TIDMG4M
RNS Number : 2225D
Gear4music (Holdings) PLC
20 June 2023
20 June 2023
Gear4music (Holdings) plc
Audited results for the year ended 31 March 2023
"Laying the foundation for long-term success"
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE:
G4M), the largest UK based online retailer of musical instruments
and music equipment, today announces its financial results for the
year ended 31 March 2023.
FY23 Highlights (1) :
GBPm Year ended Year ended Year ended Change on Change
31 March 31 March 31 March FY22 on FY20
2023 2022 2020
("FY23") ("FY22") ("FY20")
----------- ----------- -----------
Revenue 152.0 147.6 120.3 +3% +26%
Gross profit 39.0 41.1 31.2 -5% +25%
Gross margin 25.7% 27.9% 25.9% -220bps -20bps
EBITDA 7.4 11.2 7.8 -34% -5%
(LBT)/PBT (0.4) 5.0 3.1 (5.4m) (3.5m)
-- FY23 revenues were 3% ahead of FY22 in a difficult consumer
environment, and 26% ahead of FY20
-- Gross margin of 25.7% reflects a significant reduction in
inventory through a challenging period for discretionary retail
-- Reported EBITDA of GBP7.4m is 34% below FY22 and 5% below FY20
-- Net debt at year end of GBP14.5m reduced from GBP24.2m at 31 March 2022
-- Committed borrowing facility renewed with HSBC at GBP30m for a further 3 years
-- Active customers of 0.81m is 6% behind FY22 and 7% ahead of FY20
-- Conversion decreased to 4.0% from 4.1% in FY22, and 70bps ahead of 3.3% in FY20
(1) FY20 shown for comparison as FY21 was exceptional due to the
positive impact of Covid lockdowns.
Commenting on the results, Andrew Wass, Chief Executive Officer
said:
"I am pleased to be reporting FY23 full year results that are in
line with guidance provided in April, with the business generating
revenues of GBP152m and EBITDA of GBP7.4m.
Throughout what has been a challenging year, we continued to
make good progress in building the technical and operational
infrastructure required for our long-term success as the UKs
leading retailer of musical instruments and equipment. A particular
recent highlight has been the launch of our second-hand system,
which whilst still in 'soft launch' stage, has traded over 1,000
products within the first three months.
We have continued to make good progress in reducing our bank
debt and to provide certainty and headroom for the medium term, we
have renewed our committed borrowing facility with HSBC at GBP30m
for a further three-years.
Market conditions have continued to be challenging since our
last update in April, and we are taking the appropriate and
necessary actions to ensure our business is correctly configured,
resourced and positioned strategically for long term success. To
ensure the Group can return to profitability during FY24 H2, we
will focus on product margins, efficiency and overhead cost
reduction ahead of revenue growth, whilst we continue to develop
new growth initiatives for the longer term."
S
Enquiries:
Gear4music
Andrew Wass, Chief Executive Officer
Chris Scott, Chief Financial Officer +44 (0)20 3405 0205
Singer Capital Markets - Nominated Adviser
and Sole Broker Peter Steel/Sam Butcher,
Corporate Finance
Tom Salvesen, Corporate Broking +44 (0)20 7496 3000
Alma PR - Financial PR +44 (0)20 3405 0205
Rebecca Sanders-Hewett Gear4Music@almapr.co.uk
David Ison
Joe Pederzolli
Josh Royston
About Gear4music (Holdings) plc
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.
Chairman's Statement
The year ended 31 March 2023 was a difficult period for many
retailers, with high levels of inflation and increasing interest
rates impacting consumer confidence and disposable income. Whilst
our drive for long-term growth remains unchanged, in response to
these macro-economic challenges our focus has been on debt
reduction and disciplined cost-management to provide the platform
for the Group to return to profitable growth.
Operational and Commercial progress
Whilst the last 12 months have been challenging, the Group has
increased its addressable market, and refocused on operational
efficiency and the customer journey. Taking a longer term view the
Group has made significant progress and we believe we are well
positioned to deliver our long-term profitable growth ambitions.
Since FY20, the Group has:
- increased revenue by 26% to GBP152m led by a 70bps increase in
conversion and 7% increase in active customers;
- added three new distribution centres including operations in
Spain and Ireland to further enhance our localised customer
proposition in mainland Europe, creating an operational
infrastructure capable of delivering revenue in excess of
GBP250m;
- extended our target addressable market through strategic
acquisitions in the AV-market, in particular, through the purchase
of AV.com, opening up an estimated additional addressable market of
GBP2.7bn;
- leveraged our significant software development capability to
deliver several growth and efficiency focused projects, including
various Brexit mitigations, the launch of AV.com and most recently
the launch of our second-hand platform; and
- navigated periods of worldwide supply chain disruption, cost
price inflation, and weakening consumer confidence, underlining the
Group's resilience.
Having successfully reduced net debt by GBP9.7m to GBP14.5m at
31 March 2023, since the year-end the Group has renewed its
committed Revolving Capital Facility ('RCF') at GBP30m for a
further three-year period, enabling the Group to plan into the
medium term with certainty and take advantage of opportunities as
and when they arise.
Environmental, Social and Governance
As a business and Board, we are committed to having a positive
impact on our society, the environment, and our team. We
acknowledge there is increasing interest from a wide range of
stakeholders on the various positive impacts that the business has
and what we are doing to improve outcomes. We will report under
TCFD in the financial year ending 31 March 2024.
The launch of our second-hand platform in March 2023 is our
timely advancement into recycling and the circular economy,
offering customers the opportunity to sell their pre-loved musical
instruments and equipment quickly and easily.
Outlook
Customer demand across our markets remains volatile and
difficult to predict, reflecting the continuing impact of
geo-political and macro-economic uncertainties affecting consumer
confidence across Europe. Nevertheless, having delivered several
development-led growth initiatives in FY23 and markedly reduced net
debt, the Board is confident that the Group's customer proposition,
enhanced operational infrastructure and balance sheet will enable
the Group to achieve its long-term business objectives, namely
taking market share and delivering operational efficiencies
providing the platform for profitable growth.
