TIDMTUNE
RNS Number : 8403U
Focusrite PLC
28 November 2023
Strictly Embargoed until 07.00, 28th November 2023
Focusrite plc
("Focusrite" "the Company" or "the Group")
Final Results for the Year Ended 31 August 2023
Focusrite plc (AIM: TUNE), the global music and audio products
company, announces its Final Results for the year ended 31 August
2023.
Financial and operational highlights
FY23 FY22 Change
Revenue (GBP million) 178.5 183.7 -2.9%
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Gross margin % 47.5% 45.3% +2.2ppts
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Adjusted(1) EBITDA(2) (GBP million) 38.6 41.7 -7.4%
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Operating profit (GBP million) 24.3 28.7 -15.3%
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Adjusted(1) operating profit (GBP
million) 30.4 34.7 -12.4%
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Basic earnings per share (p) 30.4 42.5 -28.5%
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Adjusted(1) diluted earnings per
share (p) 38.4 49.9(3) -23.0%
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Total dividend per share (p) 6.6 6.0 +10.0%
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Net debt(4) (GBP million) (1.3) (0.3) -GBP1.0m
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Revenue decrease of 2.9% reflects organic constant currency(5)
(OCC) decrease of 9.5% partially offset by acquisitions and foreign
exchange translation benefits against a challenging market
backdrop.
-- Content Creation revenue down by 9.7% (15.3% OCC decrease) to
GBP137.0 million (FY22: GBP151.8 million), an improvement on first
half decline of 16.1% with Focusrite brands returning to growth in
H2.
-- Audio Reproduction revenue growing by 30.1% (19.6% OCC
growth) to GBP41.5 million (FY22: GBP31.9 million), benefitting
from a strong supply chain and a resurgence in demand for live
experiences.
-- Gross margin increased by 2.2% points, with freight costs
normalising, partially offset by investment in promotions to
counteract cost of living challenges.
-- Adjusted EBITDA of GBP38.6 million down 7.4% from FY22,
impacted by lower sales and investment in Group infrastructure.
-- Operating profit of GBP24.3 million down 15.3% impacted by
increased amortisation from product launches and amortisation of
acquired intangibles.
-- Launch of 32 new products across all brands throughout the
year, including 4th generation of flagship Scarlett audio
interface.
-- Acquisition of Sonnox, an established provider of market
leading software, completed in December 2022 for GBP7.2 million net
of cash acquired (GBP1.9 million).
-- Final dividend of 4.5p recommended, resulting in 6.6p for the year, up 10% on prior year.
1 Adjusted for amortisation of acquired intangible assets,
acquisition and restructuring costs and other adjusting items
2 Comprising earnings adjusted for interest, taxation,
depreciation and amortisation.
3 Restated to include the deferred tax impact of amortisation on
acquired intangible assets
4 Net debt defined as cash and cash equivalents, overdrafts and
amounts drawn against the RCF including the costs of arranging the
RCF
5 Organic constant currency growth. This is calculated by
comparing FY23 revenue to FY22 revenue adjusted for FY23 exchange
rates and the impact of acquisitions.
Commenting on the final year results and current trading Tim
Carroll CEO, said:
"Despite challenging macroeconomic conditions, our Group has
delivered a resilient performance, achieving revenue and profit
figures in line with market expectations. With our existing
portfolio, planned product launches throughout the coming year,
streamlined go-to-market strategies, and shared back-office support
structures, we are well-positioned to embrace the opportunities and
challenges the new year presents.
Current market conditions for our Content Creation division
remain difficult and our revenue year to date has been impacted by
a degree of sales channel de-stocking. However, underlying demand
for our products, as evidenced by customer registrations, remains
satisfactory. Performance in our Audio Reproduction division
remains strong.
Overall, at this early stage and as we head into our key holiday
season, our expectations for the year remain unchanged.
Whilst we remain mindful of the significant global economic and
political challenges, as well as ongoing cost pressure in the
supply chain, we have successfully built our inventory positions
back to more normalised levels and have robust plans for future
component supplies as well. With key new products launched towards
the end of FY23 and more introductions planned for the year ahead,
we remain confident in the organic growth potential of existing
brands. Additionally, with the benefit of our cash generation, the
Group has demonstrated its ability to execute on our proactive
M&A strategy, carefully considering acquisitions that not only
enhance earnings but also expand our market potential, increase our
R&D capabilities, and contribute both scale and dynamism to our
business.
We remain optimistic about our future prospects."
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31
August 2023 and notice of the Annual General Meeting ("AGM") of
Focusrite will be posted to shareholders by 20 December 2023 and
will be available on Focusrite's website at
www.focusriteplc.com.
Dividend timetable
The final dividend is subject to shareholder approval, which
will be sought at Focusrite's AGM on 19 January 2024.
The timetable for the final dividend is as follows:
19 January 202 4 AGM to approve the recommended final dividend
28 December 2023 Ex-dividend Date
29 December 2023 Record Date
31 January 2024 Dividend payment date
- ends -
Enquiries:
Focusrite plc:
Tim Carroll (CEO) +44 1494 462246
Sally McKone (CFO) +44 1494 462246
Investec Bank plc (Nominated Adviser and
Joint Broker) +44 20 7597 5970
David Flin
Edward Knight
William Brinkley
Peel Hunt LLP (Joint Broker) +44 20 7418 8900
Paul Gillam
Michael Burke
James Smith
Belvedere Communications +44 20 7653 8702
John West
Llew Angus
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 (MAR)
Notes to Editors
Focusrite plc is a global 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 Focusrite
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 offer audio
interfaces and other products for recording musicians, producers
and professional audio facilities. Novation and Ampify products are
used in the creation of electronic music, from synthesizers 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 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 Company 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, London Stock
Exchange.
Chairman's Report
Focusrite plc has undergone substantial growth since the
pre-COVID era, expanding our presence globally with 11 distinct
brands operating in diverse yet complementary markets. Over the
past year, we have seen tangible results stemming from our
strategic diversification efforts, which have enhanced our
resilience in the face of global and industry-wide challenges.
We take immense pride in the business we have become,
accompanied by impressive financial achievements since our initial
public offering in December 2014. Although facing a challenging
time this year, our track record speaks for itself, with revenue
growth, strong cash generation, robust gross margins, a progressive
dividend policy, and a successful acquisition strategy that has
delivered attractive total returns to our valued shareholders.
At the core of our operations lies a global market with
underlying growth factors, which we estimate at GBP5.5 billion
across all our divisions. The ongoing technological advancements
have democratised content creation and catalysed growth across the
world. In this landscape, we find ourselves at the forefront of
innovation.
Throughout the past year, the Group has undergone substantial
changes while maintaining a strong presence in various markets,
both vertically and geographically. We continue to drive
innovation, foster strong relationships with our established
customer base, and maintain an expansive distribution network
spanning approximately 240 territories worldwide.
Whilst we celebrate our growth achievements, we remain vigilant
in acknowledging factors that have impacted our revenue
performance. Notably, our Focusrite-branded Scarlett audio
interface range experienced a decline in volume in a market that
had previously surged in demand during the pandemic. However, we
proudly retained our global market leadership in this category. In
July, we unveiled the 4(th) generation of Scarlett interfaces,
which has already garnered widespread acclaim, bolstering our
confidence in this range's market share for the years ahead.
To enhance marketing and representation efficiency, the Group
has restructured its distribution networks in Europe and the US,
aligning the acquired brands with our original Focusrite and
Novation brands.
In the wake of the COVID-19 pandemic, the Audio Reproduction
market is witnessing a surge in demand for experiences, including
live and installed sound. The businesses within our Audio
Reproduction division, including Martin Audio, Linea Research, and
Optimal Audio, are all experiencing healthy growth, compensating
for anticipated short-term contractions in our Content Creation
brands from the past year. ADAM Audio is also making good progress
following operational challenges in FY22 predominantly as a result
of market wide shortages.
In May 2023, the Group Headquarters and home of Focusrite and
Novation brands relocated to a new, more modern location in High
Wycombe, providing us with vastly improved working conditions and
stability for the foreseeable future. Concurrently, we have
refreshed our investor-facing materials, and I encourage investors
to explore our new plc website at https://focusriteplc.com/.
The Group is well positioned in all major markets, with enduring
demand for high-quality audio products in music and sound
production, recording, and entertainment industries across the
globe. The catalysts for our business opportunities lie in music
education and the global thirst for content and live entertainment,
and we are always ready to embrace the challenges and prospects
presented.
I extend my sincere gratitude to our investors for their
continued confidence and support, to our dedicated employees for
their hard work and innovation, and our distribution partners for
their invaluable role in delivering our products to the masses.
We have successfully cultivated a diverse portfolio of
world-leading brands, each holding strong positions within their
respective segments. This diversification bolsters our resilience
against global and industry-specific headwinds. There is much to
look forward to and, with a proven track record of growing both
organically and via selected M&A, we approach the future with
much to be optimistic about.
Phil Dudderidge
Non-Executive Chairman and Founder
CEO Statement
CEO's Statement
I'm pleased to present our final results for 2023, highlighting
the Group's journey over the past year. It was a year of challenges
and opportunities, and the Group tackled both with a focus on our
growth strategy, resulting in strong performance in a challenging
market. As part of our strategic expansion, we welcomed Sonnox, a
renowned software company specialising in professional audio
effects and tools, into our Group.
Some of the challenges we faced in 2023 carried over from the
previous year, notably the impact of rising living costs on home
recording solutions and ongoing high component costs. As discussed
in the half year report, this resulted in softer sell through on
many Content Creation products focused on the home recordist, and a
build-up of inventory in the channel. The Group effectively
addressed both issues with our product inventory unwinding in the
channel to targeted levels and pricing actions taken to protect
margin without impacting our sell through volumes to end users. Our
products continue to be top sellers in their various categories. In
parallel, the Group witnessed a surge of demand for live and
installed sound solutions, reinforcing the view that live events
are back in a big way.
With 11 brands spanning Content Creation and Audio Reproduction,
the Group's R&D efforts resulted in the successful launch of 32
new products and updates to 23 existing ones during the fiscal
year. Additionally, we have continued to refine our go-to-market
approach; most notably this past year with a combined EMEA sales
and marketing team for our Content Creation brands, which has
resulted in greater leverage and scale.
Our primary locations are in the UK (High Wycombe, Letchworth,
Oxford and London), Germany (Berlin), Hong Kong, Australia
(Melbourne), and the US (Los Angeles, Nashville and San Francisco).
Our employee base, which now totals 557, consists of a remarkable
group of passionate professionals, including accomplished
musicians, DJs, audio engineers, live sound experts, and
podcasters/streamers. We are fortunate to have employees who
actively use our solutions in real-world scenarios, contributing
their experiences, feedback, and technical expertise. We continue
to invest in our people and look wherever possible to promote from
within, whilst seeking out top talent from around the world across
all divisions and brands.
Our Group Structure
The Group's portfolio of solutions can be categorised into two
broad categories:
-- Content Creation: Solutions that enable the creation of audio
content for distribution or personal enjoyment- approx. 77% of
total FY23 revenue comprised of four unique business units and
eight industry leading brands.
-- Audio Reproduction : Solutions that enable the reproduction
of sound-approx. 23% of total FY23 revenue comprised of two unique
business units and three brands.
