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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Focusrite Plc | LSE:TUNE | London | Ordinary Share | GB00BSBMW716 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 367.50 | 365.00 | 370.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Musical Instrument Stores | 178.47M | 17.8M | 0.3038 | 12.10 | 215.31M |
From Apr 2019 to Apr 2024
TIDMTUNE
RNS Number : 8305H
Focusrite PLC
20 November 2018
Strictly embargoed until: 07.00, 20 November 2018.
Focusrite plc
("the Company" or "the Group")
Final Results for the Year Ended 31 August 2018
Focusrite plc (AIM: TUNE), the global music and audio products company, announces Final Results for the year ended 31 August 2018.
Financial highlights
-- Group revenue grew by 13.7% (constant currency(1) : 15.3%) to GBP75.1 million (FY17: GBP66.1 million)
-- EBITDA(2) grew by 18.1% to GBP15.5 million (FY17: GBP13.1 million) -- Operating profit grew 26.1% to GBP11.9 million (FY17: GBP9.5 million) -- Adjusted(3) operating profit grew 22.6% to GBP11.6 million (FY17: GBP9.5 million) -- Diluted earnings per share grew 22.3% to 18.1p (FY17: 14.8p) -- Adjusted(3) diluted earnings per share grew 18.9% to 17.6p (FY17: 14.8p) -- Net cash of GBP22.8 million (FY17: GBP14.2 million) -- Final dividend of 2.3p recommended, resulting in 3.3p for the year, up 22.2% on prior year
Operational highlights
-- Once again, we experienced growth in both major segments (Focusrite and Novation) and in all reported geographic regions.
-- In Focusrite, all major ranges (Scarlett, Clarett, Red and RedNet) grew and the overall segment grew by 17.2%.
-- In Novation, the primary growth was in synthesisers following the launch of Peak, while the more established ranges such as Launch and Launchkey also grew, although at slower rates. Overall, Novation grew by 6.4%.
-- New efforts and investments in localised field personnel, marketing and support has increased net promoter scores (NPS) and driven widespread growth.
-- All major geographic regions grew: North America was up by 10.2%; Europe, Middle East and Africa by 18.1%; and the Rest of World by 13.3%.
-- Five new products launched over the year.
-- The software team continues to progress along its widened strategy of software development for both its own apps and the broader product development within the Group.
-- The e-commerce website is delivering products globally as part of the Group's efforts to ensure that customers can access the Group's products wherever they are in the world.
1 Constant currency revenue growth is calculated by taking the sterling value of FY18 revenue, converting to FY17 annual average exchange rates and comparing with the reported revenue for FY17. In addition, all foreign exchange movements disclosed in revenue are excluded from both years.
2 Comprising of earnings adjusted for interest, taxation, depreciation and amortization.
3 Adjusted for non-underlying items (see note 4).
Chief Executive Officer Tim Carroll said:
"We are very pleased to present a set of results where growth is the overarching theme: both Focusrite and Novation segments have grown; as have all major geographic regions.
This set of results is a testament to the solid momentum that we have worked hard to achieve and, while this is important, at Focusrite we are always looking to the future to ensure our continued success.
Importantly, we continue to see strong market and reseller acceptance across our expanding portfolio, which highlights the strength of our brands, and our new product pipeline continues to grow."
Executive Chairman Phil Dudderidge said:
"I am delighted Focusrite plc has delivered another record year.
I am very proud to have built a company that plays a long game. Focusrite is in its 30(th) year and has grown to become a global leader in recording hardware technology.
As a market leader, we continue to evolve and to that end the Group is also researching tools for the future direction of music recording, improving ease of workflow for the professional musician and ease of use for the musician for whom recording is a new skill to be developed.
Our history of being at the forefront of innovation in music technology, along with the fact that we have an established, global customer base, market-leading brands and a strong corporate culture, make us well placed for the future."
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31 August 2018 and notice of the Annual General Meeting ("AGM") of Focusrite will be posted to shareholders by 28 November 2018 and will be available on Focusrite's website at www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which is being sought at Focusrite's Annual General Meeting to be held on 21 December 2018.
The timetable for the final dividend is as follows:
27 December 2018 Ex-dividend Date 28 December 2018 Record Date 21 December 2018 AGM to approve the recommended final dividend 18 January 2019 Dividend payment date
- ends -
Enquiries:
Focusrite plc: Tim Carroll (CEO) +44 1494 836301 Jeremy Wilson (CFO) +44 1494 836301 Panmure Gordon Freddy Crossley +44 20 7886 2500 Erik Anderson +44 20 7886 2500 Belvedere Communications John West +44 20 3687 2753 Kim Van Beeck +44 20 3687 2757
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR)
Notes to Editors
Focusrite plc is a global music and audio products group that develops and markets proprietary hardware and software products. Used by audio professionals and amateur musicians alike, its solutions facilitate the high-quality production of recorded and live sound. The Focusrite Group trades under four established and rapidly growing brands: Focusrite, Focusrite Pro, Novation and Ampify.
With a high-quality reputation and a rich heritage spanning decades, its brands are category leaders in the music-making industry. 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.
The Focusrite Group has a global customer base with a distribution network covering approximately 160 territories. Focusrite is headquartered in High Wycombe, UK, with marketing offices in Los Angeles and Hong Kong. Focusrite plc is traded on the AIM market, London Stock Exchange.
Chairman's Statement
I am incredibly proud to introduce the 2018 Report and Accounts of Focusrite Plc and subsidiaries in what has once again been a record year for the Company.
Focusrite plays a long game. The business is in its 30(th) year and has become a global leader in recording hardware technology. Under the Focusrite brand, and working with Avid Pro Tools and Ableton Live recording software brands, we have gone from strength to strength and after the acquisition of Novation in 2004 the Group has grown to become a leading brand in the electronic music creation world.
This is the first full year since the appointment of Tim Carroll as Chief Executive Officer, a position he has held since January 2017. I am delighted to report that his appointment is recognised across the firm, suppliers and our customers as a great success. As this report indicates, he is leading a number of initiatives that support our growth strategy.
The Company continues to be highly cash generative, with net cash of GBP22.8 million at the year end, building an ability to pursue an acquisition strategy that we have aspired to since the IPO in December 2014. To that end we have appointed a Business Development Manager to coordinate and analyse opportunities as they arise and to identify appropriate businesses that might fit a Focusrite Family of complementary brands. We have rejected propositions that did not meet our tests of profitability and cash generation as we have clear goals as to the nature and performance potential of any business that might qualify for acquisition.
In addition to Ampify apps for the Apple iOS platform, the London-based software unit is also developing new products to complement Focusrite and Novation hardware on Mac and PC. As a market leader, we continue to evolve and to that end the Group is also researching tools for the future direction of music recording, improving ease of workflow for the professional musician and ease of use for the musician for whom recording is a new skill to be developed.
