TIDMTUNE
RNS Number : 2959X
Focusrite PLC
25 April 2023
Strictly embargoed until 07:00: 25 April 2023
Focusrite plc ("Focusrite" or "the Group")
Half year results for the six months ended 28 February 2023
Focusrite plc, the global music and audio products company
supplying hardware and software used by professional and amateur
musicians and the entertainment industry, today announces its half
year results for the six months ended 28 February 2023.
Commenting on the results, Tim Carroll CEO said:
" Focusrite plc is a much bigger business since pre-COVID with
eleven brands operating globally across different, but
complementary markets. This past half year has showcased just how
well the Group's diversification strategy has paid off, giving us
increased resilience in the face of global and industry wide
headwinds.
"Revenue in our Content Creation division has been impacted by
industry-wide surplus channel inventory and softening in demand
along with a planned channel inventory reduction ahead of a large
product release programme coming in the second half. Pleasingly,
our Audio Reproduction division, as anticipated, has experienced
strong growth and is now ahead of pre pandemic levels. Despite
challenging markets, the Group is still showing material growth
over pre pandemic levels and has retained our strong market share,
underscored by rock solid brand positions."
Key financial metrics
HY23 HY22
Revenue (GBP million) 86.2 92.9
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Gross Margin 47.1% 46.6%
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Adjusted(1) EBITDA(2) (GBP million) 18.1 22.2
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Operating profit (GBP million) 11.5 16.3
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Adjusted(1) operating profit (GBP million) 14.2 19.1
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Basic earnings per share (p) 14.4 23.1
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Adjusted(1) diluted earnings per share (p) (4) (HY22: restated) 18.0 26.2
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Interim dividend per share (p) 2.1 1.85
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Net (debt)(3) cash (GBP million) (13.2) 18.0
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Highlights
-- Revenue decreased by 7.2% reflecting an organic constant
currency(5) decrease of 19.0%, with market and channel weakness
impacting the Focusrite and Novation brands, partially offset by
strong double digit growth in the remaining brands
o Content Creation brands revenue was down by 16.1% to GBP67.4
million (HY22: GBP80.4 million) with Focusrite and Novation
impacted by surplus channel inventory levels and a some softening
in the market due to global macroeconomic issues, together with a
planned reduction of inventory in advance of upcoming product
releases. ADAM and Sequential showing strong growth with prize
winning product launches and are helped by weaker prior year
comparators
o Audio Reproduction brands revenue is up by 50.7% to GBP18.8
million (HY22: GBP12.5 million) benefitting from a resurgence in
live events and a strong performance from Linea Research, acquired
in March 2022.
-- Growth in EMEA region of 3.4% following ongoing changes to
strengthen our routes to market. North America was impacted by high
levels of inventory in the channel and ROW by market weakness in
APAC
-- Acquisition of Sonnox on 19 December 2022 for cash
consideration of GBP7.2 million (net of cash acquired of GBP1.9
million) has performed to plan and is contributing positively to
the Group
-- Gross margin at 47.1% (HY22: 46.6%) is 0.5% points higher
than HY22 and 3.0% points higher than H2 FY22. Freight costs have
reduced significantly, with some of that benefit reinvested in
promotions to support sales
-- Adjusted(1) EBITDA(2) at GBP18.1 million, down from HY22 at
GBP22.2 million, reflecting lower sales, notwithstanding stronger
gross margins and strong cost control
-- Operating profit of GBP11.5 million (HY22: GBP16.3 million)
impacted by increased amortisation from acquisitions and new
product launches
-- Launch of 21 new products, including a new Sequential
synthesiser and a range of Martin speakers all expected to
contribute in the second half of this year
-- Net debt(3) of GBP13.2 million (HY22: net cash GBP18.0
million) has increased to fund acquisitions and to support higher
inventory levels during a period of key product transitions
-- Interim dividend of 2.1 pence, 13.5% growth compared to HY22
dividend of 1.85 pence
Trading since the half year has remained solid. The outlook for
the Group is positive with inventory in the channel beginning to
improve and continued strength in the buoyant live sound market. We
anticipate revenue growth in the second half to be in line with
expectations, driven by a number of planned key product
introductions alongside elevated costs due to promotions for
existing products . We continue to execute on our established and
proven growth strategy combining organic growth with focussed
M&A activity.
1 Adjusted for amortisation of acquired intangible assets, sale
of trademark and other adjusting items detailed in note 4 to the
Interim Statement
2 Comprising earnings adjusted for interest, taxation,
depreciation and amortisation.
3 Net debt/cash defined as cash and cash equivalents, overdrafts
and amounts drawn against the RCF including the costs of arranging
the RCF
4 Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the interim financial statements
5 Organic constant currency growth. This is calculated by
comparing HY22 revenue to HY23 revenue adjusted for HY23 exchange
rates and the impact of acquisitions.
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Investec Bank plc ( Nominated Adviser
and Joint Broker)
David Flin
Ed Knight
William Brinkley +44 20 7597 5970
Peel Hunt LLP (Joint broker)
Paul Gillam
Michael Burke
James Smith +44 20 7418 8900
Belvedere Communications +44 20 3008 6864
John West
Llew Angus
Notes to Editors
Focusrite plc is a global audio products group that develops and
markets proprietary hardware and software products. Used by audio
professionals and musicians, its solutions facilitate the
high-quality production of recorded and live sound. The Group
trades under eleven established brands: Focusrite, Focusrite Pro,
Novation, Ampify, ADAM Audio, Martin Audio, Optimal Audio, Linea
Research, Sequential, Oberheim and Sonnox.
With a high-quality reputation and a rich heritage spanning
decades, its brands are category leaders in the music-making and
audio recording industries. Focusrite and Focusrite Pro design and
manufacture 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. ADAM Audio studio monitors
have earned a worldwide reputation based on technological
innovation in the field of studio loudspeaker technology. Martin
Audio designs and manufactures performance-ready systems across the
spectrum of sound reinforcement applications. Linea Research
designs, develops, manufactures and sells market innovative
professional audio equipment globally. Sequential designs and
manufactures high-end analogue synthesizers under the Sequential
and Oberheim brands. Sonnox is a leading designer of innovative,
high quality, award-winning audio processing software plug-ins for
professional audio engineers.
The Group has offices in four continents and a global customer
base with a distribution network covering approximately 240
territories.
Focusrite plc is traded on the AIM market of the London Stock
Exchange.
Business and operating review
Overview
We are pleased to report our financial results and summary of
operations for the six months ended 28 February 2023.
Overall demand for the Group's products across our Content
Creation and Audio Reproduction divisions has remained resilient
notwithstanding the challenging macroeconomic backdrop and our
diversification across these two divisions has proven to be an
effective strategy over the past four years. When the pandemic hit
during FY20 and live events were effectively shut down, our Content
Creation division experienced unprecedented growth, offsetting the
large decline in the Audio Reproduction division revenue. This past
half year, demand for Content Creation solutions has softened
albeit it remains at a higher level than pre-pandemic. However, we
have seen demand for our Audio Reproduction product portfolio
exceeding pre-pandemic levels, supported by new products developed
during the pandemic and a strengthened supply chain, especially
since the acquisition of Linea Research in March 2022. With revenue
for our Audio Reproduction brands up 50.7% and our Content Creation
brands down 16.1%, overall Group revenue for HY23 is down 7.2% when
compared to HY22. On an organic constant currency basis, the Audio
Reproduction
division was up 25.3% with the Content Creation division down
25.2%, resulting in Group revenue down 19.0%.
The Group's stronger gross margins at 47.1% (HY22: 46.6%) have
been the result of proactively managing our logistics and routes to
market, as well as increasing prices on some elements of our
product portfolio. These efforts, along with a continued easing in
freight costs, normalising of component prices, and a reduction in
supply chain issues have resulted in an improvement in gross margin
compared with both H1 and H2 of the prior year.
In December 2022, the Group announced that it had acquired
Sonnox, a leading software developer of audio plug-ins and tools
used in every aspect of the audio industry, including music
production, television, film, and live broadcasting. Sonnox is
based near Oxford, United Kingdom. Beyond the additional revenue of
Sonnox's portfolio, many opportunities for collaboration between
Sonnox and the Group's other industry leading brands are being
pursued. This was one of the key reasons for making the acquisition
and we are extremely pleased with the integration and
co-collaboration achieved to date.
People, Culture and Strategy
One of our greatest assets is our enormously talented and
passionate group of employees who work tirelessly to develop and
improve our industry leading brands. They are committed to audio
excellence and have rallied around a common mission of 'Removing
Barriers to Creativity' with great enthusiasm.
Our customer base continues to grow, encompassing a much wider
range of users from the beginner or enthusiast level right through
to professionals and corporate, educational or other enterprise
facilities. At all levels, our customers depend on our products and
solutions to provide the highest quality audio possible in an
environment where our technology aids their experiences, instead of
getting in the way.
Our growth strategy is centred around innovation, market
expansion and lifetime value for our customers, as well as creating
a great place to work. The Group has executed well on all of these,
adding new products to our portfolio, expanding our global reach in
strategic areas, and maintaining industry leading Net Promoter
Scores ('NPS').
Environmental, Social and Governance ('ESG') priorities form an
important and growing pillar of the culture across the Group,
centred around the objective of creating a 'Great Place to Work',
not just for employees but also within society and the environment.
We have expanded our efforts on eNPS (employee Net Promoter Score),
talent acquisition, Diversity and Inclusion (D&I) initiatives,
wellness programmes, community employment opportunities and
charitable work to involve all of our business units across the
globe.
Our ESG work relating to the environment continues to develop
and since our last Annual Report, we have made solid progress
towards having our first standalone TCFD report, which we expect to
complete this year. Alongside this, the Group is also working with
McGrady Clarke and utilising the Ecoinvent Database to help us plan
out our Science Based Targets trajectory. In parallel, new products
across the Group will incorporate recycled materials and plastic
free boxes wherever feasible.
Operating review
Our Group's portfolio consists of eleven leading brands across
five main businesses, which are categorised into two divisions,
Content Creation and Audio Reproduction.
Content Creation includes:
o Focusrite Audio Engineering (FAEL): Focusrite, Focusrite Pro,
Novation and Ampify
o ADAM Audio
o Sequential and Oberheim
o Sonnox
Audio Reproduction consists of:
o Martin Audio: Martin Audio, Optimal Audio and Linea
Research
Segmental analysis can be found in the table below:
Year to
Six months to Six months to 31 August
28 February 2023 28 February 2022 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------------------------- ------------------ ------------------ -----------
Revenue from external customers
Focusrite 40,084 54,914 97,186
Novation 8,241 10,511 20,583
ADAM Audio 10,161 8,420 17,797
Sequential 8,679 6,589 16,249
Sonnox (1) 306 - -
---------------------------------------------------------------- ------------------ ------------------ -----------
Content Creation 67,471 80,434 151,815
Martin Audio (including Optimal Audio and Linea Research (1) ) 18,772 12,459 31,918
---------------------------------------------------------------- ------------------ ------------------ -----------
Audio Reproduction 18,772 12,459 31,918
---------------------------------------------------------------- ------------------ ------------------ -----------
Total 86,243 92,893 183,733
---------------------------------------------------------------- ------------------ ------------------ -----------
(1) Revenue from date of acquisition
Content Creation
Our Content Creation brands bring best in class audio recording
technology, electronic music instruments and controllers, and
studio reference monitors to content creators at all levels.