Ken Ford
Chairman
19 June 2023
Chief Executive's Statement
Financial KPIs
FY23 FY22 FY20 Change Change
on FY22 on FY20
Revenue * GBP152.0m GBP147.6m GBP120.3m +3% +26%
----------- ----------- ---------- ---------- ----------
UK Revenue * GBP82.1m GBP82.6m GBP61.8m -1% +33%
----------- ----------- ---------- ---------- ----------
International Revenue
* GBP70.0m GBP65.0m GBP58.5m +8% +20%
----------- ----------- ---------- ---------- ----------
Gross margin 25.7% 27.9% 25.9% -220bps -20bps
----------- ----------- ---------- ---------- ----------
Gross profit GBP39.0m GBP41.1m GBP31.2m -5% +25%
----------- ----------- ---------- ---------- ----------
Total Admin expenses
* GBP38.7m GBP35.9m GBP27.7m +8% +40%
----------- ----------- ---------- ---------- ----------
European Admin expenses
* GBP5.0m GBP4.6m GBP2.5m +9% +100%
----------- ----------- ---------- ---------- ----------
EBITDA GBP7.4m GBP11.2m GBP7.8m -34% -5%
----------- ----------- ---------- ---------- ----------
(Loss)/profit before (GBP0.4m) GBP5.0m GBP3.1m (GBP5.4m) (GBP3.5m)
tax
----------- ----------- ---------- ---------- ----------
Net debt ** (GBP14.5m) (GBP24.2m) (GBP5.5m) GBP9.7m (GBP9.0m)
----------- ----------- ---------- ---------- ----------
* See note 2 of the Financial Information
** See notes 13 and 14 of the Financial Information
Commercial KPIs
FY23 FY22 FY20 Change Change
on FY22 on FY20
Website visitors 26.5m 28.8m 28.4m -8% -7%
-------- -------- -------- --------- ---------
Conversion rate 3.95% 4.06% 3.29% -11bps +66bps
-------- -------- -------- --------- ---------
Average order value GBP150 GBP125 GBP117 +20% +28%
-------- -------- -------- --------- ---------
Active customers 865,000 921,000 807,000 -6% +7%
-------- -------- -------- --------- ---------
Products listed 64,200 62,400 54,200 +3% +18%
-------- -------- -------- --------- ---------
Note: Change on FY20, three years ago, compares current trading
to the pre-pandemic period to give a better understanding of
performance when compared to the growth and characteristics of
trade which continued to be distorted by pandemic-related factors
in FY22.
Business review
During FY23 we made good progress with our long-term objective
of making musical instruments and equipment accessible and
affordable for as many people as possible, delivering a wide range
of customer centric improvements throughout the business.
Progress has included improving our consumer finance
proposition, upgrading our digital downloads sales platform,
launching AV.com in Europe, alongside what has been our largest and
most ambitious development project to date - our second-hand
system.
Our second-hand system simplifies the process for consumers of
selling used musical instruments and equipment and provides value
and peace of mind for our customers when buying second hand
products. It ensures the lifespan of products is maximised, whilst
enabling enhanced margin opportunities for the business.
These new growth initiatives will strengthen our position as the
UK's leading retailer of musical instruments and equipment.
However, due to the current environment of squeezed discretionary
consumer spending, FY23 proved to be a commercially challenging
year for Gear4music and across the industry.
Reducing our net debt and inventory level has been a priority,
and achieving these objectives in challenging market conditions is
testament to the tenacity of our teams, whilst still generating
revenue growth and limiting the impact on margin.
Strategy
Whilst FY23 was a period of rapid unwinding of inventory, our
focus for FY24 will be to improve efficiency and product
margins.
We intend to leverage our operational infrastructure to launch
our second-hand system across Europe, increasing the number of
markets we trade in, expanding the products available and launching
the system on AV.com later in the year.
In addition to the second-hand system, we have a wide range of
further initiatives planned to support product margins, including
significant own-brand product launches, licencing agreements and
system improvements.
Whilst we continue to develop and launch longer term growth
initiatives, our short-term focus will be on overhead cost
reduction, efficiency, and improving productivity by adopting the
latest technologies. Further net debt reduction will be targeted by
optimising inventory, reducing development costs and limiting
capital expenditure, as we diversify our sales and fulfilment
channels.
Outlook
Anticipating the persistence of challenging market conditions
throughout FY24, we continue to take proactive measures to ensure
the business is well configured to withstand further economic
headwinds and remain well positioned for the future.
With a new three-year banking facility agreed, we are confident
in our strategic vision, making the most of recent acquisitions and
new initiatives, alongside an emphasis on optimising inventory,
product margins, and implementing efficiency and cost reduction
strategies.
As consumer confidence returns in the UK and mainland Europe, we
look forward to capitalising on the opportunities in our markets,
serving our customers and continuing our journey of long-term
profitable growth.
Andrew Wass
Chief Executive Officer
19 June 2023
Chief Financial Officer's statement
Overview
The financial year ended 31 March 2023 was a difficult period
for many retailers of discretionary products, and against a
backdrop of cost-led inflation and increasing interest rates it was
important we delivered on our stated ambition of bringing down our
net debt and taking a disciplined approach to cost management.
Until the macro-economic climate and consumer confidence show
sustained signs of recovery, cost control will continue to be a
priority through FY24.
FY23 profitability was impacted by our active reduction in stock
levels during a period of weak demand contributing to a lower than
planned gross margin, and by cost-base inflation across marketing,
labour and energy. Relative to FY20, the last normal trading period
unaffected by the pandemic, our results show good revenue growth at
a comparable gross margin, but lower operating profits and
profitability reflecting the increased size and scale of the
business reinforced by the aforementioned inflationary factors.
Since the year-end we have renewed our banking facilities with
HSBC to provide a GBP30m committed facility to 2026, giving us
certainty and confidence to plan into the medium term.
Revenue
FY23 FY22 FY20
GBPm GBPm GBPm
------ ------ ------
UK revenue 82.0 82.6 61.8
------ ------ ------
International revenue 70.0 65.0 58.5
------ ------ ------
Revenue 152.0 147.6 120.3
------ ------ ------
Revenue increased GBP4.4m (3%) on FY22 and GBP31.7m (26%)
relative to a more normal trading period in FY20, equating to
compound growth of 8.1% per annum.
UK revenue of GBP82.0m was GBP0.6m (1%) behind FY22 and GBP20.2m
(33%) ahead of FY20, reflecting cost-of-living challenges impacting
sales of discretionary products. This takes our estimated UK market
share to 9.1% (FY22: 9.2%; FY20: 7.2%).
International revenues of GBP70.0m were GBP5.0m (8%) ahead of
FY22 and GBP11.5m (20%) higher than FY20 reflecting the
distribution centres we opened in Ireland and Spain last year
becoming increasingly well-established and offering an improved
localised customer proposition in those and adjacent markets.
Revenues from sales outside of Europe accounted for 2.0% of
total revenue in FY23 compared to 1.4% in FY22 and 1.3% in
FY20.
FY23 FY22 FY20
GBPm GBPm GBPm
------ ------ ------
Other-brand product revenue 106.2 102.5 79.4
------ ------ ------
Own-brand product revenue 38.9 38.1 35.4
------ ------ ------
Carriage income 6.2 6.3 4.9
------ ------ ------
Other 0.7 0.7 0.6
------ ------ ------
Revenue 152.0 147.6 120.3
------ ------ ------
Own-brand revenue of GBP38.9m was up GBP0.8m (2%) on FY22 and
GBP3.5m (10%) on FY20, and accounted for 25.6% of total revenue
from 8% of total SKUs, which is a lower proportion than has
historically been the case (FY20: 29.4%). This is in part due to a
post-Covid slow-down in demand for entry-level products, and
secondly due to increased competition from Far East manufacturers
selling direct into Europe through Amazon. We have responded by
increasing own-brand SKU count from 4,200 to 4,900 including
revamped entry level and premium ranges, and the expansion of
Premier branded-products.
Other brand revenue was GBP3.7m (4%) ahead of FY22 and GBP26.8m
(34%) ahead of FY20.
