnings per share
After all of the above factors have been considered, profit
after tax increased by 89.1% to GBP4.0 million (HY16: GBP2.1
million).
The number of shares in issue remained at 58.075 million, so the
reported basic earnings per share increased by 82.5% to 7.3 pence
(HY16: 4.0 pence). Changes in the number of share options
outstanding meant that the adjusted diluted earnings per share
increased by 52.2% to 7.0 pence (HY16: 4.6 pence).
Balance sheet
Non-current assets relate largely to capitalised research and
development costs. In this period, the research and development
costs totalled approximately 6% of revenue and 75% of this was
capitalised. The amortisation period is three years.
The value of stock held was reduced to GBP10.1 million at the
period end, compared with GBP11.4 million as at 31 August 2016.
This reduction was despite the increases in both volume and
exchange rate and reflects the stabilisation of demand for new
recently introduced products and a stronger internal focus on the
management of working capital.
Debtors totalled GBP10.2 million, down from GBP11.2 million at
31 August 2016. A high proportion of debts continue to be paid on
time and this reduction in the reported period was helped by
customers who bought the first batch of the second generation of
Scarlett products paying during September and October.
Trade and other payables were reduced from GBP8.6 million in
August 2016 to GBP6.4 million in February 2017.
Cash flow
The business remains highly cash generative and cash management
remains a key focus for the executive team. During the period,
significant efforts were made to manage working capital and the
overall movement in working capital was virtually zero, despite the
strong increase in revenue.
In particular, cash flow from operating activities was 101% of
EBITDA and free cash flow was 13% of revenue, both strong. As a
result, cash balances grew from GBP5.6 million in August 2016 to
GBP9.4 million as at 28 February 2017.
Dividend
The Group has a progressive dividend policy in place and the
Board has approved a rise in interim dividend of 15% from 0.65
pence to 0.75 pence.
Outlook and current trading
Since the half year end, revenue and cash have both continued to
grow strongly. The new products introduced in the period and the
second generation of our market-leading Scarlett range continue to
sell well and we look forward with confidence to the second half of
the financial year and beyond.
Tim Carroll Jeremy Wilson
Chief Executive Officer Chief Financial Officer
Condensed Consolidated Income Statement
For the six months ended 28 February 2017
Six months to Six months to Year to
Note 28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------- ------ ------------------ ------------------ ----------------
Revenue 2 32,020 25,880 54,301
Cost of sales (19,165) (15,575) (33,439)
-------------------------------------------- ------ ------------------ ------------------ ----------------
Gross profit 12,855 10,305 20,862
Administrative expenses (8,284) (7,150) (13,722)
Adjusted EBITDA (non-GAAP measure) 6,131 4,821 10,249
Depreciation and amortisation (1,560) (1,129) (2,572)
Adjusted operating profit 4,571 3,692 7,677
Non-underlying items - (537) (537)
-------------------------------------------- ------ ------------------ ------------------ ----------------
Operating profit 4,571 3,155 7,140
Finance income 52 2 325
Finance costs (24) (725) (339)
-------------------------------------------- ------ ------------------ ------------------ ----------------
Profit before tax 4,599 2,432 7,126
Income tax expense 4 (552) (292) (870)
-------------------------------------------- ------ ------------------ ------------------ ----------------
Profit for the period from continuing operations 4,047 2,140 6,256
---------------------------------------------------- ------------------ ------------------ ----------------
Earnings per share
From continuing operations
Basic (pence per share) 7 7.3 4.0 11.8
-------------------------------------------- ------ ------------------ ------------------ ----------------
Diluted (pence per share) 7 7.0 3.7 10.7
-------------------------------------------- ------ ------------------ ------------------ ----------------
Condensed Consolidated Statement of Other Comprehensive
Income
For the six months ended 28 February 2017
Six months to Six months to Year to
28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------ ----------------
Profit for the period 4,047 2,140 6,256
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign
operations 29 38 45
Gain/(loss) on forward foreign exchange contracts
