TIDMTUNE
RNS Number : 8472L
Focusrite PLC
24 April 2018
Strictly embargoed until 07:00: 24 April 2018
Focusrite Plc ("Focusrite" or "the Group")
Half Year Results for the period ended 28 February 2018
Focusrite Plc, the global music and audio products company
supplying hardware and software products used by professional and
amateur musicians, today announces its Half Year Results for the
six months ended 28 February 2018.
Financial highlights
-- Group revenue up by 21.2% (26% at constant currency(1) ) to
GBP38.8 million (HY17: GBP32.0 million)
-- EBITDA(2) up by 30.0% to GBP8.0 million (HY17: GBP6.1
million)
-- Operating profit up by 36.3% to GBP6.2 million (HY17: GBP4.6
million)
-- Profit before tax up by 26.8% to GBP5.8 million (HY17: GBP4.6
million)
-- Basic earnings per share up 23.3% to 9.0p (HY17: 7.3p)
-- Diluted earnings per share up by 27.1% to 8.9p (HY17:
7.0p)
-- Free cash flow(3) up by 49.7% to GBP6.4 million (HY17: GBP4.3
million)
-- Net cash of GBP19.7 million (FY17: GBP14.2 million, HY17:
GBP9.4 million)
-- Interim dividend of 1.0 pence, up 33.3% from 0.75 pence in
HY17
Operational highlights
-- Revenue growth in all major regions and across both the
Focusrite and Novation segments
-- R&D remains core: five new products launched and five
software upgrades
-- New Focusrite Professional initiative progressing well
-- Strong Christmas holiday season for the more consumer-priced
products
-- Within Novation, sales of synthesizers up 90% as our new
flagship, PEAK, has gained wide recognition
-- Cumulative downloads of apps now up to 8.5 million with over
500,000 active users
-- Increased localisation of our eCommerce store, especially in
areas less well-served by resellers
-- Queen's Award for Innovation 2018; fourth time the Group has
received a Queen's Award
Tim Carroll, Chief Executive Officer, commented:
"Our strategy of innovation and expansion continues to underpin
our growth and we remain committed to making music easier to make
for professionals and hobbyists alike. Our success is driven by our
entrepreneurial and talented team, many of whom are themselves
musicians, and their skill and loyalty is the bedrock of our
success.
I am delighted with the Group's performance in the first half
which benefited from an especially strong Christmas holiday season.
Since the half year end, revenue and cash have continued to grow
although, as expected, at a slower rate than in the first half. We
remain confident about the outlook for the rest of the year and
beyond: future product plans are taking shape, the geographic
expansion continues and the strategy developments are bearing
fruit."
Philip Dudderidge, Executive Chairman, added:
"It has been a great first six months. We have again increased
revenue in all of our major regions and across all of our product
ranges, and the whole team should be congratulated. I am
particularly honoured that we have been awarded our fourth Queen's
Award this April. The playing and recording of music is such a
great positive force and I am so pleased that this continues to
grow across the world, with Focusrite at its core."
(1) Where we make reference to constant currency growth rates,
these are prepared by retranslating the current year revenues using
the average exchange rates that prevailed in the prior year rather
than the actual exchange rates that applied in the current
year.
(2) Comprising of earnings adjusted for interest, taxation,
depreciation and amortization. This is shown on the face of the
income statement.
(3) Free cash flow equals net cash inflow from operating
activities less net cash used in investing activities.
Dividend timetable
The timetable for the interim dividend is as follows:
3 May 2018 Ex-dividend Date
4 May 2018 Record Date
30 May 2018 Dividend payment date
Enquiries:
Focusrite Plc: +44 1494 836301
Tim Carroll (CEO)
Jeremy Wilson (CFO)
Panmure Gordon +44 20 7886 2500
(Nominated Adviser and
Broker)
Freddy Crossley
Belvedere Communications +44 20 3567 0510
John West
Kim Van Beeck
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014.
Notes to Editors
Focusrite plc is a global music and audio products group that
develops and markets proprietary hardware and software products.
Used by audio professionals and amateur musicians alike, its
solutions facilitate the high-quality production of recorded and
live sound. The Focusrite Group trades under four established and
rapidly growing brands: Focusrite, Focusrite Pro, Novation and
Ampify.
With a high-quality reputation and a rich heritage spanning
decades, its brands are category leaders in the music-making
industry. Focusrite and Focusrite Pro offer audio interfaces and
other products for recording musicians, producers and professional
audio facilities. Novation and Ampify products are used in the
creation of electronic music, from synthesisers and grooveboxes to
industry-shaping controllers and inspirational music-making
apps.
The Focusrite Group has a global customer base with a
distribution network covering approximately 160 territories.
Focusrite is headquartered in High Wycombe, UK, with marketing
offices in Los Angeles and Hong Kong. Focusrite plc is traded on
the AIM market, London Stock Exchange.
Business and operating review
Overview
Focusrite is pleased to report Half Year Results that show
continued strong organic growth across the business. Year-on-year
growth in the first half of the current financial year continued,
with revenue growing by 21.2%.
