TIDMTUNE
RNS Number : 2693J
Focusrite PLC
26 April 2022
Strictly embargoed until 07:00, 26 April 2022
Focusrite plc ("Focusrite" or "the Group")
Half year results for the period ended 28 February 2022
Focusrite plc, the global music and audio products company
supplying hardware and software used by professional and amateur
musicians and the entertainment industry, today announces its half
year results for the six months ended 28 February 2022.
Commenting on the results, Tim Carroll CEO said:
"Demand for the Group's portfolio of products has remained
strong, and the Group's overall performance in the half year was in
line with our expectations and remains on track for the full year.
As anticipated, demand and sales volumes for home creation
solutions has tapered off from the unprecedented high levels during
the peak of lockdown but remain materially ahead of pre pandemic
levels. This is further supported by many trade sources citing
continued growth in streaming services and content creation. In
addition, the Group has seen the installed sound market continue to
grow with positive signs towards a full recovery of live events.
The Group's continued diversification of its portfolio, routes to
market, and logistics served us well during the first half,
enabling us to perform well despite many challenging global
macro-economic issues at play."
Key financial metrics
HY22 HY21 HY20
Group Revenue (GBP million) 92.9 95.3 49.9
------ ------ -------
Gross Margin 46.6% 48.0% 46.1%
------ ------ -------
Adjusted(1) EBITDA(2) (GBP million) 22.2 29.3 9.1
------ ------ -------
Adjusted(1) EBITDA(2) as a % of sales 23.9% 30.7% 18.3%
------ ------ -------
Operating profit (GBP million) 16.3 24.2 3.0
------ ------ -------
Adjusted(1) operating profit (GBP million) 19.1 26.3 6.4
------ ------ -------
Net cash 3 (debt) (GBP million) 18.0 19.1 (19.9)
------ ------ -------
Basic earnings per share (p) 23.1 33.2 3.6
------ ------ -------
Adjusted(1) diluted earnings per share (p) 27.1 36.3 9.3
------ ------ -------
Interim dividend per share (p) 1.85 1.5 1.3
------ ------ -------
Highlights
-- Group revenue remains significantly ahead of HY20
pre-pandemic levels and is also higher than the second half of FY21
(GBP78.6 million), despite ongoing COVID and component supply
issues
o Focusrite brands revenue down by 11.7% to GBP65.4 million
(HY21: GBP74.0 million)
o ADAM Audio revenue down by 33.1% to GBP8.4 million (HY21:
GBP12.6 million) with component shortages delaying
a product range transition and reducing supply
o Martin Audio revenue up by 44.0% to GBP12.5 million (HY21:
GBP8.7 million) benefiting from both strong
installed sound sales and the start of the return of live events
o Sequential revenue of GBP6.6 million (acquired in April 2021)
in line with the Board's expectations
-- Gross margin at 46.6% is higher than pre pandemic (HY20:
46.1%). Compared to HY21 pricing actions have more than offset
material cost increases but short-term freight cost impacts
resulted in a reduction of 1.4% points
-- Adjusted (1) EBITDA(2) at GBP22.2 million was 23.9% of sales,
significantly ahead of pre pandemic levels of 18.3% (HY20) of
sales, although lower than HY21 of 30.7%, which was boosted by
COVID savings, and now reflecting a cost infrastructure supporting
a larger international Group
-- Launch of seven new products, including Clarett Plus ranges,
Circuit Tracks groovebox, Optimal Audio speakers, Prophet 5
expansion card and Ampify new features all expected to contribute
in H2
-- Strong production levels of Scarlett interfaces enabling
inventory levels to begin to rebuild
-- Interim dividend of 1.85 pence, 23.3% growth compared to HY21
dividend of 1.5 pence announced in May 2021
-- Acquisition of Linea Research on 10 March 2022 for GBP12.6
million, which had approximately GBP1million of cash within net
assets
Trading since the half year has continued in line with the
Board's expectations. The outlook for our industry remains
positive, pointing towards continued growth in the content creation
market, as well as a robust return to live events. With our current
portfolio, planned product introductions and continued focus on our
growth strategy, including acquisitions, such as Linea Research
acquired in March, we believe the Group is well positioned for a
successful second half and remains on track to meet our
expectations for the full year against an easier year on year
comparator. As always, we remain vigilant in view of the ongoing
uncertain global situation, but continue to remain optimistic about
the future prospects for the Group.
(1) Adjusted for items which relate to costs of recent
acquisitions, sale of trademarks and amortisation of acquired
intangibles, see note 4 for more details.
(2) Comprising profit before tax adjusted for interest,
taxation, depreciation, amortisation and adjusting items. This is
shown on the face of the income statement.
(3) Net cash/(debt) - comprised of cash and cash equivalents,
overdrafts and amount drawn against the RCF including the costs of
arranging the RCF.
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Nominated Adviser and Joint
Broker
Investec Bank plc
David Flin
William Brinkley
Charlotte Young
Peel Hunt LLP (Joint broker)
Edward Knight
Michael Burke
James Smith
Belvedere Communications
John West +44 20 3687 2753
Llew Angus +44 20 3687 2754
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 nine established brands: Focusrite, Focusrite
Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal Audio,
Sequential and Linea acquired on 10(th) March 2022.
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. Sequential designs and manufactures
high end analogue synthesizers. Linea designs, develops,
manufactures and sells market innovative professional audio
equipment globally.
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
Business and operating review
Overview
We are pleased to report our financial results and summary of
operations for the six months ended 28 February 2022. Demand for
the Group's portfolio of products has remained strong, and the
Group's overall performance in the half year was in line with our
expectations and remains on track for the full year. As
anticipated, demand and sales volumes for home creation solutions
has tapered off from the unprecedented high levels during the peak
of lockdown but remain materially ahead of pre pandemic levels.
This is further supported by many trade sources citing continued
growth in streaming services and content creation. In addition, the
Group has seen the installed sound market continue to grow with
positive signs towards a full recovery of live events. The Group's
continued diversification of its portfolio, routes to market, and
logistics served us well during the first half, enabling us to
perform well despite many challenging global macro-economic issues
at play .
These industry wide global factors, referred to at the time of
the 2021 Final Results and subsequently at our AGM in December
2021, include the shortage of electronic components and high
freight costs. These have not abated and the result has been some
short-term downward pressure on gross margin. The Group has
proactively managed these challenges including increasing prices on
some elements of the portfolio, leveraging the scale of the Group
for component purchases, and optimising our logistics and routes to
market. Pleasingly, the result has been that we finished the first
half with results as anticipated.
COVID continues to be a factor, with several delays and
temporary closures of contract manufacturers occurring over the
reported period. The Group has navigated these issues well and with
offices beginning to return to normal, we are now formulating a
longer-term plan to support hybrid work arrangements that align
with our employees' ongoing needs and wishes.
In March 2022, the Group suspended all sales to the Russian
Federation and to the Republic of Belarus, with sales to Ukraine
not currently possible. Trade with these countries is transacted
via distributors and makes up only around 1% of the Group's total
revenue. This is not expected to have a material impact on our
performance and will likely be replaced by demand from other
regions.
On 10 March 2022, post the end of the half year period, the
Group acquired Linea Research (Linea), a market leading specialist
amplifier designer and manufacturer, already a supplier to Martin
Audio. The consideration was GBP12.6m in cash, including GBP1m of
cash on Linea's balance sheet. The acquisition is anticipated to be
earnings enhancing in the current year.
People, Culture and Strategy
At the heart of our business is a talented and passionate group
of employees working for industry leading brands. They are
dedicated to audio excellence and have rallied around a common
mission of 'Removing Barriers to Creativity'. Our customer base
continues to grow, encompassing a much wider range of customers
from the beginner/enthusiast right through to professionals and
enterprise facilities. At all levels, our customers depend on our
solutions to provide the highest quality audio possible in an
environment where technology aids the process instead of getting in
the way.
We remain focused on our growth strategy that is centred around
innovation, market expansion, lifetime value for our customers and
being a great place to work. The Group has executed well on all of
these, adding a number of new products to our portfolio, expanding
our global reach in strategic areas, and maintaining industry
leading Net Promoter Scores ('NPS').
Environmental, Social and Governance ('ESG') priorities form an
important and growing pillar of the culture across the Group,
centred around the objective of creating a 'Great Place to Work',
not just for employees but also within society and the environment.
We have expanded our efforts on eNPS (employee net promoter score),
talent acquisition, Diversity and Inclusion (D&I) initiatives,
wellness programmes, community employment opportunities and
charitable work to involve all of our business units across the
globe.
Additionally, and as mentioned in our report for the year ended
FY21, we are working with Ricardo PLC ahead of our first Task Force
on Climate-related Financial Disclosures ('TCFD') disclosure at the
end of FY22. We already have existing governance structures and our
newly formed ESG committee will manage the TCFD process. We remain
committed to reducing our Scope 1, 2 and 3 GHG emissions to Net
Zero in line with the UK Climate Change Act. A great step forward
in this goal has been the work in this half year to manufacture
part of our core Focusrite Scarlett range with recycled aluminium
reducing the carbon footprint of this product by almost 50%.
Operating review
Our Group is comprised of nine leading brands across four main
businesses
-- Focusrite Audio Engineering (FAEL): Focusrite, Focusrite Pro, Novation and Ampify
-- Martin Audio: Martin Audio, Optimal Audio and newly acquired Linea Research
-- ADAM Audio
-- Sequential
With the acquisition of ADAM Audio the Group ended its
distribution of third party monitors.