Our business is predicated on the commitment of over 200 people around the world. In addition to the usual head office activities, the 150 UK employees are focused on product development, customer support, sales and marketing. Our subsidiary, Focusrite Novation Inc. based in Los Angeles, supports the US market with marketing, customer support and retail channel communication. Similarly, other regional representatives in Germany, Hong Kong and Mexico (for Latin America) support their local regions with sales management, marketing and customer support.
I would like to take this opportunity to acknowledge all our employees for their commitment and skills, each of whom makes an essential contribution to our success. Permanent employees are participants in share option schemes. This has proved rewarding to employees who are motivated to see the Company prosper for the benefit of all shareholders, themselves included.
This year, we welcomed Naomi Climer to the Board. Naomi has a huge amount of highly relevant technical and industry experience and we are delighted that she has joined us as a Non-executive Director. The Group aspires to high standards of corporate governance and I would like to take this opportunity to thank all of our Non-Executives for their wise guidance, counsel and acknowledge the variety of different skills and broad experience that they bring to the Board.
Finally, I would also like to acknowledge our excellent commercial partners. We have three principal vendors that manufacture our products to the highest standards of quality and reliability; our logistics partners that reliably handle physical distribution from factory to local distribution warehouses and onwards to our customers; and our third-party distributors who market our products in their own national territories.
We look forward to the coming years with enthusiasm for our industry, our customers, our employees, our partners around the world, and with an appreciation of our shareholders who invest in our vision of constant innovation and growth, as we continue 'Enriching Lives Through Music'.
Phil Dudderidge
Founder and Executive Chairman
Chief Executive's Statement
Introduction: innovation at our core
I am very pleased to update our shareholders on our record year of performance, with all key metrics showing growth. The Group has had another year of operational and financial success that extends across our portfolio as well as on a regional basis, with all reported regions showing growth.
This year has seen the launch of five new products, a host of upgrades to our existing portfolio, and investments in many new systems, people and resources to continue to drive our growth strategy.
Our employee footprint, growing this year to 210, continues to expand in our High Wycombe headquarters as well as our offices in London, Los Angeles and Hong Kong, with further employees in Germany and Mexico. We are fortunate to have so many employees globally that have a real passion for music and audio; many being musicians, audio engineers, or DJs themselves using our products in real-world environments every week. It continues to be a great pleasure and privilege to help guide and lead them, and I thank them for their hard work and dedication.
Our Operations
The Group's products are sold in approximately 160 territories and countries all over the world. We utilise an effective mix of retailers - online and 'bricks and mortar' locations, distributors in select areas, a hybrid approach in North America utilising a wholesale distributor with our own demand generation team, and direct business to consumer with our own e-commerce store and in-app software purchases.
We sold approximately 900,000 physical products to end-users last year, and our music creation apps were downloaded over 2 million times with over 750,000 in-app customer transactions. Our manufacturing partners are located in South China and we use third-party logistics support.
Our market
The global audio production market remains a growth sector for technology companies like Focusrite. Our products and solutions are key components for many personal and professional audio recording customers and musicians, allowing them to focus on the creative process. Alongside that, we recognise the opportunity to continue to make audio recording technology easier to use and more accessible to a larger addressable market.
While we lead the market in many product categories, we continuously seek ways to grow our core business while also exploiting opportunities to expand into adjacent product categories that would make commercial and strategic sense for the business. Focusrite is pursuing these opportunities with organic development as well as by acquisition.
Sales of our second-generation Scarlett USB audio interface range remained strong with 15% growth, increasing in overall market share from what was already a very high position.
RedNet is well poised to help any professional or facility scale their production capability; a vital component for success as we see sweeping increases in original content production, live sound events and multi-format on-air shows.
To that end, and to ensure we focus all of our resources and energy with precision, we have refined our customer personas into five core categories. We have identified 'The New Creator', a customer who might have little or no music knowledge; the 'Passionate Maker', someone who may or may not play a traditional instrument but wants to make 'good' music; the 'Serious Aspiring Producer', for whom music is more than just a hobby; and the 'Master' and 'Facility' personas - highly skilled musicians, audio engineers, or business entities focused on audio production.
Operating review of another record year
This year has seen further operational progress, and this has translated into financial success with careful management of our cost base and a focus on cash generation. Revenues grew by 13.7% to GBP75.1 million and gross margin grew from 39.9% to 42.2%, resulting in an operating profit of GBP11.9 million, representing year-on-year growth of 26.1%.
This positive performance has been driven by a number of factors. We have witnessed a wider market acceptance and growth of share in many of our core products. New product introductions over the course of the year resonated well with customers and provided incremental lift. Likewise, customer and sales channel satisfaction feedback remains strong on existing products illustrated by our top net promoter scores ('NPS') for individual products.
Additionally, we have begun to see positive results from many of our IT-based initiatives that we funded over the year: enhanced websites, social media demand generation, and localized online experiences in markets such as Japan, Mexico and Germany.
We continue to invest in talented and passionate people across the globe to support our business in sales, marketing, customer support and product development. We now have two full-time employees in Latin America and have increased our UK, German, Hong Kong and US hires to support the business.
Throughout this year we have witnessed several events, namely ongoing Brexit negotiations and the imposition of US tariffs, that require scrutiny to ensure the business is well prepared to mitigate any possible associated effects. The Group has spent considerable time weighing options and in some instances, such as for the US tariffs, are already acting to protect the profitability of the business. We believe we are well prepared for these events and further comment is included in the section on Principal Risks and Uncertainties.
Segmental Review
Focusrite
Within Focusrite, our Scarlett, Clarett and RedNet ranges all grew, leading to total segment revenue growth of 17.2%. In each category we increased market share and experienced growth beyond the industry norms.
Sales of our second-generation Scarlett USB audio interface range remained strong with 15% growth and grew in overall market share from what was already a high market share. This product line remains the number one selling audio interface product in the world and has earned the reputation as a best-in-class, premium solution at affordable pricing. The build quality, highly-skilled Mac and Windows driver development and well thought out suite of recording software tools make this the perfect solution for the new creator and aspiring producer.
Focusrite was honoured to have won our fourth Queen's Award this year for innovation for our Scarlett Gen 2 line.
The Clarett range continues to set new price/performance standards in our mid-range interface offerings. Created for both the aspiring and professional recordist, Clarett has disrupted the market with a price to performance mix that is unparalleled in the industry. Refreshing the line with a new USB range this year, we have widened our opportunity base and have seen pleasing growth from this part of our portfolio.