Our products are showcased in the finest recording and
postproduction studios in the world, as well as in the homes of
millions of hobbyists and aspiring professionals. Over the
pandemic, across our 2020 and 2021 financial years, we saw
accelerated growth as more customers sought solutions for creating
and streaming content. This half year has seen a slight softening
in the market due to global macroeconomic issues, as well as a
phasing of inventory into the channel in late FY22 to ensure that
adequate supply for the November and December holiday season was
available. Overall, revenue in HY23 is down 16.1% compared to HY22,
but demand compared with pre pandemic levels is still materially
higher, with external customer registrations over the November and
December 2022 holiday season up 22.1% compared to the same period
in 2019.
Focusrite audio interfaces, comprised of our Scarlett, Clarett
and Vocaster ranges, are a suite of audio interfaces designed to
allow both beginners and professionals alike to create the best
quality audio possible. These products are core to home recording
and audio streaming.
During this half year inventory in our sales channels reduced by
approximately one month compared to a slight build in the first
half of last year, resulting in lower sales into the channel
compared to the first half of FY22, in part due to preparations for
a programme of product releases in the second half of this year.
Global macroeconomic issues have impacted all regions, with market
data indicating that North America was down at least 8%, and other
regions declining further. However the sell-through to customers is
still significantly ahead of pre-pandemic levels, and we have
retained market share, consistently appearing as top sellers on
leading external e-Commerce sites in the US and Europe. Vocaster
sales have been below expectations due to a decrease in new
podcasts since the end of the high growth experienced during the
pandemic. We have reset our expectations for this product set, but
still believe it is a viable segment. Overall, these factors
resulted in a 27.1% decline in revenue, when compared with HY22.
The Group is expecting a stronger second half driven by new product
introductions.
Focusrite Pro offers a suite of solutions for professionals that
employ audio over "audio over internet protocol" (AOIP) technology
for scale in enterprise solutions. This sector of our business was
the hardest hit by the AKM chip manufacturer's fire in Japan in
October 2020 that required in a re-engineering of much of the
portfolio, with many products in the portfolio only coming back
into the market very late in the first half, after over 24 months'
disruption. On a like for like basis, revenue decreased by 16.0%
compared to HY22. Despite supply issues, underlying demand for the
products has continued to be strong, fuelled by the ever-increasing
amount of new content being generated for consumers, wider
acceptance of enhanced formats, such as Dolby ATMOS, and more and
more professionals adopting networked audio. The re-engineering of
these products will complete in the second half with a return to
normal shipping levels expected later in the year.
Our Novation brand is dedicated to the art of the electronic
musician, and offers a range of solutions including groove boxes,
controllers, synthesizers and desktop and iOS creation apps. This
past year saw the introduction of several new keyboard controllers,
including the Launchkey 88, Sound on Sound's winner for "Best
Performance Controller". Revenue for Novation products was down
21.9% during the first half, due mainly to tough comparatives with
the same period last year that saw a number of new product
introductions as well as a period of component rework on most of
the brand's synthesizers, due to component issues. We are expecting
Novation to perform better in the second half due to availability
of the reworked synthesizers, and a number of new product
introductions.
ADAM Audio , based in Berlin, is a globally recognised brand
with a passionate team focused on delivering world-class monitor
speakers for audio content creators. ADAM Audio's portfolio of
reference monitors encompasses the T-Series, A-Series, and
S-Series. The T-Series speakers are award winning reference
monitors designed for the home studio market. The A-Series are used
in both high-end home studios and professional facilities alike,
and the enterprise level S-Series are showcased in some of the most
prestigious audio production facilities in the world. ADAM had a
solid recovery coming off a weak first half last year when
component shortages impacted T-Series products as well as the
launch of the new A-Series. Both product lines are in full
production with good line of sight on components as well as
finished inventory. The new A-Series won the prestigious Sound on
Sound "Best Studio Monitor" award for 2022. Revenue for ADAM was up
21.9% in HY23 compared to HY22.
Sequential , based in San Francisco, was acquired in April 2021.
The Sequential brand is legendary in the industry and is synonymous
with world class analogue synthesizers. It has been at the
forefront of electronic music innovation for over 40 years.
Additionally, last May, the Group acquired the exclusive rights to
another prestigious synthesizer brand, Oberheim, which now operates
under the Sequential entity as a separate brand. Since acquiring
Oberheim, we have launched the OBX8, a modern day faithful
recreation of three classic Oberheim synthesizers. The OBX8 has won
numerous industry awards during this first half and is considered
the most coveted high-end synthesizer on the market. Sequential
also released the Trigon6, a Sequential branded synthesizer with
unique filtering that has very recently been introduced into the
market. The Group continues to expand Sequential's distribution and
demand generation activities by leveraging the scale of the Content
Creation division's highly effective global sales teams. Overall,
Sequential had a strong first half, with revenues increasing by
33.5% when compared to the same period in the previous year.
Audio Reproduction
Our Audio Reproduction brands provide high quality, professional
solutions for both permanent installations and live sound events.
During the first half of the year the division has seen continued
growth in installations as well as a global bounce back in live
sound purchases. In addition to strong organic growth, the Group
acquired Linea Research in March 2022. Linea Research has
integrated well into the wider Group, providing a consistent supply
of power amplification technology for Martin Audio's solutions as
well as continuing to offer its own product line to a range of OEM
customers. Optimal Audio, our commercial audio brand, also saw
growth year over year as we began shipping complete systems after a
period of unavailability due to component shortages late last year.
As a result, overall revenues for the Audio Reproduction division
are up 50.7% compared to the prior year with a strong sales
pipeline across all sectors giving us cause for optimism for the
second half.
Research and development
R&D remains a cornerstone of our Group's strategy. In this
period, the Group launched 21 new products to market as well as a
host of software and hardware upgrades. As reported above, the
Group has a very important set of product introductions scheduled
for the second half of this financial year with major launches
planned in most brands across the portfolio.
Regional review
Six months Six months Year to
to 28 February to 28 February 31 August
2023 2022 2022
GBP'000 GBP'000 GBP'000
----------------------------------------- ---------------- ---------------- -----------
North America 36,309 39,763 74,509
Europe, Middle East and Africa ('EMEA') 36,644 35,424 70,110
Rest of World ('ROW') 13,290 17,706 39,114
----------------------------------------- ---------------- ---------------- -----------
Total 86,243 92,893 183,733
----------------------------------------- ---------------- ---------------- -----------
North America
North America represented 42% of total revenue during the half
year. Focusrite, Novation, ADAM Audio, and Sequential/Oberheim
products are sold through similar sales channels, whilst Martin
Audio's North America business is transacted through a mix of
live/tour sound rental companies, system integrators, and direct to
end-users. In North America we continue to invest in sales,
marketing, logistics and customer service to support both
divisions. Revenue for the Group's brands in North America was down
8.7% compared to HY22, reflecting the issues discussed in the
divisional analysis above.
The Group's Content Creation portfolio was down 15.3% year over
year in North America. This was partially due to some softness in
the market as well as reduced shipments on a number of key products
that are undergoing product transitions in the second half.
Our Audio Reproduction portfolio was up 70.9%, highlighting the
return to growth in this market as the impact of the easing of
lockdowns restrictions has paved the way for a return to live
music.
EMEA
EMEA was our largest region during the half, representing 43% of
total revenue for the Group. Revenue for the Group's brands in EMEA
was up 3.4% when compared to HY22. Like North America, our Content
Creation portfolio, Focusrite, Novation, ADAM Audio and
Sequential/Oberheim, utilise a very similar set of distributors and
resellers. At the beginning of this fiscal year, the Group
initiated a consolidated "go to market" strategy for our Content
Creation brands across EMEA. This has proven to be very successful,
giving us more leverage within our channel, and providing a
scalable structure for future growth and expansion. Overall, our
EMEA's Content Creation division was down 9.0% compared to HY22,
driven by softer demand, a planned reduction of inventory in
advance of product releases in the second half and a phasing of
inventory late last fiscal year to ensure adequate inventory levels
for the holiday season.
Our Audio Reproduction division, Martin, Optimal and Linea
Research, transact through a combination of distributors, system
integrators and live sound rental companies. This division saw
strong growth of 91.5%, when compared to HY22 with revenues now
above pre-pandemic levels, albeit from a relatively low base last
year.
ROW
ROW comprises all other regions outside of EMEA and North
America, principally made up of Asia Pacific ('APAC') and Latin
America ('LATAM') and constitutes 15% of total Group revenue. Both
regions had a challenging first half, primarily driven by
macroeconomic issues that have impacted these areas more
significantly than others.
APAC, like North America and EMEA, utilises similar distribution
and reseller channels for the Content Creation division. Our Audio
Reproduction division utilises a combination of distributors,
system integrators and rental companies. APAC has been a very
challenging region during the first half, due to a combination of
high inflation, currency swings, and continuing COVID lockdowns.
For our Content Creation division, APAC was down 33.8% compared to
HY22, with the majority of the decline in China, South Korea, and
Japan. For the Audio Reproduction business, APAC was down 4.3%,
illustrating just how impactful the above mentioned factors have
been in these regions when compared to the very high growth rates
elsewhere across the globe.
LATAM was similarly impacted in the Content Creation division,
down 39.6% Compared to HY22. This was partially offset with Audio
Reproduction being up 370%, albeit from a very low base in the
prior year.
For both regions in ROW, we are seeing positive signs of both
divisions re-stabilising and demand starting to increase again. We
continue to view both these regions as potential high growth areas
and will continue to invest in people, localisation efforts, and
refined routes to market.
We are confident that both regions will revert to positive
growth in the near future.
Financial Review
Overview
Against a difficult and often volatile economic backdrop, the
Group delivered revenue of GBP86.2 million, 7.2% lower than during
the six months to 28 February 2022 and adjusted (1) EBITDA (2) of
GBP18.1million, 18.8% lower than the comparable period, with the
lower sales volumes resulting in lower profits despite stronger
gross margins and actions taken to manage costs.
Reported operating profit was GBP 11.5 million (HY22: GBP16.3
million) and reduced for the same reasons. Similarly, adjusted (1)
diluted EPS(3) . of 18.0 pence is lower than the prior year's of
26.2 pence (restated - see note 1.8).
Income statement
HY23 HY23 HY23 HY22 HY22 HY22
GBPm GBPm GBPm GBPm GBPm GBPm
Restated Restated Restated
(3) (3) (3)
--------- ---------- --------- --------- ---------- ---------
Adjusted Adjusting Reported Adjusted Adjusting Reported
items items
(1) (1)
--------- ---------- --------- --------- ---------- ---------
Revenue 86.2 - 86.2 92.9 - 92.9
Cost of sales (45.6) - (45.6) (49.6) - (49.6)
---------------------------------- --------- ---------- --------- --------- ---------- ---------
Gross profit 40.6 - 40.6 43.3 - 43.3
Administrative expenses (26.4) (2.7) (29.1) (24.2) (2.8) (27.0)
---------------------------------- --------- ---------- --------- --------- ---------- ---------
Operating profit 14.2 (2.7) 11.5 19.1 (2.8) 16.3
Net finance (expense)/income (0.6) - (0.6) 0.2 - 0.2
---------------------------------- --------- ---------- --------- --------- ---------- ---------
Profit before tax 13.6 (2.7) 10.9 19.3 (2.8) 16.5
Income tax expense (3.0) 0.6 (2.4) (3.8) 0.8 (3.0)
---------------------------------- --------- ---------- --------- --------- ---------- ---------
Profit for the period 10.6 (2.1) 8.5 15.5 (2.0) 13.5
---------------------------------- --------- ---------- --------- --------- ---------- ---------
HY23 HY23 HY23 HY22 HY22 HY22
GBPm GBPm GBPm GBPm GBPm GBPm
Adjusted Adjusting Reported Adjusted Adjusting Reported
items items
(1) (1)
--------- ---------- --------- --------- ---------- ---------
Operating profit 14.2 (2.7) 11.5 19.1 (2.8) 16.3
Add - amortisation of intangible
assets 2.8 1.5 4.3 1.9 2.2 4.1
Add - depreciation of tangible
assets 1.1 - 1.1 1.2 - 1.2
---------------------------------- --------- ---------- --------- --------- ---------- ---------
EBITDA (2) 18.1 (1.2) 16.9 22.2 (0.6) 21.6
---------------------------------- --------- ---------- --------- --------- ---------- ---------
1 Adjusted for amortisation of acquired intangible assets, sale
of trademark and other adjusting items detailed in note 4 to the
Interim Financial Statements
2 Earnings Before Interest, Tax, Depreciation and
Amortisation
3 Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the interim financial statements.