Year to
Six months to Six months to Six months to 31 August
28 February 2022 28 February 2021 29 February 2020 2021
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------------------ ------------------ ------------------ -----------
Revenue from external customers
Focusrite 52,404 58,325 25,574 97,218
Focusrite Pro 2,510 2,675 1,884 4,877
Novation (including Ampify) 10,511 13,043 9,935 22,262
Focusrite Subtotal 65,425 74,043 37,393 124,357
ADAM Audio 8,420 12,582 7,041 23,865
Martin Audio (including Optimal Audio) 12,459 8,651 4,526 4 20,398
Sequential 6,589 - - 5,299 4
Distribution - 10 966 16
Total 92,893 95,286 49,926 173,935
---------------------------------------- ------------------ ------------------ ------------------ -----------
(4) Revenue from date of acquisition
Focusrite brands
The Focusrite branded Scarlett and Clarett audio interfaces are
a suite of products designed to allow both beginners and
professionals alike to create the best quality audio possible.
These products are core to home recording and audio streaming,
which experienced large increases in demand during the height of
the pandemic and lockdowns. Demand for these solutions remains
significantly higher than pre-pandemic periods: whilst sales are
down 10% on last year's exceptionally strong first half during the
lockdown they are still up 105% over the first half of HY20, prior
to the pandemic .
Focusrite Pro offers a suite of solutions for professionals in
both the creation and audio reproduction sectors. Revenue was down
versus prior year by 6%, but up on HY20 by 33%. This sector of our
business was the hardest hit by the AKM chip manufacturer's fire
that resulted in a required rework of much of the portfolio,
causing product shortages during the first half. Demand for the
products has continued to be strong, fuelled by the ever-increasing
amount of new content being generated for consumers, wider
acceptance of enhanced formats, such as Dolby ATMOS, and more and
more professionals adopting networked audio.
Our Novation brand is dedicated to the electronic musician and
offer a range of solutions from groove boxes, grid controllers,
keyboards, and synthesizers. Novation products, like Focusrite,
experienced unusually high demand levels during the first half of
last year. Revenue for Novation products was down 19% compared to
HY21, but up 6% compared to HY20.
Ampify has continued to develop, refine, and add to the features
on its cross-platform music creation solution, Ampify Studio, as
well with our iOS music creation apps. As well as offering in-app
and subscription revenue streams, both continue to be a great
funnel for new users interested in electronic music. Although still
relatively small in comparison to the other brands, the number of
subscribers grew 245% with a 175% increase in MRR (monthly
recurring revenue). App revenue also increased year over year by
44%.
ADAM Audio
ADAM Audio, based in Berlin, is a globally recognised brand with
a passionate team focused on delivering world-class monitors
(speakers) for audio content creators. ADAM Audio's portfolio of
reference monitors encompasses the T-Series, A-Series and S-Series.
The T-Series speakers are award winning reference monitors designed
for the home studio market. The A-Series are used in both high-end
home studios and professional facilities alike, and the enterprise
level S-Series are showcased in some of the most prestigious audio
production facilities in the world.
ADAM had a difficult first half: component and manufacturing
delays caused a material reduction in available quantities of the
T-Series product for the holiday period and delayed a major product
transition resulting in stock outs. The net impact of these issues
resulted in ADAM finishing the first half 33% down from the
previous year, albeit 20% up over HY20. Coming into the second
half, both issues have been resolved. The T-series is back in stock
and a major revision to the A series has been launched to positive
industry reviews and with orders already ahead of forecast with
shipping due to start in April 2022.
Martin Audio (including Optimal Audio)
During the first half of the year Martin Audio has seen strong
growth in installations as well as positive signs of a global
return in live sound purchases. As a result, revenues are up 44%
compared to the prior year with a strong sales pipeline across all
sectors. The broad portfolio of installation specific product
alongside the strong market acceptance of the medium throw
(15m-30m) TORUS systems are fuelling this growth in installed
sound. Touring sales are slowly returning as customers come out of
the pandemic and here again, TORUS is proving to be popular with
its versatility and performance being well received by rental
companies. The latest Display 3 software is also exciting our
customer base as they see the benefits of 3D visualisation of sound
system design.
Our new commercial audio brand, Optimal Audio, now has systems
shipping with distribution signed up in over 30 countries and
production ramping up through the year. At the beginning of March
2022, we acquired Linea. Linea is a market leader in the specialist
amplifier and processing technology required to power live sound
loudspeakers and they are already a major supplier to Martin Audio
with the successful IKON Series. The addition of Linea to the Group
helps us to secure this supply chain alongside growing the
distribution and customer base for their own products, and enhance
our research and development capabilities.
Sequential
Sequential, based in San Francisco, was acquired in April of
last year. The Sequential brand is synonymous with world class
analogue synthesizers and has been at the forefront of electronic
music innovation for over 40 years. Sequential had a very strong
first half, finishing ahead of expectations despite component
shortage issues. Sequential has several new product releases
scheduled for the second half that are expected to strengthen its
performance further. Additionally, the Group has been expanding
Sequential's distribution and demand generation activities by
leveraging the scale of the FAEL and ADAM's global sales teams. We
expect to continue these efforts through the second half.
Research and development
R&D remains a cornerstone of our Group's strategy. In this
period, the Group launched seven new products to market as well as
a host of software and hardware upgrades. In addition, the Group
has a very robust set of product introductions scheduled for the
second half of this financial year with major launches planned in
most brands across the portfolio.
Regional review
Six months Six months Six months Year to
to 28 February to 28 February to 29 February 31 August
2022 2021 2020 2021
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ---------------- ---------------- ---------------- -----------
North America 39,763 41,845 18,094 74,633
Europe, Middle East and
Africa ('EMEA') 35,424 36,945 23,115 69,292
Rest of World ('ROW') 1 7,706 16,496 8,717 30,010
------------------------- ---------------- ---------------- ---------------- -----------
Total 92 ,893 95,286 49,926 173,935
------------------------- ---------------- ---------------- ---------------- -----------
North America
North America remains the largest region for the Group
representing 43% of total revenue in the period. FAEL, ADAM Audio
and Sequential products are sold through similar sales channels,
and Martin Audio's North America business is transacted through a
mix of live/tour sound rental companies, system integrators and
direct to end-users. In North America we have invested in sales,
marketing, logistics and customer service to support the expanded
business. At the beginning of this year, the Group set up a new
entity to allow our US based teams to cross-sell products in the
Group's portfolio and scale our finance, logistics, and support as
a shared service. This has settled in well and having the desired
impact.
Revenue for Focusrite brands in North America was down 12%
compared to H1 FY21 but up 117% compared to the same period
pre-pandemic in H1 FY20. ADAM Audio's performance was down 42%
year-on-year, largely as a result of the reasons cited above.
Compared to H1 FY20, ADAM Audio was up 8%. Sequential had a strong
first half continuing the sales volumes seen in the second half of
last year. Martin Audio's North America business was up 56% on the
prior year, highlighting great momentum due to the return of live
events.
EMEA
EMEA represented 38% of the Group's revenue for the first half
of FY22. Like North America, FAEL, ADAM Audio and Sequential
utilise a very similar set of distributors and resellers. The Group
has been undertaking initiatives in certain countries to begin
selling directly to the reseller channel as opposed to selling to a
distributor. To date, these actions have proven beneficial in terms
of margin and connectedness to the local channel and customers.
Martin transacts through a combination of distributors, system
integrators and live sound rental companies.
For Focusrite brands, the region was down 17% compared to H1
FY21 but up 31% on H1 FY20. ADAM Audio's EMEA business was down 26%
on the prior first half but up 27% over H1 FY20. Sequential had a
strong first half, trading ahead of our expectations. Martin also
delivered a strong performance in EMEA, finishing 68% up over the
prior year. Like North America, a great signal of the return of
live events as well as continued strength in installed sound.
ROW
ROW comprises all other regions outside of EMEA and North
America, principally made up of Asia Pacific ('APAC') and Latin
America ('LATAM') and constitutes 19% of total Group revenue.
Targeted as key areas for growth, the Group continues to invest
resources into these regions and now has over 20 people dedicated
to ROW demand generation and support activities.
As with North America and EMEA, APAC utilises similar channels
for the Focusrite, Novation, ADAM Audio and Sequential brands and a
combination of distributors, system integrators and rental
companies for Martin. In the first half, the Group initiated a
direct-to-reseller structure for Australia, replacing our existing
distributor and setting up our own logistics. This has performed
well, and we are planning to adopt this structure in other
strategic markets over the next few years. For Focusrite brands,
APAC was up 9% over the prior year. ADAM Audio was down 27%, mainly
due to the same issues outlined above relating to component supply.
Trading for Sequential in this region was ahead of expectations and
going forward will be supported through our internal distributor.
Martin Audio had a satisfactory performance in APAC, finishing 22%
up over the prior year. It is worth noting that for Martin, the
APAC region recovered quickly from pandemic/lockdowns last year, so
the comparisons over last year had minimal pandemic impact unlike
EMEA and North America.
LATAM finished 24% down over the prior year, although 46% ahead
of HY20. The results this year were impacted by supply issues into
the region, with both ADAM and FAEL brands reporting declines.
