TIDMTUNE

RNS Number : 6494W

Focusrite PLC

27 April 2021

Strictly embargoed until 07:01: 27 April 2021.

Focusrite plc ("Focusrite" or "the Group")

Half year results for the period ended 28 February 2021

Focusrite plc, the global music and audio products company supplying hardware and software used by professional and amateur musicians and the entertainment industry, today announces its half year results for the six months ended 28 February 2021.

Key financial metrics

 
                                               HY21    HY20 
 
 Revenue (GBP million)                         95.3    49.9 
                                              -----  ------- 
 Adjusted EBITDA(2) (GBP million)              29.3    9.1 
                                              -----  ------- 
 Adjusted(3) operating profit (GBP million)    26.3    6.4 
                                              -----  ------- 
 Adjusted(3) diluted earnings per share (p)    36.3    9.3 
                                              -----  ------- 
 Interim dividend per share (p)                1.5     1.3 
                                              -----  ------- 
 Net cash (debt) (GBP million)                 19.1   (19.9) 
                                              -----  ------- 
 
 Statutory results 
                                              -----  ------- 
 Operating profit (GBP million)                24.2    3.0 
                                              -----  ------- 
 Basic earnings per share (p)                  33.2    3.6 
                                              -----  ------- 
 
 

Highlights

-- Group revenue up by 90.9% to GBP95.3 million (64.3% organic constant currency growth(1) ) (HY20: GBP49.9 million)

-- Gross margin improved to 48.0% (HY20: 46.1%)

-- Adjusted EBITDA(2) up by 219.9% to GBP29.3 million (HY20: GBP9.1 million)

-- Net cash of GBP19.1 million (FY20: net cash GBP3.3 million, HY20: net debt of GBP19.9 million)

-- Consumer demand remained at record levels across the Focusrite, Novation and ADAM Audio ranges

o Focusrite operating company revenue up by 93.1% to GBP74.0 million (HY20: GBP38.4 million)

o ADAM Audio revenue up by 78.7% to GBP12.6 million (HY20: GBP7.0 million)

o Martin Audio profitable despite reduced demand due to COVID-19 restrictions and Optimal Audio, launched 20 April 2021

-- Interim dividend of 1.5 pence, up 15% from 1.3 pence announced in July 2020

-- Sequential LLC, California based synthesiser company acquired 26 April 2021 for $24 million consideration.

Commenting on the results and the outlook for the Group, Tim Carroll, Chief Executive Officer, said:

" The Group has performed exceptionally well throughout the first half of the financial year 2020/2021, with each brand taking on the challenges and opportunities created by the pandemic as well as delivering on our mission of 'Removing Barriers to Creativity'. Our teams have continued to persevere, adapt, and succeed in challenging situations, and I salute every employee for their efforts.

For the first half of the financial year, Focusrite, Novation and ADAM Audio products continued to see high demand for home-based amateur and professional audio recording solutions. This resulted in revenue for the period being slightly ahead of our revised expectations as announced on 19 February 2021. As previously discussed, we believe the base has materially grown, with more people utilising these solutions for music creation, podcasting, social media broadcasts and other streaming workflows. The digitisation of almost every facet of modern life continues unabated, and audio is no exception.

We continue to see challenges, most notably component supply issues that are impacting many industries. However, we believe our strong relationships with our contract manufacturers and component suppliers will enable us, over time, to navigate successfully through this. We expect demand to remain higher than pre-COVID-19 levels for our ADAM Audio and Focusrite businesses, but recognise the uncertainty that the end of lockdown will bring. While demand for Martin Audio products continues to be constrained by the shutdown of live events, we are now seeing the pipeline increase for both installed and tour sound business.

As always, we remain appropriately cautious given the unique global circumstances, but also optimistic about the future prospects for the Group. "

(1) The organic constant currency growth rate is calculated by comparing HY21 revenue to HY20 revenue adjusted for exchange rates and the impact of acquisitions (more detail in Foreign Exchange and Hedging section of the Financial Review).

(2) Comprising earnings adjusted for interest, taxation, depreciation, amortisation and non-underlying items. This is shown on the face of the income statement.

(3) Adjusted for non-underlying items which comprise costs relating to the acquisition of Sequential LLC (GBP0.3m) and amortisation of acquired intangibles (GBP1.8m).

Enquiries:

 
 Focusrite plc: 
 Tim Carroll (CEO)                    +44 1494 462246 
 Sally McKone (CFO)                   +44 1494 462246 
 
 Panmure Gordon (Nominated Adviser 
  and Broker) 
 Freddy Crossley (Corporate 
  Finance)                            +44 20 7886 2500 
 Erik Anderson (Corporate Broking)    +44 20 7886 2500 
 
 Belvedere Communications 
 John West                            +44 20 3687 2756 
 Llew Angus                           +44 20 3687 2756 
 

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 audio products group that develops and markets proprietary hardware and software products. Used by audio professionals and musicians, its solutions facilitate the high-quality production of recorded and live sound. The Focusrite Group trades under six established brands: Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio and Martin Audio, with a seventh, Optimal Audio, recently launched on 20 April 2021.

With a high-quality reputation and a rich heritage spanning decades, its brands are category leaders in the music-making and audio recording industries. Focusrite and Focusrite Pro offer audio interfaces and other products for recording musicians, producers and professional audio facilities. Novation and Ampify products are used in the creation of electronic music, from synthesisers and grooveboxes to industry-shaping controllers and inspirational music-making apps. ADAM Audio studio monitors have earned a worldwide reputation based on technological innovation in the field of studio loudspeaker technology. Martin Audio designs and manufactures performance-ready systems across the spectrum of sound reinforcement applications.

The Focusrite Group has offices in four continents and a global customer base with a distribution network covering approximately 160 territories.

Focusrite plc is traded on the AIM market, London Stock Exchange.

Business and operating review

Overview

We are pleased to report our financial results and summary of operations for the first six months ending 28 February 2021. Overall, the Group has performed exceptionally well. Revenue, EBITDA and cash have all grown considerably: Net Promoter Scores ('NPS'), an important performance indicator, have remained strong at 73 (HY20: 72); gross margin has increased; new product introductions have performed well; and demand for many of the Group's products has remained at unprecedented levels.

At our core is a passionate group of employees all rallied around a common mission of 'Removing Barriers to Creativity'. Our customer base continues to grow and now encompasses a wide range of customers from the beginner/enthusiast through to professionals and enterprise facilities. At all levels, our customers depend on our solutions to provide the highest quality audio possible in an environment where technology aids the process instead of getting in the way.

COVID-19

As with many businesses, COVID-19 has impacted many parts of our Group, including routes to market and manufacturing capabilities.

Over the last six months we have been working closely with our people to support them to work from home, both from a practical and wellbeing point of view. We have been operating with a skeleton staff in our offices and supporting this via onsite testing where possible. We recognise how difficult this has been and thank all our people across the entire Group for their flexibility and dedication throughout this period.

As regions come out of lockdown and more bricks and mortar stores begin to re-open, we are seeing a balance return between these types of resellers and those which are more e-commerce focused. Even with heightened demand, the Group has worked to ensure an adequate flow of product to all channels so that our solutions are always available to the end user, no matter what their purchasing preference. For Martin Audio, higher emphasis has been put on installed sound, the area of business least impacted by COVID-19 and the first to begin to return to normal.

The Group has fared well with manufacturing capacity benefiting from our strong relationships with our contract manufacturers, and further utilisation of a second plant in Malaysia for our Scarlett products, which have been one of the most sought out lines during the pandemic. Martin Audio and ADAM Audio, which both have in-house production for certain products, implemented strict workplace rules to ensure the safety and wellbeing of all staff. These measures have proved effective and resulted in minimal stock out issues due to production.

Component shortages remain an industry-wide issue. Pleasingly, the Group has managed to keep a consistent inflow of material by using the combined strength of all of our brands and our good-standing with our contract manufacturers and chip suppliers. However, we do believe this global issue will continue to affect supply for some time.

Operating review

Our Group is comprised of six powerful brands across three main businesses: Focusrite, Focusrite Pro, Novation and Ampify, which make up the Focusrite Audio Engineering ('FAEL') business unit, ADAM Audio and Martin Audio. We intend for Optimal Audio, following its recent launch on 20 April 2021, to be included in future under the Martin Audio brand.

 
                                                                                                Year to 
                                        Six months to       Six months to                     31 August 
                                     28 February 2021    29 February 2020                          2020 
                                              GBP'000             GBP'000                       GBP'000 
---------------------------------  ------------------  ------------------  ---------------------------- 
 Revenue from external customers 
 Focusrite                                     58,325              25,574                        76,178 
 Focusrite Pro                                  2,675               1,884                         3,492 
 Novation (including Ampify)                   13,043               9,935                        19,383 
 ADAM Audio                                    12,582               7,041                        17,381 
 Martin Audio                                   8,651            4,526(4)                        12,014 
 Distribution                                      10                 966                         1,693 
 Total                                         95,286              49,926                       130,141 
---------------------------------  ------------------  ------------------  ---------------------------- 
 

(4) Revenue from date of acquisition

Focusrite Audio Engineering Ltd ('FAEL')

The FAEL product range, which consists of Focusrite, Focusrite Pro, Novation and Ampify, have all had a strong first half of the financial year. The Focusrite Scarlett and Clarett audio interfaces showed strong year-on-year growth at 111% and 47% respectively. These products are core to home recording and audio streaming, which have experienced large increases in demand since global lockdowns occurred. However, as discussed previously, the increased level of demand has continued past the end of regional lockdowns, indicating a general rise in awareness and demand for these solutions and a global trend towards digitisation across virtually all forms of work and entertainment.

