Source - RNS
RNS Number : 7696M
Gear4music (Holdings) PLC
18 October 2016
 



 

18 October 2016

Gear4music (Holdings) plc

Interim results for the six months ended 31 August 2016

 

Strong revenue and profits growth and strategic progress; well positioned heading into Christmas period

Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the largest UK based online retailer of musical instruments and music equipment, today announces its unaudited financial results for the six months ended 31 August 2016 ("the Period").

Financial and Operational Highlights:

 

£'000

6-months ended 31 August 2016

6-months ended 31 August 2015

change

Revenue

21,609

12,493

+73%

Gross profit

5,754

3,305

+74%

Gross margin

26.6%

26.5%

+10bps

Adjusted EBITDA *

1,338

216

            +1.12m

Adjusted PBT *

966

(217)

            +1.18m

Reported PBT

966

(1,056)

         +£2.02m

* 2015 figures adjusted to exclude £606,000 of exceptional costs relating to the IPO, and PBT to also exclude £233,000 of non-recurring interest

 

·     Accelerated revenue growth driven by rising website traffic and improved conversion rates

·     UK revenue of £13.8m (+44%) and European revenue of £7.8m (+169%)

·     Active customers** increased by 45% with an email subscriber database of over 600,000

·     Adjusted EBITDA was 6.2% of revenue (H1 2015/16: 1.7%)

·     Strong balance sheet - £0.9m net cash*** (August 2015: £0.6m) and inventories of £9.3m (August 2015: £8.0m) in advance of the Christmas trading peak

 

Post-period Strategic Developments:

·     Swedish Distribution Centre on track to be operational in November 2016

·     Property lease signed on German Distribution Centre

·     Software development team to be brought in-house

·     Additional worldwide shipping destinations added

 

** Active customers are those that have purchased products within the last 12 months

*** Net cash being cash less borrowings 

 

Commenting on the results, Andrew Wass, Chief Executive Officer said:

"I am extremely pleased that during the last six months we have combined strong trading with significant strategic progress, as we continue on our journey to be one of Europe's leading online retailers of musical instruments and equipment.

"Accelerating sales growth into Europe, which represented 40% of our total sales during the last two months of the period, has reinforced our decision to expand our distribution capacity in Europe and further enhance our customer proposition.

"To underpin our strong growth and physical geographic expansion, we are pleased to announce that our software development team will be brought in-house and, with further recruitment planned, expanded even faster to ensure we continue to build a market leading e-commerce platform.

"Whilst we continue to invest to grow the business it is pleasing to have generated significant profits during the last six months, when historically we've produced the majority of our profits during the second half of the year.

"Trading remains strong heading into our important Christmas period and the Board considers the Group well placed to deliver results for the full year that will be ahead of its previous expectations"

Gear4music will issue a trading statement in early January 2017.

 

Enquiries:

Gear4music                                                                                                                        +44 20 3128 8100

Andrew Wass, Chief Executive Officer

Chris Scott, Chief Financial Officer

 

Panmure Gordon                                                                                                              +44 20 7886 2500

(Financial Adviser, Nominated Adviser and Broker)

Andrew Godber / Peter Steel - Investment Banking

Erik Anderson / Tom Salvesen - Corporate Broking

 

MHP Communications                                                                                                    +44 20 3128 8100

(Financial PR)

Andrew Leach

Simon Hockridge

Isabelle Grainger

 

About Gear4music.com

Operating from an office, showroom and distribution centre in York, the Group sells Own-brand musical instruments and music equipment alongside premium third party brands including Fender, Yamaha and Gibson, to customers ranging from beginners to musical enthusiasts and professionals, in the UK and Europe.

Having developed its own ecommerce platform, with multilingual, multicurrency and fully responsive design websites covering 19 countries, the Group has rapidly expanded its database and continues to build its overseas presence.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

Business Review

 

The Group completed its IPO in June 2015 and continues to invest the growth capital raised to develop the business. Today the Board is pleased to report the Group's results for the six months to 31 August 2016, which represent good strategic, commercial and financial progress.

 

Customers and revenues

 

Revenue increased 73% on a 'like-for-like' ('LFL') basis during the Period to £21.6m (H1 2015/16: £12.5m), with 44% sales growth in our core UK market taking our market share to 4.0%, and 169% growth in Europe. As indicated in our trading update on 29 July 2016, sales have been strong across the period, with 66% growth in the four months to 30 June 2016, and 87% growth in the two-months to 31 August 2016. This indicates that, whilst there were currency tailwinds following the UK's EU Referendum vote, the acceleration in European sales growth pre-dated the weakening of sterling and the associated short-term competitive pricing benefits.

 

Total website visitor numbers increased by 26% to 5.58m (H1 2015/16: 4.41m), with visitors to the UK website increasing 13% and visitor numbers to the Group's 18 country-specific European websites growing by 46%. The revenue impact of the increase in website traffic was magnified by significant improvements in conversion rates from 2.45% to 3.20% in the UK and from 0.86% to 1.49% in Europe.

