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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gear4music (holdings) Plc | LSE:G4M | London | Ordinary Share | GB00BW9PJQ87 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -8.00 | -5.23% | 145.00 | 140.00 | 150.00 | 145.00 | 145.00 | 145.00 | 778 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Musical Instrument Stores | 152.04M | -644k | -0.0307 | -47.23 | 30.42M |
From Apr 2019 to Apr 2024
TIDMG4M
RNS Number : 0421O
Gear4music (Holdings) PLC
15 May 2018
15 May 2018
Gear4music (Holdings) plc
Preliminary unaudited results for the year ended 28 February 2018
A transformational year of growth and investment
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the largest UK based online retailer of musical instruments and music equipment, today announces its unaudited financial results for the 12 months ended 28 February 2018.
Highlights:
Hot Features
Premium
GBP'000 12 months 12 months Change
ended 28 ended 28
February February
2018 2017
---------- ----------
Revenue 80,100 56,128 +43%
Gross profit 20,319 15,145 +34%
EBITDA 3,458 3,617 -4%
Operating profit 1,961 2,616 -25%
Pre-tax profit 1,500 2,636 -43%
-- Continuing strong revenue growth across the business
-- Gross margin of 25.4% is down 160bps due to planned investment in customer proposition
-- European distribution centre costs up GBP1.1m (220%) in first full year of operations
-- H2 EBITDA up 20% on H2 FY17, to GBP2.7m
-- Net assets increased by GBP7.2m to GBP18.9m
-- Active customers up 39% to 475,000
-- Conversion increased from 2.75% to 3.25%
-- Confident of delivering revenue and profit growth in FY19
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"This has been a transformational year of investment for Gear4music. During the year we raised an additional GBP4.2m of growth capital, our European distribution centres became fully operational, and we moved into our new Head Office. We accelerated investment in our employees, systems, marketing and customer proposition, to firmly establish ourselves as one of Europe's leading online retailers of musical instruments and music equipment.
In my report last year, I explained that FY18 would be a period of targeted investment, and that would have short-term profitability implications. FY19 will be focused on achieving returns resulting from these investments, with the objective of delivering strong and sustainable revenue and profitability growth.
As a result of the significant efforts of our team, and the investments we have made during FY18, we move into the new financial year with a market leading e-commerce platform, infrastructure and customer proposition. Whilst still early in the financial year, I am pleased to say that trading to date is in line with expectations and we are confident of achieving our objectives and hitting expectations for FY19."
SEnquiries:
Gear4music Andrew Wass, Chief Executive Officer Chris Scott, Chief Financial +44 20 3865 Officer 9668 Panmure Gordon (Joint Financial Adviser, Joint Broker, and Nominated Adviser) Andrew Godber / Peter Steel - Investment Banking +44 20 7886 Erik Anderson - Corporate Broking 2500 Peel Hunt (Joint Financial Adviser and Joint Broker) Adrian Trimmings +44 20 7418 George Sellar 8900 Alma PR +44 20 3865 (Financial PR) 9668 Josh Royston/Rebecca Sanders-Hewett/Helena Gear4Music@almapr.co.uk Bogle
About Gear4music.com
Operating from a Head Office in York, and Distribution Centres and showrooms in York, Sweden and Germany, the Group sells own-brand musical instruments and music equipment alongside premium third-party brands including Fender, Yamaha and Roland, to customers ranging from beginners to musical enthusiasts and professionals, in the UK, Europe and, more recently, into the Rest of the World.
Having developed its own e-commerce platform, with multilingual, multicurrency and fully responsive design websites delivering to over 190 countries, the Group has rapidly expanded its database and continues to build its overseas presence.
Chairman's statement
I'm pleased to report another year of success and progress.
Revenue growth continues to be strong, with 43% growth reflecting the efforts of our dedicated and talented team. It is the passion and knowledge of our people that define who we are and how our customers interact with us.
We continue to progress our mission of becoming a leading global retailer of musical instruments and equipment. The Group is establishing a track record for delivering excellent revenue growth and being profitable through the phases of the investment cycle. EBITDA of GBP3.5m is after an additional GBP1.1m of local overheads associated with the European distribution centres compared with FY17, which was required to deliver the capacity for Gear4music to become a GBP100m+ revenue business.
We are well-established in our UK domestic market and the business delivered 27% revenue growth whilst still only accounting for an estimated 6% of the total market. The much-publicised channel shift toward e-commerce retail and associated increased levels of online penetration, provide confidence in our approach and business model.
International growth represents a major opportunity for the Group - revenue of GBP35.8m represented growth of 69%, which followed 124% growth in the prior year, demonstrating good momentum. We only have an estimated 1% share of the European market and will continue to invest significant effort and resources in order to improve and increase our global reach.
The Head Office move in September 2017 went smoothly and added much needed office space, enabling recruitment into key teams to support strong, sustained growth.
Given the investments scheduled for FY19 to support continued growth, the Board has decided not to declare a dividend for FY18 and will again review its policy in the next financial year.
Future success will come from a strong and continuously improving customer proposition. This will be achieved by investing in our technology, our infrastructure and our people. As Andrew highlights in his CEO's report, a lot has changed in the business during the period and we have much more planned. We are looking into FY19 and beyond with confidence.
Ken Ford
Chairman
Chief Executive's Statement
Business Review
We continue to make good progress on both our Financial and Commercial KPIs in our third year as a listed business:
Financial KPIs
FY18 FY17 Change
====================== ========= ========= ========
Revenue * GBP80.1m GBP56.1m +43%
--------- --------- --------
UK Revenue * GBP44.3m GBP34.8m +27%
--------- --------- --------
International
Revenue * GBP35.8m GBP21.3m +69%
--------- --------- --------
Gross margin 25.4% 27.0% -160bps
--------- --------- --------
Total Admin expenses
* GBP18.4m GBP12.5m +47%
--------- --------- --------
European Admin GBP1.5m GBP0.5m
expenses *
--------- --------- --------
EBITDA GBP3.5m GBP3.6m -3%
--------- --------- --------
Cash at year end GBP3.5m GBP3.0m +18%
--------- --------- --------
* See note 2
Commercial KPIs
FY18 FY17 Change
================== ======== ======== =======
Website visitors 16.9m 12.6m +34%
-------- -------- -------
Conversion rate 3.25% 2.75% +50bps
-------- -------- -------
Average order
value GBP127 GBP124 +3%
-------- -------- -------
Active customers 475,000 340,000 +39%
-------- -------- -------
Products listed 44,700 37,100 +20%
-------- -------- -------
Distribution & Property
Two years ago, we started the process of expanding our distribution network into Europe and doubling our distribution capacity to over GBP100m.