In summary, the Group has performed well and mitigated many of
the problems caused by global macro-economic issues. Going forward,
several industry data points support continued growth in the
content creation market and a robust return to live events. With
our current portfolio, planned product introductions and continued
focus on our growth strategy, we believe the Group is well
positioned for a successful second half and full year.
Financial Review
Overview
Against strong comparators the Group has retained much of the
sales volume gained during the pandemic, delivering revenue only
2.5% lower than the six months to February 2021, with adjusted (1)
EBITDA at GBP22.2 million (24% of sales). This is lower than HY21
adjusted EBITDA of GBP29.3 million, due to a reduction in the gross
margin as a result of short-term factors increasing freight costs,
together with prior year COVID savings reversing and the Group
investing to support growth and expansion. Reported operating
profit at GBP16.3 million (HY21: GBP24.2 million) has reduced for
the same reasons, together with a slightly higher depreciation
charge. Similarly, adjusted (1) diluted EPS of 27.1p is lower than
the prior year's 36.3p whilst almost three times that of HY20
(9.3p).
Income statement
HY22 HY22 HY22 HY21 HY21 HY21 HY20 HY20 HY20
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Adjusted Adjusting Reported Adjusted Adjusting Reported Adjusted Adjusting Reported
items items items
--------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Revenue 92.9 - 92.9 95.3 - 95.3 49.9 - 49.9
Cost of sales (49.6) - (49.6) (49.6) - (49.6) (26.9) - (26.9)
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Gross profit 43.3 - 43.3 45.7 - 45.7 23.0 - 23.0
Administrative
expenses (24.2) (2.8) (27.0) (19.4) (2.1) (21.5) (16.6) (3.4) (20.0)
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Operating profit 19.1 (2.8) 16.3 26.3 (2.1) 24.2 6.4 (3.4) 3.0
Net finance
income/(expense) 0.2 - 0.2 (0.6) - (0.6) (0.3) - (0.3)
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Profit before
tax 19.3 (2.8) 16.5 25.7 (2.1) 23.6 6.1 (3.4) 2.7
Income tax
expense (3.3) 0.3 (3.0) (4.3) - (4.3) (0.7) - (0.7)
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
Profit for the
period 16.0 (2.5) 13.5 21.4 (2.1) 19.3 5.4 (3.4) 2.0
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
HY22 HY22 HY22 HY21 HY21 HY21 HY20 HY20 HY20
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Adjusted Adjusting Reported Adjusted Adjusting Reported Adjusted Adjusting Reported
items items items
--------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
(2.1) (3.4)
Operating profit 19.1 (2.8)(1) 16.3 26.3 (1) 24.2 6.4 (1) 3.0
Add -
amortisation
of intangible 2.2 1.8 1.2
assets 1.9 (1) 4.1 2.0 (1) 3.8 2.0 (1) 3.2
Add -
depreciation
of tangible
assets 1.2 - 1.2 1.0 - 1.0 0.7 - 0.7
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
EBITDA 22.2 (0.6) 21.6 29.3 (0.3) 29.0 9.1 (2.2) 6.9
------------------ --------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
(1) Adjusting items comprise costs relating to the recent
acquisitions, sale of trademarks and amortisation of acquired
intangibles. They are further detailed in note 4 of the interim
statements.
Revenue
Revenue for the Group declined by 2.5% to GBP92.9 million (HY21:
GBP95.3 million) which, adjusting for acquisitions and constant
currency, represents an organic decline of 8.7%. Sequential was
purchased in April 2021 and contributed GBP6.6 million, ahead of
our expectations, in the first half year (HY21: nil). This first
half year the Group faced very strong comparators, together with
the ongoing challenges of managing through COVID and component
supply issues. Despite this, demand has remained at levels
significantly higher than pre pandemic, and although down on the
prior year, the first half of this year is 18% higher than the
second half of FY21, where component availability restricted
supply. These ongoing issues particularly impacted ADAM in the
first half of this year, contributing to the decline of 33%.
Conversely, Martin grew by 44% with the successful focus on
installed sound and the return of live markets delivering strong
growth.
HY21 HY22 HY22 Reported HY22
HY20 Revenue Revenue Revenue Growth OCC growth
Reported Reported Exchange As adjusted Reported (%) (%) (4)
---------- --------- ------------ ---------- ---------------- ------------
(11.7) (11.1)
Focusrite 38.4 74.0 (0.4) 73.6 65.4 % %
(33.1) (31.7)
ADAM Audio 7.0 12.6 (0.3) 12.3 8.4 % %
Martin Audio
(3) 4.5 8.7 (0.1) 8.6 12.5 44.0 % 45.3 %
--------------- ------------- ---------- --------- ------------ ---------- ---------------- ------------
(8.7)
Total organic 49.9 95.3 (0.8) 94.5 86.3 (8.6) % %
Sequential
(3) - - - - 6.6 N/A N/A
--------------- ------------- ---------- --------- ------------ ---------- ---------------- ------------
(8.7)
Total 49.9 95.3 (0.8) 94.5 92.9 (2.5) % %
--------------- ------------- ---------- --------- ------------ ---------- ---------------- ------------
(3) Martin Audio acquired December 2019 Sequential acquired in
April 2021.
(4) Organic constant currency (OCC) growth rate is calculated by
comparing FY22 revenue to FY21 revenue adjusted for FY22 exchange
rates and the impact of acquisitions .
Exchange rates were mixed in the period. The Euro average rate
strengthened to EUR1.18 (HY21: EUR1.14) and the USD average rate
weakened slightly from $1.36 in HY21 to $1.35 in HY22. The effect
of the Dollar movement is to decrease the revenue for HY22 relative
to HY21. However, at the profit level the USD effect is mitigated
by the purchases of stock in USD from the manufacturers in China
and Malaysia and the Euro effect is largely mitigated by the
Group's hedging policy (approximately 75% of Euro exposure is
hedged in the current financial year and approximately 50% is
hedged in the following financial year).
Segment profit
Segment profit is disclosed in more detail in note 3 to the
accounts named, 'Operating Segments'. These segments compare the
revenue of the products of the relevant brands with the directly
attributable costs to create segment profit.
Gross profit
In HY22, the gross margin was 46.6%, down from 48.0% in HY21.
Although all brands implemented price increases which more than
offset underlying cost increases, short term freight and component
supply issues added to downward pressures. Freight costs have
increased by approximately 2% of sales in this half year,
exacerbated by a greater mix of air freight to ensure supply during
the busy holiday period. In addition, the operations teams have
secured components for production through several spot buys at
higher prices, which is not expected to continue once supply
normalises.
HY22 and HY21 both include benefits from US duty refunds, GBP0.4
million this year and GBP0.6 million in HY21. All brands across the
Group monitor the impact of component price increases on our margin
and have taken action to increase sales prices to mitigate this in
the second half, whilst ensuring that product remains competitive
and value for money in the market.
Administrative expenses
Administrative expenses consist of sales, marketing, operations,
the uncapitalised element of research and development (partially
offset by the Research and Development Expenditure Credit regime
('RDEC') tax credit) and central functions such as legal, finance
and the Group Board. These expenses were GBP27.0 million, up from
GBP21.5 million last year. Excluding adjusting costs of GBP2.8
million (HY21: GBP2.1 million) (see Adjusting items section), the
operating costs were GBP24.2 million (HY21: GBP19.4 million).
Sequential contributed a full six months of costs of GBP1.6
million.
The underlying increase in administrative expenses, excluding
the impact of Sequential, of 16% has been a result of several
factors. HY21 at the height of the lockdowns included significant
savings relating to lower travel, marketing and office running
costs. During FY21 the Group invested to support the higher
volumes, with extra employees in service and product teams
resulting in a step up in costs in H2 FY21 which has continued at a
similar level in this half year as sales volumes have continued at
the same levels. In addition, the Group has strengthened central
infrastructure and security, including IT, to support an expanded
international group with increased requirements for remote working.
Much of this one off investment was made in the second half of
FY21, which had administrative expenses totalling GBP19.9 million.
Inflation has further impacted this half year, with cost increases
being mitigated by cost savings and efficiencies where
possible.
Adjusted EBITDA
Adjusted EBITDA is an alternative performance measure, and is
widely used by securities analysts, investors and other interested
parties to evaluate the profitability of companies. It is also used
within the Group as the basis for some of the incentivisation of
senior management at both the operating company level and the Group
level. Adjusted EBITDA decreased from GBP29.3 million in HY21 to
GBP22.2 million in HY22, a decrease of 24%. The decrease of GBP7.1
million was due to the lower gross margin and the increase in costs
to support the ongoing strong demand for our products and the
Group's expansion. Adjusted EBITDA as a percentage of sales is 24%,
lower than HY21 but ahead of the pre pandemic level in HY20 of
18.3%. A reconciliation to operating profit can be found in note
4.
Depreciation and amortisation
Depreciation is charged on tangible fixed assets on a
straight-line basis over the assets' estimated useful lives,
normally ranging between two and five years. Amortisation is mainly
charged on capitalised development costs, writing-off the
development cost over the life of the resultant product. The life
spans of the products vary across our brands, from three years for
Focusrite and Novation and up to eleven years for Martin Audio and
fifteen for Sequential, reflecting the different lifespans of the
products.
The amortisation of the acquired intangible assets totalled
GBP2.2 million during the period (HY21: GBP1.8 million) and has
been disclosed within adjusting items.
Across the Group, GBP3.2 million of development costs were
capitalised (HY21: GBP2.6 million) and the amortisation of
capitalised development costs was GBP1.5 million (HY21: GBP1.6
million).
