REG - Gear4music - Interim Results
19/11/2024 07:00
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RNS Number : 6898M Gear4music (Holdings) PLC 19 November 2024
19 November 2024
Gear4music (Holdings) plc
Interim results for the six months ended 30 September 2024
"Return to growth in Q2 demonstrates early progress in executing Growth
strategy"
Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the
largest UK based online retailer of musical instruments and music equipment,
today announces its unaudited financial results for the six months ended 30
September 2024 ("the Period").
£m 6-months ended 30 Sept 2024 ('FY25 H1') 6-months ended 30 Sept 2023 ('FY24 H1') Change on FY24 H1
UK Revenues 38.7 36.5 +6%
European & Rest of World revenues 23.0 26.1 (12%)
Total revenues 61.7 62.6 (1%)
Gross profit 16.5 17.0 (3%)
Gross margin 26.7% 27.1% -40bps
EBITDA* 2.9 2.4 0.5m
Operating loss (0.5) (0.9) 0.4m
Loss before tax (1.2) (1.9) 0.7m
* EBITDA is defined as 'Earnings before interest, tax, depreciation and
amortisation'. In FY24 H1 adjusted EBITDA of £2.9m excluded £0.5m one-off
exceptional redundancy costs.
FY25 H1 Highlights:
- Results reflect early progress in starting to deliver our
refreshed Growth Strategy:
o A return to revenue growth in FY25 Q2 (+1%) following a 4% decrease in
FY25 Q1
o Disciplined cost control resulted in £1.0m reduction in Admin expenses
o Reported EBITDA improved by £0.5m
o Loss before tax improved by £0.7m
- Net bank debt of £14.4m was £3.7m lower than last year (30
September 2023: £18.1m), and includes the normal build of inventory ahead of
the peak trading period.
- Gross margin of 26.7% (FY24 H1: 27.1%; FY23 H1: 26.3%), reflecting
early-stage challenges with the implementation of a new outsourced AI-based
marketing system impacting own-brand revenues which are now resolved.
Trading Outlook:
- 5% revenue growth achieved during FY25 H2 trading to date, in what
continues to be a challenging consumer environment, particularly in our
European markets
- Well-positioned and prepared for the upcoming peak seasonal
trading period
- Full-year outlook remains in-line with consensus market
expectations**
Commenting on the results, Andrew Wass, Executive Chair said:
"We are pleased to report progress in executing our refreshed growth strategy
announced in June 2024, resulting in improvements in our financial performance
during FY25 H1. Building on our return to sales growth in FY25 Q2, we have
achieved a 5% increase in revenue during FY25 H2 trading to date, following
the resolution of the challenges associated with the initial roll-out of our
new outsourced AI-based marketing platform.
Aware of the potential for ongoing weakness in the European consumer retail
environment, we maintained a disciplined approach to cost management during
FY25 H1, contributing to a further reduction in our net debt. While the recent
UK budget will introduce additional employment costs from FY26 onwards
estimated at £0.3m, we are confident these can be largely mitigated through
further cost-saving measures.
Our second-hand sales platform continued to gain significant traction during
FY25 H1, with sales growing by 286% to £1.4m in the Period. We anticipate
sustained strong growth in this area as we expand consumer awareness and our
channels to market.
Our long-term focus remains on growing higher-margin revenues, and we will
continue to invest in areas that support this objective, such as the
Studiospares acquisition announced on 22 October 2024, our second-hand
platform, and our own-brand product offering, teams and infrastructure.
Our full-year outlook remains in-line with consensus market expectations, we
are well prepared for our seasonal peak trading period, and look forward to
providing a further trading update after the Christmas period on 21 January
2025."
** Gear4music believes that current consensus market expectations for the year
ending 31 March 2025 are revenues of £154.7 million, EBITDA of £11.7 million
and profit before tax of £2.8 million.
Enquiries:
Gear4music +44 (0)20 3405 0205
Andrew Wass, Executive Chair
Gareth Bevan, Chief Executive Officer
Chris Scott, Chief Financial Officer
Singer Capital Markets - Nominated Adviser and Broker +44 (0)20 7496 3000
Peter Steel/Sam Butcher, Corporate Finance
Tom Salvesen, Corporate Broking
Alma Strategic Communications - Financial PR +44 (0)20 3405 0205
Rebecca Sanders-Hewett Gear4music@almastrategic.co.uk
Joe Pederzolli
David Ison
About Gear4music.com
Gear4music is the largest retailer of musical instruments and music equipment
in the UK, delivering to 190 countries across Europe and the Rest of the
World.
The Group sells own-brand musical instruments and music equipment alongside
premium third-party brands including Fender, Yamaha and Roland, to customers
ranging from beginners to musical enthusiasts and professionals.
Operating from a Head Office in York, the Group has Distribution Centres in
York, Bacup, Sweden, Germany, Ireland & Spain, and showrooms in York,
Bacup, Sweden & Germany.
Having developed its own e-commerce platform, with multilingual, multicurrency
websites, the Group continues to build its overseas presence.
Business Review
The Group reports its results for the six months to 30 September 2024, and
updates on the Strategic, Commercial and Financial progress made in the
Period.