In readiness for continuing rapid growth, we need to increase capacity to ensure we can accommodate demand over the next two years. Our Scandinavian business has consistently performed exceptionally well since we opened our Swedish distribution centre in November 2016, growing by over 100% during FY18. We have therefore taken the decision to expand our operations in Sweden, enabling us to increase capacity ahead of FY19's peak season.
We have agreed terms with our existing Swedish landlord to relocate from our current premises, without penalty, to a new 76,800 sq ft building in the same area that we estimate has approximately four times the capacity of our existing site. Due to our portable infrastructure, virtually all of our assets from the existing site can be easily transported to the new site.
We have also committed to a new 10-year lease at our existing distribution facility in York where we will be increasing capacity by installing new storage and handling equipment. This will extend the operational lifespan of our UK distribution facilities, avoiding the need for major capital expenditure and significant additional leasehold costs in the short to medium term.
Capital expenditure for these two projects is expected to total GBP1.4m, and we estimate this will add circa GBP45m to our annual revenue capacity, taking our total distribution capacity to approximately GBP150m whilst improving our operational efficiency.
During FY19 we are also planning to refurbish the new Head Office building we acquired in June last year for GBP5.35m. We have completed the move and are pleased to report the building was independently revalued at GBP7.35m in February.
Strategy
We are constantly reviewing and refining our business model, which is built around four pillars of growth:
-- E-commerce excellence -- Bespoke platform development -- International expansion; and -- Supply chain evolution.
E-commerce excellence
With nearly 17 million website visitors, conversion rates improving by 50 bps, active customer numbers increasing to more than 474,000, and 30% growth in repeat customers, our e-commerce strategy continues to be highly effective.
Our excellent 9.5 Trust Pilot rating from over 37,000 reviews is a reflection of our 'customer first' approach, the incredible efforts of our team, and the attention to detail that is required to build customer trust and loyalty. We are constantly refining the platform and we will continue to learn from our customers and use our significant technical resource to design the new solutions required to satisfy an evolving market.
Bespoke platform development
Our bespoke e-commerce platform is the cornerstone of our success and a major competitor differentiator and our development team have worked tirelessly to design and deploy 242 website updates and 286 system upgrades during the period.
Highlights included the launch of consumer finance in five European countries, enhancing our mobile checkout, launching a US Dollar website, cloudification of our entire platform and a host of back-end functionality upgrades including GDPR compliance. We have a pipeline of exciting features and upgrades we intend to deploy during the next 12 months.
International expansion
With international sales growing by 69% to GBP35.8m during FY18 in what is a $15bn market, expanding internationally continues to be a key area of opportunity and focus for the Group. Localising our websites and customer experience is at the core of our growth strategy, and over the past year we have expanded our multilingual customer service team, invested further into translation and marketing and improved our local delivery and payment options.
In March 2018 we opened our German showroom which, in addition to physically showcasing our products and building our brand in the locality, is creating additional buying opportunities in Euros from German distributors.
Supply chain evolution
At the year-end we listed 44,700 products, which has grown 21% in 12 months, and we believe there are further opportunities to increase this significantly.
Own-brand product sales have continued to grow impressively, with 45% growth during FY18 to a total of GBP21m, building on the 58% growth achieved during FY17.
Logo Update
After 15 years of excellent service, we have decided it's time to update the Gear4music logo, as featured in this preliminary results statement. Our websites will be updated with the new logo later in the year, along with a refreshed and modernised look and feel.
Outlook
Whilst FY18 profitability reflects the investments made in our European operations and customer proposition to drive market share, we remain confident in our outlook for the new financial year. As we continue to implement our long-term growth strategy for FY19, we expect to see ongoing strong revenue growth, alongside increasing profits and cash generation.
Andrew Wass
Chief Executive Officer
Chief Financial Officer's statement
Overview
The Group has delivered strong results, during an investment period in European distribution to enable and drive future growth. European distribution centre administrative expenses of GBP1.5m compared with GBP0.5m in FY17 led to Operating profit of GBP2.0m (FY17: GBP2.6m).
Revenue
FY18 FY17 Change
GBP000 GBP000 %
======================= ======= ======= =======
UK Revenue 44,258 34,865 27%
------- ------- -------
International Revenue 35,842 21,263 69%
------- ------- -------
Revenue 80,100 56,128 43%
------- ------- -------
Revenue increased by GBP24m in FY18 (FY17 GBP20.6m) equating to growth of 43% building on growth of 58% and 46% in the last two years. Two-year revenue growth from FY16 to FY18 was 126% compared to 132% between FY15 and FY17.
UK revenue increased by GBP9.4m (27%) to GBP44.3m, giving the Group an estimated 5.9% market share in the UK. European growth continues to represent a significant opportunity and international revenue growth of 69% was further to 124% growth in FY17 and 73% in FY16.
The Group ships product outside Europe and in October 2017 the Group launched a US Dollar website representing an important initial step in our plans for growth outside Europe. Revenues from sales outside Europe accounted for 1% of total revenue.
Revenue growth was evenly spread across the year, with 44% in H1 and 42% in H2.
FY18 FY17 Change
GBP000 GBP000 %
===================== ======= ======= =======
Other-brand product
revenue 56,075 39,351 42%
------- ------- -------
Own-brand product
revenue 20,947 14,449 45%
------- ------- -------
Other revenue 3,078 2,328 32%
------- ------- -------
Revenue 80,100 56,128 43%
------- ------- -------
Last year we reported on good progress made in our own-brand business and own-brand revenue growth achieving the Group's ambition of keeping pace with the growth in other-brands. In FY18 we are pleased to report further progress with own-brand growth of 45% outpacing 42% growth reported in other-brands, with GBP20.9m revenue coming from 2,629 SKUs (28 February 2017: 2,411). The proportion of revenue that came from own-brand products in FY18 increased to 26.2% (FY17: 25.7%).
Other revenue comprises carriage income, warranty revenue, and commissions earned on facilitating point-of-sales credit for retail customers. Warranty income is becoming an increasingly minor component of revenue, with related revenue falling from GBP315,000 in FY17 (0.6% of revenue), to GBP302,000 in FY18 (0.4% of revenue).