Our two divisions cater to distinct customer bases; employ
different routes to market; and involve product-specific technical
requirements for our products. Each individual business unit
continues to focus on innovation, ensuring a robust roadmap of
refreshes for current products whilst also introducing completely
new solutions. Content Creation and live sound reproduction
workflows are constantly evolving, and the Group aims to lead the
industry by spending considerable effort and resources in our
various R&D efforts.
To support these brands we have implemented a unified
go-to-market strategy, managed by cohesive regional teams for each
division. Additionally, all business units benefit from Group-led
services across Finance, IT, and HR.
The Group is dedicated to gaining valuable insights from our
customers, actively collecting data during their on-boarding and
user journey as they use our solutions. We closely monitor customer
Net Promoter Scores (NPS), which serves as a key performance
indicator (KPI) across all our businesses. Additionally, we collate
our own proprietary data with industry market sources to ensure we
consistently stay attuned to our customers' evolving needs and
purchasing behaviours. More detail on our markets and customer
types is provided elsewhere in this report.
Additionally, the Group maintains a very proactive stance
towards M&A, carefully considering potential acquisitions that
are not only earnings enhancing, but which can also expand our
reach into existing and new markets and add to our R&D
capabilities.
Operating review
Despite the challenging environment and the gradual return to
normality following the pandemic, the diversity of the Group's
portfolio has mitigated these impact and maintained our position as
market leaders. In the past year, our Content Creation division was
down 9.8% compared with the prior year, whilst our Audio
Reproduction brands, witnessing a strong return of live events
globally, were up 30.1%. The Group's diversification across these
two divisions has served us well across the past three years: when
the pandemic hit and live events were shut, our Content Creation
brands witnessed an unprecedented increase in demand, offsetting
the decline in Audio Reproduction. As a result, while
consumer-focussed brands in the content creation space grapple with
rising living costs, inflated channel inventories, and artists
returning to a more balanced recording and live performance
schedule, the Group's Audio Reproduction brands have experienced a
significant surge in demand during this live events revival.
Content Creation
Content Creation encompasses the creation of audio content using
various technologies. It spans from personal enjoyment to
professional content production across diverse mediums, such as
music, podcasting, and audio for film. The global demand for
content creation continues to increase, with industry reports such
as IFPI Global Music Report 2023 indicating not only sustained
growth but also an expanding global reach, driven by emerging
markets, enabling individuals worldwide to reach a global
audience.
The pandemic and subsequent lockdowns accelerated this growth,
as many people turned to music and podcast creation as a creative
outlet. Musicians and streamers used technology to stay in touch
with their audiences and increase their productivity. However,
challenges relating to component availability and shipping
logistics began to plague all industries around mid-2022 which, for
our industry, resulted in exceptionally low stock levels across our
Global channel. At the beginning of this past fiscal year, both
component supply and freight costs began to ease up, resulting in a
massive inflow of inventory to the channel. This coincided with
concerns about rising living costs.
The net result was a very bloated channel, not just in our
sectors, but across all sectors such as guitars, wind instruments,
pianos and other instruments. Industry trade publications have
reported this phenomenon, with recent data from Music Trades
indicating a 65% decrease compared to the prior year in guitar
exports to the US for the quarter from April to June 2023. As
outlined in our half year presentation, the Group realised this
early into the year and worked very collaboratively with our global
channel partners on promotions and incremental marketing campaigns
to drive down inventory. These efforts proved effective and from
all data points, we believe the Group performed materially better
than our competitors and was able to maintain our market share and,
in some instances, grow share as well.
Regionally, both North America and EMEA witnessed low single
digit declines in revenue year over year. APAC saw a larger
decline, most notably due to China, where the extended lockdowns
ending, and the larger scale of inflation had greater impact. To
help mitigate this the Group has continued to refine our route to
market strategy across our Content Creation brands. We now have
unified regional teams in the US, Latin America, Canada, EMEA and
APAC, representing all our brands. This approach leverages our
scale to optimise channel performance.
Focusrite/Focusrite Pro branded solutions include the Scarlett,
Clarett, Vocaster, Red and Rednet range of audio interfaces.
Scarlett, focused primarily on the home studio customer, continued
to dominate the market, holding on to its leading market share even
with a number of new competitors entering the space. As one of the
Group's larger revenue-generating portfolio of products, Scarlett
also had the additional challenge of a major product transition
happening late in the second half. This required the Group to drive
down inventory levels at an accelerated rate over the second half
to insure a smooth product transition to the next generation. The
4(th) Generation Scarlett Solo, 2i2, 4i4 and related bundles launch
was announced at the end of August 2023 to industry wide accolades
on the products new features and specs. The Group successfully
reduced inventory levels of the 3(rd) generation products, whilst
working strategically with several key continental partners to
place much of the remaining inventory of the 3(rd) gen product to
be sold through the holiday season, in the first half of FY24. This
was made possible due to the price difference between the 3(rd) and
4(th) generation products, allowing us to effectively market a
premium product to customers who would potentially opt for a
lower-priced, lower specification product.
Focusrite's Red and Rednet solutions continue to set industry
standards for professionals and facilities with complex workflows
requiring reliability and quality. These products were deeply
impacted by the AKM factory fire in Japan, which was the sole
source for many professional grade audio products. The re-work
required to source and implement alternative silicon for these
products was a substantial undertaking, requiring nearly two years
of development resources. We are finishing the rework on the last
remaining items and production is beginning to ramp up again.
Novation/Ampify branded products are a collection of hardware
and software solutions dedicated to the art of electronic music.
These products also cater to a wide range of customers, from the
beginner to the professional electronic music maker. This category,
like others in the industry, experienced reduced demand, primarily
among younger artists affected by cost-of-living issues. Inside the
different product categories, the Group saw the most softness in
the groovebox and launchpad products, very much aligned to a
younger, more price sensitive market. This was partially offset by
an increase in our keyboard controller category, which the group
has expanded to support several different computer-based recording
platforms and workflows. Ampify, our freemium software offering,
saw a slight decline in both perpetual and subscription sales,
aligning with industry trends, and influenced by global cost of
living factors. These offerings remain a great vehicle for
attracting new customers.
ADAM Audio's revenue increased slightly compared to FY22,
defying the industry-wide trend, reported in many market studies,
of approximately 20% year over year declines. This performance was
partially due to a low comparator in FY22, as ADAM Audio had
numerous components issues the previous year that resulted in
extended stock outs on key products, and a delay in introducing the
new A series line. All products have now been in stock and
available for the full year and, based on the various industry
reports we receive and our own channel sales data, we believe ADAM
Audio increased their market share year-on-year in a very
challenging environment. While a larger portion of the revenue came
from the lower-priced T Series this past year, we are seeing the
new A Series solutions generating good traction in the professional
market, with many choosing these solutions for upgrading their
rooms to new immersive mixing formats, such as Dolby ATMOS.
Sequential and Oberheim also faced a challenging year: global
industry reports highlighted a 25% decline in the synthesizer
category compared to the previous year. Higher-priced products,
such as those from Sequential and Oberheim, experienced even more
declines. Sequential / Oberheim revenue for the year was down 10.9%
on FY22, which, while a better result than industry data for the
entire category, was partially driven by strong new product
introductions in the previous year that were not repeated in FY23.
This decline was partially offset by the introduction of the
Oberheim OBX and Sequential Trigon 6 desktop modules. Both brands
remain incredibly strong in this category.
Sonnox was acquired by the Group in December of this past year.
Sonnox is a pure software business, with itsportfolio sold by a
select group of global resellers as well as direct to end user.
Sonnox had a solid year, with sales meeting expectations. This
performance was a combination of consistent sales of legacy
products, successful planned seasonal promotions, and the launch of
Voca toward the end of the fiscal year. Going forward, the Sonnox
development team will continue to execute on its internal roadmap
as well as working with several of the Group's other brands for
future products.
Summary : After a challenging FY23, we anticipate the market
stabilising in FY24, but with limited growth given the ongoing
macro economic climate. For our established Focusrite brands, where
we have achieved significant market penetration of up to 30% in
some segments, we expect growth to align with the market, supported
by new product introductions. For our newer brands, there is room
to capture market share, increase penetration, and achieve
above-market growth, driven by market expansion and new product
offerings.
Audio Reproduction
The Group's Audio Reproduction brands, Martin Audio, Optimal
Audio and Linea Research, are focused on delivering state of the
art audio to audiences across a wide spectrum. From the largest
music festivals to renowned theatres, music halls, night clubs,
houses of worship, universities and more, our solutions ensure rich
and memorable auditory experiences. As discussed in last year's
annual report, the global Audio Reproduction industry faced a
significant hiatus during most of the pandemic. Towards the end of
2022, live events gradually returned, and we forecasted an
accelerating return to normal for the industry across this past
year. This acceleration materialised, resulting in a significant
increase year over year for our brands in this space as well as the
entire industry. Revenue for Audio Reproduction brands for the
Group finished the year 30.1% up year over year and have carried
over into the new year with a healthy order book.
Our Martin Audio brand of products is seen and heard in some of
the largest music festivals and tours, as well as many of the most
prestigious music halls and theatres across the globe. Most notable
this past year, Martin Audio solutions dominated the Glastonbury
and Hyde Park music festivals, utilising a patented design that
allows maximum coverage in the audience space whilst minimising the
noise exterior to the event. Martin Audio introduced a range of new
products across the year, including a new addition to the
award-winning Torus family and the new Flexpoint series, providing
advanced solutions for shorter throw needs across live sound and
installations. In total, Martin Audio had 15 new product
introductions in the past year, a testament to the Group's decision
to keep Martin Audio operational throughout the pandemic when many
competitors temporarily closed their doors.
Linea Research, one of the Group's FY22 acquisitions, makes
professional grade amplification for use in a multitude of live
sound settings. Linea Research had an outstanding year, exceeding
budget expectations and ramping up production to double the number
of amplifiers previously produced. This result played heavily into
Martin Audio's success as well, with most of its powered offerings
utilising Linea Research amplification. Linea Research has also
benefitted from the Group's scale and leverage, both for purchasing
raw components and for logistics and operational support.
Optimal Audio, the Group's new commercial audio brand, is
dedicated to bringing high-quality sound to a host of commercial
installations. Launched in April of 2022, Optimal Audio has gained
popularity among system integrators as an easy to use, high quality
sound solution for installations such as restaurants, gyms, smaller
clubs, and universities. After a slow start with availability due
to the 2022 component crisis and a prioritisation call to focus on
Martin Audio branded solutions, production has ramped up and the
pipeline is growing as system integrators globally have begun
specifying Optimal audio into their bids.
Summary: As mentioned earlier, the audio reproduction market is
currently thriving, with customers valuing audio experiences
following the COVID-19 lockdowns. We anticipate this market will
gradually normalise over the next year, returning to lower levels
of growth. Martin's robust product pipeline and opportunities to
take market share are expected to deliver growth levels surpassing
the overall market trend.
Routes to Market
The Group's two divisions are now supported by dedicated
regional sales teams. Given the distinct nature of both end
customers and channels, each division benefits from professional
regional sales and marketing teams across EMEA, Americas and APAC.
As part of our growth strategy, the Group continues to refine its
routes to market, looking for ways to optimise reach and return in
every global region.
Audio Reproduction worked diligently to expand the global
distribution network for Optimal Audio. The focus was on forging
partnerships with entities that are closely aligned with system
integrators well known for specialising in the targeted customer
groups. Additionally, new partners in the equipment rental market,
such as 22Live in the UK, emerged to meet the challenges of the
resurgence of live events, making significant investments in Martin
Audio's Wavefront Precision range.