 

The Group served 141,000 customers in the period, up 60% on last year. Numbers of 'new customers' increased by 60% whilst 'repeat customers' improved by 59%. Active customers increased by 45%, and the number of people on our email subscriber database rose 84% to 601,011.

 

Organic website traffic accounted for 39% of total sales, and mobile (include tablet) sales momentum continued with a 42% rise on last year.

 

We continue to expand and invest in our commercial and customer service teams resulting in a highly positive overall customer experience, reflected in gear4music.com's Trustpilot score of 9.5.

 

Customer KPIs

 

 

 

 

H1 2016/17

H1 2015/16

Change

 

 

 

 

Revenue

£21.61m

£12.49m

+73%

 

 

 

 

Total unique website visitors

5.58m

4.41m

+26%

 

 

 

 

Conversion rate

2.38%

1.79%

+59bps

 

 

 

 

Average order value

£125.64

£115.67

+8.6%

 

 

 

 

Active customers

272,340

187,840

+45%

 

 

 

 

Proportion of repeat customers*

28.2%

28.4%

-20bps

 

 

 

 

Email subscriber database

601,011

325,937

+84%

 

 

 

 

Trustpilot rating

9.5/10

9.5/10

 

 

 

*Repeat customers are those that have made a purchase in the defined period and have historically made at least one purchase

Products

 

We continue to actively increase our stockholding, adding further breadth and depth to our range, ahead of our peak trading period. The carrying value of stock was £9.3m at 31 August 2016 (31 August 2015: £8.0m), representing an increase of 16%. The number of SKUs available has been increased from 29,300 at 31 August 2015, to 31,500 at 29 February 2016 and 34,400 at 31 August 2016, representing a 17% increase over the year.

 

Given the longer-lead times involved in developing and ordering Own-brand products, the rate of investment of the proceeds from our IPO was quicker for Other-brand stock than for Own-brand, and this initially led to a disproportionate increase in Other-brand sales compared to our Own-brands, and a sales mix effect as reported in last year's Interim statement and Annual Report. The Group remains committed to Own-brand product range expansion and continues to grow the team and progress product development opportunities. It is pleasing to see these efforts start to translate into results with Own-brand sales growth of 63% in the Period against 23% in H1 2015/16 and compared to 76% growth in Other-brand sales in this Period.

 

Own-brand products developments during the Period include:

·     The introduction of Own-brand acoustic pianos

·     A significant broadening of our guitar and percussion range

·     An improved premium-level drum-kit offering

 

Product KPIs

 

 

 

 

 

H1 2016/17

H1 2015/2016

Change

 

 

 

 

Own-brand product sales

£4.45m

£2.73m

+63%

 

 

 

 

Other brand product sales

£16.29m

£9.25m

+76%

 

 

 

 

Products listed

34,393

29,334

+17%

 

 

 

 

Brands listed

685

604

+13%

 

 

 

 

 

Technology

 

The Group invested £600,000 in its ecommerce platform in the period (H1 2015/16: £395,000), and made good progress on a number of key projects including:

 

·     Operation of multiple distribution hubs in multiple territories

·     Customer remarketing platform

·     Enhanced checkout

·     Improved anti-fraud measures

·     Ability to ship to worldwide destinations

·     Multicurrency pricing system upgrades

 

Strategy

We continue to work hard in our mission to be the best in our market and have made good progress with our strategic objectives over the Period. As set out in last year's Annual Report, investing in our people, our processes, our platform and our products is critical to improving our customers' experience and delivering sustainable long-term success, and we continue to make pleasing progress.

In our Chief Executive's statement in last year's Annual report, we announced our intention to open a number of satellite distribution hubs in mainland Europe and in September 2016 we announced the first distribution centre scheduled to open in Sweden in November 2016, that will significantly reduce delivery timescales and costs for our customers in Sweden, Norway, Denmark and Finland. Today we announce the signing of a property lease in Germany that should enable us to be operational there by the end of the financial year, and will service our customers in Germany, France, Belgium, Netherlands and Luxembourg. This will increase the distribution capability of the Group to be able to handle annual sales volumes of over £100m, thereby removing a potential longer-term barrier to sales growth, whilst reducing customer delivery times, opening up local buying opportunities, and de-risking some of the potential Brexit scenarios.

Acquisition

Our bespoke e-commerce platform is a key strength of the business and cornerstone of our success. Today we announce we have reached agreement with our software development partner, Venditan Limited ("Venditan"), to acquire our development team ("The Transaction") and bring them into the Gear4music fold. This will enable us to cost effectively ramp-up our development capability to bring key projects on-line faster, and further support the growth of the business.

Under the terms of the Transaction, 24 employees including Venditan's Chief Technology Officer Thomas Walder will transfer across to the Group on 1 January 2017 for a total consideration of approximately £1.5 million, to be settled in cash in 15 quarterly instalments of £100,000 each, with the first payment also due on 1 January 2017. The Group will, as part of these arrangements, also acquire certain fixed assets for cash from Venditan for their book value of £19,000.