Focusrite Pro, which in the first half of last year was impacted by pre-COVID-19 delays on some new product introductions, rebounded well and finished the first half 42% up year-on-year. This is a very pleasing result as many of the verticals for these solutions are in the live/tour and installed sound segments which are still shut in many places around the world. The team had a number of new product launches and focused on helping enterprise customers continue to create content for music, video, TV and film releases during the pandemic. The pipeline for our Pro products continues to grow and we are optimistic about the potential of this segment as more production opens back up and enterprise institutions begin to invest in capital expenditures.

Novation continues the pattern of strong growth, finishing the first half showing a 31% increase year-on-year. A number of new product launches, especially those that were launched late last year, were the big contributing factors to the range's success. As with our Scarlett interfaces, all new Novation products have the same tailored customer onboarding journey that quickly assesses the individual needs and current skill levels of a new customer to help them make music quickly. We believe that our approach here remains highly differentiated and a key reason why so many customers choose a Novation solution against our competition.

Ampify has continued to develop, refine, improve and add to the features on our first cross platform music creation solution: Ampify Studio. Along with the content label, Ampify Sounds, this platform is becoming the first immersion into music-making for many of our Novation and Focusrite customers. Bundled for free with any hardware offering, Ampify has also introduced a premium subscription model that offers more features and access to the entire Ampify sound label for royalty free use in productions. Whilst still relatively new, the Group has seen promising growth in line with expectations in our subscription user base and monthly recurring revenue since inception.

In August 2020, the Group ceased distributing KRK monitors in the UK, favouring instead the Group's own ADAM Audio Studio monitors. Therefore, revenue from the Distribution channel is declining to nil.

ADAM Audio GmbH

ADAM Audio, based in Berlin, is a globally recognised brand with a passionate team focused on delivering world-class monitoring solutions (speakers) for audio content creators. ADAM Audio's portfolio of reference monitors encompasses the T-Series, A-Series and S-Series. Throughout the past year, the T-Series has been the go-to monitor for startup home studios, allowing these product lines to grow by 142% over the previous year. The A-Series, used in both high-end home studios and professional facilities alike, and the enterprise level S-Series, showcased in some of the most prestigious audio production facilities in the world, both achieved significant growth over the last year. The product portfolio is rounded out with an extensive line of subwoofers which contributed to the overall segment growth of 79% over the prior year.

Martin Audio Ltd

The Martin Audio brand is comprised of a large and growing portfolio for the live/tour sound and installed market. Hospitality and live events have mostly not been possible during the pandemic across much of the world, however as the pandemic rolls on the company has managed costs well and delivered profits in line with expectations. As different geographies have adapted to the pandemic, so has Martin Audio. Martin Audio's Point Source products for smaller applications are selling well globally and particularly in the APAC region where some countries have been able to reduce lockdown restrictions more quickly. We have also seen success in long-term capital purchases in several installation sectors, including cruise ships. The team continues to launch products by investing in research and development (R&D), including the new China exclusive P.I. series and the ground-breaking TORUS system and Display 3 software solution, an acoustical prediction program allowing users to see the sound coverage in 3D.

Research and development

R&D remains a cornerstone of our Group's strategy. In this period, the Group launched 20 new products to market and a host of software and hardware upgrades across many of the product groups.

Regional review

 
                                                 Six months        Six months      Year to 
                                             to 28 February    to 29 February    31 August 
                                                       2021              2020         2020 
                                                    GBP'000           GBP'000      GBP'000 
-----------------------------------------  ----------------  ----------------  ----------- 
 North America                                       41,845            18,094       50,861 
 Europe, Middle East and Africa ('EMEA')             36,945            23,115       56,459 
 Rest of World ('ROW')                               16,496             8,717       22,821 
-----------------------------------------  ----------------  ----------------  ----------- 
 Total                                               95,286            49,926      130,141 
-----------------------------------------  ----------------  ----------------  ----------- 
 

North America

North America has become the largest region for the Group at 44% of total revenue in the period. Our North American operations continue to grow, and we have invested in sales, marketing, logistics and customer service to support the business.

Both FAEL and ADAM Audio products are sold through a similar sales channel, and Martin Audio's North America business is transacted through a mix of live/tour sound rental companies, system integrators and direct to end-users. FAEL revenue in North America was up 148% for the first half compared with the first half of FY20. ADAM Audio's performance was up 86% year-on-year. Martin Audio's North America business was up 34% on the prior year due to the short comparative period, however from a full six-month view this represents a significant reduction due to COVID-19.

EMEA

EMEA represented 39% of the Group's revenue for the first half of FY21. For FAEL, the region was up 57% year-on-year. This growth was primarily driven by the increased demand for its products with the benefit of a more established distributor base following changes in Italy and Scandinavia in the first half of FY20. ADAM Audio's EMEA business was up 72%, driven by increased demand in line with FAEL. For Martin Audio, the Group had a full six months of revenue compared to just two months for the prior year, resulting in a 67% increase over the first half of the prior year. On a like-for-like basis, Martin Audio revenue contracted 44% due to the negative COVID-19 impact. For now, demand for the Group's products has remained strong, with increased levels of sales of FAEL and ADAM Audio solutions and we are beginning to see signs of recovery for Martin Audio in the installed sound market.

ROW

ROW comprises all other regions outside of EMEA and North America, principally made up of Asia Pacific ('APAC') and Latin America ('LATAM').

The Group's APAC region performed strongly in the first half of the financial year, resulting in an 89% increase over the prior year. For FAEL, Asia was up 62% compared with HY20. Strong demand for FAEL products as well as a very weak January and February in 2020 due to COVID-19 contributed to this result. ADAM Audio was up 25%, mainly attributed to the same drivers as FAEL. Martin Audio had a satisfactory performance in APAC, where we saw the installed sound market show a healthy recovery.

LATAM had a very impressive first half, finishing 91% up over the prior year. This was comprised of a 106% increase for FAEL and essentially the start of representation in the market for ADAM Audio, where revenue went from virtually zero in the prior half to just over GBP0.7 million this half. The team representing FAEL and ADAM Audio, located in Mexico and Brazil, has done an excellent job of focusing on localised support and sales and marketing tools for the various countries. We continue to invest more resources in this market as we believe there is more opportunity to reach the vast population, where music is an important part of the region's various cultures.

Financial Review

Overview

The Group has seen ongoing strong demand for its products, resulting in 91% growth in revenue, 220% growth in adjusted EBITDA and 294% growth in adjusted diluted earnings per share.

Income statement

 
                                     HY21       HY21             HY21       HY20       HY20             HY20 
                                      GBPm       GBPm             GBPm       GBPm       GBPm             GBPm 
---------------------------------- 
                                     Adjusted   Non-underlying   Reported   Adjusted   Non-underlying   Reported 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 Revenue                             95.3       -                95.3       49.9       -                49.9 
 Cost of sales                       (49.6)     -                (49.6)     (26.9)     -                (26.9) 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 Gross profit                         45.7      -                45.7        23.0      -                23.0 
 Administrative expenses             (19.4)     (2.1)            (21.5)     (16.6)     (3.4)            (20.0) 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 Operating profit                    26.3       (2.1)            24.2       6.4        (3.4)            3.0 
 Net finance income                  (0.6)      -                (0.6)      (0.3)      -                (0.3) 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 Profit before tax                   25.7       (2.1)            23.6       6.1        (3.4)            2.7 
 Income tax expense                  (4.3)      -                (4.3)      (0.7)      -                (0.7) 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 Profit for the period               21.4       (2.1)            19.3       5.4        (3.4)            2.0 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 
                                     HY21       HY21             HY21       HY20       HY20             HY20 
                                      GBPm       GBPm             GBPm       GBPm       GBPm             GBPm 
---------------------------------- 
                                     Adjusted   Non-underlying   Reported   Adjusted   Non-underlying   Reported 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
                                                                                       (3.4) 
 Operating profit                    26.3       (2.1)(5)         24.2       6.4         (5)             3.0 
 Add - amortisation of intangible 
  assets                             2.0        1.8              3.8        2.0        1.2              3.2 
 Add - depreciation of tangible 
  assets                             1.0        -                1.0        0.7        -                0.7 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 EBITDA                              29.3       (0.3)            29.0       9.1        (2.2)            6.9 
----------------------------------  ---------  ---------------  ---------  ---------  ---------------  --------- 
 

(5) Non-underlying items comprise costs relating to the acquisition of Sequential LLC (GBP0.3m) and amortisation of acquired intangibles (GBP1.8m), see note 4 of the interim statements.

Revenue

Revenue for the Group grew 91% to GBP95.3 million (HY20: GBP49.9 million) which, adjusting for acquisitions and constant currency, represents organic growth of 64.3%. Both periods include six months of ADAM Audio which contributed GBP12.6 million (HY20: GBP7.0 million), a growth of 79%. Martin Audio contributed GBP8.7 million (HY20: GBP4.5 million for two months). As lockdowns have remained in place, we have continued to see stronger demand for the products made by FAEL and ADAM Audio as people have had more time to create music, as companies that rely on an audio component have had to ensure their employees can work and record from home, and as audio is increasingly digitally recorded and reworked. Conversely, the pandemic has slowed demand for Martin Audio Products, with live events being put on hold.