designated and effective as a hedging instrument 700 - (1,143)
Tax on hedging instrument (142) - 229
------------------------------------------------------ ------------------ ------------------ ----------------
Total comprehensive income for the period 4,634 2,178 5,387
------------------------------------------------------ ------------------ ------------------ ----------------
Profit attributable to:
Equity holders of the Company 4,634 2,178 5,387
------------------------------------------------------ ------------------ ------------------ ----------------
4,634 2,178 5,387
----------------------------------------------------- ------------------ ------------------ ----------------
Condensed Consolidated Statement of Financial Position
Note 28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----- ------------------ ------------------ ----------------
Assets
Non-current assets
Goodwill 419 419 419
Other intangible assets 4,823 4,006 4,373
Property, plant and equipment 1,502 1,416 1,575
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total non-current assets 3 6,744 5,841 6,367
---------------------------------------------- ----- ------------------ ------------------ ----------------
Current assets
Inventories 10,145 10,732 11,361
Trade and other receivables 10,234 9,809 11,224
Cash and cash equivalents 8 9,391 3,952 5,606
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total current assets 29,770 24,493 28,191
Total assets 36,514 30,334 34,558
---------------------------------------------- ----- ------------------ ------------------ ----------------
Equity and liabilities
Capital and reserves
Share capital 58 58 58
Merger reserve 14,595 14,595 14,595
Merger difference reserve (13,147) (13,147) (13,147)
Translation reserve 68 32 39
Hedging reserve (356) - (914)
Treasury reserve (3) (5) (5)
Deferred tax reserve 303 - 333
Retained earnings 27,125 18,705 22,918
Equity attributable to owners of the Company 28,643 20,238 23,877
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total equity 28,643 20,238 23,877
---------------------------------------------- ----- ------------------ ------------------ ----------------
Current liabilities
Trade and other payables 6,390 8,745 8,612
Current tax liabilities 523 - 644
Derivative financial instruments 8 443 562 1,143
Total current liabilities 7,356 9,307 10,399
---------------------------------------------- ----- ------------------ ------------------ ----------------
Non-current liabilities
Deferred tax 515 789 282
Total liabilities 7,871 10,096 10,681
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total equity and liabilities 36,514 30,334 34,558
---------------------------------------------- ----- ------------------ ------------------ ----------------
Condensed Consolidated Statements of Changes in Equity
For the six
months ended Merger Deferred Treasury Share-based
28 February Share Merger difference Translation tax Hedging share payment Retained
2017 capital reserve reserve reserve reserve reserve reserve(1) reserve earnings(2) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2016 58 14,595 (13,147) 39 333 (914) (5) 382 22,536 23,877
--------------- -------- -------- ----------- ------------ --------- -------- ----------- ------------ ------------ --------
Profit for the
period - - - - - - - - 4,047 4,047
Other
comprehensive
income for
the period - - - 29 - 558 - - - 587
--------------- -------- -------- ----------- ------------ --------- -------- ----------- ------------ ------------ --------
Total
comprehensive
income for
the period - - - 29 - 558 - - 4,047 4,634
--------------- -------- -------- ----------- ------------ --------- -------- ----------- ------------ ------------ --------
Transactions with owners of the Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - (30) - - - - (30)
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - - 556 556
Shares from
EBT exercised - - - - - - 2 - 250 252
Share-based
payments - - - - - - - 75 - 75
Dividends paid - - - - - - - - (721) (721)
Balance at 28
February 2017 58 14,595 (13,147) 68 303 (356) (3) 457 26,668 28,643
--------------- -------- -------- ----------- ------------ --------- -------- ----------- ------------ ------------ --------
(1) The reserve for the Company's treasury shares comprises the
cost of the Company's shares held by the Group. At 28 February
2017, the Employee Benefit Trust held 2,586,845 of the Company's
shares (six months ended 29 February 2016: 4,627,861).
(2) Of the retained earnings totalling GBP26,668,380, GBP421,311
(29 February 2016: GBP151,980) relates to the gain on exercise of
share options from the EBT and is therefore non-distributable.
