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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 | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 145.00 | 140.00 | 150.00 | 145.00 | 145.00 | 145.00 | 0.00 | 07:36:25 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
Musical Instrument Stores | 152.04M | -644k | -0.0307 | -47.23 | 30.42M |
TIDMG4M
RNS Number : 3073T
Gear4music (Holdings) PLC
14 November 2023
14 November 2023
Gear4music (Holdings) plc
Interim results for the six months ended 30 September 2023
"Progressing against our strategic objectives amidst a challenging backdrop"
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 six months ended 30 September 2023 ("the Period").
GBPm 6-months ended 6-months ended Change 30 Sept 2023 30 Sept 2022 on FY23 ('FY24 H1') ('FY23 H1') H1 --------------- --------------- --------- UK Revenues 36.5 35.5 +3% European & Rest of World revenues 26.1 30.8 (15%) Total revenues 62.6 66.3 (6%) Gross profit 17.0 17.4 (1%) Gross margin 27.1% 26.3% +80bps Adjusted EBITDA* 2.9 2.7 +6% Operating loss (0.9) (0.3) (0.6m) Net loss (1.6) (1.1) (0.5m)
* Adjusted EBITDA is defined as EBITDA ('Earnings before interest, tax, depreciation and amortisation') adjusted for exceptional items. In FY24 H1 EBITDA adjusted for GBP0.5m one-off redundancy costs (FY23 H1: GBPnil).
FY24 H1 Highlights:
- Results reflect delivery against previously stated prioritisation of improved gross margins and reduced costs over sales growth in a continuing challenging retail environment, particularly in our European markets:
o A 6% decline in revenue resulted from a planned focus on prioritising gross margins which improved by 80bps, with the Group benefiting from an improved stock profile and lower delivery costs in FY24 H1; and
o Cost reduction initiatives to achieve GBP4.0m of annualised cash savings were delivered in FY24 H1, with the benefit from FY24 H2 onwards - associated one-off exceptional cost of GBP0.5m.
- Good progress against the objective of reducing Group net debt to GBP18.1m, GBP3.7m lower than last year (30 September 2022: GBP21.8m), representing a high-point in the annual cash cycle as the business starts to build stock ahead of the peak trading period.
- Second Hand system continues to show good potential following European launch during FY24 H1.
- Well prepared ahead of the seasonal peak trading period, with a continuing focus on efficiency and margin improvements.
Trading Outlook:
-- Whilst profit expectations remain the same, we are moderating our revenue expectation for the year to GBP144m, to reflect sales run rates and the actions taken to prioritise profits over growth. This has been offset by an increase in gross margins and lower costs contributing to higher overall profit margins. As such, full-year adjusted/underlying profit outlook remains in-line with current consensus market expectations**.
-- Net debt and on-hand inventory expected to be further reduced by 31 March 2024.
Commenting on the results, Andrew Wass, Chief Executive Officer said:
"We are pleased to have made good progress during the period against our strategic objectives of increasing gross margins, reducing our cost base, and further enhancing our customer proposition with the launch of our Second-Hand system in Europe.
Although consumer demand has remained subdued this year due to the weaker environment, our FY24 H1 revenues were 27% higher than our pre-Covid FY20 H1 revenues, and we remain confident in our long-term growth strategy.
The decisive actions we have taken will ensure the business can return to stronger profitable growth by the next financial year, as we leverage efficiencies driven by AI, build upon our platform for growth, and diversify our channels to market.
We are well prepared for our seasonal peak trading period with a range of recently developed great value music products, and we look forward to providing a further trading update after Christmas on the 18 January 2024."
** Gear4music believes that current consensus market expectations for the year ending 31 March 2024 prior to the publication of this announcement are revenues of GBP 161.7 million, adjusted EBITDA of GBP9.8 million and adjusted profit before tax of GBP1.2 million .
Enquiries:
Gear4music Andrew Wass, Chief Executive Officer Chris Scott, Chief Financial Officer +44 (0)20 3405 0205 Singer Capital Markets - Nominated Adviser and Broker Peter Steel/Sam Butcher, Corporate Finance Tom Salvesen, Corporate Broking +44 (0)20 7496 3000 Alma - Financial PR +44 (0)20 3405 0205 Rebecca Sanders-Hewett Gear4music@almastrategic.co.uk Joe Pederzolli David Ison
About Gear4music .com
Operating from a Head Office in York, Distribution Centres in York, Bacup, Sweden, Germany, Ireland & Spain, and showrooms in York, Bacup, Sweden & 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 the Rest of the World.
Having developed its own e-commerce platform, with multilingual, multicurrency websites delivering to over 190 countries, the Group continues to build its overseas presence.
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.
Business Review
The business reports the Group's results for the six months to 30 September 2023, and updates on the strategic and commercial progress made in the Period.
Strategy
The business was in an improved position heading into FY24 having achieved material reductions in stock and net debt in FY23 H2, albeit at a lower gross margin than would normally be the case. Our focus in FY24 H1 pivoted to improving gross margin and cutting costs to provide the platform to restore profitability back towards the levels reached in previous periods, whilst maintaining a disciplined approach to working capital management.