Total revenue for the period grew to GBP38.8 million (HY17:
GBP32.0 million), resulting in an operating profit of GBP6.2
million (HY17: GBP4.6 million), with EBITDA up to GBP8.0 million
(HY17: GBP6.1 million).
Revenue growth on a constant currency basis accelerated further
to 26% (HY17: 12%). The Group had an especially strong Christmas
holiday season for the more consumer-priced products. We also saw
the benefit of our focused efforts in previously identified
geographies with growth potential, and growth in our professional
product lines from our newly formed Professional division.
Research and development remains core to our strategy and a key
driver of our growth. During this half year, we introduced five new
products and delivered five upgrades to existing products.
Additionally, we delivered new tools focused on simplifying the new
user experience, thereby significantly reducing the actual time
between first contact with our products and making music. These
efforts have been well received by our customers and played a key
role in the strong performance reported today, especially for our
products and solutions aimed at the new user.
Sales grew in all major geographies and particularly in the USA.
We have invested resources into high-potential growth markets such
as Asia and Latin America which have begun generating significant
year-on-year gains. Additionally, we continue to grow in our other
more established markets such as the UK and mainland Europe.
Our strategy of innovation and expansion continues to underpin
our growth and we remain committed to making music easier to make
for professionals and hobbyists alike. Our success is driven by our
entrepreneurial and talented team, many of whom are themselves
musicians, and their skill and loyalty is the bedrock of our
success.
We will add more people globally to our sales, marketing,
engineering and product groups to support our future growth
plans.
Operating review
We continue to exceed our core growth KPI benchmarks and
consequently the Group continues to perform well both operationally
and financially. The management team is committed to pursuing its
stated goals of innovation; disruption; making music easier to
make; and expanding our addressable market. We have firmly
established ourselves as a market leader and our aim is to
capitalise further on this by continuing to excite and empower our
customers. By improving the product and customer experience, we
will seek to extend the customer lifecycle, encouraging them to use
our products longer throughout their music-making lifetime.
Segmental analysis - markets
Six months to Six months to Year to
28 February 2018 (unaudited) 28 February 2017 (unaudited) 31 August 2017 (audited)
--------------
GBP'000 GBP'000 GBP'000
-------------- ----------------------------------- ----------------------------------- -------------------------------
Continuing
operations
USA 16,123 13,246 27,990
Europe, Middle
East and
Africa 15,997 12,958 25,153
Rest of World 6,699 5,816 12,912
Consolidated
revenue 38,819 32,020 66,055
--------------- ----------------------------------- ----------------------------------- -------------------------------
Regionally, the USA grew by 34% on a constant currency basis.
This was driven by a number of factors, including continued success
and market share gain in our 2(nd) generation Scarlett series of
audio interfaces, as well as continued growth of our Launch
products for electronic musicians, and progress by our new
Focusrite Professional division into new vertical markets such as
post-production.
In Europe, Middle East and Africa, sales were up by 19% on a
constant currency basis. All of the major territories (UK, Germany
and mainland Europe) have experienced solid growth. Overall, we
have seen increased stabilisation in the market along with an
increased awareness and acceptance of our Focusrite and Novation
solutions.
The Rest of World grew at 26% on a constant currency basis, and
in particular Asia performed well showing a healthy increase
following our investment in a local office and the addition of more
people. We continue to invest more resources into regional
localisation and support to maintain our growth momentum.
eCommerce
The Group's eCommerce store, which launched in March 2016, now
accounts for over 1% of the Group's total revenue and this
continues to grow. In addition to providing a direct revenue
stream, the store creates improved conversion through all sales
channels. We have expanded this and it now ships a wider range of
products globally, with targeted regional strategies in place to
support operations. Part of our recent efforts include localisation
in Spanish, Korean and Japanese languages.
Segmental analysis - products
Six months to Six months to Year to
28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ------------------ --------------------------------- -----------------------------
Revenue from external customers
Focusrite 25,693 20,856 44,552
Novation 11,419 9,604 18,862
Distribution 1,707 1,560 2,641
Total 38,819 32,020 66,055
-------------------------------- ------------------ --------------------------------- -----------------------------
Alongside engineering, innovation is paramount to our success
and we continue to spend around 6% of annual revenue on research
and development to provide a constant pipeline of new and relevant
products for our various channels.
We launched five new products during the period: the Clarett USB
family (three products), Red 16 and Red X2P, as well as significant
software updates including those for Circuit, Launchpad, Groovebox
and BlocsWave. These new products and updates are across different
price segments and target customer markets, giving us further
penetration and reach. Feedback from the consumer, retailer and
distribution channels has been positive and acceptance so far has
been pleasing.
Focusrite
Among existing products, our 2(nd) generation Scarlett USB audio
interface range has continued to gain market share since its launch
in June 2016. The Clarett range has also seen solid growth of 28%
year on year, mostly driven by the launch of our USB range this
half year. Rednet and Red ranges have also grown as our newly
formed Focusrite Professional division begins netting strategic
sales wins in previously untargeted vertical markets such as the
post-production and broadcast sectors.