Gross profit
FY18 FY17 Change
GBP000 GBP000 %
======================== ======= ======= =========
Gross profit (GBP'000) 20,319 15,145 +34%
------- ------- ---------
Gross margin 25.4% 27.0% -1.6ppts
------- ------- ---------
Strong revenue growth led to a GBP5.2m increase in gross profit on last year with gross margin reducing from 27.0% to 25.4%, a result more in line with FY16 (25.9%).
The Group faced US Dollar related cost push inflation towards the end of FY17 and into FY18, directly on own-brand products that are purchased in US Dollars and indirectly on other-branded products that the Group has to date predominantly purchased in Sterling but the products are ultimately manufactured in US Dollars. Whilst this was mitigated to a degree through negotiation with suppliers and leveraging of economies of scale and passing on through price increases to customers where it made commercial sense, the net overall impact has been a reduction in gross margin in the financial year.
Against this backdrop of increasing intake costs, the Group continues to invest in its customer proposition in terms of competitive pricing, delivery options and costs.
Short and medium-term intake cost prospects are improving with the strengthening of Sterling, the Group's ability to source other-branded products in Swedish Krona and Euros, and further benefits of scale.
Local distribution centres have started to reduce delivery costs to customers into their domestic and adjacent markets, although to date this has been reinvested in our customer proposition and passed on to the customer.
Administrative expenses and Operating profit
FY18 FY17 Change
GBP000 GBP000 %
========================= ========= ========= =======
UK Administrative
expenses (16,823) (12,050) (40%)
--------- --------- -------
European Administrative
expenses (1,535) (479) (220%)
--------- --------- -------
Total Administrative
expenses (18,358) (12,529) (47%)
--------- --------- -------
Operating profit 1,961 2,616 (25%)
--------- --------- -------
Total administrative expenses increased 47% compared to a 43% increase in revenue as the full-year affect and phased scaling-up of the Group's European distribution centres led to an additional GBP1.1m of European administrative expenses in FY18 over FY17. Administrative expenses incurred in the UK, which included Head Office and Buying functions, increased by GBP4.8m (40%).
In FY18 marketing costs of GBP6.7m (FY17: GBP4.7m) and labour costs of GBP6.3m (FY17: GBP4.3m) accounted for 71% of total administrative expenses.
Marketing costs in FY18 increased in line with the increase in revenue at 43% and as a percentage of revenue was in line with FY17 at 8.3%. This level of return is as expected given marketing decisions are heavily data and return driven and includes an element of investment into key target European markets where the Group is looking to build the brand and gain market share.
In FY18 labour costs increased 48% to GBP6.3m (FY17: GBP4.3m) as a result of a 49% increase in average headcount to support current and future growth. As explained in last year's CFO's report, total labour costs as a percentage of revenue in FY18 increased to 7.9% from 7.6% in FY17, which is in line with FY16's 7.8%.
As expected given where the Group is at in its investment cycle, FY18 EBITDA of GBP3.5m is GBP0.2m lower than last year and equates to 4.3% of revenue compared to 6.4% in FY17 and 4.7% in FY16.
Financial expenses of GBP461,000 (FY17: GBP47,000) includes a GBP265,000 net foreign exchange loss (FY17: GBP67,000 gain), and GBP178,000 interest (FY17: GBP47,000) principally relating to property linked bank loans.
Profit before tax was GBP1.5m (FY17: GBP2.6m), which translates into an EPS of 6.7p (diluted EPS of 6.7p).
Cash-flow and net debt
The cash flow statement for the financial year reflects the Group continuing to deploy growth capital to generate returns, by investing in stock and the e-commerce platform to improve the customer proposition and drive revenue.
FY18 FY17
GBP000 GBP000
=============================== ======== ========
Opening cash 3,001 3,548
-------- --------
Profit for the year 1,386 2,314
-------- --------
Movement in working
capital (3,123) (3,518)
-------- --------
Depreciation and amortisation 1,497 1,001
-------- --------
Financial expense 196 47
-------- --------
Other operating adjustments 201 267
-------- --------
Net cash from operating
activities: 157 111
-------- --------
Net cash from investing
activities: (9,517) (2,295)
-------- --------
Net cash from financing
activities: 9,899 1,637
-------- --------
Increase/(decrease)
in cash in the year 539 (547)
-------- --------
Closing cash 3,540 3,001
-------- --------
The business generated trading cash in the year and has invested funds raised in capital expenditure, and in working capital which can be unwound.
Stock increased by GBP5.4m (46%) broadly in-line with revenue growth, whilst stocking the European distribution centres. This was partly funded by a GBP0.8m increase in stock-loans and a GBP2.4m increase in trade payables.
Net cash from investing activities of GBP9.5m includes the GBP5.6m investment in the new freehold head-office in June 2017, GBP1.8m other tangible fixed additions in York and the European distribution centres, and GBP1.7m of software development. No finance leases were drawn against any of this expenditure.
Cash from financing activities of GBP9.9m includes a GBP6.0m increase in debt relating principally to bank loans linked to the freehold property purchase, and GBP4.2m net proceeds from the fund raise and exercise of a warrant in June 2017.
Balance sheet and net assets
The Group had a strong year-end balance sheet, with net assets of GBP18.9m (FY17: GBP11.7m), and GBP3.5m cash (FY17: GBP3.0m).
FY18 FY17
GBP000 GBP000
=============================== ========= =========
Software platform 4,304 3,407
--------- ---------
Other intangible assets 2,074 2,130
--------- ---------
Property, plant and
equipment 10,054 1,565
--------- ---------
Total non-current assets 16,432 7,102
--------- ---------
Stock 17,055 11,686
--------- ---------
Cash 3,540 3,001
--------- ---------
Other current assets 2,704 1,348
--------- ---------
Total current assets 23,299 16,035
--------- ---------
Trade payables (7,325) (4,970)
--------- ---------
Loans and Borrowings (3,914) (2,621)
--------- ---------
Other current liabilities (3,591) (2,409)
--------- ---------
Total current liabilities (14,830) (10,000)
--------- ---------
Loans and Borrowings (4,616) (24)
--------- ---------
Other non-current liabilities (1,400) (1,391)
--------- ---------
Total non-current liabilities (6,016) (1,415)
--------- ---------
Net assets 18,885 11,722
--------- ---------
Investment in the software platform in the year was GBP1.7m (FY17: GBP1.5m) to develop enhanced functionality and resilience, taking total investment to date to GBP5.9m and net book value to GBP4.3m (28 February 2017: GBP3.4m).