Overview
Further to the announcement of our refreshed Growth Strategy in June 2024, our
focus in FY25 H1 has been on investing in the people, processes and structures
to lay the foundations to deliver sustained profitable revenue growth, and
pleasingly we report a return to revenue growth in FY25 Q2 accelerating post
year-end in FY25 Q3 to date. As previously highlighted, during the Period we
encountered challenges with the implementation of a new outsourced AI-based
marketing system, which adversely impacted own-brand and European sales. We
have resolved these issues.
Consumer confidence remains low in many European markets, which at times has
created unusually price competitive situations for certain branded products.
Our approach continues to be to maintain a disciplined approach to product
pricing.
The Board is also continuing its focus on further reducing net debt through
cost reduction, core business cash generation, and actively managing inventory
levels across our six distribution centres.
Growth Strategy
Our priority in FY23 and FY24 was to reduce net debt and increase
profitability to ensure the Group is leaner and more resilient, and in FY25 we
are now re-focused on growth. Whilst early days we update on progress below:
- Brand acquisitions - Studiospares
On 1 October 2024 we acquired the brand, IP, and certain other assets of
Studiospares Europe Limited for £150,000 from the liquidator. As part of the
transaction, we acquired £148,000 of inventory.
Studiospares has a well-established and strong reputation for high-quality
studio equipment and accessories and in the year-ended 31 December 2023
generated own-brand sales and gross profit of £1.5m and £0.8m respectively.
- Second-hand - Continuing significant growth
Our second-hand sales platform continues to gain traction with 286% revenue
growth to £1.4m in the Period and is on-track to deliver FY25 revenue of
£4m.
- Recruitment
In September 2024 we recruited a new experienced Marketing Director with a
background in e-commerce, and a proven track record in developing broader
marketing channels and reducing reliance on 'Pay-per-Click' ('PPC').
We also recruited a European Commercial Director in September to lead European
purchasing and support expansion of marketing channels across Europe.
Our own-brand team increased from 21 to 25 over the Period as we recruited
into roles to support product development, efficient purchasing and inventory
management across our distribution centres, and help us increase own-brand
revenue into the medium term.
Current trading and outlook
Whilst macro-economic uncertainties continue to weigh on consumers in the UK
and across Europe, we have seen a return to revenue growth and maintained a
disciplined approach to cost control. We are well-prepared ahead of the
seasonal peak trading period and our full-year outlook remains in-line with
current consensus market expectations.
We remain confident in the enduring consumer demand for Gear4music products,
and we are well-placed to benefit once the consumer discretionary spend
environment improves.
The Group plans to issue a Christmas trading update on 21 January 2025.
Commercial Review
FY25 H1 FY24 H1 Change on FY24 H1
Revenue £61.7m £62.6m (1%)
Total unique website users 9.3m 9.8m (5%)
Mobile site unique users 7.0m 6.6m +6%
Conversion rate 4.03% 3.97% +6bps
Average order value £153 £161 (5%)
Active customers * 805,000 823,000 (2%)
Proportion of repeat customers ** 26.6% 26.3% +30bps
Email subscriber database 1,919,000 1,720,000 +12%
Trustpilot rating 4.7/5 4.7/5 -
* Active customers are those that have purchased products within the last 12
months
** Repeat customers are those that have made a purchase in the Period and have
historically made at least one purchase
UK revenue in the Period was 6% ahead of last year (FY24 H1: +3%), reflecting
the strength of G4M's brand and proposition into the UK market, which is
proving more resilient than other territories, and initiatives such as
second-hand being launched in the UK first.
Teething problems with an outsourced AI-based marketing system during the
Period led to cost-allocation inefficiencies and marketing over-spend, also
impacting the mix between own-brand and other-brand sales. This has since been
rectified. 'Cost-per-Click' ('CPC') continues to be high relative to where it
has historically been, with competition for less traffic in a challenging
economic climate. A primary focus will be to reduce our reliance on CPC/PPC
going forward.
International revenue in the Period was 12% down on last year (FY24 H1: down
15%) as certain markets became highly price competitive at times and we took
the decision to maintain pricing levels in-line with our strategy. European
sales were also impacted for a period by marketing under-investment as we
transitioned to a new AI based marketing platform.
Website user numbers decreased 5% to 9.3m being the net of a 10% increase in
UK traffic and a 19% decline in international traffic, in part reflecting PPC
under-investment in European markets. The shift to mobile continues with 75%
of users coming through this channel (FY24 H1: 68%).
Conversion rates were stable at 4.0% with a fall in UK conversion from 4.4% to
4.2% as European conversion improved from 3.6% to 3.8%. Mobile conversion
increased from 2.4% to 2.5%.
It is important we enhance our organic and direct marketing capabilities,
which in the longer term should underpin our ambition to reduce marketing
spend as a proportion of sales - users from direct and organic sources
accounted for 59% of all users (FY24 H1: 51%). We also received positive
results from our initial own-brand influencer marketing initiative.
'Average Order Value' ('AOV') decreased 5% to £153 partly reversing a 7%
increase last year, reflecting proportionally less high value sales and
competitive pricing pressures on some SKUs in certain territories.
The Group served 348,000 customers in the Period (+2% on FY24 H1) and 'Active
customers', being those that have purchased products within the last 12
months, decreased by 2%.