 
                           Half Year ended 29 February 
                                       2020 
-------------- 
                                                                              Revenue   Organic 
                                                                       HY21    Growth    Growth 
                 Revenue   Exchange   Acquisitions   As adjusted    Revenue       (%)       (%) 
--------------  --------  ---------  -------------  ------------  ---------  --------  -------- 
 FAEL               38.4      (0.8)              -          37.6       74.0    92.7 %    96.8 % 
 ADAM Audio          7.0          -              -           7.0       12.6    80.0 %    80.0 % 
                                                                                         (35.1) 
 Martin Audio        4.5          -            8.9          13.4        8.7    93.3 %         % 
--------------  --------  ---------  -------------  ------------  ---------  --------  -------- 
 Total              49.9      (0.8)            8.9          58.0       95.3     90.9%    64.3 % 
--------------  --------  ---------  -------------  ------------  ---------  --------  -------- 
 

Exchange rates were mixed in the period. The Euro strengthened slightly to EUR1.14 (HY20: EUR1.16) and the USD weakened from $1.28 in HY20 to $1.36 in HY21. The effect of the Dollar movement is to decrease the revenue for HY21 relative to HY20. However, at the profit level the USD effect is mitigated by the purchases of stock in USD from the manufacturers in China and Malaysia and the Euro effect is largely mitigated by the Group's hedging policy (approximately 75% of Euro exposure is hedged in the current financial year and approximately 50% is hedged in the following financial year).

Segment profit

Segment profit is disclosed in more detail in the note to the accounts named, 'Business Segments'. These segments compare the revenue of the products of the relevant brands with the directly attributable costs to create segment profit. With the acquisition of ADAM Audio, the Group ended its distribution of third-party monitors, hence the reduction in revenue for this segment.

Gross profit

In HY21, the gross margin was 48.0% up from 46.1% in HY20, which was an increase from 44.3% in HY19. This is the result of several short and long-term factors. HY21 includes the one-off benefit of a refund of US duty of GBP0.6 million, following a reassessment of duty codes in 2020. Historically there have been a number of factors at play. One factor is business mix, with the removal of the lower margin distribution business and the growth of the higher margin ADAM Audio business at 58.7% gross margin. Another factor is routes to market, with more products being sold either directly to dealers rather than distributors or directly to the consumer. Focused cost and price management, reducing royalties and tariffs, and management of margin to get the best value out of discounts to the reseller channel are other factors. As discussed in recent trading updates, the Group is mindful of the impact of components shortages on future revenue and gross margin.

Administrative expenses

Administrative expenses consist of sales, marketing, operations, the uncapitalised element of research and development (partially offset by the Research and Development Expenditure Credit regime ('RDEC') tax credit) and central functions such as legal, finance and the Group Board. These expenses were GBP21.5 million, up from GBP20.0 million last year. Excluding non-underlying costs of GBP2.1 million (see non-underlying section), the operating costs were GBP19.4 million (HY20: GBP16.6 million). Martin Audio contributed a full six months of costs compared to two months in HY20, an increase of GBP1.2 million, with effective cost control in place to mitigate the lower revenue. The underlying increase, excluding the annualisation of Martin Audio, of 9% reflects the investment the Group has made in increased customer support, which has been mitigated by reduced marketing costs with many trade shows planned for the period cancelled due to COVID-19. With markets opening up again we expect these costs to resume as we showcase our new product launches.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure, but it is widely recognised in the financial markets as a proxy for the ongoing trading performance of a business. It is also used within the Group as the basis for some of the incentivisation of senior management at both the operating company level and the Group level. EBITDA increased from GBP9.1 million in HY20 to GBP29.3 million in HY21, an increase of 220%. The increase of GBP20.2 million over the prior year is greatly enhanced by the contribution of the high levels of revenue, with the increase in gross margin more than offsetting the slight increase in operating costs.

Depreciation and amortisation

Depreciation is charged on tangible fixed assets on a straight-line basis over the assets' estimated useful lives, normally ranging between two and five years. Amortisation is mainly charged on capitalised development costs, writing-off the development cost over the life of the resultant product. For Focusrite and Novation this is up to three years, up to eight years for ADAM Audio, and up to 11 years for Martin Audio, reflecting the different lifespans of the products.

The amortisation of the acquired intangible assets for both ADAM Audio and Martin Audio totalled GBP1.8 million during the period (HY20: GBP1.2 million) and has been disclosed within non-underlying costs.

Within the Group, GBP2.6 million of development costs were capitalised (HY20: GBP2.1 million) and the amortisation of capitalised development costs was GBP1.6 million (HY20: GBP1.5 million).

Non-underlying items

In HY21 non-underlying costs totalled GBP2.1 million (HY20 GBP3.4 million), GBP0.3 million relating to the diligence costs for the acquisition of Sequential LLC that completed 26 April 2021 and GBP1.8 million relating to amortisation of acquired intangible assets. In HY20 non-underlying costs included GBP1.8 million relating to the acquisition of Martin Audio, GBP1.2 million for amortisation on acquired intangible assets, and GBP0.4 million due to restructuring.

Foreign exchange and hedging

The exchange rates were as follows:

 
 Exchange rates    HY21   HY20   FY20 
----------------  -----  -----  ----- 
 Average 
 USD:GBP           1.36   1.28   1.27 
----------------  -----  -----  ----- 
 EUR:GBP           1.14   1.16   1.14 
----------------  -----  -----  ----- 
 
 Period end 
----------------  -----  -----  ----- 
 USD:GBP           1.39   1.28   1.34 
----------------  -----  -----  ----- 
 EUR:GBP           1.15   1.16   1.12 
----------------  -----  -----  ----- 
 

The average USD rate has weakened at $1.36:GBP1.00 for HY21 (HY20: $1.28). The USD accounts for over half of Group revenue but nearly all of the cost of sales so there is a useful natural hedge.

The Group enters into forward contracts to convert Euro to GBP. The policy adopted by the Group is to hedge approximately 75% of the Euro flows for the current financial year (year ending August 2021) and approximately 50% of the Euro flows for the following financial year (FY22).

In HY21, approximately three-quarters of Euro flows were hedged at EUR1.10, and the average transaction rate was EUR1.13, thereby creating a blended exchange rate of approximately EUR1.11. In HY20, the equivalent hedging contracts were at EUR1.12, versus the transactional rate of EUR1.16 and so creating a blended exchange rate of EUR1.13.

Hedge accounting is used, meaning that the hedging contracts have been matched to income flows and, providing the hedging contracts remain effective, movements in fair value are shown in a hedging reserve in the balance sheet, until the hedge transaction occurs.

Corporation tax

The effective tax rate for the period is 18.2% (HY20: 23.8%). In both years the rate has been impacted by the disallowance of the non-underlying costs for corporation tax. Adjusting for this, the underlying effective rate of 16.7% (HY20: 10.5%). The Group's historic rate of c10% is lower than the UK headline rate of 19%, where most of the Group's profits are taxed, due largely to enhanced tax relief on development costs due to the Small or Medium-sized Enterprise regime ('SME') for the treatment of R&D costs. From the start of this year the Group has moved to the RDEC which is markedly less beneficial. A credit of GBP0.2 million has been recognised against uncapitalised R&D costs within Administrative expenses, which is taxable. As a result of the change to RDEC, the effective tax rate is expected to be more in line with the UK headline rate, which is due to increase on 1 April 2023 to 25% as outlined by the Chancellor in the recent budget.

Earnings per share ('EPS')

The basic EPS for the half year was 33. 2 pence, an over eight fol d increase from 3.6 pence in HY20. This increase has largely followed the change in reported profit after tax. The weighted average number of shares used for the calculation has increased compared to the prior year at 58,077,283 shares (HY20: 57,537,000 shares). In December 2020 , the Group issued 550,000 new shares for the replenishment of the Employee Benefit Trust. The more comparable measure, excluding non-underlying items and including the dilutive effect of share options, is the adjusted diluted EPS. This increased to 36. 3 pence, from 9.3 pence in HY20, an increase of 29 0 %.

 
                     HY21    HY20    FY19 
                     Pence   Pence   Pence 
------------------  ------  ------  ------ 
 Basic               33.2    3.6     7.1 
 Diluted             32.7    3.5     7.0 
 Adjusted basic      36.9    9.4     33.2 
 Adjusted diluted    36.3    9.3     32.8 
------------------  ------  ------  ------ 
 

Balance sheet

 
                                  HY21     HY20     FY20 
                                  GBPm     GBPm     GBPm 
-------------------------------  -------  -------  ------- 
 Non-current assets               51.2     63.3     52.3 
 Current assets 
 Inventories                      15.9     18.6     19.4 
 Trade and other receivables      18.2     19.3     18.0 
 Cash                             18.8     12.8     15.0 
 Current liabilities 
 Other current liabilities        (20.5)   (15.7)   (26.0) 
 Non-current liabilities 
 Bank loan or overdraft           0.3      (32.7)   (11.6) 
 Other non-current liabilities    (8.6)    (10.6)   (10.2) 
-------------------------------  -------  -------  ------- 
 Net assets                       75.3     55.0     56.9 
-------------------------------  -------  -------  ------- 
 

Non-current assets

The non-current assets comprise: goodwill; brands, patents and capitalised development costs; property, plant and equipment; and software.

The goodwill totals GBP7.9 million (HY20: GBP17.6 million). This comprises Martin Audio's GBP2.4 million, ADAM Audio's GBP5.1 million and Novation's GBP0.4 million. In both Martin Audio and ADAM Audio, the goodwill represented approximately 30% of the acquisition cost.

The brands were initially valued at GBP14.3 million. This comprises Martin Audio's GBP6.8 million, which is to be amortised over 20 years, and ADAM Audio's GBP7.5 million, which is to be amortised over ten years. At 28 February 2021 the brands had carrying value of GBP12.7 million (HY20: GBP13.6 million).