Revenue
Revenue for the Group declined by 7.2% to GBP86.2 million (HY22:
GBP92.9 million) which, adjusting for acquisitions and constant
currency, represents an organic constant currency decline of 19.0%.
Linea Research was purchased in March 2022 and contributed revenue
of GBP2.4 million, ahead of our expectations, in the first half of
FY23. Sonnox was acquired in December 2022 and contributed GBP0.3
million, in line with our expectations.
As previously reported the Group's divisions have faced
macroeconomic and industry challenges during this first half.
Within the Content Creation division, the easing of component
supply issues resulted in industry-wide restocking across sales
channels in FY22, at a time when demand was being impacted by
cost-of-living issues, resulting in significant surplus inventory
across the channels by the beginning of HY23. As a result, HY23
experienced channel de-stocking and a consequent slowing of orders
which, together with a planned reduction ahead of a programme of
product releases in the second half which resulted in a 27.1%
decline for Focusrite (35% on an organic constant currency basis).
However, ADAM Audio and Sequential both delivered significant
double-digit growth, although both are reporting against
comparators impacted by the lack of availability of components in
the first half of FY22. The Audio Reproduction division has seen a
resurgence in demand in the live music sector, across most
geographies, with the exception of Asia. Overall this division
experienced strong growth despite some ongoing component supply
issues.
Pleasingly, underlying demand has continued to remain at levels
significantly higher than pre pandemic, with the current half year
still 52% ahead of HY20 on a reported basis for our Content
Creation division. During the second half of the year we expect
inventory to begin to reduce across our distribution channels, and
together with the introduction of new products later in the year,
we expect a greater weighting of sales in the second half of the
year and into H1 2024.
HY23 HY22
HY23 HY23 As HY22 HY22 As Reported OCC
Reported Acquisitions(2) adjusted Reported Exchange(1) adjusted Growth Growth(1)
Focusrite 40.1 - 40.1 54.9 6.6 61.5 -27.1% -35.0%
Novation 8.2 - 8.2 10.5 1.0 11.5 -21.9% -28.7%
ADAM 10.1 - 10.1 8.4 0.7 9.1 21.9% 12.2%
Sequential 8.7 - 8.7 6.6 1.0 7.6 33.5% 15.6%
Sonnox 0.3 (0.3) - - - - N/A N/A
------------ ---------- ---------------- ----------- ---------- ------------ ----------- --------- -----------
Content
Creation 67.4 (0.3) 67.1 80.4 9.3 89.7 -16.1% -25.2%
Martin 18.8 (2.4) 16.4 12.5 0.7 13.2 50.7% 25.3%
Total 86.2 (2.7) 83.5 92.9 10.0 102.9 -7.2% -19.0%
---------- ---------------- ---------- ------------ --------- -----------
[1] Organic constant currency (OCC) growth rate is calculated by
comparing FY23 revenue to FY22 revenue adjusted for FY23 exchange
rates and the impact of acquisitions
2 Linea Research acquired in March 2022, Sonnox acquired in
December 2022
Currency impact
Both the Euro and the US Dollar strengthened during the period
(with detail of rate movements provided on the following pages).
This has resulted in a GBP10.0 million positive translation impact
on revenue for the Group for HY23 relative to HY22. However, at the
profit level the USD effect is mitigated by the purchases of
inventory in USD from the manufacturers in China and Malaysia and
the Euro effect on profit is largely mitigated by the Group's
hedging policy, such that the translation impact between periods is
not material.
Segment profit
Segment profit is disclosed in more detail in note 3 to the
Interim Financial Statements named, 'Operating Segments'. These
segments compare the revenue of the products of the relevant brands
with the directly attributable costs to create segment profit.
Gross profit
In HY23, the gross margin was 47.1%, up from 46.6% in HY22 and
3.0% points higher than the second half margin in FY22 of 44.1%. As
expected freight costs eased during the half year, returning to pre
pandemic levels, benefitting margin by 4.1% points. This was
largely offset by a reduction in product margins as cost increases
in the second half of FY22 began to impact, together with the
promotional campaigns, highlighted during the year end results,
which were in place to ensure we remained competitive in the
current very price sensitive market environment.
We expect promotional activity on existing products to continue
into the second half of the year for the Content Creation brands at
a higher level than previously anticipated, with Audio Reproduction
beginning to benefit from a price increase put into effect from
March 2023. As a result, we expect gross margins to reduce slightly
for the remainder of the year.
Administrative expenses
Administrative expenses consist of sales, marketing, operations,
the uncapitalised element of research and development (partially
offset by the Research and Development Expenditure Credit regime
('RDEC') tax credit of GBP0.4 million) and central functions such
as legal, finance and the Group Board. These expenses were GBP29.2
million, up from GBP27.0 million last year. Excluding adjusting
costs of GBP2.7 million (HY22: GBP2.8 million) (see Adjusting items
section), the operating costs were GBP26.5 million (HY22: GBP24.2
million).
The increase in administrative expenses of GBP2.3 million is due
mainly to both an increase in amortisation of intangible assets of
GBP0.9 million, reflecting the recent launches of new products and
the impact of companies acquired since the first half of FY22 which
contributed an additional GBP0.8 million of this increase. During
the half year, the Group restructured to realign teams to our new
regional and brand organisational structure, resulting in a
reduction of 14 roles across the Group at a one-off cost of GBP0.4
million and annualised savings of GBP0.6 million.
Adjusted EBITDA
Adjusted EBITDA is an alternative performance measure which is
widely used by securities analysts, investors and other interested
parties to evaluate the profitability of companies. It is also used
within the Group as the basis for some of the incentivisation of
senior management at both the operating company level and the Group
level. Adjusted EBITDA decreased from GBP22.2 million in HY22 to
GBP18.1 million in HY23, a decrease of 18.8%. The decrease of
GBP4.1 million was due to lower sales volume, not fully offset by
increased gross margins and relatively stable underlying operating
costs. A reconciliation of adjusted EBITDA to operating profit can
be found in note 4.
Depreciation and amortisation
Depreciation is charged on tangible fixed assets on a
straight-line basis over the assets' estimated useful lives,
normally ranging between two and five years. Amortisation is mainly
charged on capitalised development costs, writing-off the
development cost over the life of the resultant product. The life
spans of the products vary across our brands, from three years for
Focusrite and Novation, up to eleven years for Martin Audio and
fifteen for Sequential, reflecting the different lifespans of the
products.
The amortisation of the acquired intangible assets totalled
GBP1.5 million during the period (HY22: GBP2.2 million) and has
been disclosed within adjusting items. This year we have amended
our accounting policy relating to the amortisation of acquired
intangibles under development, such that it now commences from the
date of first usage of the underlying product rather than from the
date of acquisition of the business, and this has resulted in a
GBP1.0 million reversal of amortisation charged in previous
periods. This has offset the underlying increase of amortisation of
acquired intangibles due to the Sonnox acquisition this year and
the full period impact of Linea Research, acquired in FY22.
Across the Group, GBP4.3 million of development costs were
capitalised (HY22: GBP3.2 million) and the amortisation of
capitalised development costs was GBP2.3 million (HY22: GBP1.5
million). Further details are shown in note 8, with added
disclosure to highlight the movement from technology, products and
patents in development to those now in use.
Adjusting items
In HY23 adjusting items totalled GBP2.7 million (HY22 GBP2.8
million), comprising GBP0.3 million which related mainly to the due
diligence costs for the acquisition of Sonnox that was completed on
19 December 2022, GBP0.5 million related to the earn-outs put in
place after the acquisitions of Sequential and Linea Research in
prior years, GBP0.4 million related to restructuring activities in
the half year and GBP1.5 million related to amortisation of
acquired intangible assets.
In HY22, the adjusting items included GBP0.3 million which
related to the due diligence costs for the acquisition of Linea
Research that was completed on 10 March 2022, GBP1.1 million
related to the Sequential earn out, and GBP2.2 million related to
amortisation of acquired intangible assets offset by GBP0.8 million
of income from the sale of a trademark .
Foreign exchange and hedging
The exchange rates were as follows:
Exchange rates HY23 HY22 FY22
---------------- ----- ----- -----
Average
USD:GBP 1.19 1.35 1.31
---------------- ----- ----- -----
EUR:GBP 1.15 1.18 1.18
---------------- ----- ----- -----
Period end
---------------- ----- ----- -----
USD:GBP 1.21 1.34 1.16
---------------- ----- ----- -----
EUR:GBP 1.14 1.20 1.16
---------------- ----- ----- -----
The average USD rate has strengthened to $1.19 for HY23 (HY22:
$1.35). The USD accounts for over half of Group revenue but nearly
all of the cost of sales so there is a useful natural hedge.
The Group enters into forward contracts to convert Euro to GBP.
The policy adopted by the Group is to hedge approximately 75% of
the Euro flows for the current financial year (year ending August
2023) and approximately 50% of the Euro flows for the following
financial year (year ending August 2024).
In HY23, approximately three-quarters of Euro flows were hedged
at EUR1.17, and the average transaction rate was EUR1.15, thereby
creating a blended exchange rate of approximately EUR1.16. In HY22,
the equivalent hedging contracts were at EUR1.13, versus the
transactional rate of EUR1.18 and so creating a blended exchange
rate of EUR1.15.
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.
Corporation tax
The effective tax rate for the period has increased to 22.4%
(HY22: 18.6%), as a result of brought forward losses are now being
fully utilised, a greater proportion of the Group's profits arising
outside the UK and the increase in the UK headline corporation tax
rate from 1 April 2023. In both years the rate has been impacted by
the disallowance for corporation tax of certain adjusting item
costs for corporation tax, including depreciation of acquired
intangibles and costs relating to due diligence on acquisitions.
Since September 2020 the Group has been part of the RDEC tax scheme
for R&D credits, and as a result a credit of GBP0.4 million has
been recognised against uncapitalised R&D costs within
Administrative expenses, which is taxable.
Earnings per share ('EPS')
The basic EPS for the half year was 1 4.4 pence , down 37.7 %
from 23.1 pence in HY2 2 . This decrease has largely resulted from
the change in reported profit after tax. The weighted average
number of shares used for the calculation has increased marginally
compared to the prior year at 58,494,265 shares (HY2 2 : 58,
215,504 shares). The more comparable measure, excluding adjusting
items and including the dilutive effect of share options, is the
adjusted diluted EPS. This decrease d to 18.0 pence , from 2 6.2
pence in HY22 (restated) , a decrease of 31.3 %. This measure has
been restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the financial statements.