The proportion of repeat customers increased to 26.6% (FY24 H1: 26.3%)
reflecting a proportionally lower level of paid-for new customers. The level
of repeat custom is lower than in other e-commerce sectors, reflecting the
nature of the Group's product range and high average order value, and
re-affirms the importance of the Group being profitable from the first
customer transaction.
Our email subscriber database increased 0.2 million to 1.9 million and we are
continuously refining our email retargeting strategies to cost-effectively
boost the number of repeat customers.
We continue to invest in our customer proposition and service teams, resulting
in an excellent overall customer experience, reflected in Gear4music.com's
Trustpilot score of 4.7/5 and 'Excellent' rating from over 134,000 reviews.
Product and Supply Chain
FY25 H1 FY24 H1 Change on FY24 H1
Own-brand product sales £14.0m £15.2m (8%)
Other brand product sales £45.3m £44.7m +1%
Product margin 30.9% 30.9% -
Products listed 63,300 63,900 (1%)
Brands listed 1,111 1,134 (2%)
Achieving strong gross margins is important to the profitability of the Group
and is a key business objective. FY25 H1 gross margin of 26.7% is 40bps behind
FY24 H1 reflecting:
- a flat product margin as a 320bps improvement in own-brand margin
to 47.3% was offset by proportionally less own-brand sales (22.6% of total
sales v 24.3% in FY24 H1), and other-branded margin challenges particularly in
certain European markets (25.9% v 26.4% in FY24 H1); and
- a 40bps increase in net shipping costs reflecting lower AOV, and
carrier inflationary costs that are expected to be partially mitigated by new
carrier deals done ahead of peak.
We traditionally report higher gross margins in H2 than H1 and we expect that
trend to continue in the current financial year.
The number of 'Stock-Keeping-Units' ('SKUs') listed decreased from 63,900 at
30 September 2023 to 63,000 at 31 March 2024 and increased back to 63,300 at
30 September 2024, representing a net 1% decrease in 12 months, as we de-list
less profitable, slow-moving SKUs.
Own-brand
Expanding on last year's efforts to elevate brand identity, we are focused on
brand and range development and growing our in-house product and engineering
teams to enable us to create wider appeal and innovative product offering.
Operationally we now have a tried and tested outsourced consolidation
infrastructure within China, enabling us to increase SKU coverage across our
distribution centres whilst minimising the working capital investment. This
also helped maintain strong product margins despite increased sea freight
shipping costs.
Product highlights include:
- Expansion of our affordable VISION musical instruments range
offering the perfect starting point for beginners of all ages
- Launched Premier NXT GEN - an exciting spin-off of Premier
offering great value educational, marching and orchestral percussion
instruments
- Launched G4M Sonori and Keynote Digital Pianos
- G4M Solus Electric String Instruments which were recently awarded
'Gold' at the prestigious New York Product Design Awards
- Expansion of our Hartwood Acoustic Guitars range providing
premium, retro inspired acoustic instruments
The number of own-brand SKUs increased from 5,200 at 30 September 2023 to
5,510 (+6%) at 30 September 2024, with own-brand revenue accounting for 23.5%
of total product sales (FY24 H1: 25.4%) from 8.7% of total SKUs (FY24 H1:
8.1%), reflecting the significant on-going efforts of our in-house team in
developing our range of high-quality instruments and equipment at affordable
prices.
Software Development
We continue to leverage a combination of in-house capability with a team of 32
developers, and the outsourcing of one distinct project to external
contractors.
The Group invested £1.6m (FY24 H1: £2.4m) in its e-commerce platform in the
Period with deployments including:
- Improved site search
- Customer Service AI chatbot launched
- Various platform infrastructure upgrades
The next major project in the pipeline that will have a significant impact on
our business, is our 'AI-based Forecasting and Purchasing platform' that is
on-track for delivery by Spring 2025.
Financial Review
FY25 H1 FY24 H1 Change on FY24 H1
Revenue £61.7m £62.6m (1%)
Gross profit £16.5m £17.0m (3%)
Gross margin 26.7% 27.1% -40bps
Unadjusted EBITDA £2.9m £2.4m 21%
Exceptional item - Redundancy costs - (£0.5m) £0.5m
Adjusted EBITDA £2.9m £2.9m -
Adjusted EBITDA margin 4.7% 4.6% +10bps
Operating loss (£0.5m) (£0.9m) £0.4m
Marketing costs £4.5m £4.3m (5%)
Marketing costs as % of revenue 7.3% 6.9% +40bps
Total Labour costs £6.4m £6.9m (7%)
Total Labour costs as % of revenue 10.3% 11.0% -70bps
Revenue
The Group returned to revenue growth in FY25 Q2 with 1% growth on FY24 Q2,
further to year-on-year decreases of 4% in FY25 Q1 and 5% in FY24 H2. Growth
has increased in FY25 H2 to date.
Revenue of £61.7m was £0.9m (1%) lower than last year. UK revenue was up 6%
taking our estimated share of a flat UK market to 9.7% (FY24 H1: 9.3%).
International revenues of £23.0m were 12% down on last year reflecting
difficult trading conditions and an under-investment in European marketing for
a period. International revenue accounted for 37% of the Group total revenue
compared to 42% in FY24 H1.
Gross Margin and Gross Profit
As outlined in the 'Commercial Review' gross margin decreased 40bps from 27.1%
last year to 26.7%, reflecting a flat product margin, and a 40bps increase in
net delivery costs reflecting increasing costs and a lower AOV.
