TIDMTUNE
RNS Number : 4507S
Focusrite PLC
16 November 2021
Strictly Embargoed until 07.00, 16th November 2021
Focusrite plc
("the Company" or "the Group")
Final Results for the Year Ended 31 August 2021
Focusrite plc (AIM: TUNE), the global music and audio products
company, announces Final Results for the year ended 31 August
2021.
Phil Dudderidge, Founder and Executive Chairman commented:
"We are delighted with these outstanding results, having
overcome disruption to component suppliers, factories, logistics
and changes to working practices. With so many lockdowns around the
world, musicians, podcasters, and other creatives in audio and
sound have been investing in Focusrite interfaces and 'studio
packs' in record numbers while we work hard to meet that
challenging demand. Major global take-up in home recording has also
resulted in significant growth in demand for ADAM Audio monitor
loudspeakers and Novation products. In the professional audio
industry, renewed demand from the live sound market promises
further growth in 2022 and 2023 as sound service companies reinvest
in the new generation of Martin Audio event systems".
Financial and operational highlights
FY21 FY20 Change
+34% (+28%
organic(1)
Revenue (GBP million) 173.9 130.1 )
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Gross margin 48.4% 46.0% +2.4ppts
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Adjusted EBITDA(2) (GBP million) 47.5 28.6 +67%
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Operating profit (GBP million) 35.8 7.9 +353%
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Adjusted(3) operating profit (GBP
million) 41.4 23.0 +80%
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Basic earnings per share (p) 48.8 7.1 +587%
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Adjusted(3) diluted earnings per
share (p) 57.5 32.8 +75%
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Total dividend per share (p) 5.2 4.2 +24%
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Net cash (GBP million) 17.6 3.3 +GBP14.3m
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-- Revenue growth of 34% across the group reflecting continued
growth of core customer base.
o Focusrite products up by 24% to GBP124.4 million (FY20:
GBP100.7 million) driven principally by the Scarlett 3(rd)
Generation range.
o Novation revenue up by 14% as the new generations of Circuit
and Launchkey products gained traction.
o Martin Audio grew by 23% (organic(1) constant currency growth)
returning to pre COVID-19 levels at end of year.
-- Growth across all major geographic regions: North America was
up by 47%; Europe, Middle East and Africa ('EMEA') by 23%; and the
Rest of World by 32%.
-- Acquisition of Sequential completed in April 2021 for $20
million net of acquired cash.
-- Launch of a new brand, Optimal Audio, operating in the commercial audio market.
-- Year-end net cash balance of GBP17.6 million (FY20: GBP3.3
million), repaying debt drawdown of $10m for Sequential in four
months
-- Increased investment in our people, technology, IT, management systems and tools.
-- 13 new hardware products launched within Focusrite as well as
numerous software/firmware updates.
-- Final dividend of 3.7p recommended, resulting in 5.2p for the
year, up 24% on prior year.
1 The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange
rates and the impact of acquisitions (more detail in the Financial
Review on page 12).
2 Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting
items.
3 Adjusted for amortisation of acquired intangible assets,
goodwill impairment and other adjusting items.
Commenting on the outlook Tim Carroll CEO, said:
"Since the year end, demand for the vast majority of our Group
products has remained strong, and those sectors negatively impacted
by COVID-19 are showing ongoing signs of recovery. All the Group's
acquisitions are settling in well, numerous cross-business
initiatives have already been completed and many more are slated to
occur later this year, the benefit of which we expect in the latter
part of FY22 and into FY23. Our roadmap across all the brands
remains robust, with many new product introductions planned to
occur later in FY22. Accordingly, we are now cautiously optimistic
about the prospects for modest revenue growth in the current
year.
"Our growth strategy continues to pay off; providing focus and
clarity on where we should invest and deploy our resources. This
focus has been a crucial element in enabling us to navigate through
the myriad of macroeconomic and pandemic related issues we have
encountered across this past year. Whilst there remains
considerable opportunity for operational leverage across the Group
as revenue increases, in FY22 operating costs will increase to
reflect current tightness in supply chains, travel resuming and our
intention to increase investment, where appropriate, in order to
fuel future growth in the business".
"Our teams have worked passionately and diligently through these
continuing uncertain times and delivered impressive financial and
operational results for our investors. We look forward to another
year of innovation and expansion."
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31
August 2021 and notice of the Annual General Meeting ("AGM") of
Focusrite will be posted to shareholders by 23 November 2021 and
will be available on Focusrite's website at
www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which is
being sought at Focusrite's AGM to be held on 17 December 2021.
The timetable for the final dividend is as follows:
17 December 2021 AGM to approve the recommended final dividend
30 December 2021 Ex-dividend Date
31 December 2021 Record Date
31 January 2022 Dividend payment date
- ends -
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Investec Bank plc (Nominated
Adviser and Joint Broker) +44 (0) 20 7597 5970
David Flin
William Brinkley
Charlotte Young
Peel Hunt LLP (Joint Broker) +44 (0) 20 7418 8900
Edward Knight
Michael Burke
James Smith
Belvedere Communications
John West +44 20 3687 2753
Llew Angus +44 20 3687 2754
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 (MAR)
Notes to Editors
Focusrite plc is a global audio products group that develops and
markets proprietary hardware and software products. Used by audio
professionals and musicians, its solutions facilitate the
high-quality production of recorded and live sound. The Focusrite
Group trades under eight established brands: Focusrite, Focusrite
Pro, Novation, Ampify, ADAM Audio , Martin Audio, Optimal Audio and
Sequential .
With a high-quality reputation and a rich heritage spanning
decades, its brands are category leaders in the music-making and
audio recording industries. Focusrite and Focusrite Pro offer audio
interfaces and other products for recording musicians, producers
and professional audio facilities. Novation and Ampify products are
used in the creation of electronic music, from synthesisers and
grooveboxes to industry-shaping controllers and inspirational
music-making apps. ADAM Audio studio monitors have earned a
worldwide reputation based on technological innovation in the field
of studio loudspeaker technology. Martin Audio designs and
manufactures performance-ready systems across the spectrum of sound
reinforcement applications.
The Focusrite Group has offices in four continents and a global
customer base with a distribution network covering approximately
240 territories.
Focusrite plc is traded on the AIM market, London Stock
Exchange.
Chairman's Statement
It is almost seven years since Focusrite plc joined the AIM
market (December 2014) and we have continued to deliver for our
investors, customers and people. The growth of the business,
organically and more recently through acquisition, has more than
justified the confidence placed in our management and staff by the
original institutional investors, a great number of whom remain
invested in the Company, as well as those which have joined us more
recently. We remain grateful to you all for your support.
It was a particularly proud moment when we discovered that we
had won the prestigious Company of the Year Award at the AIM Awards
2021, which was held in Old Billingsgate, London in front of over
1,400 guests a few weeks ago. It is a true testament to all the
hard work and dedication of our employees, senior leadership team
and Board of Directors.
As a business we have a primary purpose: to satisfy the needs
and expectations of our customers, most of whom are investing their
passion, careers and businesses in music creation, recording and
performance.
I would like to express my personal thanks to all the
stakeholders who contribute to our success and to the management
teams that make it all happen, by ensuring that we make products
that are the best choice for each and every customer, whether a
musician, sound designer or technician who decides what is the best
product to meet their needs.
We have a strong relationship with our partners that assemble
and distribute our products to customers, globally, whose
commitment has enabled Focusrite Group brands to meet the potential
we have created in the market.
And we also have a huge reliance on our employees in our branded
business units who invest their careers with us, to enable us to
achieve our goals, and I thank them here for their contributions to
our successful performance.
The COVID-19 pandemic has challenged all businesses but as you
will read in the following CEO and CFO reports, Focusrite plc has
achieved outstanding results while overcoming disruption to
component suppliers, assembly factories, international logistics
and markets, as well as dealing with the challenges of enforced
changes to everyday working practices.
In the professional audio industry, the global suspension of
live music performance for 18 months (and still in recovery)
impacted our new member of the Group, Martin Audio, which was
acquired just three months before the pandemic hit in March 2020. I
am pleased to report the commitment and agility with which the
Martin Audio team has pivoted the focus of their business to
Installed Sound (including places of worship, auditoria and
nightclubs) and away from Touring and Festival Sound for which it
was historically best known. They have delivered a great
performance (no pun intended) in the 2021 financial year as you
will read in the following pages, to the credit of CEO Dom Harter
and his team. Renewed demand from the live market promises further
growth in 2022 and 2023 as the sound service companies reinvest in
the new generation of Martin Audio event systems.
With so many people affected by lockdown regulations around the
world, musicians and people using Zoom particularly for creative
purposes like voice-overs as well as podcasters, have been
investing in Focusrite audio interfaces and 'studio packs' in
record numbers while we battle to meet that demand, month in, month
out. Home recording generally is booming and that has also been
reflected in significant growth in demand for ADAM Audio monitor
loudspeakers and Novation products too.
Most recently, our acquisition of Dave Smith's Sequential brand
of synthesisers has reinforced our commitment as a Group to this
genre of musical instrument. Sequential is arguably the
'Rolls-Royce' of synthesiser brands and with Novation as a
stablemate the Group is in a very strong position to grow in this
market.
Focusrite plc is recognised in our industry as a successful and
friendly home for complementary branded businesses, with the
ongoing successful integration of our ADAM Audio and Martin Audio
acquisitions. This fits our ambition to build the Group through
acquisitions which can address adjacent segments within the
vertical markets we serve; music recording and creation, live
performance, audio post-production for film and streaming content,
media education and audio networking (which has applications in all
of the verticals).
I would like to thank Jeremy Wilson, our Chief Financial Officer
('CFO') who left in March 2021, for his leadership and stewardship
of the finance team, as well as his contribution to the achievement
of our continued growth, profitability and cash generation.
Our business is becoming more complex with organic growth and
acquisitions too. I would like to commend our Chief Executive
Officer ('CEO'), Tim Carroll, CFO Sally McKone and the entire Group
Executive Team for embracing the challenges and enabling the Group
to deliver record results in FY21. We look forward to continuing
the trends we have established over recent years.
Phil Dudderidge
Founder and Executive Chairman
15 November 2021
Chief Executive's Statement
Introduction
I am very proud to share with you our results for the financial
year ended 31 August 2021. The Group has continued our pattern of
record-breaking financial performance, fuelled by organic growth
across all brands as well as a partial year contribution from
Sequential, our latest acquisition, and a full-year contribution of
Martin Audio.
FY21 presented us with a mix of opportunities and challenges. As
the pandemic continued throughout the world, we witnessed more
people turning to creative content creation including music,
podcasting and video, which resulted in continued high demand for
audio recording related solutions. The Group also experienced the
continued closure of live sound events which had a negative impact
on our offerings in that market. Component shortages and
shipping/logistics issues have also been very challenging
throughout this year, but to date, the Group has fared well through
this with long-term planning and intensive data analysis. This past
year saw more investment in our people, technology and tools to
ensure our plans were achievable and to give us as much insight as
possible into customer buying behaviours and trends in the market
mitigating its effects.
Our employee base has now grown to over 475 strong and we
continue to invest in our people, promoting from within as well as
continuing to hire top talent in all divisions across the
Group.
Our office footprint is global, with key locations in the UK
(High Wycombe and London), Germany (Berlin), Hong Kong, Mexico,
Australia and the US (Los Angeles, Nashville and San Francisco).
Our employees are a highly passionate group of individuals, many of
whom are also accomplished musicians, DJs, audio engineers, live
sound specialists and podcasters in their own right. We are so
fortunate to have so many people who leave work and actually use
our solutions in real world environments; bringing their
experiences and feedback back into work to continually improve our
offerings.
The wellbeing of our employees continues to be a top priority.
The ongoing work at home environment as well as the slow,
methodical return to work plans brought many unique challenges to
the Group. By providing the necessary tools, support and
flexibility, the Group rose to the challenge and as a result, the
vast majority of our employees have managed well through all of
this and continued to ensure that strategic objectives and
initiatives hit their timelines. The Group has also made
significant steps in ensuring we are maturing in our diversity and
inclusion policies and green initiatives, two subjects that are
very important to our employees, Board and management.
This year has seen increased focus and investment into both
areas. The Group hired our first Head of Sustainability. This role
champions all aspects of how we can do our part to move forward
global green initiatives. Even at this early stage, this role has
already helped us make decisions that will have impact. For
example, the Group was able to switch to a new renewable
electricity contract that reduced the carbon footprint of our UK
offices. Additionally, the Group has made strident efforts to raise
awareness on D&I issues in our industry, including numerous
internal training/awareness seminars and support of charities and
institutions that promote equal opportunity for everyone.
Our operations
The Group's products are sold in approximately 240 territories
throughout the world. We continue to refine our routes to market as
macroeconomic conditions change and new opportunities come to
light. We utilise a mix of retailer/system integrators (online as
well as brick and mortar shops), distributors in specific countries
where localisation, support and supply to the local channel are
factors, and direct to the end user via our own e-commerce platform
and in-app software purchases.