HY23 HY22 FY22
Pence Pence(1) Pence(1)
------------------ ------ --------- ---------
Basic 14.4 23.1 42.5
Diluted 14.3 22.8 42.1
Adjusted basic 18.2 26.5 50.5
Adjusted diluted 18.0 26.2 49.9
------------------ ------ --------- ---------
(1) Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the interim financial statements.
Balance sheet
HY23 HY22 FY22
GBPm GBPm GBPm
-------------------------------------- ------- ------- -------
Non-current assets 95.2 66.2 87.5
Current assets
Inventories 50.7 25.7 48.3
Trade and other receivables 27.5 23.7 28.9
Cash 13.5 17.8 12.8
Current liabilities
Trade, other payables and provisions (30.3) (29.9) (41.2)
Bank loan or overdraft (26.8) 0.2 (13.1)
Non-current liabilities
Deferred tax (10.6) (6.2) (9.1)
Other non-current liabilities (8.6) (3.4) (8.8)
-------------------------------------- ------- ------- -------
Net assets 110.6 94.1 105.3
Working capital(1) 47.9 19.5 36.0
-------------------------------------- ------- ------- -------
(1) Working capital is defined as Inventories plus trade and
other receivables less trade and other payables and provisions
Non-current assets
The non-current assets comprise: goodwill, brands, patents and
capitalised development costs; property, plant and equipment; and
software.
The goodwill totals GBP16.4 million (HY22: GBP9.7 million). The
increase is due to the addition of Linea Research at GBP3.4 million
and Sonnox at GBP2.7 million, together with foreign exchange
movements on the existing items.
The total cost of the brands is GBP26.4 million (HY22: GBP19.8
million). This has increased due to the addition of the Linea
Research brand (GBP0.9 million), Oberheim brand (GBP4.7 million)
and Sonnox brand (GBP0.4 million). The majority of brands are being
amortised over 10 and 15 years with Martin over 20 years. At 28
February 2023 the brands had carrying value, net of amortisation,
of GBP21.6 million compared to GBP16.8 million as at 28 February
2022.
The capitalised technology and patent costs comprise acquired
and internally generated technology and patent costs for products
currently in use. The amortisation periods range from three years
to fifteen years depending on the expected life of the products.
The shorter amortisation periods are more usual for Focusrite and
Novation products and the longer periods for the ADAM Audio
monitors, Martin Audio live speakers and Sequential synthesisers.
The capitalised technology and patent costs as at 28 February 2023
had a carrying value, net of amortisation, of GBP34.9 million
(HY22: GBP30.9 million).
Capitalised technology and patent costs still under development
comprise acquired and internally generated technology and patent
costs for products currently still in development. The cost of
these items has increased from GBP8.3 million at 1 September 2022
to GBP8.5 million at the 28 February 2023, as a result of our
ongoing investment in new products, net of the transfer of GBP3.4
million of costs to products now in use. These costs are not
amortised and, following a review of our calculations this year, we
have reversed GBP1.0 million of amortisation on acquired
intangibles in development which had been incorrectly amortised
from the date of acquisition and not the date of use.
Based on current trading and management forecasts, we have
conducted impairment reviews for those subsidiaries impacted by
difficult markets with no impairments to the carrying value of the
intangible assets being deemed necessary. This will be reassessed
at the year-end for any evidence of any permanent diminution in
value.
Overall, amortisation of the intangible assets totals GBP4.4
million (HY22: GBP4.1 million). This is split between amortisation
of intangible assets acquired as part of the acquisitions of GBP1.5
million (HY22: GBP2.2 million), and other amortisation of GBP2.9
million (HY22: GBP1.9 million). The amortisation of acquired
intangible assets has been treated as an adjusting item. The
difference in the period between ongoing amortisation of
development costs and capitalised development costs is GBP2.0
million (HY22: GBP1.7 million).
The remaining GBP13.8 million (HY22: GBP8.6 million) of
non-current assets consist mainly of right of use assets relating
to the Group's leased offices and warehouses, tooling equipment for
the manufacture of products and other intangible assets such as
software and trademarks. This has increased since the last year due
to the acquisition of the Linea offices and the inception of a new
lease as Focusrite moves to a new headquarters in High Wycombe.
Working capital
Working capital at 28 February 2023 was 27.0% of the last 12
months revenue (HY22: 11.4%). Working capital has increased at the
half year, as we build inventory to support product transitions and
launches in the second half of the year and due to a low level of
trade creditors at the half year, due to the phasing of production
levels, which we expect to increase by the year end. We anticipate
that the inventory position will remain stable across the second
half of the year, but creditors will have normalised by the end of
the year enabling the Group to return to historic and more
resilient levels of working capital at around 20% of revenue. As is
our practice, creditors continue to be paid in a timely manner.
Cash flow
HY23 HY22 FY22
GBPm GBPm GBPm
Cash and cash equivalents at the beginning of
the year 12.8 17.3 17.3
Foreign exchange movements 0.1 - 0.7
Cash and cash equivalents at the end of the year 13.5 17.8 12.8
------------------------------------------------------ ------- ----- -------
Net increase/(decrease) in cash and cash equivalents
(per Cash Flow Statement) 0.6 0.5 (5.2)
Change in bank loan (13.7) - (13.2)
------------------------------------------------------ ------- ----- -------
(Increase)/decrease in net debt (13.1) 0.5 (18.4)
Add back equity dividend paid 2.4 2.2 3.2
Add back acquisition of subsidiary (net of cash
acquired) 7.2 - 10.9
------------------------------------------------------ ------- ----- -------
Free cash (outflow)/inflow (3.5) 2.7 (4.3)
Add back non underlying items (cash outflow) 1.2 0.6 0.9
------------------------------------------------------ ------- ----- -------
Underlying free cash (outflow)/inflow (1) (2.3) 3.3 (3.4)
------------------------------------------------------ ------- ----- -------
(1) Defined as cashflow before equity dividends, acquisition of
subsidiary (net of cash acquired) and adjusting items.
The underlying free cash outflow in HY23 was GBP2.3 million,
which was -2.7% of revenue. In the comparative period, the
underlying free cash inflow was GBP3.3 million which was 3.5% of
revenue. Underlying free cash flow as a percentage of revenue is a
key performance measure within the Group and forms an element of
the incentivisation metrics for senior management across the Group.
We expect underlying free cashflow this year to be lower than our
historic norm of approximately 10- 12% of revenue due to the
impacts on inventory outlined above.
Reported free cash outflow is -4.0% of revenue and is impacted
by similar issues as underlying free cashflow. In the current first
half year adjusting items relate to the payment of the final
payment of the Sequential earn out and the acquisition costs and
restructuring costs as outlined in note 4 to the Interim Financial
Statements. In the prior year they related to payment of the first
part of the Sequential earn out and the income received from the
sale of a trademark.
The net debt balance at the period end was GBP13.2 million
(HY22: net cash of GBP18.0 million and FY22: net debt of GBP0.3
million). The net debt includes the arrangement fee for the RCF of
GBP0.1 million which is being amortised across the period of the
facility. The increase in net debt since the beginning of HY22
principally reflects the increase in working capital noted above,
the acquisition of Sonnox for GBP7.2 million in December 2022 and
the acquisition of Linea Research for GBP12.3 million in March
2022. The Group has a GBP40 million revolving credit loan facility
split evenly between HSBC and NatWest due for renewal in December
2024. As at the balance sheet date GBP26.9 million was drawn down
from the facility (HY22: nil, FY22 GBP13.2 million).
Dividend
The Board has approved an interim dividend of 2.1p (HY22: 1.85p)
an increase of 13.5%, in line with the Group's progressive dividend
policy, and reflecting the Board's confidence in the Group's
prospects and future cash generating prospects.
Summary and Outlook
Focusrite plc is a much bigger business since pre-COVID with
eleven brands operating globally across different, but
complementary markets. This past half year has showcased just how
well the Group's diversification strategy has paid off, giving us
increased resilience in the face of global and industry wide
headwinds.
Revenue in our Content Creation division has been impacted by
some industry-wide surplus channel inventory and softening in
demand along with a planned channel inventory reduction ahead of a
large product release programme coming in the second half.
Pleasingly, our Audio Reproduction division, as anticipated, has
experienced strong growth and is now ahead of pre pandemic levels.
Despite challenging markets, we are still showing material growth
over pre pandemic levels and have retained our strong market share,
underscored by rock solid brand positions.
Trading since the half year has remained solid. The outlook for
the Group is positive with inventory in the channel beginning to
improve and continued strength in the buoyant live sound market. We
anticipate revenue growth in the second half to be in line with
expectations, driven by a number of planned key product
introductions alongside slightly elevated costs due to promotions
for existing products . We continue to execute on our established
and proven growth strategy combining organic growth with focussed
M&A activity.
Tim Carroll Sally McKone
Chief Executive Officer Chief Financial Officer
24 April 2023 24 April 2023
Risks and Uncertainties
The Board has considered the principal risks and uncertainties
as presented in the 2022 Annual Report and has determined that they
broadly remain relevant to the rest of this financial year, with
the updates as set out below. Such risks and uncertainties could
have a material impact on the Group's performance although they are
not expected to cause the Group's actual results to differ
materially from the expected results.
People
The job market changed post-pandemic with candidates now having
more choice. We continue to experience skill shortages in some
areas, namely in technical and in lower skilled
production/warehouse roles. Our recruitment process has been
successfully accelerated and we now promote all vacancies
internally which has helped us to fill some vacancies more quickly.
In addition, and in conjunction with our commitment to being "a
great place to work", we have taken steps to increase training and
upskill our people.
ESG and our sustainability strategy
Our aim is to become industry leaders in environmental
sustainability. We shared our Strategy and Targets on page 53 of
the 2022 Annual Report, which includes having a target to reduce
and neutralise product Green House Gas emissions by 2030.
Additionally, we have started to incorporate the Taskforce on
Climate-related Financial Disclosures (TCFD) recommendations into
our processes ahead of the mandatory compliance deadline at the end
of this financial year. More information about our identified
Climate Risks and Opportunities can be seen across pages 43 to 57
of the FY22 Annual Report.
In the first half of this year, we have continued with our
programme of linking tree planting to wood consumption in our
products across the group - ensuring there is a minimum of 10x more
wood growing in the world than we consumed. Through these efforts,
we have already planted over 70,000 new trees. Our dedication to
sustainability remains a top priority, and we look forward to
sharing progress on our initiatives and commitment to the Science
Based Targets Initiative.
Doing Business in China
Whilst we have a long-established relationship with our business
partners in China political discourse is becoming more strained
with governments around the world implementing measures to protect
their domestic interests. Geo-political tensions have been
heightened by Russia's invasion of Ukraine and increased concerns
with regard to China's policy towards Taiwan. We recognise that we
are highly dependent on China both for its supply of electronic
components and the provision of contract manufacturing and, like
many companies who sell electronic hardware, have limited
alternative options. We monitor the stances governments take and
consider how they may affect our business. We recognise that we
will need to create effective policies to identify applicable
prohibitions and implement responsive procedures such as running
restricted party screenings in order to know exactly with whom we
are doing business and whether those parties are restricted.