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the six
months ended Merger Treasury Share-based
29 February Share Merger difference Translation share payment Retained
2016 capital reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2015 58 14,595 (13,147) (6) (6) 262 16,722 18,478
--------------- ----------- ----------- ----------- ------------ ----------- ------------ ----------- --------
Profit for the
period - - - - - - 2,140 2,140
Other
comprehensive
income for
the period - - - 38 - - - 38
--------------- ----------- ----------- ----------- ------------ ----------- ------------ ----------- --------
Total
comprehensive
income for
the period - - - 38 - - 2,140 2,178
--------------- ----------- ----------- ----------- ------------ ----------- ------------ ----------- --------
Transactions with owners of the Company:
Shares from
EBT exercised - - - - 1 - 153 154
Share-based
payments - - - - - 60 - 60
Dividends paid - - - - - - (632) (632)
Balance at 29
February 2016 58 14,595 (13,147) 32 (5) 322 18,383 20,238
--------------- ----------- ----------- ----------- ------------ ----------- ------------ ----------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the year Merger Deferred Treasury Share-based
ended 31 Share Merger difference Translation tax Hedging share payment Retained
August 2016 capital reserve reserve reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2015 58 14,595 (13,147) (6) - - (6) 262 16,722 18,478
--------------- -------- -------- ----------- ------------ --------- -------- --------- ------------ --------- --------
Profit for the
period - - - - - - - - 6,256 6,256
Other
comprehensive
income for
the period - - - 45 - (914) - - - (869)
--------------- -------- -------- ----------- ------------ --------- -------- --------- ------------ --------- --------
Total
comprehensive
income for
the period - - - 45 - (914) - - 6,256 5,387
--------------- -------- -------- ----------- ------------ --------- -------- --------- ------------ --------- --------
Transactions with owners of the Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - 333 - - - - 333
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - - 363 363
Shares from
EBT exercised - - - - - - 1 - 171 172
Share-based
payments - - - - - - - 120 - 120
Dividends paid - - - - - - - - (976) (976)
Balance at 31
August 2016 58 14,595 (13,147) 39 333 (914) (5) 382 22,536 23,877
--------------- -------- -------- ----------- ------------ --------- -------- --------- ------------ --------- --------
Consolidated Statement of Cash Flow
For the six months ended 28 February 2017
Six months to Six months to Year to
28 February 2017 29 February 2016 31 August 2016
Note GBP'000 GBP'000 GBP'00
Cash flows from operating activities
Profit for the period before non-underlying items 4,047 2,677 6,793
Non-underlying items 5 - (537) (537)
Profit for the period 4,047 2,140 6,256
Adjustments for:
Income tax expense 552 292 870
Net finance (income)/charge (28) 723 14
Loss on disposal of property, plant and equipment 8 - -
Amortisation of intangibles 1,198 914 2,051
Depreciation of property, plant and equipment 362 215 521
Share-based payment charge 75 60 120
Operating cash flow before movements in working
capital 6,214 4,344 9,832
Decrease/(increase) in trade and other receivables 990 (1,988) (3,487)
Decrease/(increase) in inventories 1,216 (2,099) (2,728)
(Decrease)/increase in trade and other payables (2,222) 339 206
Operating cash flow before interest and tax paid 6,198 596 3,823
Cash outflow in respect of non-underlying items - 90 188
Operating cash flow before non-underlying items,
interest and tax paid 6,198 686 4,011
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net interest paid (22) (89) (111)
Income tax paid (56) (732) (165)
Cash generated by operations 6,120 (225) 3,547
Net foreign exchange movement 78 189 365
Net cash inflow/(outflow) from operating activities 6,198 (36) 3,912
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash flows from investing activities
Purchases of property, plant and equipment (299) (308) (773)
Development of intangible assets (1,645) (1,399) (2,902)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net cash used in investing activities (1,944) (1,707) (3,675)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash flows from financing activities
Issue of equity shares 252 154 172
Equity dividends paid (721) (632) (976)
Net cash used in financing activities (469) (478) (804)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net increase/(decrease) in cash and cash equivalents 3,785 (2,221) (567)
Cash and cash equivalents at beginning of year 5,606 6,173 6,173
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash and cash equivalents at end of year 9,391 3,952 5,606
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation and significant accounting policies
Focusrite Plc (the 'Company') is a company incorporated in the
UK. The condensed consolidated interim financial statements
('interim financial statements') as at and for the six months ended
28 February 2017 comprised the Company and its subsidiaries
(together referred to as the 'Group').
The Group is a business engaged in the development, manufacture
and marketing of professional audio and electronic music
products.
Statement of compliance
The condensed interim consolidated financial statements ('the
interim financial statements') are for the six months ended 28
February 2017 and are presented in pounds Sterling ('GBP'). This is
the functional currency of the Group. The interim financial report
has been prepared in accordance with the International Financial
Reporting Standards ('IFRS'), International Accounting Standards
('IAS') and interpretations currently endorsed by the International
Accounting Standards Board ('IASB') and its committees as adopted
by the EU and as required to be adopted by AIM listed companies.
AIM listed companies are not required to comply with IAS 34
'Interim Financial Reporting' and accordingly the Company has taken
advantage of this exemption. They do not include all the
information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual consolidated financial statements
as at and for the year ended 31 August 2016.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 3 May 2017.