Within Content Creation, the Group was able to make some key
changes to its go-to-market strategy. Historically, each business
unit in Content Creation had its own individual sales personnel
managing relationships with their global channels. In many
instances, each business unit engaged with the same resellers or
distributors. The Group had already consolidated our Content
Creation efforts in Australia the previous year, with the new
structure proving highly beneficial in terms of extending leverage
and focus within the reseller community.
Consequently, the Group initiated the same strategy in EMEA,
bringing together several disparate teams into one unified Content
Creation sales and marketing team for all associated brands. The
result has again proven to be very effective. As a result, in the
last quarter of this past year, we began to restructure the US team
into a similar unified regional team supporting all Content
Creation brands. We anticipate that these newly formed unified
teams will allow us to forge closer connections with our channel
partners and end users while providing scalability and improved
organisational structure as the Group pursues organic growth and
acquisitions.
Our eCommerce platform has also been completely rebuilt during
the year, initially for the Focusrite brands, but now giving us a
platform for all our Content Creation brands and to provide a more
robust route for our direct to consumer channel.
Summary and Outlook
Despite challenging macroeconomic conditions, our Group has
delivered a resilient performance, achieving revenue and profit
figures in line with market expectations. With our existing
portfolio, planned product launches throughout the coming year,
streamlined go-to-market strategies, and shared back-office support
structures, we are well-positioned to embrace the opportunities and
challenges the new year presents.
Current market conditions for our Content Creation division
remain difficult and our revenue year to date has been impacted by
a degree of sales channel de-stocking. However, underlying demand
for our products, as evidenced by customer registrations, remains
satisfactory. Performance in our Audio Reproduction division
remains strong.
Overall, at this early stage and as we head into our key holiday
season, our expectations for the year remain unchanged.
Whilst we remain mindful of the significant global economic and
political challenges, as well as ongoing cost pressure in the
supply chain, we have successfully built our inventory positions
back to more normalised levels and have robust plans for future
component supplies as well. With key new products launched towards
the end of FY23 and more introductions planned for the year ahead,
we remain confident in the organic growth potential of existing
brands. Additionally, with the benefit of our cash generation, the
Group has demonstrated its ability to execute on our proactive
M&A strategy, carefully considering acquisitions that not only
enhance earnings but also expand our market potential, increase our
R&D capabilities, and contribute both scale and dynamism to our
business.
We remain optimistic about our future prospects.
Tim Carroll
Chief Executive Officer
Financial Review
Overview
Against a challenging market, the Group has seen revenues
decline by 2.9% and, despite a stronger gross margin, adjusted
EBITDA has reduced by 7.4%, with a decline of 23% in adjusted
diluted earnings per share ('EPS').
Income statement
2023 2023 2023 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------
Adjusted Non-underlying(1) Reported Adjusted Non-underlying(1) Reported
-------------------- --------- ------------------ --------- --------- ------------------ ---------
Revenue 178.5 - 178.5 183.7 - 183.7
Cost of sales (93.7) - (93.7) (100.4) - (100.4)
-------------------- --------- ------------------ --------- --------- ------------------ ---------
Gross profit 84.8 - 84.8 83.3 - 83.3
Administrative
expenses (54.4) (6.1) (60.5) (48.6) (6.0) (54.6)
-------------------- --------- ------------------ --------- --------- ------------------ ---------
Operating profit 30.4 (6.1) 24.3 34.7 (6.0) 28.7
Net finance
income (expense) (1.6) - (1.6) 1.9 - 1.9
-------------------- --------- ------------------ --------- --------- ------------------ ---------
Profit before
tax 28.8 (6.1) 22.7 36.6 (6.0) 30.6
Income tax expense (6.2) 1.3 (4.9) (6.0) 0.2 (5.8)
-------------------- --------- ------------------ --------- --------- ------------------ ---------
Profit for the
period 22.6 (4.8) 17.8 30.6 (5.8) 24.8
-------------------- --------- ------------------ --------- --------- ------------------ ---------
(1) Non underlying costs and income as defined in note 2 and
note 7 to the financial statements.
Revenue
Revenue for the Group decreased by 2.9% to GBP178.5 million from
GBP183.7 million; adjusting for acquisitions and constant currency,
this is an organic decline of 9.5%. Sonnox was acquired in December
2022 and FY23 included eight months of revenue. Linea Research was
acquired in March 2022 and FY22 includes six months of revenue.
The Euro average exchange rate was EUR1.15 (FY22: EUR1.18).
Sterling has weakened against the US dollar from an average of
$1.31 in FY22 to $1.21 in FY23. This has had the impact of
increasing reported revenue but the currency impact is broadly
neutral at a gross profit level as the majority of costs of sale
are also incurred in US dollars.
FY22 FY23 FY23
FY23 FY23 FY23 FY22 FY22 Constant Reported OCC
Revenue Acquisition Organic Revenue Exchange Currency Growth Growth(1)
-------------- ----------- ------------ ------------ --------- ----------- ----------- ----------- -----------
Focusrite 86.3 - 86.3 97.2 5.8 103.0 -11.2% -16.2%
Novation 16.6 - 16.6 20.6 1.1 21.7 -19.5% -23.5%
ADAM Audio 18.5 - 18.5 17.8 0.9 18.7 3.9% -1.1%
Sequential 14.5 - 14.5 16.2 0.9 17.1 -10.5% -15.2%
Sonnox 1.1 (1.1) - - - - n/a n/a
-------------- ----------- ------------ ------------ --------- ----------- ----------- ----------- -----------
Content
Creation 137.0 (1.1) 135.9 151.8 8.7 160.5 -9.7% -15.3%
Audio
Reproduction 41.5 (2.3) 39.2 31.9 0.9 32.8 30.1% 19.6%
-------------- ----------- ------------ ------------ --------- ----------- ----------- ----------- -----------
Total 178.5 (3.4) 175.1 183.7 9.6 193.3 -2.9% -9.5%
-------------- ----------- ------------ ------------ --------- ----------- ----------- ----------- -----------
(1) OCC (organic constant currency growth). This is calculated
by comparing FY23 revenue to FY22 revenue adjusted for FY23
exchange rates and the impact of acquisitions.
The reported full-year revenue declined by 2.9%, but there was
an improvement compared to the half-year (HY23: -7.2% reported).
Revenue in the second half of the year grew by 1.5% compared to the
same period in FY22. In the first half of the year, high inventory
levels in our sales channel, resulting from industry-wide
restocking in FY22, and the impact of cost of living issues on
demand led to destocking. However, as stock levels began to
normalise in the second half, revenue returned to growth, supported
by the launch of new products, including the 4th generation
Scarlett Audio Interface, which although released in August was
sold into resellers in the preceding quarter.
The overall revenue figures mask a more complex result across
our divisions, but pleasingly highlight the benefits of an
increasingly diverse portfolio across the Group. Our Content
Creation brands were faced by difficult markets, down by
approximately 20% on the prior year according to many trusted
market sources. This compares with Audio Reproduction, which is
still benefiting from the increased demand for live experiences
following the end of COVID-19, particularly at the premium end of
the market in which our brands predominantly operate.
Within Content Creation, our biggest business unit, Focusrite,
returned to growth in the second half following destocking in the
first half and supported by the successful launch of our 4th
generation range of Scarlett interfaces. This brand finished the
year 16.2% lower on an organic constant currency basis and 11.2%
lower on a reported basis at GBP86.3 million (FY22: GBP97.2
million). Our Novation synthesizer brand, which had fewer new
products compared to other brands to offset, reported a decline in
line with the overall market. Both ADAM Audio and Sequential were
adversely impacted in FY22 by component shortages, limiting supply
and, as a result, had weak comparators in the first half. This
resulted in stronger growth in the first half, and a reported
decline in the second half. For the full year, ADAM Audio's revenue
benefited from improved supply of the new A Series and the ongoing
popularity of the entry level T Series monitor range. This resulted
in revenue growth of 3.9% for the year (-1.1% on an organic
constant currency basis) to GBP18.5 million (FY22: GBP17.8
million).
Sequential operates at the premium end of the synthesizer
market, with products selling for approximately $3,000 to $5,000;
as a result, they were particularly hard hit by the cost of living
crisis and experienced a decline of reported revenue of 10.5%
(-15.2% on an organic constant currency basis) for the year. This
appears to be ahead of the overall market decline according to
market sources, due to the launch of its new products, such as the
Trigon 6 and OBX modules, with Sequential retaining their premium
rating.
Sonnox was acquired by the Group in December 2022, and
contributed GBP1.1 million in revenue during FY23. This result was
in line with expectations. Towards the end of the year Sonnox
launched as planned its new Voca plug-in contributing to the
revenue result.
Audio Reproduction began the first half of the year with strong
growth of 50.7%, finishing the year with reported revenue growth of
30.1% (19.6% on an organic constant currency basis). This
translates into revenue of GBP41.5 million for the year, compared
with GBP31.9 million in FY22. The resurgence in live sound
following COVID-19 lockdowns helped drive this growth, as did the
extension of the Optimal Audio range, which contributed GBP1
million to Audio Reproduction's overall sales. The standout result
for the year has been the strength of Linea Research, which has
doubled output since joining the Group in March 2022, following
investment from Martin Audio in delivering a new ERP system and
supply chain support.
FY22 FY23 FY23
FY23 FY23 FY23 FY22 FY22 Constant Reported OCC
Revenue Acquisition Organic Revenue Exchange Currency Growth Growth(1)
------------ ------------ ------------ ------------ --------- ------------ ----------- ----------- -----------
North
America 77.7 (1.5) 76.2 74.5 4.6 79.1 4.3% -3.8%
EMEA 69.5 (1.4) 68.1 70.1 1.5 71.6 -0.8% -4.9%
Rest of the
World 31.3 (0.5) 30.8 39.1 3.5 42.6 -19.9% -27.7%
------------ ------------ ------------ ------------ --------- ------------ ----------- ----------- -----------
Total 178.5 (3.4) 175.1 183.7 9.6 193.3 -2.9% -9.5%
------------ ------------ ------------ ------------ --------- ------------ ----------- ----------- -----------
(1) OCC (organic constant currency growth). This is calculated
by comparing FY23 revenue to FY22 revenue adjusted for FY23
exchange rates and the impact of acquisitions.
North America represents 44% of the Group's revenue and saw a
3.8% organic constant currency revenue decline, impacted by
destocking and a weaker market hit by cost of living issues. Due to
the strength of the dollar during the year, reported revenue
increased by 4.3%. Content Creation brands declined year on year by
2.2% reported (-8.2% organic constant currency). However, Audio
Reproduction experienced strong growth of 56.9% (reported) and
31.9% organic constant currency. The combination of new products, a
strong supply chain and investment in the market have all served to
deliver a firm foundation for growth in the US for Audio
Reproduction.
EMEA, which represents 39% of Group revenue, declined by 0.8%
(-4.9% on an organic constant currency basis) to GBP69.5 million.
As within the US market, Audio Reproduction was strong, delivering
17.1% growth (9.6% on an organic constant currency basis), with
production from Linea Research helping to deliver improved levels
of product availability compared with the competition. Content
Creation brands declined by 5.4% (-8.6% on an organic constant
currency basis), with ADAM Audio delivering a return to growth and
Focusrite remaining stable, but with Sequential and Novation
contributing to the overall decline.