Last year we sold over 1.5 million physical products, had over
1.4 million downloads of our various software titles, and began our
subscription and rent-to-own software offerings, which is growing
steadily month on month. Our manufacturing approach is
multifaceted, driven by the specific needs of each individual
business unit. FAEL (Focusrite, Focusrite Pro, Novation and Ampify)
hardware and software is all designed in the UK and hardware
products are produced in Malaysia and China. ADAM Audio products
are all designed in Berlin. Some ADAM Audio products are
manufactured in Berlin whilst the higher volume retail products
utilise Chinese contract manufacturing. Martin Audio's products are
all designed in the UK, with a portion of their range built in the
UK and the balance using Chinese contract manufacturing as well.
Our newest acquisition, Sequential, develops all of their products
in the US and assembly is also completed in the US.
Our market
Our products and solutions service a wide spectrum of customers
all of whom are seeking high-quality audio results. Until 2020, the
majority of our offerings were focused on music and audio creation,
with solutions designed for a wide range of customers, including
the absolute beginner, hobbyist and both the aspiring and seasoned
professional. The majority of the Focusrite, Focusrite Pro,
Novation, Ampify, ADAM Audio and Sequential portfolio aligns with
these customer personas.
With the acquisition of Martin Audio in late 2019 and the launch
in 2021 of the Optimal Audio brand, we expanded our offerings into
professional audio reproduction. The Martin Audio and Optimal
brands offer professional quality sound reproduction solutions for
small bands to the largest professional tours and festivals, and
for permanent installations for bars, clubs, corporate, houses of
worship, theatres and performance halls. Having a stake in both the
production of audio content as well as the reproduction gives the
Group a well differentiated experience in that our solutions help
artists throughout their entire journey of creating, recording and
performing.
Each of the individual business units continue to focus on
innovation, ensuring a healthy roadmap of both new versions of our
core products as well as totally new solutions each year. The world
of audio creation and reproduction is constantly evolving, and with
that we spend considerable effort and resources on our R&D
efforts to ensure we are at the forefront of technology, new
standards and workflows for our customers. Along with organic
development, the Group carefully considers new acquisitions that
will add to our market potential and expanding R&D
resources.
We actively collate industry market data along with our own
internal data collection efforts to better understand our
customers, their needs and buying behaviours. From this, we
categorise our customers into personae for audio creation sectors
and by venue for audio reproduction. For audio content creators,
these are:
-- Aspiring Creator: A customer who may have little to no music
or audio recording experience but is interested in learning
more.
-- Passionate Maker: A customer who has the desire to create or
produce high-quality music or audio content (such as
podcasting).
-- Serious Producer: A customer for whom audio and/or music
production is more than just a hobby and is considering a potential
career path in these fields.
-- Music Master/Facility: Highly skilled musicians, audio
engineers, producers and business entities focused on the
production of music or audio content for their livelihood.
For audio reproduction, the classifications are as follows:
-- Hospitality: Cafes, bars, restaurants and hotels
-- Houses of Worship: From 50-seat chapels to 10,000-seat mega churches.
-- Auditoria: Education and conference spaces
-- Nightclubs: Nightclubs of all sizes
-- Live Events: Concerts, festivals, theatre, corporate showcases.
Operating review
The Group has had another successful year building our core
customer base, increasing revenues, whilst prudently managing our
cost base to maintain healthy gross margins and drive EBITDA [1]
performance and cash generation.
Revenue for the Group grew by 34%: comprised of growth from FAEL
of 24%, growth from ADAM Audio of 37%, growth from Martin Audio of
70% (full year vs eight months previous), and four months of
Sequential. Adjusted EBITDA(1) increased 67% over FY20.
Many factors contributed to this successful outcome: continued
success of legacy products and products introduced in previous
years, new product introductions, accelerated growth of user base,
further evolution in our routes to market approach and continued
tight control on expenses.
Throughout this past year, the Group has encountered a number of
challenging macroeconomic events, such as Brexit, continued work at
home and restricted travel due to COVID-19, component shortages
together with freight and logistics issues. To date, we have been
able to mitigate the negative impact of these, by sensible business
planning and in some cases, maximise opportunities. We are aware
that these issues will continue well into this new year, but we
remain confident in our level of preparedness and ability to adapt
where necessary.
Purchase of Sequential
In late April of 2021, the Group announced the completion of the
acquisition of Sequential, a legendary American synthesiser company
founded and run by Dave Smith. This is our third acquisition since
the beginning of 2019. The initial consideration was $20 million,
with a further payment to be made to Sequential employees of up to
$4 million if agreed gross profit targets are met.
Demand for analogue synthesisers is high and Sequential revenues
increased by 90% in the 12 months to August 2021 compared to the
same period in the prior year.
Sequential employs 18 full-time team members, and all except one
work out of the high-tech region of the San Francisco Bay Area.
Approximately 35% are engaged in research and development.
We have already identified many opportunities to use the
strengths of the Group to help Sequential to grow, covering areas
such as: component sourcing, distribution logistics, global
customer support availability, marketing automation and reseller
channel expansion.
Demand for Sequential products remains strong and despite
similar component availability challenges that we face in other
Group companies, we remain excited about their product roadmap and
growth potential, with multiple new products anticipated throughout
2022.
Continued impact of COVID-19
As the pandemic continued throughout this past fiscal year, a
number of challenges discussed in the previous year's Annual Report
continued: these included work at home mandates, various lockdowns
in our own facilities and with our contract manufacturers, and a
continued end user preference for e-commerce purchases vs brick and
mortar. As with the previous year, the Group was well equipped to
handle these challenges. Additionally, the prolonged period of the
pandemic did bring new global challenges, most notably around
component availability across the supply chain and constraints on
logistics and shipping.
Component availability is an ongoing concern that every
manufacturer has to deal with, even during normal business times.
Over this past year, demand for silicon and wafer sky-rocketed as
many companies found themselves unprepared for the increased demand
in electronics. This was severely aggravated with many companies,
which purchase on a 'just-in-time' model, cutting back orders
during the early stages of the pandemic, leading to many
manufacturers paring down capacity. When the demand started to come
back, the entire wafer producing industry found itself unprepared
to satisfy this demand. This has resulted in materially elongated
lead times, spot buys at much higher than normal pricing, and in
some cases, the need to rework products in order for them to
utilise a more available or less costly component. To date, the
Group has weathered the storm on this well, with only small
intervals of stock unavailability and moderate increases for cost
of goods. Part of this is attributable to leveraging component buys
at the Group level rather than at an individual business unit level
and placing long lead time orders and commitments early on when
these issues first began to arise. While this is still an ongoing
issue, we are confident in our ability to supply a steady flow of
product through our channel to ensure any stock unavailability is
kept to a minimum.
Likewise, logistics and freight have also experienced increased
lead times and costs to ship product to and from our contractor
manufacturers and various warehouses. This has been exacerbated by
various port pandemic closures as well as increased demand for the
availability of sea and air freight carriers and containers. Like
component availability, this is an ongoing economy-wide global
problem and the Group is working in close contact across our
various channels, with our third-party logistics providers and with
our manufacturers to keep product flowing into customers'
hands.
Throughout all the continuing and new challenges that COVID-19
is causing, the Group is performing well, with very healthy revenue
and margin results and a number of new product introductions, a new
acquisition, and continued execution on our growth strategy. As
always, we will continue to monitor these events and work with our
partners to deliver solutions on a timely basis.
Brand overview:
Focusrite
The Focusrite branded product family, which includes Scarlett
and Clarett audio interfaces had another strong year, with a 28%
year-on-year organic increase in revenue. Audio interfaces provide
the conduit between the world of recordable material (e.g.,
instrument, voice, sound effects) and the computer and Digital
Audio Workstation ('DAW') software that allows one to capture, edit
and mix audio components into a final product. Demand for audio
interfaces remained strong throughout the year as more and more
audio content was created for various platforms, including music
creation, voice recording (podcasting and voiceover) and
soundtracks for video. Additionally, but still to a much smaller
degree than the above, we continue to see more customers purchasing
audio interfaces for higher fidelity streaming workflows such as
gaming and conference calls. Whilst the pandemic and associated
lockdowns certainly drove many customers to seek out this type of
technology for their home studio or working needs, the demand post
lockdown has continued to be materially higher than pre-COVID-19
levels. We believe that the various lockdowns and work from home
mandates accelerated the growth and recognition of these solutions
as viable audio production tools, consequently increasing our base
of customers worldwide.
Additionally, late this past year the Group launched a new set
of audio plug-ins branded Focusrite FAST plug-ins. Developed in
tandem with Sonible, a well-known audio Digital Signal Processing
('DSP') company, these plug-ins incorporate AI that enables
customers at any level to sonically sculpt their audio content in
unique and creative ways. These plug-ins have received numerous
accolades from our community.
Focusrite Pro:
The Focusrite Pro suite of solutions provides professional audio
engineers and facilities with the best quality audio in scalable
systems that fit the need for any professional workflow, including
music creation, post-production, broadcast and live sound.
This brand launched several new products this past year that
were well accepted across the professional community. This included
several updates to our industry standard RedNet solutions, the A16R
Mk II and D16R MK II, as well as several net new solutions: the R1,
a studio grade desktop remote controller, the Red8, a new entry
into our pro line of audio interfaces and new DANTE-enabled option
cards for the world-renowned ISA mic pre.
The Focusrite Pro brand had a very successful year, rebounding
from the pandemic and finishing up 40% from the previous year.
Novation:
Electronic music, and its many genres, continues to grow and to
democratise the art of music creation. The Novation brand
encompasses a suite of products and solutions focused on the
creation and playback of electronic music.
The product range includes industry recognised premium keyboard
and pad controllers, grooveboxes and synthesisers and is aimed at a
wide swathe of end users, from the absolute beginner just exploring
how to make beats, all the way through to the professional DJ,
producer, and musician. This past year, the Novation brand
introduced two new members of the Circuit groovebox family: Circuit
Tracks and Circuit Rhythm. These two products have received
numerous accolades from the industry as powerful music creation
tools that enable musicians of all experience levels to create
great sounding tracks. Additionally, Novation introduced the AFX
Station, an update to our award-winning Bass Station synth. These
new products, along with continued strength in the existing
portfolio resulted in revenue growth of 15% to prior year.
Ampify:
Ampify expands the Group's electronic music offerings into iOS
and cross-platform desktop solutions that allow anyone to
experiment with and create high-quality soundtracks. The apps are
all free to download.
Ampify Studio, our desktop music creation app, is bundled with
all Focusrite and Novation hardware and is a great first immersive
learning step into the world of audio creation and production. Our
iOS music creation apps are considered industry leading, including
functionality to emulate our Launchpad hardware and easily create
great sounding tracks. All the apps have paid feature upgrades,
which include enhanced editing tools as well as access to a large
suite of royalty-free sounds and loops in a wide range of musical
genres. This library of sounds is constantly increasing, with new
sound packs coming out approximately every two weeks.
Over the past year, our Ampify iOS App had 1.4 million
downloads, with roughly 565,000 in-App purchases. The number of
in-App purchases declined year over year as we introduced a
subscription service for content and features for the most popular
iOS App, Launchpad, as well as for Ampify Studio. The total number
of active subscriptions ended the year at 5,700 and is growing
every month.
ADAM Audio:
The ADAM Audio brand of professional studio monitors and
headphones are utilised by every customer persona in the audio
creation customer sectors described earlier. ADAM Audio's
reputation for best-of-breed monitoring solutions across all their
offerings and price points continues to grow. ADAM Audio achieved a
37% growth in revenue for the year ended 2021. Additionally, the
ADAM Audio sales and marketing team took over distribution of FAEL
(Focusrite, Focusrite Pro and Novation) products for Germany.
Having a local team with strong ties to the reseller community has
paid off, with ADAM Audio growing the German FAEL business by over
23%.
This success comes from every department within ADAM Audio
stepping up and showing great initiative. Our sales and marketing
teams have refined past campaigns whilst also developing new and
cutting-edge ways to showcase our products to our passionate and
growing audience. Our AAAP (ADAM Audio Academic Program) has been
expanded into new regions and markets while our 'Women in Music'
initiative is progressing strongly, shedding a much-needed light on
the under-representation of women within the audio industry. These
campaigns, alongside our sales and marketing initiatives, are
devoted to our core vision: being as close to and relational as
possible with our end customers. Lastly, the ADAM Audio research
and development team has also been hard at work developing new,
groundbreaking technologies; some of this work will reveal itself
with product launches in 2022.
Martin Audio:
Martin Audio remains the UK's largest manufacturer of
professional loudspeakers for both live and installed sound. 2021
saw the brand enter its 50th year, during which time Martin Audio's
equipment has been found supporting acts from Pink Floyd in the
early days through to major artists at some of the world's largest
festivals such as All Points East, BST Hyde Park and Rock in Rio.
Alongside this, since the early 1990s, Martin Audio has been
manufacturing high-end professional installed sound systems which
can be found in some of the most prestigious facilities in the
world, such as the Nobu Hotel in Chicago which was fitted out with
Martin Audio's recently revamped CDD enclosures in October
2020.
FY20 gave the Martin Audio team a huge challenge as many markets
went into lockdown, but the resilience of the team delivered a
positive EBITDA [2] in an eight-month period. In FY21 the team set
the ambitious task of rebuilding the business to pre-COVID-19
levels. This was achieved with the team at Martin Audio
contributing GBP3.8 million EBITDA(2) in FY21.
The team refocused the short-term roadmap throughout the
pandemic focusing on bolstering and growing the smaller installed
sound business. This was particularly true in China where local
small entertainment venues have seen a boom; the net result being
significant revenue growth in APAC.
