TIDMTUNE
RNS Number : 8305H
Focusrite PLC
20 November 2018
Strictly embargoed until: 07.00, 20 November 2018.
Focusrite plc
("the Company" or "the Group")
Final Results for the Year Ended 31 August 2018
Focusrite plc (AIM: TUNE), the global music and audio products
company, announces Final Results for the year ended 31 August
2018.
Financial highlights
-- Group revenue grew by 13.7% (constant currency(1) : 15.3%) to
GBP75.1 million (FY17: GBP66.1 million)
-- EBITDA(2) grew by 18.1% to GBP15.5 million (FY17: GBP13.1 million)
-- Operating profit grew 26.1% to GBP11.9 million (FY17: GBP9.5 million)
-- Adjusted(3) operating profit grew 22.6% to GBP11.6 million (FY17: GBP9.5 million)
-- Diluted earnings per share grew 22.3% to 18.1p (FY17: 14.8p)
-- Adjusted(3) diluted earnings per share grew 18.9% to 17.6p (FY17: 14.8p)
-- Net cash of GBP22.8 million (FY17: GBP14.2 million)
-- Final dividend of 2.3p recommended, resulting in 3.3p for the year, up 22.2% on prior year
Operational highlights
-- Once again, we experienced growth in both major segments
(Focusrite and Novation) and in all reported geographic
regions.
-- In Focusrite, all major ranges (Scarlett, Clarett, Red and
RedNet) grew and the overall segment grew by 17.2%.
-- In Novation, the primary growth was in synthesisers following
the launch of Peak, while the more established ranges such as
Launch and Launchkey also grew, although at slower rates. Overall,
Novation grew by 6.4%.
-- New efforts and investments in localised field personnel,
marketing and support has increased net promoter scores (NPS) and
driven widespread growth.
-- All major geographic regions grew: North America was up by
10.2%; Europe, Middle East and Africa by 18.1%; and the Rest of
World by 13.3%.
-- Five new products launched over the year.
-- The software team continues to progress along its widened
strategy of software development for both its own apps and the
broader product development within the Group.
-- The e-commerce website is delivering products globally as
part of the Group's efforts to ensure that customers can access the
Group's products wherever they are in the world.
1 Constant currency revenue growth is calculated by taking the
sterling value of FY18 revenue, converting to FY17 annual average
exchange rates and comparing with the reported revenue for FY17. In
addition, all foreign exchange movements disclosed in revenue are
excluded from both years.
2 Comprising of earnings adjusted for interest, taxation,
depreciation and amortization.
3 Adjusted for non-underlying items (see note 4).
Chief Executive Officer Tim Carroll said:
"We are very pleased to present a set of results where growth is
the overarching theme: both Focusrite and Novation segments have
grown; as have all major geographic regions.
This set of results is a testament to the solid momentum that we
have worked hard to achieve and, while this is important, at
Focusrite we are always looking to the future to ensure our
continued success.
Importantly, we continue to see strong market and reseller
acceptance across our expanding portfolio, which highlights the
strength of our brands, and our new product pipeline continues to
grow."
Executive Chairman Phil Dudderidge said:
"I am delighted Focusrite plc has delivered another record
year.
I am very proud to have built a company that plays a long game.
Focusrite is in its 30(th) year and has grown to become a global
leader in recording hardware technology.
As a market leader, we continue to evolve and to that end the
Group is also researching tools for the future direction of music
recording, improving ease of workflow for the professional musician
and ease of use for the musician for whom recording is a new skill
to be developed.
Our history of being at the forefront of innovation in music
technology, along with the fact that we have an established, global
customer base, market-leading brands and a strong corporate
culture, make us well placed for the future."
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31
August 2018 and notice of the Annual General Meeting ("AGM") of
Focusrite will be posted to shareholders by 28 November 2018 and
will be available on Focusrite's website at
www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which is
being sought at Focusrite's Annual General Meeting to be held on 21
December 2018.
The timetable for the final dividend is as follows:
27 December 2018 Ex-dividend Date
28 December 2018 Record Date
21 December 2018 AGM to approve the recommended final dividend
18 January 2019 Dividend payment date
- ends -
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 836301
Jeremy Wilson (CFO) +44 1494 836301
Panmure Gordon
Freddy Crossley +44 20 7886 2500
Erik Anderson +44 20 7886 2500
Belvedere Communications
John West +44 20 3687 2753
Kim Van Beeck +44 20 3687 2757
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 (MAR)
Notes to Editors
Focusrite plc is a global music and audio products group that
develops and markets proprietary hardware and software products.
Used by audio professionals and amateur musicians alike, its
solutions facilitate the high-quality production of recorded and
live sound. The Focusrite Group trades under four established and
rapidly growing brands: Focusrite, Focusrite Pro, Novation and
Ampify.
With a high-quality reputation and a rich heritage spanning
decades, its brands are category leaders in the music-making
industry. Focusrite and Focusrite Pro offer audio interfaces and
other products for recording musicians, producers and professional
audio facilities. Novation and Ampify products are used in the
creation of electronic music, from synthesisers and grooveboxes to
industry-shaping controllers and inspirational music-making
apps.
The Focusrite Group has a global customer base with a
distribution network covering approximately 160 territories.
Focusrite is headquartered in High Wycombe, UK, with marketing
offices in Los Angeles and Hong Kong. Focusrite plc is traded on
the AIM market, London Stock Exchange.
Chairman's Statement
I am incredibly proud to introduce the 2018 Report and Accounts
of Focusrite Plc and subsidiaries in what has once again been a
record year for the Company.
Focusrite plays a long game. The business is in its 30(th) year
and has become a global leader in recording hardware technology.
Under the Focusrite brand, and working with Avid Pro Tools and
Ableton Live recording software brands, we have gone from strength
to strength and after the acquisition of Novation in 2004 the Group
has grown to become a leading brand in the electronic music
creation world.
This is the first full year since the appointment of Tim Carroll
as Chief Executive Officer, a position he has held since January
2017. I am delighted to report that his appointment is recognised
across the firm, suppliers and our customers as a great success. As
this report indicates, he is leading a number of initiatives that
support our growth strategy.
The Company continues to be highly cash generative, with net
cash of GBP22.8 million at the year end, building an ability to
pursue an acquisition strategy that we have aspired to since the
IPO in December 2014. To that end we have appointed a Business
Development Manager to coordinate and analyse opportunities as they
arise and to identify appropriate businesses that might fit a
Focusrite Family of complementary brands. We have rejected
propositions that did not meet our tests of profitability and cash
generation as we have clear goals as to the nature and performance
potential of any business that might qualify for acquisition.
In addition to Ampify apps for the Apple iOS platform, the
London-based software unit is also developing new products to
complement Focusrite and Novation hardware on Mac and PC. As a
market leader, we continue to evolve and to that end the Group is
also researching tools for the future direction of music recording,
improving ease of workflow for the professional musician and ease
of use for the musician for whom recording is a new skill to be
developed.