ROW comprises mainly APAC and LATAM and represents the remaining
17% of Group revenue. The APAC region experienced a particularly
challenging year, with prolonged lockdowns in China, and high
levels of stock at distributors as a result of the lower demand.
Overall, the region was down 19.9% compared with FY22 (27.7% on an
organic constant currency basis). Pleasingly, our Audio
Reproduction division saw growth, with all brands reporting double
digit increases as demand for experiences increased. This resulted
in growth of 26.6% in the region (23.1% organic constant currency),
however, this was not enough to offset the 35.3% decline across
Content Creation (42.7% organic constant currency).
Segment profit
Segment profit is disclosed in more detail in note 8 to the
Group's financial statements, 'Business Segments'. The revenue is
compared with the directly attributable costs to create a segment
profit. The only major change is the inclusion of Sonnox as a
separate segment following its acquisition in December 2022.
Gross profit
Gross margin improved during FY23 increasing to 47.5%, up from
45.3% in FY22, which had been impacted by high freight rates and
the increased costs from component spot buys. During the reported
year freight rates returned to pre-COVID-19 levels, benefiting
margin by 3.9% points, and component cost spot buys reduced
significantly with a further 0.8% point benefit. This was partially
offset by increased promotions across the year, with heavier
discounts for longer promotional periods offered than historically
had been the case. These were implemented as a response to the
increased pressures caused by the cost of living crisis and high
levels of stock in the channel. Altogether with cost increases this
resulted in a 3.2% point decline in our core product margin, which
partially offset the freight benefits.
Promotional levels in FY24 are expected to return to more normal
levels for current ranges, with some ongoing activity to support
the 3rd generation of Scarlett, with a planned transition to be
marketed as a lower-cost alternative at a different price point,
similar to Apple's approach to iPhone transitions. In addition, the
new 4th generation Scarlett will be mildly dilutive to margin, as
new products do not yet attract the production efficiencies at
scale that well-established products typically achieve. As a
result, we expect overall gross margin to be broadly flat in the
next year.
Administrative expenses
Administrative expenses consist of sales, marketing, operations,
the uncapitalised element of research and development and central
functions such as legal, finance and the Group Board. These
expenses were GBP60.5 million, up from GBP54.6 million last year.
These costs also include depreciation and amortisation of GBP8.1
million (FY22: GBP7.0 million), amortisation of acquired intangible
assets of GBP4.5 million (FY22: GBP5.1 million) and non-underlying
items of GBP1.7 million (FY22: GBP0.9 million), which are discussed
in more detail below. Excluding non-underlying items and
depreciation and amortisation, administrative costs were GBP46.3
million (FY22: GBP41.6 million), an increase of GBP4.7 million over
the prior year.
Acquisitions partially contributed to this increase, with the
addition of Sonnox contributing GBP0.8 million and the
annualisation of Linea Research a further GBP0.4 million. Audio
Reproduction has invested in additional staff to support the
increase in production and to drive sales and marketing efforts
globally, including increased trade show activity during the
year.
During a time of heightened inflation, we have sought to retain
staff and structured pay increases with the aim of directing
resources to those most impacted by cost pressures. With
approximately 60% of our cost base relating to labour costs, this
has resulted in an inflationary increase of around GBP1. 4 million
across the year. Changing assumptions about the vesting of
share-based payments has resulted in a GBP0.3 million credit this
year (FY22: GBP1.3m charge), which is not expected to repeat next
year, but was offset this year by the increase in bonuses from a
lower level in FY22.
We are now a much larger and more complex international Group
and so have invested during this year in strengthening our
infrastructure. Thes investments include cyber security and a new
eCommerce platform for the Focusrite brands, capable of being
scaled across all of Content Creation. As part of our return to
work programme, we have also invested in the Group's office space,
with a new office for the Focusrite brands and refurbished offices
for both Martin Audio and ADAM Audio. This has resulted in one-off
costs of GBP0.4 million due to the disruption which are not
expected to repeat in FY24.
Adjusted EBITDA
EBITDA is a non-GAAP measure, but it is widely recognised in the
financial markets and it is used (as adjusted for non-underlying
items) as a key performance measure and as the basis for some of
the incentivisation of senior management within the Group. Adjusted
EBITDA decreased from GBP41.7 million in FY22 to GBP38.6 million in
FY23. This was primarily as a result of the lower sales and
overhead cost factors described above.
2023 2023 2023 2022 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------
Adjusted Non-underlying Reported Adjusted Non-underlying Reported
---------------------------------------- --------- --------------- --------- --------- --------------- ---------
Operating profit 30.4 (6.1) 24.3 34.7 (6.0) 28.7
Add - amortisation of intangible assets 5.5 4.4 9.9 4.8 5.1 9.9
Add - depreciation of tangible assets 2.7 - 2.7 2.2 - 2.2
EBITDA [1] 38.6 (1.7) 36.9 41.7 (0.9) 40.8
---------------------------------------- --------- --------------- --------- --------- --------------- ---------
[1] EBITDA is defined as earnings before tax, interest,
depreciation, and amortisation. Adjusted EBITDA includes items
treated as non-underlying which are explained in note 5 to the
Consolidated Financial Statements.
Depreciation and amortisation
Depreciation of GBP2.7 million (FY22: GBP2.2 million) was
charged on tangible fixed assets on a straight-line basis over the
assets' estimated useful lives. This increased in the year due to
the investment in the office refurbishments and resultant increases
in fixtures and fittings, which are written off over three to five
years. Amortisation on non-acquired intangibles is mainly charged
on capitalised development costs, writing off the development cost
over the life of the resultant product. Development costs related
to an individual product are written off over a periods of between
two and ten years, reflecting the different lifespans of the
products across our brands. Normally, the capitalised development
costs are greater than the amortisation, reflecting the continued
investment in product development in a growing group of
companies.
During FY23, capitalised development costs were GBP8.6 million
(FY22: GBP7.9 million), compared with amortisation of GBP4.8
million (FY22: GBP3.9 million). Development cost spend is slightly
higher than the prior year, mainly due to inflation, as the
implementation of our product roadmap continues across all brands.
In addition, this year we acquired further licences to utilise
certain technologies, which have added GBP1.7 million to intangible
assets, with further investment expected in FY24.
The amortisation of the acquired intangible assets totalled
GBP4.4 million during the period (FY22: GBP5.1 million) and has
been disclosed within adjusted 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, excluding this gross amortisation was GBP5.4 million.
Non-underlying items
In FY23, the Group acquired Sonnox, with associated acquisition
costs relating to the transaction of GBP0.4 million (FY22: GBP0.6
million relating to the Linea Research acquisition). During the
year earnouts relating to the Linea Research and Sequential
acquisitions were completed and paid out resulting in a cost of
GBP0.8 million (FY22: GBP1.2 million relating to the Sequential
earn out).
During the year, the Group also undertook a restructuring
exercise to create regional sales and marketing teams across the
Content Creation division. This has resulted in costs of GBP0.5
million paid in the year. In FY22, non-underlying costs were offset
by GBP0.8 million of income relating to the sale of a trademark.
Non-underlying items also include amortisation of the intangible
assets from acquisitions of GBP4.4 million (FY22: GBP5.1 million).
This has increased due to the inclusion of Sonnox and the
annualisation of Linea Research on amortisation of brands and
technology, but has been offset by the one off adjustment of
amortisation of GBP1.0 million incorrectly charged in prior years
on assets not yet brought into use. See notes 5 and 15 to the
Group's financial statements for more information.
Foreign exchange and hedging
Sterling has remained relatively stable compared to the euro
between years, but has the average rate has weakened against the US
dollar.
Exchange rates 2022 2022
---------------- ----- -----
Average
USD:GBP 1.21 1.31
EUR:GBP 1.15 1.18
---------------- ----- -----
Year end
USD:GBP 1.27 1.16
EUR:GBP 1.17 1.16
---------------- ----- -----
During the year, Sterling has weakened against the average US
dollar rate from $1.31 to $1.21. The US dollar accounts for 40% of
Group revenue but over 80% of the cost of sales, so this has
resulted in increased revenue but has a neutral impact in terms of
gross profit. The Euro comprises approximately a quarter of revenue
but little cost. The Group has continued entering into forward
contracts to convert Euro to Sterling. The policy adopted by the
Group is to hedge approximately 75% of the Euro flows for the
current financial year (year ended August 2023) and approximately
50% of the Euro flows for the following financial year (FY24). In
FY23, approximately three-quarters of Euro flows were hedged at
EUR1.1 6 , and the average transaction rate was EUR1.1 5 , thereby
creating a blended exchange rate of approximately EUR1.16. In FY22,
the equivalent hedging contracts were at EUR1.13, compared to a
transactional rate of EUR1.18 and so creating a blended exchange
rate of EUR1.14.
Finance costs of GBP1.6 million (FY22: GBP2.3 income) are made
up of the interest on the Group's revolving credit facility ('RCF')
draw downs. FY22 included a large gain from retranslation of US
dollar balances within the Group.
Corporation tax
In FY23, the corporation tax charge totalled GBP4.9 million on
reported profit before tax of GBP22.7 million, an effective tax
rate of 21. 8 % (FY22: 18.9%). Adjusting for non-underlying items,
the effective tax rate is 2 1.7 % (FY22: 1 9.6 %) on adjusted
profit before tax of GBP28.9 million. Going forward, we expect the
effective tax rate to remain broadly in line with the UK corporate
tax rate.
Earnings per share
The basic EPS for the year was 30. 4 pence, down 28. 5 % from
42.5 pence in FY22. This decrease is due to a combination of
factors: the reduction in operating profits, the non-repeat of a
significant foreign exchange gain in finance income in FY22 due to
an exceptionally strong dollar at the year end, and the increase in
the UK corporate tax rate from 19% to 25% from April 2023. The
alternative measure, including the dilutive effect of share
options, is the adjusted diluted EPS. This decreased by 23. 0 %
from 49.9 pence in FY22 to 38.4 pence in FY23.
2023 2022 Change
pence pence %
--------------------- ------ ------ --------
Basic 30.4 42.5 (28.5)%
Diluted 30.2 42.1 (28.3)%
Adjusted(1) basic 38.7 50.5 (23.4)%
Adjusted(1) diluted 38.4 49.9 (23.0)%
--------------------- ------ ------ --------
1 Adjusted for amortisation of acquired intangible assets, and
other adjusting items. See reconciliation note 2 to the financial
statements
Balance sheet
2023 2022
GBPm GBPm
------------------------------------- ------- -------
Non-current assets 95.9 87.5
Current assets
Inventories 55.3 48.3
Trade and other receivables 32.9 28.9
Cash 26.8 12.8
Bank loan (28.1) (13.1)
Current liabilities (including bank
loans) (45.4) (41.1)
Non-current liabilities (18.9) (18.0)
------------------------------------- ------- -------
Net assets 118.5 105.3
------------------------------------- ------- -------
Non-current assets
The non-current assets comprise: goodwill of GBP16.1 million,
other intangible assets of GBP66.7 million, and property, plant and
equipment of GBP12.5 million. The goodwill of GBP16.1 million
(FY22: GBP13.7 million) has increased due to the acquisition of
Sonnox this year for a total consideration of GBP7.2 million
including goodwill of GBP2.7 million.
