TIDMG4M
RNS Number : 3528U
Gear4music (Holdings) PLC
23 October 2017
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE:
G4M), the largest UK based online retailer of musical instruments
and music equipment, has become aware that external parties have
had sight of certain information from its unaudited financial
results for the six months ended 31 August 2017, following a
distribution error by a third-party research provider.
As a result, the Group is announcing the results for the six
months ended 31 August 2017 below, ahead of the scheduled date of
24 October 2017.
23 October 2017
Gear4music (Holdings) plc
Interim results for the six months ended 31 August 2017
Strong revenue growth and strategic investment heading into the
Christmas period
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 31 August 2017 ("the Period").
Financial and Operational Highlights:
GBP'000 6-months 6-months Change
ended 31 ended 31
August 2017 August 2016
-------------- ------------- ------------- --------
Revenue 31,219 21,609 +44%
Gross profit 7,811 5,754 +36%
Gross margin 25.0% 26.6% -160bps
EBITDA 717 1,338 -0.62m
Net profit 4 750 -0.75m
-- Strong revenue growth driven by International sales growth,
rising website traffic and improving conversion rates
-- UK revenue of GBP17.9m (+30%) and International revenue of GBP13.3m (+70%)
-- Active customers* increased by 44% with an email subscriber database of over 725,000
-- Gross profit up GBP2.1m (36%) to GBP7.8m; gross margin of
25.0% reflects investment in customer proposition during a period
of product cost price inflation
-- Results reflect planned investment in marketing and people
-- New European distribution centres in Germany and Sweden
scaling well, incurring GBP0.70m local administrative expenses but
contribution positive** by the end of the Period
-- Trading in line to meet full year expectations
Post-period Strategic Developments:
-- US$ website launched
-- Head office relocation successfully completed with no disruption to the business
* Active customers are those that have purchased products within
the last 12 months
** Contribution positive being August 2017 gross profit of
orders fulfilled by the relevant distribution centre, exceeding
August's local Administrative expenses
Commenting on the results, Andrew Wass, Chief Executive Officer
said:
"I am very pleased with these results which combine tangible
strategic and commercial progress with 44% revenue growth, which
was ahead of our expectation for H1 as indicated at the start of
the year, equating to two-year growth of 150%.
Revenue growth in our core UK market continues to be strong,
alongside a very strong performance in our International markets,
supported by our new distribution centres that have improved our
scale and customer proposition across Europe.
We are pleased to announce today the launch of our US$ website,
which represents an important stepping stone in our plans for
growth outside Europe.
We remain focused on delivering long-term sustainable growth,
and raising GBP4.2m growth capital in May 2017 has enabled us to
accelerate planned investment in our operational infrastructure and
allowed us to capitalise on the growth opportunities we have
identified. As highlighted in previous announcements, we expected
increased operational costs and investment in our customer
proposition to restrict profitability during H1, but we are well
prepared for a busy seasonal period and the Group continues to
trade in line with the Board's expectations for the full year."
Gear4music will issue a trading statement in early January
2018.
Enquiries:
Gear4music +44 20 3128 8100
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer
Panmure Gordon +44 20 7886 2500
(Financial Adviser, Nominated Adviser and Broker)
Andrew Godber / Peter Steel - Investment Banking
Erik Anderson / Tom Salvesen - Corporate Broking
MHP Communications +44 20 3128 8100
(Financial PR)
Andrew Leach
Simon Hockridge
Pete Lambie
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
About Gear4music.com
Operating from a Head Office in York, showrooms in York and
Sweden, and Distribution Centres in York, Sweden and Germany, the
Group sells own-brand musical instruments and music equipment
alongside premium third-party brands including Fender, Yamaha and
Gibson, to customers ranging from beginners to musical enthusiasts
and professionals, in the UK, Europe and, more recently, into the
Rest of the World.
Having developed its own e-commerce platform, with multilingual,
multicurrency and fully responsive design websites covering 19
countries, the Group has rapidly expanded its database and
continues to build its overseas presence.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Business Review
The business is pleased to report the Group's results for the
six months to 31 August 2017, and update on the strategic and
commercial progress made in the Period.
Customers and revenues
Customer KPIs H1 FY18 H1 FY17 Change
Revenue GBP31.22m GBP21.61m +44%
Total unique website
visitors 7.10m 5.58m +27%
Conversion rate 2.84% 2.38% +46pbs
Average order value GBP131.66 GBP125.64 +4.8
Active customers 390,790 272,340 +44%
Proportion of repeat
customers * 25.8% 28.2% -240bps
Email subscriber
database 725,594 601,011 +21%
Trustpilot rating 9.6/10 9.5/10
* Repeat customers are those that have made a purchase in the
defined period and have historically made at least one purchase
The Group continues to deliver strong revenue growth founded on
a compelling customer proposition - good product breadth and
availability at competitive prices, with excellent delivery options
and sales support.
Revenue increased 44% during the Period to GBP31.2m (FY17 H1:
GBP21.6m), with 30% sales growth in our core UK market and 70%
International growth. This improvement builds on very strong growth
(73%) in H1 of last year and translates into two-year growth of
150%.