Our business is predicated on the commitment of over 200 people
around the world. In addition to the usual head office activities,
the 150 UK employees are focused on product development, customer
support, sales and marketing. Our subsidiary, Focusrite Novation
Inc. based in Los Angeles, supports the US market with marketing,
customer support and retail channel communication. Similarly, other
regional representatives in Germany, Hong Kong and Mexico (for
Latin America) support their local regions with sales management,
marketing and customer support.
I would like to take this opportunity to acknowledge all our
employees for their commitment and skills, each of whom makes an
essential contribution to our success. Permanent employees are
participants in share option schemes. This has proved rewarding to
employees who are motivated to see the Company prosper for the
benefit of all shareholders, themselves included.
This year, we welcomed Naomi Climer to the Board. Naomi has a
huge amount of highly relevant technical and industry experience
and we are delighted that she has joined us as a Non-executive
Director. The Group aspires to high standards of corporate
governance and I would like to take this opportunity to thank all
of our Non-Executives for their wise guidance, counsel and
acknowledge the variety of different skills and broad experience
that they bring to the Board.
Finally, I would also like to acknowledge our excellent
commercial partners. We have three principal vendors that
manufacture our products to the highest standards of quality and
reliability; our logistics partners that reliably handle physical
distribution from factory to local distribution warehouses and
onwards to our customers; and our third-party distributors who
market our products in their own national territories.
We look forward to the coming years with enthusiasm for our
industry, our customers, our employees, our partners around the
world, and with an appreciation of our shareholders who invest in
our vision of constant innovation and growth, as we continue
'Enriching Lives Through Music'.
Phil Dudderidge
Founder and Executive Chairman
Chief Executive's Statement
Introduction: innovation at our core
I am very pleased to update our shareholders on our record year
of performance, with all key metrics showing growth. The Group has
had another year of operational and financial success that extends
across our portfolio as well as on a regional basis, with all
reported regions showing growth.
This year has seen the launch of five new products, a host of
upgrades to our existing portfolio, and investments in many new
systems, people and resources to continue to drive our growth
strategy.
Our employee footprint, growing this year to 210, continues to
expand in our High Wycombe headquarters as well as our offices in
London, Los Angeles and Hong Kong, with further employees in
Germany and Mexico. We are fortunate to have so many employees
globally that have a real passion for music and audio; many being
musicians, audio engineers, or DJs themselves using our products in
real-world environments every week. It continues to be a great
pleasure and privilege to help guide and lead them, and I thank
them for their hard work and dedication.
Our Operations
The Group's products are sold in approximately 160 territories
and countries all over the world. We utilise an effective mix of
retailers - online and 'bricks and mortar' locations, distributors
in select areas, a hybrid approach in North America utilising a
wholesale distributor with our own demand generation team, and
direct business to consumer with our own e-commerce store and
in-app software purchases.
We sold approximately 900,000 physical products to end-users
last year, and our music creation apps were downloaded over 2
million times with over 750,000 in-app customer transactions. Our
manufacturing partners are located in South China and we use
third-party logistics support.
Our market
The global audio production market remains a growth sector for
technology companies like Focusrite. Our products and solutions are
key components for many personal and professional audio recording
customers and musicians, allowing them to focus on the creative
process. Alongside that, we recognise the opportunity to continue
to make audio recording technology easier to use and more
accessible to a larger addressable market.
While we lead the market in many product categories, we
continuously seek ways to grow our core business while also
exploiting opportunities to expand into adjacent product categories
that would make commercial and strategic sense for the business.
Focusrite is pursuing these opportunities with organic development
as well as by acquisition.
Sales of our second-generation Scarlett USB audio interface
range remained strong with 15% growth, increasing in overall market
share from what was already a very high position.
RedNet is well poised to help any professional or facility scale
their production capability; a vital component for success as we
see sweeping increases in original content production, live sound
events and multi-format on-air shows.
To that end, and to ensure we focus all of our resources and
energy with precision, we have refined our customer personas into
five core categories. We have identified 'The New Creator', a
customer who might have little or no music knowledge; the
'Passionate Maker', someone who may or may not play a traditional
instrument but wants to make 'good' music; the 'Serious Aspiring
Producer', for whom music is more than just a hobby; and the
'Master' and 'Facility' personas - highly skilled musicians, audio
engineers, or business entities focused on audio production.
Operating review of another record year
This year has seen further operational progress, and this has
translated into financial success with careful management of our
cost base and a focus on cash generation. Revenues grew by 13.7% to
GBP75.1 million and gross margin grew from 39.9% to 42.2%,
resulting in an operating profit of GBP11.9 million, representing
year-on-year growth of 26.1%.
This positive performance has been driven by a number of
factors. We have witnessed a wider market acceptance and growth of
share in many of our core products. New product introductions over
the course of the year resonated well with customers and provided
incremental lift. Likewise, customer and sales channel satisfaction
feedback remains strong on existing products illustrated by our top
net promoter scores ('NPS') for individual products.
Additionally, we have begun to see positive results from many of
our IT-based initiatives that we funded over the year: enhanced
websites, social media demand generation, and localized online
experiences in markets such as Japan, Mexico and Germany.
We continue to invest in talented and passionate people across
the globe to support our business in sales, marketing, customer
support and product development. We now have two full-time
employees in Latin America and have increased our UK, German, Hong
Kong and US hires to support the business.
Throughout this year we have witnessed several events, namely
ongoing Brexit negotiations and the imposition of US tariffs, that
require scrutiny to ensure the business is well prepared to
mitigate any possible associated effects. The Group has spent
considerable time weighing options and in some instances, such as
for the US tariffs, are already acting to protect the profitability
of the business. We believe we are well prepared for these events
and further comment is included in the section on Principal Risks
and Uncertainties.
Segmental Review
Focusrite
Within Focusrite, our Scarlett, Clarett and RedNet ranges all
grew, leading to total segment revenue growth of 17.2%. In each
category we increased market share and experienced growth beyond
the industry norms.
Sales of our second-generation Scarlett USB audio interface
range remained strong with 15% growth and grew in overall market
share from what was already a high market share. This product line
remains the number one selling audio interface product in the world
and has earned the reputation as a best-in-class, premium solution
at affordable pricing. The build quality, highly-skilled Mac and
Windows driver development and well thought out suite of recording
software tools make this the perfect solution for the new creator
and aspiring producer.
Focusrite was honoured to have won our fourth Queen's Award this
year for innovation for our Scarlett Gen 2 line.
The Clarett range continues to set new price/performance
standards in our mid-range interface offerings. Created for both
the aspiring and professional recordist, Clarett has disrupted the
market with a price to performance mix that is unparalleled in the
industry. Refreshing the line with a new USB range this year, we
have widened our opportunity base and have seen pleasing growth
from this part of our portfolio.
Our commercial and pro-audio range, led by RedNet, is gaining
momentum as applications for its use and potential customers grow,
especially in post production, education, installed sound and
broadcast markets. Major broadcasters such as NBC, and Hollywood
post-production facilities such as Formosa Group, have started
implementing RedNet into their production workflows to reap
numerous benefits in efficiency, costs and productivity. RedNet is
well poised to help any professional or facility scale their
production capability; a vital component for success as we see
sweeping increases in original content production, live sound
events and on multi-format distribution on-air shows.