The capitalised development costs comprise acquired developments in relation to both completed products and products currently in development, and internally generated development costs for products currently on sale. The amortisation periods range from three years to 11 years depending on the expected life of the products. The shorter amortisation periods are more usual for Focusrite and Novation products and the longer periods for the ADAM Audio monitors and the Martin Audio live speakers. The capitalised development costs have a carrying value of GBP25.6 million (HY20: GBP26.8 million).

Based on current trading and management forecasts, no impairments to the carrying value of the intangible assets have been deemed necessary. This will be reassessed at the year-end for evidence of any permanent diminution in value.

Overall, the amortisation of the intangible assets totals GBP3.8 million (HY20: GBP3.2 million). This is split between amortisation of intangible assets acquired as part of the acquisition of either ADAM Audio in July 2019 or Martin Audio in December 2019 of GBP1.8 million (HY20: GBP1.2 million), and other amortisation of GBP2.0 million (HY20: GBP2.0 million). The amortisation of acquired intangible assets has been treated as a non-underlying expense. The ongoing amortisation relates to the capitalised development costs credited to the income statement. The difference between ongoing amortisation and capitalised development costs is GBP1.2 million (HY20: GBP0.6 million).

The remaining GBP5.0 million (HY20: GBP5.3 million) of non-current assets consist mainly of right of use assets relating to the Group's leased offices and warehouses, tooling equipment for the manufacture of products and other intangible assets such as software and trademarks.

Working capital

Working capital was 7.7% of revenue (HY20: 20.9%). This is in line with year-end levels but is lower than historic norms which are closer to the levels at half year 2020. Inventory has remained low as strong demand has further delayed the replenishment to expected levels and an ongoing focus on cash collection has kept overdue debtors low. Notwithstanding that, Focusrite, in particular, moved from one manufacturing site to two in 2018 and increased production significantly. Demand has continued to outstrip supply with ongoing global constraints for certain key components, meaning that period end stock remains low. Going forward the Group will work towards restoring the stock levels needed to satisfy ongoing demand. As is our practice, creditors continue to be paid on time.

Cash flow

 
                                          HY21   HY20    FY20 
                                          GBPm   GBPm    GBPm 
 Free cash flow(6)                        5.5    (0.6)   2.4 
 Add - non-underlying cash outflows(7)    12.0   5.0     25.8 
---------------------------------------  -----  ------  ----- 
 Underlying free cash flow                17.5   4.4     28.2 
---------------------------------------  -----  ------  ----- 
 

(6) Defined as net cash from operating activities less net cash used in investing and financing activities, excluding dividends paid.

(7) Defined as cash payments for non-underlying costs.

The underlying free cash flow in HY21 was GBP17.5 million, which was 18.4% of revenue. In the comparative period, the free cash flow was GBP4.4 million which was 8.8% of revenue. Free cash flow as a percentage of revenue is a key performance measure within the Group and forms an important element of the incentivisation metrics for senior management across the Group. Over the last five years underlying free cash flow as a proportion of revenue has averaged 12%. The GBP12.0 million non-underlying cash flow in HY21 consists of the repayment of the bank loan. In FY20, it related to the acquisition of Martin Audio, and subsequent partial repayment of the bank loan.

Free cash flow is 5.8% of revenue due to the high operating profit margin and the favourable movement in working capital diluted by the impact of phasing of payments to creditors. Going forward, the movement in working capital is expected to be negative as the Group replenishes stock and grows further.

The net cash balance at the period end was GBP19.1 million (HY20: net debt of GBP19.9 million and FY20: net cash of GBP3.3 million). In December 2019, the Group acquired Martin Audio for GBP35.3 million (net of acquired cash) and also incurred non-underlying costs totalling GBP2.3 million. As part of the acquisition of Martin Audio, the Group took a GBP40 million loan facility split evenly between HSBC and NatWest. The facility lasts for five years to December 2024.

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 at least 12 months from this report date. Accordingly, the interim statements have been prepared on a going concern basis.

The COVID-19 virus has caused upheaval worldwide with many businesses experiencing a significant decline in revenue. The Directors have prepared projected cash flow information (base case forecasts) for the period ending 12 months from the date of their approval of this interim statement. On the basis of this cash flow information, the Directors consider that at the end of the 12-month period, the Group will remain in a net cash position following the acquisition of Sequential LLC on 26 April 2021. The Group's revolving credit facility ('RCF') facility of GBP40.0 million is due for renewal in December 2024. Throughout the period the forecast cash flow information indicates that the Group will comfortably comply with the leverage and interest cover covenants contained within the facility.

Management's view is that a severe yet plausible downside assumption against their base case forecasts is estimated to be a revenue shortfall of 30% for a six-month period commencing April 2021. This model assumes that purchases of stock will, in time, reduce to reflect reduced sales and the Group will respond to the shortfall by taking reasonable steps to reduce overheads within its control. Even at that level, the Group would be expected to remain well within the terms of its loan facility with the leverage covenant (net debt to adjusted EBITDA) in the period not exceeding 0.6 compared to the maximum of 2.5. The Group's net debt position under this severe plausible downside scenario is still expected to improve at the end of the 12-month period.

In their sensitivity analyses, the Directors estimate that if the Group were to experience a shortfall in revenue of greater than 65% for six months, this could result in leverage beyond that permitted by the current facility by September 2021, despite consequential reductions in the purchases of stock and overheads. As an additional measure the Directors could also stop the dividend. However, the Director's view is that this scenario of a revenue shortfall of greater than 65% is not plausible.

In reality, the Group is still experiencing record levels of consumer registrations and customer demand, partially as a result of the COVID-19 restrictions on people's movement and more generally in line with the trend towards the digitisation of audio for work and leisure purposes which will outlast the pandemic, and therefore the high levels of revenue have been maintained since year end. This is evidenced by improvements in the Group's net cash position which has remained strong, increasing from the GBP19.1 million reported at half year to approximately GBP27.4 million at 19 April 2021. Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the interim statements and therefore have prepared the interim statements on a going concern basis. See note 1.3 for further detail.

Dividend

The Board has approved an interim dividend of 1.5p (HY20: 1.3p). The Board deferred the declaration of the HY20 interim dividend at the interim results due to the uncertainty at the start of the COVID-19 pandemic. Following strong trading this was subsequently approved and announced in July 2020.

Summary and outlook

"The Group has performed exceptionally well throughout the first half of the financial year 2020/2021, with each brand taking on the challenges and opportunities created by the pandemic as well as delivering on our mission of 'Removing Barriers to Creativity'. Our teams have continued to persevere, adapt, and succeed in challenging situations, and I salute every employee for their efforts.

For the first half of the year, Focusrite, Novation and ADAM Audio products continued to see high demand for home-based amateur and professional audio recording solutions. This resulted in revenue for the period being slightly ahead of our revised expectations as announced on 19 February 2021. As previously discussed, we believe the customer base has materially grown, with more people utilising these solutions for music creation, podcasting, social media broadcasts and other streaming workflows. The digitisation of almost every facet of modern life continues unabated, and audio is no exception.

We continue to see challenges, most notably component supply issues that are impacting many industries. However, we believe our strong relationships with our contract manufacturers and component suppliers will enable us, over time, to navigate successfully through this. We expect demand to remain higher than pre-COVID-19 levels for our ADAM Audio and Focusrite businesses, but recognise the uncertainty that the end of lockdown will bring. While demand for Martin Audio products continues to be constrained by the shutdown of live events, we are now seeing the pipeline increase for both installed and tour sound business.

As always, we remain appropriately cautious given the unique global circumstances, but also optimistic about the future prospects for the Group."

 
 Tim Carroll               Sally McKone 
 Chief Executive Officer   Chief Financial Officer 
 27 April 2021             27 April 2021 
 

Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year although they are not expected to cause the Group's actual results to differ materially from the expected results.

The Directors do not consider that the principal risks and uncertainties have changed materially since the publication of the Annual Report for the year ended 31 August 2020, save as set out below.

The principal risks and how the Group seeks to mitigate these risks is set out on pages 26 - 30 inclusive of the Annual Report and Accounts 2020.

COVID-19

The past 12 months have been defined by the impact of COVID-19 and whilst the threat of general disruption to operations, including from government restrictions, the impact on the supply chain and people availability remains, and the Group has responded to the continuing uncertainty.

Demand has remained strong as government lockdown measures have resulted in a unique set of circumstances when consumers remained at home with little outlet and audio equipment became an increasingly essential part of everyday life. As a result, we experienced a strong increase in demand and delivered record volumes to customers.

The Group's management team continue to monitor the circumstances, with a focus on the health and wellbeing of our people and ensuring our systems are secure, robust and can support sustained remote working. Similarly, our manufacturing partners have taken measures to ensure their workforce welfare with cleaning, social distancing and testing protocols in place.

Product supply

The Group's home audio products continue to be in high demand across all major markets. This demand presents its own challenges: supply chain risks arise for the Group in particular from the availability of raw materials and components. The market is suffering from a restricted capacity caused by supplier failure and excessive demand on suppliers globally across the electronics supply chain, including automotive and other consumer electronic goods.

In order to manage this uncertainty of supply, work is ongoing with the Group's suppliers to source and buy materials and components to meet our production schedules and with its distributors and resellers to manage the supply of products to the market.

Emerging risks: Climate

Future risks continue to be a discussion as we try to predict what the music industry may look like in the short and long term. As an equipment manufacturer with a worldwide reach, we are aware that our very existence contributes to factors affecting climate change. During the first six months ending 28 February 2021, our Green Team has been building on existing commitments to improve product longevity and supplier sustainability expectations as outlined in our Annual Report and Accounts. The Group is in talks with external sustainability advisers as we define our response to climate change and the actions we can take to preserve the environment.