Export control laws creating restrictions on exporting goods are
extensive and continue to expand. We monitor legislation and have
established relationships with Chinese legal advisers who advise us
on compliance with the law and evaluate our long-term goals and
business plans. In addition import tariffs on Chinese products
affect our profit margins. We continually assess supply chains to
identify where vulnerabilities lie and, where possible, we
restructure those supply chains to reduce the risk of violations or
excessive costs. We continue to explore contract manufacturing
opportunities in countries outside of China.
Cost inflation
Cost inflation continues to be widely reported and remains
prevalent in most of our major markets. Indications of how cost
inflation is impacting the discretionary income available to
customers has been felt across all industries and revenue growth
has been impacted by macro-economic uncertainty. By remaining
competitive in the market and offering premium and desirable
products we aim to mitigate this by continuing to be the first
choice for customers.
The Group's customers continue to operate in a range of
different sectors which reduces the risk of a downturn in a
particular sector. As a global Group we operate in different
countries and therefore are less exposed if particular countries
are impacted. The Group continues to have no operations or
customers in Russia, Belarus or Ukraine, a market previously
providing an annual revenue of approximately GBP2million.
Forward looking statements
The risks and uncertainties facing the Group were reported in
detail in the 2022 Annual Report and are monitored closely by the
Group. The forward-looking statements in this 2023 Half Year Report
cannot be relied upon as a guarantee or prediction of future
performance. We, like all businesses, continue to face known and
unknown risks, uncertainties and other factors, many of which are
beyond our control, which may mean our actual results differ from
those expressed in this first half year report.
Condensed Consolidated Income Statement
For the six months ended 28 February 2023
Six months to Six months to Year to
Note 28 February 2023 28 February 2022 31 August 2022
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----- ------------------ ------------------ ----------------
Revenue 2 86,243 92,893 183,733
Cost of sales (45,619) (49,630) (100,453)
--------------------------------------------- ----- ------------------ ------------------ ----------------
Gross profit 40,624 43,263 83,280
Administrative expenses (29,163) (27,810) (55,449)
Other income - 830 830
Adjusted EBITDA (non-GAAP measure) 18,053 22,222 41,663
Depreciation and amortisation (3,858) (3,146) (6,991)
Adjusting items for Adjusted EBITDA:
Amortisation of acquired intangible assets (1,504) (2,236) (5,116)
Adjusting items 4 (1,230) (557) (895)
Operating profit 11,461 16,283 28,661
Finance income 712 351 2,286
Finance costs (1,290) (106) (398)
--------------------------------------------- ----- ------------------ ------------------ ----------------
Profit before tax 10,883 16,528 30,549
Income tax expense 5 (2,434) (3,075) (5,773)
--------------------------------------------- ----- ------------------ ------------------ ----------------
Profit for the period from continuing operations 8,449 13,453 24,776
---------------------------------------------------- ------------------ ------------------ ----------------
Earnings per share
From continuing operations
----- ------------------ ------------------
Basic (pence per share) 7 14.4 23.1 42.5
--------------------------------------------- ----- ------------------ ------------------ ----------------
Diluted (pence per share) 7 14.3 22.8 42.1
--------------------------------------------- ----- ------------------ ------------------ ----------------
Condensed Consolidated Statement of Other Comprehensive
Income
For the six months ended 28 February 2023
Six months to Six months to Year to
28 February 2023 28 February 2022 31 August 2022
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------ ----------------
Profit for the period 8,449 13,453 24,776
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign
operations (999) (1,375) (486)
Gain/(loss) on forward foreign exchange contracts
designated and effective as a hedging instrument 194 (144) (1,009)
Tax on hedging instrument (38) 27 199
------------------------------------------------------ ------------------ ------------------ ----------------
Total comprehensive income for the period 7,606 11,961 23,480
------------------------------------------------------ ------------------ ------------------ ----------------
Profit attributable to:
Equity holders of the Company 7,606 11,961 23,480
------------------------------------------------------ ------------------ ------------------ ----------------
Condensed Consolidated Statement of Financial Position
Note 28 February 2023 28 February 2022 31 August 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----- ----------------- ----------------- ---------------
Assets
Non-current assets
Goodwill 16,377 9,710 13,728
Other intangible assets 8 67,909 49,984 61,964
Property, plant and equipment 10,865 6,466 10,870
Deferred tax assets - - 938
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total non-current assets 3 95,151 66,160 87,500
---------------------------------------------- ----- ----------------- ----------------- ---------------
Current assets
Inventories 50,681 25,717 48,340
Trade and other receivables 27,470 22,404 28,520
Derivative financial instruments 9 - 572 -
Current tax asset - 702 413
Cash and cash equivalents 9 13,527 17,813 12,758
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total current assets 91,678 67,208 90,031
---------------------------------------------- ----- ----------------- ----------------- ---------------
Current liabilities
Trade and other payables (26,451) (27,168) (36,348)
Other liabilities (1,448) (987) (1,641)
Current tax liabilities (990) - (1,066)
Provisions (1,327) - (1,840)
Bank loans and arrangement fee 9 (26,760) 211 (13,054)
Derivative financial instruments 9 (99) (1,711) (293)
Total current liabilities (57,075) (29,655) (54,242)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Net current assets 34,603 37,553 35,789
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total assets less current liabilities 129,754 103,713 123,289
---------------------------------------------- ----- ----------------- ----------------- ---------------
Non-current liabilities
Deferred tax (10,561) (6,182) (9,130)
Other liabilities (8,550) (3,442) (8,843)
Total non-current liabilities (19,111) (9,624) (17,973)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total liabilities (76,186) (39,279) (72,215)
---------------------------------------------- ----- ----------------- ----------------- ---------------
Net assets 110,643 94,089 105,316
---------------------------------------------- ----- ----------------- ----------------- ---------------
Equity and liabilities
Capital and reserves
Share capital 59 59 59
Share premium 115 115 115
Merger reserve 14,595 14,595 14,595
Merger difference reserve (13,147) (13,147) (13,147)
Translation reserve (2,014) (1,904) (1,015)
Hedging reserve (99) 572 (293)
EBT reserve (1) - (1)
Retained earnings 111,135 93,799 105,003
Equity attributable to owners of the Company 110,643 94,089 105,316
---------------------------------------------- ----- ----------------- ----------------- ---------------
Total equity 110,643 94,089 105,316
---------------------------------------------- ----- ----------------- ----------------- ---------------
Condensed Consolidated Statements of Changes in Equity
For the six Merger
months ended 28 Share Share Merger difference Translation Hedging EBT Retained
February 2023 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 2022 59 115 14,595 (13,147) (1,015) (293) (1) 105,003 105,316
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Profit for the
period - - - - - - - 8,449 8,449
Other
comprehensive
(expense)/income
for the period - - - - (999) 194 - (38) (843)
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Total
comprehensive
(expense)/income
for the period - - - - (999) 194 - 8,411 7,606
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Transactions with
owners of the
Company:
Share-based
payment deferred
tax deduction in
excess of
remuneration
expense - - - - - - - (12) (12)
Share-based
payment current
tax deduction in
excess of
remuneration
expense - - - - - - - 25 25
Shares from EBT
exercised - - - - - - - 556 556
Share-based
payments - - - - - - - (341) (341)
Shares withheld
to settle
employees' tax
obligations
associated with
share-based
payments - - - - - - - (185) (185)
Premium on shares
awarded in lieu
of bonuses - - - - - - - 106 106
Dividends paid - - - - - - - (2,428) (2,428)
Balance at 28
February 2023 59 115 14,595 (13,147) (2,014) (99) (1) 111,135 110,643
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the six Merger
months ended 28 Share Share Merger difference Translation Hedging EBT Retained
February 2022 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 2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Profit for the
period - - - - - - - 13,453 13,453
Other
comprehensive
(expense)/income
for the period - - - - (1,375) (144) - 27 (1,492)
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Total
comprehensive
(expense)/income
for the period - - - - (1,375) (144) - 13,480 11,961
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Transactions with
owners of the
Company:
Share-based
payment deferred
tax deduction in
excess of
remuneration
expense - - - - - - - (1,091) (1,091)
Share-based
payment current
tax deduction in
excess of
remuneration
expense - - - - - - - 598 598
Shares from EBT
exercised - - - - - - 1 591 592
Share-based
payments - - - - - - - 499 499
Shares withheld
to settle
employees' tax
obligations
associated with
share-based
payments - - - - - - - (865) (865)
Premium on shares
awarded in lieu
of bonuses - - - - - - - 202 202
Dividends paid - - - - - - - (2,154) (2,154)
Balance at 28
February 2022 59 115 14,595 (13,147) (1,904) 572 - 93,799 94,089
------------------ -------- --------- -------- ----------- ------------ -------- --------- --------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the year Merger
ended 31 Share Share Merger difference Translation Hedging EBT Retained
August 2022 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
2021 59 115 14,595 (13,147) (529) 716 (1) 82,539 84,347
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for the
period - - - - - - - 24,776 24,776
Other
comprehensive
income for
the period - - - - (486) (1,009) - 199 (1,296)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
(expense)/
income for
the period - - - - (486) (1,009) - 24,975 23,480
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - (1,131) (1,131)
Share-based
payment
current tax
deduction - - - - - - - 723 723
EBT shares
issued - - - - - - - 674 674
Share-based
payments - - - - - - - 1,120 1,120
Shares
withheld to
settle
employees'
tax
obligations
associated
with
share-based
payments - - - - - - - (865) (865)
Premium on
shares
awarded in
lieu of
bonuses - - - - - - - 202 202
Dividends paid - - - - - - - (3,234) (3,234)
Balance at 31
August 2022 59 115 14,595 (13,147) (1,015) (293) (1) 105,003 105,316
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Consolidated Statement of Cash Flow
For the six months ended 28 February 2023
Six months to Six months to Year to
Note 28 February 2023 28 February 2022 31 August 2022
GBP'000 GBP'000 GBP'000
Cash flows from operating activities
Profit for the period 8,449 13,453 24,776
Adjustments for:
Income tax expense 2,434 3,075 5,773
Net interest charge/(income) 578 (228) (1,888)
Loss on disposal of property, plant and equipment - 15 24
Loss/(gain) on disposal of intangible assets 27 (24) 105
Gain on sale of trademark - (830) (830)
Amortisation of intangibles 8 4,389 4,093 9,883
Depreciation of property, plant and equipment 1,085 1,289 2,223
Other non cash items (377) - (369)
Share-based payments charge (341) 515 1,313
Operating cash flow before movements in working
capital 16,244 21,358 41,010
Decrease/(increase) in trade and other receivables 1,315 (7,592) (12,316)
Increase in inventories (2,341) (4,966) (27,591)
(Decrease)/increase in trade and other payables (9,421) 2,491 12,988
Operating cash flow before interest and tax 5,797 11,291 14,091
Net interest (paid)/received (636) 246 (330)
Income tax paid (915) (2,722) (3,380)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash generated by operations 4,246 8,815 10,381
Net foreign exchange movements (878) (1,266) (1,918)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net cash inflow from operating activities 3,368 7,549 8,463
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash flows from investing activities
Purchases of property, plant and equipment (1,078) (378) (1,045)
Purchases of intangible assets 8 (1,079) - (3,095)
Capitalised R&D costs 8 (4,296) (5,024) (8,368)
Proceeds from disposal of intangible assets - 978 830
Acquisition of subsidiary, net of cash acquired 10 (7,153) - (10,923)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net cash used in investing activities (13,606) (4,424) (22,601)
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash flows from financing activities
Proceeds from loans and borrowings 15,706 - 13,228
Repayments of loans and borrowings (2,000) - -
Payment of right of use liabilities (405) (478) (1,168)
Equity dividends paid (2,428) (2,154) (3,234)
Net cash generated from/(used in) financing
activities 10,873 (2,632) 8,826
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Net increase/(decrease) in cash and cash equivalents 635 493 (5,312)
Cash and cash equivalents at beginning of the period 12,758 17,339 17,339
Net foreign exchange movement 134 (19) 731
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Cash and cash equivalents at end of the period 13,527 17,813 12,758
----------------------------------------------------- ----- ------------------ ------------------ ----------------
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation and significant accounting policies
Focusrite plc (the 'Company') is a company incorporated in the
UK. The condensed consolidated interim financial statements
('interim financial statements') as at and for the six months ended
28 February 2023 comprised the Company and its subsidiaries
(together referred to as the 'Group').