Closer to home, as we entered the second half of the year Martin
Audio announced the launch of the TORUS constant curvature array
series for use in both live sound and installed sound for throws of
up to 30 metres, applying core Martin Audio IP to this new market
sector for the brand.
Alongside TORUS, and in support of all users, Martin Audio
unveiled the company's first truly 3D system design software -
Display3 - a sound system design tool allowing users to import
complex 3D renderings from SketchUp and map the coverage of a sound
system as a heat map, clearly displaying the coverage of sound to
the client. This is of use to all sound system designers, and it
felt particularly apt to be offering rental partners a free design
tool allowing them to better understand the performance of a sound
system as live sound began to return in the second half of
2021.
FY21 saw a strong performance from the team, carefully managing
cost and rebuilding the sales channels through COVID-19. This was
alongside bringing the Optimal Audio brand to market and supporting
the #WeMakeEvents campaign. Additionally, Martin Audio was honoured
with a Queens Award for Enterprise in Innovation this year for our
Wavefront Precision optimised line arrays.
Optimal Audio:
Optimal Audio offers a one-stop solution of control,
amplification and loudspeakers for small to medium-sized commercial
installations, with a focus on supporting multi-zone venues. The
portfolio provides a streamlined product offering working
seamlessly together to deliver high-quality sound that is easy to
install and can be operated by anyone, not just engineers. There is
currently nothing else at this price point on the market which has
the functionality and versatility to allow such a quick and simple
setup. Alongside its own dedicated staff, a number of colleagues
from across the Group - most notably within Martin Audio - helped
to bring Optimal Audio to fruition with the long-term ambition that
the brand will have its own distinct team. Feedback from the
commercial install community has been very positive, with a number
of premier distributors and system integrators signing on shortly
after public launch.
Sequential:
Sequential is a premium synthesiser maker and has been a leading
force in the resurgent popularity of analogue synthesisers over the
last decade. They are a mainstay of performing and recording
artists and can be seen and heard on countless stages and
recordings. Sequential also brings the first US-based research and
development team into the Group.
The Sequential portfolio of high-end analogue synthesisers
perfectly complements the Group's existing Novation brand of
synthsesisers: greatly expanding the number of solutions we have
for professional musicians looking for new ways to enhance their
sonic palette. Sequential's product offerings are deeply rooted in
the history of synthesisers, with a number of modern-day versions
of classic instruments known and coveted by professional musicians.
The acquisition has been warmly received by the industry and
performed well and to expectations in the four months since
becoming part of the Group.
Routes to market:
The Group utilises a multi-pronged approach to market, including
brick and mortar shops, e-tail focused resellers, system
integrators, rental companies, distributors and our own
direct-to-end user e-store. We continue to invest in more people in
local regions, allowing us to service our resellers and customers
locally and in their own language. Additionally, the Group has
reaped benefits from having the major regions handle their own
demand generation and marketing collateral, ensuring that our
products resonate with the local community and cultures.
Regional review:
I am very pleased to report that once again our success was
global, with all major regions and brands reporting strong growth
and overall Group gross margin increasing as well.
North America:
North America, including the US and Canada, is still our biggest
market and accounts for 43% of total Group revenue. This past year,
North America grew by 47%, which included a full year of Martin
Audio and four months of Sequential. On an organic [3] basis, North
America revenue was up 46% year over year, with all brands
experiencing strong growth. With circa 60 employees now in North
America across sales, marketing, tech support and R&D, our
North America operations continue to grow. Effective from 1
September 2021, we have consolidated all our individual business
units under one company: Focusrite Group US. Under this umbrella,
we will be able to leverage the talent and scale of the individual
brands' presence in North America to provide lift for the entire
Group efforts in the region. This will include cross-selling of the
various brands utilising the skills and relationships of each sales
member, and the scale of our tech support teams to provide more
coverage to all brands, as well as more unified marketing efforts
and scalable back-office functions.
Europe, Middle East and Africa ('EMEA'):
Our European operations continue to grow, with dedicated offices
in the UK and Berlin. Additionally, last year saw the Group move to
a new distribution strategy for the UK and Germany: ADAM Audio,
with their local German team, began distributing FAEL products for
Germany. Likewise, the FAEL UK team took over distribution of ADAM
Audio products in the UK. Both changes netted considerable growth
in the brands for these respective regions. Overall, EMEA accounted
for 40% of Group revenue last year. EMEA Group revenue grew 23%
year over year, with all brands reporting growth; organic [4]
growth was 15%.
Rest of World ('ROW'):
The ROW region comprises Asia Pacific ('APAC') and Latin America
('LATAM'). Overall ROW represents 17% of the Group's revenue and
grew by 32% year on year; organic4 growth was 25%.
Latin America continues to be a region where the Group invests
resources to get closer to the customer. The team, located
throughout Mexico and Brazil, is focused on all demand generation
and reseller/distribution relationships for the various countries.
Marketing materials, seminars, social media and artist
relationships are managed locally, ensuring that our products
resonate well with the local artist and audio community. The net
result for these efforts has shown another strong year for Latin
America, growing 59% year over year.
Like Latin America, the APAC region has seen increased focus and
investment from the Group. With offices in Hong Kong and Australia
supporting demand generation, account management and customer
support, the APAC region has grown into a structure that will
support the many regional markets in the territory and allows for
future expansion as we look to increase our presence in areas with
high growth potential. For this past year, the APAC region
experienced 28% growth year over year.
Summary and outlook
Since the year end, demand for the vast majority of our Group
products has remained strong, and those sectors negatively impacted
by COVID-19 are showing ongoing signs of recovery. All the Group's
acquisitions are settling in well, numerous cross business
initiatives have already been completed and many more are slated to
occur later this year, the benefit of which we expect in the latter
part of FY22 and into FY23. Our roadmap across all the brands
remains robust, with many new product introductions planned to
occur later in FY22. Accordingly, we are now cautiously optimistic
about the prospects for modest revenue growth in the current
year.
Our growth strategy continues to pay off; providing focus and
clarity on where we should invest and deploy our resources. This
focus has been a crucial element in enabling us to navigate through
the myriad of macroeconomic and pandemic-related issues we have
encountered across this past year. Whilst there remains
considerable opportunity for operational leverage across the Group
as revenue increases, in FY22 operating costs will increase to
reflect current tightness in supply chains, travel resuming and our
intention to increase investment, where appropriate, in order to
fuel future growth in the business.
Our teams have worked passionately and diligently through these
continuing uncertain times and delivered impressive financial and
operational results for our investors. We look forward to another
year of innovation and expansion.
Tim Carroll
Chief Executive Officer
15 November 2021
Financial Review
Overview
Overall the Group has had a highly successful year, delivering
impressive revenue growth of 34%, adjusted EBITDA [5] growth of
67%, and 75% in adjusted diluted earnings per share (EPS) [6] .
Income statement
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------
Adjusted Adjusting Reported Adjusted Adjusting Reported
items items
-------------------- --------- ---------- --------- --------- ---------- ---------
Revenue 173.9 - 173.9 130.1 - 130.1
Cost of sales (89.8) - (89.8) (70.2) - (70.2)
-------------------- --------- ---------- --------- --------- ---------- ---------
Gross profit 84.1 - 84.1 59.9 - 59.9
Administrative
expenses (42.7) (5.6) (48.3) (36.9) (15.1) (52.0)
-------------------- --------- ---------- --------- --------- ---------- ---------
Operating profit 41.4 (5.6) 35.8 23.0 (15.1) 7.9
Net finance cost (0.8) - (0.8) (0.9) - (0.9)
-------------------- --------- ---------- --------- --------- ---------- ---------
Profit before
tax 40.6 (5.6) 35.0 22.1 (15.1) 7.0
Income tax expense (6.9) 0.2 (6.7) (2.9) - (2.9)
-------------------- --------- ---------- --------- --------- ---------- ---------
Profit for the
period 33.7 (5.4) 28.3 19.2 (15.1) 4.1
-------------------- --------- ---------- --------- --------- ---------- ---------
Revenue
Revenue for the Group grew 34% from GBP130.1 million to GBP173.9
million; and after adjusting for acquisitions and constant currency
this represents an organic growth of 28%. In FY21 Martin Audio
contributed a full 12 months compared to just eight months in FY20.
Sequential was acquired at the end of April 2021 and FY21 includes
four months of revenue contribution.
The Euro average exchange rate was EUR1.14 (FY20: EUR1.14). The
USD weakened from $1.27 in FY20 to $1.36 in FY21. This has reduced
revenue by GBP3 million but is neutral at a gross profit level as
the majority of cost of sales are also charged in USD.
FY20
FY20 FY20 Organic FY21 FY21 FY21 Revenue Organic
GBPm Revenue Exchange [7] Revenue Acquisition Organic(7) growth growth
FAEL 100.7 (3.1) 97.6 124.4 - 124.4 24% 28%
ADAM Audio 17.4 0.1 17.5 23.8 - 23.8 37% 36%
Martin Audio 12.0 (0.2) 11.8 20.4 (5.9) 14.5 70% 23%
Sequential - - - 5.3 (5.3) - - -
------------- ------------ ------------ ----------- --------- ------------ ----------- ----------- -----------
Total 130.1 (3.2) 126.9 173.9 (11.2) 162.7 34% 28%
------------- ------------ ------------ ----------- --------- ------------ ----------- ----------- -----------
Growth of 34% for the full year has slowed since the half year
(HY21: 91% reported), in part due to the strong comparators in H2
FY20 during the initial lockdowns, but also due to the supply
constraints experienced and widely reported in the second-half of
this year, in particular for electronic chips used in many of the
Group's products. Whilst our operations teams have secured supply
and largely prevented stock outages with our supply partners, this
has inevitably been a drag on our second half results and we expect
this to continue throughout at least the first half of next
financial year.
The FAEL segment comprises the products used in the recording
and broadcasting of music or voice. The primary ranges are Scarlett
and Clarett, our biggest selling products. In this segment, revenue
increased by 24% to GBP124.4 million (FY20: GBP100.7 million),
driven by ongoing strong demand across our user base.
ADAM Audio makes studio monitors of the type used by many of the
Group's customers. Revenue has grown by 37% in the year to GBP23.8
million (FY20: GBP17.4 million), with demand remaining strong
across the range and particularly for the more competitive T series
monitors.
Martin Audio has returned to growth in the second half of the
year, as live sound begins to return to pre-COVID-19 levels. Growth
for the full year was 70%, and on an organic basis 23%, with
revenue of GBP20.4 million for 12 months, compared to GBP12.0
million for eight months in FY20.
Sequential was acquired at the end of April 2021 and had revenue
in the period of GBP5.3 million.
FY20
FY20 FY20 Organic FY21 FY21 FY21 Revenue Organic
Revenue Exchange [8] Revenue Acquisition Organic(8) growth growth
------------ ------------ ------------ ----------- --------- ------------ ----------- ----------- ------------
North
America 50.8 (2.8) 48.0 74.6 (4.6) 70.0 47% 46%
EMEA 56.5 0.8 57.3 69.3 (3.6) 65.7 23% 15%
Rest of the
World 22.8 (1.2) 21.6 30.0 (3.0) 27.0 32% 25%
------------ ------------ ------------ ----------- --------- ------------ ----------- ----------- ------------
Total 130.1 (3.2) 126.9 173.9 (11.2) 162.7 34% 28%
------------ ------------ ------------ ----------- --------- ------------ ----------- ----------- ------------
All the major geographic regions grew for each of the major
product categories year on year. North America represents 43% of
the Group's revenue and grew at 47% (organic: 46%) to GBP74.6
million and is now the largest region for the Group. Within this
region, FAEL grew at 43% for the year, despite demand in the second
half constrained by supply. Martin Audio saw markets begin to open
and reported growth of 73% for the second half of the year.
EMEA, which represents 40% of Group revenue, grew by 23%
(organic: 15%) to GBP69.3 million. This growth was led by ADAM
Audio products at 35% for the year, which were less impacted by the
components shortage than Focusrite, which grew at 12% for the
year.
The ROW comprises mainly Asia and South America and represents
the remaining 17% of Group revenue. Revenue in ROW grew by 32%
(organic: 25%). APAC grew at 28% year over year and was
particularly strong for Martin Audio, with 76% growth across the
year due to strong demand in the installed sector. Investments in
sales and marketing delivered growth of 58% in Latin America.
Segment profit
Segment profit is disclosed in more detail in note 8 to the
Group's financial statements 'Business segments'. The revenue is
compared with the directly attributable costs to create a segment
profit. The only major change has been the inclusion of Sequential
upon acquisition.
Gross profit
In FY21, the gross margin was 48.4%, up from 46.0% in FY20,
which was an increase from 42.2% in FY19. This steady increase is
the result of several short and long-term factors. FY21 includes
the one-off benefit of a refund of US duty of GBP1.5 million,
following a reassessment of duty codes in 2020.
Historically there have been a number of factors at play. One
factor is routes to market, with more products being sold either
directly to dealers rather than distributors or directly to the
consumer. Over the long term the change in business mix, with the
removal of the lower margin distribution business and the growth of
the higher margin ADAM Audio business at approximately 58% has also
been another structural factor. Focused cost and price management,
reducing royalties and tariffs, and management of margin to get the
best value within the reseller channel are other longer-term
factors. Going forward the Group is mindful of the impact of
components shortages and increased freight charges on future
revenue and underlying gross margin.