Consumer confidence remains low across the UK and many European markets which in some cases has created a highly price competitive situation for certain products. As the largest UK-based retailer in our sector, our focus is maintaining a disciplined approach to product pricing, whilst reconfiguring the business to ensure the Group is profitable irrespective of market conditions.
In June 2023 we renewed our banking facilities, entering into a committed three-year GBP30m 'Revolving Credit Facility' ('RCF') with HSBC, providing a good level of headroom to meet our requirements. Nevertheless, the Board remains focused on prioritising a reduction in net debt, which we are doing focusing on cash generation, reducing our investment in software development, and actively managing stock levels across our distribution centres to reflect the evolving demand.
We continue to make progress against the three pillars of our progressive e-commerce strategy, and outline developments in each area below:
E-commerce Excellence
FY24 H1 FY23 H1 Change on FY23 H1 Revenue GBP62.6m GBP66.3m (6%) Total unique website users 9.8m 9.1m +7% Mobile site unique users 6.6m 6.6m - Conversion rate 3.97% 4.90% (93bps) Average order value GBP161 GBP151 +7% Active customers * 823,000 903,000 (9%) Proportion of repeat customers ** 26.3% 26.5% -20bps Email subscriber database 1,720,200 1,408,200 +22% Trustpilot rating 4.7/5 4.7/5 -
* Active customers are those that have purchased products within the last 12 months
** Repeat customers are those that have made a purchase in the defined period and have historically made at least one purchase
UK revenue in the Period was 3% ahead of last year, effectively reversing a 3% decrease last year on FY22 H1. The UK market in FY24 H1 was more resilient than other territories, reflecting Gear4music's brand recognition and scale in our core market.
International revenue in the Period was 15% behind FY23 H1 reversing a 10% increase last year, as certain markets became highly price competitive at times, and Gear4music held its pricing levels in-line with strategy.
'Cost-per-Click' ('CPC') continues to be high relative to where it has historically been, with competition for less traffic in the current economic climate. We are successfully using automated AI models to maximise revenue at any defined level of return on investment, and we purposefully held marketing costs as a proportion of revenue flat on last year and FY22 H1 at 6.9%. As a consequence, the proportion of visitors from organic and direct sources increased to 51% from 46% in FY23 H1, and 38% in FY22 H1.
Website user numbers increased 7% to 9.8m reflecting an increase in browsing and visits from lower-intent to purchase prospective customers coming from direct and organic sources. Visitors to our UK sites increased by 24% offsetting a 5% reduction in visitor numbers to the Group's international websites. This shift, alongside Gear4music keeping certain prices higher than the overall market during periods of heightened competition, contributed to a reduction in conversion rate from 4.9% in FY23 H1 to 4.0%. UK conversion fell from 5.8% to 4.4% whilst European conversion reduced from 4.2% to 3.6%. Mobile conversion also fell from 2.8% to 2.4%.
Mobile continues to be a major theme with 68% of users coming through this channel (FY23 H1: 72%; FY22 H1: 65%).
'Average Order Value' ('AOV') increased by 7% to GBP161 further to a 19% increase last year reflecting a return to normalised pricing, and inflationary price increases, meaning the business processes fewer orders to achieve an equivalent level of sales.
The Group served 341,000 customers in the Period (-11% on FY23 H1) and 'Active customers', being those that have purchased products within the last 12 months, similarly decreased by 9%.
The proportion of repeat customers remained broadly flat at 26.3% (FY23 H1: 26.5%), having increased from 24.4% in FY22 H1, reflecting a proportionally lower level of paid-for new customers. The level of repeat custom is lower than in other e-commerce sectors, reflecting the nature of the Group's product range and high average order value, and re-affirms the importance of the Group being profitable from the first customer transaction.
The number of subscribers on our email database increased by 0.3 million to 1.7 million and we continue to make improvements to our email retargeting with the objective of cost-efficiency increasing the number of repeat customers.
We continue to invest in our customer proposition and service teams, resulting in a great overall customer experience, reflected in Gear4music.com's Trustpilot score of 4.7/5 and 'Excellent' rating from over 125,000 reviews.
The Group invested GBP2.4m in its e-commerce platform in the Period (FY23 H1: GBP2.8m) with deployments including:
-- European launch of second-hand -- European third-party fulfilment -- Enhanced website product configurator
Supply Chain Evolution
FY24 H1 FY23 H1 Change on FY23 H1 Own-brand product sales GBP15.2m GBP15.0m +2% Other brand product sales GBP44.7m GBP48.3m (8%) Product margin 30.9% 30.9% - Products listed 63,900 62,500 +2% Brands listed 1,134 1,109 +2%
FY24 H1 gross margin of 27.1% is an 80bps improvement on FY23 H1, with the improvement coming from relatively lower costs on shipping products to our customers linked to a high proportion of UK-sales and a higher AOV.
Achieving strong gross margins is critical to the overall profitability of the Group and as such is a key business objective. In H2 last year, a period when traditionally margins would be expected to have improved on H1, product margin became a secondary priority as we focused on reducing stock and net debt, and product margins decreased from 30.9% down to 29.4%. As such it was important in FY24 H1 we improved product margins back to historical levels, irrespective of the tough consumer environment.