The net result of revenue and gross margin movements was gross profit of
£16.5m, which was £0.5m (3%) behind last year.
Operating Loss and Administrative Expenses
The operating loss of £0.5m represents a £0.4m improvement on FY24 H1, being
the net of a £0.5m reduction in Admin expenses reflecting tight cost control
offsetting the £0.5m fall in gross profit, and £0.5m exceptional costs last
year.
Underlying Admin expenses (excluding exceptional costs) decreased from 28.5%
of revenue in FY24 H1 to 28.1% in FY25 H1. Marketing and labour costs
continue to be key components of our cost base, accounting for a combined 63%
of total administrative expenses in the Period and prior year:
Marketing
Marketing costs of £4.5m (FY24 H1: £4.3m) equated to 7.3% of sales (FY24 H1:
6.9%). Our marketing continues to be heavily PPC-focused, accounting for 88%
of total marketing spend (FY24 H1: 87%) targeting a pre-defined and measurable
return on investment. In FY25 H1 we experienced challenges with the rollout of
a new outsourced AI-based marketing system which temporarily increased
marketing costs resulting in an estimated £0.2m over-spend, and also
adversely impacted our own-brand and European sales. These issues have now
been resolved.
Labour costs
Total labour costs decreased £0.5m (7%) on FY24 H1 to £6.4m reflecting a
full-period impact of the FY24 H1 redundancies:
- FY25 H1 average headcount of 414 is 71 (9%) lower than FY24 H1;
and
- FY25 H1 average cost per head is 8% higher than FY24 H1.
Total headcount at 30 September 2024 is 434, the same as at 30 September 2023.
Other Administrative expenses
European distribution centre local expenses decreased £0.1m (5%) on FY24 H1
to £2.4m reflecting cost reductions linked to reduced activity net of
inflationary cost increases.
Depreciation and amortisation in the Period totalled £3.4m (FY24 H1: £3.3m)
including amortisation of £2.0m (FY24 H1: £1.8m) relating to our bespoke
e-commerce platform, and £0.8m depreciation of 'Right of Use' assets (FY24
H1: £0.9m).
Last year we reported one-off non-recurring costs of £0.5m relating to
redundancy costs incurred during the restructure of various Head Office teams,
principally Software Development.
An FY25 H1 EBITDA margin of 4.7% compares to an EBITDA margin (excluding
redundancy costs) of 4.6% last year and 4.1% in FY23 H1.
Net Loss and Financial Expenses
Net financial expenses of £0.7m include £0.5m net bank interest (FY23 H1:
£0.8m) reflecting a lower debt level, and £0.2m interest on lease
liabilities (FY24 H1: £0.2m).
A tax charge has arisen following adjustments to reflect the Corporate Income
Tax position of the Group's overseas subsidiaries per their latest local
statutory audits.
We report a loss in the Period of £1.2m compared to a £1.6m net loss in FY24
H1.
Cash Flow and Balance Sheet
Net bank debt at 30 September 2024 was £14.4m (FY24 H1: £18.1m) at what is
historically a low point in the annual cash cycle as we invest in inventory
ahead of peak seasonal trading. This provides significant headroom of £15.6m
within the Group's £30m RCF, and further reductions are expected by 31 March
2025.
FY25 H1 FY24 H1 Change on FY24 H1
£m £m £m
Opening cash 4.7 4.4 0.3
Net cash (used in)/from Operating Activities (3.8) 0.4 (4.2)
Net cash used in Investing Activities (1.7) (2.4) 0.7
Net cash from Financing Activities 7.4 3.5 3.9
Closing cash 6.6 5.9 0.7
Net bank debt (14.4) (18.1) 3.7
Reported inventory of £40.1m (FY24 H1: £39.0m) includes £7.6m of inbound
stock-in-transit (FY24 H1: £4.4m) as we are utilising our warehouse capacity
to pull-forward intake to provide certainty and reduce pressure during peak to
focus on fulfilling orders.
Trade and other payables of £21.1m were £0.8m (4%) higher than last year and
includes £1.1m of customer prepayments (30 September 2022: £1.4m).
Capitalised software development costs totalled £1.6m in the Period (FY24 H1:
£2.4m) compared to amortisation of £2.0m, resulting in a £0.4m decrease in
net book value since the start of the financial year.
Property, plant and equipment capital expenditure was limited to £123,000 in
the Period (FY24 H1: £0.04m) principally being investment in solar panels at
our Head Office.
Dividend Policy
The Board does not recommend the payment of a dividend (FY24 H1: nil).
Consistent with its previously stated approach, the Group will revisit its
shareholder distribution policy at the appropriate time.