Website visitor numbers increased by 27% to 7.10m (FY17 H1:
5.58m), with visitors to the UK website increasing 17% and visitor
numbers to the Group's 18 country-specific European websites
growing by 38%. The revenue impact of the increase in website
traffic was magnified by further improvements in conversion rates
from 3.20% to 3.59% in the UK and from 1.49% to 2.14% in
Europe.
The Group served 196,000 customers in the period, up 39% on last
year. Numbers of new customers increased by 44% as the Group
continues to increase its presence in Europe. The proportion of
repeat customers was 25.8% (FY17 H1: 28.2%), reflecting the
increased number of new customers, with the Group achieving
immediate payback on new customer recruitment. Active customers
increased by 44%, and the number of people on our email subscriber
database rose 21% to over 725,000.
Organic and Direct website traffic accounted for 47% of total
visitors (FY17 H1: 50%). Mobile momentum continued with the
proportion of visitors accessing G4M sites from this device
category increasing from 42% last year to 53% this year.
We continue to invest in our customer proposition and service
teams resulting in a positive overall customer experience,
reflected in Gear4music.com's Trustpilot score of 9.6 from over
28,000 reviews.
Products
Product KPIs H1 FY18 H1 FY17 Change
Own-brand product
sales GBP7.14m GBP4.45m +61%
Other brand product
sales GBP22.90m GBP16.29m +41%
Products listed 40,021 34,393 +16%
Brands listed 758 685 +11%
The Group raised GBP4.2m net cash in May 2017 through a placing
of new ordinary shares and amongst other things, remains committed
to investing in stock, adding increasing breadth and depth to the
range to support continuing revenue growth. The carrying value of
stock was GBP13.0m at 31 August 2017 (31 August 2016: GBP9.3m),
representing an increase of 39% which is lower than the rate of
increase in revenue.
The number of SKUs available increased from 34,400 at 31 August
2016 to 37,100 at 28 February 2017 and 40,000 at 31 August 2017,
representing a 16% increase over the year.
The Group remains committed to Own-brand product range expansion
and continues to grow the team and progress product development
opportunities, and it was pleasing to see these efforts translate
into results with Own-brand revenue growth of 61% compared to 41%
growth in Other-brand revenue in the Period.
We currently list over 2,500 Own-brand products, including new
products that have been developed and launched during the
Period:
-- New range of SubZero wireless microphones
-- Range of higher specification SubZero DSP speakers
-- New Gear4music all mesh electronic drum kits
Strategy
We continue to work hard in our mission to be the best on-line
retailer in our market. As set out in our Annual Report, investing
in our people, our processes, our platform and our products is
critical to improving our customers' experience and delivering
sustainable long-term success, and we continue to make pleasing
progress. In May 2017 we raised a further GBP4.2m to help
accelerate our growth ambitions, and have made good progress with
our strategic priorities over the Period, as described in further
detail below:
International expansion
We set-up European distribution centres in Sweden and Germany in
FY17 to improve our local customer proposition in terms of delivery
timescales and costs, and have phased our investment in these
operations over the Period to reach a good level of capacity
heading into our peak trading period. The strategic rationale for
this International expansion is already driving European growth and
we are pleased to report that both operations ended the period
contributing positively to the Group's profitability. Total
Administrative expenses incurred locally in these operations was
GBP0.70m (FY17 H1: nil).
The Group has shipped internationally since October 2016 as part
of a process to identify opportunities to increase our presence
beyond Europe.
In October 2017 the Group launched a US$ website
(www.gear4music.com/us) to better serve American customers and
establish a presence in a $7.7 billion annual market.
International sales continue to account for an increasing
proportion of our revenue, rising from 23% in FY16 H1 to 36% in
FY17 H1, to 43% in FY18 H1.
Development of our bespoke E-commerce platform
The Group invested GBP0.77m in its e-commerce platform in the
period (FY17 H1: GBP0.60m), and made good progress on a number of
key projects including:
-- Improved mobile basket and checkout
-- Warehouse operational efficiency improvements ahead of peak
-- Full migration to the cloud to improve processing speed and robustness
-- International courier integration
-- Development of a US-localised website
Current trading and prospects
As ever, trading in the second half of the year is very
significant to our results for the year as a whole. Given the
strength of our first half performance and continuing momentum,
coupled with the strategic and operational progress made through
targeted investment, the Board considers the Group to be
well-placed to deliver results for the full-year in-line with
expectations.
The Group will issue a Christmas trading update in early January
2018.
Financial Review
On 18 May 2017, the Company completed the placing of 610,000 new
Ordinary Shares and issued a further 100,782 new Ordinary shares
pursuant to the full exercise of a warrant instrument, raising in
aggregate GBP4.35m in gross proceeds (GBP4.18m net proceeds).
These new Ordinary Shares were admitted to trading on AIM on 24
May 2017.