A flat product margin of 30.9% reflects a 20bps improvement in own-brand margin to 44.1%, a 50bps fall in other-branded margin, and a positive sales mix effect as own-brand accounted for 25.4% of product sales compared to 23.6% in FY23 H1.
The number of 'Stock-Keeping-Units' ('SKUs') listed increased from 62,500 at 30 September 2022 to 64,200 at 31 March 2023 and decreased to 63,900 at 30 September 2023 as we removed less profitable, slow-moving SKUs, representing a net 2% increase in 12 months (1 October 2021 to 30 September 2022: +3%).
Stock at 30 September 2023 of GBP39.0m is GBP4.4m (10%) lower than at 30 September 2022 reflecting a continued focus on reducing both stock levels in light of lower customer demand, and net debt.
Own-brand
It has been an exciting period for own-brand product development with a number of new product lines coming to fruition, alongside establishing our new brand architecture with a fresh approach to branding and customer experience. We have made significant improvements to elevate brand identity and perception with a strong emphasis on the customer journey through improved brand assets including lifestyle imagery and video content, and updating existing product lines such as specifications, price points, packaging and supporting documents.
The number of our own-brand products increased from 4,250 at 30 September 2022 to 5,200 (+22%) at 30 September 2023, with own-brand revenue accounting for 25.4% of total product sales from just 8.1% of SKUs, reflecting the significant on-going efforts of our in-house team in developing our range of high-quality instruments and equipment at affordable prices.
International Expansion
Our international customer proposition continues to be improved from our existing footprint, with improving stock profiles better reflecting local and adjacent territory demand, and increasing the number of cost effective and premium delivery options.
The Group estimates it has a European distribution infrastructure capable of handling GBP150m of revenue per annum, and is well placed to capitalise on the medium-term growth opportunity as and when consumer markets improve.
Current trading and outlook
Continuing macro-economic uncertainties have impacted the consumer in the UK and across Europe. Whilst profit expectations remain the same, we are moderating our revenue expectation for the year to GBP144m, to reflect sales run rates and the actions taken to prioritise profits over growth. The impact on the bottom line has been offset by an increase in gross margins and lower costs. We are well-prepared ahead of the seasonal peak trading period and our full-year adjusted/underlying profit outlook remains in-line with current consensus market expectations.
We remain confident in the enduring consumer demand for Gear4Music products, and we are well-placed to benefit once the consumer discretionary spend environment improves.
The Group plans to issue a Christmas trading update on 18 January 2024.
Financial Review
FY24 H1 FY23 H1 Change on FY23 H1 Revenue GBP62.6m GBP66.3m (6%) Gross profit GBP17.0m GBP17.4m (2%) Gross margin 27.1% 26.3% +80bps Unadjusted EBITDA GBP2.4m GBP2.7m (12%) Exceptional item - Redundancy (GBP0.5m) - (GBP0.5m) costs Adjusted EBITDA GBP2.9m GBP2.7m +6% Adjusted EBITDA margin 4.6% 4.1% +50bps Operating loss (GBP0.9m) (GBP0.3m) (GBP0.6m) Marketing costs GBP4.3m GBP4.6m (6%) Marketing costs as % of revenue 6.9% 6.9% - Total Labour costs GBP6.9m GBP7.0m (1%) Total Labour costs as % of revenue 11.0% 10.5% (50bps) Cash and cash equivalents GBP5.9m GBP7.2m (GBP1.3m) Net bank debt GBP18.1m GBP21.8m (GBP3.7m)
Revenue
Revenue in the Period of GBP62.6m was GBP3.7m (6%) lower than last year. UK revenue was up 3% taking our estimated share of a flat UK market to 9.3% (FY23 H1: 9.1%). International revenues of GBP26.1m were 15% down on last year reflecting difficult trading conditions, and accounted for 42% of Group revenue compared to 47% in FY23 H1.
Gross Margin and Gross Profit
As outlined above in the 'Business Review' gross margin improved 80bps from 26.3% last year to 27.1%, reflecting a product margin that was flat on FY23 H1 but importantly 150bps higher than FY23 H2, and a relative reduction in delivery costs reflecting a 7% higher AOV, and a greater proportion of UK-sales where delivery costs are typically lower.
Net result of revenue and gross margin movements is gross profit of GBP17.0m, being GBP0.4m (2%) lower than last year.
Exceptional items
Exceptional costs of GBP0.5m relate to redundancy costs incurred during the restructure of various Head Office teams, principally Software Development. These costs were paid in full in FY24 H1.
Operating Loss and Administrative Expenses
The operating loss before exceptional items of GBP0.4m represents a GBP0.1m decrease on FY23 H1 reflecting a fall of GBP0.4m in gross profit mitigated by a net GBP0.3m reduction in admin expenses.
Admin expenses increased from 27.4% of sales in FY23 H1 to 28.5% in FY24 H1.