Unaudited consolidated interim statement of profit and loss and other
comprehensive income
6 months ended 30 September 6 months ended 30 September 2023 (unaudited) Year ended
31 March 2024 (audited)
2024 (unaudited)
Note
£000 £000 £000
Revenue 3 61,742 62,641 144,384
Cost of sales (45,247) (45,656) (104,947)
Gross profit 16,495 16,985 39,437
Administrative expenses 3,4 (17,360) (18,324) (37,609)
Other income 4 374 407 935
Operating (loss)/profit before exceptional items 4 (491) (445) 3,250
Exceptional items 5 - (487) (487)
Operating (loss)/profit after exceptional items (491) (932) 2,763
Financial expenses 7 (763) (981) (2,223)
Financial income 7 50 - 44
(Loss)/profit before tax (1,204) (1,913) 584
Taxation 8 (25) 353 67
(Loss)/profit for the Period (1,229) (1,560) 651
Other comprehensive income
Items that will not be reclassified to profit or loss:
Deferred tax movements 104 - 150
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations 44 272 177
Total comprehensive (loss)/profit for the Period (1,081) (1,288) 978
(Loss)/profit per share attributable to equity shareholders of the company
Basic (loss)/profit per share 6 (5.9p) (7.4p) 3.1p
Diluted (loss)/profit per share 6 (5.9p) (7.4p) 3.0p
Unaudited consolidated interim statement of financial position
30 September 30 September 31 March 2024 (audited)
2024 2023 (unaudited)
(unaudited)
Note £000 £000 £000
Non-current assets
Property, plant and equipment 9 10,461 11,326 10,862
Right-of-use assets 10 7,283 9,088 8,099
Intangible assets 11 21,689 22,616 22,049
39,433 43,030 41,010
Current assets
Inventories 12 40,065 38,954 25,643
Trade and other receivables 13 3,049 4,083 3,079
Corporation tax receivable 505 371 768
Cash and cash equivalents 6,553 5,919 4,696
50,172 49,327 34,186
Total assets 89,605 92,357 75,196
Current liabilities
Trade and other payables 15 (21,086) (20,303) (13,478)
Lease liabilities 16 (1,790) (1,057) (1,794)
(22,876) (21,360) (15,272)
Non-current liabilities
Interest bearing loans and borrowings 14 (21,000) (24,000) (12,000)
Other payables 15 (30) (89) (91)
Lease liabilities 16 (6,865) (9,215) (7,599)
Deferred tax liability (1,546) (1,679) (1,868)
(29,441) (34,983) (21,558)
Total liabilities (52,317) (56,343) (36,830)
Net assets 37,288 36,014 38,366
Equity
Share capital 2,098 2,098 2,098
Share premium 13,286 13,286 13,286
Foreign currency translation reserve 147 198 103
Revaluation reserve 1,171 1,203 1,171
Retained earnings 20,586 19,229 21,708
Total equity 37,288 36,014 38,366
Unaudited consolidated interim statement of cash flows
Note 6 months ended 6 months ended Year ended
31 March 2024 (audited)
30 September 30 September 2023
2024 (unaudited)
(unaudited)
£000 £000 £000
Cash flows from operating activities
(Loss)/profit for the Period: (1,229) (1,560) 651
Adjustments for:
Depreciation and amortisation 9-11 3,364 3,313 6,642
Financial expense 7 713 978 2,173
Loss/(profit) on sales of property, plant and equipment 1 (6) (16)
Share-based payment (credit)/charge (59) 71 184
Tax income 8 (131) (353) (456)
2,659 2,443 9,178
Decrease/(increase) in trade and other receivables 31 (649) 355
(Increase)/decrease in inventories (14,422) (4,573) 8,738
Increase/(decrease) in trade and other payables 7,709 2,342 (4,383)
(4,023) (437) 13,888
Tax received 175 824 736
Net cash from operating activities (3,848) 387 14,624
Cash flows from investing activities
Proceeds from sales of property, plant and equipment 6 14 26
Acquisition of property, plant and equipment 9 (144) (36) (166)
Acquisition of domains 11 - - (12)
Capitalised development expenditure 11 (1,649) (2,382) (3,726)
Payment of deferred consideration - - (25)
Interest received 50 - 44
Net cash from investing activities (1,737) (2,404) (3,859)
Cash flows from financing activities
Proceeds from new borrowings 14 9,000 5,000 -
Repayment of borrowings - - (7,000)
Interest paid 7 (718) (880) (2,106)
Payment of lease liabilities (840) (644) (1,401)
Net cash from financing activities 7,442 3,476 (10,507)
Net increase in cash and cash equivalents 1,857 1,459 258
Cash at beginning of Period 4,696 4,460 4,460
Foreign exchange movement - - (22)
Cash at end of Period 6,553 5,919 4,696
Unaudited consolidated interim statement of changes in equity
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2024 2,098 13,286 103 1,171 21,708 38,366
Loss for the Period - - - - (1,229) (1,229)
Other comprehensive income - - 44 - 104 148
Share based payments charge - - - - 3 3
Balance at 30 September 2024 2,098 13,286 147 1,171 20,586 37,288
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
Capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2023 2,098 13,286 (74) 1,203 20,721 37,234
Loss for the Period - - - - (1,560) (1,560)
Other comprehensive income - - 272 - - 272
Share based payments charge - - - - 68 68
Balance at 30 September 2023 2,098 13,286 198 1,203 19,229 36,014
Share Share Foreign currency translation reserve Revaluation reserve Retained Total
capital premium earnings equity
£000 £000 £000 £000 £000 £000
Balance at 1 April 2023 2,098 13,286 (74) 1,203 20,721 37,234
Profit for the year - - - - 651 651
Other comprehensive income - - 177 - - 177
Depreciation transfer - - - (32) 32 -
Deferred tax adjustment - - - - 150 150
Share based payments charge - - - - 154 154
Balance at 31 March 2024 2,098 13,286 103 1,171 21,708 38,366
Notes to the Interim Financial Information
General Information
Gear4music (Holdings) plc is a public limited company incorporated and
domiciled in the United Kingdom and is listed on the Alternative Investment
Market ('AIM') of the London Stock Exchange.