FORWARD-LOOKING STATEMENTS

Certain statements in this half year report are forward looking. Although the Directors believe that their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Condensed Consolidated Income Statement

For the six months ended 28 February 2021

 
                                                             Six months to       Six months to           Year to 
                                                  Note    28 February 2021    29 February 2020    31 August 2020 
                                                               (unaudited)         (unaudited)         (audited) 
                                                                   GBP'000             GBP'000           GBP'000 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 Revenue                                             2              95,286              49,926           130,141 
 Cost of sales                                                    (49,594)            (26,920)          (70,248) 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 Gross profit                                                       45,692              23,006            59,893 
 Administrative expenses                                          (21,615)            (19,342)          (51,485) 
 Impairment gain/(loss)on trade and other 
  receivables                                                           74               (649)             (474) 
 Adjusted EBITDA (non-GAAP measure)                                 29,236               9,139            28,565 
 Depreciation and amortisation                                     (2,946)             (2,757)           (5,530) 
 Non-underlying items for Adjusted EBITDA: 
 Impairment of goodwill on acquisition                                   -                   -          (10,200) 
 Amortisation of acquired intangible assets                        (1,869)             (1,144)           (3,013) 
 Non-underlying items                                4               (270)             (2,223)           (1,888) 
 Operating profit                                                   24,151               3,015             7,934 
 Finance income                                                          -                  28                36 
 Finance costs                                                       (589)               (353)             (945) 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 Profit before tax                                                  23,562               2,690             7,025 
 Income tax expense                                  5             (4,296)               (639)           (2,934) 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 Profit for the period from continuing operations                   19,266               2,051             4,091 
------------------------------------------------------  ------------------  ------------------  ---------------- 
 
 Earnings per share 
 From continuing operations 
                                                 -----  ------------------  ------------------ 
 Basic (pence per share)                             7                33.2                 3.6               7.1 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 Diluted (pence per share)                           7                32.7                 3.5               7.0 
-----------------------------------------------  -----  ------------------  ------------------  ---------------- 
 

Condensed Consolidated Statement of Other Comprehensive Income

For the six months ended 28 February 2021

 
                                                             Six months to       Six months to           Year to 
                                                          28 February 2021    29 February 2020    31 August 2020 
                                                               (unaudited)         (unaudited)         (audited) 
                                                                   GBP'000             GBP'000           GBP'000 
-----------------------------------------------------   ------------------  ------------------  ---------------- 
 Profit for the period                                              19,266               2,051             4,091 
 Items that may be reclassified subsequently to the income statement 
 Exchange differences on translation of foreign 
  operations                                                         (265)                  88               105 
 Gain on forward foreign exchange contracts designated 
  and effective as a hedging instrument                                626            ---1,069               459 
 Tax on hedging instrument                                           (151)               (203)              (87) 
------------------------------------------------------  ------------------  ------------------  ---------------- 
 Total comprehensive income for the period                          19,476               3,005             4,568 
------------------------------------------------------  ------------------  ------------------  ---------------- 
 Profit attributable to: 
 Equity holders of the Company                                      19,476               3,005             4,568 
------------------------------------------------------  ------------------  ------------------  ---------------- 
                                                                    19,476               3,005             4,568 
 -----------------------------------------------------  ------------------  ------------------  ---------------- 
 

Condensed Consolidated Statement of Financial Position

 
                                                 Note   28 February 2021   29 February 2020   31 August 2020 
                                                             (unaudited)        (unaudited)        (audited) 
                                                                 GBP'000            GBP'000          GBP'000 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Assets 
 Non-current assets 
 Goodwill                                                          7,882             17,587            7,882 
 Other intangible assets                          8               39,500             41,539           40,374 
 Property, plant and equipment                                     3,833              4,170            4,082 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Total non-current assets                         3               51,215             63,296           52,338 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 
 Current assets 
 Inventories                                                      15,908             18,589           19,372 
 Trade and other receivables                                      17,326             18,437           17,744 
 Derivative financial instruments                 9                  846                881              271 
 Cash and cash equivalents                        9               18,792             12,767           14,975 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Total current assets                                             52,872             50,674           52,362 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Total assets                                                    104,087            113,970          104,700 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 
 Equity and liabilities 
 Capital and reserves 
 Share capital                                                        59                 58               58 
 Share premium                                                       115                115              115 
 Merger reserve                                                   14,595             14,595           14,595 
 Merger difference reserve                                      (13,147)           (13,147)         (13,147) 
 Translation reserve                                                (68)                180              197 
 Hedging reserve                                                     846                714              220 
 EBT reserve                                                         (1)                (1)              (1) 
 Retained earnings                                                72,945             52,474           54,861 
 Equity attributable to owners of the Company                     75,344             54,988           56,898 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Total equity                                                     75,344             54,988           56,898 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 
 Current liabilities 
 Trade and other payables                                         14,938             13,453           23,417 
 Other liabilities                                                   888                969            1,018 
 Current tax liabilities                                           3,390                551              452 
 Provisions                                                        1,319                757            1,094 
 Total current liabilities                                        20,535             15,730           25,981 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 
 Non-current liabilities 
 Deferred tax                                                      6,311              8,147            7,772 
 Other liabilities                                                   681              1,446              889 
 Provisions                                                        1,519              1,019            1,519 
 Bank loan and arrangement fee                    9                (303)             32,640           11,641 
 Total liabilities                                                28,743             58,982           47,802 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 Total equity and liabilities                                    104,087            113,970          104,700 
----------------------------------------------  -----  -----------------  -----------------  --------------- 
 

Condensed Consolidated Statements of Changes in Equity

 
 For the six 
 months ended                                          Merger 
 28 February         Share      Share     Merger   difference   Translation    Hedging        EBT   Retained 
 2021              capital    premium    reserve      reserve       reserve    reserve    reserve   earnings     Total 
                   GBP'000    GBP'000    GBP'000      GBP'000       GBP'000    GBP'000    GBP'000    GBP'000   GBP'000 
 Balance at 1 
  September 
  2020                  58        115     14,595     (13,147)           197        220        (1)     54,861    56,898 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Profit for the 
  period                 -          -          -            -             -          -          -     19,266    19,266 
 Other 
  comprehensive 
  income for 
  the period             -          -          -            -         (265)        626          -      (151)       210 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Total 
  comprehensive 
  income for 
  the period             -          -          -            -         (265)        626          -     19,115    19,476 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Transactions 
 with owners of 
 the Company: 
 Shares issued 
  to EBT                 1          -          -            -             -          -        (1)          -         - 
 Share-based 
  payment 
  deferred tax 
  deduction in 
  excess of 
  remuneration 
  expense                -          -          -            -             -          -          -        259       259 
 Share-based 
  payment 
  current tax 
  deduction in 
  excess of 
  remuneration 
  expense                -          -          -            -             -          -          -        447       447 
 Shares from 
  EBT exercised          -          -          -            -             -          -          1        300       301 
 Share-based 
  payments               -          -          -            -             -          -          -        305       305 
 Shares 
  withheld to 
  settle 
  employees' 
  tax 
  obligations 
  associated 
  with 
  share-based 
  payments               -          -          -            -             -          -          -      (720)     (720) 
 Premium on 
  shares 
  awarded in 
  lieu of 
  bonuses                -          -          -            -             -          -          -         60        60 
 Dividends paid          -          -          -            -             -          -          -    (1,682)   (1,682) 
 Balance at 28 
  February 2021         59        115     14,595     (13,147)          (68)        846        (1)     72,945    75,344 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 

Condensed Consolidated Statements of Changes in Equity (Continued)

 
 For the six 
 months ended                                          Merger 
 29 February         Share      Share     Merger   difference   Translation    Hedging        EBT   Retained 
 2020              capital    premium    reserve      reserve       reserve    reserve    reserve   earnings     Total 
                   GBP'000    GBP'000    GBP'000      GBP'000       GBP'000    GBP'000    GBP'000    GBP'000   GBP'000 
 Balance at 1 
  September 
  2019                  58        115     14,595     (13,147)            92      (152)        (1)     51,827    53,387 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Profit for the 
  period                 -          -          -            -             -          -          -      2,051     2,051 
 Other 
  comprehensive 
  income for 
  the period             -          -          -            -            88        866          -          -       954 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Total 
  comprehensive 
  income for 
  the period             -          -          -            -            88        866          -      2,051     3,005 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Transactions 
 with owners of 
 the Company: 
 Share-based 
  payment 
  deferred tax 
  deduction in 
  excess of 
  remuneration 
  expense                -          -          -            -             -          -          -      (147)     (147) 
 Share-based             -          -          -            -             -          -          -          -         - 
 payment 
 current tax 
 deduction in 
 excess of 
 remuneration 
 expense 
 Shares from 
  EBT exercised          -          -          -            -             -          -          -        233       233 
 Share-based 
  payments               -          -          -            -             -          -          -        225       225 
 Shares 
  withheld to 
  settle 
  employees' 
  tax 
  obligations 
  associated 
  with 
  share-based 
  payments               -          -          -            -             -          -          -      (214)     (214) 
 Premium on              -          -          -            -             -          -          -          -         - 
 shares awarded 
 in lieu of 
 bonuses 
 Dividends paid          -          -          -            -             -          -          -    (1,501)   (1,501) 
 Balance at 29 
  February 2020         58        115     14,595     (13,147)           180        714        (1)     52,474    54,988 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 

Condensed Consolidated Statements of Changes in Equity (Continued)