Schedule 4 of the AIM Rules for Companies requires disclosure of the profits (or if applicable, losses) attributable to the assets being acquired, however, this information is not available in the case of the Transaction. The Board expects that the effect of these arrangements on the Group will be broadly cash-neutral in the first full year following completion of the Transaction but, as above, is of the view that there will be a significant overall longer-term strategic benefit.

Current trading and prospects

 

As ever, trading in the second half of the year is very significant to our results for the year as a whole. However, given the strength of first half performance coupled with continuing momentum heading into the important Christmas period, the Board considers the Group well placed to deliver results for the full year ahead of its previous expectations.

 

The Group will issue a Christmas trading update in early January 2017.

 

Financial Review

The prior year comparative numbers include three-months of pre-IPO trading when the Board's focus was spread between operational and corporate finance matters and before the injection of growth capital.

Last year's numbers included £606,000 of IPO-related deal fees and £233,000 of interest on loan notes that were repaid in full on IPO, and as such these costs should be excluded to provide a like-for-like comparison of the underlying business between reporting periods.

 

Sales

Sales in the Period increased by 73% on the same period last year which, in itself, represented good growth (43%) on the same period in 2014/15. Sales growth was strong across territories, with 44% growth in the core, more-established UK market, and 169% growth in Europe which accounted for 36% of total sales in the Period compared to 23% last year.

The high level of sales growth was sustained across the Period and across countries and as such, whilst currency tailwinds had an impact, they were only one of a number of relevant factors for the positive momentum.

 

Gross Profit

Gross profit increased by £2.45m (+74%) to £5.75m (H1 2015/16: £3.31m) on the same period last year, representing a gross margin of 26.6%, a small improvement on the 26.5% in H1 2015/16 and a return to the 26.6% delivered in H1 2014/15.

The Group generates enhanced margins on sales of Own-branded products. The increase in Own-brand sales growth closed the growth gap on Other-brands, and markedly slowed the sales mix effect that had an impact on margin in the second half of last year.

The Group purchases the significant majority of its Other-branded products in GB pounds. The Group imports its Own-brand products from over 30 Far Eastern manufacturers, with the Group enjoying a long trading history of more than ten years with many of these suppliers. These products are purchased in US dollars and all orders are negotiated taking into account the prevailing GB pound / US dollar exchange rate, and retail prices are regularly reviewed and updated accordingly.

 

Operating Profit and Administrative Expenses

Operating profit of £0.89m represents a £1.03m improvement on H1 2015/16 (£0.15m loss having excluded £606,000 of one-off exceptional costs in that period). This increase in profit was in large part delivered by strong sales growth of 73%, supported by an increase in pre-exceptional administrative expenses limited to 41%, and these costs accounting for 23% of total sales compared to 28% in H1 2015/16.

Investment in marketing and people are key drivers of the business and were areas earmarked for investment at IPO. A combined spend of £3.5m accounts for 78% of total administrative expenses (excluding depreciation and amortisation), representing a 50% increase in expenditure on H1 2015/16 (£2.3m).

 

 

Financial KPIs

 

 

 

 

 

 

 

 

H12016/17

H1 2015/16

Change

 

 

 

 

Revenue

£21.61m

£12.49m

+73%

 

 

 

 

Adjusted Operating profit/(loss)

£888,000

(£146,000)

+£1.03m

 

 

 

 

Marketing costs

£1.76m

£1.17m

+50%

 

 

 

 

Marketing costs as % sales

8.2%

9.4%

+120bps

 

 

 

 

Labour costs

£1.73m

£1.16m

+49%

 

 

 

 

Labour costs as % of sales

8.0%

9.3%

+130bps

 

 

 

 

 

Net Profit

 

Net profit for the Period was £750,000 (H1 2015/16: net loss of £1.10m and underlying loss of £0.26m after stripping out £839,000 of prior period costs of a non-recurring nature). The reported pre-tax profit for the Period was £0.97m (H1 2015/16: reported and underlying pre-tax losses of £1.06m and £0.22m respectively).

 

This represents a significant improvement in what has historically been a quieter period of the year, and provides trading momentum going into the Christmas period.

 

 

Cash Flow and Balance Sheet

 

In common with many retailers, August typically represents a low point in the annual cash cycle. Cash at 31 August 2016 was £1.79m which was a £0.34m improvement on 31 August 2015.

 

In the absence of any meaningful interest rates on cash deposits, the Group continues to invest in stock without drawing Trade Finance loans, thereby avoiding the 2.95% interest charge and fees. As a consequence, this active investment into cash-funded stock, combined with increased cash-in-transit and funds lodged with payment providers, has led to cash invested in working capital being £1m higher at this period end compared to 31 August 2015.