Financial KPIs H1 FY18 H1 FY17 Change
Revenue GBP31.22m GBP21.61m +44%
Product margin 29.8% 31.6% -180bps
Gross margin 25.0% 26.6% -160bps
Operating profit GBP28,000 GBP888,000 -GBP860,000
Marketing costs GBP2.54m GBP1.76m +44%
Marketing costs as
% of sales 8.1% 8.2% -10bps
Total Labour costs GBP2.86m GBP1.73m +65%
Total Labour costs
as % of sales 9.2% 8.0% +120bps
Revenue
Revenue in the Period increased by 44% relative to a very strong
result in the same period last year, equating to two-year growth of
150%.
Revenue growth continues to be strong in the more-established UK
market with 30% growth further to 44% growth in FY17 H1, taking our
estimated share of the UK-market to 5.2%. Revenue into the
higher-growth opportunity International markets benefited from
currency tailwinds and increased by 70% to GBP13.3m, representing
43% of Group sales.
Sales momentum increased toward the end of the Period as our
European distribution centres benefited from increasing stock
availability and more, better and cheaper delivery options being
added, and software developments were delivered.
Gross Profit
Gross profit increased by GBP2.06m (+36%) to GBP7.81m (FY17 H1:
GBP5.75m) on the same period last year.
Gross margin reduced from 26.6% to 25.0% due to a fall in Own
and Other-brand product margins as the business invests to ensure a
competitive pricing offer during a period of cost inflation.
The Group imports its Own-brand products from the Far East in US
dollars and all orders are negotiated taking into account
increasing buying economies of scale and the prevailing exchange
rate. In FY18 H1 the GB pound was c.8% weaker (averaged $1.28=GBP1)
than in FY17 H1 (averaged $1.39=GBP1), and part of this has been
absorbed and invested in the customer proposition to fuel sales
growth.
The Group purchases the majority of its Other-branded products
in GB pounds and has started sourcing some products in Swedish
Krona and Euros. Other-brand margins were similarly down on FY17
H1, principally due to the absence of comparable opportunities to
those that arose following the UK's Brexit vote in June 2016.
The proportion of product sales from higher margin Own-brand
product sales increased from 21.4% in FY17 H1 to 23.8% in FY18 H1,
partly mitigating the impact of product margin pressures.
Operating Profit and Administrative Expenses
Operating profit of GBP0.03m represents an GBP0.86m reduction on
FY17 H1 principally due to the Group's investment in margin and
administrative expenses to deliver current and future growth, and
includes GBP0.70m European distribution centre administrative
expenses that were not incurred in FY17 H1.
Marketing and people costs continue to be key business drivers
and were earmarked for further investment during the recent
fund-raising. Combined marketing and labour costs accounted for 69%
of total administrative expenses in the Period (FY17 H1: 72%).
Marketing costs increased by GBP0.78m to GBP2.54m representing a
44% increase that is in line with the revenue increase. Labour
costs rose by GBP1.13m to GBP2.86m (65%) due to increased headcount
in Europe distribution centres, Translation, Customer services and
Buying, and first full year effect of FY17 hires.
Net Profit
Net profit for the Period was GBP4,000 (FY17 H1 GBP0.75m). We
consider this a good result in what is the quieter half of the year
and as the business invests for future growth.
Cash Flow and Balance Sheet
In common with many retailers, August represents a low point in
the annual cash cycle. However, the Group raised GBP4.2m growth
capital in May 2017 and this is just beginning to be invested. As
such cash at 31 August 2017 was GBP4.10m which was a GBP2.32m
improvement on 31 August 2016.
Product KPIs H1 FY18 H1 FY17 Change
Inventories GBP13.00m GBP9.33m +39%
Trade and other receivables GBP2.28m GBP0.94m +143%
Trade and other payable (GBP7.89m) (GBP5.56m) +42%
Net working capital GBP7.39m GBP4.71m +2.68m
The Group continues to invest in stock without drawing all
available Trade Finance loans to minimise finance costs, and
settles all Other-brand debts so as to maximise all available
settlement discounts. Trade and other receivables increased by
GBP1.3m and includes increases in prepaid stock on water,
cash-in-transit and funds lodged with payment providers, and
property-related prepayments from the larger Group, and is expected
to partially unwind as the year progresses.
This has led to a GBP7.39m cash investment in working capital
being GBP2.68m higher at this period end compared to 31 August
2016.
Capital expenditure in the Period was GBP7.05m including the
GBP5.63m total cost of the purchase of the new UK Head Office
freehold in York, and this was effectively debt financed through
the drawing of GBP5.53m of term loans with HSBC. Other property,
plant and equipment capital expenditure totalled GBP0.64m (FY17 H1:
GBP0.08m), and this was paid from cash reserves. No finance leases
were added in the Period.
Capitalised software development costs totalled GBP0.77m (FY17
H1: GBP0.68m) in the Period, taking the total spend to date to
GBP5.61m and contributing to a NBV of GBP3.81m.
As at 31 August 2017 the Group's net debt position was GBP3.70m
compared to a net cash position of GBP0.91m at 31 August 2016,
principally due to the addition of GBP5.53m of longer-term property
related debt.