Carriage income was broadly flat on FY22 and GBP1.3m ahead of
FY20, representing 4.1%, 4.3% and 4.1% of sales in FY23, FY22 and
FY20 respectively, reflecting the Group offering more localised,
cheaper delivery options and less cross UK-EU border shipments in
FY23 and FY22 than was possible in FY20.
Other revenue comprises paid for extended warranty income, and
commissions earned on facilitating point-of-sale credit for retail
customers. The proportion of revenues coming from these sources was
0.5% of total revenue in FY23, FY22 and FY20.
Gross profit
FY23 FY22 FY20
Product sales (GBPm) 145.1 140.6 114.8
------ ------ ------
Product profit (GBPm) 43.6 45.2 35.1
------ ------ ------
Product margin 30.0% 32.1% 30.5%
------ ------ ------
Carriage costs (GBPm) 10.5 10.3 8.8
------ ------ ------
Carriage costs as % of sales 6.9% 7.0% 7.3%
------ ------ ------
Gross profit (GBPm) 39.0 41.1 31.2
------ ------ ------
Gross margin 25.7% 27.9% 25.9%
------ ------ ------
In FY22 we built-up a high level of stock for precautionary and
opportunistic reasons. In FY23 with a return to reliable supply,
higher interest rates and against a backdrop of weaker customer
demand, our focused moved to reducing stock to a more appropriate
level through resetting re-ordering levels and involved targeted
price reductions. These factors contributed to a 210bps decrease in
product margin to 30.0%.
In a similar vein to FY22, product margin in FY23 was impacted
by sales mix with relatively lower sales of higher margin own-brand
products (26% of total sales) than has historically been the case
(FY20: 29%).
The Group benefits from buying scale relative to its UK
competitors, and its ability to source other-branded products in
Swedish Krona and Euros and receive product directly into its
European distribution centres is a point of differentiation. The
Group purchases its own-brand products in US Dollars and product
margin can be impacted by exchange rate fluctuations.
Administrative expenses and Operating profit
Operating profit of GBP1.3m is GBP4.8m below FY22 and GBP2.8m
below FY20, reflecting a low gross margin and a larger cost base
reflecting the size and scale of the business.
FY23 FY22 FY20
GBPm GBPm GBPm
------- ------- -------
UK Administrative expenses (33.7) (31.3) (25.2)
------- ------- -------
European Administrative expenses (5.0) (4.6) (2.5)
------- ------- -------
Total Administrative expenses (38.7) (35.9) (27.7)
------- ------- -------
Other income 0.9 0.8 0.6
------- ------- -------
Operating profit 1.3 6.1 4.1
------- ------- -------
Depreciation and amortisation 6.1 5.1 3.7
------- ------- -------
EBITDA 7.4 11.2 7.8
------- ------- -------
Total administrative expenses increased by GBP2.8m (8%) on FY22
relative to a revenue increase of 3%, including a GBP1.3m (10%)
increase in labour costs, GBP0.9m (18%) increase in depreciation
and amortisation, and a GBP0.5m (24%) increase in card processing
costs.
Admin expenses have increased from 23.0% of sales in FY20 and
24.3% in FY22, to 25.5% in FY23.
Combined marketing and labour costs of GBP25.0m (FY22: GBP23.9m)
accounted for 65% of total administrative expenses (FY22: 67%):
- Marketing expenditure decreased in FY23 to GBP10.6m (FY22:
GBP10.8m) equating to 7.0% of revenue compared to 7.3% last year
and 7.7% in FY20, as the business targeted a higher return on
investment; and
- Labour costs increased 10% in FY23 to GBP14.4m (FY22:
GBP13.1m) reflecting a 3% increase in average headcount. Labour
costs accounted for 9.5% of revenue (FY22: 8.9%).
FY23 EBITDA of GBP7.4m was GBP3.8m lower than FY22 and GBP0.4m
lower than FY20.
Other expenses and net profit
Financial expenses of GBP1.7m (FY22: GBP1.1m) include GBP1.1m
bank interest (FY22: GBP0.5m) reflecting higher interest rates,
GBP0.4m of IFRS16 lease interest (FY22: GBP0.4m), and a GBP0.2m net
foreign exchange loss (FY22: GBP0.1m loss).
The Group reports a small loss before tax of GBP0.4m (FY22:
profit before tax of GBP5.0m) that after tax translates into a
basic and diluted loss per share of 3.1p (FY22: 17.8p basic profit
per share; 17.3p diluted profit per share).
Cash-flow
FY23 FY22 FY20
GBPm GBPm GBPm
------- ------- ------
Opening cash 3.9 6.2 5.3
------- ------- ------
(Loss)/profit for the year (0.6) 3.7 2.6
------- ------- ------
Movement in working capital 13.0 (16.2) (0.9)
------- ------- ------
Depreciation and amortisation 6.0 5.1 3.7
------- ------- ------
Financial expense 1.7 1.1 1.0
------- ------- ------
Tax and Other operating adjustments (0.4) (1.3) 1.0
------- ------- ------
Net cash from/(used in)
operating activities: 19.7 (7.6) 7.4
------- ------- ------
Net cash used in investing
activities: (6.7) (16.5) (3.9)
------- ------- ------
Net cash (used in)/from financing
activities: (12.4) 21.8 (1.0)
------- ------- ------
Increase/(decrease) in cash
in the year 0.6 (2.3) 2.5
------- ------- ------
Closing cash 4.5 3.9 7.8
------- ------- ------
Post year-end the Group renewed its RCF at GBP30m for three more
years with its bankers, HSBC, providing the headroom to invest in
opportunities as and when they arise.
Group indebtedness decreased by GBP9.7m to GBP14.5m (40%)
largely down to the deliberate and planned GBP11.1m reduction in
stock. Net debt of GBP24.2m at 31 March 2022 was a peak year-end
figure reflecting an GBP11.4m investment in acquisitions in FY22,
and a GBP17.1m investment in stock that was largely unwound in
FY23.
Reported net cash outflow in investing activities of GBP6.7m
includes GBP5.3m of capitalised software development costs (FY22:
GBP4.4m) and GBP1.0m property, plant and equipment additions (FY22:
GBP1.8m). Depreciation and amortisation of GBP4.4m (FY22: GBP3.7m)
is added back in 'net cash from operating activities' with respect
to these asset categories.
Net cash outflow from financing activities of GBP12.4m (FY22:
GBP21.8m inflow) represents a GBP9.0m lower RCF drawdown (FY22:
GBP24.6m net inflow), GBP1.7m payment of lease liabilities (FY22:
GBP1.9m), and GBP1.7m interest paid (FY22: GBP0.9m).