Adjusting items
In HY22 adjusting items totalled GBP2.8 million (HY21 GBP2.1
million), GBP0.3 million relating to the diligence costs for the
acquisition of Linea that was completed on 10 March 2022, GBP1.1
million for the earn out relating to the Sequential acquisition,
and GBP2.2 million relating to amortisation of acquired intangible
assets, offset by GBP0.8 million of income from the sale of a
trademark. In HY21, the adjusting items included GBP0.3 million
relating to the diligence costs for the acquisition of Sequential
that was completed 26 April 2021 and GBP1.8 million relating to
amortisation of acquired intangible assets .
Foreign exchange and hedging
The exchange rates were as follows:
Exchange rates HY22 HY21 HY20 FY21
---------------- ----- ----- ----- -----
Average
USD:GBP 1.35 1.36 1.28 1.36
---------------- ----- ----- ----- -----
EUR:GBP 1.18 1.14 1.16 1.14
---------------- ----- ----- ----- -----
Period end
---------------- ----- ----- ----- -----
USD:GBP 1.34 1.39 1.28 1.38
---------------- ----- ----- ----- -----
EUR:GBP 1.20 1.15 1.16 1.17
---------------- ----- ----- ----- -----
The average USD rate has weakened slightly at $1.35:GBP1.00 for
HY22 (HY21: $1.36). The USD accounts for over half of Group revenue
but nearly all of the cost of sales so there is a useful natural
hedge.
The Group enters 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 ending August
2022) and approximately 50% of the Euro flows for the following
financial year (FY23).
In HY22, approximately three-quarters of Euro flows were hedged
at EUR1.13, and the average transaction rate was EUR1.18, thereby
creating a blended exchange rate of approximately EUR1.15. In HY21,
the equivalent hedging contracts were at EUR1.12, versus the
transactional rate of EUR1.14 and so creating a blended exchange
rate of EUR1.13.
Hedge accounting is used, meaning that the hedging contracts
have been matched to income flows and, providing the hedging
contracts remain effective, movements in fair value are shown in a
hedging reserve in the balance sheet, until the hedge transaction
occurs.
Corporation tax
The effective tax rate for the period is 18.6% (HY21: 18.2%),
increasing slightly as brought forward losses are now utilised. In
both years the rate has been impacted by the disallowance of
certain adjusting item costs for corporation tax, including
depreciation of acquired intangibles and costs relating to
diligence on acquisitions. Adjusting for these, the underlying
effective rate is 16.4% (HY21: 16.7%). Since September 2020 the
Group has been part of the RDEC tax scheme for R&D credits, and
as a result a credit of GBP0.2 million has been recognised against
uncapitalised R&D costs within Administrative expenses, which
is taxable. The effective tax rate is expected to move to be
broadly in line with the UK headline rate, which is due to increase
on 1 April 2023 to 25% as outlined by the Chancellor.
Earnings per share ('EPS')
The basic EPS for the half year was 23.1 pence, down 3 0 % from
33.2 pence in HY21. This decrease has largely followed the change
in reported profit after tax. The weighted average number of shares
used for the calculation has increased marginally compared to the
prior year at 58,215,504 shares (HY21: 58,077,283 shares). The more
comparable measure, excluding adjusting items and including the
dilutive effect of share options, is the adjusted diluted EPS. This
decrease d to 27.1 pence, from 36.3 pence in HY21, a decrease of 2
5 %.
HY22 HY21 HY20 FY21
Pence Pence Pence Pence
------------------ ------ ------ ------ ------
Basic 23.1 33.2 3.6 48.8
Diluted 22.8 32.7 3.5 48.2
Adjusted basic 27.4 36.9 9.4 58.2
Adjusted diluted 27.1 36.3 9.3 57.5
------------------ ------ ------ ------ ------
Balance sheet
HY22 HY21 HY20 FY21
GBPm GBPm GBPm GBPm
-------------------------------------- ------- ------- ------- -------
Non-current assets 66.2 51.2 63.3 62.8
Current assets
Inventories 25.7 15.9 18.6 20.7
Trade and other receivables 23.7 18.2 19.3 16.3
Cash 17.8 18.8 12.8 17.3
Current liabilities
Trade, other payables and provisions (29.9) (20.5) (15.7) (25.5)
Non-current liabilities
Bank loan or overdraft 0.2 0.3 (32.7) 0.3
Other non-current liabilities (9.6) (8.6) (10.6) (7.6)
-------------------------------------- ------- ------- ------- -------
Net assets 94.1 75.3 55.0 84.3
-------------------------------------- ------- ------- ------- -------
Non-current assets
The non-current assets comprise: goodwill, brands, patents and
capitalised development costs; property, plant and equipment; and
software.
Goodwill totals GBP9.7 million (HY21: GBP7.9 million). This
comprises Martin Audio's GBP2.3 million, ADAM Audio's GBP4.8
million, Novation's GBP0.4 million and Sequential's GBP2.2
million.
The brands were initially valued at GBP20.4 million. This
comprises Martin Audio's GBP6.8 million, which is being amortised
over twenty years, ADAM Audio's GBP7.5 million, which is being
amortised over ten years and Sequential at GBP6.1 million similarly
between ten and fifteen years. At 28 February 2022 the brands had
carrying value, net of amortisation, of GBP16.8 million (HY21:
GBP12.7 million).
The capitalised development costs comprise acquired developments
in relation to both completed products and products currently in
development, and internally generated development costs for
products currently on sale and currently in development. The
amortisation periods range from three years to eleven years
depending on the expected life of the products. The shorter
amortisation periods are more usual for Focusrite and Novation
products and the longer periods for the ADAM Audio monitors and the
Martin Audio live speakers. The capitalised development costs have
a carrying value, net of amortisation, of GBP31.0 million (HY21:
GBP25.6 million).
Based on current trading and management forecasts, no
impairments to the carrying value of the intangible assets have
been deemed necessary. This will be reassessed at the year-end for
evidence of any permanent diminution in value.
Overall, the amortisation of the intangible assets totals GBP4.1
million (HY21: GBP3.8 million). This is split between amortisation
of intangible assets acquired as part of the acquisitions of GBP2.2
million (HY21: GBP1.8 million), and other amortisation of GBP1.9
million (HY21: GBP2.0 million). The amortisation of acquired
intangible assets has been treated as an adjusting item. The
ongoing amortisation relates to the capitalised development costs
for new products. The difference in the period between ongoing
amortisation and capitalised development costs is GBP1.7 million
(HY21: GBP1.2 million).
The remaining GBP8.7 million (HY21: GBP5.0 million) of
non-current assets consist mainly of right of use assets relating
to the Group's leased offices and warehouses, tooling equipment for
the manufacture of products and other intangible assets such as
software and trademarks. The lease for the Martin premises was
renewed in this half year adding an asset of GBP3.5 million and a
liability of GBP3.5 million to the balance sheet.
Working capital
Working capital was 11.4% of revenue (HY21: 7.7%). Inventory has
increased, as supply for Focusrite products has improved, allowing
us to rebuild from very low stock positions, a trend which is
expected to continue in the second half of the year enabling the
Group to return to historic and more resilient levels of working
capital at around 20% of revenue. As is our practice, creditors
continue to be paid on time.
Cash flow
HY22 HY21 HY20 FY21
GBPm GBPm GBPm GBPm
Free cash flow(4) 2.7 5.5 (0.6) 4.9
Adjusted for the following items
Acquisition of subsidiary (net of cash acquired) - - 4.3 13.9
Bank loan (net of arrangement fee) - 12.0 - 11.9
Adjusting items (cash outflow) (5) 0.2 - 0.7 0.8
-------------------------------------------------- ----- ----- ------ -----
Underlying free cash flow 2.9 17.5 4.4 31.5
-------------------------------------------------- ----- ----- ------ -----
(4) Defined as net cash from operating activities less net cash
used in investing and financing activities, excluding dividends
paid.
(5) Defined as net cash payments for Adjusting costs and
income.
The underlying free cash flow in HY22 was GBP2.9 million, which
was 3.1% of revenue. In the comparative period, the underlying free
cash flow was GBP17.5 million which was 18.4% of revenue.
Underlying free cash flow as a percentage of revenue is a key
performance measure within the Group and forms an element of the
incentivisation metrics for senior management across the Group. As
referenced in the FY21 year end results, we expect underlying free
cashflow this year to be lower than our historic average of
approximately 12% of revenue as we rebuild stock levels which were
depleted due to high demand and component shortages and other
supply constraints in FY21.
Free cash flow is 2.9% of revenue and is impacted by similar
issues as underlying free cashflow. In the prior year adjusting
items related to the acquisition of Sequential and the repayment of
loans relating to both this and the Martin acquisition. In the
current first half year they relate to the payment of the first
part of the Sequential earn out and the income received from the
sale of a trademark.
The net cash balance at the period end was GBP18.0 million
(HY21: net cash of 19.1 million and FY21: net cash of GBP17.6
million). This includes the arrangement fee for the RCF of GBP0.2m
which is being amortised across the period of the facility. The
Group has a GBP40 million revolving credit loan facility split
evenly between HSBC and NatWest due for renewal in December 2024.
As at the balance sheet date there were no amounts drawn down from
the facility (HY21: nil, FY21 nil).