Significant accounting policies
The interim financial statements have been prepared in
accordance with the accounting policies adopted in the Group's
financial statements for the year ended 31 August 2016.
1.1 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and subsidiaries controlled by the
Company drawn up to 28 February 2017.
1.2 Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the Group takes into
consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases.
1.3 Going concern
The Board of Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, the
financial statements have been prepared on a going concern
basis.
1.4 Earnings per share
The Group presents basic and diluted earnings per share ('EPS')
data for its ordinary shares. Basic EPS is calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
For diluted EPS, the weighted average number of ordinary shares is
adjusted for the dilutive effect of potential ordinary shares
arising from the exercise of granted share options.
For the period reported, the Group has chosen to present an
adjusted EPS (note 7) calculation with profit adjusted for
non-underlying items to aid comparability and to provide a
consistent measure of performance.
1.5 Non-underlying items
Non-underlying items are those items that are unusual because of
their size, nature or incidence. The Directors consider that these
items should be separately identified to ensure a full
understanding of the Group's results.
1.6 Accounting estimates and judgements
In application of the Group's accounting policies, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by the Directors in
applying the Group's accounting policies and key sources of
estimation uncertainty were the same as those applied to the
Group's financial statements for the year ended 31 August 2016.
1.7 Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which it operates (its functional currency). Sterling is the
predominant functional currency of the Group and presentation
currency for the consolidated financial information.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the
period in which they arise except for:
-- Exchange differences on transactions entered into to hedge certain foreign currency risks
-- Exchange differences on monetary items receivable from or
payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net
investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of the transactions are used. Exchange
differences arising, if any, are recognised in the income
statement.
1.8 Hedge accounting
For the year ended 31 August 2016 and subsequent years, the
Group has adopted hedge accounting for qualifying transactions.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. The resulting gain
or loss is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends
on the nature of the hedge relationship. The Group designates
certain derivatives as either hedges of the fair value of
recognised assets or liabilities or firm commitments (fair value
hedges), hedges of highly probable forecast transactions or hedges
of foreign currency risk of firm commitments (cash flow hedges), or
hedges of net investments in foreign operations.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised directly in the hedging reserve. Any ineffective portion
of the hedge is recognised immediately in the income statement.
For cash flow hedges, the associated cumulative gain or loss is
removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction
affects profit or loss.
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
equity and is recognised in accordance with the above policy when
the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealised gain or loss
recognised in equity is recognised in the income statement
immediately.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a financial liability.
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to Six months to Year to
28 February 2017 (unaudited) 29 February 2016 (unaudited) 31 August 2016 (audited)
--------------
GBP'000 GBP'000 GBP'000
-------------- ---------------------------------- ------------------------------------ ----------------------------------
Continuing
operations
USA 13,246 9,069 21,382
Europe, Middle
East and
Africa 12,958 12,064 22,582
Rest of World 5,816 4,747 10,337
Consolidated
revenue 32,020 25,880 54,301
--------------- ---------------------------------- ------------------------------------ ----------------------------------
3. Operating segments
Products and services from which reportable segments derive
their revenues
Information reported to the Group's Chief Executive Officer (who
has been determined to be the Group's Chief Operating Decision
Maker) for the purposes of resource allocation and assessment of
segment performance is focused on the main product groups which the
Group sells. The Group's reportable segments under IFRS 8 are
therefore as follows:
Focusrite - Sales of Focusrite branded products
Novation - Sales of Novation branded products
Distribution - Distribution of third party brands, including
KRK
speakers, Stanton, Cerwin Vega, Cakewalk and sE Electronics
The revenue and profit generated by each of the Group's
operating segments are summarised as follows:
Six months to Six months to Year to
28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------- ------------------------------------ -------------------------------------- ------------------------------------
Revenue from
external
customers
Focusrite 20,856 16,946 37,563
Novation 9,604 7,287 13,683
Distribution 1,560 1,647 3,055
Total 32,020 25,880 54,301
---------------- ------------------------------------ -------------------------------------- ------------------------------------
Segment profit
Focusrite 9,873 7,986 17,159
Novation 4,773 3,670 6,743
Distribution 434 557 917
---------------- ------------------------------------ -------------------------------------- ------------------------------------
15,080 12,213 24,819
Central
distribution
costs and
administrative
expenses (10,509) (8,521) (17,142)
Adjusted
operating
profit before
non-underlying
items 4,571 3,692 7,677
Non-underlying
items - (537) (537)
---------------- ------------------------------------ -------------------------------------- ------------------------------------
Operating
profit 4,571 3,155 7,140
Finance income 52 2 325
Finance costs (24) (725) (339)
---------------- ------------------------------------ -------------------------------------- ------------------------------------
Profit before
tax 4,599 2,432 7,126
Tax (552) (292) (870)
Profit after
tax 4,047 2,140 6,256
---------------- ------------------------------------ -------------------------------------- ------------------------------------
Segment profit represents the profit earned by each segment
without allocation of the share of central administration costs,
including Directors' salaries, finance income and finance costs,
and income tax expense. This is the measure reported to the Group's
Chief Executive Officer for the purpose of resource allocation and
assessment of segment performance.