Marketing and labour costs continue to be key components of our cost base, accounting for a combined 63% of total administrative expenses in the Period (FY23 H1: 65%):
- Our marketing spend continues to be heavily invested in direct 'Pay-per-click' ('PPC') marketing and our approach focuses on delivering a pre-defined return on investment. Marketing costs of GBP4.3m equated to 6.9% of sales, the same as in FY23 H1 and FY22 H1. Alongside this it is important we invest in enhancing our organic and direct marketing capabilities which in the longer term will support our ambition to reduce marketing spend as a proportion of sales.
- Total labour costs decreased 1% on FY23 H1 with an estimated 8% increase in average salary offset by a reduction in average headcount of 72. Headcount at 30 September 2023 (including Software Development team) of 434 was 20% lower than as at 30 September 2022 (541).
European distribution centre local admin expenses increased GBP0.1m (4%) on FY23 H1, to GBP2.5m reflecting inflationary cost increases limited by reduced activity.
Depreciation and amortisation in the Period totalled GBP3.3m (FY23 H1: GBP3.0m) including amortisation of GBP1.8m (FY23 H1: GBP1.4m) relating to our bespoke e-commerce platform, and GBP0.9m depreciation of 'Right of Use' assets (FY23 H1: GBP0.8m).
An adjusted EBITDA margin of 4.6% compares to 4.1% last year and 7.4% in FY22 H1.
Net Loss and Financial Expenses
Financial expenses of GBP1.0m include GBP0.8m bank interest (FY23 H1: GBP0.5m) reflecting increased interest rates and the level of debt in the business, and GBP0.2m interest on lease liabilities (FY23 H1: GBP0.2m).
A tax credit of GBP0.4m restricted the loss in the Period to GBP1.6m, compared to a GBP1.1m net loss in FY23 H1.
Cash Flow and Balance Sheet
In FY23 the business successfully reduced its stockholding to better reflect the level of sales and as such FY24 has seen a return to a more usual trading pattern, with a stock increase of GBP4.6m since 31 March 2023 ahead of the peak Christmas trading period. Stock at 30 September 2023 includes GBP4.4m of inbound stock-in-transit (30 September 2022: GBP4.1m) that will arrive ahead of peak trading.
Trade and other payables of GBP20.3m were GBP1.4m (7%) higher than last year reflecting stock deals on pre-agreed terms, and includes GBP1.4m of customer prepayments (30 September 2022: GBP2.2m).
Net bank debt was GBP18.1m at what is historically a low point in the annual cash cycle, leaving headroom of GBP11.9m within the Group's GBP30m RCF, and is expected to reduce further by 31 March 2024.
Capitalised software development costs totalled GBP2.4m in the Period (FY23 H1: GBP2.8m), taking total capitalisation to date to GBP27.4m. Amortisation in the Period was GBP1.8m leading to a GBP0.6m increase in net book value since the start of the financial year to GBP13.4m. In FY23 we capitalised GBP5.3m of software development costs. The post-restructure annualised capitalisation run rate based on the current team, is GBP2.8m compared to amortisation of GBP3.1m in FY23.
Property, plant and equipment capital expenditure was limited to GBP36,000 in the Period (FY23 H1: GBP0.6m).
Dividend Policy
The Board does not recommend the payment of a dividend (FY23 H1: nil). Consistent with its previous stated approach, the Group will revisit its shareholder distribution policy at the appropriate time.
Unaudited consolidated interim statement of profit and loss and other comprehensive income
6 months ended 6 months ended Year ended 30 September 30 September 31 March 2023 (audited) Note 2023 (unaudited) 2022 (unaudited) GBP000 GBP000 GBP000 Revenue 3 62,641 66,305 152,039 Cost of sales (45,656) (48,892) (112,996) Gross profit 16,985 17,413 39,043 Administrative expenses 3,4 (18,324) (18,138) (38,705) Other income 4 407 459 949 Operating (loss)/profit before exceptional items 4 (445) (266) 1,287 Exceptional items 5 (487) - - Operating (loss)/profit after exceptional items (932) (266) 1,287 Financial expenses 7 (981) (777) (1,694) Loss before tax (1,913) (1,043) (407) Taxation 8 353 (66) (237) Loss for the Period (1,560) (1,109) (644) Other comprehensive income Items that will not be reclassified to profit or loss: Revaluation of property, plant and equipment - - (550) Deferred tax movements - - 147 Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences - foreign operations 272 (101) - _______ _______ _______ Total comprehensive loss for the Period (1,288) (1,210) (1,047) Loss per share attributable to equity shareholders of the company Basic loss per share 6 (7.4p) (5.3p) (3.1p) Diluted loss per share 6 (7.4p) (5.3p) (3.1p)
Unaudited consolidated interim statement of financial position
30 September 30 September 31 March 2023 (audited) 2023 2022 (unaudited) (unaudited) Note GBP000 GBP000 GBP000 Non-current assets Property, plant and equipment 9 11,326 12,805 11,934 Right of use assets 10 9,088 7,438 7,288 Intangible assets 11 22,616 21,184 22,049 43,030 41,427 41,271 Current assets Inventories 12 38,954 43,378 34,381 Trade and other receivables 13 4,083 3,270 3,434 Corporation tax receivable 371 1,019 1,066 Cash and cash equivalents 5,919 7,199 4,460 49,327 54,866 43,341 Total assets 92,357 96,293 84,612 Current liabilities Trade and other payables 15 (20,303) (18,912) (17,647) Lease liabilities 16 (1,057) (1,171) (1,130) (21,360) (20,083) (18,777) Non-current liabilities Interest bearing loans and borrowings 14 (24,000) (29,000) (19,000) Other payables 15 (89) (81) (83) Lease liabilities 16 (9,215) (7,822) (7,470) Deferred tax liability (1,679) (2,335) (2,048) (34,983) (39,238) (28,601) Total liabilities (56,343) (59,321) (43,478) Net assets 36,014 36,972 37,234 Equity Share capital 2,098 2,098 2,098 Share premium 13,286 13,286 13,286 Foreign currency translation reserve 198 (175) (74) Revaluation reserve 1,203 1,589 1,203 Retained earnings 19,229 20,174 20,721 Total equity 36,014 36,972 37,234