Dividend
The Board has approved an interim dividend of 1.85 pence (HY21:
1.5 pence) a growth of 23%, in line with the Group's progressive
dividend policy, and reflecting the Board's confidence in the
Group's prospects.
Summary and outlook
Demand for the Group's portfolio of products has remained
strong, and the Group's overall performance in the half year was in
line with our expectations and remains on track for the full year.
As anticipated, demand and sales volumes for home creation
solutions has tapered off from the unprecedented high levels during
the peak of lockdown but remain materially ahead of pre pandemic
levels. This is further supported by many trade sources citing
continued growth in streaming services and content creation. In
addition, the Group has seen the installed sound market continue to
grow with positive signs towards a full recovery of live events.
The Group's continued diversification of its portfolio, routes to
market, and logistics served us well during the first half,
enabling us to perform well despite many challenging global
macro-economic issues at play.
Trading since the half year has continued in line with the
Board's expectations. The outlook for our industry remains
positive, pointing towards continued growth in the content creation
market, as well as a robust return to live events. With our current
portfolio, planned product introductions and continued focus on our
growth strategy, including acquisitions, such as Linea research
acquired in March, we believe the Group is well positioned for a
successful second half and remains on track to meet our
expectations for the full year against an easier year on year
comparator. As always, we remain vigilant in view of the ongoing
uncertain global situation, but continue to remain optimistic about
the future prospects for the Group.
Tim Carroll Sally McKone
Chief Executive Officer Chief Financial Officer
25 April 2022 25 April 2022
Risks and Uncertainties
The Board has considered the principal risks and uncertainties
for the remaining half of the financial year and determined that a
number of the risks presented in the 2021 Annual Report, described
as follows, also remain relevant to the rest of this financial year
and could have a material impact on the Group's performance
although they are not expected to cause the Group's actual results
to differ materially from the expected results:
-- Business strategy development and implementation;
-- Product supply;
-- Information security, data privacy and business continuity and cyber risk; and
-- Climate Change.
Conflict in Ukraine
The tragic war in Ukraine makes for extraordinary uncertainty
and potentially serious economic consequences. The Group trades
through distributors in Russia, Ukraine and Belarus, and has ceased
trading within all these markets. Annual revenue in these markets
was approximately GBP2 million last year and the Group has no
employees or significant suppliers based in these countries.
COVID
The threat of general disruption to operations, including from
government restrictions, the impact on the supply chain and on
people availability as a result of COVID has continued to be felt
although to a lesser extent than in the first year of the pandemic.
Whilst demand has stayed strong, it is less than in the prior year
and the volatility, uncertainty and disruption arising in
connection with COVID remains. In particular, sporadic shut-downs
of our contract manufacturers in order to halt the spread of the
disease, particularly in China, and shipping and container delays
present a threat to the Group's ability to deliver products across
the world and make for an unknown trading outlook.
People
We understand the effect the COVID pandemic has had on our
people's mental health. As stories of longer hours, the inability
to switch off and feelings of insecurity in relation to the return
- albeit on a hybrid basis - to office working abound in the press
we have continued with our efforts to support the good health and
wellbeing of our people. Earlier this year we introduced our first
wellbeing forum and partnered with Music Support - a mental health
charity for people in the music industry, run by people in the
music industry. Working with them we have been training a number of
mental health first aiders and offering all our people mental
health awareness training all with the aim of remaining a great
place to work.
The job market has changed during the pandemic with candidates
having more choice and we are responding to this. We are taking
steps to accelerate our recruitment process so that offers can
quickly be made to candidates and continually monitor the packages
we offer to ensure we can attract, retain and motivate our
people.
ESG and our sustainability strategy
As a responsible and trusted business, we are proactively
addressing environmental, social and governance risks and our pace
of change in this area has only intensified. Our overarching
ambition is for the Group to be an industry leader on
sustainability issues and to that end we have conducted an
extensive materiality assessment to develop our detailed
sustainability objectives and targets. This is outlined in our 2021
Annual Report on pages 38 to 52.
Cost inflation
The rate of cost inflation has been widely reported and is
prevalent in most of our major markets. Our operations teams
constantly work to build our products as efficiently and cost
effectively as possible and our brand strength helps us to mitigate
cost increases with price increases, whilst still striving to
remain competitive in the market.
Ongoing severe cost inflation may also impact the discretionary
income available to our customers. By remaining competitive in the
market and offering premium desirable products we aim to mitigate
this by being the first choice for customers.
Forward looking statements
Forward-looking statements in this first half year report must
not be relied upon as guarantees or predictions of future
performance. The business continues to face known and unknown
risks, uncertainties and other factors, many of which are beyond
our control, which may mean our actual results differ from those
expressed in this first half year report.
Condensed Consolidated Income Statement
For the six months ended 28 February 2022
Six months to Six months to 28 February Year to
Note 28 February 2022 2021 31 August 2021
GBP'000 GBP'000 GBP'000
--------------------------------------- ----- ------------------ -------------------------- ----------------
Revenue 2 92,893 95,286 173,935
Cost of sales (49,630) (49,594) (89,805)
--------------------------------------- ----- ------------------ -------------------------- ----------------
Gross profit 43,263 45,692 84,130
Administrative expenses (27,809) (21,5 41 ) (48,356)
Other income 829 - -
Adjusted EBITDA (non-GAAP measure) 22,222 29,236 47,548
Depreciation and amortisation (3,146) (2,946) (6,133)
Adjusting items for Adjusted EBITDA:
Amortisation of acquired intangible
assets (2,236) (1,869) (4,013)
Adjusting items 4 (557) (270) (1,628)
Operating profit 16,283 24,151 35,774
Finance income 351 - 48
Finance costs (106) (589) (784)
--------------------------------------- ----- ------------------ -------------------------- ----------------
Profit before tax 16,528 23,562 35,038
Income tax expense 5 (3,075) (4,296) (6,759)
--------------------------------------- ----- ------------------ -------------------------- ----------------
Profit for the period from continuing
operations 13,453 19,266 28,279
---------------------------------------------- ------------------ -------------------------- ----------------
Earnings per share
From continuing operations
----- ------------------ --------------------------
Basic (pence per share) 7 23.1 33.2 48.8
--------------------------------------- ----- ------------------ -------------------------- ----------------
Diluted (pence per share) 7 22.8 32.7 48.2
--------------------------------------- ----- ------------------ -------------------------- ----------------
Condensed Consolidated Statement of Other Comprehensive
Income
For the six months ended 28 February 2022
Six months to Six months to Year to
28 February 2022 28 February 2021 31 August 2021
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------ ----------------
Profit for the period 13,453 19,266 28,279
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign
operations (1,375) (265) (726)
(Loss)/gain on forward foreign exchange contracts
designated and effective as a hedging instrument (144) 626 445
Tax on hedging instrument 27 (151) (85)
------------------------------------------------------ ------------------ ------------------ ----------------
Total comprehensive income for the period 11,961 19,476 27,913
------------------------------------------------------ ------------------ ------------------ ----------------
Profit attributable to:
Equity holders of the Company 11,961 19,476 27,913
------------------------------------------------------ ------------------ ------------------ ----------------
Condensed Consolidated Statement of Financial Position
Note 28 February 2022 28 February 2021 31 August 2021
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----- ----------------- ----------------- ---------------
Assets
Non-current assets
Goodwill 9,710 7,882 10,054
Other intangible assets 8 49,984 39,500 49,066
Property, plant and equipment 6,466 3,833 3,646
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total non-current assets 3 66,160 51,215 62,766
---------------------------------------------- ----- ----------------- ----------------- ---------------
Current assets
Inventories 25,717 15,908 20,749
Trade and other receivables 22,404 17,326 14,775
Derivative financial instruments 9 572 846 716
Current tax asset 702 - 869
Cash and cash equivalents 9 17,813 18,792 17,339
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total current assets 67,208 52,872 54,448
---------------------------------------------- ----- ----------------- ----------------- ---------------
Current liabilities
Trade and other payables ( 27,168) (14,938) (23,673)
Other liabilities (987) (888) (774)
Current tax liabilities - (3,390) -
Provisions ( 1,711) (1,319) (1,092)
Total current liabilities ( 29,866) (20,535) (25,539)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Net current assets 37,342 32,337 28,909
Total assets less current liabilities 103,502 83,552 91,675
Non-current liabilities
Deferred tax ( 6,182) (6,311) (5,996)
Other liabilities (3,442) (681) (511)
Provisions - (1,519) (1,069)
Bank loan and arrangement fee 9 211 303 248
Total non-current liabilities (9,413) (8,208) (7,328)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total liabilities (39,279) (28,743) (32,867)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Net assets 94,089 75,344 84,347
---------------------------------------------- ----- ----------------- ----------------- ---------------
Equity and liabilities
Capital and reserves
Share capital 59 59 59
Share premium 115 115 115
Merger reserve 14,595 14,595 14,595
Merger difference reserve (13,147) (13,147) (13,147)
Translation reserve (1,904) (68) (529)
Hedging reserve 572 846 716
EBT reserve - (1) (1)
Retained earnings 93,799 72,945 82,539
Equity attributable to owners of the Company 94,089 75,344 84,347
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total equity 94,089 75,344 84,347
---------------------------------------------- ----- ----------------- ----------------- ---------------
Condensed Consolidated Statements of Changes in Equity
For the six Merger
months ended 28 Share Share Merger difference Translation Hedging EBT Retained
February 2022 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 2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Profit for the
period - - - - - - - 13,453 13,453
Other
comprehensive
(expense)/income
for the period - - - - (1,375) (144) - 27 (1,492)
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Total
comprehensive
(expense)/income
for the period - - - - (1,375) (144) - 13,480 11,961
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Transactions with
owners of the
Company:
Share-based