Dividend Policy
As indicated in last year's Annual Report, and further to these
Interim results as presented, the Group repeats its intention to
revisit its shareholder distribution policy at the end of this
financial year.
Unaudited consolidated interim statement of profit and loss and
other comprehensive income
6 months 6 months Year ended
ended 31 ended 31 28 February
Note August August 2017 (audited)
2017 (unaudited) 2016 (unaudited)
GBP000 GBP000 GBP000
Revenue 31,219 21,609 56,128
Cost of sales (23,408) (15,855) (40,983)
Gross profit 7,811 5,754 15,145
Administrative expenses 1,2 (7,783) (4,866) (12,529)
Operating profit 1,2 28 888 2,616
Financial expense 4 (97) 78 20
(Loss)/profit before
tax (69) 966 2,636
Taxation 5 73 (216) (322)
Profit for the period 4 750 2,314
Other comprehensive
income
Items that are or may be reclassified
subsequently to profit or loss:
Foreign currency translation
differences - foreign
operations 9 - 10
Total comprehensive
income for the year 13 750 2,324
Profit per share attributable to equity
shareholders of the company
Basic profit per
share 3 0.0p 3.7p 11.5p
Diluted profit
per share 3 0.0p 3.7p 11.4p
Unaudited consolidated interim statement of financial
position
31 August 31 August 28 February
2017 (unaudited) 2016 (unaudited) 2017 (audited)
Note GBP000 GBP000 GBP000
Non-current assets
Property, Plant
and Equipment 6 7,550 1,141 1,565
Intangible assets 7 5,910 3,561 5,537
13,460 4,702 7,102
Current assets
Inventories 8 13,001 9,329 11,686
Trade and other
receivables 9 2,279 935 1,348
Cash and cash equivalents 4,107 1,788 3,001
19,387 12,052 16,035
Total assets 32,847 16,754 23,137
Current liabilities
Other interest-bearing
loans and borrowings 10 (2,909) (807) (2,621)
Trade and other
payables 11 (7,893) (5,563) (7,379)
(10,802) (6,370) (10,000)
Non-current liabilities
Other interest-bearing
loans and borrowings 10 (4,893) (72) (24)
Other payables 11 (944) (46) (1,069)
Deferred tax liability 5 (251) (129) (322)
(6,088) (247) (1,415)
Total liabilities (16,890) (6,617) (11,415)
Net assets 15,957 10,137 11,722
Equity
Share capital 2,087 2,016 2,016
Share premium 13,055 8,933 8,933
Foreign currency
translation reserve 19 - 10
Retained earnings 796 (812) 763
Total equity 15,957 10,137 11,722
Unaudited consolidated interim statement of cash flows
Note 6 months 6 months Year ended
ended ended 31
August
31 August 2016 (unaudited) 28 February
2017 (audited)
2017
(unaudited)
GBP000 GBP000 GBP000
Cash flows from operating
activities
Profit for the period: 4 750 2,314
Adjustments for:
Foreign exchange losses 9 - 10
Depreciation and amortisation 2,6,7 688 450 1,001
Financial expense 4 64 14 47
Share-based payment
charge 12 29 28 39
Taxation 5 (73) 216 322
721 1,458 3,733
(Increase)/decrease
in trade and other
receivables (931) (195) (608)
Decrease)/(increase)
in inventories (1,315) (2,423) (4,780)
Increase/(decrease)
in trade and other
payables 495 170 1,870
(1,030) (990) 215
Tax paid 94 - (104)
Net cash from operating
activities (936) (990) 111
Cash flows from investing
activities
Acquisition of property,
plant and equipment 6 6 (6,278) (75) (717)
Development costs capitalised 7 (768) (600) (1,478)
Acquisition of a business (200) - (100)
Net cash from investing
activities (7,246) (675) (2,295)
Cash flows from financing
activities
Proceeds from the issue
of share capital 4,193 - -
Proceeds from new borrowings 10 5,211 22 1,878
Net interest paid 4 (62) (14) (47)
Repayment of other - - -
borrowings
Payment of finance
lease liabilities 10 (54) (103) (194)
Net cash from financing
activities 9,288 (95) 1,637
Net increase/(decrease)
in cash and cash equivalents 1,106 (1,760) (547)
Cash and cash equivalents
at beginning of period 3,001 3,548 3,548
Cash and cash equivalents
at end of period 4,107 1,788 3,001
Unaudited consolidated interim statement of changes in
equity
6 months 6 months Year ended
ended 31 ended 28 February
August 31 August 2017 (audited)
2017 (unaudited) 2016 (unaudited)
GBP000 GBP000 GBP000
Share Capital
Opening 2,016 2,016 2,016
Issue of shares 71 - -
2,087 2,016 2,016
Share Premium
Opening 8,933 8,933 8,933
Issue of shares 4,278 - -
Share issue costs (156) - -
13,055 8,933 8,933
Foreign currency translation
reserve
Opening 10 - -
Other comprehensive
income 9 - 10
19 - 10
Retained earnings
Previous periods 763 (1,590) (1,590)
Share based payment
charge 29 28 39
Profit for the period 4 750 2,314
796 (812) 763
Total equity 15,957 10,137 11,722
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company, is
incorporated and domiciled in the United Kingdom, and is listed on
the Alternative Investment Market ('AIM') of the London Stock
Exchange.