 

Working Capital KPIs

 

 

 

 

 

 

 

 

H1 2016/17

H1 2015/16

Change

 

 

 

 

Inventories

£9.23m

£8.02m

+15%

 

 

 

 

Trade and other receivables

£0.94m

£0.29m

+224%

 

 

 

 

Trade and other payable

(£5.56m)

(£4.68m)

+19%

 

 

 

 

Net working capital

£4.61m

£3.63m

+0.98m

 

 

 

 

 

 

Capital expenditure in the Period was £675,000 (H1 2015/16: £825,000) of which £600,000 (H1 2015/16: £395,000) related to software development costs on our e-commerce platform, capitalised in accordance with our accounting policy. Property, plant and equipment capital expenditure was £75,000 (H1 2015/16: £430,000), and no finance leases were added in the Period.

 

As at 31 August 2016 the Group's net cash position was £908,000 compared to £613,000 at 31 August 2015.

 

 

Dividend Policy

 

As indicated in the Financial Review in last year's Annual Report, and further to these Interim results as presented, the Group repeats its intention to revisit its shareholder distribution policy at the end of this financial year.

 

Unaudited consolidated interim statement of comprehensive income

 

 

 

 

Note

 

 

6 months ended 31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

 

£000

£000

£000

 

 

 

 

 

 

 

Revenue

 

 

 

21,609

12,493

35,489

Cost of sales

 

 

 

(15,855)

(9,188)

(26,303)

 

 

 

 

              

              

              

Gross profit

 

 

 

5,754

3,305

9,186

 

 

 

 

 

 

 

Administrative expenses  before exceptional items

1,2

 

 

(4,866)

(3,451)

(8,291)

Administrative expenses - exceptional items

1,2

 

 

-

(606)

(606)

 

 

 

 

 

 

 

Total administrative expenses

1,2

 

 

(4,866)

(4,057)

(8,897)

 

 

 

 

              

              

              

Operating profit/(loss)

1,2

 

 

888

(752)

289

 

 

 

 

 

 

 

Financial expense

4

 

 

78

(304)

(283)

 

 

 

 

              

              

              

Profit/(loss) before tax

 

 

 

966

(1,056)

6

 

 

 

 

 

 

 

Taxation

5

 

 

(216)

(47)

(49)

 

 

 

 

              

              

              

Profit/(loss) for the period

 

 

 

750

(1,103)

(43)

 

 

 

 

              

              

              

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share attributable to equity shareholders of the Company:

 

 

 

 

 

 

 

Basic and diluted profit/(loss) per share3

 

3.7p

(10.1p)

(0.2p)

 

 

              

              

              

 

 

 

 

Unaudited consolidated interim statement of financial position

 

 

 

 

31 August

2016

31 August

2015

29 February  2016

 

Note

 

£000

£000

£000

Non-current assets

 

 

 

 

 

Property, Plant and Equipment

6

 

1,141

1,268

1,239

Intangible assets

7

 

3,561

2,948

3,238

 

 

 

             

             

             

 

 

 

4,702

4,216

4,477

 

 

 

             

             

             

Current assets

 

 

 

 

 

Inventories

8

 

9,329

8,023

6,906

Trade and other receivables

9

 

935

293

740

Cash and cash equivalents

 

 

1,788

1,449

3,548

 

 

 

             

             

             

 

 

 

12,052

9,765

11,194

 

 

 

             

             

             

Total assets

 

 

16,754

13,981

15,671

 

 

 

             

             

             

Current liabilities

 

 

 

 

 

Other interest bearing loans and borrowings

10

 

(807)

(616)

(834)

Trade and other payables

11

 

(5,563)

(4,675)

(5,188)

 

 

 

             

             

             

 

 

 

(6,370)

(5,291)

(6,022)

 

 

 

             

             

             

Non-current liabilities

 

 

 

 

 

Other interest-bearing loans and borrowings

10

 

(72)

(220)

(127)

Other payables

11

 

(46)

(73)

(59)

Deferred tax liability

5

 

(129)

(103)

(104)

 

 

 

             

             

             

 

 

 

(247)

(396)

(290)

 

 

 

             

             

             

Total liabilities

 

 

(6,617)

(5,687)

(6,312)

 

 

 

             

             

             

Net assets

 

 

10,137

8,294

9,359

 

 

 

             

             

             

Equity

 

 

 

 

 

Share capital

 

 

2,016

2,016

2,016

Share premium

 

 

8,933

8,933

8,933

Retained earnings

 

 

(812)

(2,655)

(1,590)

 

 

 

             

             

             

Total equity

 

 

10,137

8,294

9,359

 

 

 

             

             

             

 

Unaudited consolidated interim statement of cash flows

 

 

Note

 

 

6 months ended

31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

 

£000

£000

£000

Cash flows from operating activities

 

 

 

 

 

 

Profit/(loss) for the period:

 

 

 

750

(1,103)

(43)

Adjustments for:

 

 

 

 

 

 

Depreciation and amortisation

2,6,7

 

 

450

362

786

Financial expense

4

 

 

14

259

280

(Profit) on sales of property, plant and equipment

 

 

 

-

1

1

Taxation

5

 

 