Administrative expenses
Administrative expenses consist of sales, marketing, operations,
the uncapitalised element of research and development and central
functions such as legal, finance and the Group Board. These
expenses were GBP48.3 million, down from GBP52.0 million last year.
These costs include depreciation and amortisation of acquired
intangible assets, GBP4.0 million (FY20: GBP3.0 million), a
goodwill impairment in FY20 of GBP10.2 million relating to Martin
Audio and adjusting items of GBP1.6 million (FY20: GBP1.9 million),
which are explained below in the adjusting items section. Excluding
these items, administrative costs were GBP42.7 million (FY20:
GBP36.9 million), an increase of GBP5.8 million over the prior
year.
Acquisitions contributed to this increase with the annualisation
of Martin Audio, contributing GBP1.6 million and the inclusion of
Sequential a further GBP1.0 million. In addition, the Group has
invested in IT systems to provide secure and scalable platforms to
enable teams working at home for much of the year. To support the
growth of the Group we expect this investment to continue to
strengthen our IT controls and allow teams across our brands to
collaborate effectively on new projects. Offsetting these increases
were COVID-19 related savings of approximately GBP2 million due to
lower travel costs and an almost complete lack of trade shows
during the period. These costs are expected to return as markets
reopen.
EBITDA(7)
EBITDA is a non-GAAP measure but it is widely recognised in the
financial markets and it is used within the Group as the basis for
some of the incentivisation of senior management. Adjusted EBITDA
increased from GBP28.6 million in FY20 to GBP47.5 million in FY21,
an increase of 67% (see table below).
2021 2021 2021 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------
Adjusted Adjusting items Reported Adjusted Adjusting items Reported
-------------------------------------- --------- ---------------- --------- --------- ---------------- ---------
Operating profit 41.4 (5.6) 35.8 23.0 (15.1) 7.9
Add - amortisation of intangible
assets 4.1 4.0 8.1 3.7 3.0 6.7
Add - depreciation of tangible assets 2.0 - 2.0 1.9 - 1.9
Add - goodwill impairment - - - - 10.2 10.2
-------------------------------------- --------- ---------------- --------- --------- ---------------- ---------
EBITDA [9] 47.5 (1.6) 45.9 28.6 (1.9) 26.7
-------------------------------------- --------- ---------------- --------- --------- ---------------- ---------
Depreciation and amortisation
Depreciation of GBP2.0 million (FY20: GBP1.9 million) is charged
on tangible fixed assets on a straight-line basis over the assets'
estimated useful lives. Amortisation is mainly charged on
capitalised development costs, writing-off the development cost
over the life of the resultant product. Development costs related
to an individual product are written-off over a period up to three
years for Focusrite and Novation, up to eight years for ADAM Audio
and up to 11 years for Martin Audio, reflecting the different
lifespans of the products. Normally, the capitalised development
costs are slightly greater than the amortisation, reflecting the
continued investment in product development in a growing group of
companies.
During FY21, the capitalised development costs were GBP4.9
million (FY20: GBP4.6 million), compared with the amortisation of
GBP3.5 million (FY20: GBP3.0 million). In FY21 the Group's
engineering teams refocused on meeting demand and then supply
constraint issues, and as a result direct investment into new
products decreased as a percentage of revenue. This is expected to
recalibrate in FY22 back to historic levels, as the Group's R&D
teams build out the future product roadmap, leveraging teams across
all the Group brands.
Adjusting items
In FY21 the Group acquired Sequential with associated
acquisition costs relating to the transaction of GBP0.7 million. In
addition, as part of the acquisition price, the Group has agreed to
pay employee bonuses in relation to agreed gross profit targets to
December 2022; GBP0.8 million of adjusting item costs has been
included for these bonuses, which are expected to increase pro rata
in FY22. A further GBP0.1 million of employee-related costs
associated with restructuring have also been included in adjusting
costs in FY21.
In FY20 the acquisition of Martin Audio had associated
acquisition costs totalling GBP1.7 million. Adjusting items also
include amortisation of the intangible assets from acquisitions of
GBP4.0 million (FY20: GBP3.0 million). This has increased due to
the inclusion of amortisation on the Sequential brands and is
expected to increase next year due to annualisation. For further
explanation please see note 15 to the Group's financial
statements.
In FY20, at the height of the pandemic, the Group reassessed the
GBP12.6 million of goodwill relating to the acquisition of Martin
Audio. Taking into consideration the impact of the consequential
lockdowns on the industry and the uncertainty over the impact on
future margins, and despite a clear belief that the live sound
market would recover in the foreseeable future, the Board
recognised an impairment of GBP10.2 million. This has been
reassessed at the current year end, and no further impairment is
considered necessary, with Martin Audio returning to growth in H2
FY21 and performing in line with expectations.
Foreign exchange and hedging
Euro exchange rates have been consistent over the last year,
with more volatility in the Dollar rates.
Exchange rates 2021 2020
---------------- ----- -----
Average
USD:GBP 1.36 1.27
---------------- ----- -----
EUR:GBP 1.14 1.14
---------------- ----- -----
Year end
---------------- ----- -----
USD:GBP 1.38 1.34
---------------- ----- -----
EUR:GBP 1.12 1.12
---------------- ----- -----
The average USD rate has weakened from $1.27 to $1.36. The USD
accounts for over 50% of Group revenue but over 70% of cost of
sales, so this has decreased revenue but is neutral in terms of
gross profit.
The Euro comprises approximately a quarter of revenue but little
cost. The Group has continued entering into forward contracts to
convert Euro to GBP. The policy adopted by the Group is to hedge
approximately 75% of the Euro flows for the current financial year
(year ended August 2022) and approximately 50% of the Euro flows
for the following financial year (FY23). In FY20, approximately
three-quarters of Euro flows were hedged at EUR1.11, and the
average transaction rate was EUR1.14, thereby creating a blended
exchange rate of approximately EUR1.12. In FY21, the equivalent
hedging contracts were at EUR1.11, again close to the transactional
rate of EUR1.14 and so creating a blended exchange rate of
EUR1.12.
Elsewhere, within finance income and finance costs, there is the
interest paid on the revolving credit facility.
Corporation tax
Historically, the effective corporation tax rate as a proportion
of profit before tax has been 10-12% due largely to enhanced tax
relief on development costs. In FY20, the corporation tax charge
was GBP2.9 million on reported profit before tax of GBP7.0 million;
at an underlying level the effective tax rate was 13.3% on adjusted
profit before tax of GBP23.0 million.
In FY21, the corporation tax charge totals GBP6.7 million on
reported profit before tax of GBP35.0 million, an effective tax
rate of 19.3%. Allowing for adjusting items, the effective tax rate
is 17.0% on adjusted profit before tax of GBP40.6 million. This
increase in effective tax rate is due to the Group moving to the
Research and Development Expenditure Credit ('RDEC') basis of
relief in which the Group receives smaller credit to operating
costs and the profit is then taxed at the headline rate (19% in the
UK). Previously to this, the Group was able to claim relief for
research and development in the UK as a small or medium-sized
enterprise ('SME').
Moving forward we expect the effective tax rate to remain closer
to the UK headline rate of 19%, increasing to 25% in April 2023 in
line with the proposals outlined by the Chancellor.
Earnings per share
The basic EPS for the year was 48.8 pence, up 587% from 7.1
pence in FY20. This increase is due to the strong growth in
operating profits and the impact of the goodwill impairment of
GBP10.2 million in profits in FY20. The more comparable measure of
the growth of the trading profits including the dilutive effect of
share options, is the adjusted diluted EPS. This grew to 57.5
pence, up 75% from 32.8 pence in FY20.
2021 2020 Growth
pence pence
------------------ ------ ------ -------
Basic 48.8 7.1 587%
Diluted 48.2 7.0 589%
Adjusted basic 58.2 33.2 75%
Adjusted diluted 57.5 32.8 75%
------------------ ------ ------ -------
More information on the adjustments included to calculate
adjusted basic and adjusted diluted EPS is in note 9 of the
financial statements.
Balance sheet
2021 2020
GBPm GBPm
----------------------------- ------- -------
Non-current assets 62.8 52.3
Current assets
Inventories 20.8 19.4
Trade and other receivables 16.3 18.0
Cash 17.3 15.0
Current liabilities (25.6) (26.0)
Non-current liabilities (7.3) (21.8)
----------------------------- ------- -------
Net assets 84.3 56.9
----------------------------- ------- -------
Non-current assets
The non-current assets comprise: goodwill of GBP10.1 million,
other intangible assets of GBP49.1 million and property, plant and
equipment of GBP3.6 million. The goodwill of GBP10.1 million (FY20:
GBP7.9 million) relates to acquisitions as follows: GBP0.4 million
for Novation purchased in 2004, GBP4.9 million for ADAM Audio
purchased in July 2019, GBP2.4 million for Martin Audio purchased
in December 2019 and GBP2.4 million for Sequential purchased in
April 2021.
The other intangible assets of GBP49.1 million consist mainly of
capitalised research and development costs and acquired intangible
assets relating to product development and brand. The capitalised
development costs have a carrying value of GBP30.3 million (FY20:
GBP26.0 million). This increase of GBP4.3 million comprises the
excess during the year of capitalised development costs over the
amortisation (GBP1.4 million) and acquired capitalised development
costs (consisting of acquired designs and designs in development
with a year end net book value of GBP6.0 million). Approximately
70% of development costs are capitalised and it is intended that
they are amortised over the life of the relevant products.
In addition, the remaining intangible assets, totalling GBP18.8
million (FY20: GBP14.4 million), include brands acquired as part of
the acquisitions, to be amortised over ten years for ADAM Audio, 20
years for Martin Audio and 15 years for Sequential.
Working capital
At the end of the year, working capital was 6.6% of revenue
(FY20: 8.8%). In both years this is much lower than the historic
norm of approximately 20%. The ongoing substantial increase in
demand and the supply constraints seen in the latter half of FY21
have meant that inventory levels have remained low at the year end.
Manufacturing capacity has been increased and we believe that
supply constraints will ease such that stock will be replenished
towards the mid-point of FY22. In addition, the Group has continued
to place great emphasis on the timely collection of debts.
Consequently, overdue debtors, especially within FAEL, have been
very low. Creditors continue to be paid on time.
The working capital at ADAM Audio and Martin Audio has remained
broadly stable across the year. ADAM Audio has seen a slight
increase in levels of stock in order to support the distribution of
Focusrite products, and Martin Audio has seen an increase in the
overall level of debtors, reflecting the higher level of sales at
the end of FY21 compared to FY20.
Cash flow
2021 2020
GBPm GBPm
Cash and cash equivalents at beginning of year 15.0 14.9
Cash and cash equivalents at end of year 17.3 15.0
---------------------------------------------------------------------------- ----- -------
Net increase in cash and cash equivalents (per Cash Flow Statement) 2.3 0.1
---------------------------------------------------------------------------- ----- -------
Add - equity dividends paid (per Cash Flow Statement) 2.6 2.3
Free cash flow (8) 4.9 2.4
Add - adjusting item cash outflows:
Acquisition of subsidiary (net of cash acquired) (per Cash Flow Statement) 13.9 35.3
Bank loan (net of arrangement fee) (per Cash Flow Statement) 11.9 (11.6)
Adjusting items (cash outflow) 0.8 2.1
---------------------------------------------------------------------------- ----- -------
Underlying free cash flow 31.5 28.2
---------------------------------------------------------------------------- ----- -------
(8) Defined as net cash from operating activities less net cash
used in investing activities less the amount of the revolving
credit facility utilised.
In FY21, the net cash balance at the year end was GBP17.3
million (FY20: GBP15 million). The Group also has a GBP40 million
revolving credit facility with HSBC and NatWest due to expire in
December 2024, taken on to fund the Martin Audio acquisition in
2019. In April 2021 the Group drew down $10 million (GBP8 million)
of debt to fund the acquisition of Sequential, this has now been
repaid, leaving the Group with a net cash position at the end of
the year.
During the second half, the strong increase in revenue
contributed to both higher profits and lower stock. Therefore, the
underlying free cash flow for the full year was GBP31.5 million
(FY20: GBP28.2 million) leading to a year end net cash position of
GBP17.3 million. Within this, the movement in working capital was
an inflow of GBP1.7 million (FY20: inflow of GBP13.7 million). With
the intended rebuilding of stock within the Group in the next
financial year there will be a marked outflow of working capital to
return closer to historic levels of 20% working capital compared to
revenue. Capital investment this year totalled GBP7.0 million
(FY20: GBP9.6 million), of this GBP4.9 million related to
capitalised R&D reflecting the Group's ongoing commitment to
product development. We expect this to increase in FY22, as we
develop further several major new initiatives on our product
roadmap.
Dividend
In line with the Group's progressive dividend policy, the Board
is proposing a final dividend of 3.7 pence per share (FY20 final
dividend: 2.9 pence), an increase of 28%, which would result in a
total of 5.2 pence per share for the year (FY20: 4.2 pence). This
represents an adjusted earnings dividend cover of 11.1 times (FY20:
7.8 times).
Summary
The Group has again performed well, showing substantial
financial improvement despite facing several external headwinds.
The ongoing successful integration of Martin Audio and ADAM Audio
into the Group has continued, with the launch of the Optimal brand,
and the distribution of each other's brands in ADAM Audio and FAEL.