Balance sheet
31 March 2023 31 March 2022 31 March 2020
GBPm GBPm GBPm
-------------- -------------- --------------
Property, plant and equipment 11.9 13.0 11.2
-------------- -------------- --------------
Right-of-use assets 7.3 8.2 9.0
-------------- -------------- --------------
Software platform 12.8 10.5 7.1
-------------- -------------- --------------
Goodwill 5.3 5.3 1.8
-------------- -------------- --------------
Other intangible assets 3.9 4.0 0.2
-------------- -------------- --------------
Total non-current assets 41.2 41.0 29.3
-------------- -------------- --------------
Stock 34.4 45.5 22.0
-------------- -------------- --------------
Cash 4.5 3.9 7.8
-------------- -------------- --------------
Other current assets 4.5 3.9 2.5
-------------- -------------- --------------
Total current assets 43.4 53.3 32.3
-------------- -------------- --------------
Trade payables (9.3) (9.5) (10.1)
-------------- -------------- --------------
Loans and Borrowings - - (10.0)
-------------- -------------- --------------
Lease liabilities (1.1) (1.2) (1.1)
-------------- -------------- --------------
Other current liabilities (8.4) (6.7) (4.3)
-------------- -------------- --------------
Total current liabilities (18.8) (17.4) (25.5)
-------------- -------------- --------------
Loans and Borrowings (19.0) (28.0) (3.4)
-------------- -------------- --------------
Lease liabilities (7.5) (8.5) (9.5)
-------------- -------------- --------------
Other non-current liabilities (2.1) (2.3) (1.6)
-------------- -------------- --------------
Total non-current liabilities (28.6) (38.8) (14.5)
-------------- -------------- --------------
Net assets 37.2 38.0 21.6
-------------- -------------- --------------
Capital expenditure on property, plant and equipment totalled
GBP1.0m spread across all eight sites.
The Group capitalised GBP5.3m (FY22: GBP4.4m) of software
development costs relating to our bespoke e-commerce platform,
including projects linked to AV.com, third-party fulfilment, and
the launch of our second-hand platform. Platform amortisation in
the year was GBP3.0m (FY22: GBP2.3m) taking net book value to
GBP12.8m (31 March 2022: GBP10.5m).
Other intangible assets include GBP5.3m goodwill and GBP3.0m
domain names.
Stock of GBP34.4m is GBP11.1m (24%) lower than at 31 March 2022
reflecting planned reductions. The Board considers this to be a
good level to take into FY24, providing breadth and depth across
categories across our distribution centres.
The Group carried net debt of GBP14.5m at the year-end (31 March
2022 net debt: GBP24.2m), having reduced stock by GBP11.1m (24%)
over FY23.
Dividends
The Board is confident in the prospects for the business and
recognises the importance of generating and retaining cash reserves
to support future growth, and as such the Board does not consider
it appropriate to declare a dividend at this time but will continue
to review this position on an annual basis.
On behalf of the Board
Chris Scott Chief Financial Officer 19 June 2023
Consolidated Statement of Profit and Loss and Other
Comprehensive Income
Year ended Year ended
31 March 31 March
Note 2023 2022
GBP000 GBP000
Revenue 152,039 147,630
Cost of sales (112,996) (106,500)
Gross profit 39,043 41,130
Administrative expenses 3,4 (38,705) (35,881)
Other income 3 949 820
Operating profit 1,287 6,069
Financial expenses 6 (1,694) (1,055)
(Loss)/profit before tax (407) 5,014
Taxation 7 (237) (1,291)
(Loss)/profit for the year (644) 3,723
Other comprehensive income
Items that will not be reclassified
to profit or loss:
Revaluation of property, plant
and equipment (550) -
Deferred tax movements 147 (109)
8
Items that are or may be
reclassified subsequently
to profit or loss:
Foreign currency translation
differences - foreign operations
- (23)
Total comprehensive (loss)/income
for the year
(1,047) 3,591
Basic (loss)/profit per
share 5 (3.1p) 17.8p
Diluted (loss)/profit
per share 5 (3.1p) 17.3p
The accompanying notes form an integral part of the consolidated
financial report.
Consolidated Statement of Financial Position
Year ended Year ended
31 March 31 March
2023 2022
Note GBP000 GBP000
Non-current assets
Property Plant and Equipment 8 11,934 12,958
Right-of-use assets 9 7,288 8,235
Intangible assets 10 22,049 19,812
41,271 41,005
Current assets
Inventories 11 34,381 45,516
Trade and other receivables 12 3,434 3,409
Corporation tax receivable 1,066 432
Cash and cash equivalents 13 4,460 3,903
43,341 53,260
Total assets 84,612 94,265
Current liabilities
Trade and other payables 15 (17,647) (16,183)
Lease liabilities 16 (1,130) (1,229)
(18,777) (17,412)
Non-current liabilities
Interest-bearing loans
and borrowings 14 (19,000) (28,000)
Other payables 15 (83) (64)
Lease liabilities 16 (7,470) (8,455)
Deferred tax liability (2,048) (2,298)
(28,601) (38,817)
Total liabilities (47,378) (56,229)
Net assets 37,234 38,036
Equity
Share capital 17 2,098 2,098
Share premium 17 13,286 13,286
Foreign currency translation
reserve 17 (74) (74)
Revaluation reserve 17 1,203 1,606
Retained earnings 17 20,721 21,120
Total equity 37,234 38,036
The notes 1 to 18 form part of the consolidated financial
report.
Company registered number: 07786708
Consolidated 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 31 March 2021 2,095 13,165 (51) 1,640 17,463 34,312
Comprehensive income for
the year
Profit for the year - - - - 3,723 3,723
Other comprehensive income - - (23) - (109) (132)
Deferred tax adjustment - - - - (46) (46)
Share based payments charge - - - - 55 55
Depreciation transfer - - - (34) 34 -
Total comprehensive income
for the year - - (23) (34) 3,657 3,600
Transactions with owners
Issue of shares 3 121 - - - 124
Total transactions with
owners 3 121 - - - 124
Balance at 31 March 2022 2,098 13,286 (74) 1,606 21,120 38,036
Comprehensive loss for the
year
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
Total comprehensive loss
for the year - - - (403) (399) (802)
Transactions with owners
Issue of shares - - - - - -
Total transactions with - - - - - -
owners
Balance at 31 March 2023 2,098 13,286 (74) 1,203 20,721 37,234
The accompanying notes form an integral part of the consolidated
financial report.
Consolidated Statement of Cash Flows
Note Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Cash flows from operating
activities
(Loss)/profit for the year (644) 3,723
Adjustments for:
Depreciation and amortisation 3 6,081 5,138
Financial expenses 6 1,694 1,055
Loss/(profit) on sale of property,
plant and equipment 17 (12)
Share based payment charge 282 55
Taxation 7 (208) 1,243
7,222 11,202
(Increase)/decrease in trade
and other receivables 12 14 302
Decrease/(increase) in inventories 11 11,135 (14,195)
Increase/(decrease) in trade
and other payables 15 1,865 (2,187)
20,236 (4,878)
Tax paid 7 (530) (2,709)
Net cash from operating activities 19,706 (7,587)
Cash flows from investing
activities
Proceeds from sale of property,
plant and equipment 31 95
Acquisition of property, plant
and equipment 8 (989) (1,773)
Capitalised development expenditure 10 (5,319) (4,439)
Acquisition of a business,
net of cash acquired 10 - (7,360)
Business combinations: Deferred
consideration 10 (419) -
Acquisition of domains 10 (8) (3,023)
Net cash from investing activities (6,704) (16,500)
Cash flows from financing
activities
Cash from share issue - 124
Proceeds from new borrowings 14 - 28,000
Interest paid (1,694) (917)
Repayment of borrowings 14 (9,000) (3,445)
Payment of lease liabilities 16 (1,713) (1,952)
Net cash from financing activities (12,407) 21,810
Net increase/(decrease) in
cash and cash equivalents 595 (2,277)
Cash at beginning of year 3,903 6,203
Foreign exchange movement (38) (23)
Cash at end of year 13 4,460 3,903
The accompanying notes form an integral part of the consolidated
financial report.