The group financial information consolidates those of the
Company and its subsidiaries (collectively referred to as the
"Group"). The Group has 100% owned trading subsidiaries in Sweden
('Gear4music Sweden AB') and Germany ('Gear4music GmbH'). The Group
has a 100% owned dormant Norwegian subsidiary, 'Gear4music Norway
AS'.
The principal activity of the Group is the retail of musical
instruments and equipment.
The registered office of Gear4music (Holdings) plc (company
number: 07786708), Gear4music Limited (company number: 03113256)
and Cagney Limited (dormant subsidiary; company number: 04493300)
is Kettlestring Lane, Clifton Moor, York, YO30 4XF.
1 Accounting policies
1.1 Basis of preparation
The unaudited consolidated interim financial information for the
period ended 31 August 2017 has been prepared in accordance with
the AIM rules for Companies, comply with IAS 34 'Interim Financial
Reporting' as adopted by the European Union. 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. It
should therefore be read in conjunction with the Group' Annual
Report which have been prepared in accordance with International
Financial Reporting Standards and is available on the Group's
investor website.
The comparative financial information contained in the condensed
consolidated financial information in respect of the year ended 28
February 2017 has been extracted from the 2017 Financial
Statements. Those financial statements have been reported on by
KPMG 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 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 28 February 2017.
The Group's accounting policies are set out below. The
accounting policies have been applied consistently to all periods
presented.
The financial information has been prepared on the historical
cost basis.
1.2 Going concern
The Group has significant financial resources having raised
GBP4.2m equity capital in May 2017, and has access to further debt
funding should it be required. The business continues to trade well
and Management considers it to be well positioned going into its
critical trading period. The Group operates a rolling monthly
reforecast providing trading and financial visibility to the
financial year end.
Accordingly, and further to due consideration of all financial
and commercial information available, the Directors have concluded
that the Group has adequate resources to continue to trade for the
foreseeable future and it is therefore appropriate to continue to
adopt the going concern basis of accounting in the preparation of
this consolidated interim financial information.
1.3 Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights that are currently exercisable. The acquisition date
is the date on which control is transferred to the acquirer. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are
eliminated.
1.4 Foreign currency
International transactions that are denominated in foreign
currencies are recorded in the respective foreign currencies, and
translated into the functional currency of the Group, Sterling, at
the exchange rate ruling at the date of the transaction.
Translational accounting gains and losses are recognised in the
income statement in the period they arise.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are retranslated to the
functional currency at the exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised
in the income statement. Non-monetary assets and liabilities that
are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the
transaction.
Functional currency
The consolidated financial information is presented in Sterling
which is the Company's functional currency.
1.5 Classification of financial instruments issued by the Group
Following the adoption of IAS 32, financial instruments issued
by the Group are treated as equity only to the extent that they
meet the following two conditions:
(a) they include no contractual obligations upon the Company (or
Group as the case may be) to deliver cash or other financial assets
or to exchange financial assets or financial liabilities with
another party under conditions that are potentially unfavourable to
the Company (or Group); and
(b) where the instrument will or may be settled in the Company's
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company's own
equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial assets
for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of
issue are classified as a financial liability. Where the instrument
so classified takes the legal form of the Company's own shares, the
amounts presented in this financial information for called up share
capital and share premium account exclude amounts in relation to
those shares.
1.6 Non-derivative financial instruments
Non-derivative financial instruments comprise investments in
trade and other receivables, cash and cash equivalents, loans and
borrowings, and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any
impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and form an
integral part of the Group's cash management are included as a
component of cash and cash equivalents for the purpose only of the
cash flow statement.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributed transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised
cost using the effective interest method.
1.7 Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have
different useful lives, they are accounted for as separate items of
property, plant and equipment.
Depreciation is charged to the income statement on either a
straight-line basis or a reducing balance basis over the estimated
useful lives of each part of an item of property, plant and
equipment. The estimated useful lives are as follows:
-- Freehold property 50 years straight line
-- Plant and equipment 4-5 years' straight line
-- Fixtures and fittings 20-25% on reducing balance
-- Motor vehicles 25% on reducing balance
-- Computer equipment 3-5 years' straight line
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Leases in which the Group assumes substantially all the risks
and rewards of ownership of the leased asset are classified as
finance leases. Leased assets acquired by way of finance lease are
stated at an amount equal to the lower of their fair value and the
present value of the minimum lease payments at inception of the
lease, less accumulated depreciation and less accumulated
impairment losses. Lease payments are accounted for as described
below in 1.15.
1.8 Business combinations
All business combinations are accounted for by applying the
acquisition method. Business combinations are accounted for using
the acquisition method as at the acquisition date, which is the
date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the fair value of the existing equity interest in the acquiree; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
Costs related to the acquisition are expensed as incurred.