Novation
Launchpad, Novation's grid instrument that comes pre-loaded with
Ableton Live Lite software, continues to grow worldwide with
revenue increasing by 26% over the period. This is due, in part, to
a wider market acceptance of grid controllers, especially amongst
younger musicians, and the addition of more consumer electronic
partners added to the distribution channel. This move has created
greater reach into both new and existing mainstream audiences.
Online sales remain an area of importance for the Group, as we seek
to stay relevant to the way consumers shop and spend.
Additionally, within the Novation business the Synthesizer
category is up 90% year on year as our new flagship offering, PEAK,
establishes itself as a best-in-class solution for professionals in
electronic music.
Circuit, the inspirational grid-based groove box, continues to
build a foundation in the market. We are pleased with its progress
and are watching the groove box product space carefully to
ascertain how we should progress in this specific area.
The London Innovation division continues to disrupt the market
with a growing portfolio of innovative music-making software. The
new Ampify brand continues to drive awareness of music creation to
a vast new market of music creators, which in turn supports the
growth of the Focusrite and Novation brands. The suite of music
apps has now reached an impressive 8.5 million downloads, and this
number is increasing at around 200,000 per month. Software is a
crucial component of the business strategy to solve the problems of
music creation, increasing customer loyalty and overall lifetime
value.
Distribution
Focusrite's distribution of adjacent products, such as KRK
monitors and sE microphones, remains a small overall proportion of
Group revenue, but it is profitable and it remains important to us
as it offers add-on products within the music-making industry and
provides us with valuable market feedback, insight and
knowledge.
Financial review
Revenue and profit
Group revenue for the half year was GBP38.8 million, up 21.2% on
the previous year and up 26% on a constant currency basis. All
major product groups and geographical areas increased, with the
biggest increases in the Launch range of products (within the
Novation segment), which had a volume increase of 24%, and the
Scarlett range of products (within the Focusrite segment), which
had a volume increase of 38%.
The gross margin also increased to 41.7% (HY17: 40.1%), helped
by the stronger Euro and closer monitoring of the discounts given
to distributors and dealers. As explained at the last year end,
operating costs were increased in sales and marketing to support
the strategic initiatives around the professional products within
the Focusrite segment and the eCommerce sales channel. Operating
costs were increased by 20.4%. Taking these factors into account,
EBITDA for the period grew by 30.0% to GBP8.0 million (HY17: GBP6.1
million).
Capitalisation of research and development
The Group typically spends approximately 6% of its revenue on
research and development, developing future ranges of products. The
normal product life is between three and six years. Where costs can
be reliably assigned to a particular product, the costs are
capitalised and written-off over three years. Typically around 70%
of R&D costs are capitalised. The net income statement effect
of the capitalisation less the amortisation in the period was a
gain of GBP0.1 million (HY17: a gain of GBP0.3 million).
Foreign currency
Six months Six months
to to Year to
28 February 28 February 31 August
2018 2017 2017
Exchange rates
Average $:GBP 1.35 1.26 1.27
-------------------- ------------- ------------- -----------
Average EUR:GBP 1.13 1.16 1.16
-------------------- ------------- ------------- -----------
Period end $:GBP 1.38 1.24 1.29
-------------------- ------------- ------------- -----------
Period end EUR:GBP 1.13 1.17 1.09
-------------------- ------------- ------------- -----------
The movements in exchange rates were far smaller than in the
previous year. The US Dollar weakened by 7% and the Euro
strengthened marginally. The US Dollar accounts for approximately
60% of Group revenue (North America, Asia and Latin America) and
all of the purchases of product from Chinese contract
manufacturers. Therefore there is a substantial natural hedge in
place. Consequently, the 7% weakening of the US Dollar reduced
revenue but had little impact on profit.
The Euro accounts for approximately 25% of Group revenue with
very little related Euro cost. The Group has hedged approximately
2/3 of its Euro flows to convert them into Sterling at an average
rate of EUR1.12. Therefore the blended Euro exchange rate in the
period was EUR1.12 (HY17: EUR1.25).
The Group has hedged approximately 2/3 of the Euro cash flows
for the rest of this financial year (at an average rate of EUR1.12)
and approximately 25% of Euro cash flows for 2018/19 at an average
rate of EUR1.07.
The Group uses hedge accounting, meaning that the hedging
contracts have been matched to the associated income flows.
Therefore, provided that the hedge remains effective, movements in
the fair value of unexpired hedge contracts are shown in a hedging
reserve in the balance sheet.
Net financing charges
The net financing charges were GBP0.4 million (HY17: GBPnil) due
largely to the revaluation of bank balances held in US Dollars.
Profit before tax
Reported profit before tax grew to GBP5.8 million, up 26.8% on
the prior period (HY17: GBP4.6 million) driven by all of the
factors discussed above, most particularly the higher revenue and
the increased gross margin.
Tax
The standard rate of Corporation Tax in the UK is 19%. The Group
gains additional tax relief on the substantial research and
development effort, which reduces the effective tax rate to 12%
(HY17: 12%).
Profit after tax and earnings per share
Profit after tax was GBP5.1 million, up 26.6% on the prior year
(HY17: GBP4.0 million).