Notes to the consolidated financial statements
(forming part of the financial statements)
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 statements consolidate those of the Company
and its subsidiaries (collectively referred to as the "Group"). The
parent company financial statements present information about the
Company as a separate entity and not about its group.
The principal activity of the Group is the retail of musical
instruments and equipment.
The registered office of Gear4music (Holdings) plc (company
number: 07786708), Gear4music Limited (company number: 03113256),
Cagney Limited (dormant subsidiary; company number: 04493300), and
AV Distribution Ltd (dormant subsidiary; company number: 05385699)
is Holgate Park Drive, York, YO26 4GN.
At the financial year-end the Group has four trading European
subsidiaries: Gear4music Sweden AB, Gear4music GmbH, Gear4music
Europe Limited (formerly known as Gear4music Ireland Limited), and
Gear4music Spain SL. The Group has one dormant European subsidiary,
Gear4music Norway AS. All five are 100% subsidiaries of Gear4music
Limited.
1 Accounting policies
1.1 Basis of preparation
The financial information set out in this announcement does not
constitute statutory accounts as defined by section 434 of the
Companies Act 2006.
It has been prepared in accordance with the recognition and
measurement principles of UK-adopted International Accounting
Standards, including IFRIC interpretations issued by the
International Accounting Standards Board, and in accordance with
the AIM rules and is not therefore in full compliance with IFRS.
The principal accounting policies of the Group have remained
unchanged from those set out in the Group's 2022 annual report. The
financial statements have been prepared under the historical cost
convention with the exception of land and buildings which are
accounted for at fair value.
The results for the year ended 31 March 2023 have been extracted
from the full accounts of the Group for that year which have not
yet been delivered to the Registrar of Companies. Grant Thornton UK
LLP has reported on those accounts and their report is (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The financial information for the year ended 31 March 2022 is
derived from the statutory accounts for that year, which have been
delivered to the Registrar of Companies. Grant Thornton UK LLP
reported on those accounts and their report was (i) unqualified,
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report and (iii) did not contain a statement under section 498 (2)
or (3) of the Companies Act 2006.
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.
The announcement will be published on the Company's website. The
maintenance and integrity of the website is the responsibility of
the directors. The work carried out by the auditors does not
involve consideration of these matters. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Accounting period
The financial statements presented cover the years ended 31
March 2023 and 31 March 2022 .
Measurement convention
The financial statements have been prepared on the historical
cost basis except for land and buildings that are stated at their
fair value.
Monetary amounts are expressed in Sterling (GBP) and rounded to
the nearest GBP1,000.
1.2 Adoption of new and revised standards
Various new or revised accounting standards have been issued
which are not yet effective.
The following new standards, and amendments to standards, have
been adopted by the Group during the year ending 31 March 2023, and
the impact was not material:
- Amendments to IFRS 3: Business Combinations
- Amendments to IAS 16: Property, Plant and Equipment
- Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets
1.3 Going concern presumption for the period to 30 June 2024
The Group's business activities and position in the market, and
principal risks, uncertainties and mitigations are described in the
Strategic Report.
The Group sets an annual budget against which performance is
compared, and operates a monthly reporting and rolling forecasting
cycle, which the board uses to ensures that the profitability, cash
flow and capital requirements of the business are sufficient to
ensure its ongoing viability. Management relies on weekly and
monthly financial, commercial and operational reporting to monitor,
assess and control performance through the financial year. These
reports form the basis upon which the board satisfies its
requirements to update stakeholders with relevant financial
performance and prospects.
In FY22 the Group secured a GBP35m three-year committed
Revolving Credit Facility ('RCF') with its bankers, HSBC, to make
acquisitions and invest in stock for precautionary reasons during a
period of potential supply chain disruption, and early in a period
of inflationary cost price increases.
As supply chain pressures eased in FY23, the Group focused on
reducing its investment in stock, thereby significantly reducing
its net debt by GBP9.7m to GBP14.5m at 31 March 2023. On 16 June
2023, and well ahead of the 21 June 2024 renewal date, 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 has conducted reverse stress tests where revenue was
assumed to decrease 21% on a six-month basis and 13% on a 15-month
basis below a reasonable base case, and the Group was able to rely
on cost reduction and working capital mitigations to continue to
trade. The Group has therefore concluded that there is no plausible
scenario where the Group breaches its covenants, re-affirming the
assessment of the Group as a going concern.
The Directors have considered the Group's position and prospects
in the period to 30 June 2024 based on its offering in the UK and
improved proposition in Europe and concluded that potential growth
rates remain strong. There is a diverse supply chain with no key
dependencies.
The Group's policy is to ensure that it has sufficient
facilities to cover its future funding requirements. At 31 March
2023 the Group had net debt of GBP14.5m (31 March 2022: GBP24.2m),
with GBP4.5m cash (31 March 2022: GBP3.9m cash).
Having duly considered all of these factors and having reviewed
the forecasts for the period to 30 June 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 Segmental reporting
The Group's revenue and profit was derived from its principal
activity which is the sale of musical instruments and
equipment.
In accordance with IFRS 8 'Operating segments', the Group has
made the following considerations to arrive at the disclosure made
in these financial statements. IFRS 8 requires consideration of the
'Chief Operating Decision Maker ('CODM') within the Group, which in
the Group's case is the Executive Board. Operating segments have
been identified based on the internal reporting information and
management structures with the Group. Based on this information it
has been noted that the CODM reviews the business as one segment
and receives internal information on this basis. Therefore, it has
been concluded that there is only one reportable segment.
Revenue by Geography
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
UK 82,084 82,639
Europe 66,967 62,843
Rest of the World 2,988 2,148
152,039 147,630
Administrative expenses by Geography
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
UK 33,678 31,253
Europe 5,027 4,628
38,705 35,881
The majority of Group assets are held in the UK except for local
right of use assets and property, plant and equipment, and cash in
Sweden (31 March 2023: GBP3.5m; 31 March 2022: GBP4.0m), Germany
(31 March 2023: GBP2.3m; 31 March 2022: GBP2.2m), Ireland (31 March
2023: GBP0.6m; 31 March 2022: GBP0.7m) and Spain (31 March 2023:
GBP1.5m; 31 March 2022: GBP1.7m).