payment deferred
tax deduction in
excess of
remuneration
expense - - - - - - - (1,091) (1,091)
Share-based
payment current
tax deduction in
excess of
remuneration
expense - - - - - - - 598 598
Shares from EBT
exercised - - - - - - 1 591 592
Share-based
payments - - - - - - - 499 499
Shares withheld
to settle
employees' tax
obligations
associated with
share-based
payments - - - - - - - (865) (865)
Premium on shares
awarded in lieu
of bonuses - - - - - - - 202 202
Dividends paid - - - - - - - (2,154) (2,154)
Balance at 28
February 2022 59 115 14,595 (13,147) (1,904) 572 - 93,799 94,089
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the six Merger
months ended 28 Share Share Merger difference Translation Hedging EBT Retained
February 2021 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 2020 58 115 14,595 (13,147) 197 220 (1) 54,861 56,898
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Profit for the
period - - - - - - - 19,266 19,266
Other
comprehensive
(expense)/income
for the period - - - - (265) 626 - (151) 210
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Total
comprehensive
(expense)/income
for the period - - - - (265) 626 - 19,115 19,476
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Transactions with
owners of the
Company:
Shares issued to
EBT 1 - - - - - (1) - -
Share-based
payment deferred
tax deduction in
excess of
remuneration
expense - - - - - - - 259 259
Share-based
payment current
tax deduction in
excess of
remuneration
expense - - - - - - - 447 447
Shares from EBT
exercised - - - - - - 1 300 301
Share-based
payments - - - - - - - 305 305
Shares withheld
to settle
employees' tax
obligations
associated with
share-based
payments - - - - - - - (720) (720)
Premium on shares
awarded in lieu
of bonuses - - - - - - - 60 60
Dividends paid - - - - - - - (1,682) (1,682)
Balance at 28
February 2021 59 115 14,595 (13,147) (68) 846 (1) 72,945 75,344
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the year Merger
ended 31 August Share Share Merger difference Translation Hedging EBT Retained
2021 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 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
(expense)/income
for the period - - - - (726) 445 - (85) (366)
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Total
comprehensive
(expense)/
income for the
period - - - - (726) 496 - 28,143 27,913
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Transactions with
owners of the
Company:
Shares issued to
EBT 1 - - - - - (1) - -
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
associated with
share-based
payments - - - - - - - (739) (739)
Premium on shares
awarded 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 Statement of Cash Flow
For the six months ended 28 February 2022
Six months to Six months to Year to
28 February 2022 28 February 2021 31 August 2021
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit for the period 13,453 19,266 28,279
Adjustments for:
Income tax expense 3,075 4,296 6,759
Net interest (income)/charge (228) 574 736
Loss on disposal of property, plant and equipment 15 - 4
(Gain)/loss on disposal of intangible assets (854) - 498
Amortisation of intangibles 4,093 3,786 8,126
Depreciation of property, plant and equipment 1,289 1,029 2,022
Share-based payments 515 416 973
Operating cash flow before movements in working capital 21,358 29,367 47,397
(Increase)/decrease in trade and other receivables (7,592) 527 3,533
(Increase)/decrease in inventories (4,966) 3,465 (1,023)
Increase/(decrease) in trade and other payables 2,491 (8,169) (773)
Operating cash flow before interest and tax paid 11,291 25,190 49,134
Net interest received/(paid) 246 (145) (311)
Income tax paid (2,722) (2,819) (9,741)
Net foreign exchange movement (1,285) (700) (566)
Net cash inflow from operating activities 7,530 21,526 38,516
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash flows from investing activities
Purchases of property, plant and equipment (378) (779) (1,126)
Proceeds from disposal of intangible assets 978 - -
Development of intangible assets (5,024) (2,911) (5,485)
Acquisition of subsidiary, net of cash acquired - - (13,948)
---------------------------------------------------------- ------------------ ------------------ ----------------
Net cash used in investing activities (4,424) (3,690) (20,559)
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash flows from financing activities
Issue of equity shares - 1 -
Proceeds from loans and borrowings - - 7,353
Repayments of loans and borrowings - (12,000) (19,335)
Payment of right of use liabilities (478) (338) (1,057)
Equity dividends paid (2,154) (1,682) (2,554)
Net cash used in financing activities (2,632) (14,019) (15,593)
---------------------------------------------------------- ------------------ ------------------ ----------------
Net increase in cash and cash equivalents 474 3,817 2,364
Cash and cash equivalents at beginning of the period 17 ,339 14,975 14,975
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash and cash equivalents at end of the period 17 ,813 18,792 17,339
---------------------------------------------------------- ------------------ ------------------ ----------------
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation and significant accounting policies
Focusrite plc (the 'Company') is a company incorporated in the
UK. The condensed consolidated interim financial statements
('interim financial statements') as at and for the six months ended
28 February 2022 comprised the Company and its subsidiaries
(together referred to as the 'Group').
The Group is a business engaged in the development, manufacture
and marketing of professional audio and electronic music
products.
Statement of compliance
The condensed set of financial statements are for the six months
ended 28 February 2022 and are presented in Pounds ('GBP'
thousands; GBP'000). This is the functional currency of the
Group.
The condensed set of financial statements has been prepared in
accordance with the recognition and measurement requirements of
UK-adopted international accounting standards and the AIM
rules.
The annual financial statements of the Group for the year ended
31 August 2022 will be prepared in accordance with UK-adopted
international accounting standards. The condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's
published consolidated financial statements for the year ended 31
August 2021 which were prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006.
AIM listed companies are not required to comply with IAS 34
'Interim Financial Reporting' and accordingly the Company has taken
advantage of this exemption. The condensed financial statements do
not include all the information required for a complete set of IFRS
financial statements. However, selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in the Group's financial position
and performance since the last annual consolidated financial
statements as at and for the year ended 31 August 2021.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 25 April 2022.
The comparative figures for the financial year ended 31 August
2021 are the Company's statutory accounts for that financial year.
Those accounts have been reported on by the Company's auditor and
delivered to the registrar of companies. The report of the auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
Significant accounting policies
The condensed set of financial statements has been prepared
applying the accounting policies and presentation that were applied
in the preparation of the company's published consolidated
financial statements for the year ended 31 August 2021 which were
prepared in accordance with International Accounting Standards
(IAS) in conformity with the requirements of the Companies Act
2006.
1.1 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and subsidiaries controlled by the
Company drawn up to 28 February 2022.
1.2 Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the Group takes into
consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases.
1.3 Going concern
The Board of Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence and meet their liabilities as they fall due
for a period of at least 16 months from the date of approval of
these interim financial statements ("the going concern period").
Accordingly, the interim 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 period ending 16 months from the date of their approval of
these financial statements. These forecasts include a severe but
plausible downside scenario.
The base case covers the period to August 2023 and includes
demanding but achievable forecast growth. The forecast has been
extracted from the Group's FY22 forecast and three-year plan. Key
assumptions include:
-- Future growth assumptions consistent with those recently
achieved by the business and adjusted for the annualization of
Linea's (new acquisition) results.
-- Continued investments 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 other than the acquisition of Linea Research Holdings Ltd
that was completed in March 2022.
Throughout the period the forecast cash flow information
indicates that the Group will have sufficient cash reserves and
comply with the leverage and interest cover covenants contained
within the facility.
The Directors' view is that a severe yet plausible downside
assumption against their base case forecasts is estimated to be a
revenue shortfall of 30% on the base case for a 13-month period
commencing May 2022 with a slow return of 5% per month thereafter.
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. As an additional measure, the
Directors could also cancel the dividend. Even at that level, 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 0.3x compared to the maximum of 2.5x.
The Group's net debt position under this severe plausible downside
scenario would still be expected to improve at the end of the
13-month period.
In reality, the Group is still experiencing levels of consumer
registrations and customer demand significantly higher than
pre-pandemic. This is evidenced by Group's net cash position which
was approximately GBP7.4 million at 1 April 2022 even after funding
the acquisition of Linea as indicated above. Consequently, the
Directors are confident that the Group will have sufficient funds
to continue to meet their liabilities as they fall due for at least
16 months from the date of approval of the financial statements and
therefore have prepared the financial statements on a going concern
basis.
1.4 Earnings per share
The Group presents basic and diluted earnings per share ('EPS')
data for its ordinary shares. Basic EPS is calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
For diluted EPS, the weighted average number of ordinary shares is
adjusted for the dilutive effect of potential ordinary shares
arising from the exercise of granted share options.
1.5 Accounting estimates and judgements
In application of the Group's accounting policies, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by the Directors in
applying the Group's accounting policies and key sources of
estimation uncertainty were the same as those applied to the
Group's financial statements for the year ended 31 August 2021.
1.6 Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which it operates (its functional currency). Sterling is the
predominant functional currency of the Group and presentation
currency for the consolidated financial information.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the
period in which they arise. Exchange differences on revenue are
recognised within revenue. Exceptions to this are as follows:
-- Exchange differences on transactions entered into to hedge
certain foreign currency risks (see below under cash flow
hedges/financial instruments); and
-- For the purpose of presenting consolidated financial
information, exchange differences on monetary items receivable from
or payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net
investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of the transactions are used. Exchange
differences arising, if any, are recognised in the income
statement.