The reported basic earnings per share increased by 23.3% to 9.0
pence (HY17: 7.3 pence). This was lower than the increase in the
profit after tax because the number of shares in issue was
increased due largely to the vesting of 1.4 million options which
were satisfied out of the Employee Benefit Trust.
A much smaller number of new share options was issued during the
period so the diluted earnings per share increased by 27.1% to 8.9
pence (HY17: 7.0 pence), a rate similar to the increase in profit
before tax.
Balance sheet
Non-current assets totalled GBP6.6 million (28 February 2017:
GBP6.7 million). These are mainly capitalised research and
development costs and during the period capitalised R&D costs
were similar to the amortisation.
Stock as at 28 February 2018 was GBP10.9 million (28 February
2017: GBP10.1 million). This 7% increase compares well with the 21%
increase in revenue, signalling the continued positive efforts to
manage stock carefully whilst ensuring that the business has the
ability to satisfy customer demand.
Debtors totalled GBP10.9 million (28 February 2017: GBP10.2
million). The Group has an effective credit control process
including credit limits and a potential refusal to supply if the
customer has overdue debts. At 28 February 2018 the debtors balance
represented 49 days' sales (28 February 2017: 51 days).
Trade and other payables increased to GBP9.1 million (28
February 2017: GBP6.4 million). This was due to the increased stock
purchases close to the period end.
Cash flow
The conversion of profit to cash has been strong with free cash
flow up 49.7% to GBP6.4 million (HY17: GBP4.3 million). In part,
this was assisted by control over the working capital. Normally, it
would be reasonable to assume an increase in working capital of
about 20% of the increase in revenue, driven by higher debtors and
a higher value of stock to service that demand. In this period, the
movement in working capital has been an inflow (decrease) of GBP1.0
million (HY17: GBPnil), due to a reduction in debtors since the
prior year end.
Overall, cash flow from operating activities was 105% (HY17:
101%) of EBITDA and free cash flow was 16% of revenue (HY17: 13%).
Both of these measures have been strong; however, it should be
noted that the average of free cash flow as a percentage of revenue
since the IPO has been approximately 7%.
As a result of this cash generation, cash balances grew from
GBP14.2 million in August 2017 to GBP19.7 million as at 28 February
2018. It is intended that this will fund the Group's entry into
related market segments, which is a key element of the Group's
growth strategy.
Dividend
At the last year end, the Group announced that it would move
towards an ongoing dividend cover of 4-5x. Therefore, as a step
towards that, the interim dividend is raised by 33.3% from 0.75
pence to 1.0 pence per share.
Outlook and current trading
The first half benefited from an especially strong Christmas
holiday season. Since the half year end, revenue and cash have
continued to grow although, as expected, at a slower rate than in
the first half. We remain confident about the outlook for the rest
of the year and beyond: future product plans are taking shape, the
geographic expansion continues and the strategy developments are
bearing fruit.
Tim Carroll Jeremy Wilson
Chief Executive Officer Chief Financial Officer
Condensed Consolidated Income Statement
For the six months ended 28 February 2018
Six months to Six months to Year to
Note 28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------------------- ------- ------------------ ------------------ ----------------
Revenue 2 38,819 32,020 66,055
Cost of sales (22,619) (19,165) (39,704)
------------------------------------------- ------- ------------------ ------------------ ----------------
Gross profit 16,200 12,855 26,351
Administrative expenses (9,970) (8,284) (16,881)
EBITDA (non-GAAP measure) 7,969 6,131 13,109
Depreciation and amortisation (1,739) (1,560) (3,639)
Operating profit 6,230 4,571 9,470
Finance income 1 52 86
Finance costs (398) (24) (44)
------------------------------------------- ------- ------------------ ------------------ ----------------
Profit before tax 5,833 4,599 9,512
Income tax expense 4 (709) (552) (959)
------------------------------------------- ------- ------------------ ------------------ ----------------
Profit for the period from continuing operations 5,124 4,047 8,553
---------------------------------------------------- ------------------ ------------------ ----------------
Earnings per share
From continuing operations
Basic (pence per share) 6 9.0 7.3 15.4
------------------------------------------- ------- ------------------ ------------------ ----------------
Diluted (pence per share) 6 8.9 7.0 14.8
------------------------------------------- ------- ------------------ ------------------ ----------------
Condensed Consolidated Statement of Other Comprehensive
Income
For the six months ended 28 February 2018
Six months to Six months to Year to
28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------------ ------------------ ----------------
Profit for the period 5,124 4,047 8,553
Items that may be reclassified subsequently to the income statement
Exchange differences on translation of foreign
operations (30) 29 (8)
Gain/(loss) on forward foreign exchange contracts
designated and effective as a hedging instrument 743 700 659
Tax on hedging instrument (144) (142) (134)
------------------------------------------------------ ------------------ ------------------ ----------------
Total comprehensive income for the period 5,693 4,634 9,070
------------------------------------------------------ ------------------ ------------------ ----------------
Profit attributable to:
Equity holders of the Company 5,693 4,634 9,070
------------------------------------------------------ ------------------ ------------------ ----------------
5,693 4,634 9,070
----------------------------------------------------- ------------------ ------------------ ----------------
Condensed Consolidated Statement of Financial Position
Note 28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----- ------------------ ------------------ ----------------
Assets
Non-current assets
Goodwill 419 419 419
Other intangible assets 4,818 4,823 4,544