Revenue by Product category
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Other-brand products 106,189 102,473
Own-brand products 38,860 38,121
Carriage income 6,187 6,266
Warranty income 452 483
Other 351 287
152,039 147,630
3 Expenses and other income
Included in profit/loss are the following:
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Expenses
Rentals - short-term rentals
of plant & machinery 41 21
Equity-settled share-based
payment charges 208 55
Depreciation of property, plant
and equipment 1,414 1,254
Depreciation of right-of-use
assets 1,577 1,466
Amortisation of Intangible
assets 3,090 2,385
Amortisation of government
grants 3 7
Loss/(profit) on disposal of
property, plant and equipment 17 (12)
R&D expenditure recognised
as an expense 280 230
Auditor remuneration - audit
of these financial statements 65 65
Auditor remuneration - this
year's audit of financial statements
of subsidiaries 74 74
Auditor remuneration - non-audit
fees - Other audit related
services 5 5
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Other income
RDEC tax credits 445 365
Rental income 239 247
Other 265 208
949 820
Rental income relates to our freehold Head-office in York.
'Other' includes income from on-site café at York Head-office,
grants, marketing support.
4 Staff numbers and costs
The average number of persons employed by the Group (including
directors) during the year, analysed by category, was as
follows:
Year ended Year ended
31 March 31 March
2023 2022
Nos. Nos.
Administration 255 242
Selling and Distribution 318 316
573 558
The aggregate payroll costs of these persons were as
follows:
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Wages and salaries 11,840 10,982
Social security costs 1,474 1,236
Contributions to defined contribution
plans 1,111 928
14,425 13,146
Wages and salaries, social security costs, and staff pension
costs of GBP5,205,000 (2022: GBP4,400,000) relating to software
developers are capitalised and not included in the figures
above.
Directors' remuneration
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Directors' emoluments 717 680
The three Executive Directors are paid through Gear4music
Limited, and the three Non-Executive Directors are paid through
Gear4music (Holdings) plc. The remuneration of all six Directors is
included above.
The aggregate remuneration of the highest paid director was
GBP232,000 during the year (2022: GBP229,000), including company
pension contributions of GBP9,000 (2022: GBP8,000) that were made
to a money purchase scheme on their behalf.
There are five directors (2022: five) for whom retirement
benefits are accruing under a money purchase pension scheme.
On 3 August 2021 and further to confirmation all performance
conditions relating to the conditional share awards granted under
the Long-Term Incentive Plan were fully met, Gareth Bevan received
6,825 shares, Chris Scott received 5,850 shares, and Andrew Wass
received a GBP55,575 cash equivalent.
5 Earnings per share
Diluted profit per share is calculated by dividing the net
profit for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that
would be issued on the conversion of CSOP and LTIP dilutive
potential ordinary shares into ordinary shares. In FY23 the diluted
loss per share has been restricted to the basic loss per share to
prevent having an anti-dilutive effect.
Year ended Year ended
31 March 31 March
2023 2022
(Loss)/profit attributable to
equity shareholders of the parent
(GBP'000) (644) 3,723
Basic weighted average number
of shares 20,976,938 20,967,831
Dilutive potential ordinary shares 549,269 570,440
Diluted weighted average number
of shares 21,526,207 21,538,271
Basic (loss)/profit per share (3.1p) 17.8p
Diluted (loss)/profit per share (3.1p) 17.3p
6 Finance expenses
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Bank interest 1,127 524
IFRS16 lease interest 375 403
Net foreign exchange loss 190 97
Unwinding of discount on
deferred consideration 2 31
Total finance expense 1,694 1,055
7 Taxation
Recognised in the income statement
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Current tax expense
UK Corporation tax - 574
Overseas Corporation tax 66 55
Adjustments for prior periods 277 7
Current tax expense 342 636
Deferred tax expense
Origination and reversal
of temporary differences (79) 326
Deferred tax rate change
impact - 345
Adjustments for prior periods (26) (16)
Deferred tax expense (105) 655
Total tax expense 237 1,291
The corporation tax rate applicable to the company was 19% for
the year ended 31 March 2023, and 19% for the period ended 31 March
2022. At the Budget announcement on 3 March 2021 the UK government
has stated its intention to raise the corporation tax rate to 25%
from 1 April 2023. The deferred tax assets and liabilities at 31
March 2023 have been calculated based on that rate.
Reconciliation of effective tax rate
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
(Loss)/profit for the year (644) 3,723
Total tax charge 237 1,291
(Loss)/profit before taxation (407) 5,014
Current tax at 19% (2022: 19.0%)
Tax using the UK corporation tax
rate for the relevant period: (61) 943
Non-deductible expenses 120 (73)
Deferred tax rate change impact - 345
Adjustments relating to prior year
- deferred tax 36 (16)
Adjustments relating to prior year
- current tax 214 7
Impact of overseas tax rate 1 2
Deferred tax assets not recognised 1 1
R&D credit (11) 12
Difference between current and
deferred tax rates (19) 100
Impact of capital allowances super
deduction (44) (31)
Total tax charge 237 1,291
8 Tangible fixed assets
Property, Plant and Equipment
Plant Land Total
and Fixtures Motor Computer and Buildings
equipment and fittings Vehicles equipment
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost or Valuation
At 1 April 2021 1,847 5,699 30 1,094 7,500 16,170
Additions 460 1,101 - 212 - 1,773
Additions through business
combinations 29 13 68 6 1,251 1,367
Disposals (61) (14) (30) - - (105)
Balance at 31 March 2022 2,275 6,799 68 1,312 8,751 19,205
Additions 163 717 - 109 - 989
Revaluation decrease - - - - (550) (550)
Disposals (124) (29) - - (153)
Balance at 31 March 2023 2,438 7,392 39 1,421 8,201 19,491
Depreciation and impairment
At 1 April 2021 1,222 2,820 19 769 150 4,980
Depreciation charge for
the year 326 625 15 166 155 1,287
Disposals (13) (9) - - - (22)
Balance at 31 March 2022 1,536 3,437 34 935 305 6,247
Depreciation charge for
the year 331 736 2 170 175 1,414
Disposals - (101) (3) - - (104)
Balance at 31 March 2023 1,867 4,072 33 1,105 480 7,557
Net book value as at
31 March 2023 571 3,320 6 316 7,721 11,934
Net book value as at 31
March 2022 739 3,362 34 377 8,446 12,958
Net book value as at 31
March 2021 625 2,879 11 325 7,350 11,190
Freehold property valuation - Holgate Park Head Office
At 31 March 2023 the freehold office premises at Holgate Park
were revalued at market value using information provided by an
independent chartered surveyor. The valuation was carried out in
accordance with the provisions of RICS Appraisal and Valuation
Standards ('The Red Book'). The appraisal was carried out using
level 3 inputs observable inputs including prices for recent market
transactions for similar properties and incorporates adjustments
for factors specific to the property in question, including plot
size, location, encumbrances and current use.
Market value at 31 March 2023 was confirmed at GBP6.5m compared
to a book value at 31 March 2023 of GBP7.05m, and market value at
31 March 2020 of GBP7.5m.
If the property had not been revalued the net book value would
have been GBP5.0m.