The acquisition of Sequential in April 2021 has further added to
the Group portfolio of world-leading brands, with plans to support
the growth through our common US entity, which caters for all Group
brands. Despite the challenges of 2021 the Group has grown
significantly and continues to put down strong foundations to
support future development.
Sally McKone
Chief Financial Officer
15 November 2021
FORWARD - LOOKING STATEMENTS
Certain statements in this announcement are forward-looking.
Although the Directors believe that their expectations are based on
reasonable assumptions, any statements about future outlook may be
influenced by factors that could cause actual outcomes and results
to be materially different.
Consolidated Income Statement
For the year ended 31 August 2021
Note 2021 2020
GBP'000 GBP'000
-------------------------------------------------- ----- --------- ------------------
Revenue 3 173,935 130,141
Cost of sales (89,805) (70,248)
-------------------------------------------------- -----
Gross profit 84,130 59,893
Administrative expenses (48,355) (51,485)
Impairment (loss) on trade and other receivables (1) (474)
-------------------------------------------------- ----- --------- ------------------
Adjusted EBITDA (non-GAAP measure) 47,548 28,565
Depreciation and amortisation (6,133) (5,530)
Adjusting items for adjusted EBITDA:
Amortisation of acquired intangible assets (4,013) (3,013)
Impairment of goodwill on acquisition 10 - (10,200)
Adjusting items 6 (1,628) (1,888)
-------------------------------------------------- ----- --------- ------------------
Operating profit 35,774 7,934
-------------------------------------------------- ----- --------- ------------------
Finance income 48 36
Finance costs (784) (945)
-------------------------------------------------- ----- --------- ------------------
Profit before tax 35,038 7,025
Income tax expense 7 (6,759) (2,934)
-------------------------------------------------- ----- --------- ------------------
Profit for the period from continuing operations 28,279 4,091
-------------------------------------------------- ----- --------- ------------------
Earnings per share
From continuing operations
Basic (pence per share) 9 48.8 7.1
-------------------------------------------------- ----- --------- ------------------
Diluted (pence per share) 9 48.2 7.0
-------------------------------------------------- ----- --------- ------------------
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2021
2021 2020
Note GBP'000 GBP'000
----------------------------------------------------------------------------------------- ------- -------- --------
Profit for the period (attributable to equity holders of the Company) 28,279 4,091
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations (726) 105
Gain on forward foreign exchange contracts designated and effective as a hedging instrument 445 459
Tax on hedging instrument (85) (87)
-------------------------------------------------------------------------------------------------- -------- --------
Total comprehensive income for the period 27,913 4,568
-------------------------------------------------------------------------------------------------- -------- --------
Total comprehensive income attributable to:
Equity holders of the Company 27,913 4,568
-------------------------------------------------------------------------------------------------- -------- --------
27,913 4,568
------------------------------------------------------------------------------------------------- -------- --------
Consolidated Statement of Financial Position
As at 31 August 2021
Note 2021 2020
GBP'000 GBP'000
---------------------------------------------- ----- --------- ---------
Assets
Non-current assets
Goodwill 10 10,054 7,882
Other intangible assets 49,066 40,374
Property, plant and equipment 3,646 4,082
Total non-current assets 62,766 52,338
---------------------------------------------- ----- --------- ---------
Current assets
Inventories 20,749 19,372
Trade and other receivables 14,775 17,744
Cash and cash equivalents 17,339 14,975
Current tax asset 869 -
Derivative financial instruments 716 271
---------------------------------------------- ----- ---------
Total current assets 54,448 52,362
---------------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables (23,673) (23,417)
Other liabilities (774) (1,018)
Current tax liabilities - (452)
Provisions (1,092) (1,094)
---------------------------------------------- ----- --------- ---------
Total current liabilities (25,539) (25,981)
---------------------------------------------- ----- --------- ---------
Net current assets 28,909 26,381
Total assets less current liabilities 91,675 78,719
Non-current liabilities
Deferred tax (5,996) (7,772)
Other liabilities (511) (889)
Provisions (1,069) (1,519)
Bank loan 248 (11,641)
---------------------------------------------- ----- --------- ---------
Total non-current liabilities (7,328) (21,821)
---------------------------------------------- ----- --------- ---------
Total liabilities (32,867) (47,802)
---------------------------------------------- ----- --------- ---------
Net assets 84,347 56,898
---------------------------------------------- ----- --------- ---------
Equity and liabilities
Capital and reserves
Share capital 59 58
Share premium 115 115
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve (529) 197
Hedging reserve 716 220
EBT reserve (1) (1)
Retained earnings 82,539 54,861
Equity attributable to owners of the Company 84,347 56,898
---------------------------------------------- ----- --------- ---------
Total equity 84,347 56,898
---------------------------------------------- ----- --------- ---------
The financial statements were approved by the Board of Directors
and authorised for issue on 15 November 2021. They were signed on
its behalf by:
Tim Carroll Sally McKone
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 August 2021
Merger
Share Share Merger difference Translation Hedging EBT Retained
capital premium 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
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 1
September
2019 58 115 14,595 (13,147) 92 (152) (1) 51,827 53,387
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 4,091 4,091
Other
comprehensive
income for
the period - - - - 105 372 - - 477
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the period - - - - 105 372 - 4,091 4,568
Transactions
with owners of
the Company:
Share-based
payment
deferred
tax deduction
in excess of
remuneration
expense - - - - - - - 162 162
Share-based
payment
current
tax deduction
in excess of
remuneration
expense - - - - - - - 457 457
Shares from
EBT exercised - - - - - - - 252 252
Share-based
payments - - - - - - - 537 537
Shares
withheld to
settle
employees'
tax
obligations - - - - - - - (192) (192)
Premium on
shares issued
in
lieu of
bonuses - - - - - - - (22) (22)
Dividends paid - - - - - - - (2,251) (2,251)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 1
September
2020 58 115 14,595 (13,147) 197 220 (1) 54,861 56,898
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 28,279 28,279
Transfer of
reserve - - - - - 51 - (51) -
Other
comprehensive
income for
the period - - - - (726) 445 - (85) (366)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the period - - - - (726) 496 - 28,143 27,913
Shares issued
to EBT 1 - - - - - (1) - -
Transactions
with owners of
the Company:
Share-based
payment
deferred
tax deduction
in excess of
remuneration
expense - - - - - - - 786 786
Share-based
payment
current
tax deduction
in excess of
remuneration
expense - - - - - - - 690 690
Shares from
EBT exercised - - - - - - 1 660 661
Share-based
payments - - - - - - - 632 632
Shares
withheld to
settle
employees'
tax
obligations - - - - - - - (739) (739)
Premium on
shares issued
in
lieu of
bonuses - - - - - - - 60 60
Dividends paid - - - - - - - (2,554) (2,554)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 31
August 2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Consolidated Cash Flow Statement
For the year ended 31 August 2021
2021 2020
Note GBP'000 GBP'000
---------------------------------------------------------- ----- --------- ---------
Operating activities
Profit for the financial year 28,279 4,091
Adjustments for:
Income tax expense 7 6,759 2,934
Net interest 736 909
Loss on disposal of property, plant and equipment 4 -
Loss on disposal of intangible assets 498 -
Amortisation of intangibles 8,126 6,780
Impairment of goodwill - 10,200
Depreciation of property, plant and equipment 2,022 1,777
Share-based payments charge 973 537
---------------------------------------------------------- ----- --------- ---------
Operating cash flows before movements in working capital 47,397 27,228
Decrease in trade and other receivables 3,533 3,852
(Increase)/decrease in inventories (1,023) 1,914
(Decrease)/ increase in trade and other payables (773) 7,932
---------------------------------------------------------- ----- --------- ---------
Operating cash flows before interest and tax paid 49,134 40,926
Net interest paid (311) (441)
Income taxes paid (9,741) (3,539)
---------------------------------------------------------- ----- --------- ---------
Cash generated by operations 39,082 36,946
Net foreign exchange movements (566) (322)
---------------------------------------------------------- ----- ---------
Net cash from operating activities 38,516 36,624
Investing activities
Purchases of property, plant and equipment (1,126) (3,966)
Purchases of intangible assets (5,485) (5,649)
Acquisition of subsidiary, net of cash acquired (13,948) (35,309)
Net cash used in investing activities (20,559) (44,924)
---------------------------------------------------------- ----- --------- ---------
Financing activities
Proceeds from loans and borrowings 7,353 36,000
Repayments of loans and borrowings (19,335) (24,000)
Loan arrangement fee - (372)
Payment of right-of-use liabilities (1,057) (980)
Equity dividends paid (2,554) (2,251)
Net cash used in financing activities (15,593) 8,397
---------------------------------------------------------- ----- --------- ---------
Net increase in cash and cash equivalents 2,364 97
Cash and cash equivalents at beginning of year 14,975 14,878
Cash and cash equivalents at end of year 17,339 14,975
---------------------------------------------------------- ----- --------- ---------
Principal Risks and Uncertainties
Effective risk management is a priority for the Group in order
to sustain the future success of the business. The Board has
overall responsibility for the Group's risk management process but
has delegated responsibility for its implementation, the system of
internal controls which reduce risk and for reviewing their
effectiveness, to the business leaders best qualified in each area
of the business.
The risks and uncertainties that the Group faces evolve over
time, therefore the business leaders review the risk register in
order to monitor key risks, identify emerging risks and update
mitigation efforts.
COVID-19
Unsurprisingly, and for a consecutive year, a summary of the
risks that COVID-19 poses to the business and the actions being
taken feature highly in this risk report.
COVID-19 is changing and has already changed how we view
uncertainty due to the unique set of circumstances the pandemic has
created. Acting in the face of uncertainty has been a defining
theme during the financial year. Against a backdrop of rapidly
changing restrictions, short time-frames within which to make
decisions and contextual uncertainty, the principal, emerging and
operational risk landscape has been re-evaluated in light of the
effects of the COVID-19 pandemic.
The Group has been careful to maintain its awareness of
uncertainty and not become complacent or hardened in its attitude
to the balance between enterprise risk and opportunity in relation
to the stress of the situation. Decisions taken have been assessed
with regard to liquidity, balance sheet strength and financial
forecasts through scenario lenses.
Risk identification and assessment
Risk management is coordinated by the legal team. Each Group
company has its own risk register. Each business leader is
responsible for updating the risk register for their Group company
and for identifying, analysing, evaluating, managing and monitoring
the risks and emerging risks in their respective areas. These risks
are then evaluated for their significance as a Group-level
risk.
The risk register is prepared using consistent risk factors and
an impact and likelihood evaluation and includes key controls,
mitigating activities and/or controls and action plans in respect
of the principal risks which form the basis of the principal risks
and uncertainties disclosed in this report.
In light of the COVID-19 pandemic the Group has conducted a
wider-ranging view of its risks during the financial year with
members of the management team reviewing risks in relation to:
-- cyber and data security and the impact of home working;
-- disruption to the supply of components and logistics;
-- health and safety;
-- financial controls;
-- business resilience and liquidity levers;
-- lessons learned from the Group's response to the first two national lockdowns; and
-- business continuity.
As in all sectors, the music industry continues to experience
profound and lasting structural changes. The Group has seen a
transition away from bricks and mortar retail to online shopping,
therefore our efforts to learn new ways to serve customers,
collaborate with partners and create value for our shareholders are
included in the mitigation plans for each risk.
Approach to risk management
1. Risk identification and assessment
2. Entry into the Group's risk register
3. Regular review and mitigation strategy by business leaders
4. Board review/approval
Assessment of principal risks and uncertainties
The business leaders have carried out a robust assessment of the
principal risks and uncertainties facing the Group, including any
emerging risks, and those that would threaten its business model,
future performance, solvency or liquidity. The following updates
have been made to the principal risks and uncertainties reported in
the previous year as a result of this assessment.
-- Risks are no longer solely assessed on a potential financial
impact but also the effect on the Group's EPS, NPS and
reputation;
-- Supplier concentration has been transformed into a product
supply risk to better reflect the risk that we might be unable to
service customer demand or provide products of a suitable quality
in today's uncertain world.
-- Trust in the Group's brands helps enhance its worldwide
reputation for quality and innovation and therefore the Group is
enhancing the protection of its intellectual property portfolio so
that customers can be assured they are purchasing a genuine
product. To support appropriate protections of all intellectual
property and other proprietary rights:
o the Group has hired an experienced intellectual property
lawyer who is designing an active programme to protect our
intellectual property rights; and
o a brand protection programme has been solidified in order to
identify and tackle trademark and design infringements
-- therefore the risk is being mitigated but remains a matter for vigilance;
-- The Group recognises that, as with all businesses, it is
vulnerable to faceless crimes. Therefore ensuring the security of
our customers' data remains a key priority, with action being taken
to adopt a Group-level approach for customers to exercise their
right of freedoms as data subjects to ensure a consistent level of
data security. Learning from cyber incidents is shared across the
Group so that any weaknesses in the Group's cyber defences are
immediately rectified.
-- The Group's approach to ESG reflects the traction it is
gaining globally. The Group has appointed a full-time Head of
Sustainability and engaged an external sustainability consultancy
company that has conducted an ESG materiality review that revealed
no red flags. Going forward, the Group will be implementing a
series of recommendations that will not only help position the
Group as an ESG leader in our industry but also ensure that climate
change does not increase as a material threat to the Group.