Our commercial and pro-audio range, led by RedNet, is gaining momentum as applications for its use and potential customers grow, especially in post production, education, installed sound and broadcast markets. Major broadcasters such as NBC, and Hollywood post-production facilities such as Formosa Group, have started implementing RedNet into their production workflows to reap numerous benefits in efficiency, costs and productivity. RedNet is well poised to help any professional or facility scale their production capability; a vital component for success as we see sweeping increases in original content production, live sound events and on multi-format distribution on-air shows.
Novation
The Novation product line is all about the creation and production of electronic music. Electronic music and its many genres has democratised music making in a powerful way, vastly widening the net of potential music makers. Our Launchpad, Launchkey, and synthesiser product categories all experienced growth, with overall growth in this business segment of 6.4%.
Launchpad continues to be a powerful and widely accepted creation and performance tool for electronic music. We have seen a continued growth of customers purchasing Launchpad that are just starting their journey into electronic music making. This, coupled with larger penetration from online distribution channels such as Amazon, has driven demand for Launchpad and made Novation an integral part of many electronic musician's workflows.
Our Launchkey family of keyboard controllers also enjoyed year-on-year growth. With an intuitive feature-set and extensive, integrated control features with top music-making software such as Ableton Live, Launchkey delivers a set of differentiated features that appeals to many music makers and performers.
Our family of professional synthesisers complete the Novation family of products. Synthesisers have been core to the Novation brand since inception and have developed a reputation as cutting-edge instruments that add a unique pallet of sounds and colour to an artist's production. Our new flagship synthesiser, Peak, has seen widespread adoption and won numerous accolades from the industry as a true next-generation synthesiser; building on the legacy of the Novation brand and its many famous, earlier synthesiser products.
Ampify develops powerful yet brilliantly simple music creation tools for new creators. Requiring no more than an iOS device, our apps allow anyone to create amazing music tracks in a wide variety of styles. Our apps consistently rank in the top ten for music creation tools on Apple's app store and are currently included on products displayed in Apple stores worldwide. We are investing substantially in Ampify, as we aim to grow the Company's own software capability and 'leverage' software to further our ability to enable creative workflows for users at all levels.
We are extremely proud that our apps have now been downloaded over 9.5 million times and this is an indication of the strength not only of our software products but the size of the market opportunity.
Distribution
We are happy to report that revenue from this segment grew by 8.4% over the prior year. These products, such as KRK monitors and sE Electronics microphones, are a small overall proportion of Group revenue but remain important to us as they offer add-on products within the music-making industry and provide us with invaluable market feedback, insight and knowledge.
Geographic overview
I am pleased to report that our success this year was global and sales in all our major regions grew. North America finished with a 10.2% rise in revenue when compared with last year. Europe, Middle East and Africa experienced 18.1% growth. Rest of World finished the year with 13.3% year-on-year growth.
North America
The US market, which accounts for approximately 41% of total Group revenue, grew by 11%. This growth was realised in all product categories. The US had a very strong first half with the holiday season showing robust sales for our more retail-oriented products such as Scarlett and Launchpad. The second half also experienced year-on-year growth but, as predicted, at a slower rate than the first half. We continue to invest in our US demand generation and customer support team, and have successfully moved into a new Los Angeles location to accommodate our growth.
Canada, which accounts for approximately 2% of Group revenue was flat year-on-year. We are increasing our investment into this region this coming year by utilising our demand generation teams in the US and expect to see solid growth out of the region in future.
Europe, Middle East and Africa ('EMEA')
EMEA, which represents approximately 40% of Group revenue, had a successful year with strong growth performance in all major product categories. Including the UK and mainland Europe, the region is comprised of direct resellers, distributors and our own e-store. We have offices in the UK and a team in Germany to support our European business.
Rest of the World
Within the Rest of the World region, Asia-Pacific had a good year with 19% growth. We continue to invest in people for the region and our Hong Kong office is now fully functional and integrated with our Company systems, including local and 'follow the sun' customer support.
This year was an investment year for Latin America as we made our first full-time hires for Mexico and Brazil, as well as new IT infrastructure to support localised content and transactions. These new hires came on board late in the financial year, but early signs are positive, as is feedback from our new localised customer experience. We view Latin America as an area with significant growth potential and will continue to assign resources over the course of this year.
Growth drivers
Innovation is clearly a key focus for us and has been a key driver of growth. We continue to spend approximately 6% of revenue on R&D so as to provide a constant stream of new and relevant products for our various customer channels.
During the year we launched five new hardware products and numerous software/firmware updates to expand and enhance our product offerings. These new products are across different price segments and target different customer markets, giving us further penetration and reach. Feedback from the consumer, retailer and distribution channels continues to be positive and acceptance so far has been very pleasing.
We regularly update and enhance our offerings to improve the creative workflow, maintain world-class customer service and make our solutions easier to install and use, generating industry-leading NPS and overall customer experience statistics.
Another key part of our drive towards growth is our e-commerce store with special emphasis on markets where we see an opportunity to augment local distribution with localised content, language support and swift delivery to end-users. Currently our e-commerce business is about 1% of Group revenue. However, the e-store is also a powerful marketing tool and, in many countries, helps support the local reseller channel as well with its reseller locator features.
We continue to refine and improve the 'out-of-the-box' experience for all our customers, beginners and professionals alike. We believe that a great first experience with our products is paramount to our overall success.
Summary and outlook
We are focused on three core goals: growing our customer base; increasing the lifetime value of our customers; and expanding into new market segments. To achieve this, we will continue to innovate, disrupt, grow our audience and help all our customers, from beginners to professionals, remove barriers from the creative process of music creation and audio recording.
There is much change in the trading environment, providing risk and some opportunity: changes in technology and new customer requirements can emerge quickly, macroeconomic and political factors affect our end customers and distributors alike and competitive pressures remain strong. We manage these factors proactively.
Last year, we had a record period pre-Christmas driven by a burst of demand for the Group's more consumer-oriented products such as Launchpad, resulting in a weighting in favour of the first half. As anticipated, trading in the first few months of this financial year has been broadly similar to the results achieved in the same period last year. The Board expects the current year to follow the Group's more usual seasonal pattern and, at this early stage, believes that Focusrite is well placed to deliver further growth for shareholders.
Tim Carroll
Chief Executive Officer
Financial Review
Overview
The Group has generated growth of 13.7% in revenue, growth of 18.1% in EBITDA and growth of 18.9% in adjusted diluted earnings per share ('EPS').
The Group has regularly reported longer-term growth. Since FY09, the overall revenue growth is 729%, or if you prefer, 26.4% compound; all of which has been organic.
Income statement
Revenue
Revenue grew 13.7% (15.3% at constant exchange rates) from GBP66.1 million to GBP75.1 million.
The Focusrite segment comprises the products used in the recording and broadcasting of music. The primary ranges are Scarlett, Clarett, Red and RedNet. All ranges grew in revenue. Scarlett, which is approximately three-quarters of the revenue in this segment, increased by 15%. As a segment, Focusrite increased by 17.2%, from GBP44.6 million to GBP52.2 million, as the Group launched further products in the Clarett and Red ranges in addition to further Scarlett second-generation growth in market share.