Property, plant and equipment 1,369 1,502 1,369
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total non-current assets 3 6,606 6,744 6,332
---------------------------------------------- ----- ------------------ ------------------ ----------------
Current assets
Inventories 10,894 10,145 8,334
Trade and other receivables 10,811 10,234 12,952
Derivative financial instruments 7 258 - -
Cash and cash equivalents 7 19,734 9,391 14,174
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total current assets 41,697 29,770 35,460
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total assets 48,303 36,514 41,792
---------------------------------------------- ----- ------------------ ------------------ ----------------
Equity and liabilities
Capital and reserves
Share capital 58 58 58
Share premium 114 - -
Merger reserve 14,595 14,595 14,595
Merger difference reserve (13,147) (13,147) (13,147)
Translation reserve 1 68 31
Hedging reserve 210 (356) (389)
Treasury reserve (2) (3) (3)
Retained earnings 36,451 27,428 31,739
Equity attributable to owners of the Company 38,280 28,643 32,884
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total equity 38,280 28,643 32,884
---------------------------------------------- ----- ------------------ ------------------ ----------------
Current liabilities
Trade and other payables 9,126 6,390 7,720
Current tax liabilities 257 523 459
Derivative financial instruments 7 - 443 484
Total current liabilities 9,383 7,356 8,663
---------------------------------------------- ----- ------------------ ------------------ ----------------
Non-current liabilities
Deferred tax 640 515 245
Total liabilities 10,023 7,871 8,908
---------------------------------------------- ----- ------------------ ------------------ ----------------
Total equity and liabilities 48,303 36,514 41,792
---------------------------------------------- ----- ------------------ ------------------ ----------------
Condensed Consolidated Statements of Changes in Equity
For the six
months ended Merger Treasury
28 February Share Share Merger difference Translation Hedging share Retained
2018 capital premium reserve reserve reserve reserve reserve(1) earnings(2) Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2017 58 - 14,595 (13,147) 31 (389) (3) 31,739 32,884
--------------- -------- -------- -------- ----------- ------------ -------- ----------- ------------ --------
Profit for the
period - - - - - - - 5,124 5,124
Other
comprehensive
income for
the period - - - - (30) 599 - - 569
--------------- -------- -------- -------- ----------- ------------ -------- ----------- ------------ --------
Total
comprehensive
income for
the period - - - - (30) 599 - 5,124 5,693
--------------- -------- -------- -------- ----------- ------------ -------- ----------- ------------ --------
Transactions
with owners of
the Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - - (254) (254)
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - - 661 661
Shares from
EBT exercised - - - - - - 1 188 189
New shares
issued - 114 - - - - - - 114
Share-based
payments - - - - - - 103 103
Dividends paid - - - - - - - (1,110) (1,110)
Balance at 28
February 2018 58 114 14,595 (13,147) 1 210 (2) 36,451 38,280
--------------- -------- -------- -------- ----------- ------------ -------- ----------- ------------ --------
(1) The reserve for the Company's treasury shares comprises the
cost of the Company's shares held by the Group. At 28 February
2018, the Employee Benefit Trust held 1,188,025 of the Company's
shares (six months ended 28 February 2017: 2,586,845).
(2) Of the retained earnings totalling GBP36,451,000, GBP615,000
(28 February 2017: GBP421,000) relates to the gain on exercise of
share options from the EBT and is therefore non-distributable.
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the six
months ended Merger Treasury
28 February Share Merger difference Translation Hedging share Retained
2017 capital reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2016 58 14,595 (13,147) 39 (914) (5) 23,251 23,877
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Profit for the
period - - - - - - 4,047 4,047
Other
comprehensive
income for
the period - - - 29 558 - - 587
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Total
comprehensive
income for
the period - - - 29 558 - 4,047 4,634
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Transactions with owners of the Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - (30) (30)
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - 556 556
Shares from
EBT exercised - - - - - 2 250 252
Share-based
payments - - - - - - 75 75
Dividends paid - - - - - - (721) (721)
Balance at 28
February 2017 58 14,595 (13,147) 68 (356) (3) 27,428 28,643
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Condensed Consolidated Statements of Changes in Equity
(Continued)
For the year Merger Treasury
ended 31 Share Merger difference Translation Hedging share Retained
August 2017 capital reserve reserve reserve reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
September
2016 58 14,595 (13,147) 39 (914) (5) 23,251 23,877
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Profit for the
period - - - - - - 8,553 8,553
Other
comprehensive
income for
the period - - - (8) 525 - - 517
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Total
comprehensive
income for
the period - - - (8) 525 - 8,553 9,070
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Transactions
with owners of
the Company:
Share-based
payment
deferred tax
deduction in
excess of
remuneration
expense - - - - - - 114 114
Share-based
payment
current tax
deduction in
excess of
remuneration
expense - - - - - - 558 558
Shares from
EBT exercised - - - - - 2 256 258
Share-based
payments - - - - - - 145 145
Dividends paid - - - - - - (1,138) (1,138)
Balance at 31
August 2017 58 14,595 (13,147) 31 (389) (3) 31,739 32,884
--------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- --------
Consolidated Statement of Cash Flow
For the six months ended 28 February 2018
Six months to Six months to Year to
28 February 2018 28 February 2017 31 August 2017
GBP'000 GBP'000 GBP'00
Cash flows from operating activities
Profit for the period 5,124 4,047 8,553
Adjustments for:
Income tax expense 709 552 959