Freehold property valuation - Bacup distribution centre
On 1 December 2021 the Group acquired a 25,145 sq. ft freehold
warehouse property in Bacup, Lancashire as part of the acquisition
of AV Distribution Ltd. The property was valued on 10 August 2021
at GBP1.26m by an independent chartered surveyor on behalf of HSBC
Bank plc for loan security purposes.
Management have reviewed the fair value as at 31 March 2023 and
concluded that this would not be materially different.
Security
The Group's bank borrowings are secured by fixed and floating
charges over the Group's assets.
9 Right-of-use assets
Leasehold properties
The Group has six leased properties comprising Distribution
Centres and Showrooms in York, Sweden and Germany, Distribution
Centres in Ireland and Spain, and a software development office in
Manchester.
In September 2022 the Group vacated the previous software
development office and moved into a smaller office on flexible
terms.
The associated right-of-use assets are as follows:
Short
leasehold
properties
GBP000
Cost
At 1 April 2021 10,305
Additions 1,830
Balance at 31 March 2022 12,135
Modifications 567
Additions 63
Balance at 31 March 2023 12,765
Depreciation
At 1 April 2021 2,434
Depreciation charge for the year 1,466
Balance at 31 March 2022 3,900
Depreciation charge for the year 1,577
Balance at 31 March 2023 5,477
Net book value as at 31 March
2023 7,288
Net book value as at 31 March
2022 8,235
Net book value as at 31 March
2021 7,871
10 Intangible assets
FY23 Software platform additions comprise GBP5,205,000 of
internally developed additions being 95% of software developer
wages and salaries, GBP87,000 of capitalised interest, and
GBP27,000 of software licences for tools used in development.
The amortisation charge is recognised in Administrative expenses
profit and loss account.
Software Other
Goodwill platform Brand Domains Intangibles Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Cost
At 1 April 2021 1,848 15,247 657 - - 17,752
Additions - 4,439 - 3,023 - 7,462
Additions through
business combinations 3,476 - 715 - 149 4,340
Balance at 31
March 2022 5,324 19,686 1,372 3,023 149 29,554
Additions - 5,319 - 8 - 5,327
Balance at
31 March 2023 5,324 25,005 1,372 3,031 149 34,881
Amortisation
At 1 April 2021 - 6,846 511 - - 7,357
Amortisation
for the year - 2,321 52 - 12 2,385
Balance at 31
March 2022 - 9,167 563 - 12 9,742
Amortisation
for the year - 3,050 - 3 37 3,090
Balance at
31 March 2023 - 12,217 563 3 49 12,832
Net book value
as at 31 March
2023 5,324 12,788 809 3,028 100 22,049
Net book value
as at 31 March
2022 5,324 10,519 809 3,023 137 19,812
Net book value
as at 31 March
2021 1,848 8,401 146 - - 10,395
Other intangibles
Other intangibles comprise customer relationships, trademarks,
and domain names acquired on acquisition of AV Distribution
Limited.
Goodwill
On 19 March 2012 goodwill arose on the acquisition of the entire
share capital of Gear4music Limited (formerly known as Red
Submarine Limited).
On 1 January 2017 goodwill arose on the acquisition of a
software development business from Venditan Limited, which
effectively brought development of the group's proprietary software
platform in-house
On 21 June 2021 goodwill arose on the acquisition of the
business and assets of Premier Music International Limited and High
House 123 Limited Liability Partnership for GBP1.685m.
On 1 December 2021 goodwill arose on the acquisition of the
entire share capital of AV Distribution Ltd trading as 'AV Online',
an online retailer of Home Cinema and HiFi equipment, for total
consideration of GBP6.05m (on a cash free, debt free basis).
Goodwill balances are denominated in Sterling:
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Gear4music Limited 417 417
Software development business 1,431 1,431
Premier business 960 960
AV Distribution Ltd 2,516 2,516
5,324 5,324
Impairment testing
In accordance with IAS 36 Impairment of Assets, the Group
reviews the carrying value of its intangible assets. A detailed
review was undertaken at 31 March 2023 to assess whether the
carrying value of assets was supported by the net present value in
use calculations based on cash-flow projections from formally
approved budgets and longer-term forecasts.
Intangible assets include the proprietary software platform, the
Gear4music and Premier brand names, the AV.com domain, goodwill and
'other intangibles'. Goodwill and the AV.com domain have an
indefinite useful life.
A Cash Generating Unit ("CGU") is defined as the smallest group
of assets that generate cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups
thereof. The Group has considered its operational and commercial
configuration at 31 March 2023 and concluded it has a single CGU to
which all intangibles are allocated. The carrying value of these
intangibles, the Bacup freehold, the right-of-use assets, and all
other PPE was GBP35.9m. An impairment review has been performed on
this CGU. The recoverable amount of this CGU has been determined
based on value-in-use calculations. In assessing value in use, a
two-year forecast to 31 March 2025 was used to provide cash-flow
projections that have been discounted at a pre-tax discount rate of
13.22% (2022: 9.55%). The cash flow projections are subject to key
assumptions in respect of revenue growth, gross margin performance,
overhead expenditure, and capital expenditure. Management has
reviewed and approved the assumptions inherent in the model:
-- FY24-26 annual forecast revenue growth of 7% based on growth
by geographical market, based on market size and estimate of
opportunity, trends, and Management's experience and
expectation.
-- FY27-28 and into perpetuity revenue growth of 2%;
-- Gross margins are forecast to improve on FY23; and
-- Wage increases are a function of recruitment and review of
current staff, with a range of % increases.
No impairment loss was identified in the current year (2022:
GBPnil). The valuation indicates significant headroom and a number
of reasonable revenues, profitability and capital expenditure-based
sensitivities were put through the model, and the results did not
result in an impairment.
11 Inventories
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Finished goods 34,381 45,516
The cost of inventories recognised as an expense and included in
cost of sales in the period amounted to GBP102.6m (2022:
GBP96.9m).
Management has included a provision of GBP50,000 (31 March 2022:
GBP55,000), representing a 100% provision against returns stock
subsequently found to be faulty, that is retained to be used for
spare parts on the basis there is no direct NRV value, and a
provision based on the expected product loss on dealing with
returns stock.
12 Trade and other receivables
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Trade receivables 1,243 1,772
Social security and
other taxes 260 122
Prepayments 1,931 1,515
3,434 3,409
Corporation tax asset of GBP1,066,000 (31 March 2022:
GBP432,000) has been disclosed separately on the face of balance
sheet in both years, in accordance with IAS 1.54(n).
Credit risk and impairment
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The carrying amount of trade
receivables represents the maximum credit exposure. The Group does
not take collateral in respect of trade receivables.
Trade receivables comprise balances dues from schools and
colleges, and funds lodged with payment providers.
Customer receivables
The Group faces low credit risk as customers typically pay for
their orders in full on shipment of the product, with the only
exception being a small number of education accounts with schools
and colleges that have 30-day terms (2.9% of 2023 revenues; 2.4% of
2022 revenues).
Funds lodged with payment providers
Funds lodged with Amazon, Digital River, Klarna and V12 Retail
Finance totalled GBP581,000 on 31 March 2023 (31 March 2022:
GBP378,000) and are included in Trade debtors. Credit risk in
relation to cash held with financial institutions is considered
very low risk, given the credit rating of these organisations.