The Group financial information consolidates the financial information of the
Company and its subsidiaries (collectively referred to as the "Group"). The
Group has 100% owned trading subsidiaries in the UK ('Gear4music Limited'),
Sweden ('Gear4music Sweden AB'), Germany ('Gear4music GmbH'), Ireland
('Gear4music Ireland Limited') and Spain ('Gear4music Spain S.L.'). The Group
also has one 100% owned dormant subsidiary in the UK ('Cagney Limited').
The principal activity of the Group is the retail of musical instruments and
equipment.
The registered office of Gear4music (Holdings) plc (company number: 07786708)
and Gear4music Limited (company number: 03113256) is Holgate Park Drive, York,
YO26 4GN.
1 Accounting policies
Basis of preparation
The consolidated interim financial information, which has been neither audited
nor reviewed by the auditor, has been prepared under the historical cost
convention, except for land and buildings that are stated at their fair value,
and in accordance with the recognition and measurement requirements of
UK-adopted International Accounting Standards. The condensed consolidated
interim financial information does not constitute financial statements within
the meaning of Section 434 of the Companies Act 2006 and does not include all
of the information and disclosures required for full annual financial
statements and is thus not in full compliance with UK-adopted international
accounting standards. It should therefore be read in conjunction with the
Group's Annual Report for the year ended 31 March 2024, which has been
prepared in accordance with UK-adopted International Financial Reporting
Standards and is available on the Group's investor website.
The accounting policies used in the financial information are consistent with
those used in the Group's consolidated financial statements as at and for the
year ended 31 March 2024, as detailed on pages 73 to 78 of the Group's Annual
Report and Financial Statements for the year ended 31 March 2024, a copy of
which is available on the Group's website, www.gear4musicplc.com.
As permitted, this interim report has been prepared in accordance with the AIM
rules and not in accordance with IAS 34 "Interim financial reporting".
The comparative financial information contained in the condensed consolidated
financial information in respect of the year ended 31 March 2024 has been
extracted from the 2024 Financial Statements. Those financial statements have
been reported on by Grant Thornton UK LLP and delivered to the Registrar of
Companies. The report was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis without
qualifying their report, and did not contain a statement under Section 498(2)
or 498(3) of the Companies Act 2006.
Selected explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in financial position
and performance of the Group since the last annual consolidated financial
statements as at the year ended 31 March 2024.
Exceptional items
The business classifies certain events as exceptional items due to their size
and nature where it feels that separate disclosure would help understand the
underlying performance of the business. Restructuring and transformational
costs are considered on a case-by-case basis as to whether they meet the
exceptional criteria. Other items are considered against the exceptional
criteria based on the specific circumstances. The presentation is consistent
with the way Financial Performance is measured by management and reported to
the Board. Further information is disclosed in note 5.
Notes to the Interim Financial Information (continued)
Going concern
The Group's business activities and position in the market, and principal
risks, uncertainties and mitigations are described in detail in the Strategic
Report included on pages 1 to 49 of the Group's 2024 Annual Report and
Financial Statements.
In June 2023 the Group renewed its RCF with HSBC at £30m for a further
three-year period. This facility provides a good and appropriate level of
headroom that has been factored into the Directors going concern assessment.
The Group's policy is to ensure that it has sufficient facilities to cover its
future funding requirements.
At 30 September 2024 the Group had net debt of £14.4m (30 September 2023:
£18.1m) including £6.6m cash (30 September 2023: £5.9m), with a good and
appropriate level of headroom that has also been factored into the Directors
going concern assessment.
The Directors have considered the Group's prospects based on its current
proposition and online offering in
the UK and Europe, strategic developments delivered and in progress and
concluded that there are significant opportunities for profitable growth as
channel shift continues and customers move online.
There is a diverse supply chain with no key dependencies.
Having duly considered all of these factors and having reviewed the forecasts
for the period to 31 December 2025, the Directors have a reasonable
expectation that the Group has adequate resources to continue trading for the
foreseeable future, and as such continue to adopt the going concern basis of
accounting in preparing the financial statements.
2 Principal risks and uncertainties
The Board considers the principal risks and uncertainties which could impact
the Group over the remaining six months of the financial year to 31 March 2025
to be unchanged from those set out in the group's Annual Report and Financial
Statements for the year ended 31 March 2024, and can be summarised as:
- Macroeconomic and geopolitical factors
- Climate risk and sustainability
- UK outside the EU
- Change management - Operational, Regulatory and Technological
- IT and Cyber Security
- Warehousing and Distribution
- Brand and proposition
- Competition
- Supplier relationships
- Financial risk
- ESG
These are set out in detail on pages 42 to 47 of the Group's Annual Report and
Financial Statements for the year ended 31 March 2024, a copy of which is
available on the Group's Plc website, www.gear4musicplc.com.