Central administration costs comprise principally the
employment-related costs and other overheads incurred by the Group.
Also included within central administration costs is the charge
relating to the share option scheme of GBP75,000 for the six-month
period to 28 February 2017 (six months to 29 February 2016:
GBP60,000; year to 31 August 2016: GBP120,000).
3. Operating segments (continued)
Segment net assets and other segment information
Management does not make use of segmental data relating to net
assets and other balance sheet information for the purposes of
monitoring segment performance and allocating resources between
segments. Accordingly, other than the analysis of the Group's
non-current assets by region shown below, this information is not
available for disclosure in the consolidated financial
information.
The Group's non-current assets, analysed by region, were as
follows:
28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------- ------------------------------------- ------------------------------------- --------------------------------
Non-current
assets
USA 59 26 60
Europe,
Middle East
and Africa 5,998 5,141 5,602
Rest of
World 687 674 705
Total
non-current
assets 6,744 5,841 6,367
------------- ------------------------------------- ------------------------------------- --------------------------------
4. Taxation
The tax charge for the six months to 28 February 2017 is based
on the estimated tax rate for the full year in each
jurisdiction.
5. Non-underlying items
During the six months to 28 February 2017, the Group incurred no
non-underlying costs. For the period to 29 February 2016 and year
ended 31 August 2016 the Group incurred one-off litigation costs
relating to intellectual property and distribution contracts,
totalling GBP0.5 million, which were charged to the income
statement.
6. Dividends
The following equity dividends have been declared:
Year to
Six months to Six months to 31 August 2016
28 February 2017 (unaudited) 29 February 2016 (unaudited) (audited)
--------------------------------- ------------------------------- ------------------------------- -----------------
Dividend per qualifying ordinary
share 0.75p 0.65p 1.95p
--------------------------------- ------------------------------- ------------------------------- -----------------
During the period, the Company paid a final dividend in respect
of the year ended 31 August 2016 of 1.3 pence per share, amounting
to GBP721,172.
7. Earnings per share
Reported earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Six months to Year to
28 February Six months to 31 August
2017 29 February 2016 2016
(unaudited) (unaudited) (audited)
Earnings GBP'000 GBP'000 GBP'000
--------------------------------------- ------------------------- ------------------------- -----------------------
Earnings for the purposes of basic and
diluted earnings per share being net
profit for the
period 4,047 2,140 6,256
--------------------------------------- ------------------------- ------------------------- -----------------------
Six months to Six months to Year to
28 February 29 February 31 August
2017 2016 2016
number number number
Number of shares '000 '000 '000
--------------------------------------- ------------------------- ------------------------- -----------------------
Weighted average number of ordinary
shares for the purposes of basic
earnings per share calculation 55,298 52,877 53,207
Effect of dilutive potential ordinary
shares:
EMI share option scheme and unapproved
share option plan 2,356 5,696 5,297
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share
calculation 57,654 58,573 58,504
--------------------------------------- ------------------------- ------------------------- -----------------------
Earnings per share Pence Pence Pence
--------------------------------------- ------------------------- ------------------------- -----------------------
Basic earnings per share 7.3 4.0 11.8
--------------------------------------- ------------------------- ------------------------- -----------------------
Diluted earnings per share 7.0 3.7 10.7
--------------------------------------- ------------------------- ------------------------- -----------------------
At 28 February 2017, the total number of ordinary shares issued
and fully paid was 58,075,000. This included 2,586,845 shares held
by the Employee Benefit Trust ('EBT') to satisfy options vesting in
future years. The operation of this Employee Benefit Trust is
funded by the Group so the EBT is required to be consolidated, with
the result that the weighted average number of ordinary shares for
the purpose of the basic earnings per share calculation is the net
of the total number of shares in issue (58,075,000) less the
weighted average number of shares held by the Employee Benefit
Trust (2,776,555). It should be noted that the only right
relinquished by the Trustees of the Employee Benefit Trust is the
right to receive dividends. In all other respects, the shares held
by the Employee Benefit Trust have full voting rights.