216

47

49

 

 

 

 

             

             

             

 

 

 

 

1,430

(434)

1,073

(Increase)/decrease in trade and other receivables

 

 

 

(195)

(77)

(524)

Decrease)/(increase) in inventories

 

 

 

(2,423)

(2,697)

(1,581)

Increase/(decrease) in trade and other payables

 

 

 

170

191

689

Share based payments charge

12

 

 

28

3

8

 

 

 

 

             

             

             

Net cash from operating activities

 

 

 

(990)

(3,014)

(335)

 

 

 

 

             

             

             

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from sale of property, plant and equipment

 

 

 

-

1

1

Acquisition of property, plant and equipment

6

 

6

(75)

(430)

(578)

Development costs capitalised

7

 

 

(600)

(395)

(932)

 

 

 

 

             

             

             

Net cash from investing activities

 

 

 

(675)

(824)

(1,509)

 

 

 

 

             

             

             

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from pre-IPO issue of shares

 

 

 

-

32

32

Net proceeds from IPO

 

 

 

-

8,351

8,351

Repayment of redemption premium on loan notes

 

 

 

-

(602)

(602)

Repayment of loan notes

10

 

 

-

(2,484)

(2,484)

Net interest paid

4

 

 

(14)

(108)

(130)

Repayment of other borrowings

 

 

 

-

(983)

(755)

Payment of finance lease liabilities

10

 

 

(103)

(87)

(189)

 

 

 

 

             

             

             

Net cash from financing activities

 

 

 

(95)

4,371

4,476

 

 

 

 

             

             

             

Net (decrease)/increase in cash and cash equivalents

 

 

 

(1,760)

533

2,632

Cash and cash equivalents at beginning of period

 

 

 

3,548

916

916

 

 

 

 

             

             

             

Cash and cash equivalents at end of period

 

 

 

1,788

1,449

3,548

 

 

 

 

             

             

             

 

 

Unaudited consolidated interim statement of changes in equity

 

 

 

 

 

 

 

6 months ended 31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

 

£000

£000

£000

Share Capital

 

 

 

 

 

 

Opening

 

 

 

2,016

1,266

1,266

Issue of shares

 

 

 

-

750

750

 

 

 

 

             

             

             

 

 

 

 

2,016

2,016

2,016

 

 

 

 

             

             

             

 

 

 

 

 

 

 

Share Premium

 

 

 

 

 

 

Opening

 

 

 

8,933

-

-

Issue of shares

 

 

 

-

9,255

9,255

Share issue costs

 

 

 

-

(322)

(322)

 

 

 

 

             

             

             

 

 

 

 

8,933

8,933

8,933

 

 

 

 

             

             

             

Retained earnings

 

 

 

 

 

 

Previous periods

 

 

 

(1,590)

(1,555)

(1,555)

Share based payment charge

 

 

 

28

3

8

Profit/(loss) for the period

 

 

 

750

(1,103)

(43)

 

 

 

 

             

             

             

 

 

 

 

(812)

(2,655)

(1,590)

 

 

 

 

             

             

             

Total equity

 

 

 

10,137

8,294

9,359

 

 

 

 

             

             

             

 

Notes to the Interim Financial Information

General Information

The principal activity of the Group is the retail of musical instruments and equipment. The Company and all subsidiaries comprising the Group are incorporated and domiciled in the United Kingdom. The registered office is: Kettlestring Lane, Clifton Moor, York, YO30 4XF. The registered number of the Company is 07786708.

1             Accounting policies

1.1          Basis of preparation

The unaudited consolidated interim financial information for the period ended 31 August 2016 has been prepared in accordance with the AIM rules for Companies, comply with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and should be read in conjunction with the Group' Annual Report which is available on the Group's investor website.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at the year ended 28 February 2016.

The Group's accounting policies are set out below. The accounting policies have been applied consistently to all periods presented.

The financial information has been prepared on the historical cost basis.

1.2          Going concern

The Group has significant financial resources and, further to deleveraging the balance sheet on IPO, has access to further debt funding should it be required. The business continues to trade well and Management considers it to be well positioned going into its critical trading period. The Group operates a rolling monthly reforecast providing trading and financial visibility to the financial year end.

 

Accordingly, and further to due consideration of all financial and commercial information available, the Directors have concluded that the Group has adequate resources to continue to trade for the foreseeable future and it is therefore appropriate to continue to adopt the going concern basis of accounting in the preparation of this consolidated interim financial information.

1.3          Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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 that control ceases.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated.

 

Notes to the Interim Financial Information (continued)

1.4          Foreign currency

International transactions that are denominated in foreign currencies are recorded in the respective foreign currencies, and translated into the functional currency of the Group, Sterling, at the exchange rate ruling at the date of the transaction. Translational accounting gains and losses are recognised in the income statement in the period they arise.

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Functional currency

The consolidated financial information is presented in Sterling which is the Company's functional currency.