Notes to the Interim Financial Information (continued)
3 Segmental analysis
Revenue by Geography:
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
UK 38,711 36,535 83,109
Europe and Rest of the World 23,031 26,106 61,275
61,742 62,641 144,384
Administrative Expenses by Geography:
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
UK 14,976 15,330 32,182
Europe and Rest of the World 2,384 2,507 4,940
Exceptional items - UK - 487 487
17,360 18,324 37,609
Revenue by Category:
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
Other-brand products 45,334 44,682 100,404
Own-brand products 13,787 15,219 37,607
Carriage income 2,382 2,484 5,809
Warranty income 172 184 411
Other 67 72 153
61,742 62,641 144,384
Notes to the Interim Financial Information (continued)
4 Expenses and other income
Included in profit/loss are the following:
6 months ended 30 September 6 months ended 30 September 2023 Year ended
31 March 2024
2024
£000 £000 £000
Depreciation of property, plant and equipment 539 634 1,227
Depreciation of right-of-use assets 817 863 1,677
Amortisation of intangible assets 2,008 1,815 3,739
Loss/(profit) on disposal of property, plant and equipment 1 (6) (16)
R&D expenditure recognised as an expense 105 117 183
Other income
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
RDEC tax credits 156 145 389
Rental income 115 99 244
Other 103 163 302
Total other income 374 407 935
Rental income relates to our freehold Head Office in York. 'Other' includes
income from on-site café at our Head Office in York, grants and marketing
support.
5 Exceptional items
Costs incurred comprise redundancies relating to the restructure and
reorganisation of various Head Office teams, principally Software Development.
6 months ended 30 September 6 months ended 30 September 2023 Year ended
31 March 2024
2024
£000 £000 £000
Redundancy costs - 487 487
Notes to the Interim Financial Information (continued)
6 Earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for
the period attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing the net profit for the
period attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period plus the weighted average number
of ordinary shares that would be issued on the conversion of all dilutive
potential ordinary shares into ordinary shares.
Dilutive shares are not included as where their effect is anti-dilutive.
6 months ended 6 months ended 30 September Year ended
31 March 2024
30 September 2023
2024
(Loss)/profit attributable to equity shareholders of the parent (£'000) (1,229) (1,560) 651
Basic weighted average number of shares 20,976,938 20,976,938 20,976,938
Dilutive potential Ordinary shares 1,119,604 1,104,302 1,102,450
Dilutive weighted average number of shares 22,096,542 22,081,240 22,079,388
_________ _________ _________
Basic (loss)/profit per share (5.9p) (7.4p) 3.1p
Diluted (loss)/profit per share (5.9p) (7.4p) 3.0p
7 Financial expenses & Financial Income
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
Bank interest 559 754 1,545
IFRS16 lease interest 220 225 490
Net foreign exchange (gain)/loss (16) 2 185
Net fair value movements - - 3
Total financial expenses 763 981 2,223
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
Interest Received 50 - 44
Total financial income 50 - 44
Notes to the Interim Financial Information (continued)
8 Taxation
6 months ended 6 months ended 30 September 2023 Year ended
31 March 2024
30 September
2024
£000 £000 £000
Current tax expense/(credit) 243 15 (50)
Deferred tax (credit)/expense (218) (368) (17)
Total tax expense/(credit) 25 (353) (67)
The deferred tax liability has been decreased by £322,000 to £1,546,000
reflecting the recognition of a £176,000 deferred tax asset arising on the
tax losses in the Period.
Deferred tax balances have been provided at 25% which was the tax rate which
was substantively enacted at 30 September 2024.
Notes to the Interim Financial Information (continued)
9 Property, plant and equipment
Freehold property Plant and Fixtures Motor vehicles Computer equipment Total
equipment and fittings
£000 £000 £000 £000 £000 £000
Cost
Balance at 1 October 2023 8,201 2,438 7,424 30 1,408 19,501
Additions - - 125 - 4 129
Disposals - - - - (16) (16)
Balance at 31 March 2024 8,201 2,438 7,549 30 1,396 19,614
Additions - - 133 - 11 144
Disposals - - (4) - (17) (21)
Balance at 30 September 2024 8,201 2,438 7,678 30 1,390 19,737
Depreciation
Balance at 1 October 2023 619 2,000 4,340 30 1,186 8,175
Charge for the Period 26 102 414 4 50 596
Disposals - - - (9) (10) (19)
Balance at 31 March 2024 645 2,102 4,754 25 1,226 8,752
Charge for the Period 82 97 305 1 54 539
Disposals - - (2) - (12) (14)
Balance at 30 September 2024 727 2,199 5,057 26 1,268 9,277
Net book value as at 30 September 2024 7,474 239 2,621 4 122 10,461
Net book value as at 31 March 2024 7,556 336 2,795 5 170 10,862
Net book value as at 30 September 2023 7,582 438 3,084 - 222 11,326
Notes to the Interim Financial Information (continued)
10 Right-of-use Assets
Leasehold properties
At 30 September 2024 the Group had five leased properties: Distribution
centres and showrooms in York, Sweden and Germany, and Distribution centres in
Ireland and Spain.