Net finance charge/(income) 397 (28) (42)
Loss/(profit) on disposal of property, plant and
equipment - 8 (8)
Amortisation of intangibles 1,399 1,198 2,950
Depreciation of property, plant and equipment 340 362 689
Share-based payment charge 103 75 145
Operating cash flow before movements in working capital 8,072 6,214 13,246
Decrease/(increase) in trade and other receivables 2,141 990 (1,728)
(Increase)/decrease in inventories (2,560) 1,216 3,027
Increase/(decrease) in trade and other payables 1,406 (2,222) (892)
Operating cash flow before interest and tax paid 9,059 6,198 13,653
Net interest paid (29) (22) (42)
Income tax paid (253) (56) (633)
Cash generated by operations 8,777 6,120 12,978
Net foreign exchange movement (397) 78 84
Net cash inflow from operating activities 8,380 6,198 13,062
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash flows from investing activities
Purchases of property, plant and equipment (340) (299) (493)
Development of intangible assets (1,673) (1,645) (3,121)
---------------------------------------------------------- ------------------ ------------------ ----------------
Net cash used in investing activities (2,013) (1,944) (3,614)
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash flows from financing activities
Issue of equity shares 303 252 258
Equity dividends paid (1,110) (721) (1,138)
Net cash used in financing activities (807) (469) (880)
---------------------------------------------------------- ------------------ ------------------ ----------------
Net increase in cash and cash equivalents 5,560 3,785 8,568
Cash and cash equivalents at beginning of the period 14,174 5,606 5,606
---------------------------------------------------------- ------------------ ------------------ ----------------
Cash and cash equivalents at end of the period 19,734 9,391 14,174
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation and significant accounting policies
Focusrite Plc (the 'Company') is a company incorporated in the
UK. The condensed consolidated interim financial statements
('interim financial statements') as at and for the six months ended
28 February 2018 comprised the Company and its subsidiaries
(together referred to as the 'Group').
The Group is a business engaged in the development, manufacture
and marketing of professional audio and electronic music
products.
Statement of compliance
The interim financial statements are for the six months ended 28
February 2018 and are presented in pounds Sterling ('GBP'). This is
the functional currency of the Group. The statement is presented to
the nearest GBP1,000 ("GBP'000"). The interim financial report has
been prepared in accordance with the International Financial
Reporting Standards ('IFRS'), International Accounting Standards
('IAS') and interpretations currently endorsed by the International
Accounting Standards Board ('IASB') and its committees as adopted
by the EU and as required to be adopted by AIM listed companies.
AIM listed companies are not required to comply with IAS 34
'Interim Financial Reporting' and accordingly the Company has taken
advantage of this exemption. They do not include all the
information required for a complete set of IFRS financial
statements. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual consolidated financial statements
as at and for the year ended 31 August 2017.
These interim financial statements were authorised for issue by
the Company's Board of Directors on 24 April 2018.
Significant accounting policies
The interim financial statements have been prepared in
accordance with the accounting policies adopted in the Group's
financial statements for the year ended 31 August 2017.
1.1 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and subsidiaries controlled by the
Company drawn up to 28 February 2018.
1.2 Subsidiaries
Subsidiaries are entities controlled by the Group. Control
exists when the Group has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its
activities. In assessing control, the Group takes into
consideration potential voting rights that are currently
exercisable. The acquisition date is the date on which control is
transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases.
1.3 Going concern
The Board of Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future. Accordingly, the
financial statements have been prepared on a going concern
basis.
1.4 Earnings per share
The Group presents basic and diluted earnings per share ('EPS')
data for its ordinary shares. Basic EPS is calculated by dividing
the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
For diluted EPS, the weighted average number of ordinary shares is
adjusted for the dilutive effect of potential ordinary shares
arising from the exercise of granted share options.
1.5 Accounting estimates and judgements
In application of the Group's accounting policies, the Directors
are required to make judgements, estimates and assumptions about
the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from
these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by the Directors in
applying the Group's accounting policies and key sources of
estimation uncertainty were the same as those applied to the
Group's financial statements for the year ended 31 August 2017.
1.6 Foreign currencies
The individual financial statements of each subsidiary are
presented in the currency of the primary economic environment in
which it operates (its functional currency). Sterling is the
predominant functional currency of the Group and presentation
currency for the consolidated financial information.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised at the
rates of exchange prevailing on the dates of the transactions. At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the
period in which they arise except for:
-- Exchange differences on transactions entered into to hedge certain foreign currency risks
-- Exchange differences on monetary items receivable from or
payable to a foreign operation for which settlement is neither
planned nor likely to occur (therefore forming part of the net
investment in the foreign operation), which are recognised
initially in other comprehensive income and reclassified from
equity to profit or loss on disposal or partial disposal of the net
investment.