A freehold head office was acquired in June 2017 for GBP5.3m in an off-market transaction, with a further GBP0.3m of directly related costs being capitalised. Further to the Group's understanding of local rental values, an independent valuation was commissioned resulting in a GBP1.7m upwards revaluation.
The Group had net debt of GBP5.0m at the financial year end compared to net cash of GBP0.4m at last financial year end, including GBP5.2m of debt related to the freehold property purchase outlined above, of which GBP4.6m is payable after one year.
Dividends
The Board remains confident in the cash generative nature of the business, but in light of the returns available from future growth, the Board does not consider it appropriate to declare a dividend at this time but will continue to review this position on an annual basis.
Chris Scott
Chief Financial Officer
Consolidated Statement of Profit and Loss and Other Comprehensive Income
Year ended Year ended
28 February 28 February
Note 2018 2017
Unaudited Audited
GBP000 GBP000
Revenue 80,100 56,128
Cost of sales (59,781) (40,983)
Gross profit 20,319 15,145
Administrative expenses 2,3,4 (18,358) (12,529)
Operating profit 3 1,961 2,616
Financial income 6 - 67
Financial expense 6 (461) (47)
Profit before tax 1,500 2,636
Taxation 7 (114) (322)
Profit for the year 1,386 2,314
Other comprehensive
income
Items that will not
be reclassified to
profit or loss:
Revaluation of property,
plant and equipment 8 1,716 -
Deferred tax movements (203)
Items that are or may
be reclassified subsequently
to profit or loss:
Foreign currency translation
differences - foreign
operations 2 10
Total comprehensive
income for the year
2,901 2,324
Basic profit per share 5 6.7p 11.5p
Diluted profit per share 5 6.7p 11.4p
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Financial Position
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
Note GBP000 GBP000
Non-current assets
Property Plant and
Equipment 8 10,054 1,565
Intangible assets 9 6,378 5,537
16,432 7,102
Current assets
Inventories 10 17,055 11,686
Trade and other
receivables 11 2,704 1,348
Cash and cash equivalents 12 3,540 3,001
23,299 16,035
Total assets 39,731 23,137
Current liabilities
Other interest-bearing
loans and borrowings 13 (3,914) (2,621)
Trade and other
payables 14 (10,916) (7,379)
(14,830) (10,000)
Non-current liabilities
Other interest-bearing
loans and borrowings 13 (4,616) (24)
Other payables 14 (751) (1,069)
Deferred tax liability (649) (322)
(6,016) (1,415)
Total liabilities (20,846) (11,415)
Net assets 18,885 11,722
Equity
Share capital 15 2,087 2,016
Share premium 15 13,055 8,933
Foreign currency
translation reserve 15 12 10
Revaluation reserve 15 1,424 -
Retained earnings 15 2,307 763
Total equity 18,885 11,722
The accompanying notes form an integral part of the consolidated financial report.
Company registered number: 07786708
Consolidated Statement of Changes in Equity
Year Year ended
ended 28 February
Note 28 February 2017
2018
Unaudited Audited
GBP000 GBP000
Share capital
Opening 2,016 2,016
Issue of share capital 71 -
At 28 February 2018 15 2,087 2,016
Share premium
Opening 8,933 8,933
Issue of shares 4,278 -
Share issue costs (156) -
---
At 28 February 2018 15 13,055 8,933
Foreign currency translation
reserve
Opening 10 -
Other comprehensive
income 2 10
At 28 February 2018 15 12 10
Revaluation reserve
Opening - -
Freehold property revaluation 1,716 -
Deferred tax movement (292) -
At 28 February 2018 15 1,424 -
Retained earnings
Opening 763 (1,590)
Share based payment
charge 16 69 39
Deferred tax prior
year adjustment re:
share based payments 89 -
Profit for the year 1,386 2,314
At 28 February 2018 15 2,307 763
Total equity 15 18,885 11,722
The accompanying notes form an integral part of the financial statements.
Consolidated Statement of Cash Flows
Note Year ended Year ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Cash flows from operating
activities
Profit for the year 1,386 2,314
Adjustments for:
Depreciation and amortisation 3,8,9 1,497 1,001
Foreign exchange losses 2 10
Financial expense 6 196 47
Loss on sale of property,
plant and equipment 6 -
Share based payment charge 69 39
Taxation 7 114 322
3,270 3,733
Increase in trade and
other receivables 11 (1,356) (608)
Increase in inventories 10 (5,369) (4,780)
Increase in trade and
other payables 14 3,602 1,870
147 215
Tax paid 7 10 (104)
Net cash from operating
activities 157 111
Cash flows from investing
activities
Proceeds from sale of
property, plant and equipment 19 -
Acquisition of property,
plant and equipment 8 (7,443) (717)
Capitalised development
expenditure 9 (1,693) (1,478)
Acquisition of a business 9 (400) (100)
Net cash from investing
activities (9,517) (2,295)
Cash flows from financing
activities
Cash from share issue 4,193 -
Proceeds from new borrowings 5,986 1,878
Interest paid (178) (47)
Payment of finance lease
liabilities (102) (194)
Net cash from financing
activities 9,899 1,637
Net increase/(decrease)
in cash and cash equivalents 539 (547)
Cash and cash equivalents
at beginning of year 3,001 3,548
Cash and cash equivalents
at end of year 12 3,540 3,001
The accompanying notes form an integral part of the consolidated financial report.
Notes
(forming part of the financial report)
1 General Information and basis of preparation
Gear4music (Holdings) plc is a public limited company, is incorporated and domiciled in the United Kingdom, and is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange.
The group financial statements consolidate those of the Company and its subsidiaries (collectively referred to as the "Group"). The parent company financial statements present information about the Company as a separate entity and not about its group.
The principal activity of the Group is the retail of musical instruments and equipment.
The registered office of Gear4music (Holdings) plc (company number: 07786708), Gear4music Limited (company number: 03113256) and Cagney Limited (dormant subsidiary; company number: 04493300) is Kettlestring Lane, Clifton Moor, York, YO30 4XF.
The Group has two trading European subsidiaries: Gear4music Sweden AB and Gear4music GmbH, and one dormant European subsidiary, Gear4music Norway AS. All three are 100% subsidiaries of Gear4music Limited.
The unaudited financial information has been prepared in accordance with the AIM rules for Companies, and apply the recognition, measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU ('Adopted IFRSs') and make amendments where necessary in order to comply with Companies Act 2006.
The Group's accounting policies are set out below and have been applied consistently in the unaudited consolidated financial information.