As at 30 September 2024 the associated right of use assets are as follows:
Land and Buildings
£000
Cost
Balance at 1 October 2023 15,428
Net exchange differences (175)
Balance at 31 March 2024 15,253
Modifications -
Balance at 30 September 2024 15,253
Depreciation
Balance at 1 October 2023 6,340
Charge for the Period 814
Balance at 31 March 2024 7,154
Charge for the Period 817
Balance at 30 September 2024 7,971
Net book value as at 30 September 2024 7,283
Net book value as at 31 March 2024 8,099
Net book value as at 30 September 2023 9,088
Notes to the Interim Financial Information (continued)
11 Intangible assets
Goodwill Software Brand Domain names Other Intangibles Total
platform
£000 £000 £000 £000 £000 £000
Cost
Balance at 1 October 2023 5,324 27,387 1,372 3,031 149 37,263
Additions - 1,344 - 12 - 1,356
Balance at 31 March 2024 5,324 28,731 1,372 3,043 149 38,619
Additions - 1,649 - - - 1,649
Balance at 30 September 2024 5,324 30,380 1,372 3,043 149 40,268
Amortisation
Balance at 1 October 2023 - 14,013 563 4 67 14,647
Amortisation for the Period - 1,903 - 2 18 1,923
Balance at 31 March 2024 - 15,916 563 6 85 16,570
Amortisation for the Period - 1,988 - 2 18 2,008
Balance at 30 September 2024 - 17,904 563 8 103 18,578
Net book value as at 30 September 2024 5,324 12,476 809 3,035 46 21,689
Net book value as at 31 March 2024 5,324 12,814 809 3,037 64 22,049
Net book value as at 30 September 2023 5,324 13,409 809 3,027 47 22,616
12 Inventories
30 September 2024 30 September 2023 31 March 2024
£000 £000 £000
Finished goods 40,065 38,954 25,643
The cost of inventories recognised as an expense and included in cost of sales
in the period ended 30 September 2024 amounted to £41.5m (FY24 H1: £41.8m).
Inventories include £7.6m of predominantly Own-brand stock-in-transit (30
September 2023: £4.4m) from Far East manufacturers.
Notes to the Interim Financial Information (continued)
13 Trade and other receivables
30 September 2024 30 September 2023 31 March 2024
£000 £000 £000
Trade receivables 1,377 1,563 1,125
Prepayments 1,672 2,520 1,954
3,049 4,083 3,079
Corporation tax asset of £505,000 (30 September 2023: £371,000) has been disclosed separately on the face of balance sheet in all three periods, in accordance with IAS 1.54(n).
Trade receivables include cash lodged with payment providers, Amazon and the Group's consumer finance partners, and UK and International education and trade accounts where standard credit terms are 30-days.
14 Interest bearing loans and borrowings
30 September 2024 30 September 2023 31 March 2024
£000 £000 £000
Non-current liabilities
Bank loans 21,000 24,000 12,000
21,000 24,000 12,000
Current liabilities
Bank loans - - -
- - -
Total liabilities
Bank loans 21,000 24,000 12,000
21,000 24,000 12,000
Revolving Credit Facility
On 15 June 2023 the Group renewed its banking facilities entering into a three
year £30m RCF with HSBC. This facility expires in June 2026 and is secured by
a debenture over the Group's assets.
Loans incur interest at variables rates linked to SONIA, with a margin
non-utilisation fee.
Notes to the Interim Financial Information (continued)
15 Trade and other payables
30 September 2024 30 September 2023 31 March 2024
£000 £000 £000
Current
Trade payables 14,803 13,120 6,895
Accruals and deferred income 4,059 4,519 3,585
Deferred consideration 23 23 23
Other creditors including tax and social security 2,201 2,641 2,975
21,086 20,303 13,478
Non-current
Accruals and deferred income 30 67 91
Deferred consideration - 22 -
30 89 91
Accruals at 30 September 2024 include:
- £1,136,000 (30 September 2023: £1,445,000) relating to
customer prepayments; and
- £30,000 (30 September 2023: £66,000) relating to the estimated
cash bonuses accrued relating to the CSOP schemes.
Deferred consideration
In March 2021 the Group acquired the Eden brand and associated assets from
Marshall Amplification plc for £140,000 of which £100,000 was deferred and
payable in four equal instalments of £25,000 on the first, second, third and
fourth anniversary of the completion date, with £25,000 outstanding at 30
September 2024. These amounts are valued in the accounts at fair value and
subsequently amortised.
The Directors consider the carrying amount of other 'trade and other payables'
to approximate their fair value.
16 Lease liabilities
The Group has five property leases. Each lease is reflected on the statement
of financial position as a right-of-use asset and a lease liability. The Group
classifies its right-of-use assets in a consistent manner to its property,
plant and equipment.
Lease liabilities are presented in the statement of financial position as
follows:
30 September 2024 30 September 2023 31 March 2024
£000 £000 £000
Current 1,790 1,057 1,794
Non-current 6,865 9,215 7,599
8,655 10,272 9,393
Notes to the Interim Financial Information (continued)
17 Share based payments
The Group operates share option plans for qualifying employees of the Group.
Options in the plans are settled in equity in the Company and are subject to
vesting conditions. Relevant events in the Period include:
Options forfeit - CSOP (2021)
On 2 August 2024 options over a total of 6,977 Ordinary shares were renounced
and forfeit.
Options granted - CSOP (2024)
On 2 August 2024 options over a total of 35,767 Ordinary shares were granted
to three non-Director employees under the Company's CSOP scheme.
18 Related party transactions
There were no significant related party transactions during the six months to
30 September 2024 (30 September 2023: none).
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