The Novation segment is directed towards the creation of music and consists of the Novation and Ampify brands. About half of this segment relates to the Launchpad range although the star product this year was the new synthesiser (Peak). Peak was launched in 2017 and helped our sales of synthesisers to grow by 46%, while the bigger ranges such as Launchpad and Launchkey grew more slowly. The segment revenue was GBP20.1 million, up 6.4% on GBP18.9 million last year.
Finally, in the UK, the Group distributes products such as studio monitors and microphones manufactured by other organisations. Revenue was GBP2.9 million, up 8.4% from GBP2.6 million in 2017.
All the major regions grew. North America is 43% of the Group and grew at 10.2% (constant currency: 17%) to GBP32.7 million. North America is biased towards the Focusrite brands versus Novation (Focusrite is 76% of the total revenue). The growth was across all brands although Pro was the strongest, growing at 24%.
Europe represents 40% of Group revenue. Europe grew 18.1% (constant currency: 11%) to GBP29.7 million. Within Europe, UK was weaker, while EMEA grew more strongly. For the brands, Focusrite was strong.
The Rest of the World ('ROW') comprises mainly Asia and South America and is the remaining 17% of Group revenue. This has been a key area of investment as the Group has opened a sales and marketing office in Hong Kong and now employed a full-time regional sales manager in Mexico. ROW grew by 13.3% (constant currency: 21%) to GBP12.7 million. Within this region the faster growth was within Focusrite.
Exchange rates were more stable this year. In FY17, GBP weakened, which helped the result: reported revenue growth was 21.6% and constant exchange rate growth was 13%. In FY18, foreign exchange rates represented a minor headwind. In particular, the US Dollar weakened from an average of $1.27 = GBP1 to $1.35 = GBP1. Therefore, constant exchange rate revenue growth (15.3%) was stronger than reported growth (13.7%).
Furthermore the Board are aware of the possible results of the Brexit discussions and the effect that the resultant agreement will have on the Euro/GBP exchange rate. This effect would be mitigated partially by the Group's hedging arrangements: the Group aims to hedge 75% of net Euro flows in the coming financial year, and 50% in the following financial year.
Segment profit
Segment profit is disclosed in the note to the accounts, 'Business Segments'. For each reportable segment, Focusrite, Novation and Distribution, the revenue is compared with the directly attributable costs to create a segment profit.
The segment profit for Focusrite was GBP25.1 million (2017: GBP20.2 million). This increased by 24.2% over the prior year, driven primarily by revenue growth and higher gross margin. The segment profit for Novation was GBP10.1 million (2017: GBP9.2 million). This increased by 9.4% over the prior year. Finally, the segment profit for Distribution was GBP0.8 million (2017: GBP0.7 million).
Gross profit
While revenue grew by 13.7%, gross profit grew by 20.2% to GBP31.7 million. This was a function of the higher revenue and a higher gross margin. Gross margin was 42.2% (FY17: 39.9%). The significant increase in gross margin was due to the stronger Euro and closer management of customer discounts.
Administrative expenses
Administrative expenses consist of sales, marketing, operations, the uncapitalised element of R&D and central functions such as legal, finance and the Group Board. These expenses were GBP19.7 million, up from GBP16.9 million last year. Again, the major part of the growth was in sales and marketing, including the Focusrite Pro sales team, further investment in the Hong Kong office, further investment in e-commerce and marketing expenditure, especially on-line marketing.
EBITDA
EBITDA is used within the Group for two particular reasons. Firstly, it is a widely-used measure of underlying trading performance, enhancing comparability between industries. Secondly, it forms the basis of much of the incentivisation of senior management within the Group. EBITDA increased by 18.1% to GBP15.5 million (FY17: GBP13.1 million).
Depreciation and amortisation
Depreciation is charged on tangible fixed assets on a straight-line basis over the assets' estimated useful lives, normally ranging between 2 and 5 years.
Amortisation is mainly charged on capitalised development costs, writing off the development cost over the life of the resultant product. It is intended that the costs are capitalised cautiously and amortised quickly, with all development costs related to an individual product written off over a period up to three years. In the year, the development costs capitalised were GBP3.0 million (FY17: GBP2.7 million) and the equivalent amortisation was GBP2.4 million (FY17: GBP2.8 million).
Non-underlying item
The Group has considered the amortisation of research and development intangible assets on a project-by-project basis rather than applying a standard principle across all. This change of estimation of the start date of amortisation has resulted in a single adjustment to reduce the amortisation previously charged by GBP0.3m and has been shown as a non-underlying item in FY18. There were no non-underlying items in FY17.
Income statement
Hot Features
Premium
2018 2018 2018 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------
Adjusted Non-underlying Reported Adjusted Non-underlying Reported
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Revenue 75.1 - 75.1 66.1 - 66.1
Cost of sales (43.4) - (43.4) (39.7) - (39.7)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Gross profit 31.7 - 31.7 26.4 - 26.4
Administrative expenses (20.1) 0.3 (19.8) (16.9) - (16.9)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Operating profit 11.6 0.3 11.9 9.5 - 9.5
Net finance income (0.2) - (0.2) (0.0) - (0.0)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Profit before tax 11.4 0.3 11.7 9.5 - 9.5
Income tax expense (1.2) (0.0) (1.2) (0.9) - (0.9)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Profit for the period 10.2 0.3 10.5 8.6 - 8.6
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
2018 2018 2018 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------
Adjusted Non-underlying Reported Adjusted Non-underlying Reported
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Operating profit 11.6 0.3 11.9 9.5 - 9.5
Add - amortisation of intangible
assets 3.1 (0.3) 2.8 2.9 - 2.9
Add - depreciation of tangible
assets 0.8 - 0.8 0.7 - 0.7
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
EBITDA 15.5 - 15.5 13.1 - 13.1
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Foreign exchange and hedging
The exchange rates have been more consistent in the last financial year.
Exchange rates 2018 2017 ---------------- ----- ----- Average USD:GBP 1.35 1.27 ---------------- ----- ----- EUR:GBP 1.13 1.16 ---------------- ----- ----- Year end ---------------- ----- ----- USD:GBP 1.30 1.29 ---------------- ----- ----- EUR:GBP 1.12 1.09 ---------------- ----- -----
The average US Dollar rate has weakened from $1.27 to $1.35. The US Dollar accounts for approximately 60% of Group revenue so this reduces the revenue growth. However, the Group also buys product in US Dollars and has some US Dollar operating costs so there is a natural hedge. Therefore, the US Dollar weakening reduced revenue but had little effect on gross profit.