The Group is a business engaged in the development, manufacture
and marketing of professional audio and electronic music
products.
Statement of compliance
The condensed set of financial statements are for the six months
ended 28 February 2023 and are presented in Pounds ('GBP'
thousands; GBP'000). This is the functional currency of the
Group.
The condensed set of financial statements has been prepared in
accordance with the recognition and measurement requirements of
UK-adopted international accounting standards and the AIM
rules.
The annual financial statements of the Group for the year ending
31 August 2023 will be prepared in accordance with UK-adopted
international accounting standards. The condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's
published consolidated financial statements for the year ended 31
August 2022 which were prepared in accordance with UK-adopted
international accounting standards in conformity with the
requirements of the Companies Act 2006, with the exception of the
presentation of intangible assets which has been updated to
separately disclose technology, products and patents in development
not yet subject to amortisation (see note 8).
AIM listed companies are not required to comply with IAS 34
'Interim Financial Reporting' and accordingly the Company has taken
advantage of this exemption. The condensed financial statements do
not include all the information required for a complete set of IFRS
financial statements. However, selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in the Group's financial position
and performance since the last annual consolidated financial
statements as at and for the year ended 31 August 2022.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 24 April 2023.
The comparative figures for the financial year ended 31 August
2022 are the Company's statutory accounts for that financial year.
Those accounts have been reported on by the Company's auditor and
delivered to the registrar of companies. The report of the auditor
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.
Significant accounting policies
The condensed set of consolidated interim financial statements
has been prepared applying the accounting policies and presentation
that were applied in the preparation of the company's published
consolidated financial statements for the year ended 31 August 2022
which were prepared in accordance with UK-adopted International
Accounting Standards (IAS) in conformity with the requirements of
the Companies Act 2006, with the exception of the presentation of
intangible assets which has been updated to separately disclose
technology, products and patents in development not yet subject to
amortisation (see note 8).
1.1 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and subsidiaries controlled by the
Company drawn up to 28 February 2023.
1.2 Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the Group takes into
consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases.
1.3 Going concern
The Board of Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence and meet their liabilities as they fall due
for a period of at least 16 months from the date of approval of
these interim financial statements ("the going concern period").
Accordingly, the interim statements have been prepared on a going
concern basis.
The Group meets its day-to-day working capital requirements from
cash balances and a revolving credit facility of GBP40.0 million
which is due for renewal in December 2024. The availability of the
revolving credit facility is subject to continued compliance with
certain covenants.
The Directors have prepared projected cash flow forecasts for
the period ending 16 months from the date of their approval of
these financial statements. These forecasts include a severe but
plausible downside scenarios, including the impact of a recession,
loss of a major distributor and significant decline in a major
product category.
The base case covers the period to August 2024 and includes
demanding but achievable forecast growth. The forecast has been
extracted from the Group's FY23 forecast and three-year plan. Key
assumptions include:
-- Future growth assumptions consistent with those recently
achieved by the relevant divisions business and adjusted for the
annualisation of recent acquisitions' results.
-- Continued investments in research and development in all areas of the Group.
-- No further acquisitions
-- Dividends consistent with the Group's dividend policy.
Throughout the period the forecast cash flow information
indicates that the Group will have sufficient cash reserves and
comply with the leverage and interest cover covenants contained
within the facility.
The Directors' view is that a severe yet plausible downside
assumption is a combined scenario of a recession, together with
loss of a distributor and a significant decline in a major product
line. Compared to their base case forecasts this is estimated to be
a revenue shortfall of 30% on the base case for a 12-month period
commencing April 2023 with a 10% decline per month thereafter. This
model assumes that purchases of inventory would, in time, reduce to
reflect reduced sales, if they occurred, and the Group would
respond to a revenue shortfall by taking reasonable steps to reduce
overheads within its control. As an additional measure, the
Directors could also cancel the dividend. Even at that level, the
Group would be expected to remain well within the terms of its loan
facility with the leverage covenant (net debt to adjusted EBITDA)
in the period not exceeding 1.1x compared to the maximum of 2.5x.
The Group's net debt position under this severe plausible downside
scenario would still be expected to improve at the end of the
16-month period to August 2024.
Although revenue in this period has shown a decline, this is
believed to be due to short term market factors, which are expected
to reverse. The Group is still experiencing levels of consumer
registrations and customer demand significantly higher than
pre-pandemic and is expected to be cash generative in the second
half. The Group's net debt position was approximately GBP15.3
million at 20 April 2022. Consequently, the Directors are confident
that the Group will have sufficient funds to continue to meet their
liabilities as they fall due for at least 16 months from the date
of approval of the financial statements and therefore have prepared
the financial statements on a going concern basis.
1.4 Earnings per share
The Group presents basic and diluted earnings per share ('EPS')
data for its ordinary shares. Basic EPS is calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
For diluted EPS, the weighted average number of ordinary shares is
adjusted for the dilutive effect of potential ordinary shares
arising from the exercise of granted share options.
1.5 Accounting estimates and judgements
In application of the Group's accounting policies, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by the Directors in
applying the Group's accounting policies and key sources of
estimation uncertainty were the same as those applied to the
Group's financial statements for the year ended 31 August 2022.
1.6 Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which it operates (its functional currency). Sterling is the
predominant functional currency of the Group and presentation
currency for the consolidated financial information.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the
period in which they arise. Exchange differences on revenue are
recognised within revenue. Exceptions to this are as follows:
-- Exchange differences on transactions entered into to hedge
certain foreign currency risks (see below under cash flow
hedges/financial instruments); and
-- For the purpose of presenting consolidated financial
information, exchange differences on monetary items receivable from
or payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net
investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of the transactions are used. Exchange
differences arising, if any, are recognised in the income
statement.
1.7 Hedge accounting
The Group has adopted hedge accounting for qualifying
transactions. Derivatives are initially recognised at fair value at
the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each balance sheet date. The
resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit
or loss depends on the nature of the hedge relationship. The Group
designates certain derivatives as either hedges of the fair value
of recognised assets or liabilities of firm commitments (fair value
hedges), hedges of highly probable forecast transactions or hedges
of foreign currency risk of firm commitments (cash flow hedges), or
hedges of net investments in foreign operations.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised directly in the hedging reserve. Any ineffective portion
of the hedge is recognised immediately in the income statement.
When the forecast transaction subsequently results in the
recognition of a non-financial item, the associated cumulative gain
or loss is removed from the hedging reserve and is included in the
initial carrying amount of the non-financial asset or
liability.
For all other hedged forecast transactions, the associated
cumulative gain or loss is removed from equity and recognised in
the income statement in the same period during which the hedged
expected future cash flows affects profit or loss.
When the hedging instrument is sold, expires, is terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
equity and is recognised in accordance with the above policy when
the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealised gain or loss
recognised in equity is recognised in the income statement
immediately.
1.8 Alternative Performance Measures (APMs) and Adjusting
items
The Group has disclosed certain alternative performance measures
('APMs') within these interim results. The APMs presented are used
in discussions with the Board, management and investors to aid the
understanding of the performance of the Group. The Group considers
that the presentation of APMs allows for improved insight to the
trading performance of the Group. The Group considers that the term
'Adjusted' together with an adjusting items category, provides a
helpful view of the ongoing trading performance of the Group.
Adjusted results will therefore exclude certain significant
costs such as amortisation on acquired intangibles, together with
some non-recurring costs and benefits and so should not be regarded
as a complete picture of the Group's financial performance.
Adjusting items are those items that are unusual because of
their size, nature or incidence, and are applied consistently year
on year. The Directors consider that these items should be
separately identified within their relevant income statement
category to enable full understanding of the Group's results. Items
included are acquisition costs, earnout payable to employees of
acquired businesses, sale of trademark (only in HY22) and
restructuring costs, together with amortisation of acquired
intangible assets.
The following APMs have been used in these financial
results:
-- Organic constant currency growth - this is calculated by
comparing current period revenue to prior period revenue adjusted
for current period exchange rates and the impact of acquisitions,
shown within the Financial Review.
-- Adjusted EBITDA - comprising earnings (operating profit)
adjusted for interest, taxation, depreciation, amortisation and
adjusting items. This is shown on the face of the income
statement.
-- Adjusted operating profit - operating profit adjusted for
adjusting items. See reconciliation below
-- Adjusted earnings per share ('EPS') - earnings per share
excluding adjusting items. See reconciliation below
-- Free cash flow - net increase/(decrease) in cash and cash
equivalents excluding net cash used acquisitions, movements on the
bank loan and dividends paid. See reconciliation below
-- Underlying free cash flow - as free cash flow but adding back
adjusting items. See reconciliation below
-- Net debt - comprised of cash and cash equivalents, overdrafts
and amounts drawn against the RCF including the costs of arranging
the RCF. See reconciliation below
During the period, the directors have reconsidered the
presentation of the deferred tax credit arising on the amortisation
of acquired intangible assets. This has previously not been
regarded as an adjusting item. In order to be consistent with the
treatment of the amortisation of the relevant assets, we now
consider that the relevant deferred tax credits should be included
within the adjusting items for a better understanding of the impact
of the amortisation of the acquired assets. Accordingly,
comparative amounts for the affected disclosures have been
restated. The impact of this change was to increase the tax credit
on adjusting items by GBP0.3 million in the six months to 28
February 2022 and by GBP1.2 million in the year to 31 August 2022 .
Adjusted basic EPS and adjusted diluted EPS reduced by 0.9p for the
six months to February 2022 and by 2.0p for the year to 31 August
2022.