For the purpose of presenting consolidated financial
information, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of the transactions are used. Exchange
differences arising, if any, are recognised in the income
statement.
1.7 Hedge accounting
For the year ended 31 August 2016 and subsequent years, the
Group has adopted hedge accounting for qualifying transactions.
Derivatives are initially recognised at fair value at the date a
derivative contract is entered into and are subsequently remeasured
to their fair value at each balance sheet date. The resulting gain
or loss is recognised in profit or loss immediately unless the
derivative is designated and effective as a hedging instrument, in
which event the timing of the recognition in profit or loss depends
on the nature of the hedge relationship. The Group designates
certain derivatives as either hedges of the fair value of
recognised assets or liabilities of firm commitments (fair value
hedges), hedges of highly probable forecast transactions or hedges
of foreign currency risk of firm commitments (cash flow hedges), or
hedges of net investments in foreign operations.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge
of the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, the effective
part of any gain or loss on the derivative financial instrument is
recognised directly in the hedging reserve. Any ineffective portion
of the hedge is recognised immediately in the income statement.
For cash flow hedges, the associated cumulative gain or loss is
removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction
affects profit or loss.
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected
to occur, the cumulative gain or loss at that point remains in
equity and is recognised in accordance with the above policy when
the transaction occurs. If the hedged transaction is no longer
expected to take place, the cumulative unrealised gain or loss
recognised in equity is recognised in the income statement
immediately.
A derivative with a positive fair value is recognised as a
financial asset whereas a derivative with a negative fair value is
recognised as a financial liability.
2. Revenue
An analysis of the Group's revenue is as follows:
Six months to
28 February 2018 Six months to Year to
(unaudited) 28 February 2017 (unaudited) 31 August 2017 (audited)
-----------------
GBP'000 GBP'000 GBP'000
----------------- --------------------- ------------------------------------- ----------------------------------
Continuing
operations
USA 16,123 13,246 27,990
Europe, Middle
East and Africa 15,997 12,958 25,153
Rest of World 6,699 5,816 12,912
Consolidated
revenue 38,819 32,020 66,055
------------------ --------------------- ------------------------------------- ----------------------------------
3. Operating segments
Products and services from which reportable segments derive
their revenues
Information reported to the Group's Chief Executive Officer (who
has been determined to be the Group's Chief Operating Decision
Maker) for the purposes of resource allocation and assessment of
segment performance is focused on the main product groups which the
Group sells. The Group's reportable segments under IFRS 8 are
therefore as follows:
Focusrite - Sales of Focusrite and Focusrite Pro branded
products
Novation - Sales of Novation and Ampify branded products
Distribution - Distribution of third party brands, including
KRK
speakers, Stanton, Cerwin Vega, Cakewalk and sE Electronics
The revenue and profit generated by each of the Group's
operating segments are summarised as follows:
Six months to Six months to Year to
28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------- ------------------------------------ -------------------------------------- -----------------------------------
Revenue from
external
customers
Focusrite 25,693 20,856 44,552
Novation 11,419 9,604 18,862
Distribution 1,707 1,560 2,641
Total 38,819 32,020 66,055
---------------- ------------------------------------ -------------------------------------- -----------------------------------
Segment profit
Focusrite 12,503 9,873 20,221
Novation 6,000 4,773 9,198
Distribution 481 434 711
---------------- ------------------------------------ -------------------------------------- -----------------------------------
18,984 15,080 30,130
Central
distribution
costs and
administrative
expenses (12,754) (10,509) (20,660)
---------------- ------------------------------------ -------------------------------------- -----------------------------------
Operating
profit 6,230 4,571 9,470
Finance income 1 52 86
Finance costs (398) (24) (44)
---------------- ------------------------------------ -------------------------------------- -----------------------------------
Profit before
tax 5,833 4,599 9,512
Tax (709) (552) (959)
Profit after
tax 5,124 4,047 8,553
---------------- ------------------------------------ -------------------------------------- -----------------------------------
Segment profit represents the profit earned by each segment
without allocation of the share of central administration costs,
including Directors' salaries, finance income and finance costs,
and income tax expense. This is the measure reported to the Group's
Chief Executive Officer for the purpose of resource allocation and
assessment of segment performance.
Central administration costs comprise principally the
employment-related costs and other overheads incurred by the Group.
Also included within central administration costs is the charge
relating to the share option scheme of GBP103,000 for the six-month
period to 28 February 2018 (six months to 28 February 2017:
GBP75,000; year to 31 August 2017: GBP145,000).
Segment net assets and other segment information
Management does not make use of segmental data relating to net
assets and other balance sheet information for the purposes of
monitoring segment performance and allocating resources between
segments. Accordingly, other than the analysis of the Group's
non-current assets by region shown below, this information is not
available for disclosure in the consolidated financial
information.