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2022 2023 (audited) 2023 (unaudited) (unaudited) GBP000 GBP000 GBP000 Cash flows from operating activities Loss for the Period: (1,560) (1,109) (644) Adjustments for: Depreciation and amortisation 9-11 3,313 2,970 6,081 Financial expense 7 978 701 1,694 (Profit)/loss on sales of property, plant and equipment (6) 17 17
Share-based payment charge 71 146 282 Tax expense 8 (353) 66 (208) 2,443 2,791 7,222 (Increase)/decrease in trade and other receivables (649) (92) 14 (Increase)/decrease in inventories (4,573) 2,138 11,135 Increase in trade and other payables 2,342 3,134 1,865 (437) 7,971 20,236 Tax received/(paid) 824 (385) (530) Net cash from operating activities 387 7,586 19,706 Cash flows from investing activities Proceeds from sales of property, plant and equipment 14 32 31 Acquisition of property, plant and equipment 9 (36) (612) (989) Acquisition of domains 11 - (8) (8) Capitalised development expenditure 11 (2,382) (2,822) (5,319) Payment of deferred consideration - (388) (419) Net cash from investing activities (2,404) (3,798) (6,704) Cash flows from financing activities Proceeds from new borrowings 14 5,000 1,000 - Repayment of borrowings - - (9,000) Interest paid 7 (880) (702) (1,694) Payment of lease liabilities (644) (689) (1,713) Net cash from financing activities 3,476 (391) (12,407) Net increase in cash and cash equivalents 1,459 3,397 595 Cash at beginning of Period 4,460 3,903 3,903 Foreign exchange movement - (101) (38) Cash at end of Period 5,919 7,199 4,460
Unaudited consolidated interim statement of changes in equity
Foreign currency Share Share translation Revaluation Retained Total capital premium reserve reserve earnings equity GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Balance at 1 April 2023 2,098 13,286 (74) 1,203 20,721 37,234 Loss for the Period - - - - (1,560) (1,560) Other comprehensive income - - 272 - - 272 Share based payments charge - - - - 68 68 Balance at 30 September 2023 2,098 13,286 198 1,203 19,229 36,014 Foreign currency Share Share translation Revaluation Retained Total Capital premium reserve reserve earnings equity GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Balance at 1 April 2022 2,098 13,286 (74) 1,606 21,120 38,036 Loss for the Period - - - - (1,109) (1,109) Other comprehensive income - - (101) - - (101) Share based payments charge - - - - 146 146 Depreciation transfer - - - (17) 17 - Balance at 30 September 2022 2,098 13,286 (175) 1,589 20,174 36,972 Foreign currency Share Share translation Revaluation Retained Total capital premium reserve reserve earnings equity GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Balance at 1 April 2022 2,098 13,286 (74) 1,606 21,120 38,036 Loss for the year - - - - (644) (644) Other comprehensive income - - - - - - Freehold property revaluation - - - (550) - (550) Deferred tax impact of revaluation - - - 147 - 147 Share based payments charge - - - - 245 245 Balance at 31 March 2023 2,098 13,286 (74) 1,203 20,721 37,234
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company incorporated and domiciled in the United Kingdom, and is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange.
The Group financial information consolidates the financial information of the Company and its subsidiaries (collectively referred to as the "Group"). The Group has 100% owned trading subsidiaries in the UK ('Gear4music Limited'), Sweden ('Gear4music Sweden AB'), Germany ('Gear4music GmbH'), Ireland ('Gear4music Ireland Limited') and Spain ('Gear4music Spain S.L.'). The Group also has two 100% owned dormant subsidiaries in the UK ('Cagney Limited' and 'AV Distribution Limited') and one in Norway ('Gear4music Norway').
The principal activity of the Group is the retail of musical instruments and equipment.
The registered office of Gear4music (Holdings) plc (company number: 07786708) and Gear4music Limited (company number: 03113256) is Holgate Park Drive, York, YO26 4GN.
1 Accounting policies
Basis of preparation
The consolidated interim financial information, which has been neither audited nor reviewed by the auditor, has been prepared under the historical cost convention, except for land and buildings that are stated at their fair value, and in accordance with the recognition and measurement requirements of UK-adopted International Accounting Standards. The condensed consolidated interim financial information does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006 and does not include all of the information and disclosures required for full annual financial statements and is thus not in full compliance with UK-adopted international accounting standards. It should therefore be read in conjunction with the Group's Annual Report for the year ended 31 March 2023, which has been prepared in accordance with UK-adopted International Financial Reporting Standards and is available on the Group's investor website.