The Euro comprises approximately a quarter of revenue but little cost. The Group enters into forward contracts to convert Euro to GBP. In FY17, approximately three-quarters of Euro flows were hedged at EUR1.28, thereby creating a blended exchange rate of approximately EUR1.26. In FY18, the equivalent hedging contracts were at EUR1.12, being very close to the transactional rate of EUR1.13 and so creating a blended exchange rate of EUR1.12.
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.
The major part of the balance within financing costs was the cumulative foreign exchange loss on the translation of cash held in US Dollars.
Corporation tax
Corporation tax as a proportion of profit before tax was 10.3% (FY17: 10.1%). The major part of the Group's profits are taxed in UK, where the headline rate is 19%. The effective tax rate is lower than this headline rate, due largely to enhanced tax relief on R&D costs.
Earnings per share
The basic EPS for the year was 18.4 pence, up 19.5% from 15.4 pence in FY17. This rise was driven largely by the rise in profit, but also included the impact of a non-underlying item in FY18. The more comparable measure, excluding non-underlying items and including the dilutive effect of share options, is adjusted diluted EPS. This was 17.6 pence, up 18.9% from 14.8 pence in FY17.
Earnings per share
2018 2017 Growth
P P %
------------------ ----- ----- -------
Basic 18.4 15.4 19.5%
Diluted 18.1 14.8 22.3%
Adjusted basic 18.0 15.4 16.9%
Adjusted diluted 17.6 14.8 18.9%
------------------ ----- ----- -------
Balance sheet
2018 2017
GBPm GBPm
----------------------------- ------- ------
Non-current assets 7.3 6.3
Current assets
Inventories 11.4 8.3
Trade and other receivables 13.4 13.0
Cash 22.8 14.2
Current liabilities (11.1) (8.7)
Non-current liabilities (0.4) (0.2)
----------------------------- ------- ------
Net assets 43.4 32.9
----------------------------- ------- ------
Cash flow
2018 2017
GBPm GBPm
Free cash flow(1) 10.0 9.4
Add - non-underlying cash outflows 0.0 0.1
------------------------------------ ----- -----
Underlying free cash flow 10.0 9.5
------------------------------------ ----- -----
(1) Defined as net cash from operating activities less net cash used in investing activities.
Balance sheet
Non-current assets
The non-current assets comprise mainly capitalised development costs; property, plant and equipment; and software. Approximately 70% of development costs are capitalised and they are amortised over three years. This policy is unchanged from last year.
Working capital
Working capital was stable at 18.2% of revenue (FY17: 19.1%). Experience over the four years since the IPO suggests that this is an appropriate level. If the working capital is closer to 25% of revenue, the cash generation is reduced and there is likely to be too much stock. If the working capital falls closer to 15% of revenue, it is likely that some stock may be running low.
The improved business practices around stock have been maintained. Stock was increased from GBP8.3 million to GBP11.4 million. The majority of this increase was to support the increase in demand.
Customers continue to pay essentially on time with only 5% of customer debts overdue at the year end. Finally, suppliers are paid on time.
Cash flow
The total cash balance year end was GBP22.8 million, up from GBP19.7 million at the half year and GBP14.2 million at 31 August 2017. There was no debt in either year. The movement in working capital was a small outflow of GBP0.4 million (FY17: inflow of GBP0.4 million). Given that revenue increased by GBP9.1 million, the movement in working capital was very low. If working capital is approximately 20% of revenue, then barring any extenuating circumstances, it would be reasonable for the movement in working capital to be an outflow of 20% of the increase in revenue, so the movement in working capital this year is a positive result. Free cash flow was again strong, at GBP10.0 million (FY17: GBP9.4 million), which represented 13.3% of revenue (FY17: 14.3%). Since IPO, the average free cash flow as a percentage of revenue has been 9.9%. Finally, the Group has a committed five-year GBP10 million revolving credit facility with HSBC, expiring in December 2020.
Dividend
The Board is proposing a final dividend of 2.3 pence per share (FY17 final dividend: 1.95 pence), which would result in a total of 3.3 pence per share for the year (FY17: 2.7 pence). This represents an adjusted earnings dividend cover of 5.3 times (FY17: 5.5 times) and moves the Group closer to its stated target of 5 times.
Summary
The Group has had another strong year with growth across revenue, profits, cash and dividend. Revenue has grown by 13.7%, EBITDA by 18.1%, adjusted operating profit by 22.6% and adjusted diluted EPS by 18.9%. In addition, the free cash flow has been strong and the cash balance has been increased from GBP14.2 million to GBP22.8 million. The strategy is clear and we press on.
Jeremy Wilson
Chief Financial Officer
Principal Risks and Uncertainties
Risk factors
In common with all businesses, the Group faces risks, the effective management of which is necessary to enable it to achieve its strategic objectives and secure the resilience of the business for the long term. Management of risk is critical to the effective running of the business and is considered as part of the Group's decision-making processes.
Risk area Description Mitigation
--------------------- --------------------------------- ----------------------------------------
Economic environment The Group operates in the The Group sells products
global economy and ultimately at all levels of the market
within the retail environment in c.160 territories worldwide
with products being sold via two distinct product
to consumer end-user musicians. categories and is working
Such operations are influenced to reduce reliance on any
by global and national single product or territory.
economic factors.
--------------------- --------------------------------- ----------------------------------------
Macro-economic The impact of the decision The Group is positioning
changes affecting to exit the European Union itself to be able to react
the ease and remains uncertain. There to the uncertainties faced
cost of moving has already been foreign by the business. The Group
stock between exchange volatility. It has previously increased
countries is probable that the UK selling prices in the UK
will not be part of the to correct the imbalance
customs union and the Group caused by the significant
anticipates the imposition foreign exchange rate changes,
of some additional duties and will continue to monitor
and minor disruption to other possible effects of
the logistics network. Brexit and act accordingly
as they become known.
In September 2018 the USA
implemented tariffs of The Group has increased the
10% (potentially rising minimum advertised price
to 25% in January 2019) to cover the additional tariffs.
on the importing of most This provides a possible
products manufactured in upside from the higher price
China. The Group has product charged but an uncertainty
manufactured in China, regarding the effect of the
so selling product in the higher price on consumer
US will become more expensive. demand.
--------------------- --------------------------------- ----------------------------------------
Technological The market for the Group's R&D remains one of the Group's
changes, product products is characterised largest investments. The
innovation and by continued evolution Group has a bespoke project
competition in technology, evolving system that facilitates the
industry standards, changes operation of a rigorous,
in customer needs and frequent disciplined product introduction
new competitive product process to ensure that as
introductions. If the Group far as possible the fast-changing
is unable to anticipate needs of its target markets
or respond to these challenges are met. In addition, the
or fails to develop and Group continuously seeks
introduce successful products efficiencies and minimises
on a timely basis, it could costs where possible.
have an adverse impact
on the Group's business
and prospects.