 
 For the year                                          Merger 
 ended 31            Share      Share     Merger   difference   Translation    Hedging        EBT   Retained 
 August 2020       capital    premium    reserve      reserve       reserve    reserve    reserve   earnings     Total 
                   GBP'000    GBP'000    GBP'000      GBP'000       GBP'000    GBP'000    GBP'000    GBP'000   GBP'000 
 Balance at 1 
  September 
  2019                  58        115     14,595     (13,147)            92      (152)        (1)     51,827    53,387 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Profit for the 
  period                 -          -          -            -             -          -          -      4,091     4,091 
 Other 
  comprehensive 
  income for 
  the period             -          -          -            -           105        372          -          -       477 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Total 
  comprehensive 
  income for 
  the period             -          -          -            -           105        372          -      4,091     4,568 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 Transactions 
 with owners of 
 the Company: 
 Share-based 
  payment 
  deferred tax 
  deduction in 
  excess of 
  remuneration 
  expense                -          -          -            -             -          -          -        162       162 
 Share-based 
  payment 
  current tax 
  deduction in 
  excess of 
  remuneration 
  expense                -          -          -            -             -          -          -        457       457 
 Shares from 
  EBT exercised          -          -          -            -             -          -          -        252       252 
 Share-based 
  payments               -          -          -            -             -          -          -        537       537 
 Shares 
  withheld to 
  settle 
  employees' 
  tax 
  obligations 
  associated 
  with 
  share-based 
  payments               -          -          -            -             -          -          -      (192)     (192) 
 Premium on 
  shares 
  awarded in 
  lieu of 
  bonuses                -          -          -            -             -          -          -       (22)      (22) 
 Dividends paid          -          -          -            -             -          -          -    (2,251)   (2,251) 
 Balance at 31 
  August 2020           58        115     14,595     (13,147)           197        220        (1)     54,861    56,898 
---------------  ---------  ---------  ---------  -----------  ------------  ---------  ---------  ---------  -------- 
 

Consolidated Statement of Cash Flow

For the six months ended 28 February 2021

 
                                                                 Six months to       Six months to           Year to 
                                                              28 February 2021    29 February 2020    31 August 2020 
                                                                       GBP'000             GBP'000           GBP'000 
 Cash flows from operating activities 
 Profit for the period                                                  19,266               2,051             4,091 
 Adjustments for: 
 Income tax expense                                                      4,296                 639             2,934 
 Net finance charge                                                        589                 325               909 
 Profit on disposal of property, plant and equipment                         -                 (1)                 - 
 Amortisation of intangibles                                             3,786               3,244             6,780 
 Impairment of goodwill                                                      -                   -            10,200 
 Depreciation of property, plant and equipment                           1,029                 644             1,777 
 Share-based payments                                                      416                 225               537 
 Operating cash flow before movements in working capital                29,382               7,127            27,228 
 Decrease in trade and other receivables                                   527               3,535             3,839 
 Decrease in inventories                                                 3,465               2,579             1,914 
 (Decrease)/increase in trade and other payables                       (8,169)             (4,222)             7,932 
 Operating cash flow before interest and tax paid                       25,205               9,019            40,913 
 Net interest paid                                                       (145)               (155)             (441) 
 Income tax paid                                                       (2,819)               (816)           (3,539) 
 Net foreign exchange movement                                           (700)                (85)             (322) 
 Net cash inflow from operating activities                              21,541               7,963            36,611 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 Cash flows from investing activities 
 Purchases of property, plant and equipment                              (779)             (2,698)           (3,966) 
 Development of intangible assets                                      (2,911)             (3,251)           (5,649) 
 Acquisition of subsidiary, net of cash acquired                             -            (35,265)          (35,309) 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 Net cash used in investing activities                                 (3,690)            (41,214)          (44,924) 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 Cash flows from financing activities 
 Issue of equity shares                                                      1                   1                 - 
 Proceeds from loans and borrowings                                          -              36,000            36,000 
 Repayments from loans and borrowings                                 (12,000)             (3,000)          (24,000) 
 Loan arrangement fee                                                        -               (360)             (359) 
 Payment of right of use liabilities                                     (338)                   -             (939) 
 Payment of interest on right of use liabilities                          (15)                   -              (41) 
 Equity dividends paid                                                 (1,682)             (1,501)           (2,251) 
 Net cash (used)/generated in financing activities                    (14,034)              31,140             8,410 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 Net increase in cash and cash equivalents                               3,817             (2,111)                97 
 Cash and cash equivalents at beginning of the period                   14,975              14,878            14,878 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 Cash and cash equivalents at end of the period                         18,792              12,767            14,975 
----------------------------------------------------------  ------------------  ------------------  ---------------- 
 

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 2021 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 2021 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 recognition and measurement requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 that are used for the annual financial statements. The annual financial statements of the Group for the year ended 31 August 2021 will be prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

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 2020.

These interim financial statements were authorised for issue by the Company's Board of Directors on 27 April 2021.

The comparative figures for the financial year ended 31 August 2020 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Significant accounting policies

The condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 August 2020 which were prepared in accordance with IFRSs as adopted by the EU.

   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 2021.

   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 at least 12 months from the date of approval of the interim financial statements. Accordingly, the interim statements have been prepared on a going concern basis.

The Group meets its day-to-day working capital requirements from cash balances and a revolving credit facility of GBP40.0 million is due for renewal in December 2024. As further described below, the availability of the revolving credit facility is subject to continued compliance with certain covenants.

The COVID-19 virus has caused upheaval worldwide with many businesses experiencing a significant decline in revenue. The Directors have prepared projected cash flow forecasts for the period ending 12 months from the date of their approval of this financial statement. These forecasts include a severe but plausible downside scenario, which includes potential impacts from the continued uncertainty of COVID-19 (see below).

The base case covers the period to May 2022 and includes demanding but achievable forecast growth. The forecast has been extracted from the Group's three-year plan. Key assumptions include:

-- Future growth assumptions consistent with those recently achieved by the business excluding an estimate of the impact of COVID-19 but including the Group's expectation of Martin Audio recovery from the pandemic, and annualisation of Martin Audio results.

   --       Free cash flow as a percentage of revenue held steady compared to previous years. 
   --       Continued investment in research and development in all areas of the Group. 
   --       Dividends consistent with the Group's dividend policy. 
   --       Additional investment in acquisitions in the forecast period. 

Throughout the period the forecast cash flow information indicates that the Group will have sufficient cash reserves and comply with the leverage and interest cover covenants contained within the facility.

The Directors' view is that a severe yet plausible downside assumption against their base case forecasts is estimated to be a revenue shortfall of 30% for a six-month period commencing April 2021. This model assumes that purchases of stock would, in time, reduce to reflect reduced sales, if they occurred, and the Group would respond to a revenue shortfall by taking reasonable steps to reduce overheads within its control. Even at that level, the Group would be expected to remain well within the terms of its loan facility with the leverage covenant (net debt to adjusted EBITDA) in the period not exceeding 0.6x compared to the maximum of 2.5x. The Group's net debt position under this severe plausible downside scenario would still be expected to improve at the end of the 12-month period.

Separately, the Directors estimate that if the Group were to experience a shortfall in revenue of greater than 65% for six months, debt and leverage could rise to the upper limits allowed by the banking covenants by September 2021. This scenario includes consequential reductions in the purchases of stock and overheads. As an additional measure, the Directors could also cancel the dividend. However, the Directors view is that any scenario of a revenue shortfall of greater than 30% is not plausible.

In reality, the Group is still experiencing record levels of consumer registrations and customer demand, partially as a result of the COVID-19 restrictions on people's movement, and therefore the high levels of revenue have been maintained since year end. This is evidenced by improvements in the Group's cash position which has remained strong, increasing from the GBP18.8 million reported at half year to approximately GBP27.4 million at 19 April 2021. Consequently, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the interim statements and therefore have prepared the financial statements on a going concern basis.

   1.4       Earnings per share 

The Group presents basic and diluted earnings per share ('EPS') data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For diluted EPS, the weighted average number of ordinary shares is adjusted for the dilutive effect of potential ordinary shares arising from the exercise of granted share options.

   1.5       Accounting estimates and judgements 

In application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by the Directors in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those applied to the Group's financial statements for the year ended 31 August 2020.

   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; and

-- exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

For the purpose of presenting consolidated financial information, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of the transactions are used. Exchange differences arising, if any, are recognised in the income statement.

   1.7       Hedge accounting 

The Group has adopted hedge accounting for qualifying transactions. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities of firm commitments (fair value hedges), hedges of highly probable forecast transactions or hedges of foreign currency risk of firm commitments (cash flow hedges), or hedges of net investments in foreign operations.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.

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.

   1.8       Government grants 

Government grants are recognised when there is reasonable assurance that the Group will comply with the relevant conditions and the grant will be received.

Government grants related to assets are deducted from the cost of the asset and amortised over the useful life of the asset. Government grants related to income are presented as an offset against the related expenditure, and government grants that are awarded as incentives with no ongoing performance obligations to the Group are recognised as other income in the period in which the grant is received.

1.9 Alternative Performance Measures (APMs) and non-underlying items

The Group have applied certain Alternative Performance Measures ('APMs') within these interim results. The APMs presented are used in discussions with the Board, management and investors to aid the understanding of the performance of the Group. The Group refer to 'Adjusted' measures and 'non-underlying' items to better reflect the trading performance of the Group.

Non-underlying items are those items that are unusual because of their size, nature of incidence. The Directors consider that these items should be separately identified within their relevant income statement category to enable full understanding of the Group's results. Items included are one-off acquisition costs and restructuring costs.

The following APMs have been used in these interim results:

-- Adjusted EBITDA - Comprising earnings adjusted for interest, taxation, depreciation, amortisation and non-underlying items. This is shown on the face of the income statement.