1.7 Hedge accounting
The Group has adopted hedge accounting for qualifying
transactions. Derivatives are initially recognised at fair value at
the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date. The
resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit
or loss depends on the nature of the hedge relationship. The Group
designates certain derivatives as either hedges of the fair value
of recognised assets or liabilities of firm commitments (fair value
hedges), hedges of highly probable forecast transactions or hedges
of foreign currency risk of firm commitments (cash flow hedges), or
hedges of net investments in foreign operations.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised directly in the hedging reserve. Any ineffective portion
of the hedge is recognised immediately in the income statement.
When the forecast transaction subsequently results in the
recognition of a non-financial item, the associated cumulative gain
or loss is removed from the hedging reserve and is included in the
initial carrying amount of the non-financial asset or
liability.
For all other hedged forecast transactions, the associated
cumulative gain or loss is removed from equity and recognised in
the income statement in the same period during which the hedged
expected future cash flows affects profit or loss.
When the hedging instrument is sold, expires, is terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
equity and is recognised in accordance with the above policy when
the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealised gain or loss
recognised in equity is recognised in the income statement
immediately.
1.8 Alternative Performance Measures (APMs) and Adjusting
items
The Group has disclosed certain alternative performance measures
('APMs') within these interim 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 considers that the term
'Adjusted' together with an adjusting items category, provides a
helpful view of the ongoing trading performance of the Group.
Adjusted results will therefore exclude certain significant
costs such as intangible amortisation, together with some
non-recurring benefits and so should not be regarded as a complete
picture of the Group's financial performance. These measures are
not defined terms under IFRS and therefore they may not be
comparable with similarly titled measures reported by other
companies. They are not intended to be a substitute for, or
superior to, IFRS measures.
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 of
acquired businesses, sale of trademark (only in HY22) and
restructuring costs, together with amortisation of acquired
intangible assets.
The following APMs have been used in these interim results:
-- Organic growth - the organic constant currency growth rate is
calculated by comparing HY22 revenue to HY21 revenue adjusted for
HY22 exchange rates and the impact of acquisitions.
-- Adjusted EBITDA - comprising profit before tax 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
Linea Research Holdings Ltd (GBP0.3 million), earnout payable to
employees of Sequential (GBP1.1 million), gain on sale of trademark
(GBP0.8 million) and amortisation of acquired intangibles (GBP2.2
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
the net cash effect of adjusting items
-- Net cash/(debt) - comprised of cash and cash equivalents,
overdrafts and amount drawn against the RCF including the costs of
arranging the RCF.
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to February Six months to February
2022 2021
----------------------------------- -----------------------------------------
North EMEA Rest Total North EMEA Rest Total
America of World America of World
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ---------- ---------- -------- --------- -------- ---------- ----------
Focusrite 25,530 18,177 8,697 52,404 28,578 21,787 7,960 58,325
Focusrite Pro 1,322 869 319 2,510 1,324 919 432 2,675
Novation 4,525 4,280 1,706 10,511 5,880 5,253 1,910 13,043
ADAM Audio 2,381 4,702 1,337 8,420 4,111 6,356 2,115 12,582
Martin Audio 3,041 4,397 5,021 12,459 1,952 2,620 4,079 8,651
Sequential 2,964 2,999 626 6,589 - - - -
Distribution - - - - - 10 - 10
-------------- ----------- ---------- ---------- -------- --------- -------- ---------- ----------
Total 39,763 35,424 17,706 92,893 41,845 36,945 16,496 95,286
-------------- ----------- ---------- ---------- -------- --------- -------- ---------- ----------
Year to August 2021
---------------------------------------------
North EMEA Rest Total
America of World
GBP'000 GBP'000 GBP'000 GBP'000
-------------- ----------- ---------- ---------- --------
Focusrite 47,200 37,403 12,615 97,218
Focusrite Pro 2,238 1,635 1,004 4,877
Novation 9,706 9,242 3,314 22,262
ADAM Audio 8,073 11,849 3,943 23,865
Martin Audio 4,787 6,983 8,628 20,398
Sequential 2,629 2,164 506 5,299
Distribution - 16 - 16
-------------- ----------- ---------- ---------- --------
Total 74,633 69,292 30,010 173,935
-------------- ----------- ---------- ---------- --------
3. Operating segments
Products and services from which reportable segments derive
their revenue
Information reported to the Group's Chief Executive Officer (who
has been determined to be the Group's Chief Operating Decision
Maker) for the purposes of resource allocation and assessment of
segment performance is focused on the main product groups which the
Group sells. While the results of Novation and Ampify are reported
separately to the Board, they meet the aggregation criteria set out
in IFRS 8 'Operating Segments'. 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 and Ampify branded products
ADAM Audio - Sale of ADAM Audio products
Martin Audio - Sale of Martin Audio and Optimal Audio
products.
Sequential - Sale of Sequential products. (Acquired 27 April
2021)
Distribution - Sale of third party monitors, ceased following
the acquisition of ADAM
The revenue and profit generated by each of the Group's
operating segments are summarised as follows:
Six months to Year to
Six months to 28 February 31 August
28 February 2022 2021 2021
Restated* Restated*
GBP'000 GBP'000 GBP'000
------------------------------------------- ------------------ -------------- -----------
Revenue from external customers
Focusrite 52,404 58,325 97,218
Focusrite Pro 2,510 2,675 4,877
Novation 10,511 13,043 22,262
ADAM Audio 8,420 12,582 23,865
Martin Audio 12,459 8,651 20,398
Sequential 6,589 - 5,299
Distribution - 10 16
Total 92,893 95,286 173,935
------------------------------------------- ------------------ -------------- -----------
Segment profit
Focusrite 2 4,455 28,970 49,387
Focusrite Pro 1,489 1,348 2,453
Novation 4,464 5,196 8,686
ADAM Audio 4,081 6,219 11,789
Martin Audio 5,995 3,968 9,493
Sequential 2,779 - 2,341
Distribution - (9) (19)
------------------------------------------- ------------------ -------------- -----------
43 ,263 45,692 84,130
Central sales and administrative expenses (27,252) (21,271) (46,728)
Other income 829 - -
Adjusting items (557) (270) (1,628)
Operating profit 16 ,283 24,151 35,774
Finance income 351 - 48
Finance costs (106) (589) (784)
------------------------------------------- ------------------ -------------- -----------
Profit before tax 16,528 23,562 35,038
Tax (3,075) (4,296) (6,759)
Profit after tax 13,453 19,266 28,279
------------------------------------------- ------------------ -------------- -----------
Segment profit represents the profit earned by each segment
without allocation of the share of central administration costs,
finance income and finance costs, and income tax expense. This is
the measure reported to the Group's Chief Executive Officer for the
purpose of resource allocation and assessment of segment
performance.
Central administration costs comprise principally the
employment-related costs and other overheads incurred by the Group.
Also included within central administration costs is the charge
relating to the share option scheme of GBP515,000 for the six-month
period to 28 February 2022 (six months to 28 February 2021:
GBP416,000; year to 31 August 2021: GBP973,000).
* From 1 September 2021, "other cost of sales" cost allocations
across intercompany sales have been realigned to better reflect the
allocation of freight and warehousing costs between segments. This
has resulted in changes to segmental profit as previously reported
in the six months to 28 February 2021 and the year to 31 August
2021. As required by IFRS 8, comparative information has been
restated as indicated by "restated" in the Operating segments note.
The revision does not result in any changes to the condensed
consolidated income statement, condensed consolidated statement of
financial position or consolidated statement of cash flows.
Segment net assets and other segment information
Management does not make use of segmental data relating to net
assets and other balance sheet information for the purposes of
monitoring segment performance and allocating resources between
segments. Accordingly, other than the analysis of the Group's
non-current assets by region shown below, this information is not
available for disclosure in the condensed consolidated financial
information.
The Group's non-current assets, analysed by region, were as
follows:
28 February 28 February 31 August
2022 2021 2021
GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ ----------
Non-current assets
North America 16,033 590 15,104
Europe, Middle East and Africa 49,339 49,278 45,277
Rest of World 788 1,347 2,385
Total non-current assets 66,160 51,215 62,766
-------------------------------- ------------ ------------ ----------
4. Adjusting items
The following adjusting items have been charged/(credited) to
the income statement in the period
Six months to Six months to Year to
28 February 28 February 31 August
2022 2021 2021
GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------------- -------------- -----------
Adjusting income
Gain on sale of trademark (829) - -
Adjusting costs
Acquisition and due diligence costs 300 270 716
Earnout accrual in relation to acquisition 1,086 - 788
Restructuring - - 124
----------------------------------------------------- -------------- -------------- -----------
Total adjusting items for adjusted EBITDA 557 270 1,628
Amortisation of acquired intangible assets 2,236 1,869 4,013
----------------------------------------------------- -------------- -------------- -----------
Total adjusting items for adjusted operating profit 2,793 2,139 5,641
Tax on adjusting items (287) - (165)
Total adjusting items for adjusted profit after tax 2,506 2,139 5,476
----------------------------------------------------- -------------- -------------- -----------
Acquisition and due diligence costs in the six months to 28
February 2022 related to fees accrued for due diligence work
associated with the acquisition of Linea Research Holdings Ltd. The
earnout accrual relates to that part of the US$4 million
consideration that was classed as employee remuneration rather than
contingent consideration as part of the Sequential acquisition in
April 2021. It is payable directly to employees and is subject to
their continuing employment with Sequential until December
2022.