The financial information set out above does not constitute the company's statutory accounts for the years ended 28 February 2018 or 2017. The financial information for 2017 is derived from the statutory accounts for 2017 which have been delivered to the registrar of companies. The auditor has reported on the 2017 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2018 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the registrar of companies in due course.
The financial information contained within this preliminary announcement was approved by the Board on 14 May 2018 and has been agreed with the Company's auditors for release.
Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements which is available on the Group's investor website.
The preliminary announcement will be published on the Company's website. The maintenance and integrity of the website is the responsibility of the directors. The work carried out by the auditors does not involve consideration of these matters. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Accounting period
The financial statements presented cover the years ended 28 February 2018 and 28 February 2017.
Measurement convention
The financial statements have been prepared on the historical cost basis except Land and Buildings that are stated at their fair value.
Going concern
The Group's business activities and position in the market are described in the Strategic Report. The Directors believe that given the Group has significant financial resources and has demonstrated continued strong revenue growth and there is a good level of underlying profitability from operating activities, the Group is well placed to manage its business risks.
The Group's policy is to ensure that it has sufficient facilities to cover its future funding requirements. Short term flexibility is available through trade finance and overdraft facilities. At 28 February 2018 the Group had GBP3.6m of cash and bank balances and on 10 May 2018 the Group's bankers, HSBC, confirmed that the Group's trade finance and overdraft facilities had been approved for renewal at GBP6m (FY17: GBP4m) for a further 12-months. HSBC has confirmed the Group met its banking covenants in FY18.
Having duly considered all of these factors and having reviewed the forecasts for the coming year including the investments outlined in the CEO's statement, the Directors have a reasonable expectation that the Group has adequate resources to continue trading for the foreseeable future, and as such continue to adopt the going concern basis of accounting in preparing the financial statements.
2 Segmental reporting
The Group's revenue and profit was derived from its principal activity which is the sale of musical instruments and equipment.
In accordance with IFRS 8 'Operating segments', the Group has made the following considerations to arrive at the disclosure made in these financial statements. IFRS 8 requires consideration of the 'Chief Operating Decision Maker ('CODM') within the Group. Operating segments have been identified based on the internal reporting information and management structures with the Group. Based on this information it has been noted that the CODM reviews the business as one segment and receives internal information on this basis. Therefore, it has been concluded that there is only one reportable segment.
Revenue by Geography
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
UK 44,258 34,865
Europe and Rest of the
World 35,842 21,263
80,100 56,128
Administrative expenses by Geography
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
UK 16,823 12,050
Europe 1,535 479
18,358 12,529
Revenue by Product category
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Other-brand products 56,075 39,351
Own-brand products 20,947 14,449
Other 3,078 2,328
80,100 56,128
3 Expenses
Included in profit/loss are the following:
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Depreciation of tangible
fixed assets 645 391
Amortisation of intangible
assets 852 610
Amortisation of government
grants 31 31
Loss on disposal of
property, plant and
equipment 6 -
Rentals under operating
leases - land & buildings 973 466
Rentals under operating
leases - plant & machinery 11 11
Auditor remuneration
- audit of financial
statements 50 40
Auditor remuneration
- other 17 60
4 Staff numbers and costs
The average number of persons employed (full time equivalents) by the Group (including directors) during the period, analysed by category, was as follows:
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
No. No.
Administration 130 87
Selling and Distribution 183 123
313 210
The aggregate payroll costs of these persons were as follows:
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Wages and salaries 5,367 3,808
Equity-settled share-based
payments (see note 19) 69 39
Cash-settled share-based
payments (see note 19) 8 57
Social security costs 701 333
Contributions to defined
contribution plans 126 33
Amounts paid to third
parties in respect of
director's service - 19
6,271 4,289
Directors' remuneration
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Directors remuneration 535 501
Company contributions
to money purchase pension
schemes 17 5
Amounts paid to third
parties in respect of
directors' service - 19
552 525
There are four directors (2017: 4) for whom retirement benefits are accruing under a money purchase pension scheme.
The aggregate remuneration of the highest paid director was GBP200,000 (2017: GBP189,000), including company pension contributions of GBP3,049 (2017: GBP840) were made to a money purchase scheme on their behalf.
5 Earnings per share
Diluted profit per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
Profit attributable to
equity shareholders of
the parent (GBP'000) 1,386 2,314
Basic weighted average
number of shares 20,713,281 20,156,339
Dilutive potential ordinary
shares 88,155 79,288
Diluted weighted average
number of shares 20,801,436 20,235,627
Basic profit per share 6.7p 11.5p
Diluted profit per share 6.7p 11.4p
6 Finance income and expense
Year ended Year ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Finance income
Net foreign exchange
gain - 67
Total finance income - 67
Finance expense
Bank interest 169 29
Finance leases 9 18
Net foreign exchange
loss 265 -
Fair value movement
on deferred consideration 18 -
Total finance expense 461 47
7 Taxation
Recognised in the income statement
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Current tax expense
UK Corporation tax 4 104
Overseas Corporation
tax 10 -
Adjustments for prior
periods (24) -
Current tax expense (10) 104
Deferred tax expense
Origination and reversal
of temporary differences 79 203
Deferred tax rate
change impact - (7)
Adjustments for prior
periods 45 22
Deferred tax expense 124 218
Total tax expenses 114 322
The corporation tax rate applicable to the Company was 19.08% in the year ended 28 February 2018 and 20% in the year ended 28 February 2017. Reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 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 assets and liabilities at 28 February 2018 have been calculated based on these rates.
Reconciliation of effective tax rate
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Profit for the period 1,386 2,314
Total tax charge 114 322
Profit excluding taxation 1,500 2,636
Current tax at 19.08% (2017:
20.00%)
Tax using the UK corporation
tax rate for the relevant
period: 286 527
Non-deductible expenses 32 (189)
Difference between current
and deferred tax rates (8) (38)
Adjustments relating to
prior year - deferred tax 45 22
Adjustments relating to
prior year - current tax (24) -
R&D claim additional deduction (219) -
Impact of overseas tax
rate 2 -
Total tax charge 114 322
8 Property, plant and equipment
Plant Land Total
and Fixtures Motor Computer and Buildings
equipment and fittings Vehicles equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 March
2016 463 1,464 - 329 - 2,256
Additions 90 443 64 120 - 717
Balance at
28 February
2017 (audited)
& 1 March
2017 553 1,907 64 449 - 2,973
Additions 234 1,384 29 162 5,634 7,443
Disposals - - (31) - - (31)
Revaluation - - - - 1,716 1,716
Balance at
28 February
2018 (unaudited) 787 3,291 62 611 7,350 12,101
Depreciation
and impairment
At 1 March
2016 180 618 - 219 - 1,017
Depreciation
charge for
the year 113 218 6 54 - 391
Balance at
28 February
2017 (audited)
& 1 March
2017 293 836 6 273 - 1,408
Depreciation
charge for
the period 151 394 15 85 - 645
Disposals - - (6) - - (6)
Balance at
28 February
2018 (unaudited) 444 1,230 15 358 - 2,047
Net book value
as at 28 February 10,054
2018 (unaudited) 343 2,061 47 253 7,350
Net book value
as at 28 February
2017 260 1,071 58 176 - 1,565
Freehold property revaluation
On 30 June 2017 the Group acquired a freehold office premises at Holgate Park, York for GBP5.30m. Total amounts capitalised on acquisition totalled GBP5.63m.