Novation
The Novation product line is all about the creation and
production of electronic music. Electronic music and its many
genres has democratised music making in a powerful way, vastly
widening the net of potential music makers. Our Launchpad,
Launchkey, and synthesiser product categories all experienced
growth, with overall growth in this business segment of 6.4%.
Launchpad continues to be a powerful and widely accepted
creation and performance tool for electronic music. We have seen a
continued growth of customers purchasing Launchpad that are just
starting their journey into electronic music making. This, coupled
with larger penetration from online distribution channels such as
Amazon, has driven demand for Launchpad and made Novation an
integral part of many electronic musician's workflows.
Our Launchkey family of keyboard controllers also enjoyed
year-on-year growth. With an intuitive feature-set and extensive,
integrated control features with top music-making software such as
Ableton Live, Launchkey delivers a set of differentiated features
that appeals to many music makers and performers.
Our family of professional synthesisers complete the Novation
family of products. Synthesisers have been core to the Novation
brand since inception and have developed a reputation as
cutting-edge instruments that add a unique pallet of sounds and
colour to an artist's production. Our new flagship synthesiser,
Peak, has seen widespread adoption and won numerous accolades from
the industry as a true next-generation synthesiser; building on the
legacy of the Novation brand and its many famous, earlier
synthesiser products.
Ampify develops powerful yet brilliantly simple music creation
tools for new creators. Requiring no more than an iOS device, our
apps allow anyone to create amazing music tracks in a wide variety
of styles. Our apps consistently rank in the top ten for music
creation tools on Apple's app store and are currently included on
products displayed in Apple stores worldwide. We are investing
substantially in Ampify, as we aim to grow the Company's own
software capability and 'leverage' software to further our ability
to enable creative workflows for users at all levels.
We are extremely proud that our apps have now been downloaded
over 9.5 million times and this is an indication of the strength
not only of our software products but the size of the market
opportunity.
Distribution
We are happy to report that revenue from this segment grew by
8.4% over the prior year. These products, such as KRK monitors and
sE Electronics microphones, are a small overall proportion of Group
revenue but remain important to us as they offer add-on products
within the music-making industry and provide us with invaluable
market feedback, insight and knowledge.
Geographic overview
I am pleased to report that our success this year was global and
sales in all our major regions grew. North America finished with a
10.2% rise in revenue when compared with last year. Europe, Middle
East and Africa experienced 18.1% growth. Rest of World finished
the year with 13.3% year-on-year growth.
North America
The US market, which accounts for approximately 41% of total
Group revenue, grew by 11%. This growth was realised in all product
categories. The US had a very strong first half with the holiday
season showing robust sales for our more retail-oriented products
such as Scarlett and Launchpad. The second half also experienced
year-on-year growth but, as predicted, at a slower rate than the
first half. We continue to invest in our US demand generation and
customer support team, and have successfully moved into a new Los
Angeles location to accommodate our growth.
Canada, which accounts for approximately 2% of Group revenue was
flat year-on-year. We are increasing our investment into this
region this coming year by utilising our demand generation teams in
the US and expect to see solid growth out of the region in
future.
Europe, Middle East and Africa ('EMEA')
EMEA, which represents approximately 40% of Group revenue, had a
successful year with strong growth performance in all major product
categories. Including the UK and mainland Europe, the region is
comprised of direct resellers, distributors and our own e-store. We
have offices in the UK and a team in Germany to support our
European business.
Rest of the World
Within the Rest of the World region, Asia-Pacific had a good
year with 19% growth. We continue to invest in people for the
region and our Hong Kong office is now fully functional and
integrated with our Company systems, including local and 'follow
the sun' customer support.
This year was an investment year for Latin America as we made
our first full-time hires for Mexico and Brazil, as well as new IT
infrastructure to support localised content and transactions. These
new hires came on board late in the financial year, but early signs
are positive, as is feedback from our new localised customer
experience. We view Latin America as an area with significant
growth potential and will continue to assign resources over the
course of this year.
Growth drivers
Innovation is clearly a key focus for us and has been a key
driver of growth. We continue to spend approximately 6% of revenue
on R&D so as to provide a constant stream of new and relevant
products for our various customer channels.
During the year we launched five new hardware products and
numerous software/firmware updates to expand and enhance our
product offerings. These new products are across different price
segments and target different customer markets, giving us further
penetration and reach. Feedback from the consumer, retailer and
distribution channels continues to be positive and acceptance so
far has been very pleasing.
We regularly update and enhance our offerings to improve the
creative workflow, maintain world-class customer service and make
our solutions easier to install and use, generating
industry-leading NPS and overall customer experience
statistics.
Another key part of our drive towards growth is our e-commerce
store with special emphasis on markets where we see an opportunity
to augment local distribution with localised content, language
support and swift delivery to end-users. Currently our e-commerce
business is about 1% of Group revenue. However, the e-store is also
a powerful marketing tool and, in many countries, helps support the
local reseller channel as well with its reseller locator
features.
We continue to refine and improve the 'out-of-the-box'
experience for all our customers, beginners and professionals
alike. We believe that a great first experience with our products
is paramount to our overall success.
Summary and outlook
We are focused on three core goals: growing our customer base;
increasing the lifetime value of our customers; and expanding into
new market segments. To achieve this, we will continue to innovate,
disrupt, grow our audience and help all our customers, from
beginners to professionals, remove barriers from the creative
process of music creation and audio recording.
There is much change in the trading environment, providing risk
and some opportunity: changes in technology and new customer
requirements can emerge quickly, macroeconomic and political
factors affect our end customers and distributors alike and
competitive pressures remain strong. We manage these factors
proactively.
Last year, we had a record period pre-Christmas driven by a
burst of demand for the Group's more consumer-oriented products
such as Launchpad, resulting in a weighting in favour of the first
half. As anticipated, trading in the first few months of this
financial year has been broadly similar to the results achieved in
the same period last year. The Board expects the current year to
follow the Group's more usual seasonal pattern and, at this early
stage, believes that Focusrite is well placed to deliver further
growth for shareholders.
Tim Carroll
Chief Executive Officer
Financial Review
Overview
The Group has generated growth of 13.7% in revenue, growth of
18.1% in EBITDA and growth of 18.9% in adjusted diluted earnings
per share ('EPS').
The Group has regularly reported longer-term growth. Since FY09,
the overall revenue growth is 729%, or if you prefer, 26.4%
compound; all of which has been organic.
Income statement
Revenue
Revenue grew 13.7% (15.3% at constant exchange rates) from
GBP66.1 million to GBP75.1 million.
The Focusrite segment comprises the products used in the
recording and broadcasting of music. The primary ranges are
Scarlett, Clarett, Red and RedNet. All ranges grew in revenue.
Scarlett, which is approximately three-quarters of the revenue in
this segment, increased by 15%. As a segment, Focusrite increased
by 17.2%, from GBP44.6 million to GBP52.2 million, as the Group
launched further products in the Clarett and Red ranges in addition
to further Scarlett second-generation growth in market share.