Below is a reconciliation from operating profit to adjusted
EBITDA
Six months to Six months to Year to
28 February 28 February 31 August
2022 2021 2021
GBP'000 GBP'000 GBP'000
------------------------------- -------------- -------------- -----------
Operating profit 16,283 24,151 35,774
------------------------------- -------------- -------------- -----------
Depreciation and amortisation 3,146 2,946 6,133
Adjusting items 2,793 2,139 5,641
Adjusted EBITDA 22,222 29,236 47,548
------------------------------- -------------- -------------- -----------
5. Taxation
The tax charge for the six months to 28 February 2022 is based
on the estimated tax rate for the full year in each
jurisdiction.
6. Dividends
The following equity dividends have been declared:
Six months to Six months to Year to
28 February 2022 28 February 2021 31 August 2021
---------------------------------------- ------------------ ------------------ ----------------
Dividend per qualifying ordinary share 1.85p 1.5p 5.2p
---------------------------------------- ------------------ ------------------ ----------------
Du ring the period, the Company paid a final dividend in respect
of the year ended 31 August 2021 of 3.7 pence per share. The Board
has approved an interim dividend of 1.85 pence per ordinary share
(HY21: 1.5 pence).
This will be payable on 10 June 2022 to ordinary shareholders on
the register on 13 May 2022. The ex-dividend date will be 12 May
2022.
7. Earnings per share
Reported EPS
Six months to Year to
The calculation of the basic and diluted EPS is based on the 28 February Six months to 31 August
following data: 2022 28 February 2021 2021
Earnings GBP'000 GBP'000 GBP'000
------------------------------------------------------------------- ---------------- ------------------ -----------
Earnings for the purposes of basic and diluted EPS being net
profit for the period 13,453 19,266 28,279
Adjusting items 2,793 2,139 5,641
Tax on adjusting items (287) - (165)
------------------------------------------------------------------- ---------------- ------------------ -----------
Total adjusted profit for adjusted EPS calculation 15,959 21,405 33,755
------------------------------------------------------------------- ---------------- ------------------ -----------
Six months to Six months to Year to
28 February 28 February 31 August
2022 2021 2021
number number number
Number of shares '000 '000 '000
------------------------------------------------------------------- ---------------- ------------------ -----------
Weighted average number of ordinary shares for the purposes of
basic EPS calculation 58,216 58,077 57,993
Effect of dilutive potential ordinary shares:
Employee and Director share option plans 694 890 725
Weighted average number of ordinary shares for the purposes of
diluted EPS calculation 58,910 58,967 58,718
------------------------------------------------------------------- ---------------- ------------------ -----------
EPS Pence Pence Pence
------------------------------------------------------------------- ---------------- ------------------ -----------
Basic EPS 23.1 33.2 48.8
Diluted EPS 22.8 32.7 48.2
Adjusted basic EPS 27.4 36.9 58.2
Adjusted diluted EPS 27.1 36.3 57.5
------------------------------------------------------------------- ---------------- ------------------ -----------
At 28 February 2022, the total number of ordinary shares issued
and fully paid was 58,661,639. This included 291,186 shares held by
the Employee Benefit Trust ('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 (58,661,639) less the weighted average number of
shares held by the EBT (446,135). 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.
8. Other intangible assets
Intellectual Internally Acquired Licences Trademark Computer Brands Total
property generated development software
development costs
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- ------------ ------------- --------- ------------- ------------- -------- --------
Cost
At 1
September
2020 580 23,690 19,943 166 826 1,527 14,300 61,032
Additions -
products
previously
under
development 2 488 - 30 229 330 - 1,079
Additions -
products
developed
during the
year - 2,802 - - - - - 2,802
Additions -
from
development
in progress - 1,604 - - - - - 1,604
Additions
through
business
combination - - 6,142 - - - 6,070 12,212
Foreign
exchange - - (188) - - - (350) (538)
Transfer (175) 175 -
Disposals - (2,839) - - - (447) - (3,286)
------------- ------------- ------------ ------------- --------- ------------- ------------- -------- --------
At 31 August
2021 407 25,745 25,897 196 1,055 1,585 20,020 74,905
------------- ------------- ------------ ------------- --------- ------------- ------------- -------- --------
Additions -
products
previously
under
development 21 3,186 - - 193 21 - 3,421
Additions -
products
developed
during the
period - - - 1,603 - - - 1,603
Foreign
exchange (4) - (465) - - 190 (240) (519)
Disposals - - - (13) - - (13)
------------- ------------- ------------ ------------- --------- ------------- ------------- -------- --------
At 28
February
2022 424 28,931 25,432 1,799 1,235 1,796 19,780 79,397
------------- ------------- ------------ ------------- --------- ------------- ------------- -------- --------
As at the 28 February 2022, there were GBP3,186,000 of assets
under construction within internally generated development costs
(HY21: GBP2,808,000).
Intellectual Internally Acquired Licences Trademark Computer Brands Total
property generated development software
development costs
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Amortisation
At 1
September
2020 520 15,506 2,152 122 464 826 1,068 20,658
Charge for
the year 1 3,463 2,780 41 287 321 1,233 8,126
Foreign
exchange - 9 (81) - - 27 (74) (119)
Transfer (114) - 114 -
Eliminated on
disposal - (2,371) - - - (455) - (2,826)
At 1
September
2021 407 16,607 4,851 163 751 833 2,227 25,839
Charge for
the period 18 1,518 1,400 29 158 252 718 4,093
Foreign
exchange (1) - (997) - 3 462 14 (519)
Eliminated on - - - - - - - -
disposal
At 28
February
2022 424 18,125 5,254 192 912 1,547 2,959 29,413
-------------- ------------- -------------- ------------- --------- ---------- ------------- -------- --------
Carrying
amount
-------------- ------------- -------------- ------------- --------- ---------- ------------- -------- --------
At 28
February
2022 - 10,806 20,178 1,607 323 249 16,821 49,984
-------------- ------------- -------------- ------------- --------- ---------- ------------- -------- --------
At 31 August
2021 - 9,138 21,046 33 304 752 17,793 49,066
-------------- ------------- -------------- ------------- --------- ---------- ------------- -------- --------
9. Financial instruments
The fair value of the Group's derivative financial instruments
is calculated using the quoted prices. Where such prices are not
available, a discounted cash flow analysis is performed using
applicable yield curve for the duration of the instruments for
non-optional derivatives, and an option pricing model for optional
derivatives. Foreign currency forward contracts are measured using
quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contract.
IFRS 13 'Fair Value Measurements' requires the Group's
derivative financial instruments to be disclosed at fair value and
categorised in three levels according to the inputs used in the
calculation of their fair value.
Financial instruments carried at fair value should be measured
with reference to the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial instruments held by the Group that are measured at
fair value all related to financial assets/(liabilities) measured
using a Level 2 valuation method.
The fair value of financial assets and liabilities held by the
Group are:
28 February 2022 28 February 2021 31 August 2021
GBP'000 GBP'000 GBP'000
-------------------------------------------- -------------------------- -------------------------- ----------------
Financial assets
Amortised cost
Cash and cash equivalents 17,813 18,792 17,339
Trade and other receivables 18,641 14,638 11,782
Designated cash flow hedge relationships
Derivative financial assets designated and
effective as cash flow hedging instruments 572 846 716
37,026 34,276 29,837
-------------------------------------------- -------------------------- -------------------------- ----------------
Financial liabilities
Amortised cost
Trade and other payables 19,381 7,459 12,028
Bank loan and arrangement fee (211) (303) (248)
19,170 7,156 11,780
-------------------------------------------- -------------------------- -------------------------- ----------------
The GBP0.2 million recorded against bank loan and arrangement
fee is the unamortised element of the amount paid to arrange the
RCF in December 2020. The cost is being written down over the term
of the RCF, which is five years. In previous periods it has been
shown net with the loan amount, however as at 28 February 2022 no
amount is drawn down against the RCF.
10. Subsequent events
On 10 March 2022, the Group completed the acquisition of 100% of
the share capital of Linea Research Holdings Ltd. The total
consideration paid was GBP12.6 million for Linea, which had
approximately GBP1 million of cash within net assets at the date of
acquisition. The initial consideration is GBP12.1 million of cash
paid on completion and the remaining GBP0.5 million to be paid in
cash subject to certain performance conditions relating to the
period ending May 2023. This has been funded through a combination
of existing cash resources and a GBP5 million drawdown on the
existing revolving credit facility of GBP40 million with HSBC and
NatWest.
Independent Review Report to Focusrite plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 28 February 2022 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Other Comprehensive Income, Condensed Consolidated Statement of
Financial Position, Condensed Consolidated Statements of Changes in
Equity, Consolidated Statement of Cash Flow and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 28 February 2022
is not prepared, in all material respects, in accordance with the
recognition and measurement requirements of UK-adopted
international accounting standards and the AIM Rules.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
As disclosed in note 1, the latest annual financial statements
of the group were prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and the next annual financial statements will be
prepared in accordance with UK-adopted international accounting
standards. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
report in accordance with the recognition and measurement
requirements of UK-adopted international accounting standards.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
James Tracey
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
25 April 2022
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END
IR IAMFTMTTTBRT
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