-- In the post-COVID-19 world, attracting and retaining key
talent remains critical to the Group's success. Unconscious bias
training has been rolled out to ensure that hiring managers bring
an equality-lead approach when reviewing potential candidates.
-- Whilst not a standalone risk, freight is both more expensive
and less available than pre-pandemic. There is an emerging risk
that we may be able to produce the goods but not get them to
retail. We continue to actively monitor the situation as all
businesses are affected and so to mitigate the risk, the Group
ensures that our long-standing 3PL partners have visibility of
anticipated sea and air freight volumes months in advance, giving
us the best probability of securing space from Asia into other
global regions.
Principal risk/uncertainty Mitigation
Business strategy development and implementation
As the world emerges from the COVID-19 pandemic, * The Group reviews its business strategy on a regular
uncertainty remains. Therefore ensuring that basis through (restrictions permitting) face-to-face
the Group's business strategy is attuned to customer meetings to determine what strategies are needed to
requirements and emerging opportunities maximise sales and profit and efficiencies in
and is effectively implemented will protect the business. business operations.
Therefore the Group needs to understand
and properly manage strategic risk, taking into account
sector-specific risk factors (which * The Executive Directors present the Group's rolling
differ between the different brands in the business), in three-year business plan to the Board once a year for
order to deliver long-term growth review and challenge by the Non-executive Directors.
for the benefit of the Group's stakeholders.
* The varying brands within the business provide
geographic and product diversity; coupled with a
disciplined approach to sales, budgeting and cost
control, the Group ensures the generation of strong
profits and cash flow.
* Business leaders consider strategic risk factors,
wider economic and industry-specific trends that
affect the competitive position of its products.
-----------------------------------------------------------------
Product innovation
The market for the Group's products remains characterised * Research and development continues to be one of the
by continued evolution in technology, Group's largest investments.
evolving industry standards, frequent new competitive
product introductions and, particularly
in the post-pandemic environment, changes in customer * Continually reviewing the design and performance of
needs. The Group invests in designing the various product ranges and pushing our designers
and developing products that customers want to buy, at to keep our products at the cutting edge of
appropriate price points. Failure to innovation is a key strategy in the Group's
meet the design, quality and value expectations will resilience.
quickly see customers turn away from
our products.
* Teams dedicated to product refreshes have been
enlarged and a wide range of research participants
provide feedback on test products.
-----------------------------------------------------------------
Product Supply
Due to the global supply chain issues, risks to our * During the past year, the Group has moved to
ability to service customer demand are regularly communicating directly with key
real and present. semi-conductor companies instead of via distributors
which has helped to ensure the availability of
materials to the Group.
* The Group has provided an extended production
forecast of 12 months (rolling) to our manufacturing
partners and key material suppliers which has enabled
them to better manage the sourcing of materials and
fulfil orders.
* Where possible, the Group makes spot purchases of
components in order to ensure their future
availability.
-----------------------------------------------------------------
Customer-facing systems
By customers, the Group refers to its reseller and * The Group has strengthened its documented
distributor partners on whom it depends arrangements with its resellers and distributors to
to take products to market. The Group's performance ensure they are holding sufficient stock levels and
depends on the high-quality engagement are motivated to promote the brands.
of those customers, and on their ability to drive and
service customer demand, particularly
in markets where the Group operates via a single * The Group works with its resellers to incentivise
distributor or has large individual reseller them to be able to offer a comparable in-store and
customers. online experience for end users.
There is a risk that the business fails to adopt
and/or make effective and efficient use of new software,
hardware and mechanisation to provide * The Group has continued to increase its
its customers with service levels that allow them to meet direct-to-market offering and plans for further
or exceed end users' expectations. expansion in the coming year.
These systems, software and platforms are ever changing,
as technology evolves. A failure
of, or breakdown in, the relationship with a key reseller * Continued investment in the Group's e-commerce
or distributor, or even the failure platform has led to growth in the Group's
of a major customer of a distributor, could significantly direct-to-consumer offering
and adversely affect the Group's
business.
* There is also continual monitoring of performance of
the Group's Net Promoter Score, with a particular
focus by the customer support team on improving the
user experience.
* The Group also works effectively with influencers to
promote its brands.
-----------------------------------------------------------------
Information security, data privacy, business continuity
and cyber risks * The Group's Privacy Council and Committee are now
well established and are effective in the operation
The unencumbered availability and integrity of the of privacy protection.
Group's IT systems is ever critical to
successful trading. The Group continues to invest heavily
in order to ensure a system that * The Group has adopted a global approach for its
can record and process substantial volumes of data, customers to exercise their rights of freedom as data
prevent obsolescence and maintain responsiveness. subjects. This process is handled by our customer
support team who respond to requests as to the data
The threat of a cyber security breach or an unauthorised the Group processes on their behalf.
or malicious attack is an ongoing
and increasingly sophisticated risk that the Group
believes would negatively impact its reputation. * The Group has run several spoof exercises to promote
Similarly, the inadvertent processing of customer or awareness of the increasingly sophisticated methods
employee data in a manner deemed unethical of attack cyber criminals deploy.
or unlawful could result in significant financial
penalties, remediation costs, reputational
damage and/or restrictions on our ability to operate. The * Systems vulnerability and penetration testing
Group is noticing: continues to be carried out regularly by both
* a changing attitude by global users towards their internal and external resources to ensure that data
data and how it is used; is protected from corruption or unauthorised access
or use
* increasingly complex and fast-evolving data
protection laws and regulation; and * Critical systems backup facilities and business
continuity plans are reviewed and updated regularly
* rapid technological advances delivering an enhanced
ability to gather, draw insight from and monetise * IT risks are managed through the application of
personal data. internal policies and change management procedures as
well as enshrining security requirements and service
level agreements on third-party suppliers in
contractual documentation
* The Group's data protection and information security
policies are mandatory reading and are kept under
regular review
* The Group has prepared a roadmap to address gaps
between current and target risk exposures
* Each major incident that arises around the Group is
followed by a Major Incident Report and submitted to
the Board for review. Transparency in IT operations
is key to protecting the Group from risks and
accountability for the remediation of risk
* Major Threat reports are generated as threats to the
Group emerge. They are submitted to the Board for
review
-----------------------------------------------------------------
Intellectual property
The Group sees the protection of its intellectual * The Group has an ongoing programme to support
property and proprietary rights as a key appropriate protections of all intellectual property
strength in protecting the Group's brand and maintaining and other proprietary rights.
end users' trust in our products.
* The Group is conducting trademark searches before the
launch of new products in order to reduce the risks
of infringing third-party rights, and is applying for
trademark, design and/or patent protection in order
to obtain timely and appropriate protection of its IP
assets.
* The Group has started a brand protection programme in
order to identify and tackle trademark and design
infringements, and it documents the terms on which it
will allow the use of its registered rights.
* The Group has also hired an experienced intellectual
property lawyer who is designing an active programme
to protect our intellectual property rights and is in
the constant process of raising awareness within the
Group on the importance of protecting the Group's IP
assets, and not to infringe intellectual property
rights from third parties.
-----------------------------------------------------------------
People
People are critical to the Group's ability to meet the * Making Focusrite a great place to work remains
needs of its customers and end users central to the Group's strategy.
and achieve its goals as a business. This requires the
retention of senior managers and technical
personnel as well as on our ability to attract, motivate * The Group actively promotes diverse and inclusive
and retain highly qualified people. thinking in its recruitment process, shying away from
using automated recruitment software and instead
having hiring managers consider each application
individually.
* The Group is implementing ways of sharing people
resources across the Group, allowing for flexibility
in employment and standardisation of the benefits
offered across the Group.
* The Board continues to consider the development of
senior management to ensure there are opportunities
for career development and promotion.
* The Remuneration Committee reviews Executive Director
and senior management remuneration at least annually
and formulates packages to retain and motivate these
employees, including long-term incentive schemes.
* The Nomination Committee considers and reviews the
skills, diversity, experience and succession planning
of the Board.
-----------------------------------------------------------------
Climate change
The impact of climate change is * The Group will create an action plan following the
integral to the Group's risk management conclusion of the planned Climate Materiality
approach. Climate change is leading Assessment to demonstrate our climate leadership and
to increasing frequency of severe values and define good environmental practice.
weather e.g. drought, high rainfall,
flooding and heatwaves. Failure
to deliver on climate change initiatives, * In the next financial year we will work across
particularly around the reduction individual business units to measure scope 3
in the use of energy and carbon emissions, and define a roadmap to reduce our carbon
within required timescales, will footprint as well as work with our teams and external
have medium and long-term climate partners on the impact we can have on this important
change risks to residents, businesses issue.
and infrastructure.
-----------------------------------------------------------------
Notes to the Final Results
For the year ended 31 August 2021
These condensed preliminary financial statements of the Company
and its subsidiaries ("the Group") for the year ended 31 August
2021 have been prepared using accounting policies consistent with
International Accounting Standards Board ('IASB') in conformity
with the requirements of the Companies Act 2006.
The information contained within this announcement has been
extracted from the audited financial statements which have been
prepared in accordance with International Accounting Standards
('IAS') in conformity with the requirements of the Companies Act
2006. They have been prepared using the historical cost convention
except where the measurement of balances at fair value is
required.
The Board of Directors has a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence and meet their liabilities as they fall due
for a period of at least 12 months from the approval of these
financial statements ('the going concern period'). Accordingly, the
financial statements have been prepared on a going concern
basis.
The Group meets its day-to-day working capital requirements from
cash balances and a revolving credit facility of GBP40.0 million
which is due for renewal in December 2024. The availability of the
revolving credit facility is subject to continued compliance with
certain covenants.
The Directors have prepared projected cash flow forecasts for
the going concern period. These forecasts include a severe but
plausible downside scenario, which includes potential impacts from
risks identified from the business including
-- Loss of or reduction in key revenue streams,
-- Component shortages extending further into the future than budgeted,
-- Loss of key distribution contracts.
The base case covers the period to February 2023 and includes
demanding but achievable forecast growth. The forecast has been
extracted from the Group's FY22 budget and three-year plan for the
period from September 2022 to August 2024. Key assumptions
include:
-- Future growth assumptions consistent with those recently
achieved by the business, reduced for estimated component shortages
and adjusted for the annualisation of Sequential's results.
-- Free cash flow as a percentage of revenue in line with historic trends,
-- Continued investment in research and development in all areas of the Group,
-- Dividends consistent with the Group's dividend policy,
-- No additional investment in acquisitions in the forecast period.
Throughout the period the forecast cash flow information
indicates that the Group will have sufficient cash reserves. No
drawdown from the facility would be required.
The Directors' have modelled a severe but plausible downside
scenario which combines the three risks identified above, including
the Group experiencing all three downsides simultaneously. This
model assumes that purchases of stock would, in time, reduce to
reflect reduced sales, if they occurred, and the Group would
respond to a revenue shortfall by taking reasonable steps to reduce
overheads within its control. In this scenario, a draw down from
the loan facility of around GBP3.5 million for a period of 6 months
is expected, however the Group would be expected to remain well
within the terms of its loan facility with the leverage covenant
(net debt to adjusted EBITDA) in the period not exceeding -0.2x
compared to the maximum of -2.5x.
Separately, the Directors estimate that if the Group were to
experience a shortfall in revenue of greater than 60% permanently
from the start of the forecast period, debt and leverage could rise
to the upper limits allowed by the banking covenants by August
2022. This scenario includes consequential reductions in the
purchases of stock and overheads. As an additional measure, the
Directors could also cancel the dividend. However, the Directors'
view is that any scenario of a revenue shortfall of greater than
the severe yet plausible scenario above is not realistic.
In reality, the Group is still experiencing high levels of
consumer registrations and customer demand, and therefore the high
levels of revenue have been maintained since year end. This is
evidenced by improvements in the Group's net cash position which
has increased from the GBP17.3 million reported at year end to
approximately GBP21.9 million at 1 November 2021. Consequently, the
Directors are confident that the Group and Company will have
sufficient funds to continue to meet their liabilities as they fall
due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 August 2021 or
2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the registrar of companies, and those
for 2021 will be delivered in due course. The auditor has reported
on those accounts; their reports were (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.
Availability of audited accounts:
Copies of the 31 August 2021 audited accounts will be available
on 15 November 2021 on the Company's website
(www.focusriteplc.com/investors) for the purposes of AIM Rule 26
and will be posted to shareholders in due course.
1 ALTERNATIVE PERFORMANCE MEASURES ('APMs')
The Group has applied certain alternative performance measures
('APMs') within these financial results. The APMs presented are
used in discussions with the Board, management and investors to aid
the understanding of the performance of the Group. The Group
considers that the presentation of APMs allows for improved insight
to the trading performance of the Group. The Group consider that
the term 'Adjusted' together with an adjusting items category, best
reflects the trading performance of the Group.
Adjusting items are those items that are unusual because of
their size, nature or incidence, and are applied consistently year
on year. The Directors consider that these items should be
separately identified within their relevant income statement
category to enable full understanding of the Group's results. Items
included are acquisition costs, earnout payable to employees and
restructuring costs.
The following APMs have been used in these financial
results:
-- Organic growth - the organic constant currency growth rate is
calculated by comparing FY21 revenue to FY20 revenue adjusted for
FY21 exchange rates and the impact of acquisitions.