At 28 February 2018 the freehold property has been revalued at market value using information provided by an independent chartered surveyor. The valuation was carried out in accordance with the provisions of RICS Appraisal and Valuation Standards ('The Red Book').
Leased assets
At 28 February 2018, the net carrying amount of leased tangible fixed assets was GBP98,000 (2017: GBP232,000), and the accumulated depreciation against leased assets was GBP286,000 (2017: GBP265,000).
Security
The Group's bank borrowings are secured by fixed and floating charges over the Group's assets.
9 Intangible assets
Software
Goodwill platform Brand Total
GBP000 GBP000 GBP000 GBP000
Cost
At 1 March 2016 417 3,367 564 4,348
Additions 1,431 1,478 - 2,909
Balance at 28 February
2017 (audited) &
1 March 2017 1,848 4,845 564 7,257
Additions - 1,693 - 1,693
Balance at 28 February
2018 (unaudited) 1,848 6,538 564 8,950
Amortisation
At 1 March 2016 - 884 226 1,110
Amortisation for
the year - 554 56 610
Balance at 28 February
2017 (audited) &
1 March 2017 - 1,438 282 1,720
Amortisation for
the year - 796 56 852
Balance at 28 February
2018 (unaudited) - 2,234 338 2,572
Net book value as
at 28 February 2018
(unaudited) 1,848 4,304 226 6,378
Net book value as
at 28 February 2017 1,848 3,407 282 5,537
Goodwill
On 19 March 2012 goodwill arose on the acquisition of the entire share capital of Gear4music Limited (formerly known as Red Submarine Limited).
On 1 January 2017 goodwill arose on the acquisition of a software development team from Venditan Limited, the team responsible for the development of the group's proprietary software platform. This transaction is outlined in detail in last year's Annual Report.
Goodwill balances are denominated in Sterling:
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Gear4music Limited 417 417
Software development team 1,431 1,431
1,848 1,848
Impairment testing
In accordance with IAS 36 Impairment of Assets, the Group reviews the carrying value of its intangible assets. A detailed review was undertaken at 28 February 2018 to assess whether the carrying value of assets was supported by the net present value in use calculations based on cash-flow projections from formally approved budgets and longer-term forecasts.
Intangible assets comprise Goodwill, the Gear4music brand name, and the proprietary software platform.
A Cash Generating Unit ("CGU") is defined as the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof. The Group is deemed to have a single CGU to which the goodwill, the software platform and the brand are allocated. An impairment review has been performed on this CGU. The recoverable amount of this CGU has been determined based on value-in-use calculations. In assessing value in use, a five-year forecast to 28 February 2023 was used to provide cash-flow projections that have been discounted at a pre-tax discount rate of 10%. The cash flow projections are subject to key assumptions in respect of revenue growth, gross margin performance, overhead expenditure, and capital expenditure. Management has reviewed and approved the assumptions inherent in the model:
-- Revenue forecasts based on growth by geographical market, at a range of growth levels based on market size and estimate of opportunity, trends, specific projects underway, and Management's experience and expectation.
-- Product costs are assumed to be broadly flat and gross margins are forecast to improve from FY18 toward those achieved in FY17.
-- Wage increases are a function of recruitment and a person-by-person review of current staff, with a range of % increases.
No impairment loss was identified in the current year (FY17: GBPnil). The valuation indicates significant headroom and therefore a terminal growth rate assumption has not been needed to be applied in order to support the valuation of this CGU. Any reasonably possible change in other key assumptions, including the discount rate, would not result in an impairment of the related goodwill or other intangible assets.
10 Inventories
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Finished goods 17,055 11,686
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to GBP55.7m (GBP38.0m in the year ended 28 February 2017).
Management has included a provision of GBP79,879 (28 February 2017: GBP69,500), representing a 100% against returns stock subsequently found to be faulty, that is retained to be used for spare parts on the basis there is no direct NRV value, and a provision based on the expected product loss on dealing with returns stock.
11 Trade and other receivables
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Trade receivables 1,645 1,123
Prepayments 1,059 225
2,704 1,348
Trade receivables includes cash lodged with payment providers, Amazon and the Group's consumer finance partner, and UK and International education and trade accounts where standard credit terms are 30-days.
12 Cash and cash equivalents
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Cash and cash equivalents
per balance sheet 3,540 3,001
Cash and cash equivalents
per cash flow statements 3,540 3,001
13 Other interest-bearing loans and borrowings
This note contains information about the Group's interest-bearing loans and borrowing which are carried at amortised cost.
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Non-current liabilities
Bank loans 4,616 -
Finance lease
liabilities - 24
4,616 24
Current liabilities
Bank loans 3,890 2,520
Finance lease
liabilities 23 101
3,913 2,621
Total liabilities
Bank loans 8,506 2,520
Finance lease
liabilities 23 125
8,529 2,645
Bank loans comprise a Trade Finance facility, and term loans all provided by the Group's bankers, HSBC, and are secured against the by fixed and floating charges over the Group's assets.
The interest rate on 180-day import loans drawn under the Trade Finance agreement is 2.45% per annum over HSBC's Sterling Base Rate, and on an overdraft if and when drawn, is 3.25% over base. Interest on import loans is paid at the maturity of the relevant loan. Interest on an overdraft would be paid monthly in arrears. Trade finance and overdraft facilities were approved for renewal on 10 May 2018 for a 12-month period.