1.5          Classification of financial instruments issued by the Group

Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

(a)   they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and

(b)   where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.  Where the instrument so classified takes the legal form of the Company's own shares, the amounts presented in this financial information for called up share capital and share premium account exclude amounts in relation to those shares. 

1.6          Non-derivative financial instruments

Non-derivative financial instruments comprise investments in trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Trade and other receivables

Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributed transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method.

 

Notes to the Interim Financial Information (continued)

1.7          Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation is charged to the income statement on either a straight-line basis or a reducing balance basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

·      Plant and equipment                          20-25% on reducing balance

·      Fixtures and fittings                           20-25% on reducing balance

·      Motor vehicles                                     25% on reducing balance

·      Computer equipment                          3-5 years' straight line

Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses.  Lease payments are accounted for as described below in 1.15.

1.8          Business combinations

All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

·      the fair value of the consideration transferred; plus

·      the fair value of the existing equity interest in the acquiree; less

·      the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs related to the acquisition are expensed as incurred.

Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

Goodwill impairment testing

Goodwill is not amortised but tested annually for impairment. For the purpose of impairment testing, the Goodwill is allocated to cash-generating units, or ("CGU"). Subject to an operating segment ceiling test, for the purposes of Goodwill impairment testing, CGUs to which Goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which Goodwill is monitored for internal reporting purposes.  

 

Notes to the Interim Financial Information (continued)

1.9          Intangible assets

Software platform

Costs that are directly attributable to the creation of identifiable software, which meet the development asset recognition criteria as laid out in IAS 38 'Intangible Assets' are recognised as intangible assets.

Direct costs include consultancy and development costs, and exclude maintenance costs that are recognised as an expense as incurred.

Software development assets are held at historic cost less accumulated amortisation and impairment, and are amortised over their useful economic life.

Other intangible assets

Expenditure on internally generated Goodwill and brands is recognised in the income statement as an expense as incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses.

Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and Goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

·      Brand                                                                     10 years; and

·      Software Platform                                               3-8 years

1.10        Inventories

Inventories are stated at the lower of cost and net realisable value ("NRV"). Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and other costs in bringing them to their existing location and condition. Stock is neither fashionable nor perishable.

A provision is made in respect of inventories as follows:

·      100% against returns stock found to be faulty that is retained to be used for spare parts on the basis there is no direct NRV value; and

·      a provision based on the previous 12-months retail experience for the expected product loss on dealing with returns stock.

1.11        Impairment excluding inventories and deferred tax assets

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows. The effect of discounting is not material.  When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Notes to the Interim Financial Information (continued)

Non-financial assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For Goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit"). The Goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, or ("CGU"). Subject to an operating segment ceiling test, for the purposes of Goodwill impairment testing, CGUs to which Goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which Goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination.

An impairment loss would be recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. No impairments have been recognised in the periods presented.

1.12        Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement in the periods during which services are rendered by employees.

Share-based payments

The Group operates share option plans for qualifying employees of the Group. The fair value of the shares is determined using the Black Scholes option pricing model and is expensed in the statement of comprehensive income on a straight-line basis over the vesting period after allowing for an estimate of the number of shares that are expected to vest. The level of vesting is reviewed annually and the expense adjusted to reflect any changes in estimates.

1.13        Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

1.14        Revenue

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on dispatch of the goods. Revenue is measured at the fair value of the consideration received, including freight charges and duty where applicable, excluding discounts, rebates, VAT and other sales taxes or duty. Carriage income and warranty sales are recognised on recognition of the associated product sale. Returns are dealt with on receipt of the product into the warehouse, which triggers an automatic credit.

The Group offers retail point of sale credit through an agreement with an external credit provider. The Group does not retain any credit risk and commissions are recognised on recognition of the credit sale.

 

Notes to the Interim Financial Information (continued)

1.15        Expenses

Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Finance lease payments

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Exceptional items

Items which are significant by virtue of their size or nature and which are considered to be non-recurring are classified as exceptional operating items. Such items, which include for instance the costs of closing or opening premises, costs of significant restructurings and profits or losses or impairments made, are included within the appropriate consolidated income statement category but are highlighted separately in the notes to the financial information. Exceptional operating items are excluded from the profit measures used by the Board to monitor and measure the underlying performance of the Group.

Government and other forms of grant

Government and other grants from third parties are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with.  When the grant relates to an expense item, it is recognised as a reduction in the costs incurred, on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed.  Where the grant relates to an asset, it is recognised on a systematic basis over the UEL of the related asset.

Financing income and expenses

Financing expenses comprise interest payable and finance leases recognised in profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the income statement (see foreign currency accounting policy). Financing income comprises interest receivable on funds invested and net foreign exchange gains.

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.