--------------------- --------------------------------- ----------------------------------------
Dependence on The Group is dependent The Group has supply agreements
a small number on a small number of suppliers, with four major Chinese manufacturers.
of suppliers in particular its largest The Group works with its
supplier, which supplies resellers and distributors
Focusrite interfaces. Failure to ensure they are holding
or material delay by its sufficient stock levels should
suppliers to perform or there be disruption to the
failure by the Group to supply chain. Relationships
renew such arrangements are long-lasting and strong.
could have a material adverse Members of the operations
effect on the Group's business, department within Focusrite
operating results and financial meet each supplier three
position. to four times per year to
review performance and costs.
--------------------- --------------------------------- ----------------------------------------
Key resellers In certain countries, including In cases where there is a
and distributors the USA, the Group operates large distributor in a significant
via a single distributor market, the Group also communicates
or has large individual with the major retailers.
reseller customers. In In addition, the Group carefully
certain cases, a failure monitors customer credit
of or breakdown in the limits and has credit insurance
relationship with a key which typically covers the
reseller or distributor, majority of the customer
or even the failure of debts outstanding at any
a major customer of that point in time.
distributor, could significantly
and adversely affect the
Group's business.
------------------------ ------------------------------------- -----------------------------------------
Development of Significant change in the The Group or its distributors
the channels methods by which end-users sell to both 'bricks and
to market wish to buy Focusrite products mortar' and e-commerce retailers
could significantly affect so that the Group can satisfy
the Group's business. customer demand via both
methods.
------------------------ ------------------------------------- -----------------------------------------
Currency risks The Group is exposed to There is a largely effective
currency and exchange rate natural hedge for US Dollar
fluctuations which may transactions as the Group
affect the Group's revenue uses its generation of US
and costs when reported Dollars to buy product in
in Sterling. US Dollars. In addition,
the Group mitigates its Euro
exposure by entering into
forward foreign exchange
hedging contracts for the
conversion of Euros to Sterling.
------------------------ ------------------------------------- -----------------------------------------
Scarcity of experienced The nature of the Group's The Group is a leading company
technical personnel business requires its employees in the UK music industry
in the technical and so attracts high-quality
and development teams to technical personnel. The
be highly skilled and experienced Group also attracts graduates
in their respective fields. from music technology, electronics
The Group is dependent and engineering courses at
for its continued success renowned universities. The
on being able to attract, Group invests in developing
retrain and motivate such its employees and incentivises
individuals. them through wide-ranging
share ownership incentives
and other employment benefits
to aid retention.
------------------------ ------------------------------------- -----------------------------------------
Intellectual The intellectual property The Group has established
property and and data developed by the a programme for protecting
data protection Group is valuable and the its intellectual property
Group could be harmed by and pursues infringements.
infringement or loss. The Group has data and information
technology controls which
are reviewed by the Group
Board. Additionally, the
Group includes data protection
provisions in the contracts
of all Group employees.
-------------------------- --------------------------------------- -------------------------------------
Information security Information security and The Group has carried out
cyberthreats are currently a detailed review of IT systems
a priority across all industries to identify elements requiring
and remain a key government upgrade. There has already
agenda item. been a widespread upgrade
of core IT functionality
including cybersecurity (firewalls,
anti-virus, mobile device
management) and the implementation
of backup and disaster recovery
processes. The Group has
moved core enterprise resource
planning systems to the cloud
with robust service level
agreements in place to ensure
data availability and security.
The Group implemented a customer
relationship management system
to ensure GDPR compliance.
There is an improving business
continuity framework and
a dedicated internal IT support
team aided by external support
providers.
-------------------------- ------------------------------------- ---------------------------------------
FORWARD LOOKING STATEMENTS
Certain statements in this full year report are forward looking. Although the Directors believe that their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.
Consolidated Income Statement
For the year ended 31 August 2018
Note 2018 2017
GBP'000 GBP'000
-------------------------------------------------- ----- --------- ----------------------
Revenue 1 75,121 66,055
Cost of sales (43,447) (39,704)
-------------------------------------------------- ----- --------- ----------------------
Gross profit 31,674 26,351
Administrative expenses (19,732) (16,881)
-------------------------------------------------- ----- --------- ----------------------
EBITDA (non-GAAP measure) 15,485 13,109
Depreciation and amortisation (3,872) (3,639)
Non-underlying items 4 329 -
-------------------------------------------------- ----- --------- ----------------------
Operating profit 11,942 9,470
-------------------------------------------------- ----- --------- ----------------------
Finance income 4 86
Finance costs (274) (44)
-------------------------------------------------- ----- --------- ----------------------
Profit before tax 11,672 9,512
Income tax expense 5 (1,199) (959)
-------------------------------------------------- ----- --------- ----------------------
Profit for the period from continuing operations 10,473 8,553
-------------------------------------------------- ----- --------- ----------------------
Earnings per share
From continuing operations
Basic (pence per share) 7 18.4 15.4
-------------------------------------------------- ----- --------- ----------------------
Diluted (pence per share) 7 18.1 14.8
-------------------------------------------------- ----- --------- ----------------------
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
------------------------------------------------------------------------ ------- -------- -------------------------
Profit for the period (attributable to equity holders of the Company) 10,473 8,553
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations 19 (8)
Profit/(loss) on forward foreign exchange contracts designated and effective as
a hedging
instrument 541 659
Tax on hedging instrument (106) (134)
--------------------------------------------------------------------------------- -------- -------------------------
Total comprehensive income for the period 10,927 9,070
--------------------------------------------------------------------------------- -------- -------------------------
Total comprehensive income attributable to:
Equity holders of the Company 10,927 9,070
--------------------------------------------------------------------------------- -------- -------------------------
10,927 9,070
-------------------------------------------------------------------------------- -------- -------------------------
The notes form part of the financial statements.