The accounting policies used in the financial information are consistent with those used in the Group's consolidated financial statements as at and for the year ended 31 March 2023, as detailed on pages 69 to 74 of the Group's Annual Report and Financial Statements for the year ended 31 March 2023, a copy of which is available on the Group's website, www.gear4musicplc.com.
As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim financial reporting".
The comparative financial information contained in the condensed consolidated financial information in respect of the year ended 31 March 2023 has been extracted from the 2023 Financial Statements. Those financial statements have been reported on by Grant Thornton UK LLP, and delivered to the Registrar of Companies. The report was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006.
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 as at the year ended 31 March 2023.
Exceptional items
The business classifies certain events as exceptional items due to their size and nature where it feels that separate disclosure would help understand the underlying performance of the business. Restructuring and transformational costs are considered on a case-by-case basis as to whether they meet the exceptional criteria. Other items are considered against the exceptional criteria based on the specific circumstances. The presentation is consistent with the way Financial Performance is measured by management and reported to the Board. Further information is disclosed in note 5.
Notes to the Interim Financial Information (continued)
Going concern
The Group's business activities and position in the market, and principal risks, uncertainties and mitigations are described in detail in the Strategic Report included on pages 1 to 45 of the Group's 2023 Annual Report and Financial Statements.
On 15 June 2023 the Group renewed its RCF with HSBC at GBP30m for a further three-year period. This facility provides a good and appropriate level of headroom that has been factored into the Directors going concern assessment.
The Group's policy is to ensure that it has sufficient facilities to cover its future funding requirements.
At 30 September 2023 the Group had net debt of GBP18.1m (30 September 2022: GBP21.8m) including GBP5.9m cash (30 September 2023: GBP7.2m), with a good and appropriate level of headroom that has been factored into the Directors going concern assessment.
The Directors have considered the Group's prospects based on its current proposition and online offering in
the UK and Europe, strategic developments delivered and in progress, and concluded that there are significant opportunities for profitable growth as channel shift continues and customers move online.
There is a diverse supply chain with no key dependencies.
Having duly considered all of these factors and having reviewed the forecasts for the period to 31 December 2024, 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 Principal risks and uncertainties
The Board considers the principal risks and uncertainties which could impact the Group over the remaining six months of the financial year to 31 March 2024 to be unchanged from those set out in the group's Annual Report and Financial Statements for the year ended 31 March 2023, and can be summarised as:
- Macroeconomic and geopolitical factors - Climate risk and sustainability - UK outside the EU - Change management - Operational, Regulatory and Technological - IT and Cyber Security - Management of Warehousing and Distribution - Global pandemics - Brand and proposition - Competition - Supplier relationships - Financial risk - ESG
These are set out in detail on pages 36 to 42 of the Group's Annual Report and Financial Statements for the year ended 31 March 2023, a copy of which is available on the Group's Plc website, www.gear4musicplc.com.
Notes to the Interim Financial Information (continued)
3 Segmental analysis
Revenue by Geography:
6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 UK 36,535 35,459 82,084 Europe and Rest of the World 26,106 30,846 69,955 62,641 66,305 152,039
Administrative Expenses by Geography:
6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 UK 15,330 15,718 33,678 Europe and Rest of the World 2,507 2,420 5,027 Exceptional items - UK 487 - - 18,324 18,138 38,705
Revenue by Category:
6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 Other-brand products 44,682 48,329 106,189 Own-brand products 15,219 14,966 38,860 Carriage income 2,484 2,672 6,187 Warranty income 184 220 452 Other 72 118 351 62,641 66,305 152,039
Notes to the Interim Financial Information (continued)
4 Expenses and other income
Included in profit/loss are the following:
6 months 6 months Year ended ended 30 ended 30 31 March September September 2023 2023 2022 GBP000 GBP000 GBP000 Depreciation of property, plant and equipment 634 716 1,414 Depreciation of right-of-use assets 863 797 1,577 Amortisation of intangible assets 1,815 1,457 3,090 Amortisation of government grants - 3 3 (Profit)/loss on disposal of property, plant and equipment (6) 17 17 R&D expenditure recognised as an expense 117 141 280
Other income
6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 RDEC tax credits 145 231 445 Rental income 99 96 239 Other 163 132 265 Total other income 407 459 949
Rental income relates to our freehold Head Office in York. 'Other' includes income from on-site café at our Head Office in York, grants and marketing support.
5 Exceptional items
Costs incurred comprise redundancies relating to the restructure and reorganisation of various Head Office teams, principally Software Development.
6 months 6 months Year ended ended 30 ended 30 31 March September September 2023 2023 2022 GBP000 GBP000 GBP000 Redundancy costs 487 - -
Notes to the Interim Financial Information (continued)
6 Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings 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.
Dilutive shares are not included as where their effect is anti-dilutive.