Any contingent consideration payable is recognised at fair value
at the acquisition date. Subsequent changes to the fair value of
the contingent consideration are recognised in profit or loss.
Goodwill impairment testing
Goodwill is not amortised but tested annually for impairment.
For the purpose of impairment testing, the Goodwill is allocated to
cash-generating units, or ("CGU"). Subject to an operating segment
ceiling test, for the purposes of Goodwill impairment testing, CGUs
to which Goodwill has been allocated are aggregated so that the
level at which impairment is tested reflects the lowest level at
which Goodwill is monitored for internal reporting purposes.
1.9 Intangible assets
Software platform
Computer software development costs that generate economic
benefits beyond one year and meet the development asset recognition
criteria as laid out in IAS 38 'Intangible Assets', are capitalised
as Intangible assets.
These costs include the payroll costs of employees directly
associated with the development, and other direct external material
and service costs. Costs are capitalised only where there is an
identifiable development that will bring future economic benefit.
All other website and maintenance costs are expenses in the
statement of comprehensive income.
Capitalised software development costs are amortised over their
estimated useful lives and charged to administrative expenses in
the statement of comprehensive income.
Other intangible assets
Expenditure on internally generated Goodwill and brands is
recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are
stated at cost less accumulated amortisation and less accumulated
impairment losses.
Amortisation
Amortisation is charged to the income statement on a
straight-line basis over the estimated useful lives of intangible
assets unless such lives are indefinite. Intangible assets with an
indefinite useful life and Goodwill are systematically tested for
impairment at each balance sheet date. Other intangible assets are
amortised from the date they are available for use. The estimated
useful lives are as follows:
-- Brand 10 years; and
-- Software Platform 3-8 years
1.10 Inventories
Inventories are stated at the lower of cost and net realisable
value ("NRV"). Cost is based on the first-in first-out principle
and includes expenditure incurred in acquiring the inventories and
other costs in bringing them to their existing location and
condition. Stock is neither fashionable nor perishable.
A provision is made in respect of inventories as follows:
-- 100% against returns stock found to be faulty that is
retained to be used for spare parts on the basis there is no direct
NRV value; and
-- a provision based on the previous 12-months retail experience
for the expected product loss on dealing with returns stock.
1.11 Impairment excluding inventories and deferred tax assets
Financial assets (including receivables)
A financial asset not carried at fair value through profit or
loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows
of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at
amortised cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows.
The effect of discounting is not material. When a subsequent event
causes the amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other
than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the asset's
recoverable amount is estimated. For Goodwill, and intangible
assets that have indefinite useful lives or that are not yet
available for use, the recoverable amount is estimated each year at
the same time.
The recoverable amount of an asset or cash-generating unit is
the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset.
For the purpose of impairment testing, assets that cannot be
tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups
of assets (the "cash-generating unit"). The Goodwill acquired in a
business combination, for the purpose of impairment testing, is
allocated to cash-generating units, or ("CGU"). Subject to an
operating segment ceiling test, for the purposes of Goodwill
impairment testing, CGUs to which Goodwill has been allocated are
aggregated so that the level at which impairment is tested reflects
the lowest level at which Goodwill is monitored for internal
reporting purposes. Goodwill acquired in a business combination is
allocated to groups of CGUs that are expected to benefit from the
synergies of the combination.
An impairment loss would be recognised if the carrying amount of
an asset or its CGU exceeds its estimated recoverable amount. No
impairments have been recognised in the periods presented.
1.12 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution pension plans are recognised as an expense in the
income statement in the periods during which services are rendered
by employees.
Share-based payments
The Group operates share option plans for qualifying employees
of the Group. The fair value of the shares is determined using the
Black Scholes option pricing model and is expensed in the statement
of comprehensive income on a straight-line basis over the vesting
period after allowing for an estimate of the number of shares that
are expected to vest. The level of vesting is reviewed annually and
the expense adjusted to reflect any changes in estimates.
1.13 Provisions
A provision is recognised in the balance sheet when the Group
has a present legal or constructive obligation as a result of a
past event, that can be reliably measured and it is probable that
an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects risks specific to
the liability.
1.14 Revenue
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods have passed
to the buyer, usually on dispatch of the goods. Revenue is measured
at the fair value of the consideration received, including freight
charges and duty where applicable, excluding discounts, rebates,
VAT and other sales taxes or duty. Carriage income is recognised on
recognition of the associated product sale. Returns are dealt with
on receipt of the product into the warehouse, which triggers an
automatic credit.
The Group offers retail point of sale credit through an
agreement with an external credit provider. The Group does not
retain any credit risk and commissions are recognised on
recognition of the credit sale.
1.15 Expenses
Operating lease payments
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the
lease. Lease incentives received are recognised in the income
statement as an integral part of the total lease expense.
Finance lease payments
Minimum lease payments are apportioned between the finance
charge and the reduction of the outstanding liability. The finance
charge is allocated to each period during the lease term so as to
produce a constant periodic rate of interest on the remaining
balance of the liability.