-- Adjusted operating profit - Operating profit adjusted for non-underlying items which comprise costs relating to the acquisition of Sequential LLC (GBP0.3 million) and amortisation of acquired intangibles (GBP1.8 million).

-- Adjusted earnings per share (EPS) - Earnings per share excluding non-underlying items.

-- Free cash flow - defined as net cash from operating activities less net cash used in investing and financing activities, excluding dividends paid.

-- Underlying free cash flow - as free cash flow but adding back non-underlying cash flows relating to repayment of RCF drawn down for acquisitions.

-- Net debt - comprised of cash and cash equivalents, overdrafts and amounts drawn against the RCF including the costs of arranging the RCF.

   2.            Revenue 

An analysis of the Group's revenue is as follows:

 
                                  Six months to February                Six months to February 
                                           2021                                  2020 
                        -----------------------------------------  -------------------------------  -------- 
                            EMEA      North        Rest     Total      EMEA      North        Rest     Total 
                                    America    of World                        America    of World 
                         GBP'000    GBP'000     GBP'000   GBP'000   GBP'000    GBP'000     GBP'000   GBP'000 
----------------------  --------  ---------  ----------  --------  --------  ---------  ----------  -------- 
 Focusrite                21,787     28,578       7,960    58,325    11,748     10,077       3,749    25,574 
 Focusrite Pro               919      1,324         432     2,675       607        853         424     1,884 
                        --------  ---------  ----------  --------  --------  ---------  ----------  -------- 
 Focusrite segment        22,706     29,902       8,392    61,000    12,355     10,930       4,173    27,458 
 Novation segment          5,253      5,880       1,910    13,043     4,521      3,506       1,908     9,935 
 ADAM Audio                6,356      4,111       2,115    12,582     3,700      2,205       1,136     7,041 
 Martin Audio              2,620      1,952       4,079     8,651     1,573      1,453       1,500     4,526 
 Distribution segment         10          -           -        10       966          -           -       966 
----------------------  --------  ---------  ----------  --------  --------  ---------  ----------  -------- 
 Total                    36,945     41,845      16,496    95,286    23,115     18,094       8,717    49,926 
----------------------  --------  ---------  ----------  --------  --------  ---------  ----------  -------- 
 
 
 
                                   Year to August 2020 
                        ----------------------------------------- 
                            EMEA      North        Rest     Total 
                                    America    of World 
                         GBP'000    GBP'000     GBP'000   GBP'000 
----------------------  --------  ---------  ----------  -------- 
 Focusrite                32,128     32,782      11,268    76,178 
 Focusrite Pro             1,071      1,625         796     3,492 
                        --------  ---------  ----------  -------- 
 Focusrite segment        33,199     34,407      12,064    79,670 
 Novation segment          8,290      7,013       4,080    19,383 
 ADAM Audio                8,784      6,352       2,245    17,381 
 Martin Audio              4,493      3,089       4,432    12,014 
 Distribution segment      1,693          -           -     1,693 
----------------------  --------  ---------  ----------  -------- 
 Total                    56,459     50,861      22,821   130,141 
----------------------  --------  ---------  ----------  -------- 
 

In August 2020, the Group ceased distributing KRK monitors in the UK, favouring instead the Group's own ADAM Audio Studio monitors. Therefore, revenue from the Distribution channel is declining to nil.

   3.            Operating segments 

Products and services from which reportable segments derive their revenue

Information reported to the Group's Chief Executive Officer (who has been determined to be the Group's Chief Operating Decision Maker) for the purposes of resource allocation and assessment of segment performance is focused on the main product groups which the Group sells. While the results of Novation and Ampify are reported separately to the Board, they meet the aggregation criteria set out in IFRS 8 'Operating Segments'. The Group's reportable segments under IFRS 8 are therefore as follows:

Focusrite - Sales of Focusrite branded products

Focusrite Pro - Sales of Focusrite Pro branded products

Novation - Sales of Novation and Ampify branded products

   ADAM Audio                                     -               Sale of ADAM Audio products 

Martin Audio - Sale of Martin Audio products. Only applies after acquisition on 30 December 2019

The revenue and profit generated by each of the Group's operating segments are summarised as follows:

 
                                                                               Six months to      Year to 
                                                               Six months to     29 February    31 August 
                                                            28 February 2021            2020         2020 
                                                                                 (unaudited) 
                                                                 (unaudited)        restated    (audited) 
                                                                     GBP'000         GBP'000      GBP'000 
--------------------------------------------------------  ------------------  --------------  ----------- 
 Revenue from external customers 
 Focusrite                                                            58,325          25,574       76,178 
 Focusrite Pro                                                         2,675           1,884        3,492 
 Novation                                                             13,043           9,935       19,383 
 ADAM Audio                                                           12,582           7,041       17,381 
 Martin Audio                                                          8,651           4,526       12,014 
 Distribution                                                             10             966        1,693 
 Total                                                                95,286          49,926      130,141 
--------------------------------------------------------  ------------------  --------------  ----------- 
 Segment profit 
 Focusrite                                                            28,292          11,781       35,602 
 Focusrite Pro                                                         1,332           1,031        1,916 
 Novation                                                              4,726           4,230        8,458 
 ADAM Audio                                                            7,391           3,856        8,828 
 Martin Audio                                                          3,963           1,943        5,032 
 Distribution                                                           (12)             165           57 
--------------------------------------------------------  ------------------  --------------  ----------- 
                                                                      45,692          23,006       59,893 
 
 Central distribution costs and administrative expenses             (19,402)        (16,624)     (36,858) 
 Goodwill impairment                                                       -               -     (10,200) 
 Non-underlying items                                                (2,139)         (3,367)      (4,901) 
 Operating profit                                                     24,151           3,015        7,934 
 Finance income                                                            -              28           36 
 Finance costs                                                         (589)           (353)        (945) 
--------------------------------------------------------  ------------------  --------------  ----------- 
 Profit before tax                                                    23,562           2,690        7,025 
 Tax                                                                 (4,296)           (639)      (2,934) 
 Profit after tax                                                     19,266           2,051        4,091 
--------------------------------------------------------  ------------------  --------------  ----------- 
 

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. Segment profit at year end and 28 February 2021 includes all costs of goods sold. The figure for the six months to 29 February 2020 previously only included directly attributable costs of goods sold, and so excluded costs such as duty and freight which were not allocated directly to a particular brand. For the periods including year-end 31 August 2020 onwards, such costs are allocated to the segments to better demonstrate the performance of each brand. Therefore, the period ending 29 February 2020 has been restated to offer a better comparative to the other periods.

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 GBP416,000 for the six-month period to 28 February 2021 (six months to 29 February 2020: GBP225,000; year to 31 August 2020: GBP537,000).

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   29 February   31 August 
                                          2021          2020        2020 
                                   (unaudited)   (unaudited)   (audited) 
                                       GBP'000       GBP'000     GBP'000 
--------------------------------  ------------  ------------  ---------- 
 Non-current assets 
 North America                             590           124         760 
 Europe, Middle East and Africa         49,278        61,464      49,611 
 Rest of World                           1,347         1,708       1,967 
 Total non-current assets               51,215        63,296      52,338 
--------------------------------  ------------  ------------  ---------- 
 
   4.            Non-underlying costs 

The following non-underlying costs have been charged in the period

 
                                                   28 February   29 February   31 August 
                                                          2021          2020        2020 
                                                   (unaudited)   (unaudited)   (audited) 
                                                       GBP'000       GBP'000     GBP'000 
------------------------------------------------  ------------  ------------  ---------- 
 Non-underlying costs 
 Acquisition and due diligence costs                       270         1,813       1,737 
 Restructuring                                               -           410         151 
------------------------------------------------  ------------  ------------  ---------- 
 Non-underlying costs                                      270         2,223       1,888 
------------------------------------------------  ------------  ------------  ---------- 
 Amortisation of acquired intangible assets              1,869         1,144       3,013 
 Impairment of goodwill on acquisition                       -             -      10,200 
 Total non-underlying costs for adjusted EBITDA          2,139         3,367      15,101 
------------------------------------------------  ------------  ------------  ---------- 
 

Acquisition and due diligence costs in the six months to 28 February 2021 related to fees accrued for due diligence work associated with the acquisition of Sequential LLC.

   5.            Taxation 

The tax charge for the six months to 28 February 2021 is based on the estimated tax rate for the full year in each jurisdiction.

   6.            Dividends 

The following equity dividends have been declared:

 
                                                                                                               Year to 
                                                     Six months to                    Six months to     31 August 2020 
                                      28 February 2021 (unaudited)     29 February 2020 (unaudited)          (audited) 
---------------------------------  -------------------------------  -------------------------------  ----------------- 
 Dividend per qualifying ordinary 
  share                                                       1.5p                             1.3p               4.2p 
---------------------------------  -------------------------------  -------------------------------  ----------------- 
 

Du ring the period, the Company paid a final dividend in respect of the year ended 31 August 2020 of 2.9 pence per share, amounting to GBP1,682,000.

The Board has approved an interim dividend of 1.5p (HY20: 1.3p). At HY20, the Board deferred the declaration of the interim dividend at the interim results due to the uncertainty at the start of the COVID-19 pandemic. However, following strong trading this was subsequently approved and announced in July 2020 and paid in August 2020.