6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 Loss attributable to equity shareholders of the parent (GBP'000) (1,560) (1,109) (644) Basic weighted average number of shares 20,976,938 20,976,938 20,976,938 _________ _________ _________ Basic loss per share (7.4p) (5.3p) (3.1p) Diluted loss per share (7.4p) (5.3p) (3.1p) 7 Finance expenses 6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 Bank interest 754 508 1,127 IFRS16 lease interest 225 193 375 Net foreign exchange loss 2 76 190 Net fair value movements - - 2 Total finance expense 981 777 1,694
Notes to the Interim Financial Information (continued)
8 Taxation 6 months 6 months Year ended ended ended 30 31 March 30 September September 2023 2023 2022 GBP000 GBP000 GBP000 Current tax expense 15 29 342 Deferred tax (credit)/expense (368) 37 (105) Total tax (credit)/expense (353) 66 237
The deferred tax liability has been decreased by GBP368,000 to GBP1,679,000 reflecting the recognition of a GBP466,000 deferred tax asset arising on the tax losses in the Period.
Deferred tax balances have been provided at 25% which was the tax rate which was substantively enacted at 30 September 2023.
Notes to the Interim Financial Information (continued)
9 Property, plant and equipment Plant Freehold and Fixtures Motor Computer property equipment and fittings vehicles equipment Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Cost Balance at 1 October 2022 8,751 2,311 7,178 39 1,385 19,664 Additions - 127 214 - 36 377 Revaluation decrease (550) - - - - (550) Balance at 31 March 2023 8,201 2,438 7,392 39 1,421 19,491 Additions - - 32 - 4 36 Disposals - - - (9) (17) (26) Balance at 30 September 2023 8,201 2,438 7,424 30 1,408 19,501 Depreciation Balance at 1 October 2022 393 1,741 3,669 32 1,024 6,859 Charge for the Period 87 126 504 4 81 802 Disposals - - (101) (3) - (104) Balance at 31 March 2023 480 1,867 4,072 33 1,105 7,557 Charge for the Period 139 133 268 2 94 636 Disposals - - - (5) (13) (18) Balance at 30 September 2023 619 2,000 4,340 30 1,186 8,175 Net book value as at 30 September 2023 7,582 438 3,084 - 222 11,326 Net book value as at 31 March 2023 7,721 571 3,320 6 316 11,934 Net book value as at 30 September 2022 8,358 570 3,509 7 361 12,805
Notes to the Interim Financial Information (continued)
10 Right-of-use Assets
Leasehold properties
At 30 September 2023 the Group had six leased properties: Distribution centres and showrooms in York, Sweden and Germany, Distribution centres in Ireland and Spain, and a software development office in Manchester.
On 28 July 2023 the Group agreed a Rent Review in relation to its York distribution centre.
As at 30 September 2023 the associated right of use assets are as follows:
Land and Buildings GBP000 Cost Balance at 1 October 2022 12,135 Modifications 567 Additions 63 Balance at 31 March 2023 12,765 Modifications 2,663 Balance at 30 September 2023 15,428 Depreciation Balance at 1 October 2022 4,697 Charge for the Period 780 Balance at 31 March 2023 5,477 Charge for the Period 863 Balance at 30 September 2023 6,340 Net book value as at 30 September 2023 9,088 Net book value as at 31 March 2023 7,288 Net book value as at 30 September 2022 7,438
Notes to the Interim Financial Information (continued)
11 Intangible assets Software Domain Other Goodwill platform Brand names Intangibles Total GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 Cost Balance at 1 October 2022 5,324 22,509 1,372 3,031 149 32,385 Additions - 2,496 - - - 2,496 Balance at 31 March 2023 5,324 25,005 1,372 3,031 149 34,881 Additions - 2,382 - - - 2,382 Balance at 30 September 2023 5,324 27,387 1,372 3,031 149 37,263 Amortisation Balance at 1 October 2022 - 10,605 563 2 30 11,200 Amortisation for the Period - 1,612 - 1 19 1,632 Balance at 31 March 2023 - 12,217 563 3 49 12,832 Amortisation for the Period - 1,761 - 1 53 1,815 Balance at 30 September 2023 - 13,978 563 4 102 14,647 Net book value as at 30 September 2023 5,324 13,409 809 3,027 47 22,616 Net book value as at 31 March 2023 5,324 12,788 809 3,028 100 22,049 Net book value as at 30 September 2022 5,324 11,904 809 3,029 118 21,184 12 Inventories 30 September 30 September 31 March 2023 2022 2023 GBP000 GBP000 GBP000 Finished goods 38,954 43,378 34,381
The cost of inventories recognised as an expense and included in cost of sales in the period ended 30 September 2023 amounted to GBP41.8m (FY23 H1: GBP44.6m).
Inventories include GBP4.4m of predominantly Own-brand stock-in-transit (30 September 2022: GBP4.1m) from Far East manufacturers.
Notes to the Interim Financial Information (continued)
13 Trade and other receivables 30 September 30 September 31 March 2023 2022 2023 GBP000 GBP000 GBP000 Trade receivables 1,563 1,516 1,243 Prepayments 2,520 1,754 2,191 4,083 3,270 3,434
Corporation tax asset of GBP371,000 (30 September 2022: GBP1,019,000) has been disclosed separately on the face of balance sheet in all three periods, in accordance with IAS 1.54(n).