The Novation segment is directed towards the creation of music
and consists of the Novation and Ampify brands. About half of this
segment relates to the Launchpad range although the star product
this year was the new synthesiser (Peak). Peak was launched in 2017
and helped our sales of synthesisers to grow by 46%, while the
bigger ranges such as Launchpad and Launchkey grew more slowly. The
segment revenue was GBP20.1 million, up 6.4% on GBP18.9 million
last year.
Finally, in the UK, the Group distributes products such as
studio monitors and microphones manufactured by other
organisations. Revenue was GBP2.9 million, up 8.4% from GBP2.6
million in 2017.
All the major regions grew. North America is 43% of the Group
and grew at 10.2% (constant currency: 17%) to GBP32.7 million.
North America is biased towards the Focusrite brands versus
Novation (Focusrite is 76% of the total revenue). The growth was
across all brands although Pro was the strongest, growing at
24%.
Europe represents 40% of Group revenue. Europe grew 18.1%
(constant currency: 11%) to GBP29.7 million. Within Europe, UK was
weaker, while EMEA grew more strongly. For the brands, Focusrite
was strong.
The Rest of the World ('ROW') comprises mainly Asia and South
America and is the remaining 17% of Group revenue. This has been a
key area of investment as the Group has opened a sales and
marketing office in Hong Kong and now employed a full-time regional
sales manager in Mexico. ROW grew by 13.3% (constant currency: 21%)
to GBP12.7 million. Within this region the faster growth was within
Focusrite.
Exchange rates were more stable this year. In FY17, GBP
weakened, which helped the result: reported revenue growth was
21.6% and constant exchange rate growth was 13%. In FY18, foreign
exchange rates represented a minor headwind. In particular, the US
Dollar weakened from an average of $1.27 = GBP1 to $1.35 = GBP1.
Therefore, constant exchange rate revenue growth (15.3%) was
stronger than reported growth (13.7%).
Furthermore the Board are aware of the possible results of the
Brexit discussions and the effect that the resultant agreement will
have on the Euro/GBP exchange rate. This effect would be mitigated
partially by the Group's hedging arrangements: the Group aims to
hedge 75% of net Euro flows in the coming financial year, and 50%
in the following financial year.
Segment profit
Segment profit is disclosed in the note to the accounts,
'Business Segments'. For each reportable segment, Focusrite,
Novation and Distribution, the revenue is compared with the
directly attributable costs to create a segment profit.
The segment profit for Focusrite was GBP25.1 million (2017:
GBP20.2 million). This increased by 24.2% over the prior year,
driven primarily by revenue growth and higher gross margin. The
segment profit for Novation was GBP10.1 million (2017: GBP9.2
million). This increased by 9.4% over the prior year. Finally, the
segment profit for Distribution was GBP0.8 million (2017: GBP0.7
million).
Gross profit
While revenue grew by 13.7%, gross profit grew by 20.2% to
GBP31.7 million. This was a function of the higher revenue and a
higher gross margin. Gross margin was 42.2% (FY17: 39.9%). The
significant increase in gross margin was due to the stronger Euro
and closer management of customer discounts.
Administrative expenses
Administrative expenses consist of sales, marketing, operations,
the uncapitalised element of R&D and central functions such as
legal, finance and the Group Board. These expenses were GBP19.7
million, up from GBP16.9 million last year. Again, the major part
of the growth was in sales and marketing, including the Focusrite
Pro sales team, further investment in the Hong Kong office, further
investment in e-commerce and marketing expenditure, especially
on-line marketing.
EBITDA
EBITDA is used within the Group for two particular reasons.
Firstly, it is a widely-used measure of underlying trading
performance, enhancing comparability between industries. Secondly,
it forms the basis of much of the incentivisation of senior
management within the Group. EBITDA increased by 18.1% to GBP15.5
million (FY17: GBP13.1 million).
Depreciation and amortisation
Depreciation is charged on tangible fixed assets on a
straight-line basis over the assets' estimated useful lives,
normally ranging between 2 and 5 years.
Amortisation is mainly charged on capitalised development costs,
writing off the development cost over the life of the resultant
product. It is intended that the costs are capitalised cautiously
and amortised quickly, with all development costs related to an
individual product written off over a period up to three years. In
the year, the development costs capitalised were GBP3.0 million
(FY17: GBP2.7 million) and the equivalent amortisation was GBP2.4
million (FY17: GBP2.8 million).
Non-underlying item
The Group has considered the amortisation of research and
development intangible assets on a project-by-project basis rather
than applying a standard principle across all. This change of
estimation of the start date of amortisation has resulted in a
single adjustment to reduce the amortisation previously charged by
GBP0.3m and has been shown as a non-underlying item in FY18. There
were no non-underlying items in FY17.
Income statement
2018 2018 2018 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------
Adjusted Non-underlying Reported Adjusted Non-underlying Reported
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Revenue 75.1 - 75.1 66.1 - 66.1
Cost of sales (43.4) - (43.4) (39.7) - (39.7)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Gross profit 31.7 - 31.7 26.4 - 26.4
Administrative expenses (20.1) 0.3 (19.8) (16.9) - (16.9)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Operating profit 11.6 0.3 11.9 9.5 - 9.5
Net finance income (0.2) - (0.2) (0.0) - (0.0)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Profit before tax 11.4 0.3 11.7 9.5 - 9.5
Income tax expense (1.2) (0.0) (1.2) (0.9) - (0.9)
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Profit for the period 10.2 0.3 10.5 8.6 - 8.6
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
2018 2018 2018 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------
Adjusted Non-underlying Reported Adjusted Non-underlying Reported
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Operating profit 11.6 0.3 11.9 9.5 - 9.5
Add - amortisation of intangible
assets 3.1 (0.3) 2.8 2.9 - 2.9
Add - depreciation of tangible
assets 0.8 - 0.8 0.7 - 0.7
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
EBITDA 15.5 - 15.5 13.1 - 13.1
---------------------------------- --------- --------------- --------- ---------- --------------- ----------
Foreign exchange and hedging
The exchange rates have been more consistent in the last
financial year.
Exchange rates 2018 2017
---------------- ----- -----
Average
USD:GBP 1.35 1.27
---------------- ----- -----
EUR:GBP 1.13 1.16
---------------- ----- -----
Year end
---------------- ----- -----
USD:GBP 1.30 1.29
---------------- ----- -----
EUR:GBP 1.12 1.09
---------------- ----- -----
The average US Dollar rate has weakened from $1.27 to $1.35. The
US Dollar accounts for approximately 60% of Group revenue so this
reduces the revenue growth. However, the Group also buys product in
US Dollars and has some US Dollar operating costs so there is a
natural hedge. Therefore, the US Dollar weakening reduced revenue
but had little effect on gross profit.
The Euro comprises approximately a quarter of revenue but little
cost. The Group enters into forward contracts to convert Euro to
GBP. In FY17, approximately three-quarters of Euro flows were
hedged at EUR1.28, thereby creating a blended exchange rate of
approximately EUR1.26. In FY18, the equivalent hedging contracts
were at EUR1.12, being very close to the transactional rate of
EUR1.13 and so creating a blended exchange rate of EUR1.12.