1.16        Taxation

Tax on the profit or loss for the year comprises current and deferred tax.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A temporary difference on the initial recognition of goodwill is not provided for. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

  

Notes to the Interim Financial Information (continued)

1.17        Adopted IFRS not yet applied

The following Adopted IFRSs have been issued but have not been applied by the Group in this financial information. Their adoption is not expected to have a material effect on the financial information unless otherwise indicated:

·      IFRS 9 Financial Instruments (effective for periods beginning on or after 1 January 2018, not yet endorsed by the EU);

·      IFRS 15 Revenue from Contracts with Customers (effective date 31 December 2017, not yet endorsed by the EU);

·      Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS16 and IAS38) (effective date 31 December 2016);

·      Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS11) (effective date 31 December 2016);

·      IFRS14 Regulatory Deferral Accounts (effective date 31 December 2016); and

·      IFRS 16 changes fundamentally the accounting for leases by lessees. It eliminates the current IAS 17 dual accounting model, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases and, instead, introduces a single, on-balance sheet accounting model that is similar to current finance lease accounting.

 

1.18        Segmental Reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The Group's Chief Operating Decision Maker has been identified as the Board of Directors.

 

Notes to the Interim Financial Information (continued)

2              Expenses

Included in profit/loss are the following:

 

 

 

6 months ended 31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of tangible fixed assets

 

 

173

151

328

Amortisation of intangible assets

 

 

277

211

458

Amortisation of government grants

 

 

14

21

35

Loss/(profit) on disposal of property, plant and equipment

 

 

-

1

1

Share based payment charge

 

 

28

3

8

 

 

 

 

 

 

Exceptional items:

 

 

 

 

 

Exceptional deal costs

 

 

-

606

606

 

 

 

             

             

             

Exceptional costs in the period ended 31 August 2015 and the year ended February 2016 relate to professional fees incurred in relation to the Group's admission to the Alternative Investment Market ("AIM") on 3 June 2015.

 

3             Earnings per share

 

Basic earnings per share is calculated by dividing the net profit/(loss) for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

 

Diluted profit/(loss) per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

 

 

 

 

6 months ended

31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

 

 

 

Profit/(loss) attributable to equity shareholders of the parent (£'000)

 

 

751

(1,103)

(43)

 

 

 

 

 

 

Basic weighted average number of shares

 

 

20,156,339

10,887,840

18,236,293

Dilutive potential ordinary shares

 

 

80,077

23,381

25,226

 

 

 

_________

__________

_________             

Diluted weighted average number of shares

 

 

20,236,416

10,911,221

18,261,519

 

 

 

             

             

             

Basic profit/(loss) per share

 

 

3.7p

(10.1p)

(0.2p)

Diluted profit/(loss) per share

 

 

3.7p

(10.1p)

(0.2p)

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Interim Financial Information (continued)

4              Finance income/(expense)

 

 

 

6 months ended

31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

Bank interest

 

 

(5)

(15)

(26)

Loan note interest

 

 

-

(233)

(233)

Finance leases

 

 

(9)

(11)

(21)

Net foreign exchange profit/(loss)

 

 

92

(45)

(3)

 

 

 

             

             

             

Total finance income/(expense)

 

 

78

(304)

(283)

 

 

 

             

             

             

Loan note interest in the periods ending 31 August 2015 and 29 February 2016 was due to the Group's private equity investor, Key Capital Partners ("KCP"). On IPO in June 2015 these loan notes were repaid in full and as such the associated interest has not been incurred in the period ending 31 August 2016.

5             Taxation

 

 

 

6 months ended

31 August

2016

6 months ended 31 August

2015

Year ended
29 February  2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

Current tax expense

 

 

191

-

-

Deferred tax expense

 

 

25

48

49

 

 

 

             

             

             

Total tax expense

 

 

216

48

49

 

 

 

             

             

             

 

The deferred tax liability has been increased by £25,000 to £129,000 due to movements in fixed assets and rent.

 

The corporation tax rate applicable to the company was 20% in the period to 31 August 2016.

 

 

Notes to the Interim Financial Information (continued)

6             Property, plant and equipment

 

Plant and

 equipment

Fixtures

and fittings

Computer equipment

Total

 

£000

£000

£000

£000

 

 

 

 

 

Cost

 

 

 

 

Balance at 1 September 2015

457

1,347

304

2,108

Additions

7

117

25

149

 

             

             

             

             

Balance at 29 February 2016

463

1,464

329

2,256

 

             

             

             

             

Additions

-

51

24

75

 

             

             

             

             

Balance at 31 August 2016

463

1,515

353

2,331

 

             

             

             

             

Depreciation

 

 

 

 

Balance at 1 September 2015

126

            520

194

840

Charge for the period

54

98

25

177

 

             

             

             

             

Balance at 29 February 2016

180

618

219

1,017

 

             

             

             

             

Charge for the period

53

96

24

173

 

             

             

             

             

Balance at 31 August 2016

233

714

243

1,190

 

             

             

             

             

Net book value as at 31 August 2016

230

801

110

1,141

 

             

             

             

             

Net book value as at 1 March 2016

283

846

110

1,239

 

             

             

             

             

Net book value as at 31 August 2015

331

827

110

1,268

 

             

             

             

             

 

 

 

 

Notes to the Interim Financial Information (continued)