Exceptional items
Items which are significant by virtue of their size or nature
and which are considered to be non-recurring are classified as
exceptional operating items. Such items are included within the
appropriate consolidated income statement category but are
highlighted separately in the notes to the financial information.
Exceptional operating items are excluded from the profit measures
used by the Board to monitor and measure the underlying performance
of the Group.
Government and other forms of grant
Government and other grants from third parties are recognised
where there is reasonable assurance that the grant will be received
and all attached conditions will be complied with. When the grant
relates to an expense item, it is recognised as a reduction in the
costs incurred, on a systematic basis over the periods that the
costs, for which it is intended to compensate, are expensed. Where
the grant relates to an asset, it is recognised on a systematic
basis over the UEL of the related asset.
Financing income and expenses
Financing expenses comprise interest payable and finance leases
recognised in profit or loss using the effective interest method,
unwinding of the discount on provisions, and net foreign exchange
losses that are recognised in the income statement (see foreign
currency accounting policy). Financing income comprises interest
receivable on funds invested and net foreign exchange gains.
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
1.16 Taxation
Tax on the profit or loss for the year comprises current and
deferred tax.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. A temporary
difference on the initial recognition of goodwill is not provided
for. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
1.17 Adopted IFRS not yet applied
The following Adopted IFRSs have been issued but have not been
applied by the Group in this financial information. Their adoption
is not expected to have a material effect on the financial
information unless otherwise indicated:
-- IFRS 9 Financial Instruments (effective for periods beginning
on or after 1 January 2018); The Group has limited experience of
stock obsolescence and as such the implementation of the 'Expected
Credit Loss Model' ('ECM') is not expected to materially impact the
financial statements. Given the nature of the Group's business and
its debt structure, it is not expected to have a material effect on
the financial information.
-- IFRS 15 Revenue from Contracts with Customers (effective for
periods beginning on or after 1 January 2018) is not expected to
have a significant impact on the Group's revenues as the majority
of the Group's revenue is for product sales made direct to
customers at standard prices and estimates are already made of
anticipated returns;
-- IFRS 16 Leases (effective for annual periods beginning on or
after 1 January 2019). This fundamentally changes the accounting
for leases by lessees. It eliminates the current IAS 17 dual
accounting model, which distinguishes between on-balance sheet
finance leases and off-balance sheet operating leases and, instead,
introduces a single, on-balance sheet accounting model that is
similar to current finance lease accounting. Operating leases
disclosed in note 20 are expected to come on balance sheet once
this standard is adopted;
-- Amendments to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses (effective date to be confirmed);
-- Amendments to IAS 7: Disclosure Initiative (effective date to be confirmed);
-- Amendments to IFRS 2: Classification and Measurement of
Share-based Payment Transactions (effective date to be confirmed);
and
-- Amendments to IFRS 4: Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (effective date to be
confirmed).
1.18 Segmental Reporting
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. The Group's
Chief Operating Decision Maker has been identified as the Board of
Directors.
2 Expenses
Included in profit/loss are the following:
6 months 6 months Year
ended ended ended
31 August 31 August 28 February
2017 2016 2017
GBP000 GBP000 GBP000
Depreciation of tangible
fixed assets 293 173 391
Amortisation of intangible
assets 395 277 610
Amortisation of government
grants 20 14 31
Share based payment charge 29 28 39
3 Earnings per share
Basic 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.
Diluted profit per share is calculated by dividing the net
profit for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of all dilutive potential
ordinary shares into ordinary shares.
6 months 6 months Year ended
ended ended 31 28 February
31 August August 2017
2017 2016
Profit attributable to
equity shareholders of
the parent (GBP'000) 4 750 2,314
Basic weighted average
number of shares 20,542,973 20,156,339 20,156,339
Dilutive potential ordinary
shares 93,213 80,077 79,288
_________ _________ _________
Diluted weighted average
number of shares 20,636,186 20,236,416 20,235,627
Basic profit per share 0.0p 3.7p 11.5p
Diluted profit per share 0.0p 3.7p 11.4p
4 Finance income and expense
6 months 6 months Year ended
ended ended 28 February
31 August 31 August 2017
2017 2016
GBP000 GBP000 GBP000
Bank interest (60) (5) (29)
Finance leases (2) (9) (18)
Net foreign exchange
(loss)/profit (33) 92 67
Fair value on deferred
consideration (2) - -
Total finance (expense)/income (97) 78 20
Bank interest comprises GBP31,400 of Trade finance loan interest
and GBP28,300 of term loan interest.
5 Taxation
6 months 6 months Year ended
ended ended 28 February
31 August 31 August 2017
2017 2016
GBP000 GBP000 GBP000
Current tax (credit)/expense (2) 191 104
Deferred tax (credit)/expense (71) 25 218
Total tax (credit)/expense (73) 216 322
The deferred tax liability has been decreased by GBP71,000 to
GBP251,000 due to R&D tax credits.
The corporation tax rate applicable to the company was 20% in
the period to 31 August 2017.