Hedge accounting is used, meaning that the hedging contracts
have been matched to income flows and, providing the hedging
contracts remain effective, movements in fair value are shown in a
hedging reserve in the balance sheet, until the hedge transaction
occurs.
The major part of the balance within financing costs was the
cumulative foreign exchange loss on the translation of cash held in
US Dollars.
Corporation tax
Corporation tax as a proportion of profit before tax was 10.3%
(FY17: 10.1%). The major part of the Group's profits are taxed in
UK, where the headline rate is 19%. The effective tax rate is lower
than this headline rate, due largely to enhanced tax relief on
R&D costs.
Earnings per share
The basic EPS for the year was 18.4 pence, up 19.5% from 15.4
pence in FY17. This rise was driven largely by the rise in profit,
but also included the impact of a non-underlying item in FY18. The
more comparable measure, excluding non-underlying items and
including the dilutive effect of share options, is adjusted diluted
EPS. This was 17.6 pence, up 18.9% from 14.8 pence in FY17.
Earnings per share
2018 2017 Growth
P P %
------------------ ----- ----- -------
Basic 18.4 15.4 19.5%
Diluted 18.1 14.8 22.3%
Adjusted basic 18.0 15.4 16.9%
Adjusted diluted 17.6 14.8 18.9%
------------------ ----- ----- -------
Balance sheet
2018 2017
GBPm GBPm
----------------------------- ------- ------
Non-current assets 7.3 6.3
Current assets
Inventories 11.4 8.3
Trade and other receivables 13.4 13.0
Cash 22.8 14.2
Current liabilities (11.1) (8.7)
Non-current liabilities (0.4) (0.2)
----------------------------- ------- ------
Net assets 43.4 32.9
----------------------------- ------- ------
Cash flow
2018 2017
GBPm GBPm
Free cash flow(1) 10.0 9.4
Add - non-underlying cash outflows 0.0 0.1
------------------------------------ ----- -----
Underlying free cash flow 10.0 9.5
------------------------------------ ----- -----
(1) Defined as net cash from operating activities less net cash
used in investing activities.
Balance sheet
Non-current assets
The non-current assets comprise mainly capitalised development
costs; property, plant and equipment; and software. Approximately
70% of development costs are capitalised and they are amortised
over three years. This policy is unchanged from last year.
Working capital
Working capital was stable at 18.2% of revenue (FY17: 19.1%).
Experience over the four years since the IPO suggests that this is
an appropriate level. If the working capital is closer to 25% of
revenue, the cash generation is reduced and there is likely to be
too much stock. If the working capital falls closer to 15% of
revenue, it is likely that some stock may be running low.
The improved business practices around stock have been
maintained. Stock was increased from GBP8.3 million to GBP11.4
million. The majority of this increase was to support the increase
in demand.
Customers continue to pay essentially on time with only 5% of
customer debts overdue at the year end. Finally, suppliers are paid
on time.
Cash flow
The total cash balance year end was GBP22.8 million, up from
GBP19.7 million at the half year and GBP14.2 million at 31 August
2017. There was no debt in either year. The movement in working
capital was a small outflow of GBP0.4 million (FY17: inflow of
GBP0.4 million). Given that revenue increased by GBP9.1 million,
the movement in working capital was very low. If working capital is
approximately 20% of revenue, then barring any extenuating
circumstances, it would be reasonable for the movement in working
capital to be an outflow of 20% of the increase in revenue, so the
movement in working capital this year is a positive result. Free
cash flow was again strong, at GBP10.0 million (FY17: GBP9.4
million), which represented 13.3% of revenue (FY17: 14.3%). Since
IPO, the average free cash flow as a percentage of revenue has been
9.9%. Finally, the Group has a committed five-year GBP10 million
revolving credit facility with HSBC, expiring in December 2020.
Dividend
The Board is proposing a final dividend of 2.3 pence per share
(FY17 final dividend: 1.95 pence), which would result in a total of
3.3 pence per share for the year (FY17: 2.7 pence). This represents
an adjusted earnings dividend cover of 5.3 times (FY17: 5.5 times)
and moves the Group closer to its stated target of 5 times.
Summary
The Group has had another strong year with growth across
revenue, profits, cash and dividend. Revenue has grown by 13.7%,
EBITDA by 18.1%, adjusted operating profit by 22.6% and adjusted
diluted EPS by 18.9%. In addition, the free cash flow has been
strong and the cash balance has been increased from GBP14.2 million
to GBP22.8 million. The strategy is clear and we press on.
Jeremy Wilson
Chief Financial Officer
Principal Risks and Uncertainties
Risk factors
In common with all businesses, the Group faces risks, the
effective management of which is necessary to enable it to achieve
its strategic objectives and secure the resilience of the business
for the long term. Management of risk is critical to the effective
running of the business and is considered as part of the Group's
decision-making processes.
Risk area Description Mitigation
--------------------- --------------------------------- ----------------------------------------
Economic environment The Group operates in the The Group sells products
global economy and ultimately at all levels of the market
within the retail environment in c.160 territories worldwide
with products being sold via two distinct product
to consumer end-user musicians. categories and is working
Such operations are influenced to reduce reliance on any
by global and national single product or territory.
economic factors.
--------------------- --------------------------------- ----------------------------------------
Macro-economic The impact of the decision The Group is positioning
changes affecting to exit the European Union itself to be able to react
the ease and remains uncertain. There to the uncertainties faced
cost of moving has already been foreign by the business. The Group
stock between exchange volatility. It has previously increased
countries is probable that the UK selling prices in the UK
will not be part of the to correct the imbalance
customs union and the Group caused by the significant
anticipates the imposition foreign exchange rate changes,
of some additional duties and will continue to monitor
and minor disruption to other possible effects of
the logistics network. Brexit and act accordingly
as they become known.
In September 2018 the USA
implemented tariffs of The Group has increased the
10% (potentially rising minimum advertised price
to 25% in January 2019) to cover the additional tariffs.
on the importing of most This provides a possible
products manufactured in upside from the higher price
China. The Group has product charged but an uncertainty
manufactured in China, regarding the effect of the
so selling product in the higher price on consumer
US will become more expensive. demand.
--------------------- --------------------------------- ----------------------------------------
Technological The market for the Group's R&D remains one of the Group's
changes, product products is characterised largest investments. The
innovation and by continued evolution Group has a bespoke project
competition in technology, evolving system that facilitates the
industry standards, changes operation of a rigorous,
in customer needs and frequent disciplined product introduction
new competitive product process to ensure that as
introductions. If the Group far as possible the fast-changing
is unable to anticipate needs of its target markets
or respond to these challenges are met. In addition, the
or fails to develop and Group continuously seeks
introduce successful products efficiencies and minimises
on a timely basis, it could costs where possible.
have an adverse impact
on the Group's business
and prospects.
--------------------- --------------------------------- ----------------------------------------
Dependence on The Group is dependent The Group has supply agreements
a small number on a small number of suppliers, with four major Chinese manufacturers.
of suppliers in particular its largest The Group works with its
supplier, which supplies resellers and distributors
Focusrite interfaces. Failure to ensure they are holding
or material delay by its sufficient stock levels should
suppliers to perform or there be disruption to the
failure by the Group to supply chain. Relationships
renew such arrangements are long-lasting and strong.
could have a material adverse Members of the operations
effect on the Group's business, department within Focusrite
operating results and financial meet each supplier three
position. to four times per year to
review performance and costs.