Consolidated Statement of Financial Position
As at 31 August 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- -----------------------
Assets
Non-current assets
Goodwill 419 419
Other intangible assets 5,620 4,544
Property, plant and equipment 1,275 1,369
Total non-current assets 7,314 6,332
----------------------------------------------- --------- -----------------------
Current assets
Inventories 11,391 8,334
Trade and other receivables 13,310 12,952
Cash and cash equivalents 22,811 14,174
Derivative financial instruments 100 -
---------------------------------------------- -----------------------
Total current assets 47,612 35,460
---------
Total assets 54,926 41,792
----------------------------------------------- --------- -----------------------
Equity and liabilities
Capital and reserves
Share capital 58 58
Share premium 115 -
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve 50 31
Hedging reserve 46 (389)
EBT reserve (1) (3)
Retained earnings 41,731 31,739
Equity attributable to owners of the Company 43,447 32,884
----------------------------------------------- --------- -----------------------
Total equity 43,447 32,884
----------------------------------------------- --------- -----------------------
Current liabilities
Trade and other payables 10,709 7,720
Current tax liabilities 427 459
Derivative financial instruments - 484
Total current liabilities 11,136 8,663
----------------------------------------------- --------- -----------------------
Non-current liabilities
Deferred tax 300 245
Derivative financial instruments 43 -
Total liabilities 11,479 8,908
----------------------------------------------- --------- -----------------------
Total equity and liabilities 54,926 41,792
----------------------------------------------- --------- -----------------------
The financial statements were approved by the Board of Directors and authorized for issue on 20 November 2018. They were signed on its behalf by:
Tim Carroll Jeremy Wilson Chief Executive Officer Chief Financial Officer
The notes form part of the financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 August 2018
Merger
Share Share Merger difference Translation Hedging EBT Retained
capital premium reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2016 58 - 14,595 (13,147) 39 (914) (5) 23,251 23,877
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 8,553 8,553
Other
comprehensive
income for
the
period - - - - (8) 525 - - 517
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the
period - - - - (8) 525 - 8,553 9,070
Transactions
with owners of
the
Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - 114 114
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - 558 558
Shares from
EBT exercised - - - - - - 2 256 258
Share-based
payments - - - - - - - 145 145
Dividends paid - - - - - - - (1,138) (1,138)
Balance at 1
September
2017 58 - 14,595 (13,147) 31 (389) (3) 31,739 32,884
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 10,473 10,473
Other
comprehensive
income for
the
period - - - - 19 435 - - 454
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the
period - - - - 19 435 - 10,473 10,927
Transactions
with owners of
the
Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - 95 95
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - 698 698
New shares
issued - 115 - - - - - - 115
Shares from
EBT exercised - - - - - - 2 189 191
Share-based
payments - - - - - - - 216 216
Dividends paid - - - - - - - (1,679) (1,679)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 31
August 2018 58 115 14,595 (13,147) 50 46 (1) 41,731 43,447 --------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
The notes form part of the financial statements.
Consolidated Cash Flow Statement
For the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
---------------------------------------------------------- ----- -------- --------
Operating activities
Profit for the financial year 10,473 8,553
Adjustments for:
Income tax expense 1,199 959
Net interest 270 (42)
Profit on disposal of property, plant and equipment (14) (8)
Amortisation of intangibles 2,804 2,950
Depreciation of property, plant and equipment 740 689
Share-based payments charge 216 145
---------------------------------------------------------- ----- -------- --------
Operating cash flows before movements in working capital 15,688 13,246
Increase in trade and other receivables (358) (1,728)
(Increase)/decrease in inventories (3,057) 3,027
Increase/(decrease) in trade and other payables 2,989 (892)
---------------------------------------------------------- ----- -------- --------
Operating cash flows before interest and tax paid 15,262 13,653
Net interest paid (36) (42)
Income taxes paid (478) (633)
---------------------------------------------------------- ----- -------- --------
Cash generated by operations 14,748 12,978
Net foreign exchange movements (226) 84
---------------------------------------------------------- ----- -------- --------
Net cash from operating activities 14,522 13,062
Investing activities
Purchases of property, plant and equipment (651) (493)
Purchases of intangible assets (3,880) (3,121)
Proceeds from disposal of property, plant and equipment 19 -
Net cash used in investing activities (4,512) (3,614)
---------------------------------------------------------- ----- -------- --------
Financing activities
Issue of equity shares 306 258
Equity dividends paid 6 (1,679) (1,138)
Net cash used in financing activities (1,373) (880)
---------------------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 8,637 8,568
Cash and cash equivalents at beginning of year 14,174 5,606
Cash and cash equivalents at end of year 22,811 14,174
---------------------------------------------------------- ----- -------- --------
The notes form part of the financial statements.
Notes to the Final Results
For the year ended 31 August 2018
These condensed preliminary financial statements of the Company and its subsidiaries ("the Group") for the year ended 31 August 2018 have been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs).
The information contained within this announcement has been extracted from the audited financial statements which have been prepared in accordance with IFRS as adopted by the European Union ('adopted IFRS'), and with those parts of the Companies Act 2006 applicable to companies reporting under adopted IFRS. They have been prepared using the historical cost convention except where the measurement of balances at fair value is required.
The Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertainties within the global economy. The Group has considerable financial resources, ongoing revenue streams and a broad spread of customers. As a consequence of these factors and having reviewed the forecasts for the coming year, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing these financial statements.
The statutory accounts for the year ended 31 August 2017 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The statutory accounts for the year ended 31 August 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on those accounts; their report was unqualified, did not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
Availability of audited accounts:
Copies of the 31 August 2018 audited accounts will be will be available on 20 November 2018 on the Company's website (www.focusriteplc.com/investors) for the purposes of AIM rule 26 and will be posted to shareholders in due course.
1 Revenue
An analysis of the Group's revenue is as follows:
Year ended 31 August
2018 2017
--------------------------------
GBP'000 GBP'000
-------------------------------- --------- -------------
Continuing operations
North America 32,720 29,702
Europe, Middle East and Africa 29,706 25,153
Rest of the World 12,695 11,200
Consolidated revenue 75,121 66,055
---------------------------------- --------- -------------
In previous financial statements the Group has disclosed revenue earned in Canada within the Rest of the World region. In the year ended 31 August 2018 this revenue was reclassified to the USA region, and the region was renamed North America. The table below sets out the regional analysis of revenue under the previous classification:
Year ended 31 August
2018 2017
--------------------------------
GBP'000 GBP'000
-------------------------------- --------- -------------
Continuing operations
USA 31,184 27,990
Europe, Middle East and Africa 29,706 25,153
Rest of the World 14,231 12,912
Consolidated revenue 75,121 66,055
---------------------------------- --------- -------------
2 Business segments
Information reported to the Board of Directors for the purposes of resource allocation and assessment of segment performance is focused on the main product groups which Focusrite sells. While the results of Focusrite and Focusrite Pro are reported separately to the Board, they are aggregated together for the purposes of segmental reporting. Similarly, the results of Novation and Ampify also meet the aggregation criteria set out in IFRS 8 segmental reporting. The Group's reportable segments under IFRS 8 are therefore as follows:
Focusrite - Sales of Focusrite or Focusrite Pro branded products Novation - Sales of Novation or Ampify branded products
Distribution - Distribution of third-party brands including KRK, Ableton, Stanton, Cerwin-Vega,
Cakewalk and sE Electronics
Segment revenues and results
The following is an analysis of the Group's revenue and results by reportable segment:
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 3 within the Annual Report. Segment profit represents the profit earned by each segment without allocation of the share of central administration costs including Directors' salaries, investment revenue and finance costs, and income tax expense. This is the measure reported to the Board of Directors for the purpose of resource allocation and assessment of segment performance.