The other intangible assets of GBP66.7 million (FY22: GBP62.0
million) consist mainly of capitalised research and development
costs and acquired intangible assets relating to product
development and brand. The capitalised development costs in use
have a carrying value of GBP10.0 million (FY22: GBP7.1 million),
which has increased with the launch of 32 products this year.
Products and technology under development comprising GBP8.5 million
(FY22: GBP7.3 million), of which GBP2.0 million relates to acquired
assets under development (FY22: GBP1.5 million). In the year GBP8.6
million of costs were capitalised (FY22: GBP8.3 million) and
underlying amortisation was GBP4.8 million (FY22: GBP3.9 million).
Approximately 65% of development costs are capitalised and they are
amortised over the life of the relevant products. Acquired
capitalised development costs had a carrying value of GBP24.2
million (FY22: GBP22.8 million) at year end. These have increased
due to the inclusion of Sonnox's development costs of GBP4.7
million less the annual amortisation charge of GBP3.5 million.
The remaining intangible assets, totalling GBP23.9 million
(FY22: GBP24.6 million), include brands acquired as part of the
acquisitions, to be amortised over ten years for ADAM Audio, 20
years for Martin Audio, 15 years for Sequential and Linea Research
and 10 years for Sonnox.
Tangible assets have increased this year from GBP10.9 million at
the end of FY22 to GBP12.5 million at the end of FY23, due to the
refurbishment costs this year across three of our businesses.
Focusrite has moved to a new office in High Wycombe, providing
space for growth and an engaging working environment designed
specifically with hybrid working in mind. Martin Audio and ADAM
Audio offices have both been refurbished as part of their return to
work programme. The work at Martin Audio has also built improved34
demonstration spaces and facilities for research and
development.
Working capital
At the end of the year, working capital was 2 4.0 % of revenue
(FY22: 19.9%). This increase can be attributed in part to planned
phasing of stock levels for both generations of Scarlett. The older
generation will be marketed as a lower-cost alternative through
selected partners and our own eCommerce channel and, as a result,
we expect inventory levels to reduce during FY24. Debtor balances
are also high due to strong sales in the final quarter of the year,
but with effective credit management there have been minimal issues
with collections or bad debts during the year. Creditors continue
to be paid on time.
Cash flow
2023 2022
GBPm GBPm
Cash and cash equivalents at beginning of year 12.8 17.3
Foreign exchange movements (1.0) 0.7
Cash and cash equivalents at end of year 26.8 12.8
-------------------------------------------------------------------------------- ------- -------
Net increase/(decrease) in cash and cash equivalents (per Cash Flow Statement) 15.0 (5.2)
Change in bank loan (15.2) (13.2)
-------------------------------------------------------------------------------- ------- -------
Decrease in Net Cash (0.2) (18.4)
Add back: equity dividend paid 3.6 3.2
Add back: acquisition of business (net of cash acquired) 7.2 10.9
-------------------------------------------------------------------------------- ------- -------
Free cashflow 10.6 (4.3)
Add back: non-underlying items 1.7 0.9
-------------------------------------------------------------------------------- ------- -------
Underlying free cashflow(1) 12.3 (3.4)
-------------------------------------------------------------------------------- ------- -------
(1) Defined as cashflow before equity dividends, acquisition of
subsidiary (net of cash acquired) and adjusting items .
The net debt balance at the year end was GBP1.3 million (FY22:
net debt GBP0.3 million). In September 2023, the Group signed a new
GBP50 million RCF, with an additional GBP50 million uncommitted
facility with HSBC and NatWest due to expire in September 2027. At
the year end, the Group had drawn down GBP28. 2 million of the RCF
(FY22: GBP13.2 million) to fund the acquisitions of Sonnox as well
as support our working capital requirement.
The underlying free cash flow for the full year was a cash
inflow of GBP12. 2 million (FY22: cash outflow of GBP3. 4 million),
leading to a year end net debt position of GBP1.3 million. Within
this, the movement in working capital included an outflow of GBP6.6
million (FY22: outflow of GBP26.9 million), due largely to stock
holding for product transitions and debtor phasing. Capital
investment this year totalled GBP14.4 million (FY22: GBP12.5
million); of this, GBP9. 2 million related to capitalised R&D,
reflecting the Group's ongoing commitment to product development.
We expect this level of investment to continue into FY24 to support
the Group's product roadmap.
Dividend
The Board is proposing a final dividend of 4.5 pence per share
(FY22 final dividend: 4.15 pence), which would result in a total of
6.6 pence per share for the year (FY22: 6.0 pence). This represents
an adjusted earnings dividend cover of 5.8 times (FY22: 8.7
times).
Summary
FY23 was marked by economic challenges including macroeconomic
instability and industry-wide inventory surpluses. Throughout this
period, the Group adhered to its strategic path. FY24 begins with
the finalisation of a product transition of our primary Scarlett
range, a restructured sales and marketing team, a new banking
facility in place and a rebuilt eCommerce platform. The portfolio
is also broader by introducing a Sonnox to the Focusrite family.
These initiatives provide us with the structure and scale to
deliver on our future plans.
Sally McKone
Chief Financial Officer
Principal Risks and Uncertainties
Overview
Effective risk management is key to enabling and supporting our
business strategy and commitments to our customers, community,
climate and environment. We are committed to conducting our
business responsibly, safely and legally, while making
risk-informed decisions when responding to opportunities or threats
that present themselves. The Board and General Executive Committee
are responsible for the effective management of risk across the
Focusrite Group.
Principal risks are those significant risks that to pose the
most potential threat to our strategy, performance, viability,
people, impact on the environment and/or reputation now or in the
near and distant future.
The table below sets out our principal risks. Please note, this
list does not include all of our risks. Risks which change or are
not presently known or are currently considered to be less
material, may also have adverse effects.
Principal risk/uncertainty Mitigation
Business strategy development Change vs. prior year and residual risk
and implementation (No The risk remains relatively stable as we monitor
risk movement) drivers for macroeconomic changes and implement
appropriate response strategies to manage
The risk of not identifying their impact on the Focusrite Group's performance.
and reacting to changing This has enabled us to ensure that the risk
market conditions, not is managed appropriately in line with any
being able to implement changes to external conditions.
our acquisition strategy
or bring efficiencies Impact on the business
to our route to market Ensuring that our products win customers is
strategy can impact our key to being able to keep up with inflation
growth. and Group growth.
Risk Mitigation
The Group has a multi--stranded resilience
plan with an increasingly diverse range of
products which ensures there are various revenue
streams to enable Group growth and an increasing
number of direct to market routes, which enables
us to reach more customers.
-------------------------------------------------------
Product supply (Risk Change vs. prior year and residual risk
increasing) Exposure to risks associated with our product
supply increased in FY23 due to external changes
Risks associated with over which we have little influence.
market demand, including Impact on the business
the availability of materials The continuing conflict in Ukraine and the
to manufacture products Middle East and rising geopolitical tensions
and our ability to sell as well as increased volatility and uncertainty
and deliver products in the international trading environment could
into new and existing cause disruption of global supply chains and
key markets. affect macroeconomic conditions and our ability
to sell our products.
Risk mitigation
In addition to diversifying our product portfolio
we also continually monitor and assess:
-- our ability to access key markets;
-- relationships with our sales partners and
their expectations of market demand;
-- geopolitical and macroeconomic developments
and trends; and
-- weather and/or climate related vulnerabilities.
-------------------------------------------------------
Product Innovation (Risk Change vs. prior year and residual risk
increasing) We have increased our user testing and influencer
endorsements to test and exalt our products
Risks associated with to ensure that they meet the current market
our ability to expectations.
design, manufacture and
position Impact on the business
our products to generate A design strategy that does not result in
returns innovative products will lead to a loss of
and value for stakeholders value which in turn will impact our ability
in a fast- changing industry. to deliver returns to stakeholders and fund
our investment and growth opportunities and
expose our product portfolio to climate-related
risks, movements in commodity prices or inflationary
pressures and other macroeconomic factors.
Risk mitigation
The Group has developed resilient strategies,
processes and
frameworks to grow and protect our product
portfolio. Our business development strategy
focusses on enhancing our product portfolio
to ensure the Group retains its competitive
advantage and identifies threats to or opportunities
for our products.
-------------------------------------------------------
People (Risk increasing) Change vs. prior year and residual risk
The challenges arising from external conditions,
People are critical to in particular the spike in cost of living,
the Group's ability to poses a threat to the wellbeing of our people
meet the needs of its and our ability to retain people buoyed by
customers and end users the favourable jobseekers' market.
and achieve its goals Impact on the business
as a business. We continue to rely on key individuals to
Failure to attract, retain contribute to the
and develop senior managers success of the Group. We need our people to
and technical personnel, develop their skills in order to future-proof
and to embed our values the Group's business whilst being able to
in our culture, could attract, retain and motive people.
impact on the delivery
of our purpose and business Risk Mitigation
performance. Training and development programmes are established
across the Group to develop the skills required
to fulfil the Group's strategic objectives.
Succession planning for key roles and the
identification of any new skillsets are reviewed
by the Board.
-------------------------------------------------------
Information security, Change v prior year and residual risk
data privacy, business Investment in our cyber shields and efforts
continuity and cyber to support and drive employee awareness of
risks (Risk increasing) phishing attacks and how to respond appropriately
have continued.
The unencumbered availability Impact on the business
and Disruption to our information systems may
integrity of the Group's have a significant impact on our sales, cash
IT systems and the threat flows and profits.
of a cyber security breach A cyber security breach could lead to unauthorised
or a malicious attack access to, or loss of, personal and/or sensitive
is an ongoing and critical information.
threat to successful
trading. Risk Mitigatio The Group's business continuity
plan has been updated.
Regular system and security patching is in
place, including the use of vulnerability
scanning to identify security weaknesses.
We also run regular phishing campaigns to
raise awareness and such exercises are supported
by training and guidance.
.
-------------------------------------------------------
Climate Change (Risk Change vs. prior year and residual risk
increasing) Climate change is a concern for customers
Climate change is a multi-faceted and stakeholders alike as well as being an
risk to the business area of increasing scrutiny and regulation.
at many levels. Failure This year, we have built on our TCFD work
to deliver on climate from last year and have concluded that in
change initiatives, particularly the short term (up until 2030), we are largely
around the reduction shielded from the worst physical effects of
in the use of energy climate change, but will continue to monitor
and carbon within required our exposure to climate-related risks on a
timescales, will have regular basis.
short-, medium- and long-term
climate change risks Impact on the business
to residents, businesses Reduced availability of raw materials could
and infrastructure. have several effects, from fluctuating and
rising prices to uncertainty in the supply
chain to our having to use lower-quality raw
materials in our products.
We expect regulation and the possibility taxes
on less sustainable materials or processes
to increase.
We are also aware that our customers expect
us to lead the way in running a sustainable
business and it will have an impact on our
reputation if we fail to adequately address
these concerns.
Risk mitigation
Managing our operations towards a low-carbon
future in order to sustain the longevity and
prosperity of the business, remains one of
our key mitigation efforts.
Sustainability criteria are embedded throughout
the product design process in order to mitigate
risks and identify opportunities.
We have implemented systems to monitor and
reduce the environmental impact of our operations
and ensure compliance with environmental legislation.