--------------------- --------------------------------- ----------------------------------------
Key resellers In certain countries, including In cases where there is a
and distributors the USA, the Group operates large distributor in a significant
via a single distributor market, the Group also communicates
or has large individual with the major retailers.
reseller customers. In In addition, the Group carefully
certain cases, a failure monitors customer credit
of or breakdown in the limits and has credit insurance
relationship with a key which typically covers the
reseller or distributor, majority of the customer
or even the failure of debts outstanding at any
a major customer of that point in time.
distributor, could significantly
and adversely affect the
Group's business.
------------------------ ------------------------------------- -----------------------------------------
Development of Significant change in the The Group or its distributors
the channels methods by which end-users sell to both 'bricks and
to market wish to buy Focusrite products mortar' and e-commerce retailers
could significantly affect so that the Group can satisfy
the Group's business. customer demand via both
methods.
------------------------ ------------------------------------- -----------------------------------------
Currency risks The Group is exposed to There is a largely effective
currency and exchange rate natural hedge for US Dollar
fluctuations which may transactions as the Group
affect the Group's revenue uses its generation of US
and costs when reported Dollars to buy product in
in Sterling. US Dollars. In addition,
the Group mitigates its Euro
exposure by entering into
forward foreign exchange
hedging contracts for the
conversion of Euros to Sterling.
------------------------ ------------------------------------- -----------------------------------------
Scarcity of experienced The nature of the Group's The Group is a leading company
technical personnel business requires its employees in the UK music industry
in the technical and so attracts high-quality
and development teams to technical personnel. The
be highly skilled and experienced Group also attracts graduates
in their respective fields. from music technology, electronics
The Group is dependent and engineering courses at
for its continued success renowned universities. The
on being able to attract, Group invests in developing
retrain and motivate such its employees and incentivises
individuals. them through wide-ranging
share ownership incentives
and other employment benefits
to aid retention.
------------------------ ------------------------------------- -----------------------------------------
Intellectual The intellectual property The Group has established
property and and data developed by the a programme for protecting
data protection Group is valuable and the its intellectual property
Group could be harmed by and pursues infringements.
infringement or loss. The Group has data and information
technology controls which
are reviewed by the Group
Board. Additionally, the
Group includes data protection
provisions in the contracts
of all Group employees.
-------------------------- --------------------------------------- -------------------------------------
Information security Information security and The Group has carried out
cyberthreats are currently a detailed review of IT systems
a priority across all industries to identify elements requiring
and remain a key government upgrade. There has already
agenda item. been a widespread upgrade
of core IT functionality
including cybersecurity (firewalls,
anti-virus, mobile device
management) and the implementation
of backup and disaster recovery
processes. The Group has
moved core enterprise resource
planning systems to the cloud
with robust service level
agreements in place to ensure
data availability and security.
The Group implemented a customer
relationship management system
to ensure GDPR compliance.
There is an improving business
continuity framework and
a dedicated internal IT support
team aided by external support
providers.
-------------------------- ------------------------------------- ---------------------------------------
FORWARD LOOKING STATEMENTS
Certain statements in this full year report are forward looking.
Although the Directors believe that their expectations are based on
reasonable assumptions, any statements about future outlook may be
influenced by factors that could cause actual outcomes and results
to be materially different.
Consolidated Income Statement
For the year ended 31 August 2018
Note 2018 2017
GBP'000 GBP'000
-------------------------------------------------- ----- --------- ----------------------
Revenue 1 75,121 66,055
Cost of sales (43,447) (39,704)
-------------------------------------------------- ----- --------- ----------------------
Gross profit 31,674 26,351
Administrative expenses (19,732) (16,881)
-------------------------------------------------- ----- --------- ----------------------
EBITDA (non-GAAP measure) 15,485 13,109
Depreciation and amortisation (3,872) (3,639)
Non-underlying items 4 329 -
-------------------------------------------------- ----- --------- ----------------------
Operating profit 11,942 9,470
-------------------------------------------------- ----- --------- ----------------------
Finance income 4 86
Finance costs (274) (44)
-------------------------------------------------- ----- --------- ----------------------
Profit before tax 11,672 9,512
Income tax expense 5 (1,199) (959)
-------------------------------------------------- ----- --------- ----------------------
Profit for the period from continuing operations 10,473 8,553
-------------------------------------------------- ----- --------- ----------------------
Earnings per share
From continuing operations
Basic (pence per share) 7 18.4 15.4
-------------------------------------------------- ----- --------- ----------------------
Diluted (pence per share) 7 18.1 14.8
-------------------------------------------------- ----- --------- ----------------------
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
------------------------------------------------------------------------ ------- -------- -------------------------
Profit for the period (attributable to equity holders of the Company) 10,473 8,553
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign operations 19 (8)
Profit/(loss) on forward foreign exchange contracts designated and effective as
a hedging
instrument 541 659
Tax on hedging instrument (106) (134)
--------------------------------------------------------------------------------- -------- -------------------------
Total comprehensive income for the period 10,927 9,070
--------------------------------------------------------------------------------- -------- -------------------------
Total comprehensive income attributable to:
Equity holders of the Company 10,927 9,070
--------------------------------------------------------------------------------- -------- -------------------------
10,927 9,070
-------------------------------------------------------------------------------- -------- -------------------------
The notes form part of the financial statements.
Consolidated Statement of Financial Position
As at 31 August 2018
2018 2017
GBP'000 GBP'000
---------------------------------------------- --------- -----------------------
Assets
Non-current assets
Goodwill 419 419
Other intangible assets 5,620 4,544
Property, plant and equipment 1,275 1,369
Total non-current assets 7,314 6,332
----------------------------------------------- --------- -----------------------
Current assets
Inventories 11,391 8,334
Trade and other receivables 13,310 12,952
Cash and cash equivalents 22,811 14,174
Derivative financial instruments 100 -
---------------------------------------------- -----------------------
Total current assets 47,612 35,460
---------
Total assets 54,926 41,792
----------------------------------------------- --------- -----------------------
Equity and liabilities
Capital and reserves
Share capital 58 58
Share premium 115 -
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve 50 31
Hedging reserve 46 (389)
EBT reserve (1) (3)
Retained earnings 41,731 31,739
Equity attributable to owners of the Company 43,447 32,884
----------------------------------------------- --------- -----------------------
Total equity 43,447 32,884
----------------------------------------------- --------- -----------------------
Current liabilities
Trade and other payables 10,709 7,720
Current tax liabilities 427 459
Derivative financial instruments - 484
Total current liabilities 11,136 8,663
----------------------------------------------- --------- -----------------------
Non-current liabilities
Deferred tax 300 245
Derivative financial instruments 43 -
Total liabilities 11,479 8,908
----------------------------------------------- --------- -----------------------
Total equity and liabilities 54,926 41,792
----------------------------------------------- --------- -----------------------
The financial statements were approved by the Board of Directors
and authorized for issue on 20 November 2018. They were signed on
its behalf by:
Tim Carroll Jeremy Wilson
Chief Executive Officer Chief Financial Officer
The notes form part of the financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 August 2018
Merger
Share Share Merger difference Translation Hedging EBT Retained
capital premium reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2016 58 - 14,595 (13,147) 39 (914) (5) 23,251 23,877
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 8,553 8,553
Other
comprehensive
income for
the
period - - - - (8) 525 - - 517
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the
period - - - - (8) 525 - 8,553 9,070
Transactions
with owners of
the
Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - 114 114
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - 558 558
Shares from
EBT exercised - - - - - - 2 256 258
Share-based
payments - - - - - - - 145 145
Dividends paid - - - - - - - (1,138) (1,138)
Balance at 1
September
2017 58 - 14,595 (13,147) 31 (389) (3) 31,739 32,884
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 10,473 10,473
Other
comprehensive
income for
the
period - - - - 19 435 - - 454
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income for
the
period - - - - 19 435 - 10,473 10,927
Transactions
with owners of
the
Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - 95 95
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - 698 698
New shares
issued - 115 - - - - - - 115
Shares from
EBT exercised - - - - - - 2 189 191
Share-based
payments - - - - - - - 216 216
Dividends paid - - - - - - - (1,679) (1,679)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 31
August 2018 58 115 14,595 (13,147) 50 46 (1) 41,731 43,447
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
The notes form part of the financial statements.