Central administration costs comprise principally the employment-related costs and other overheads incurred by Focusrite and its USA subsidiary, net of inter-company commission income. Also included within central administration costs is the charge relating to the share option scheme of GBP216,000 for the year ended 31 August 2018 (2017: GBP145,000).
Year ended 31 August
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- --------- --------------
Revenue from external customers
Focusrite 52,193 44,552
Novation 20,066 18,862
Distribution 2,862 2,641
Total 75,121 66,055
-------------------------------------------------------- --------- --------------
Segment profit
Focusrite 25,107 20,221
Novation 10,063 9,198
Distribution 795 711
-------------------------------------------------------- --------- --------------
35,965 30,130
Central distribution costs and administrative expenses (24,352) (20,660)
Non-underlying items 329 -
-------------------------------------------------------- --------- --------------
Operating profit 11,942 9,470
Finance income 4 86
Finance costs (274) (44)
-------------------------------------------------------- --------- --------------
Profit before tax 11,672 9,512
Tax (1,199) (959)
Profit after tax 10,473 8,553
-------------------------------------------------------- --------- --------------
The Group's non-current assets, analysed by geographical location were as follows:
2018 2017
GBP'000 GBP'000
-------------------------------- -------- --------------
Non-current assets
North America 81 52
Europe, Middle East and Africa 6,705 5,676
Rest of the World 528 604
Total non-current assets 7,314 6,332
-------------------------------- -------- --------------
Information about major customers
Included in revenues shown for 2018 is GBP31.2 million (2017: GBP28.0 million) attributed to the Group's largest customer, which is located in the USA. Amounts owed at the year end were GBP6.3 million (2017: GBP6.8 million).
3 Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Year ended 31 August
2018 2017
Note GBP000 GBP000
-------------------------------------------------------------- ------ --------- ------------
Net foreign exchange losses/(gains) 234 (84)
Research and development costs 1,524 1,120
Depreciation and impairment of property, plant and equipment 740 689
Profit on disposal of property, plant and equipment (14) (8)
Amortisation of intangibles 2,804 2,950
Operating lease rental expense 384 306
Cost of inventories recognised as an expense 39,093 35,493
Staff costs (excluding share-based payments) 8,969 6,478
Impairment loss recognised on trade receivables 29 (20)
Share-based payments charged to profit and loss 216 145
---------------------------------------------------------------------- --------- ------------
4 NON-UNDERLYING ITEMS
During the year ended 31 August 2018, the Directors considered the date from which amortisation of development costs should start and decided that it was more appropriate that the amortisation start date be assessed for each product developed rather than applying a single, albeit more prudent, rule for all. As a result, there has been an adjustment to the Income Statement to reduce the amortisation charged to date by GBP329,000 and this has been shown as a non-underlying item in the Income Statement.
5 Tax
Year ended 31 August
2018 2017
GBP'000 GBP'000
Corporation tax charges:
Under/(over) provision in prior year (160) (13)
Current year 1,315 895
-------------------------------------- -------- --------------------
1,155 882
Deferred taxation
Current year 44 77
-------------------------------------- -------- --------------------
1,199 959
-------------------------------------- -------- --------------------
Corporation tax is calculated at 19% (2017: 19.58%) of the estimated taxable profit for the year. Taxation for the US subsidiary is calculated at the rates prevailing in the respective jurisdiction.
The tax charge for each year can be reconciled to the profit per the income statement as follows:
Year ended 31 August
2018 2017
GBP'000 GBP'000
---------------------------------------------------------- ----------- ----------
Current taxation
Profit before tax on continuing operations 11,672 9,512
---------------------------------------------------------- ----------- ----------
Tax at the UK corporation tax rate of 19% (2017: 19.58%) 2,218 1,862
Effects of:
Expenses not deductible for tax purposes 48 20
R&D tax credit (872) (773)
Prior period adjustment - current tax (160) (113)
Prior period adjustment - deferred tax - (18)
Effect of change in standard rate of deferred tax 14 (19)
Overseas tax (49) -
Current tax charge for period 1,199 959
---------------------------------------------------------- ----------- ----------
A reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) was substantively enacted on 25 Octobr 2015. Further reduction to 18% (effective from 1 April 2020) was substantively enacted on 25 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the Company's future current tax charge accordingly. The deferred tax asset at 31 August 2018 has been calculated based on these rates.
6 Dividends
The following equity dividends have been declared:
Year to Year to
31 August 2018 31 August 2017
---------------------------------------- ---------------- ----------------
Dividend per qualifying ordinary share 3.30p 2.70p
---------------------------------------- ---------------- ----------------
During the year, the Company paid an interim dividend in respect of the year ended 31 August 2018 of 1.00 pence per share.
On 20 November 2018, the Directors recommended a final dividend of 2.30 pence per share (2017: 1.95 pence per share), making a total of 3.30 pence per share for the year (2017: 2.70 pence per share).
7 Earnings per share
The calculation of the basic and diluted EPS is based on the following data:
Year ended 31 August
Earnings 2018 2017
-------- ------------------
GBP'000 GBP'000
---------------------------------------------------------------------------------------- -------- ------------------
Earnings for the purposes of basic and diluted EPS, being net profit for the period 10,473 8,553
Non-underlying items (329) -
Tax on non-underlying items 63 -
Total underlying profit for adjusted EPS calculation 10,207 8,553
---------------------------------------------------------------------------------------- -------- ------------------
Year ended 31 August
2018 2017
-------- ------------------
Number Number
'000 '000
---------------------------------------------------------------------------------------- -------- ------------------ Number of shares Weighted average number of ordinary shares for the purposes of basic EPS calculation 56,825 55,432 Effect of dilutive potential ordinary shares: EMI Scheme and unapproved share option plan 1,151 2,357 Weighted average number of ordinary shares for the purposes of diluted EPS calculation 57,976 57,789 ---------------------------------------------------------------------------------------- -------- ------------------ EPS Pence Pence Basic EPS 18.4 15.4 Diluted EPS 18.1 14.8 Adjusted basic EPS 18.0 15.4 Adjusted diluted EPS 17.6 14.8 ---------------------------------------------------------------------------------------- -------- ------------------
At 31 August 2018, the total number of ordinary shares issued and fully paid was 58,111,639. This included 1,159,021 (2017: 2,546,845) shares held by the EBT to satisfy options vesting in future years. The operation of this EBT is funded by the Group so the EBT is required to be consolidated, with the result that the weighted average number of ordinary shares for the purpose of the basic EPS calculation is the net of the weighted average number of shares in issue (58,103,307) less the number of shares held by the EBT (1,278,311). 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR BLBMTMBMBTTP
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November 20, 2018 02:01 ET (07:01 GMT)
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