The Group's non-current assets, analysed by region, were as
follows:
28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------- ------------------------------------ ------------------------------------- ------------------------------
Non-current
assets
USA 99 59 52
Europe,
Middle East
and Africa 5,865 5,998 5,676
Rest of
World 642 687 604
Total
non-current
assets 6,606 6,744 6,332
------------- ------------------------------------ ------------------------------------- ------------------------------
4. Taxation
The tax charge for the six months to 28 February 2018 is based
on the estimated tax rate for the full year in each
jurisdiction.
5. Dividends
The following equity dividends have been declared:
Year to
Six months to Six months to 31 August 2017
28 February 2018 (unaudited) 28 February 2017 (unaudited) (audited)
--------------------------------- ------------------------------- ------------------------------- -----------------
Dividend per qualifying ordinary
share 1.00p 0.75p 2.70p
--------------------------------- ------------------------------- ------------------------------- -----------------
During the period, the Company paid a final dividend in respect
of the year ended 31 August 2017 of 1.95 pence per share, amounting
to GBP1,110,000.
6. Earnings per share
Reported earnings per share
The calculation of the basic and diluted earnings per share is
based on the following data:
Six months to Year to
28 February Six months to 31 August
2018 28 February 2017 2017
(unaudited) (unaudited) (audited)
Earnings GBP'000 GBP'000 GBP'000
--------------------------------------- ------------------------- ------------------------- -----------------------
Earnings for the purposes of basic and
diluted earnings per share being net
profit for the
period 5,124 4,047 8,553
--------------------------------------- ------------------------- ------------------------- -----------------------
Six months to Six months to Year to
28 February 28 February 31 August
2018 2017 2017
number number number
Number of shares '000 '000 '000
--------------------------------------- ------------------------- ------------------------- -----------------------
Weighted average number of ordinary
shares for the purposes of basic
earnings per share calculation 56,690 55,298 55,432
Effect of dilutive potential ordinary
shares:
EMI share option scheme and unapproved
share option plan 1,151 2,356 2,357
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share
calculation 57,841 57,654 57,789
--------------------------------------- ------------------------- ------------------------- -----------------------
Earnings per share Pence Pence Pence
--------------------------------------- ------------------------- ------------------------- -----------------------
Basic earnings per share 9.0 7.3 15.4
--------------------------------------- ------------------------- ------------------------- -----------------------
Diluted earnings per share 8.9 7.0 14.8
--------------------------------------- ------------------------- ------------------------- -----------------------
At 28 February 2018, the total number of ordinary shares issued
and fully paid was 58,111,639. This included 1,188,025 shares held
by the Employee Benefit Trust ('EBT') to satisfy options vesting in
future years. The operation of this Employee Benefit Trust 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 earnings per share calculation is the net
of the weighted average number of shares in issue (58,094,838) less
the weighted average number of shares held by the Employee Benefit
Trust (1,405,082). It should be noted that the only right
relinquished by the Trustees of the Employee Benefit Trust is the
right to receive dividends. In all other respects, the shares held
by the Employee Benefit Trust 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.
7. Financial instruments
The fair value of the Group's derivative financial instruments
is calculated using the quoted prices. Where such prices are not
available, a discounted cash flow analysis is performed using
applicable yield curve for the duration of the instruments for
non-optional derivatives, and option pricing model for optional
derivatives. Foreign currency forward contracts are measured using
quoted forward exchange rates and yield curves derived from quoted
interest rates matching maturities of the contract.
IFRS 13 Fair Value Measurements requires the Group's derivative
financial instruments to be disclosed at fair value and categorised
in three levels according to the inputs used in the calculation of
their fair value.
Financial instruments carried at fair value should be measured
with reference to the following levels:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The financial instruments held by the Group that are measured at
fair value all related to financial assets/(liabilities) measured
using a Level 2 valuation method.
The fair value of financial assets and liabilities held by the
Group are:
28 February 2018 28 February 2017 31 August 2017
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------- -------------------------- ------------------ ----------------
Financial assets
Amortised cost
Cash and cash equivalents 19,734 9,391 14,174
Trade and other receivables 10,243 9,211 11,203
Designated cash flow hedge relationships
Derivative financial assets designated and
effective as cash flow hedging instruments 258 - -
30,235 18,602 25,377
---------------------------------------------------- -------------------------- ------------------ ----------------
Financial liabilities
Designated cash flow hedge relationships
Derivative financial liabilities designated and
effective as cash flow hedging instruments - 443 484
Amortised cost
Trade and other payables 8,861 3,468 4,042
---------------------------------------------------- -------------------------- ------------------ ----------------
8,861 3,911 4,526
---------------------------------------------------- -------------------------- ------------------ ----------------
Independent Review Report to Focusrite Plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 28 February 2018 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Other Comprehensive Income, Condensed Consolidated Statement of
Financial Position, Condensed Consolidated Statement of Changes in
Equity, Condensed Consolidated Statement of Cash Flow and the
related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 28 February 2018
is not prepared, in all material respects, in accordance with the
recognition and measurement requirements of International Financial
Reporting Standards (IFRSs) as adopted by the EU and the AIM
Rules.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with the recognition and measurement requirements of
IFRSs as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Peter Meehan
for and on behalf of KPMG LLP
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
24 April 2018
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IJMRTMBITBFP
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