Trade receivables includes cash lodged with payment providers, Amazon and the Group's consumer finance partners, and UK and International education and trade accounts where standard credit terms are 30-days.
14 Interest bearing loans and borrowings 30 September 30 September 31 March 2023 2022 2023 GBP000 GBP000 GBP000 Non-current liabilities Bank loans 24,000 29,000 19,000 24,000 29,000 19,000 Current liabilities Bank loans - - - - - - Total liabilities Bank loans 24,000 29,000 19,000 24,000 29,000 19,000
Revolving Credit Facility
On 15 June 2023 the Group renewed its banking facilities entering into a three year GBP30m RCF with HSBC. This facility expires in June 2026 and is secured by a debenture over the Group's assets.
Loans incur interest at variables rates linked to SONIA, with a margin non-utilisation fee.
Notes to the Interim Financial Information (continued)
15 Trade and other payables 30 September 30 September 31 March 2023 2022 2023 GBP000 GBP000 GBP000 Current Trade payables 13,120 10,585 9,300 Accruals and deferred income 4,519 5,341 5,099 Deferred consideration 23 36 23 Other creditors including tax and social security 2,641 2,950 3,225 20,303 18,912 17,647 Non-current Accruals and deferred income 67 42 61 Deferred consideration 22 39 22 89 81 83
Accruals at 30 September 2023 include:
- GBP1,445,000 (30 September 2022: GBP2,151,000) relating to customer prepayments; and
- GBP66,000 (30 September 2022: GBP42,000) relating to the estimated cash bonuses accrued relating to the CSOP schemes.
Deferred consideration
In March 2021 the Group acquired the Eden brand and associated assets from Marshall Amplification plc for GBP140,000 of which GBP100,000 was deferred and payable in four equal instalments of GBP25,000 on the first, second, third and fourth anniversary of the completion date, with GBP50,000 outstanding at 30 September 2023. These amounts are valued in the accounts at fair value and subsequently amortised.
The Directors consider the carrying amount of other 'trade and other payables' to approximate their fair value.
16 Leases
The Group has six property leases. Each lease is reflected on the statement of financial position as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment.
Lease liabilities are presented in the statement of financial position as follows:
30 September 30 September 31 March 2023 2022 2023 GBP000 GBP000 GBP000 Current 1,057 1,171 1,130 Non-current 9,215 7,822 7,470 10,272 8,993 8,600
Notes to the Interim Financial Information (continued)
17 Share based payments
The Group operates share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the Company and are subject to vesting conditions. Relevant events in the Period include:
Options granted - CSOP (2023)
On 9 May 2023 options over a total of 56,023 Ordinary shares were granted to 22 non-Director employees under the Company's CSOP scheme.
LTIP (2023) replacing LTIP (2021) and LTIP (2018)
On 21 July 2023 the Group adopted a replacement long term incentive plan ('LTIP') with share awards made to key members of the management team. The Group's Remuneration Committee made these awards so that the key people to lead the business into the future are appropriately incentivised in a manner that aligns with the interests of the Group's shareholders. The new LTIP replaced the two existing LTIPs established in 2018 (and subsequently re-based in 2020) and in 2021 in full, with all awards made under those LTIPs replaced and cancelled.
Under the new LTIP, Gear4music Limited, ('G4M Ltd'), a wholly owned subsidiary of Gear4music (Holdings) plc issued 1,038,000 'E' ordinary shares of one-pence each ('E-Shares'), which are non-voting, non-dividend, restricted shares to the relevant individuals. The initial subscription cost was paid by the relevant individual with the proceeds received from the redemption by G4M Ltd of the 'C' ordinary shares of one-pence each and 'D' ordinary shares of ten pence each from the 2018 and 2021 LTIPs respectively at their nominal value. Any excess owed to the relevant individual was paid in cash; any excess owed by the relevant individual for the subscription cost of E Shares was paid by way of a small cash bonus.
These E Shares vest subject to achieving certain share price targets between 2026 and 2030, at which point the E Shares can be exchanged on a one-for-one basis for new ordinary shares in Gear4music (Holdings) plc. The weighted average vesting period over the life of the new LTIP is five years from the date of grant.
Further details of the new LTIP are as follows:
Financial year ending 31 March Vesting date Share price target No. E Shares vesting
2026 27 July 2026 GBP3 207,600
2027 26 July 2027 GBP5 207,600
2028 24 July 2028 GBP7 207,600
2029 30 July 2029 GBP10 207,600
2030 29 July 2030 GBP13 207,600
Total 1,038,000
The Group's executive directors participate in the new LTIP as detailed below:
Individual Title / role No. E Shares awarded
Andrew Wass Chief Executive Officer 250,000
Chris Scott Chief Financial Officer 250,000
Gareth Bevan Chief Commercial Officer 250,000
Total 750,000 18 Related party transactions
There were no significant related party transactions during the six months to 30 September 2023 (30 September 2022: none).
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November 14, 2023 02:00 ET (07:00 GMT)
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