There are two term loans that were drawn around the time of the freehold property acquisition in June 2017:
-- The first loan was for GBP3,727,500 equating to a 70% LTV against the property valuation and is a five-year loan with capital repayments scheduled over 20-years, and interest is 2.04% over LIBOR; and
-- The second loan was for GBP1,797,500 and is a five-year loan with interest of 2.85% over LIBOR
All borrowings are denominated in Sterling.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Minimum
lease
payments Interest Principal
At At At
28 February 28 February 28 February
2018 2018 2018
Unaudited Unaudited Unaudited
GBP000 GBP000 GBP000
Less than one
year 24 1 23
Between one - - -
and five years
24 1 23
Minimum
lease
payments Interest Principal
At At At
28 February 28 February 28 February
2017 2017 2017
Audited Audited Audited
GBP000 GBP000 GBP000
Less than one
year 106 5 101
Between one
and five years 24 - 24
130 5 125
Finance leases relate to assets located at the Distribution Centre in York, with net book values of GBP98,000 (28 February 2017: GBP232,000).
14 Trade and other payables
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP000 GBP000
Current
Trade payables 7,325 4,970
Accruals and deferred
income 1,456 1,151
Deferred consideration 393 393
Government grants 35 28
Other taxation and
social security 1,707 837
10,916 7,379
Non-current
Accruals and deferred
income 169 100
Deferred consideration 555 938
Government grants 27 31
751 1,069
Accruals at 28 February 2018 include:
- GBP446,000 (2017: GBP630,000) of rent accrued but not paid, being the difference in cash paid and the average rent charge as expensed, as per the commercial agreement reached with the landlord of the leasehold distribution centre at Clifton Moor, York. On 21 March 2018 the Group entered into a new 15-year lease with a 10-year clean break clause and as such this accrual will be released in full in FY19; and
- GBP161,000 accrual (2017: GBP100,000) relating to the estimated cash bonuses accrued relating to the Employee and Director EMI schemes, and Director Cash Plan (see note 16).
Deferred consideration is due in relation to the acquisition of the software development team in January 2017 and comprises ten quarterly instalments of GBP100,000 payable on 1(st) of January/April/July/October. These amounts are valued in the accounts at fair value and subsequently amortised.
Government grants are being spread over the useful economic life of the associated asset, relate to Regional Growth Fund and Leeds City Enterprise Partnership grants towards the acquisition of various capital items. Grant conditions exist linked to job creation, and these criteria have been satisfied.
Deferred consideration is valued at fair value. The Directors consider the carrying amount of other 'trade and other payables' to approximate their fair value.
15 Share capital and reserves
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
Share capital Number Number
Authorised, called
up and fully paid:
Ordinary shares
of 10p each 20,867,121 20,156,339
The Company has one class of ordinary share and each share carries one vote and ranks equally with the other ordinary shares in all respects including as to dividends and other distributions.
On 18 May 2017, the Company completed the placing of 610,000 new Ordinary Shares at a price of 690 pence per share, raising GBP4,209,000 in gross proceeds (GBP4,064,730 net proceeds). The Company also issued 100,782 new Ordinary Shares pursuant to the full exercise of a warrant instrument and received a further GBP140,087 in gross proceeds (GBP125,887 net proceeds). A total 710,782 new Ordinary Shares were admitted on 24 May 2017 taking the number of Ordinary Shares in issue from 20,156,339 to 20,867,121, representing dilution of 3.5%.
Share premium
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP'000 GBP'000
Opening at 1 March 8,933 8,933
Issue of shares 4,278 -
Share issue costs (156) -
Closing at 28
February 13,055 8,933
Foreign currency translation reserve
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP'000 GBP'000
Opening at 1 March 10 -
Translation gain 2 10
Closing at 28
February 12 10
Revaluation reserve
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP'000 GBP'000
Opening - -
Freehold property
revaluation 1,716 -
Deferred tax (292) -
Closing at 28
February 1,424 -
The revaluation reserve represents the unrealised gain generated on revaluation of the freehold office property on 28 February 2018. It represents the excess of the fair value over deemed cost.
Retained earnings
Year ended Year
28 February ended
2018 28 February
2017
Unaudited Audited
GBP'000 GBP'000
Opening at 1 March 763 (1,590)
Share based payment
charge 69 39
Deferred tax 89 -
Profit for the
year 1,386 2,314
Closing at 28
February 2,307 763
Reserve Description and purpose
Retained earnings Cumulative net profits recognised
in the consolidated income statement.
16 Share based payments
There are four incentive schemes in place (2017: three):
-- an Employees EMI scheme; -- a Directors EMI scheme relevant to Chris Scott and Gareth Bevan;
-- two Directors cash bonus plans relevant to Andrew Wass who, by virtue of his 34% shareholding, is cash rather than equity rewarded; and
-- and a CSOP scheme set-up in the financial year as, by virtue of its size, the Group was no longer eligible for EMI.
The equity settled share option plans are for qualifying employees of the Group, and options are settled in equity in the Company and subject to vesting conditions.
All equity-settled share options have an exercise price equal to the nominal value of the shares (10p) that the Company will subsidise by way of a bonus provided there are sufficient distributable reserves, and subject to certain conditions will vest on the third anniversary of the date of grant for initial awards on IPO, and the second anniversary thereafter.
The fair value of the cash-settled liability is re-measured at each balance sheet date and settlement date.
Employee EMI Plan
The Board has responsibility for the operation of the Employee EMI Plan and may grant share options over shares to eligible employees. The Board has discretion to select participants in the Employee EMI Plan from eligible employees of the Group. Eligible employees will generally have been employed by the Group for more than three years at the time of award but could be a shorter period at the discretion of the Board.
Awards under the Employee EMI plan awards are only subject to service conditions.
Subject to continued employment, awards will normally be deemed to have been exercised at the end of the relevant vesting period.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising in relation to the awards.
Director EMI Plan
The Remuneration Committee has responsibility for the operation of the Director EMI Plan and may grant share options over shares to eligible employees and retains discretion as to the operation of the plan.
Executive Directors of the Company are eligible to participate in the Director EMI Plan. Participation is at the discretion of the Remuneration Committee.
Awards under the Director EMI may be exercisable at the end of the vesting period subject to meeting EPS-based targets between the date of grant and vest, and subject to service conditions.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising in relation to the awards.
Director Cash Plans
The Remuneration Committee has responsibility for the operation of the Director Cash Plan and may grant cash bonus awards over shares to eligible employees and retains discretion as to the operation of the plan.
Executive Directors of the Company are eligible to participate in the Director EMI Plan. An executive director who participates in the Director EMI Plan is not eligible to participate in the Director Cash Plan. Participation is at the discretion of the Remuneration Committee.