Reconciliation of Alternative Performance Measures to Statutory
Reported Measures
Six months to Six months to
28 February 2023 28 February 2022
------------------------------------------------- ------------------------------------------
Adjusted Adjusted Adjusted RestatedAdjusted
Adjusted Operating Diluted Adjusted Operating Diluted
EBITDA Profit EPS EBITDA Profit EPS [1]
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------- ----------------- ----------- ---------- -----------------
Reported Operating Profit 11,461 11,461 16,283 16,283
Reported Profit after tax 8,449 13,453
Add back (deduct):
Underlying depreciation and
amortisation 3,858 - - 3,146 - -
Amortisation on acquired
intangibles 1,504 1,504 1,504 2,236 2,236 2,236
Acquisition costs 328 328 328 300 300 300
Gain on sale of trademark - - - (830) (830) (830)
Earnout in relation to
acquisition 523 523 523 1,087 1,087 1,087
Restructuring 379 379 379 - - -
Tax on adjusting items - - (565) - - (831)
----------------------------- ------------- ----------------- --------------- ----------- ---------- -----------------
Adjusted 18,053 14,195 10,618 22,222 19,076 15,415
----------------------------- ------------- ----------------- --------------- ----------- ---------- -----------------
Weighted average number of
total ordinary shares
including
dilutive impact 58,936 58,910
----------------------------- ------------- ----------------- --------------- ----------- ---------- -----------------
Adjusted diluted EPS (p) 18.0 26.2
----------------------------- ------------- ----------------- --------------- ----------- ---------- -----------------
Year to
31 August 2022
---------------------------------------------------------------------------------------------
Restated
Adjusted Adjusted Adjusted
EBITDA Operating Profit Diluted EPS1
GBP'000 GBP'000 GBP'000
----------------------------- -------------------------------- ---------------------------- -----------------------------
Reported Operating Profit 28,661 28,661 -
Reported Profit after tax 24,776
Add back (deduct):
Underlying depreciation and
amortisation 6,991 - -
Amortisation on acquired
intangibles 5,116 5,116 5,116
Acquisition costs 565 565 565
Gain on sale of trademark (830) (830) (830)
Earnout in relation to
acquisition 1,160 1,160 1,160
Tax on adjusting items - - (1,376)
-----------------------------
Adjusted 41,663 34,672 29,411
----------------------------- -------------------------------- ---------------------------- -----------------------------
Weighted average number of
total ordinary shares
including
dilutive impact 58,917
Adjusted diluted EPS (p) 49.9
----------------------------- -------------------------------- ---------------------------- -----------------------------
Six months to
Six months to 28 February Year to
28 February 2023 2022 31 August 2022
------------------------------ ---------------------------- --- -----------------------------
Adjusted Adjusted
Adjusted free Free free
Free cash free cash Free cash cash cash
flow flow cash flow flow flow flow
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ----------- ----------------- ------------- ------------- --- ---------- -----------------
Net
increase/(decrease)
in cash and cash
equivalents
during the year 635 635 493 493 (5,312) (5,312)
Add back: dividends
paid 2,428 2,428 2,154 2,154 3,234 3,234
Add back: cash
outflow
in relation to
acquisition
of business 7,153 7,153 - - 10,923 10,923
Change in bank loan (13,706) (13,706) - - (13,228) (13,228)
Add back: adjusting
items - 1,230 - 557 - 895
---------------------- ----------- ----------------- ------------- ------------- --- ---------- -----------------
Free
cashflow/Adjusted
Free cashflow (3,490) (2,260) 2,647 3,204 (4,383) (3,488)
---------------------- ----------- ----------------- ------------- ------------- --- ---------- -----------------
28 February
28 February 2023 2022 31 August 2022
Definition of net debt N et (debt)/cash N et (debt)/cash N et (debt)/cash
--------------------------- ------------------ ------------------ ------------------
Cash and cash equivalents 13,527 17,813 12,758
Bank loan (26,897) - (13,228)
RCF arrangement fee 137 211 174
--------------------------- ------------------ ------------------ ------------------
Net debt (13,233) 18,024 (296)
--------------------------- ------------------ ------------------ ------------------
[1] Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the interim financial statements.
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to 28 February Six months to 28 February
2023 2022
----------------------------------------- -----------------------------------------
North EMEA Rest Total North EMEA Rest Total
America of World America of World
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- --------- -------- ---------- -------- --------- -------- ---------- ----------
Focusrite 20,669 14,309 5,106 40,084 26,852 19,046 9,016 54,914
Novation 2,838 4,060 1,343 8,241 4,525 4,280 1,706 10,511
ADAM Audio 3,194 6,087 880 10,161 2,381 4,702 1,337 8,420
Sequential 4,295 3,638 746 8,679 2,964 2,999 626 6,589
Sonnox 116 130 60 306 - - - -
-------------------- --------- -------- ---------- -------- --------- -------- ---------- ----------
Content Creation 31,112 28,224 8,135 67,471 36,722 31,027 12,685 80,434
Audio Reproduction
- Martin Audio 5,197 8,420 5,155 18,772 3,041 4,397 5,021 12,459
-------------------- --------- -------- ---------- -------- --------- -------- ---------- ----------
Total 36,309 36,644 13,290 86,243 39,763 35,424 17,706 92,893
-------------------- --------- -------- ---------- -------- --------- -------- ---------- ----------
Year to 31 August 2022
-----------------------------------------
North EMEA Rest Total
America of World
GBP'000 GBP'000 GBP'000 GBP'000
------------------ --------- -------- ---------- --------
Focusrite 47,558 30,936 18,692 97,186
Novation 8,603 8,088 3,892 20,583
ADAM Audio 3,964 9,036 4,797 17,797
Sequential 6,300 7,874 2,075 16,249
------------------ --------- -------- ---------- --------
Content Creation 66,425 55,934 29,456 151,815
Martin Audio 8,084 14,176 9,658 31,918
Total 74,509 70,110 39,114 183,733
------------------ --------- -------- ---------- --------
3. Operating segments
Products and services from which reportable segments derive
their revenue
Information reported to the Group's Chief Executive Officer (who
has been determined to be the Group's Chief Operating Decision
Maker) for the purposes of resource allocation and assessment of
segment performance is focused on the main product groups which the
Group sells. While the results of Novation and Ampify are reported
separately to the Board, they meet the aggregation criteria set out
in IFRS 8 'Operating Segments'. The Group's reportable segments
under IFRS 8 are therefore as follows:
Focusrite - Sales of Focusrite and Focusrite Pro branded
products
Novation - Sales of Novation and Ampify branded products
ADAM Audio - Sale of ADAM Audio products
Martin Audio - Sale of Martin Audio, Optimal Audio and Linea
Research (acquired 10 March 2022) products.
Sequential - Sale of Sequential products.
Sonnox - Sale of Sonnox software plug ins (acquired 19 December
2022)
The revenue and profit generated by each of the Group's
operating segments are summarised as follows:
Six months to Year to
Six months to 28 February 31 August
28 February 2023 2022 2022
GBP'000 GBP'000 GBP'000
------------------------------------------- ------------------ -------------- -----------
Revenue from external customers
Focusrite 40,084 54,914 97,186
Novation 8,241 10,511 20,583
ADAM Audio 10,161 8,420 17,797
Sequential 8,679 6,589 16,249
Sonnox 306 - -
Martin Audio 18,772 12,459 31,918
------------------------------------------- ------------------ -------------- -----------
Total revenue from external customers 86,243 92,893 183,733
Segment profit
Focusrite 19,148 25,944 45,108
Novation 4,485 4,464 8,132
ADAM Audio 4,738 4,081 8,941
Sequential 3,779 2,779 6,819
Sonnox 290 - -
Martin Audio 8,184 5,995 14,280
------------------------------------------- ------------------ -------------- -----------
Total segment profit 40,624 43,263 83,280
Central sales and administrative expenses (27,933) (26,423) (53,724)
Other income - 830 830
Adjusting items (1,230) (1,387) (1,725)
Operating profit 11,461 16,283 28,661
Finance income 712 351 2,286
Finance costs (1,290) (106) (398)
------------------------------------------- ------------------ -------------- -----------
Profit before tax 10,883 16,528 30,549
Tax (2,434) (3,075) (5,773)
Profit after tax 8,449 13,453 24,776
------------------------------------------- ------------------ -------------- -----------
Segment profit represents the profit earned by each segment
without allocation of the share of central administration costs,
other income, finance income and finance costs, and income tax
expense. This is the measure reported to the Group's Chief
Executive Officer 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 the Group.
Also included within central administration costs is a credit
relating to the share option scheme of GBP341,000 for the six-month
period to 28 February 2023 (six months to 28 February 2022: charge
of GBP515,000; year to 31 August 2022: charge of GBP1,313,000).
Segment net assets and other segment information
Management does not make use of segmental data relating to net
assets and other balance sheet information for the purposes of
monitoring segment performance and allocating resources between
segments. Accordingly, other than the analysis of the Group's
non-current assets by region shown below, this information is not
available for disclosure in the condensed consolidated financial
information.
The Group's non-current assets, analysed by region, were as
follows:
28 February 28 February 31 August
2023 2022 2022
GBP'000 GBP'000 GBP'000
-------------------------------- ---------------- ------------ ----------
Non-current assets
North America 9,423 16,033 21,311
Europe, Middle East and Africa 85,615 49,339 66,189
Rest of World 113 788 -
Total non-current assets 95,151 66,160 87,500
-------------------------------- ---------------- ------------ ----------
UK 69,560 54,025 63,543
-------------------------------- ---------------- ------------ ----------
4. Adjusting items
The following adjusting items have been charged/(credited) to
the income statement in the period
Six months to Six months to Year to
28 February 28 February 31 August
2023 2022 2022
Restated(1) Restated(1)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- -------------- -------------- ------------
Adjusting income
Gain on sale of trademark - (830) (830)
Adjusting costs
Acquisition and due diligence costs 328 300 565
Earnout accrual in relation to acquisitions 523 1,087 1,160
Restructuring 379 - -
----------------------------------------------------- -------------- -------------- ------------
Total adjusting items for adjusted EBITDA 1,230 557 895
Amortisation of acquired intangible assets 1,504 2,236 5,116
----------------------------------------------------- -------------- -------------- ------------
Total adjusting items for adjusted operating profit 2,734 2,793 6,011
Tax on adjusting items(1) (565) (831) (1,376)
Total adjusting items for adjusted profit after tax 2,169 1,962 4,635
----------------------------------------------------- -------------- -------------- ------------
(1) Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included. See note 1.8 to the interim financial statements.
Acquisition and due diligence costs in the six months to 28
February 2023 related to fees accrued for due diligence work
associated with the acquisition of Sonnox Limited. The earnout
accrual relates to that part of the US$4 million consideration that
was classed as employee remuneration rather than contingent
consideration as part of the Sequential acquisition in April 2021
and an amount due relating to the acquisition of Linea Research of
GBP0.3 million. The Sequential earn out has now completed and was
paid in the half year. The earn out relating to Linea Research will
complete in May 2023.
5. Taxation
The tax charge for the six months to 28 February 2023 is based
on the estimated tax rate for the full year in each
jurisdiction.
6. Dividends
The following equity dividends have been declared:
Six months to Six months to Year to
28 February 2023 28 February 2022 31 August 2022
---------------------------------------- ------------------ ------------------ ----------------
Dividend per qualifying ordinary share 2.1p 1.85p 6.0p
---------------------------------------- ------------------ ------------------ ----------------
Du ring the period, the Company paid a final dividend in respect
of the year ended 31 August 2022 of 4.15 pence per share. The Board
has approved an interim dividend of 2.1 pence per ordinary share
(HY22: 1.85 pence).
This will be payable on 10 June 2023 to ordinary shareholders on
the register on 13 May 2022. The ex-dividend date will be 12 May
2023.
