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PERFORMINGGear4music (Holdings) plc
Annual Report and Accounts 2018
With a track record of growth and
continued international expansion,
Gear4music is the UK’s largest
retailer of musical instruments
and equipment.
Gear4music has a progressive e-commerce strategy built on
the specialist knowledge of a niche market, enabled through
platform development, international expansion and supply
chain evolution.
Strategic Report
01 Highlights
02 At a glance
04 Chairman’s Statement
06 Market overview
Investment case
10
12 Business model
14 Strategy and our progress
16 Strategy in action
18 Chief Executive’s statement
20 Platform features
22 Key performance indicators
24 Financial review
26 Our people
28 Risks and uncertainties
Corporate Governance
34 Corporate governance report
38 Board of Directors
40 Directors’ report
42 Statement of Directors’
responsibilities in respect of
the Annual Report and the
Financial Statements
Financial Statements
Independent Auditor’s report
43
48 Consolidated Statement of Profit
and Loss and Other Comprehensive
Income
49 Consolidated Statement
of Financial Position
50 Consolidated Statement
of Changes in Equity
51 Consolidated Statement
of Cash Flows
52 Notes (forming part of the
Financial Statements)
76 Company Balance Sheet
77 Company Statement of Changes
in Equity
78 Notes to the Company Financial
Statements (forming part of the
Financial Statements)
INTR
FIND OUT MORE:
www.gear4music.com
www.gear4musicplc.com
01
Revenue £m
£80.1m
+43%
Cash at year end £m
£3.5m
+18%
2018
2017
2016
£56.1m
£35.5m
£80.1m
2018
2017
2016
£3.0m
£3.5m
£3.6m
EBITDA £m
£3.5m
-3%
Gross margin %
25.4%
-160 BPS
2018
2017
2016
£3.5m
£3.6m
2018
2017
2016
£1.7m
25.4%
27.0%
25.9%
Website visitors m
16.9m
+34%
Conversion %
3.25%
+50 BPS
2018
2017
2016
12.6m
10.1m
16.9m
2018
2017
2016
3.25%
2.75%
2.28%
Highlights
Operational highlights
– Growth strategy continues to
deliver results: 27% UK revenue
growth and 69% internationally
– Over 16.9m website visitors,
with improved conversion rates
for the third successive year
– Swedish and German
distribution centres scaled up
well during the year, adding
capacity to enable future growth
– Raised £4.2m equity growth
capital in May 2017
INTR O
Strategic ReportCorporate GovernanceFinancial Statements 02
At a glance
OUR ARRANGEMENT
Gear4music is an e-commerce retailer selling over 44,700
SKUs across all major categories of musical instruments and
music equipment. The products are sourced from over 790
manufacturers, and range from kazoos costing less than £1, to
digital pianos, drum kits and guitars costing thousands of pounds.
FOR MORE INFORMATION
VISIT OUR WEBSITE
Our key strengths
Our numbers
1 Track record of
success – long-term
revenue and market
share growth
2 Bespoke and
proprietary
e-commerce platform
delivers competitive
advantage
3 Specialist knowledge
facilitates strong
relationships with
customers and
suppliers
4 Well-developed
and wide-ranging
product ranges
5 Efficient logistics system
Total number of customers
1,522,000
Turnover by geography
£35.8m
£44.3m
Number of active customers
475,000
Number of websites
20
£21.3m
£34.9m
2018
UK
Europe and
ROTW
2017
UK
Europe and
ROTW
Product split
£56.1m
£21.0m
Number of languages
£39.4m
£14.4m
15
2018
Own brand
Other brand
2017
Own brand
Other brand
READ MORE ON
PAGE 00
Number of currencies
9
Gear4music (Holdings) plcAnnual Report and Accounts 2018
03
Our product range
Guitars
Electric, acoustic and bass guitars,
and related accessories
Keys
Acoustic and digital pianos,
keyboards and synthesisers
Leading brands
Other brands
27%of product sales
21%of product sales
Live and PA
PA equipment, speakers, stands
and microphones
Drums
Electric and acoustic, and other
percussion instruments
20%of product sales
12%of product sales
Studio
Mixers, headphones, microphones,
monitors and interfaces
Orchestral
Strings, brass, woodwind
and accessories
11%of product sales
7%of product sales
Own brands
Strategic ReportCorporate GovernanceFinancial Statements 04
Chairman’s statement
It has been a year of significant progress against our strategic
priorities whilst delivering continuing strong revenue growth.
We are confident and excited for the year ahead.