-------------------------------------------------------
Macroeconomic/Geopolitical Change vs. prior year and residual risk
conditions (Risk increasing) Changing geopolitical situations, in particular
the effect of tensions in various parts of
The effect of the difficult the world, have resulted in greater volatility.
global macro-economic
situation, rising cost Impact on the business
inflation and the ongoing Political dynamics, which are outside of our
impact of the war in control, are driving economics which are likely
Ukraine and the Middle to have a lasting effect on the global economy.
East is predicted to
heavily impact trading. Risk mitigation
The broader global political We have continued to build scale and diversification
situation is also something through our expanded product offerings and
that we monitor. geographic reach.
Regular management reviews monitor financial
results, end markets, alternative product
supply arrangements and competitor behaviour.
-------------------------------------------------------
At present, there continues to be a heightened level of
macroeconomic uncertainty relating to cost inflation leading to
rising prices, which has been exacerbated by the war in Ukraine and
the Middle East. These are impacting our customers' disposable
income, thereby changing the products they buy and increasing our
operational costs. We understand the short-term risks and impacts,
and we have the right teams, governance, innovative products and
strategies in place to be able to ride out the current storm. The
longer-term impacts remain uncertain and we continue to monitor the
associated risks closely and respond accordingly.
The long-term impacts remain uncertain and we continue to
monitor the associated risks closely and respond accordingly.
Save for business strategy development and implementation all of
our principal risks have increased this year as a result of the
impact of the external macroeconomic and geopolitical situations on
trading conditions. We a knock-on effect on each of our principal
risks, in particular the pressure they place on our supply chains.
A deep dive of the Product Supply risk was discussed at the
February 2023 Board meeting and a review of the implications of
manufacturing in China is provided as a case study of the Board's
S172 application within the FY23 Annual Report and Accounts.
Changes to Risk Scores vs Prior Year
Information security, data privacy, business continuity and
cyber risks Risk increasing
Organisations are becoming more vulnerable to cyber threats due
to the increasing reliance on computers, networks, programs, social
media and data globally. A relatively small data breach or a common
cyber attack has a massive negative business impact. Whilst the
measure we are taking to ensure our cyber security programme
increases each year we, along with many other businesses, are
finding that the frequency and sophistication of cyber security
incidents is increasing.
Product innovation, Product supply, People and
Macro-economic/Geopolitical conditions Risks increasing
There is a heightened level of macroeconomic uncertainty
relating to cost-inflation leading to rising prices which has been
exacerbated by the wars in Ukraine and the Middle East. These are
impacting our customers' disposable income, thereby changing the
products they buy and increasing our operational costs which,
together, affects several of our principal risks.
The supply chain risks facing the Group have again changed shape
over the last year. The global business climate is increasingly
uncertain, with manufacturers facing a myriad of challenges,
including high energy prices and unexpected fluctuations in raw
material costs as well as the continuing wars in Ukraine and the
Middle East and rising geopolitical tensions disrupting global
supply chains. Many raw materials are becoming harder to secure and
their fluctuating costs can have a significant impact on the
profitability and pricing of products. As the various factors are
not expected to be alleviated in the short term, this will remain a
significant risk for the Group.
When it comes to geopolitical tensions we recognise that there
is no single solution but this does not mean that doing nothing is
our response. Instead, we will diversify our strategies to help
build a safety net. For examples, boosting our manufacturing
capabilities in order to ensure we can quickly scale up production
should a location become unviable, putting ourselves at the
forefront of developments in the cyber world, not just attacks but
also, how we might harness AI to protect us.
Emerging Risk Themes
Emerging risk themes are reported to the Audit Committee
alongside our principal risks. We conduct horizon scanning to
enable a medium- and longer-term view of potential disruptors to
our business. As part of our risk assessment process, we analyse
internal and external sources of emerging risk themes through
review of leading external publications including attending
industry seminars and forums, gathering insights via top-down and
bottom-up risk workshops with internal stakeholders, and seeking
professional consultation where required. We are currently tracking
several emerging risk themes such as political, economic,
technological, environment and talent. An example of an emerging
theme that has the potential to impact our position and requires a
plan of action is set out below:
Identified Risk Group's view Actions we will take
AI For the Group it is We will look to harness
Widely flagged as a seen not only as a risk, AI to drive operational
strategic risk but also as an opportunity and cost efficiencies,
that can offer advantages as well as strategic
in product development, business transformation
such as efficiency, programmes where the
consistency and accuracy opportunity arises,
of processing large whilst being aware of
amounts of data quickly. the growing amount of
harmful misinformation
and increasingly sophisticated
cyber attacks.
---------------------------- --------------------------------
Ultimately, we believe that collaboration with our business
partners is key to navigating these uncertain times.
Artificial Intelligence
Risks Benefits
Hacker attacks : Use of AI to create Improved cyber security surveillance
crafted Spear Phishing/impersonation and response
attacks using data from public AI
systems
-------------------------------------
Surveillance: External regulations/requirements/laws/knowledge Improved time to market
internal impact/ issue
-------------------------------------
Data confidentiality : possible accidental Improved product information
sharing/ exposure of company data
-------------------------------------
Data integrity : Incorrect, incomplete Improved internal processes
or bias data and cost saving in all areas
-------------------------------------
Availability: Possible exposure of Better informed decisions (internal
data/employees leading to system compromise and external factors including
geo-political)
-------------------------------------
FORWARD-LOOKING STATEMENTS
Certain statements in this announcement are forward-looking.
Although the Directors believe that their expectations are based on
reasonable assumptions, any statements about future outlook may be
influenced by factors that could cause actual outcomes and results
to be materially different.
Consolidated Income Statement
For the year ended 31 August 2023
Note 2023 2022
GBP000 GBP000
------------------------------------- ----- --------- ----------
Revenue 4 178,465 183,733
Cost of Sales (93,616) (100,453)
------------------------------------- ----- --------- ----------
Gross Profit 84,849 83,280
Administrative Expenses (60,506) (54,619)
------------------------------------- ----- --------- ----------
Adjusted EBITDA (non-GAAP measure) 38,568 41,663
Depreciation and Amortisation (8,087) (6,991)
Adjusting items:
Amortisation of acquired intangible
assets (4,451) (5,116)
Other adjusting items 7 (1,687) (895)
------------------------------------- ----- --------- ----------
Operating profit 24,343 28,661
Finance income 770 2,286
Finance costs (2,365) (398)
------------------------------------- ----- --------- ----------
Profit before tax 22,748 30,549
Income tax expense 8 (4,951) (5,773)
------------------------------------- ----- --------- ----------
Profit for the period from continuing
operations 17,797 24,776
-------------------------------------------- --------- ----------
Earnings per share
------------------------------------- ----- --------- ----------
Basic (pence per share) 10 30.4 42.5
------------------------------------- ----- --------- ----------
Diluted (pence per share) 10 30.2 42.1
------------------------------------- ----- --------- ----------
The accompanying notes on pages 26 to 37 form part of these
abbreviated financial statements.
Consolidated Statement of Comprehensive Income
For the year ended 31 August 2023
Note 2023 2022
GBP000 GBP000
----------------------------------------------------- -------- --------
Profit for the period (attributable to equity
shareholders) 17,797 24,776
Items that may be subsequently reclassified to the income
statement
Exchange losses on translation of foreign
operations (1,742) (486)
Gain (loss) on forward exchange contracts 784 (1,009)
Tax on hedging instrument (186) 199
Exchange loss on acquired amortisation (18) -
------------------------------------------------------ -------- --------
Total comprehensive income for the period 16,635 23,480
------------------------------------------------------ -------- --------
Consolidated Statement of Financial Position
As at 31 August 2023
Note 2023 2022
GBP000 GBP000
--------------------------------------- ----- --------- ---------
Assets
Non-current assets
Goodwill 16,138 13,728
Other intangible assets 11 66,709 61,964
Property, plant and equipment 12,495 10,870
Deferred tax assets 533 938
--------------------------------------- ----- --------- ---------
Total non-current assets 95,875 87,500
--------------------------------------- ----- --------- ---------
Current assets
Inventories 55,256 48,340
Trade and other receivables 32,384 28,520
Cash and cash equivalents 26,787 12,758
Current tax asset - 413
Derivative financial instruments 491 -
--------------------------------------- ----- --------- ---------
Total current assets 114,918 90,031
--------------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables (39,703) (36,348)
Other liabilities (1,761) (1,641)
Current tax liabilities (2,619) (1,066)
Provisions (1,270) (1,840)
Bank loan (28,093) (13,054)
Derivative financial instruments - (293)
Total current liabilities (73,446) (54,242)
--------------------------------------- ----- --------- ---------
Net current assets 41,472 35,789
Total assets less current liabilities 137,347 123,289
--------------------------------------- ----- --------- ---------
Non-current liabilities
Deferred tax (10,824) (9,130)
Other liabilities (8,071) (8,843)
Total non-current liabilities (18,895) (17,973)
--------------------------------------- ----- --------- ---------
Total liabilities (92,341) (72,215)
--------------------------------------- ----- --------- ---------
Net assets 118,452 105,316
--------------------------------------- ----- --------- ---------
Capital and Reserves
Share capital 59 59
Share premium 115 115
Merger reserve 14,595 14,595
Merger difference reserve (13,147) (13,147)
Translation reserve (2,757) (1,015)
Hedging reserve 491 (293)
EBT reserve (1) (1)
Retained earnings 119,097 105,003
--------------------------------------- ----- --------- ---------
Equity attributable to the owners of the
Company 118,452 84,347
---------------------------------------------- --------- ---------
Total Equity 118,452 105,316
--------------------------------------- ----- --------- ---------
The financial statements were approved by the Board of Directors
and authorised for issue on 28 November 2023. They were signed on
its behalf by:
Tim Carroll Sally McKone
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Changes in Equity
For the year ended 31 August 2023
Merger
Share Share Merger difference Translation Hedging EBT Retained
capital premium reserve reserve reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Balance at 31
August 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 - - - - (486) (1,009) - 199 (1,296)
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income - - - - (486) (1,009) - 24,975 23,480
Share based
payments
deferred
tax deduction - - - - - - - (1,131) (1,131)
Share based
payments
current
tax deduction - - - - - - - 723 723
EBT shares
issued - - - - - - - 674 674
Share-based
payments - - - - - - - 1,120 1,120
Shares
withheld
to settle tax
obligations - - - - - - - (865) (865)
Premium on
shares
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
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Profit for
the period - - - - 17,797 17,797
Other
comprehensive (1,1
income - - - - (1,742) 784 - (204) 62 )
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Total
comprehensive
income - - - - (1,765) 784 - 17,593 16,635
Share based
payments
deferred
tax deduction - - - - - - - 5 5
Share based
payments
current
tax deduction - - - - - - - (123) (123)
EBT shares
issued - - - - - - 1 584 585
Share-based
payments - - - - - - (1) (246) (247)
Shares
withheld
to settle tax
obligations - - - - - - - (216) (216)
Premium on
shares in
lieu
of bonuses - - - - - - - 106 106
Dividends paid - - - - - - - (3,609) (3,609)
---------------