-- Adjusted EBITDA - comprising earnings adjusted for interest,
taxation, depreciation, amortisation and
adjusting items. This is shown on the face of the income statement.
-- Adjusted operating profit - operating profit adjusted for
adjusting items which comprise costs relating to the acquisition of
Sequential LLC (GBP0.7 million), earnout payable to employees of
Sequential (GBP0.8 million), restructuring of the US (GBP0.1
million) and amortisation of acquired intangibles (GBP4.0
million).
-- Adjusted earnings per share ('EPS') - earnings per share excluding adjusting items.
-- Free cash flow - defined as net cash from operating
activities less net cash used in investing and
financing activities, excluding dividends paid.
-- Underlying free cash flow - as free cash flow but adding back
adjusting item cash flows relating to
repayment of RCF drawn down for acquisitions.
-- Net debt - comprised of cash and cash equivalents, overdrafts
and amounts drawn against the RCF
including the costs of arranging the RCF.
2 acquisition of a subsidiary
On 26 April 2021 the Group completed the acquisition of 100% of
the share capital of Sequential LLC. The total consideration paid
was $20 million (GBP14.5 million) on completion, with a potential
for $4 million further. This $4 million has been classed as
employee remuneration rather than contingent consideration as it is
payable directly to employees and is subject to their continuing
employment with Sequential until December 2022. The acquisition was
funded through a combination of existing cash resources and an GBP8
million drawdown on the existing revolving credit facility of GBP40
million with HSBC and NatWest. This borrowing was repaid before
year end.
Sequential is headquartered in San Francisco, California in the
historically and culturally rich North Beach neighbourhood from
where it continues to operate and is led by legendary instrument
designer and Grammy winner Dave Smith, who founded Sequential
Circuits in 1974.
The Sequential portfolio of high-end analogue synthesisers
dramatically expands the footprint the Group has with its Novation
branded instruments, offering more premium priced solutions for
electronic artists. By extending the Group's business into new
products and markets, which complement its existing offerings, the
acquisition is strategically aligned with the Company's previously
communicated aims of growing the core customer base, expanding into
new markets and increasing lifetime value for customers.
The Group also sees the possibility of future synergies between
the Sequential and Novation's R&D teams to bring new innovative
products to market that will further the Group's mission of
'removing barriers to creativity'.
For the four-month period between the acquisition and 31 August
2021, Sequential contributed revenue of GBP5,299,000 and a profit
before tax of GBP1,314,000 to the Group. If the acquisition had
occurred on 1 September 2020, management estimates that
Sequential's revenue would have been GBP18,158,000 and profit
before tax for the year would have been GBP4,769,000. In
determining these amounts management has assumed that the fair
value adjustments, determined provisionally, that arose on the date
of acquisition would have been the same if the acquisition had
occurred on 1 September 2020.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP716,000 on
legal fees and due diligence costs. These have been included in
adjusting item costs to give investors a better understanding of
the costs related to the acquisition of Sequential. Additionally,
because of their size, nature and the fact they vary from
acquisition to acquisition, the Group considers it a better
reflection of the trading performance of the Group to show these
separately.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition:
Recognised values on acquisition GBP'000
------------------------------------------------------- ----------
Brand 6,070
Developed t echnology 5,961
Technology in d evelopment 181
-------------------------------------------------------- ----------
Other intangible assets 12,212
Property, plant and equipment 23
Cash 547
Inventories 354
Trade and other receivables 518
Trade and other payables ( 1,556 )
-------------------------------------------------------- ----------
Net identifiable assets and liabilities at fair value 12,098
Goodwill recognised on acquisition 2,397
-------------------------------------------------------- ----------
Consideration paid and accrued 14, 495
-------------------------------------------------------- ----------
No deferred tax liability arises on the acquisition of
Sequential as the Group is anticipating full tax relief on
amortisation of goodwill and intangibles within the US.
Measurement of fair values
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
Assets acquired Valuation technique
Property, plant and equipment Cost approach
----------------------------------------------------------
Intangible assets- developed technology and technology in Income approach (multi-period excess earnings method)
development Key assumptions used include:
* Ongoing development of new products
* Operating margins are in line with existing margins
for that operation
* Discount rates of 16.5%
Useful economic life ranges from 10 to 15 years
----------------------------------------------------------
Intangible assets- brand Income approach (relief from royalty method)
Key assumptions used include:
* Revenue forecasts have been allocated to individual
brands
* Royalty rates of 2% to 5% applied
* Discount rate of 15.5%
Useful economic life ranges from 10 to 15 years
----------------------------------------------------------
Inventories Cost approach
----------------------------------------------------------
Fair values measure on a provisional basis
Sequential was acquired four months prior to the end of this
reporting period. If new information is obtained within one year of
the date of acquisition about the facts and circumstances that
existed at the date of acquisition that identifies adjustments to
the above amounts or any additional provisions that existed at the
date of acquisition, then the accounting for the acquisition will
be revised.
Goodwill
The goodwill is attributable to:
-- the skills and technical talent of the Sequential workforce;
-- worldwide reputation based on patent design and technological innovation;
-- alignment to the Group's existing customer base;
-- strong strategic fit to grow the core customer base; and
-- expand into new markets and increase lifetime value for customers.
Intangible assets sensitivity analysis
In assessing the estimated useful life of the intangible assets,
management considered the sensitivity in the estimated life of the
brand and patent development. The following table details the
sensitivity to a one-year increase and decrease in the amortisation
period, and ultimately reflecting the impact on the net profit (or
loss).
Amortisation is calculated based on the constant that brand is
recognised at cost of GBP6,070,000, developed technology at
GBP5,961,000 and technology in development at GBP181,000.
Brand (Sequential & Prophet) Brand (OB6 & OB-X)
14 years 15 years 16 years 9 years 10 years 11 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ---------
Annual amortisation 413 395 379 16 14 13
---------------------- ---------- ---------- -------- --------- ---------
Impact on profit (18) - 16 (2) - 1
---------------------- ---------- ---------- --------- -------- --------- ---------
Developed technology Technology in development
14 years 15 years 16 years 9 years 10 years 11 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ---------
Annual amortisation 423 397 375 20 18 16
---------------------- --------- --------- -------- --------- ---------
Impact on profit (26) - 22 (2) - 2
---------------------- --------- --------- --------- -------- --------- ---------
The following table assesses the impact of differing estimated
useful lives of products on the valuation of the intangible
assets.
Brand (Sequential & Prophet) Brand (OB6 & OB-X)
14 years 15 years 16 years 9 years 10 years 11 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ---------
Fair value - 5,925 - - 145 -
---------------------- ---------- ---------- -------- --------- ---------
Impact on valuation (145) - 145 - - -
---------------------- ---------- ---------- --------- -------- --------- ---------
Developed technology Technology in development
14 years 15 years 16 years 9 years 10 years 11 years
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- ---------
Fair value - 5,961 - - 181 -
---------------------- --------- --------- -------- --------- ---------
Impact on valuation (36) - 36 - - -
---------------------- --------- --------- --------- -------- --------- ---------
Based on the above, we concluded that the impact would not be
material, and therefore a more detailed sensitivity analysis has
not been done.
3 Revenue
An analysis of the Group's revenue is as follows:
Year ended 31 August 2021 Year ended 31 August 2020
------------------------------------------------ -------------------------------------- --------
EMEA North Rest of Total EMEA North Rest of Total
America World America World
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- -------- ------------- ------------- -------- -------- ------------- ------------- --------
Focusrite 37,403 47,200 12,615 97,218 32,128 32,782 11,268 76,178
Focusrite Pro 1,635 2,238 1,004 4,877 1,071 1,625 796 3,492
-------------- -------- ------------- ------------- --------
Focusrite
combined 39,038 49,438 13,619 102,095 33,199 34,407 12,064 79,670
Novation 9,242 9,706 3,314 22,262 8,290 7,013 4,080 19,383
ADAM Audio 11,849 8,073 3,943 23,865 8,784 6,352 2,245 17,381
Martin Audio 6,983 4,787 8,628 20,398 4,493 3,089 4,432 12,014
Sequential 2,164 2,629 506 5,299 - - - -
Distribution 16 - - 16 1,693 - - 1,693
Total 69,292 74,633 30,010 173,935 56,459 50,861 22,821 130,141
-------------- -------- ------------- ------------- -------- -------- ------------- ------------- --------
4 Business segments
Information reported to the Board of Directors for the purposes
of resource allocation and assessment of segment performance is
focused on the main product groups which the Group sells.
Similarly, the results of Novation and Ampify also meet the
aggregation criteria set out in IFRS 8 Segmental Reporting. The
Group's reportable segments under IFRS 8 are therefore as
follows:
Focusrite - Sales of Focusrite branded products
Focusrite Pro - Sales of Focusrite Pro branded products
Novation - Sales of Novation or Ampify branded products
ADAM Audio - Sales of ADAM Audio branded products
Martin Audio - Sales of Martin Audio branded products
Sequential - Sales of Sequential branded products
Distribution - Distribution of third-party brands including KRK,
Stanton, Cerwin-Vega,
and sE Electronics (ceased August 2020)
Segment revenues and results
The following is an analysis of the Group's revenue and results
by reportable segment:
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in note 3 of the full
Annual Report. Segment profit represents the profit earned by each
segment without allocation of the share of central administration
costs including Directors' salaries, investment revenue and finance
costs, and income tax expense. This is the measure reported to the
Board of Directors 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 GBP973,000 for the year
ended 31 August 2021 (20209: GBP537,000).
Year ended 31 August
2021 2020
GBP'000 GBP'000
-------------------------------------------------------- ------------------------------------- -----------
Revenue from external customers
Focusrite 97,218 76,178
Focusrite Pro 4,877 3,492
Novation 22,262 19,383
ADAM Audio 23,865 17,381
Martin Audio 20,398 12,014
Sequential 5,299 -
Distribution 16 1,693
Total 173,935 130,141
-------------------------------------------------------- ------------------------------------- -----------
Segment profit
Focusrite 47,798 35,602
Focusrite Pro 2,540 1,916
Novation 7,965 8,458
ADAM Audio 14,040 8,828
Martin Audio 9,471 5,032
Sequential 2,341 -
Distribution (25) 57
-------------------------------------------------------- ------------------------------------- -----------
84,130 59,893
Central distribution costs and administrative expenses (46,728) (39,871)
Goodwill impairment - (10,200)
Adjusting items (note 6) (1,628) (1,888)
-------------------------------------------------------- ------------------------------------- -----------
Operating profit 35,774 7,934
Finance income 48 36
Finance costs (784) (945)
-------------------------------------------------------- ------------------------------------- -----------
Profit before tax 35,038 7,025
Tax (6,759) (2,934)
Profit after tax 28,279 4,091
-------------------------------------------------------- ------------------------------------- -----------
The Group's non-current assets, analysed by geographical
location, were as follows:
2021 2020
GBP'000 GBP'000
-------------------------------- -------- --------
Non-current assets
North America 15,104 760
Europe, Middle East and Africa 45,277 49,611
Rest of the World 2,385 1,967
Total non-current assets 62,766 52,338
-------------------------------- -------- --------
Assets held within North America have increased significantly
since FY20 due to the acquisition of Sequential.
Information about major customers
Included in revenues shown for 2021 is GBP53.2 million (2019:
GBP35.4 million) attributed to the Group's largest customer, which
is located in the USA. Amounts owed at the year end were GBP4.2
million (2020: GBP6.4 million).
5 Profit for the year
Profit for the year has been arrived at after
charging/(crediting):
Year ended 31 August
2021 2020
GBP'000 GBP'000
-------------------------------------------------------------- ----------- ----------
Net foreign exchange losses 333 427
Research and development costs (excluding costs capitalised) 2,374 2,441
Depreciation and impairment of property, plant and equipment 2,022 1,777
Amortisation of intangibles 8,126 6,690
Impairment of goodwill on acquisition - 10,200
Cost of inventories recognised as an expense 76,488 61,419
Staff costs (excluding share-based payments) 22,138 17,737
Movement in expected credit loss 1 474
Share-based payments charged to profit and loss 973 537
--------------------------------------------------------------- ----------- ----------
6 Adjusting ITEMS
The following adjusting items have been declared in the
period
Year ended 31 August
2021 2020
GBP'000 GBP'000
-------------------------------------------- ----------- ----------
Acquisition costs 716 1,737
Earnout accrual in relation to acquisition 788 -
Restructuring 124 151
-------------------------------------------- ----------- ----------
Adjusting items 1,628 1,888
-------------------------------------------- ----------- ----------
Amortisation of acquired intangible assets 4,013 3,013
Impairment of goodwill on acquisition - 10,200
Total adjusting items for adjusted EBITDA 5,641 15,101
-------------------------------------------- ----------- ----------
Acquisition costs in FY21 relate solely to the acquisition of
Sequential and the earnout accrual relates to the $4 million
classed as employee remuneration rather than contingent
consideration. It is payable directly to employees and is subject
to their continuing employment with Sequential until December 2022.
Restructuring costs relate to the merger of the US-based
subsidiaries into one operating company from 1 September 2021.
Acquisition costs in the 12 months to 31 August 2020 included
costs of GBP1,644,000 relating to Martin Audio. Restructuring costs
related to the costs of people changes following the ADAM Audio
acquisition.
