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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END
IR LXLLFXFLZFBF
(END) Dow Jones Newswires
November 14, 2023 02:00 ET (07:00 GMT)
Grafico Azioni Gear4music (holdings) (LSE:G4M)
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Grafico Azioni Gear4music (holdings) (LSE:G4M)
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