Balance at
31 August
2023 59 115 14,595 (13,147) (2,757) 491 (1) 119,097 118,452
--------------- --------- --------- --------- ----------- ------------ --------- --------- --------- --------
Consolidated Cash Flow Statement
For the year ended 31 August 2023
2023 2022
Note GBP000 GBP000
Operating activities
Profit for the financial year 17,797 24,776
Income tax expense 8 4,951 5,773
Net interest expense (income) 1,595 (1,888)
Loss on disposal of PPE 187 24
Loss on disposal of intangible assets 27 105
Gain on sale of trademark - (830)
Amortisation of intangibles 9,861 9,883
Depreciation of PPE 2,677 2,223
Other non-cash items (229) (369)
Share-based payments credit ( charge
) (2 46 ) 1,313
-------------------------------------------- ----- --------- ---------
Operating cashflow before movements
in working capital 36, 620 41,010
Increase in trade and other receivables (3,599) (12,316)
Increase in inventories (6,916) (27,591)
Increase in trade and other payables 2,922 12,988
-------------------------------------------- ----- --------- ---------
Operating cash flows before interest
and tax 29,027 14,091
(1, 699
Net interest ) (330)
Income tax paid (1,856) (3,380)
-------------------------------------------- ----- --------- ---------
Cash generated by operations 2 5,472 10,381
Net foreign exchange movements 860 (1,918)
-------------------------------------------- ----- --------- ---------
Net cash from operating activities 26,33 2 8,463
Investing activities
Purchase of property, plant and equipment (3,204) (1,045)
Purchase of intangible assets (2,024) (3,095)
Capitalised R&D costs (9,163) (8,368)
Proceeds from disposal of intangible
assets 5 830
Acquisition of business, net of cash
acquired (7,153) (10,923)
-------------------------------------------- ----- --------- ---------
Net cash used in investing activities (21,539) (22,601)
Financing activities
Proceeds from loans and borrowings 15,226 13,228
Payment of lease liabilities (1,427) (1,168)
Equity dividends paid (3,609) (3,234)
-------------------------------------------- ----- --------- ---------
Net cash used in financing activities 10,190 8,826
Net increase (decrease) in cash and
cash equivalents 14,98 3 (5,312)
Cash and cash equivalents at the beginning
of the year 12,758 17,339
Foreign exchange movements (95 4 ) 731
-------------------------------------------- ----- --------- ---------
Cash and cash equivalents at the end
of the year 26,787 12,758
-------------------------------------------- ----- --------- ---------
Notes to the Final Results
For the year ended 31 August 2023
1. BASIS OF PREPARATION
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 August 2023 or
2022 but is derived from those accounts. Statutory accounts for
2022 have been delivered to the registrar of companies, and those
for 2023 will be delivered in due course. The auditor has reported
on those accounts; their reports were (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
Going concern assumption
The Board of Directors has 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 12 months from the approval of these
financial statements ('the going concern period'). Accordingly, the
financial 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 GBP50.0 million
which was renewed in September 2023 for a four year period with an
option to extend for a further fifth year. 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 going concern period. These forecasts include a severe but
plausible downside scenario, which includes potential impacts from
risks identified from the business including
-- Loss of our largest customer, our distributor for Focusrite and Novation in the US
-- Loss of a key contract manufacturer, potentially due to
increased storm intensity, as flagged in our climate risk
analysis
Whilst climate change is considered to bring both risks and
opportunities to the Group, as outlined in our ESG section on pages
42 to 5 8 of our Annual Report for FY23, we consider the
quantifiable risk in the short term to relate to increased storm
intensity, resulting in the potential loss of a distributor or
contract manufacturer and
this is included within our scenarios. The increased
geopolitical risk which could impact our manufacturing partners in
China has also been considered, but has not been modelled, given
the considered likelihood and scale of global sanctions would not
deem this a plausible scenario.
The base case covers a period of at least 12 months from the
date of signing and includes demanding but achievable forecast
growth. The forecast has been extracted from the Group's FY24
budget and three-year plan for the remainder of the going concern
period.
Key assumptions include:
-- Future growth assumptions consistent with the business plans
of each business unit and adjusted for the annualisation of recent
acquisitions.
-- Working capital requirements in line with historic trends and
a stablisation from the current position
-- Continued investment in research and development in all areas of the Group.
-- Dividends consistent with the Group's dividend policy
-- No additional investment in acquisitions in the forecast period
-- Foreign exchange rates in line with those prevailing as at 31 August 2023
Throughout the period the forecast cash flow information
indicates that the Group will have sufficient cash reserves and
headroom on the loan facility to continue to meet its liabilities
throughout the forecast period.
The Directors have modelled severe but plausible downside
scenarios of the risks identified above. This model assumes that
purchases of stock would, in time, reduce to reflect reduced sales,
if they occurred. The Group would also respond to a revenue
shortfall by taking reasonable steps to reduce overheads within its
control. In this scenario, a draw down from the loan facility of an
average of around GBP30 million for a period of 8 months is
expected, however 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 the maximum of
2.5x.
Separately, as a reverse stress test, the Directors estimate
that if the Group were to experience a shortfall in revenue of
greater than 35% permanently from the start of the forecast period,
leverage could rise to the upper limits allowed by the banking
covenants by August 2024. This scenario includes consequential
reductions in the purchases of stock and dividends However, the
Directors' view is that any scenario of a revenue shortfall of
greater than the severe yet plausible scenario above is not
realistic.
In practice, the Group is still currently experiencing stable
levels of consumer registrations and customer demand, and therefore
the revenue levels have been maintained in line with historic
trends since year end. The Group has continued to invest in stock
prior to the holiday season, with the Group's net debt balance
increasing from net position of GBP1. 3 million reported at year
end to approximately net debt of GBP9. 6 million at 16 November
2023, which is expected to improve following the upcoming 2023
holiday season. As a result, the Directors are confident that the
Group and Company will have sufficient funds to continue to meet
their liabilities as they fall due for at least 12 months from the
date of approval of the financial statements and therefore have
prepared the financial statements on a going concern basis.
2 ALTERNATIVE PERFORMANCE MEASURES ('APMs')
The Group has applied certain alternative performance measures
('APMs') within these financial results. A reconciliation to GAAP
measures is provided in the table below or are cross referenced to
tables within the Financial review section. 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 consider that
the term 'Adjusted' together with an adjusting items category, best
reflects the trading performance of the Group.
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, profit on sale of trademarks and restructuring
costs.
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.
-- Adjusted earnings per share ('EPS') - earnings per share excluding adjusting items.
-- Free cash flow - net increase/(decrease) in cash and cash
equivalents excluding net cash used acquisitions, movements on the
bank loan and dividends paid.
-- Underlying free cash flow - as free cash flow but adding back adjusting items.
-- Net debt - comprised of cash and cash equivalents, overdrafts
and amounts drawn against the RCF including the costs of arranging
the RCF.
A reconciliation of all items is provided in the table below
FY23 FY23 FY23 FY22 FY22 FY22 Restated
(1)
Adjusted Adjusted
Adjusted Diluted Adjusted Diluted
Adjusted Operating Earnings Adjusted Operating Earnings
Profit definitions EBITDA Profit Per Share EBITDA Profit Per Share
---------- ----------- ---------- ----------- --------------
Reported:
Operating Profit 24,343 24,343 28,661 28,661
Profit after tax 17,797 24,776
Add back (deduct)
Underlying depreciation
and amortisation 8,087 6,991
Amortisation on acquired
intangibles 4,451 4,451 4,451 5,116 5,116 5,116
Acquisition costs 367 367 367 565 565 565
Gain on sale of trademark - - - (830) (830) (830)
Earnout in relation to
acquisition 786 786 786 1,160 1,160 1,160
Restructuring 534 534 534 -
Tax on adjusting items (1,319) (1,376)
---------- ----------- ------------ ---------- ----------- --------------
Adjusted 38,568 30,481 22,616 41,663 34,672 29,411
---------- ----------- ------------ ---------- ----------- --------------
Weighted average number of total ordinary
shares including dilutive impact 58,953 58,917
Adjusted diluted EPS 38.4 49.9
---------- ----------- ------------ ---------- ----------- --------------
(1) Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles, which was not previously
included.
FY23 FY22 FY22
FY23 Adjusted Adjusted
Free cash free cash Free cash free cash
Cashflow definitions flow flow flow flow
----------- -------------- ----------- -----------
Net increase (decrease
) in cash and cash equivalents
during the year 14,98 3 14,98 3 (5,312) (5,312)
Add back dividends paid 3,609 3,609 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 (15,226) (15,226) (13,228) (13,228)
Add back; adjusting items - 1,687 - 895
-----------
Free cashflow/Adjusted
free cashflow 10,5 19 12,20 6 (4,383) (3,488)
----------- -------------- ----------- -----------
FY23 FY22
Definition of net debt Net debt Net debt
---------- ----------
Cash and cash equivalents 26,787 12,758
Bank loan (28,192) (13,228)
RCF arrangement fee 99 174
---------- ----------
Net debt (1,306) ( 296 )
---------- ----------
3 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 31 August 2023,
Sonnox contributed revenue of GBP1.1 million and a profit before
tax of GBP0.2 million to the Group. If the acquisition had occurred
on 1 September 2022, management estimates that Sonnox's revenue
would have been GBP2.4 million and profit before tax for the period
would have been GBP1.2 million.
In 2022 the Group purchased Linea Research for GBP12,227,000,
including cash of GBP1,354,000, resulting in acquired intangible
assets additions of GBP6,500,000 and goodwill of GBP3,387,000
arising due to this business combination.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP367,000 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 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.
------------------------------------------------
Replacement cost approach
Technology and patents in The key assumption is the estimated completion
development percentage
------------------------------------------------
Brand Income approach (relief from royalty method)
The key assumption used is the forecast
revenues attributable to the existing asset.
------------------------------------------------
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. Therefore, a proportion of the goodwill and technology
and patents in development recognised in this transaction will be
attributed to Focusrite 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)
---------------------- ------ ---------- ----------
4 Revenue
An analysis of the Group's revenue by reportable segment and by
location of customer is as follows:
Year ended 31 August 2023 Year ended 31 August 2022
------------------------------------------------- -------------------------------------------------
North America EMEA Rest of World Total North America EMEA Rest of World Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- -------------- ------- -------------- -------- -------------- ------- -------------- --------
Focusrite 45,724 29,334 11,259 86,317 47,558 30,936 18,692 97,186
Novation 6,078 6,711 3,776 16,565 8,603 8,088 3,892 20,583
ADAM Audio 5,657 10,072 2,720 18,449 3,964 9,036 4,797 17,797
Sequential 7,115 6,309 1,056 14,480 6,300 7,874 2,075 16,249
Sonnox 405 492 242 1,139 - - - -
-------------- -------------- ------- -------------- -------- -------------- ------- -------------- --------
Content
Creation 64,979 52,918 19,053 136,950 66,425 55,934 29,456 151,815
Audio
Reproduction 12,684 16,601 12,230 41,515 8,084 14,176 9,658 31,918
Total 77,663 69,519 31,283 178,465 74,509 70,110 39,114 183,733
-------------- -------------- ------- -------------- -------- -------------- ------- -------------- --------
The amount of revenue sold to external customers in the UK was
GBP20,782,000 (2022: GBP21,830,000).
5 Business segments
Information reported to the Board of Directors for the purposes
of resource allocation and assessment of segment performance is
focused on the main product groups which the Group sells.