Consolidated Cash Flow Statement
For the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
---------------------------------------------------------- ----- -------- --------
Operating activities
Profit for the financial year 10,473 8,553
Adjustments for:
Income tax expense 1,199 959
Net interest 270 (42)
Profit on disposal of property, plant and equipment (14) (8)
Amortisation of intangibles 2,804 2,950
Depreciation of property, plant and equipment 740 689
Share-based payments charge 216 145
---------------------------------------------------------- ----- -------- --------
Operating cash flows before movements in working capital 15,688 13,246
Increase in trade and other receivables (358) (1,728)
(Increase)/decrease in inventories (3,057) 3,027
Increase/(decrease) in trade and other payables 2,989 (892)
---------------------------------------------------------- ----- -------- --------
Operating cash flows before interest and tax paid 15,262 13,653
Net interest paid (36) (42)
Income taxes paid (478) (633)
---------------------------------------------------------- ----- -------- --------
Cash generated by operations 14,748 12,978
Net foreign exchange movements (226) 84
---------------------------------------------------------- ----- -------- --------
Net cash from operating activities 14,522 13,062
Investing activities
Purchases of property, plant and equipment (651) (493)
Purchases of intangible assets (3,880) (3,121)
Proceeds from disposal of property, plant and equipment 19 -
Net cash used in investing activities (4,512) (3,614)
---------------------------------------------------------- ----- -------- --------
Financing activities
Issue of equity shares 306 258
Equity dividends paid 6 (1,679) (1,138)
Net cash used in financing activities (1,373) (880)
---------------------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 8,637 8,568
Cash and cash equivalents at beginning of year 14,174 5,606
Cash and cash equivalents at end of year 22,811 14,174
---------------------------------------------------------- ----- -------- --------
The notes form part of the financial statements.
Notes to the Final Results
For the year ended 31 August 2018
These condensed preliminary financial statements of the Company
and its subsidiaries ("the Group") for the year ended 31 August
2018 have been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRSs).
The information contained within this announcement has been
extracted from the audited financial statements which have been
prepared in accordance with IFRS as adopted by the European Union
('adopted IFRS'), and with those parts of the Companies Act 2006
applicable to companies reporting under adopted IFRS. They have
been prepared using the historical cost convention except where the
measurement of balances at fair value is required.
The Directors believe that the Group is well placed to manage
its business risks successfully despite the current uncertainties
within the global economy. The Group has considerable financial
resources, ongoing revenue streams and a broad spread of customers.
As a consequence of these factors and having reviewed the forecasts
for the coming year, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future. Thus, they continue to adopt
the going concern basis of accounting in preparing these financial
statements.
The statutory accounts for the year ended 31 August 2017 have
been reported on by the Company's auditors and delivered to the
Registrar of Companies. The statutory accounts for the year ended
31 August 2018 will be delivered to the Registrar of Companies
following the Company's Annual General Meeting. The auditors have
reported on those accounts; their report was unqualified, did not
include references to any matter which the auditors drew attention
by way of emphasis without qualifying their report and did not
contain statements under section 498(2) or (3) of the Companies Act
2006.
Availability of audited accounts:
Copies of the 31 August 2018 audited accounts will be will be
available on 20 November 2018 on the Company's website
(www.focusriteplc.com/investors) for the purposes of AIM rule 26
and will be posted to shareholders in due course.
1 Revenue
An analysis of the Group's revenue is as follows:
Year ended 31 August
2018 2017
--------------------------------
GBP'000 GBP'000
-------------------------------- --------- -------------
Continuing operations
North America 32,720 29,702
Europe, Middle East and Africa 29,706 25,153
Rest of the World 12,695 11,200
Consolidated revenue 75,121 66,055
---------------------------------- --------- -------------
In previous financial statements the Group has disclosed revenue
earned in Canada within the Rest of the World region. In the year
ended 31 August 2018 this revenue was reclassified to the USA
region, and the region was renamed North America. The table below
sets out the regional analysis of revenue under the previous
classification:
Year ended 31 August
2018 2017
--------------------------------
GBP'000 GBP'000
-------------------------------- --------- -------------
Continuing operations
USA 31,184 27,990
Europe, Middle East and Africa 29,706 25,153
Rest of the World 14,231 12,912
Consolidated revenue 75,121 66,055
---------------------------------- --------- -------------
2 Business segments
Information reported to the Board of Directors for the purposes
of resource allocation and assessment of segment performance is
focused on the main product groups which Focusrite sells. While the
results of Focusrite and Focusrite Pro are reported separately to
the Board, they are aggregated together for the purposes of
segmental reporting. Similarly, the results of Novation and Ampify
also meet the aggregation criteria set out in IFRS 8 segmental
reporting. The Group's reportable segments under IFRS 8 are
therefore as follows:
Focusrite - Sales of Focusrite or Focusrite Pro branded products
Novation - Sales of Novation or Ampify branded products
Distribution - Distribution of third-party brands including KRK,
Ableton, Stanton, Cerwin-Vega,
Cakewalk and sE Electronics
Segment revenues and results
The following is an analysis of the Group's revenue and results
by reportable segment:
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in note 3 within the
Annual Report. Segment profit represents the profit earned by each
segment without allocation of the share of central administration
costs including Directors' salaries, investment revenue and finance
costs, and income tax expense. This is the measure reported to the
Board of Directors for the purpose of resource allocation and
assessment of segment performance.
Central administration costs comprise principally the
employment-related costs and other overheads incurred by Focusrite
and its USA subsidiary, net of inter-company commission income.
Also included within central administration costs is the charge
relating to the share option scheme of GBP216,000 for the year
ended 31 August 2018 (2017: GBP145,000).