   7.            Earnings per share 

Reported EPS

The calculation of the basic and diluted EPS is based on the following data:

 
                                                                      Six months to                            Year to 
                                                                        28 February        Six months to     31 August 
                                                                               2021     29 February 2020          2020 
                                                                        (unaudited)          (unaudited)     (audited) 
 Earnings                                                                   GBP'000              GBP'000       GBP'000 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 Earnings for the purposes of basic and diluted EPS being net 
  profit for the period                                                      19,266                2,051         4,091 
 Non-underlying items                                                         2,139                3,367        15,101 
 Tax on non-underlying items                                                      -                    -          (26) 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 Total underlying profit for adjusted EPS calculation                        21,405                5,418        19,166 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 
 
 
                                                                      Six months to        Six months to       Year to 
                                                                        28 February          29 February     31 August 
                                                                               2021                 2020          2020 
                                                                             number               number        number 
  Number of shares                                                             '000                 '000          '000 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 Weighted average number of ordinary shares for the purposes of 
  basic EPS calculation                                                      58,077               57,537        57,680 
 Effect of dilutive potential ordinary shares: 
 EMI share option scheme and unapproved share option plan                       890                  733           812 
 Weighted average number of ordinary shares for the purposes of 
  diluted EPS calculation                                                    58,967               58,270        58,492 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 
 EPS                                                                          Pence                Pence         Pence 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 Basic EPS                                                                     33.2                  3.6           7.1 
 Diluted EPS                                                                   32.7                  3.5           7.0 
 Adjusted basic EPS                                                            36.9                  9.4          33.2 
 Adjusted diluted EPS                                                          36.3                  9.3          32.8 
-----------------------------------------------------------------  ----------------  -------------------  ------------ 
 

At 28 February 2021, the total number of ordinary shares issued and fully paid was 58,661,639. This included 528,916 shares held by the Employee Benefit Trust ('EBT') to satisfy options vesting in future years. The operation of this EBT is funded by the Group so the EBT is required to be consolidated, with the result that the weighted average number of ordinary shares for the purpose of the basic EPS calculation is the net of the weighted average number of shares in issue (58,312,191) less the weighted average number of shares held by the EBT (234,909). It should be noted that the only right relinquished by the Trustees of the EBT is the right to receive dividends. In all other respects, the shares held by the EBT have full voting rights.

The effect of dilutive potential ordinary share issues is calculated in accordance with IAS 33 and arises from the employee share options currently outstanding, adjusted by the profit element as a proportion of the average share price during the period.

   8.            Other intangible assets 
 
                 Intellectual     Internally       Acquired   Licences   Trademark        Computer    Brands     Total 
                     property      generated    development                               software 
                                 development          costs 
                                       costs 
                      GBP'000        GBP'000        GBP'000    GBP'000     GBP'000         GBP'000   GBP'000   GBP'000 
--------------  -------------  -------------  -------------  ---------  ----------  --------------  --------  -------- 
 Cost 
 At 1 
  September 
  2019                    536         20,104          4,043        103         422           1,008     7,500    33,716 
 Additions - 
  products 
  previously 
  under 
  development              44              -              -         63         404             224         -       735 
 Additions - 
  products 
  developed 
  during the 
  year                      -          2,698              -          -           -              81         -     2,779 
 Additions - 
  from 
  development 
  in progress               -          1,884              -          -           -               -         -     1,884 
 Additions 
  through 
  business 
  combination               -              -         15,900          -           -             224     6,800    22,924 
 Disposals                  -          (996)              -          -           -            (10)         -   (1,006) 
--------------  -------------  -------------  -------------  ---------  ----------  --------------  --------  -------- 
 At 31 August 
  2020                    580         23,690         19,943        166         826           1,527    14,300    61,032 
--------------  -------------  -------------  -------------  ---------  ----------  --------------  --------  -------- 
 
 
                 Intellectual    Internally      Acquired   Licences    Trademark   Computer    Brands       Total 
                     property     generated   development                           software 
                                development         costs 
                                      costs 
                      GBP'000       GBP'000       GBP'000    GBP'000      GBP'000    GBP'000   GBP'000     GBP'000 
 At 1 
  September 
  2020                    580        23,690        19,943        166          826      1,527    14,300      61,032 
 Additions - 
  products 
  previously 
  under 
  development              40           909             -          -           66        238         -       1,253 
 Additions - 
  products 
  developed 
  during the 
  period                    -            19             -          -            -          -         -          19 
 Additions - 
  from 
  development 
  in progress               -         1,672             -          -            -          -         -       1,672 
 Disposals                  -       (2,371)             -          -            -      (383)         -     (2,754) 
 At 28 
  February 
  2021                    620        23,919        19,943        166          892      1,382    14,300      61,222 
--------------  -------------  ------------  ------------  ---------  -----------  ---------  --------  ---------- 
 
   As at the 28 February 2021, there were GBP2,808,000 of assets under construction within internally 
   generated development costs (HY20: GBP1,874,000). 
                 Intellectual    Internally      Acquired   Licences    Trademark   Computer    Brands     Total 
                     property     generated   development                           software 
                                development         costs 
                                      costs 
                      GBP'000       GBP'000       GBP'000    GBP'000      GBP'000    GBP'000   GBP'000   GBP'000 
 Amortisation 
 At 1 
  September 
  2019                    353        13,386           110         95          269        576        95    14,884 
 Charge for 
  the year                167         3,026         2,042         27          195        260       973     6,690 
 Eliminated on 
  disposal                  -         (906)             -          -            -       (10)         -     (916) 
 At 1 
  September 
  2020                    520        15,506         2,152        122          464        826     1,068    20,658 
 Charge for 
  the period               14         1,612         1,321         17          139        167       548     3,818 
 Eliminated on 
  disposal                  -       (2,371)             -          -            -      (383)         -   (2,754) 
 At 28 
  February 
  2021                    534        14,747         3,473        139          603        610     1,616    21,722 
--------------  -------------  ------------  ------------  ---------  -----------  ---------  --------  -------- 
 
 
 
                 Intellectual     Internally       Acquired   Licences   Trademark        Computer    Brands     Total 
                     property      generated    development                               software 
                                 development          costs 
                                       costs 
                      GBP'000        GBP'000        GBP'000    GBP'000     GBP'000         GBP'000   GBP'000   GBP'000 
 Carrying 
 amount 
 At 28 
  February 
  2021                     86          9,172         16,470         27         289             772    12,684    39,500 
--------------  -------------  -------------  -------------  ---------  ----------  --------------  --------  -------- 
 At 31 August 
  2020                     60          8,184         17,791         44         362             701    13,232    40,374 
--------------  -------------  -------------  -------------  ---------  ----------  --------------  --------  -------- 
 
   9.            Financial instruments 

The fair value of the Group's derivative financial instruments is calculated using the quoted prices. Where such prices are not available, a discounted cash flow analysis is performed using applicable yield curve for the duration of the instruments for non-optional derivatives, and an option pricing model for optional derivatives. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contract.

IFRS 13 'Fair Value Measurements' requires the Group's derivative financial instruments to be disclosed at fair value and categorised in three levels according to the inputs used in the calculation of their fair value.

Financial instruments carried at fair value should be measured with reference to the following levels:

-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

-- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The financial instruments held by the Group that are measured at fair value all related to financial assets/(liabilities) measured using a Level 2 valuation method.

The fair value of financial assets and liabilities held by the Group are:

 
 
                                                        28 February 2021            29 February 2020    31 August 2020 
                                                             (unaudited)                 (unaudited)         (audited) 
                                                                 GBP'000                     GBP'000           GBP'000 
--------------------------------------------  --------------------------  --------------------------  ---------------- 
 Financial assets 
 Amortised cost 
 Cash and cash equivalents                                        18,792                      12,767            14,975 
 Trade and other receivables                                      14,638                      16,306            15,353 
 Designated cash flow hedge relationships 
 Derivative financial assets designated and 
  effective as cash flow hedging instruments                         846                         881               271 
                                                                  34,276                      29,954            30,599 
--------------------------------------------  --------------------------  --------------------------  ---------------- 
 Financial liabilities 
 Amortised cost 
 Trade and other payables                                          7,459                       9,133            14,137 
 Bank loan and arrangement fee                                     (303)                      32,640            11,641 
                                                                   7,156                      41,773            25,778 
--------------------------------------------  --------------------------  --------------------------  ---------------- 
 

The GBP0.3 million recorded against bank loan and arrangement fee is the amount paid to arrange the RCF in December 2020. The cost is being written down over the term of the RCF, which is five years. In previous periods it has been shown net with the loan amount, however as at 28 February 2021 no amount is drawn down against the RCF.

   10.                Subsequent events 

On 26 April 2021 the Group completed the acquisition of 100% of the share capital of Sequential LLC. The total consideration paid was $20 million (cGBP15 million) on completion, with a potential for a further $4 million if certain performance targets are achieved. This has been funded through a combination of existing cash resources and an GBP8 million drawdown on the existing revolving credit facility of GBP40 million with HSBC and NatWest. Following the acquisition of Sequential LLC , the Group will have net cash of approximately GBP12 million.

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 2021 which comprises Condensed Consolidated Income Statement, Condensed Consolidated Statement of Other Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statements of Changes in Equity, Consolidated Statement of Cash Flow and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 28 February 2021 is not prepared, in all material respects, in accordance with the recognition and measurement requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 that are used for the annual financial statements 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 latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards as adopted by the EU and the next annual financial statements will be prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly report in accordance with the recognition and measurement requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 that are used for the annual financial statements.

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.

Michael Froom

for and on behalf of KPMG LLP

Chartered Accountants

One Snowhill

Snow Hill Queensway

Birmingham

B4 6GH

27 April 2021

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END

IR IFMMTMTMTTFB

(END) Dow Jones Newswires

April 27, 2021 02:01 ET (06:01 GMT)

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