7             Intangible assets

 

 

 

 

Goodwill

Software

platform

Brand

Total

 

 

 

£000

£000

£000

£000

 

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Balance at 1 September 2015

 

 

417

2,830

564

3,811

Additions

 

 

-

537

-

537

 

 

 

             

             

             

             

Balance at 29 February 2016

 

 

417

3,367

564

4,348

 

 

 

             

             

             

             

Additions

 

 

-

600

-

600

 

 

 

             

             

             

             

Balance at 31 August 2016

 

 

417

3,967

564

4,948

 

 

 

             

             

             

             

Amortisation

 

 

 

 

 

 

Balance at 1 September 2015

 

 

-

666

197

863

Amortisation for the period

 

 

-

218

29

247

 

 

 

             

             

             

             

Balance at 29 February 2015

 

 

-

884

226

1,110

 

 

 

             

             

             

             

Amortisation for the period

 

 

-

249

28

277

 

 

 

             

             

             

             

Balance at 31 August 2016

 

 

-

1,133

254

1,387

 

 

 

             

             

             

             

Net book value as at 31 August 2016

 

 

417

2,834

310

3,561

 

 

 

             

             

             

             

Net book value as at 1 March 2016

 

 

417

2,483

338

3,238

 

 

 

             

             

             

             

Net book value as at 31 August 2015

 

 

417

2,164

367

2,948

 

 

 

             

             

             

             

 

8              Inventories

 

 

 

31 August

2016

31 August

2015

29 February 

2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

Finished goods

 

 

9,329

8,023

6,906

 

 

 

             

             

             

 

 

 

 

 

 

The cost of inventories recognised as an expense and included in cost of sales in the period ended 31 August 2016 amounted to £14.8m, and in the period ended 31 August 2015 totalled £8.8m.

 

Notes to the Interim Financial Information (continued)

9              Trade and other receivables

 

 

 

 

31 August

2016

31 August

2015

29 February  2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

Trade receivables

 

 

735

97

581

Prepayments

 

 

200

196

159

 

 

 

             

             

             

 

 

 

935

293

740

 

 

 

             

             

             

10           Other interest-bearing loans and borrowings

 

 

 

31 August

2016

31 August

2015

29 February  2016

 

 

 

£000

£000

£000

Non-current liabilities

 

 

 

 

 

Bank loans

 

 

-

-

-

Finance lease liabilities

 

 

72

220

127

 

 

 

             

             

             

 

 

 

72

220

127

 

 

 

             

             

             

Current liabilities 

 

 

 

 

 

Bank loans and overdraft

 

 

663

414

642

Finance lease liabilities

 

 

144

202

192

 

 

 

             

             

             

 

 

 

807

616

834

 

 

 

             

             

             

Total liabilities 

 

 

 

 

 

Bank loans and overdraft

 

 

663

414

642

Finance lease liabilities

 

 

216

422

319

 

 

 

             

             

             

 

 

 

879

836

916

 

 

 

             

             

             

Bank loans comprise a Trade Finance facility provided by the Group's bankers, HSBC, and is secured against the by fixed and floating charges over the Group's assets.  The interest rate on import loans drawn under the Trade Finance agreement is 2.45% per annum over HSBC's Sterling Base Rate, and on an overdraft is 3.25% over base. Interest on import loans is paid at the maturity of the relevant loan. Interest on an overdraft would be paid monthly in arrears. The Group's bank facilities have been renewed and are due for review on or before 18 July 2017.
 

Notes to the Interim Financial Information (continued)

 

11           Trade and other payables

 

 

 

31 August

2016

31 August

2015

29 February  2016

 

 

 

£000

£000

£000

 

 

 

 

 

 

Current

 

 

 

 

 

Trade payables

 

 

4,114

3,738

3,718

Accruals and deferred income

 

 

958

750

956

Government grants

 

 

28

28

28

Other creditors including other tax and social security

 

 

272

159

486

Corporation tax

 

 

191

-

-

 

 

 

             

             

             

 

 

 

5,563

4,675

5,188

 

 

 

             

             

             

Non-current

 

 

 

 

 

Government grants

 

 

46

73

59

 

 

 

             

             

             

Accruals at 31 August 2016 include £691,000 (31 August 2015: £639,000) of rent accrued but not payable as per the commercial agreement reached with the landlord and the legal form of the property lease. This accrual will unwind in future financial years.

Government grants being spread over the useful economic life of the associated asset, relate to Regional Growth Fund Grants towards the acquisition of various capital items. Grant conditions exist linked to job creation, and these criteria have been satisfied.

12           Share based payments

The Group operates a share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the Company and are subject to vesting conditions. In May 2016 awards totalling 54,851 shares were made. These shares have an exercise price equal to the nominal value of the shares (10p) that the Company will subsidise by way of a bonus, and subject to certain conditions will be automatically exercised on the second anniversary of the date of grant.

13           Related party transactions

There were no related party transactions during the six months to 31 August 2016 outside of the normal course of business.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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