7. Earnings per share
Reported EPS
Six months to Year to
The calculation of the basic and diluted EPS is based on the 28 February Six months to 31 August
following data: 2023 28 February 2022(1) 2022
Restated(1) Restated(1)
------------------------------------------------------------- ---------------- --------------------- --------------
Earnings GBP'000 GBP'000 GBP'000
------------------------------------------------------------- ---------------- --------------------- --------------
Earnings for the purposes of basic and diluted EPS being net
profit for the period 8,449 13,453 24,776
Adjusting items (see note 4) 2,734 2,793 6,011
Tax on adjusting items(1) (565) (831) (1,376)
------------------------------------------------------------- ---------------- --------------------- --------------
Total adjusted profit for adjusted EPS calculation 10,618 15,415 29,411
------------------------------------------------------------- ---------------- --------------------- --------------
Six months to Six months to Year to
28 February 28 February 31 August
Number of shares 2023 2022 2022
Weighted average number of ordinary shares for the purposes
of basic EPS calculation 58,494,265 58,215,504 58,294,306
Effect of dilutive potential ordinary shares:
Employee and Director share option plans 441,359 694,238 623,138
Weighted average number of ordinary shares for the purposes
of diluted EPS calculation 58,935,624 58,909,742 58,917,444
------------------------------------------------------------- ---------------- --------------------- --------------
EPS Pence Pence Pence
------------------------------------------------------------- ---------------- --------------------- --------------
Basic EPS 14.4 23.1 42.5
Diluted EPS 14.3 22.8 42.1
Adjusted basic EPS(1) 18.2 26.5 50.5
Adjusted diluted EPS(1) 18.0 26.2 49.9
------------------------------------------------------------- ---------------- --------------------- --------------
(1) Restated in HY22 and FY22 to include the deferred tax credit
arising on the amortisation of acquired intangibles, which was not
previously included. See note 1.8 to the interim financial
statements.
At 28 February 2023, the total number of ordinary shares issued
and fully paid was 59,211,639. This included shares held by the
Employee Benefit Trust ('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 less the weighted average number of shares held by the EBT.
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.
8. Other intangible assets
Intellectual Internally Acquired Technology and Computer Brands Total
property, generated technology and patents under software
Licences and technology patents costs Development
Trademarks and patents
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- -------------- -------------- --------------- --------------- --------------- -------- --------
Cost
At 1 September
2021 1,658 21,413 23,694 6,535 1,585 20,020 74,905
Additions -
acquired
separately 1,684 - - - 44 4,535 6,263
Additions -
products
developed
during the
period 406 2,387 - 5,464 - - 8,257
Additions
through
business
combination - - 4,050 1,600 - 850 6,500
Foreign
exchange - - 1,032 - - 913 1,945
Transfer (21) 3,908 1,402 (5,289) - - -
Disposals (1) - - - (245) - (246)
--------------- -------------- -------------- --------------- --------------- --------------- -------- --------
At 1 September
2022 3,726 27,708 30,178 8,310 1,384 26,318 97,624
Additions -
acquired
separately 780 22 - - 277 - 1,079
Additions -
products
developed
during the
period - 1,140 - 3,156 - - 4,296
Additions
through
business
combination - - 4,700 450 3 400 5,553
Foreign
exchange (1) (25) (188) (31) - (334) (579)
Transfer - 3,492 - (3,352) (140) - -
Disposals (28) - - - (1) - (29)
--------------- -------------- -------------- --------------- --------------- --------------- -------- --------
At 28 February
2023 4,477 32,337 34,690 8,533 1,523 26,384 107,944
--------------- -------------- -------------- --------------- --------------- --------------- -------- --------
Intellectual Internally Acquired Technology Computer Brands Total
property, generated technology and and patents software
Licences and technology patents costs under
Trademarks and patents Development
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Amortisation
At 1 September
2021 1,321 16,607 4,123 728 833 2,227 25,839
Charge for the
year 362 3,938 3,215 242 467 1,659 9,883
Foreign
exchange - 17 39 23 79
Eliminated on
disposal - - - - (141) - (141)
At 1 September
2022 1,683 20,562 7,377 970 1,159 3,909 35,660
Charge for the
period 221 2,286 1,695 - 224 933 5,359
Foreign
exchange (2) 9 (10) - (11) (14)
Transfer - 239 - - (239) - -
Reversal of
amortisation - - - (970) - - (970)
At 28 February
2023 1,902 23,096 9,062 - 1,144 4,831 40,035
---------------- -------------- -------------- --------------- -------------- --------------- -------- --------
Carrying amount
---------------- -------------- -------------- --------------- -------------- --------------- -------- --------
At 28 February
2023 2,575 9,241 25,628 8,533 379 21,553 67,909
---------------- -------------- -------------- --------------- -------------- --------------- -------- --------
At 31 August
2022 2,043 7,146 22,801 7,340 225 22,409 61,964
---------------- -------------- -------------- --------------- -------------- --------------- -------- --------
In previous accounting periods, the amortisation of acquired
technology and patents under development has been incorrectly
calculated. The accounting policy requires that they should be
amortised from the date when the assets are available for use. In
error it had been commenced from the earlier date of the
acquisition of the related businesses. The cumulative amortisation
provided in error totals GBP1.0 million. As, in the opinion of the
directors, the amount of the error is not material, cumulatively or
in any given financial year, the correction of this error has been
reflected by a reversal of GBP1.0 million of amortisation in the
current period. In order to enhance transparency the other
intangible assets note has been represented to separate those
assets which are currently in development from those which are in
use.
9. Financial instruments
The fair value of the Group's derivative financial instruments
is calculated using the quoted prices. Where such prices are not
available, a discounted cash flow analysis is performed using the
applicable yield curve for the duration of the instruments for
non-optional derivatives, and an option pricing model for optional
derivatives. Foreign currency forward contracts are measured using
quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contract.
IFRS 13 'Fair Value Measurements' requires the Group's
derivative financial instruments to be disclosed at fair value and
categorised in three levels according to the inputs used in the
calculation of their fair value.
Financial instruments carried at fair value should be measured
with reference to the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial instruments held by the Group that are measured at
fair value all related to financial assets/(liabilities) measured
using a Level 2 valuation method.
The fair value of financial assets and liabilities held by the
Group are:
28 February 2023 28 February 2022 31 August 2022
GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ------------------ -------------------- ----------------
Financial assets
Fair value
Cash and cash equivalents 13,527 17,813 12,758
Trade and other receivables 23,130 18,641 26,887
Designated cash flow hedge relationships
Derivative financial assets designated and effective as - 572 -
cash flow hedging instruments
36,657 37,026 39,645
---------------------------------------------------------- ------------------ -------------------- ----------------
Financial liabilities
Fair value
Trade and other payables 12,246 19,381 22,809
Bank loan and arrangement fee 26,760 (211) 13,054
Amounts payable in relation to staged acquisition
payments 3,486 - 3,573
Designated cash flow hedge relationships
---------------------------------------------------------- ------------------ -------------------- ----------------
Derivative financial liabilities designated and effective
as cash flow hedging instruments 99 - 293
---------------------------------------------------------- ------------------ -------------------- ----------------
42,591 19,170 39,729
---------------------------------------------------------- ------------------ -------------------- ----------------
10. Acquisition of a subsidiary
On 19 December 2022, the Group completed the acquisition of 100%
of the share capital of Sonnox Limited ("Sonnox"). The total gross
cash consideration was GBP9.1 million paid in full on completion.
The acquisition was funded by a drawdown of GBP9.2 million on the
existing revolving credit facility of GBP40 million with HSBC and
Natwest. Sonnox had GBP1.9 million of cash at the acquisition date
such that the net cash consideration was GBP7.2 million.
Sonnox is a well-established and acclaimed brand in the audio
industry. Its range of innovative and award-winning plugins are
used in a wide range of audio applications including mixing,
mastering, live sound, broadcast, TV and film, and even scientific
and forensics projects..
For the period between the acquisition date and 28 February
2023, Sonnox contributed revenue of GBP0.3 million and a profit
before tax of GBP0.1 million to the Group. If the acquisition had
occurred on 1 September 2022, management estimates that Sonnox's
revenue would have been GBP1.2 million and profit before tax for
the period would have been GBP0.6 million.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP287,000 on
legal fees and due diligence costs relating to the acquisition of
Sonnox. These have been included in adjusting item costs to give
investors a better understanding of the costs related to the
acquisition of Sonnox. Additionally, because of their size, nature
and the fact that they vary from acquisition to acquisition, the
Group considers it a better reflection of the trading performance
to show these separately.
Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets
acquired, and liabilities assumed at the date of acquisition:
Recognised values on acquisition GBP000
------------------------------------------------- --------
Developed technology 4,700
Technology and patents in development 450
Brand 400
Software/website 3
------------------------------------------------- --------
Intangible assets 5,553
Property, plant and equipment 36
Cash 1,942
Working capital 265
Acquired deferred tax liability (11)
Deferred tax liability (1,373)
------------------------------------------------- --------
Net identifiable assets and liabilities at fair
value 6,412
Goodwill recognised on acquisition 2,683
Consideration paid 9,095
------------------------------------------------- --------
The acquired deferred tax liability has been estimated by
applying the uplift in asset fair value to the average expected
corporate tax rates over the life of the assets.
Measurement of fair values
The valuation techniques used for measuring the fair value of
material assets acquired were as follows:
Assets acquired Valuation technique
Property, plant and equipment Cost approach
Income approach (multi-period excess earnings
Developed technology method "MEEM")
The key assumption used is the forecast
revenues attributable to the existing asset.
Technology and patents in
development Replacement cost approach
The key assumption is the estimated completion
percentage
Brand Income approach (relief from royalty method)
The key assumption used is the forecast
revenues attributable to the existing asset.
Fair values measured on a provisional basis
Sonnox was acquired two months prior to the end of this
reporting period. If new information is obtained within one year of
the date of acquisition about the facts and circumstances that
existed at the date of acquisition that identifies adjustments to
the above amounts or any additional provisions that existed at the
date of acquisition, then the accounting for the acquisition will
be revised. Such adjustments may relate to our understanding of the
growth assumptions made at the time of the acquisition.
Goodwill
The goodwill recognised is attributable to:
-- the skills and technical talent of the Sonnox workforce;
-- income growth potential from new products, future
relationships and a proportion of synergies;
-- alignment to the Group's existing customer base; and
-- strong strategic fit.
As a result of the strong strategic fit, we expect revenue and
cost synergies to result for Focusrite brands as a result of this
transaction and therefore a proportion of the goodwill and
technology and patents in development recognised in this
transaction will be attributed to the Focusrite Cash Generating
Unit (CGU) rather than the Sonnox CGU.
Intangible assets sensitivity analysis
In assessing the estimated useful life of the intangible assets,
management considered the sensitivity in the forecast sales on the
valuation of the developed technology and brand. The following
table details the sensitivity to a 10% increase and decrease in the
sales forecast and related cost of sales impact this would have on
the valuation of the assets.
Valuation impact
10% sales 10% sales
Asset Cost increase decrease
Developed technology 4,700 482 (482)
Brand 400 43 (43)
Total 5,100 525 (525)
In 2022 the Group purchased Linea Research for GBP12,277,000,
resulting in acquired intangible assets additions of GBP6,500,000
and goodwill of GBP3,387,000 arising due to this business
combination.
Independent Review Report to Focusrite plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 28 February 2023 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Other Comprehensive Income, Condensed Consolidated Statement of
Financial Position, Condensed Consolidated Statements of Changes in
Equity, Consolidated Statement of Cash Flow and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 28 February 2023
is not prepared, in all material respects, in accordance with the r
ecognition and measurement requirements of UK-adopted international
accounting standards and the AIM Rules.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the half-yearly report and
consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the directors have
inappropriately adopted the going concern basis of accounting, or
that the directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
group will continue in operation.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK-adopted international
accounting standards.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly report in
accordance with the recognition and measurement requirements of
UK-adopted international accounting standards.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review. Our conclusion, including our conclusions
relating to going concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for
conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
James Tracey
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
24 April 2023
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END
IR IIMBTMTTTTJJ
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