Similarly, the results of Novation and Ampify also meet the
aggregation criteria set out in IFRS 8 Segmental Reporting. The
Group's reportable segments under IFRS 8 are therefore as
follows:
Focusrite - Sales of Focusrite and Focusrite Pro branded products
Novation - Sales of Novation or Ampify branded products
ADAM Audio - Sales of ADAM Audio branded products
Martin Audio - Sales of Martin Audio, Optimal Audio and Linea
Research branded products
Sequential - Sales of Sequential branded products
Sonnox - Sales of Sonnox branded products
Segment revenues and results
The accounting policies of the reportable segments are the same
as the Group's accounting policies described in note 3 of the full
Annual Report. Segment profit represents the profit earned by each
segment without allocation of the share of central administration
costs including Directors' salaries, investment revenue and finance
costs, and income tax expense. This is the measure reported to the
Board of Directors for the purpose of resource allocation and
assessment of segment performance.
Central administration costs comprise principally the
employment-related costs and other overheads incurred by the Group.
Also included within central administration costs is the credit
relating to the share option scheme of GBP282,000 for the year
ended 31 August 2023 (2022: charge GBP1,313,000).
The following is an analysis of the Group's revenue and results
by reportable segment:
Year ended 31 August
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- ----------------------- -------------------------
Revenue from external customers
Focusrite 86,317 97,186
Novation 16,565 20,583
ADAM Audio 18,449 17,797
Sequential 14,480 16,249
Sonnox 1,139 -
Martin Audio 41,515 31,918
Total 178,465 183,733
-------------------------------------------------------- ----------------------- -------------------------
Segment profit
Focusrite 40,130 45,108
Novation 9,133 8,132
ADAM Audio 9,570 8,941
Sequential 6,705 6,819
Sonnox 1,125 -
Martin Audio 18,186 14,280
-------------------------------------------------------- ----------------------- -------------------------
84,849 83,280
Central distribution costs and administrative expenses (58,819) (53,724)
Other income - 830
Adjusting items (note 7) (1,687) ( 1,725 )
-------------------------------------------------------- ----------------------- -------------------------
Operating profit 24,343 28,661
Finance income 770 2,286
Finance costs (2,365) (398)
-------------------------------------------------------- ----------------------- -------------------------
Profit before tax 22,748 30,549
Tax (4,951) (5,773)
Profit after tax 17,797 24,776
-------------------------------------------------------- ----------------------- -------------------------
The Group's non-current assets, analysed by geographical
location, were as follows:
2023 2022
GBP'000 GBP'000
-------------------------------- -------- --------
Non-current assets
North America 8,937 21,311
Europe, Middle East and Africa 86,725 66,189
Rest of the World 213 -
Total non-current assets 95,875 87,500
-------------------------------- -------- --------
UK 68,867 63,543
-------------------------------- -------- --------
Information about major customers
Included in revenues shown for FY23 is GBP48.1 million (FY22:
GBP51.3 million) attributed to the Group's largest customer, which
is located in North America. Amounts owed at the year-end were
GBP10.0 million (FY22: GBP7.9 million).
6 Profit for the year
Profit for the year has been arrived at after
charging/(crediting):
Year Ended 31 August
2023 2022
Note GBP000 GBP000
----- -----------
Net foreign exchange gains 331 2,364
Loss on disposal of property, plant and
equipment 187 23
Research and development costs 4,873 4,178
Depreciation and impairment of property,
plant & equipment 2,677 2,223
Amortisation of intangibles 11 9,861 9,883
Cost of inventories within cost of sales 75,548 94,481
Staff costs 28,235 25,244
Gain on sale of trademark 7 - (830)
Movement in expected credit loss (292) (26)
Share based payments (282) 1,313
------------------------------------------ ----- ----------- ----------
7 Adjusting ITEMS
The following adjusting items have been declared in the
period
Year ended 31 August
Restated
(1)
2023 2022
GBP000 GBP000
Adjusting income
Gain on sale of trademark - (830)
Adjusting costs
Acquisition Costs 367 565
Earnout accrual in relation to acquisition 786 1,160
Restructuring 534 -
-------------------------------------------- ---------- -----------
Adjusting items 1,687 895
Amortisation of acquired intangible assets 4,451 5,116
Total adjusting items for adjusted EBITDA 6,138 6,011
-------------------------------------------- ---------- -----------
Tax on adjusting items (1,319) (1,376)
-------------------------------------------- ---------- -----------
Total adjusting items for adjusted profit
after tax 4,819 4,635
-------------------------------------------- ---------- -----------
(1) Restated to include the deferred tax credit arising on the
amortisation of acquired intangible, which was not previously
included.
Acquisition costs in FY23 relate to the acquisition of Sonnox
Ltd in December 2022.
The earnout cost relates to the final balances of contingent
consideration in respect of the acquisitions of Linea Research
(GBP0.6 million) and Sequential LLC (GBP0.2 million) recognised
during the year.
During the year, the Group carried out restructuring of the
regional sales and marketing teams in the EMEA region resulting in
costs of GBP0.5 million, this is a one off strategic consolidation
of multiple teams which is not expected to repeat.
8 Tax
Year ended 31 August
2023 2022
GBP000 GBP000
----------- ----------
Corporation tax charges
Over provision in prior year (309) (11)
Current year 4,745 6,523
------------------------------- ----------- ----------
4,436 6,512
Deferred taxation
Under provision in prior year 249 (438)
Current year 266 (301)
-------------------------------
4,951 5,773
------------------------------- ----------- ----------
Corporation tax is calculated at 21.5% (2022: 19%) of the
estimated taxable profit for the year. Taxation for the US and
Germany subsidiaries are calculated at the rates prevailing in the
respective jurisdiction.
The tax charge for each year can be reconciled to the profit per
the income statement as follows:
Year ended 31 August
2023 2022
GBP000 GBP000
----------------------------------------------- -----------
Current taxation
Profit before tax on continuing operations 22,748 30,549
----------- ----------
Tax at the UK corporation tax rate of 21.5 %
(202 2 : 19%) 4,894 5,804
Effects of:
Expenses not deductible for tax purposes 480 168
Deferred tax assets recognition - -
Other differences (26) (49)
Additional UK tax reliefs (642) (140)
Prior period adjustment (59) (449)
Effect of change in standard rate of deferred
tax 12 173
Impact of foreign tax rates 292 266
Tax charge for the year 4,951 5,773
----------------------------------------------- ----------- ----------
Expenses not deductible relate to the costs of acquisition and
entertainment expenses.
Tax credited directly to equity
In addition to the amount charged to the income statement and
other comprehensive income, the following amounts of tax have been
recognised in equity:
2023 2022
GBP'000 GBP'000
-------------------------------------------- -------- --------
Share based payment deferred tax deduction 5 (1,131)
Share based payment current tax deduction (123) 723
-------------------------------------------- -------- --------
(118) (408)
-------------------------------------------- -------- --------
The net corporation tax creditor is GBP2,619,000 (2022:
GBP653,000).
9 Dividends
The following equity dividends have been declared:
Year to Year to
31 August 2023 31 August 2022
---------------------------------------- ---------------- ----------------
Dividend per qualifying ordinary share 6.6p 6.0p
---------------------------------------- ---------------- ----------------
During the year, the Company paid an interim dividend in respect
of the year ended 31 August 2023 of 2.10 pence per share (2022:
1.85 pence per share).
On 24 November 2023, the Directors recommended a final dividend
of 4.5 pence per share (2022: 4.15 pence per share), making a total
of 6.6 pence per share for the year (2022: 6.0 pence per
share).
10 Earnings per share ('EPS')
The calculation of the basic and diluted EPS is based on the
following data:
Year ended 31 August
Earnings 2023 2022
Restated(1)
GBP'000 GBP'000
---------------------------------------------------------------------- --------- -------------
Profit after tax 17,797 24,776
Adjusting items (note 2) 6,138 6,011
Tax on adjusting items (note 2) (1,319) (1,376)
---------------------------------------------------------------------- --------- -------------
Total underlying profit for adjusted EPS calculation 22,616 29,411
---------------------------------------------------------------------- --------- -------------
Year ended 31 August
2023 2022
Number Number
'000 '000
---------------------------------------------------------------------- --------- -------------
Number of shares
Weighted average number of ordinary shares 58,506 58,294
Effect of dilutive potential ordinary shares:
Share option plans 447 623
Weighted average number of ordinary shares including dilutive impact 58,953 58,917
---------------------------------------------------------------------- --------- -------------
EPS Pence Pence
Basic EPS 30.4 42.5
Diluted EPS 30.2 42.1
Adjusted basic EPS 38.7 50.5
Adjusted diluted EPS 38.4 49.9
---------------------------------------------------------------------- --------- -------------
(1) Restated to include the deferred tax credit arising on the
amortisation of acquired intangibles which was not previously
included
The Group presents basic and diluted 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.
At 31 August 2023, the total number of ordinary shares issued
and fully paid was 59,211,639. This included 624,173 (FY22:
262,929) shares held by the EBT to satisfy options vesting in
future years. The operation of this EBT is funded by the Group so
the EBT is required to be consolidated, with the result that the
weighted average number of ordinary shares for the purpose of the
basic EPS calculation is the net of the weighted average number of
shares in issue 59,073,009 (FY22: 58,488,351) less the weighted
average number of shares held by the EBT 566,408 (FY22: 367,333).
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.
11 OTHER INTANGIBLE ASSETS
Technology, products and patents
----------------------------------------
Intellectual
property, Internally
licences generated Acquired- Computer
and trademarks - in use in use In development software Brands Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
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 year 406 2,387 - 5,464 - - 8,257
Additions: Business
combinations - - 4,050 1,600 - 850 6,500
Transfers (21) 3,908 1,402 (5,289) - - -
Disposals (1) - - - (245) - (246)
Foreign exchange - - 1,032 - - 913 1,945
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
At 31 August 2022 3,726 27,708 30,178 8,310 1,384 26,318 97,624
Additions: Acquired
separately 1,706 - - - 318 - 2,024
Additions: Products
developed
during the year - 2,514 - 6,085 - - 8,599
Additions: Business
combinations - - 4,700 450 3 400 5,553
Transfers - 5,600 801 (6,261) (140) - -
Disposals - (4,108) - - - - (4,108)
Foreign exchange (2) (183) (628) (55) - (1,010) (1,878)
------------------------
At 31 August 2023 5,430 31,531 35,051 8,529 1,565 25,708 107,814
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
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
Eliminated on disposal - - - - (141) - (141)
Foreign exchange - 17 39 - - 23 79
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
At 31 August 2022 1,683 20,562 7,377 970 1,159 3,909 35,660
Charge for the year 342 4,824 3,536 - 244 1,885 10,831
Transfer 239 - - (239) - -
Eliminated on disposal - (4,081) - - - - (4,081)
Reversal of
amortisation - - - (970) - - (970)
Foreign exchange (1) (22) (116) - - (196) (335)
------------------------
At 31 August 2023 2,024 21,522 10,797 - 1,164 5,598 41,105
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
Carrying amount
------------------------
At 31 August 2023 3,406 10,009 24,254 8,529 401 20,110 66,709
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- ----------
At 31 August 2022 2,043 7,146 22,801 7,340 225 22,409 61,964
------------------------
At 31 August 2021 337 4,806 19,571 5,807 752 17,793 49,066
------------------------ ---------------- ----------- ---------- --------------- ---------- -------- --------
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END
FR GBBDBBXDDGXI
(END) Dow Jones Newswires
November 28, 2023 02:00 ET (07:00 GMT)
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