Year ended 31 August
2018 2017
GBP'000 GBP'000
-------------------------------------------------------- --------- --------------
Revenue from external customers
Focusrite 52,193 44,552
Novation 20,066 18,862
Distribution 2,862 2,641
Total 75,121 66,055
-------------------------------------------------------- --------- --------------
Segment profit
Focusrite 25,107 20,221
Novation 10,063 9,198
Distribution 795 711
-------------------------------------------------------- --------- --------------
35,965 30,130
Central distribution costs and administrative expenses (24,352) (20,660)
Non-underlying items 329 -
-------------------------------------------------------- --------- --------------
Operating profit 11,942 9,470
Finance income 4 86
Finance costs (274) (44)
-------------------------------------------------------- --------- --------------
Profit before tax 11,672 9,512
Tax (1,199) (959)
Profit after tax 10,473 8,553
-------------------------------------------------------- --------- --------------
The Group's non-current assets, analysed by geographical
location were as follows:
2018 2017
GBP'000 GBP'000
-------------------------------- -------- --------------
Non-current assets
North America 81 52
Europe, Middle East and Africa 6,705 5,676
Rest of the World 528 604
Total non-current assets 7,314 6,332
-------------------------------- -------- --------------
Information about major customers
Included in revenues shown for 2018 is GBP31.2 million (2017:
GBP28.0 million) attributed to the Group's largest customer, which
is located in the USA. Amounts owed at the year end were GBP6.3
million (2017: GBP6.8 million).
3 Profit for the year
Profit for the year has been arrived at after
charging/(crediting):
Year ended 31 August
2018 2017
Note GBP000 GBP000
-------------------------------------------------------------- ------ --------- ------------
Net foreign exchange losses/(gains) 234 (84)
Research and development costs 1,524 1,120
Depreciation and impairment of property, plant and equipment 740 689
Profit on disposal of property, plant and equipment (14) (8)
Amortisation of intangibles 2,804 2,950
Operating lease rental expense 384 306
Cost of inventories recognised as an expense 39,093 35,493
Staff costs (excluding share-based payments) 8,969 6,478
Impairment loss recognised on trade receivables 29 (20)
Share-based payments charged to profit and loss 216 145
---------------------------------------------------------------------- --------- ------------
4 NON-UNDERLYING ITEMS
During the year ended 31 August 2018, the Directors considered
the date from which amortisation of development costs should start
and decided that it was more appropriate that the amortisation
start date be assessed for each product developed rather than
applying a single, albeit more prudent, rule for all. As a result,
there has been an adjustment to the Income Statement to reduce the
amortisation charged to date by GBP329,000 and this has been shown
as a non-underlying item in the Income Statement.
5 Tax
Year ended 31 August
2018 2017
GBP'000 GBP'000
Corporation tax charges:
Under/(over) provision in prior year (160) (13)
Current year 1,315 895
-------------------------------------- -------- --------------------
1,155 882
Deferred taxation
Current year 44 77
-------------------------------------- -------- --------------------
1,199 959
-------------------------------------- -------- --------------------
Corporation tax is calculated at 19% (2017: 19.58%) of the
estimated taxable profit for the year. Taxation for the US
subsidiary is calculated at the rates prevailing in the respective
jurisdiction.
The tax charge for each year can be reconciled to the profit per
the income statement as follows:
Year ended 31 August
2018 2017
GBP'000 GBP'000
---------------------------------------------------------- ----------- ----------
Current taxation
Profit before tax on continuing operations 11,672 9,512
---------------------------------------------------------- ----------- ----------
Tax at the UK corporation tax rate of 19% (2017: 19.58%) 2,218 1,862
Effects of:
Expenses not deductible for tax purposes 48 20
R&D tax credit (872) (773)
Prior period adjustment - current tax (160) (113)
Prior period adjustment - deferred tax - (18)
Effect of change in standard rate of deferred tax 14 (19)
Overseas tax (49) -
Current tax charge for period 1,199 959
---------------------------------------------------------- ----------- ----------
A reduction in the UK corporation tax rate from 20% to 19%
(effective from 1 April 2017) was substantively enacted on 25
Octobr 2015. Further reduction to 18% (effective from 1 April 2020)
was substantively enacted on 25 October 2015, and an additional
reduction to 17% (effective 1 April 2020) was substantively enacted
on 6 September 2016. This will reduce the Company's future current
tax charge accordingly. The deferred tax asset at 31 August 2018
has been calculated based on these rates.
6 Dividends
The following equity dividends have been declared:
Year to Year to
31 August 2018 31 August 2017
---------------------------------------- ---------------- ----------------
Dividend per qualifying ordinary share 3.30p 2.70p
---------------------------------------- ---------------- ----------------
During the year, the Company paid an interim dividend in respect
of the year ended 31 August 2018 of 1.00 pence per share.
On 20 November 2018, the Directors recommended a final dividend
of 2.30 pence per share (2017: 1.95 pence per share), making a
total of 3.30 pence per share for the year (2017: 2.70 pence per
share).
7 Earnings per share
The calculation of the basic and diluted EPS is based on the
following data:
Year ended 31 August
Earnings 2018 2017
-------- ------------------
GBP'000 GBP'000
---------------------------------------------------------------------------------------- -------- ------------------
Earnings for the purposes of basic and diluted EPS, being net profit for the period 10,473 8,553
Non-underlying items (329) -
Tax on non-underlying items 63 -
Total underlying profit for adjusted EPS calculation 10,207 8,553
---------------------------------------------------------------------------------------- -------- ------------------
Year ended 31 August
2018 2017
-------- ------------------
Number Number
'000 '000
---------------------------------------------------------------------------------------- -------- ------------------
Number of shares
Weighted average number of ordinary shares for the purposes of basic EPS calculation 56,825 55,432
Effect of dilutive potential ordinary shares:
EMI Scheme and unapproved share option plan 1,151 2,357
Weighted average number of ordinary shares for the purposes of diluted EPS calculation 57,976 57,789
---------------------------------------------------------------------------------------- -------- ------------------
EPS Pence Pence
Basic EPS 18.4 15.4
Diluted EPS 18.1 14.8
Adjusted basic EPS 18.0 15.4
Adjusted diluted EPS 17.6 14.8
---------------------------------------------------------------------------------------- -------- ------------------
At 31 August 2018, the total number of ordinary shares issued
and fully paid was 58,111,639. This included 1,159,021 (2017:
2,546,845) shares held by the EBT to satisfy options vesting in
future years. The operation of this EBT is funded by the Group so
the EBT is required to be consolidated, with the result that the
weighted average number of ordinary shares for the purpose of the
basic EPS calculation is the net of the weighted average number of
shares in issue (58,103,307) less the number of shares held by the
EBT (1,278,311). It should be noted that the only right
relinquished by the Trustees of the EBT is the right to receive
dividends. In all other respects, the shares held by the EBT have
full voting rights.
The effect of dilutive potential ordinary share issues is
calculated in accordance with IAS 33 and arises from the employee
share options currently outstanding, adjusted by the profit element
as a proportion of the average share price during the period.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BLBMTMBMBTTP
(END) Dow Jones Newswires
November 20, 2018 02:01 ET (07:01 GMT)
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