7 Tax
Year ended 31 August
2021 2020
GBP'000 GBP'000
Corporation tax charges
Over/(under) provision in prior year (367) 75
Current year 8,099 3,362
-------------------------------------- ----------- ----------
7,732 3,437
Deferred taxation
Current year (973) (503)
-------------------------------------- ----------- ----------
6,759 2,934
-------------------------------------- ----------- ----------
Corporation tax is calculated at 19% (2019: 19%) of the
estimated taxable profit for the year. Taxation for the US and
Germany subsidiaries are calculated at the rates prevailing in the
respective jurisdiction.
The tax charge for each year can be reconciled to the profit per
the income statement as follows:
Year ended 31 August
2021 2020
GBP'000 GBP'000
------------------------------------------------------- ----------- ----------
Current taxation
Profit before tax on continuing operations 35,038 7,025
------------------------------------------------------- ----------- ----------
Tax at the UK corporation tax rate of 19% (2020: 19%) 6,657 1,335
Effects of:
Expenses not deductible for tax purposes 615 2,582
Deferred tax assets recognition (1,385) -
Other differences (28) -
R&D tax credit - (1,219)
Prior period adjustment (367) 75
Effect of change in standard rate of deferred tax 1,147 -
Impact of foreign tax rates 120 161
Tax charge for the year 6,759 2,934
------------------------------------------------------- ----------- ----------
Expenses not deductible relate to the costs of acquiring
Sequential LLC.
The prior period adjustment arose as a result of an over-accrual
of the tax provision. This was due to the changes in capital
allowances not being fully incorporated into the prior year
estimate.
Tax credited directly to equity
In addition to the amount charged to the income statement and
other comprehensive income, the following amounts of tax have been
recognised in equity:
2021 2020
GBP'000 GBP'000
------------------------------------------------------------------------------ -------- --------
Share-based payment deferred tax deduction in excess of remuneration expense 786 162
Share-based payment current tax deduction in excess of remuneration expense 690 457
------------------------------------------------------------------------------ -------- --------
1,476 619
------------------------------------------------------------------------------ -------- --------
The corporation tax debtor of GBP869,000 (2020: liability
GBP452,000) relates to overpayments to tax authorities throughout
the year, as well as an advance made the German tax authorities, in
respect of the US reorganisation (discussed in note 11). EUR469,000
was advanced to the German tax authorities in the form of
withholding tax. This is expected to be recoverable and will offset
our future tax liability.
The Finance Act 2021 enacted legislation to maintain the current
rate of corporation tax at 19%, up until at least the end of tax
year ended 31 March 2023. Thereafter, the headline rate of
corporation tax will rise to 25%.
8 Dividends
The following equity dividends have been declared:
Year to Year to
31 August 2021 31 August 2021
---------------------------------------- ---------------- ----------------
Dividend per qualifying ordinary share 5.2p 4.2p
---------------------------------------- ---------------- ----------------
During the year, the Company paid an interim dividend in respect
of the year ended 31 August 2021 of 1.5 pence per share.
On 15 November 2021, the Directors recommended a final dividend
of 3.7 pence per share (2020: 2.9 pence per share), making a total
of 5.2 pence per share for the year (2020: 4.2 pence per
share).
9 Earnings per share ('EPS')
The calculation of the basic and diluted EPS is based on the
following data:
Year ended 31 August
Earnings 20210 2020
----------- -----------
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ----------- -----------
Earnings for the purposes of basic and diluted EPS, being net profit for the period 28,279 4,091
Adjusting items (note 6) 5,641 15,101
Tax on adjusting items (165) (26)
---------------------------------------------------------------------------------------- ----------- -----------
Total underlying profit for adjusted EPS calculation 33,755 19,166
---------------------------------------------------------------------------------------- ----------- -----------
Year ended 31 August
2021 2020
----------- -----------
Number Number
'000 '000
---------------------------------------------------------------------------------------- ----------- -----------
Number of shares
Weighted average number of ordinary shares for the purposes of basic EPS calculation 57,993 57,680
Effect of dilutive potential ordinary shares:
Share option plans 725 812
Weighted average number of ordinary shares for the purposes of diluted EPS calculation 58,718 58,492
---------------------------------------------------------------------------------------- ----------- -----------
EPS Pence Pence
Basic EPS 48.8 7.1
Diluted EPS 48.2 7.0
Adjusted basic EPS 58.2 33.2
Adjusted diluted EPS 57.5 32.8
---------------------------------------------------------------------------------------- ----------- -----------
The Group presents basic and diluted 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.
At 31 August 2021, the total number of ordinary shares issued
and fully paid was 58,661,639. This included 554,712 (2020:
359,483) shares held by the EBT to satisfy options vesting in
future years. The operation of this EBT 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 EPS calculation is the net of the weighted average number of
shares in issue (58,488,351) less the weighted average number of
shares held by the EBT (495,323). It should be noted that the only
right relinquished by the Trustees of the EBT is the right to
receive dividends. In all other respects, the shares held by the
EBT 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.
10 Goodwill AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL
LIFE
Sequential Martin Audio ADAM Audio Novation Total
GBP'000 GBP'000 GBP'000 Digital GBP'000
Music Systems
GBP'000
-------------------------------- ----------- ------------- ----------- --------------- ---------
Cost
At 1 September 2019 - - 4,852 419 5,271
Additional goodwill recognised
on business combinations - 12,564 247 - 12,811
-------------------------------- ----------- ------------- ----------- --------------- ---------
At 31 August 2020 - 12,564 5,099 419 18,082
Additional goodwill recognised
on business combinations 2,397 - - - 2,397
Foreign exchange - - (225) - (225)
-------------------------------- ----------- ------------- ----------- --------------- ---------
At 31 August 2021 2,397 12,564 4,874 419 20,254
-------------------------------- ----------- ------------- ----------- --------------- ---------
Sequential Martin ADAM Audio Novation Total
GBP'000 Audio GBP'000 Digital GBP'000
GBP'000 Music Systems
GBP'000
-------------------------------- ----------- --------- ----------- --------------- ---------
C arrying amount
At 1 September 2019 - - 4,852 419 5,271
Additional goodwill recognised
on business combinations - 12,564 247 - 12,811
Loss on impairment - (10,200) - - (10,200)
-------------------------------- ----------- --------- ----------- --------------- ---------
At 31 August 20 20 - 2,364 5,099 419 7,882
Additional goodwill recognised
on business combinations 2,397 - - - 2,397
Loss on impairment - - - - -
Foreign exchange - - (225) - (225)
-------------------------------- ----------- --------- ----------- --------------- ---------
At 31 August 2021 2,397 2,364 4,874 419 10,054
-------------------------------- ----------- --------- ----------- --------------- ---------
In note 20 'Other intangible assets' to the Group Financial
Statements, there are GBP3,268,000 of development costs which have
not started amortisation. These are projects in development and are
considered to be intangible assets that have not yet started
amortisation.
The goodwill shown in the table above and intangible assets with
indefinite useful life are allocated to the CGUs per the schedule
below:
Goodwill Intangible assets
with indefinite useful
life
CGUs GBP'000 GBP'000
Focusrite 419 1,411
Focusrite Pro - 653
Novation - 447
ADAM Audio 4,874 757
Martin Audio 2,364 -
Sequential 2,397 -
--------------- --------- ------------------------------------
Total 10, 054 3,268
--------------- --------- ------------------------------------
Assumptions for assessment of impairment
The discount rate applied against future cash flows has been
calculated with reference to a WACC calculated by reference to an
industry peer group relevant to each of the operating entities.
Inputs include 20-year nominal risk-free rate and market risk
premium.
All CGUs have applied a perpetual 1% growth rate based on
International Monetary Fund ('IMF') estimates of long-term
inflation.
To review the sensitivity of the key assumptions, all impairment
assessments have been tested using the following sensitivities
-- 1% increase or reduction to perpetual growth rate.
-- 3% increase or reduction to Compound Annual Growth Rate ('CAGR')
-- 1% increase or decrease to discount rate.
The impairment review undertaken as described below for all CGUs
covers goodwill, intangible assets with indefinite useful lives and
other internally generated assets totalling GBP5.8 million.
Focusrite, Focusrite Pro and Novation
An impairment assessment in relation to each of these CGUs was
performed by management. The recoverable amounts of these CGUs have
been determined based on the value in use method. The calculations
use cash flow projections based on financial budgets approved by
management covering a three-year period over which a CAGR of 9% was
applied. Cash flows beyond that three-year period have been
extrapolated to achieve a 6% CAGR overall to the end of FY26, and a
perpetual 1% growth rate (FY20: 2%) based on IMF estimates of
long-term inflation thereafter. A pre-tax discount rate of 9.4%
(2020: 9.3%) has been assumed. These assumptions have been applied
against Focusrite, Focusrite Pro and Novation CGUs.
Management believes that any reasonably possible change in the
key assumptions on which these three CGUs' recoverable amounts are
based would not cause the carrying amount to exceed their
respective recoverable amounts.
ADAM Audio
The recoverable amount of ADAM Audio has been determined based
on a value in use calculation. That calculation uses cash flow
projections based on financial budgets approved by management
covering a three-year period which and a consistent growth rate in
the two financial years following the management forecasts, leading
to an applied CAGR of 11% over the five-year period. A pre-tax
discount rate of 12.1% has been assumed, compared to the rate
applied in FY20 of 13.8%. The reduction in discount rate is due to
updated assumptions based on technical and current market
conditions due to strong performance in the sector since
acquisition; risk has reduced therefore the discount rate has
reduced.
Cash flows beyond that five-year period have been extrapolated
using a perpetual 1% growth rate (FY20: 2%) based on IMF estimates
of long-term inflation. Management believes that any reasonably
possible change in the key assumptions on which ADAM Audio's
recoverable amount is based would not cause ADAM Audio's carrying
amount to exceed its recoverable amount.
Martin Audio
The recoverable amount of Martin Audio has been determined based
on a value in use calculation. That calculation uses cash flow
projections based on financial budgets approved by management
covering a three-year period and a consistent growth rate in the
two financial years following the management forecasts leading to
an applied CAGR of 13% over the five-year period. A pre-tax
discount rate of 12.8% has been assumed compared to the discount
rate applied in FY20 of 13.8%. The reduction in discount rate is
due to updated assumptions based on technical and current market
conditions and reduction to market risk to reflect membership of
the Group. Any uncertainty risks are reflected within the base cash
flows and not the discount rate.
Cash flows beyond that five-year period have been extrapolated
using a perpetual 1% growth rate based on IMF estimates of
long-term inflation. Management believes that any reasonably
possible change in the key assumptions on which Martin Audio's
recoverable amount is based would not cause Martin Audio's carrying
amount to exceed its recoverable amount.
Sequential
The recoverable amount of Sequential has been determined based
on a value in use calculation. That calculation uses cash flow
projections based on financial budgets approved by management
covering a three-year period and a consistent growth rate in the
two financial years following the management forecasts leading to
an applied CAGR of 6% over the five-year period. A pre-tax discount
rate of 12.3% has been applied. The discount rate has been
calculated with reference to WACC calculated with reference to an
industry peer group adjusted for Group-applied 20-year nominal
risk-free rate and market risk premium. Any uncertainty risks are
reflected within the base cash flows and not the discount rate.
Cash flows beyond that five-year period have been extrapolated
using a perpetual 1% growth rate based on IMF estimates of
long-term inflation. Management believes that any reasonably
possible change in the key assumptions on which Sequential's
recoverable amount is based would not cause Sequential's carrying
amount to exceed its recoverable amount.
11 POST BALANCE SHEET EVENTS
During FY21, Focusrite Group commenced an exercise to reorganise
the US based entities held across the Group, consisting of
Focusrite Group US (formally known as Focusrite Novation Inc),
Martin Audio US LLC and ADAM Audio US to form a single US entity
called Focusrite Group US. As at 31 August 2021, these entities had
changed ownership to be owned directly by Focusrite plc. As all
investments were initially owned indirectly by Focusrite plc and
all transactions are between members of the Group, there is no
material impact to these financial statements.
As at 1 September 2021, these entities merged into one US
entity, and from 2 September 2021 ownership changed from Focusrite
plc to the Focusrite plc owned subsidiary Focusrite Investment Inc
to ensure that all US entities are under common ownership. This
will be completed through the issue of 7,404 additional shares in
Focusrite Group US worth GBP6.6 million, and the issue of eight
additional shares in Focusrite Investment Inc, again worth GBP6.6
million. As all transactions are between members of the Group, no
material impact will be shown in these Group accounts.
As the reorganisation is only from a legal perspective there
will be no change to the CGUs reported in these financial
statements.
[1] Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting
items.
[2] Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting
items.
[3] The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange
rates and the impact of acquisitions.
[4] The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange
rates and the impact of acquisitions.
[5] Comprising earnings adjusted for interest, taxation,
depreciation, amortisation, goodwill impairment and adjusting
items.
[6] Adjusted for amortisation of acquired intangible assets,
goodwill impairment and other adjusting items.
[7] The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange
rates and the impact of acquisitions.
[8] The organic constant currency growth rate is calculated by
comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange
rates and the impact of acquisitions.
[9] EBITDA is defined as earnings before tax, interest,
depreciation, amortisation and goodwill impairment. The items
treated as adjusting items are explained in note 6.
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END
FR BIBDBSUBDGBU
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