6 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 September
2016 - 463 1,515 - 353 2,331
Additions - 90 392 64 96 642
Balance at
28 February
2017 - 553 1,907 64 449 2,973
Additions 5,634 102 471 - 71 6,278
Balance at
31 August 2017 5,634 655 2,378 64 520 9,251
Depreciation
Balance at
1 September
2016 - 233 714 - 243 1,190
Charge for
the period - 60 122 6 30 218
Balance at
28 February
2017 - 293 836 6 273 1,408
Charge for
the period 28 72 149 7 37 293
Balance at
31 August 2017 28 365 985 13 310 1,701
Net book value
as at 31 August
2017 5,606 290 1,393 51 210 7,550
Net book value
as at 1 March
2017 - 260 1,071 58 176 1,565
Net book value
as at 31 August
2016 - 230 801 - 110 1,141
7 Intangible assets
Software
Goodwill platform Brand Total
GBP000 GBP000 GBP000 GBP000
Cost
Balance at 1 September
2016 417 3,967 564 4,948
Additions 1,431 878 - 2,309
Balance at 28
February 2017 1,848 4,845 564 7,257
Additions - 768 - 768
Balance at 31
August 2017 1,848 5,613 564 8,025
Amortisation
Balance at 1 September
2016 - 1,133 254 1,387
Amortisation for
the period - 305 28 333
Balance at 28
February 2017 - 1,438 282 1,720
Amortisation for
the period - 367 28 395
Balance at 31
August 2017 - 1,805 310 2,115
Net book value
as at 31 August
2017 1,848 3,808 254 5,910
Net book value
as at 1 March
2017 1,848 3,407 282 5,537
Net book value
as at 31 August
2016 417 2,834 310 3,561
8 Inventories
31 August 31 August 28 February
2017 2016 2017
GBP000 GBP000 GBP000
Finished goods 13,001 9,329 11,686
The cost of inventories recognised as an expense and included in
cost of sales in the period ended 31 August 2017 amounted to
GBP22.0m, and in the period ended 31 August 2016 totalled
GBP14.8m.
9 Trade and other receivables
31 August 31 August 28 February
2017 2016 2017
GBP000 GBP000 GBP000
Trade receivables 1,713 735 1,123
Prepayments 566 200 225
2,279 935 1,348
Trade receivables includes cash lodged with payment providers,
Amazon and the Group's consumer finance partner, and UK and
International education and trade accounts where standard credit
terms are 30-days.
10 Other interest-bearing loans and borrowings
31 August 31 August 28 February
2017 2016 2017
GBP000 GBP000 GBP000
Non-current liabilities
Bank loans 4,889 - -
Finance lease
liabilities 4 72 24
4,893 72 24
Current liabilities
Bank loans and
overdraft 2,842 663 2,520
Finance lease
liabilities 67 144 101
2,909 807 2,621
Total liabilities
Bank loans and
overdraft 7,731 663 2,520
Finance lease
liabilities 71 216 125
7,802 879 2,645
Bank loans comprise:
- a Trade Finance facility provided by the Group's bankers,
HSBC. The interest rate on 180-day import loans is 2.45% per annum
over HSBC's Sterling Base Rate. Interest is paid at the maturity of
the relevant loan. This facility includes an unutilised overdraft
sub-limit that if and when drawn would attract interest of 3.25%
over base paid monthly in arrears; and
- two Term loans provided by HSBC. The interest rates are 2.65%
over LIBOR on Term Loan A and 2.85% over LIBOR on Term Loan B.
The Trade finance facilities are due for review and renewal on
or before 30 June 2018.
All HSBC debt is secured by fixed and floating charges over the
Group's assets.
11 Trade and other payables
31 August 31 August 28 February
2017 2016 2017
GBP000 GBP000 GBP000
Current
Trade payables 4,934 4,114 4,970
Accruals and deferred
income 1,248 958 1,151
Contingent consideration 393 - 393
Government grants 28 28 28
Other creditors including
tax and social security 1,290 463 837
7,893 5,563 7,379
Non-current
Accruals and deferred
income 187 - 100
Contingent consideration 740 - 938
Government grants 17 46 31
944 46 1,069
Accruals at 31 August 2017 include GBP0.57m (31 August 2016:
GBP0.69m) of rent accrued but not payable as per the agreement
reached with the landlord of Kettlestring Lane, York, and the legal
form of the property lease. This accrual will unwind in future
financial years.
Government grants being spread over the useful economic life of
the associated asset, relate to Regional Growth Fund Grants towards
the acquisition of various capital items. Grant conditions exist
linked to job creation, and these criteria have been satisfied.
12 Share based payments
The Group operates a 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.
In June 2017 awards totalling 14,530 shares were made taking the
number of shares under option to 93,213. These shares have an
exercise price equal to the nominal value of the shares (10p) that
the Company will subsidise by way of a bonus, and subject to
certain conditions will be automatically exercised on the second or
third anniversary of the date of grant as prescribed in the scheme
rules.
13 Related party transactions
There were no significant related party transactions during the
six months to 31 August 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FXLFLDBFEFBK
(END) Dow Jones Newswires
October 23, 2017 08:04 ET (12:04 GMT)
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