13 Cash and cash equivalents
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Cash and cash equivalents 4,460 3,903
Cash-in-transit to the Group at 31 March 2023 was GBP354,000 (31
March 2022: GBP336,000) and is included above, representing
uncleared lodgements where money providers have notified transfers
pre-year-end.
14 Interest-bearing loans and borrowings
This note contains information about the Group's
interest-bearing loans and borrowing which are carried at amortised
cost.
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Non-current and Total
liabilities
Bank loans 19,000 28,000
19,000 28,000
Revolving Credit Facility
At 31 March 2023 bank loans were drawn loans under the Group's
three-year GBP35m Revolving Credit Facility ('RCF') with HSBC. This
facility was due to expire in April 2024 and is secured by a
debenture over the Group's assets.
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.
Changes in interest-bearing loans and borrowings
Year ended 31 March 2023 Year ended 31 March 2022
GBP000 GBP000
Opening balance 28,000 3,476
Changes from financing cash flows
Proceeds from loans and borrowings - 28,000
Repayment of borrowings (9,000) (3,507)
Total changes from financing cash flows (9,000) 24,493
Other changes
Interest expense (note 7) 1,127 524
Interest paid (1,080) (413)
Movement in interest accrual (included in accruals and deferred
income - note 18) (49) (111)
Fair value movement on loans 2 31
Total other changes - 31
Closing balance 19,000 28,000
Other bank facilities
Gear4music has a number of guarantees in relation to VAT, and
issues letter of credits to its suppliers. At 31 March 2023 the
Group had guarantees of GBP654,000 in place (31 March 2022:
GBP1,011,000) and letters of credit of GBP63,000 (31 March 2022:
GBP317,000).
15 Trade and other payables
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Current
Trade payables 9,300 9,472
Accruals and deferred
income 5,099 3,164
Deferred consideration 23 424
Government grants - 3
Other taxation and social
security 3,225 3,119
17,647 16,182
Non-current
Accruals and deferred
income 61 25
Deferred consideration 22 39
83 64
Year-end accruals and deferred income included:
- GBP1,907,000 (31 March 2022: GBP710,000) relating to customer prepayments; and
- GBP61,000 (31 March 2022: GBP24,000) relating to the estimated
cash bonuses accrued relating to the CSOP schemes.
The Directors consider the carrying amount of other 'trade and
other payables' to approximate their fair value. The interest
expense of GBP2,000 (2022: GBP31,000) in relation to the unwinding
of the discount is disclosed in note 6.
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 anniversary of the completion date. At 31 March
2023 two instalments remain unpaid. These amounts are valued in the
accounts at fair value and subsequently amortised.
In December 2022 the Group acquired AV Distribution Ltd for
GBP6,050,000 on a cash-free debt-free basis of which GBP400,000 was
deferred for six months whilst final tax matters were resolved. On
1 June 2022, GBP388,000 was paid in full and final settlement.
16 Lease liabilities
Short-term leases and leases of low value of GBP41,000 (31 March
2022: GBP21,000) are included in administrative expenses.
The Group has leases for motor vehicles, and six properties (31
March 2022: six). 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.
The table below describes the nature of the Group's leasing
activities by type of right-of-use asset:
Right-of-use No of Range of Average No of leases No of leases No of leases
asset right-of-use remaining remaining with extension with options with termination
assets term lease term options to purchase options
leased
Property 6 8 to 65-months 45-months - - 1
Motor vehicles 2 7 to 18-months 13-months - 2 -
Future minimum lease payments due at 31 March 2023 were as
follows:
Within 1 year 1-5 years More than 5 years
GBP000 GBP000 GBP000
Lease payments 2,093 7,634 117
Finance charge (223) (1,021) -
Net present value 1,870 6,613 117
Future minimum lease payments due at 31 March 2022 were as
follows:
Within 1 year 1-5 years More than 5 years
GBP000 GBP000 GBP000
Lease payments 2,102 7,926 1,178
Finance charge (435) (1,056) (31)
Net present value 1,667 6,870 1,147
Lease liabilities are presented in the statement of financial
position as follows:
31 March 2023 31 March 2022
GBP000 GBP000
Current 1,130 1,229
Non-current 7,470 8,455
Total 8,600 9,684
Changes in lease liabilities:
Year ended 31 March 2023 Year ended 31 March 2022
GBP000 GBP000
Opening balance 9,684 9,414
Cash flow lease payments (1,713) (1,952)
New leases 63 1,812
Modifications 566 410
Total changes (1,084) 270
Closing balance 8,600 9,684
17 Share capital and reserves
Year ended Year ended
31 March 31 March
2023 2022
Share capital Number Number
Authorised, called
up and fully paid:
Ordinary shares of
10p each 20,976,938 20,976,938
The Company has one class of ordinary share and each share
carries one vote and ranks equally with the other ordinary shares
in all respects including as to dividends and other
distributions.
Share premium
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
Opening 13,286 13,165
Issue of shares - 121
Closing 13,286 13,286
Proceeds received in addition to the nominal value of the shares
issued have been included in share premium, less registration and
other regulatory fees and net of related tax benefits.
Foreign currency translation reserve
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
Opening (74) (51)
Translation loss - (23)
Closing (74) (74)
The foreign currency translation reserve comprises exchange
differences relating to the translation of the net assets of the
Group's foreign subsidiaries from their functional currency into
the parent's functional currency.
Revaluation reserve
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
Opening 1,606 1,640
Freehold revaluation (550) -
Deferred tax 147 -
Depreciation transfer - (34)
Closing 1,203 1,606
The revaluation reserve represents the unrealised gain generated
on revaluation of the freehold office property in York on 28
February 2018, 31 March 2020 and 31 March 2023. It represents the
excess of the fair value over historic net book value.
Retained earnings
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
Opening 21,120 17,463
Share based payment
charge 245 55
Deferred tax - (155)
Depreciation transfer - 34
(Loss)/profit for the
year (644) 3,723
Closing 20,721 21,120
Retained earnings represents the cumulative net profits
recognised in the consolidated income statement.
18 Related parties
Transactions with key management personnel
The compensation of key management personnel is as follows:
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Key management emoluments including
social security costs 711 674
Short-term employee benefits 6 6
Company contributions to money
purchase pension plans 31 21
748 701
Key management personnel comprise the Chairman, CEO, CFO, CCO
and NEDs. All transactions with key management personnel have been
made on an arms-length basis.
Five directors are accruing retirement benefits under a money
purchase scheme (2022: five).
Compensation includes share-based payments of GBP110,000 (2022:
GBP118,000) in relation to the two LTIPs.
Share based payments
LTIP (2018)
On 31 July 2022 and further to confirmation the performance
conditions relating to the conditional share awards granted under
the Plan were not met, awards of 7,350 shares to Gareth Bevan,
6,300 shares to Andrew Wass and 6,300 shares to Chris Scott
lapsed.
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END
MSCSFIFUUEDSELM
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