Awards under the Cash plan are subject to performance conditions. Awards will be exercisable at the end of the relevant vesting period subject to EPS-based performance conditions and continued employment.
Awards will be settled in cash.
CSOP
The Board has responsibility for matters relating to Employee members of the Plan and may grant share options over shares to eligible employees. Eligible employees will generally have been employed by the Group for more than three years at the time of award but could be a shorter period at the discretion of the Board. The Board has discretion to select participants from eligible employees of the Group.
The Remuneration Committee has responsibility for matters relating to Director members of the Plan and may grant share options over shares to eligible employees and retains discretion as to the operation of the plan. Executive Directors of the Company are eligible to participate in the Plan. Participation is at the discretion of the Remuneration Committee.
Employee awards under the CSOP plan awards are only subject to service conditions. Directors awards are subject to meeting EPS-based targets between the date of grant and vest, and subject to service conditions.
Subject to continued employment, awards will normally be deemed to have been exercised at the end of the relevant three-year vesting period.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising in relation to the awards.
The terms and conditions of specific grants are as follows:
Method Number Contractual
Grant date / employees of settlement of life of
entitled accounting Instruments Vesting conditions options
Employee EMI Award Equity 23,383 Continued 3 June
1 - Equity settled employment 2018
award to eight
key employees
on IPO, granted
by parent on 3
June 2015
Employee EMI Award Equity 1,845 Continued 17 February
2 - Equity settled employment 2018
award to one key
employee, granted
by parent on 17
February 2016
Employee EMI Award Equity 9,433 Continued 26 May
3 - Equity settled employment 2018
award to two key
employees, granted
by parent on 26
May 2016
Employee EMI Award Equity Initially Continued 31 May
4 - Equity settled 27,406; employment 2018
award to 44 employees 3,816
on IPO, granted forfeit;
by parent on 31 now 23,590
May 2016
Director EMI Award Equity 19,956 EPS-based 31 May
1a - Equity settled performance 2018
award to Chris criteria and
Scott and Gareth Continued
Bevan, granted employment
by parent on 31
May 2016
Director Award Cash Cash equivalent EPS-based 31 May
1b - Cash settled to monetary performance 2018
award to Andrew result criteria and
Wass, granted for the Continued
by parent on 31 other employment
May 2016 directors
Employee CSOP Equity Initially Continued 30 June
Award 5 - Equity 7,248; employment 2020
settled award 390 forfeit;
to 75 employees now 6,858
on IPO, granted
by parent on 30
June 2017
Senior Mgmt. CSOP Equity 7,212 EPS-based 30 June
Award 2a - Equity performance 2020
settled award criteria and
to Chris Scott Continued
and Gareth Bevan employment
and two others,
granted by parent
on 30 June 2017
Director Award Cash Cash equivalent EPS-based 30 June
2b - Cash settled to monetary performance 2020
award to Andrew result criteria and
Wass, granted for the Continued
by parent on 30 other employment
June 2017 directors
The number and weighted average exercise prices of share options are as follows:
Weighted Number Weighted Number
average of options average of options
exercise exercise
price price
Unaudited Unaudited Unaudited Unaudited
2018 2018 2017 2017
Outstanding at the beginning
of the year Nil 79,226 Nil 25,226
Forfeited during the
year Nil (1,409) Nil (2,795)
Exercised during the - - - -
year
Granted during the year Nil 14,460 Nil 56,795
Lapsed during the year - - - -
Outstanding at the end
of the year Nil 92,277 Nil 79,226
Exercisable at the end
of the year - 1,845 - -
No share options were exercised in the year. The first award was eligible for exercise is on 17 February 2018 and awards totalling 76,362 are eligible for exercise in May-June 2018. The options outstanding at the year-end have a nil exercise price and a weighted average contractual life of 0.57 years (28 February 2017: 1.25 years).
The fair values of employee share options were calculated using a Black-Scholes model along with the assumptions detailed below:
Date of Share price Exercise Volatility Vesting Dividend Risk Fair
grant on date price (%) period yield free value
of grant (pence) (yrs) (%) rate (pence)
(pence) of interest
(%)
3 Jun
2015 143.0 0.0 1% 3 0% 0.70% 143.0
17 Feb
2016 135.0 0.0 1% 2 0% 0.70% 135.0
26 May
2016 132.5 0.0 11.8% 2 0% 0.45% 132.5
31 May
2016 132.5 0.0 11.8% 2 0% 0.43% 132.5
31 May
2016 132.5 0.0 11.8% 2 0% 0.43% 132.5
30 June
2017 720.0 0.0 52.6% 3 0% 0.43% 720.0
30 June
2017 720.0 0.0 52.6% 3 0% 0.43% 720.0
The expected volatility is wholly based on the historic volatility (calculated based on the weighted average remaining life of the share options). The total expenses recognised for the year and the total liabilities recognised at the end of the year arising from share-based payments are as follows:
2018 2017
Unaudited Audited
GBP000 GBP000
Equity settled share-based payment
expense 69 39
Cash-settled share-based payment
expense 8 57
77 96
Opening at 1 March 104 8
Recognised in equity 116 47
Recognised as a liability 65 57
181 104
17 Commitments
Operating lease commitment
Non-cancellable operating lease rentals are payable as follows:
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Less than one
year 1,112 887
Between one and
five years 4,635 3,103
More than five - -
years
5,747 3,990
Operating lease commitments relates to property leases of the Distribution Centre in York, the Software Development office in Manchester, and Distribution Centres in Sweden and Germany.
The lease on the York Distribution was scheduled to end on 22 June 2020. On 21 March 2018 the Group entered into a new 15-year lease with a 10-year clean break clause.
18 Related parties
In FY18 79 employees including Chris Scott and Gareth Bevan were granted a total of 14,460 equity-settled share options (2017: 56,795 options to 48 employees), and Andrew Wass was awarded a cash-settled option (see note 16).
Transactions with key management personnel
The compensation of key management personnel is as follows:
Year Year
ended ended
28 February 28 February
2018 2017
Unaudited Audited
GBP000 GBP000
Key management emoluments
including social security
costs 503 470
Company contributions
to money purchase pension
plans 17 5
520 475
Key management personnel comprise the Chairman, CEO, CFO and CCO. All transactions with key management personnel have been made on an arms-length basis.
Four directors are accruing retirement benefits under a money purchase scheme (2017: 4).
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFLESLFASEII
(END) Dow Jones Newswires
May 15, 2018 02:00 ET (06:00 GMT)
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