The effect of dilutive potential ordinary share issues is
calculated in accordance with IAS 33 and arises from the employee
share options currently outstanding, adjusted by the profit element
as a proportion of the average share price during the period.
7. Earnings per share (continued)
Adjusted earnings per share
Six months to Six months to Year to
28 February 29 February 31 August
2017 2016 2016
(unaudited) (unaudited) (audited)
Earnings GBP'000 GBP'000 GBP'000
------------------------------------ ------------------------- --------------------------- ------------------------
Profit for the financial period 4,047 2,140 6,256
Non-underlying items - 537 537
Tax on non-underlying items - - (107)
Total underlying profit for
adjusted earnings per share
calculation 4,047 2,677 6,686
------------------------------------ ------------------------- --------------------------- ------------------------
Six months to Six months to Year to
28 February 29 February 31 August
2017 2016 2016
number number Number
Number of shares '000 '000 '000
------------------------------------ ------------------------- --------------------------- ------------------------
Weighted average number of ordinary
shares for the purposes of basic
earnings per share calculation 55,298 52,877 53,207
Effect of dilutive potential
ordinary shares:
EMI share option scheme and
unapproved share option plan 2,356 5,696 5,297
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share
calculation 57,654 58,573 58,504
------------------------------------ ------------------------- --------------------------- ------------------------
Earnings per share Pence Pence Pence
------------------------------------ ------------------------- --------------------------- ------------------------
Adjusted basic earnings per share 7.3 5.1 12.6
------------------------------------ ------------------------- --------------------------- ------------------------
Adjusted diluted earnings per share 7.0 4.6 11.4
------------------------------------ ------------------------- --------------------------- ------------------------
8. Financial instruments
The fair value of the Group's derivative financial instruments
is calculated using the quoted prices. Where such prices are not
available, a discounted cash flow analysis is performed using
applicable yield curve for the duration of the instruments for
non-optional derivatives, and option pricing model for optional
derivatives. Foreign currency forward contracts are measured using
quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contract.
IFRS 13 Fair Value Measurements requires the Group's derivative
financial instruments to be disclosed at fair value and categorised
in three levels according to the inputs used in the calculation of
their fair value.
Financial instruments carried at fair value should be measured
with reference to the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial instruments held by the Group that are measured at
fair value all related to financial assets/(liabilities) measured
using a Level 2 valuation method.
The fair value of financial assets and liabilities held by the
Group are:
28 February 2017 29 February 2016 31 August 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------------- -------------------------- ------------------ ------------------------------
Financial assets
Cash and cash equivalents 9,391 3,952 5,606
Trade receivables 9,211 7,306 9,603
-------------------------------------- -------------------------- ------------------ ------------------------------
18,602 11,258 15,209
-------------------------------------- -------------------------- ------------------ ------------------------------
Financial liabilities
Designated cash flow hedge
relationships
Derivative financial liabilities
designated and effective as cash
flow hedging instruments 443 - 1,143
Fair value through profit and loss
(FVTPL)
Forward exchange contracts - 562 -
Amortised cost
Trade payables 3,468 5,307 6,265
-------------------------------------- -------------------------- ------------------ ------------------------------
3,911 5,869 7,408
-------------------------------------- -------------------------- ------------------ ------------------------------
Independent review report to Focusrite Plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 28 February 2017, which comprises the condensed
consolidated statement of profit and loss and other comprehensive
income, condensed consolidated statement of financial position,
condensed consolidated statement of changes in equity, condensed
consolidated statement of cash flow and the related explanatory
notes. We have read the other information contained in the
half-yearly report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the Company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report or for the conclusions we have reached.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-yearly report in accordance with the AIM
rules.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly report has been prepared in accordance with the
recognition and measurement requirements of IFRSs as adopted by the
EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 28 February 2017
is not prepared, in all material respects, in accordance with the
recognition and measurement requirements of IFRSs as adopted by the
EU and the AIM rules.
Peter Meehan (Senior Statutory Auditor)
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
3 May 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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