Ken Ford | Chairman and Non-Executive Director
I’m pleased to report another year of
success and progress.
Revenue growth continues to be strong,
with 43% growth reflecting the efforts of
our dedicated and talented team. It is
the passion and knowledge of our
people that define who we are and how
our customers interact with us.
We continue to make progress on our
mission to become a leading global
retailer of musical instruments and
equipment. The Group is establishing
a track record for delivering excellent
revenue growth and being profitable
through the phases of the investment
cycle. EBITDA of £3.5m includes an
additional £1.1m of local overheads
associated with the European
distribution centres compared with FY17,
which was required to deliver the
capacity for Gear4music to become a
£100m+ revenue business.
We are well established in our UK
domestic market and the business
delivered 27% revenue growth whilst still
only accounting for an estimated 6% of
the total market. The much-publicised
channel shift towards e-commerce retail
and associated increased levels of online
penetration, provide confidence in our
approach and business model.
International growth represents a major
opportunity for the Group – revenue of
£35.8m represented growth of 69%,
which followed 124% growth in the prior
year, demonstrating good momentum.
We only have an estimated 1% share of
the European market and will continue
to invest significant effort and resource
to improve and increase our global
reach.
The Head Office move in September
2017 went smoothly and added
much-needed office space, enabling
recruitment into key teams to support
strong, sustained growth.
Given the investments scheduled for
FY19 to support continued growth, the
Board has decided not to declare a
dividend for FY18 and will again review
its policy in the next financial year.
Future success will come from a strong
and continuously improving customer
proposition. This will be achieved by
investing in our technology, our
infrastructure, and our people. As
Andrew details in his CEO’s statement,
a lot has changed in the business during
the period and we have much more
planned. We are looking into FY19 and
beyond with confidence.
Ken Ford
Chairman and Non-Executive Director
2 July 2018
Gear4music (Holdings) plcAnnual Report and Accounts 2018 05
OUR
PERFORMANCE
Strategic ReportCorporate GovernanceFinancial Statements 06
Market overview
AMPLIFYING
The top ten European retail markets for musical instruments and
music equipment (including the UK) are worth an estimated £4.3bn
and are undergoing a profound shift towards online retail.
Market overview
Global
In December 2017, Music Trades
estimated the global music products
market in 2015 to be $15.9bn, including
a $7.8bn US market and $5.8bn
European market.
European
The top ten European retail markets
for musical instruments and music
equipment (including the UK) are
estimated to be worth approximately
£4.3bn, and are undergoing a profound
shift towards online retail.
The largest retailer serving the European
musical instruments and equipment
market is Thomann.de, based in
Germany, with a 2017 reported turnover
figure of approximately £700m. Other
competitors in the European market
include Musicstore.de (Germany),
4Sound (Sweden), Bax Shop
(Netherlands) and Woodbrass (France).
UK
Music Trades estimated the UK market is
growing at 2%, and the top six retailers
account for an estimated 24% of the UK
market (2017: 22%), with a long-tail of
small independent shops, pure play
online retailers, general merchandisers
and department stores. An estimated
24% of the UK market is already online as
the sector experiences the channel shift
away from physical stores.
The Board believes that the current
dynamics of the UK competitive
landscape, in particular the significant
degree of fragmentation with no large
or dominant retailers, presents a
consolidation opportunity. Whilst
acquisitions do not form a core part of
the current strategy, opportunities are
reviewed on an ad hoc basis.
Top European markets
Country
Germany
France
UK
Italy
Netherlands
Austria
Spain
Switzerland
Sweden
Norway
Total size
* Management estimate
Estimated market size (£m)*
1,194
863
749
578
202
181
166
142
107
83
4,265
Gear4music (Holdings) plcAnnual Report and Accounts 2018 07
Gear4music
distribution centres
Our business
Overview
Gear4music is about making quality
music gear more accessible and
affordable for all musicians. Our mission
is to become the best musical
instrument and equipment retailer in
Europe and we believe we can achieve
this by leveraging technology to deliver
an industry-leading customer
experience, providing the products our
customers want delivered to them
quickly and efficiently.
Our specialist market knowledge has
already helped us to become the
largest retailer in the UK, and we are
making good progress in Europe. A
bespoke e-commerce platform allows
us to efficiently operate 20 websites,
in 15 languages and nine currencies,
and as we develop this platform
further, widen our product ranges
and increase our marketing reach
and brand recognition, we strongly
believe we can continue to grow our
share of the £4.3bn European market
and expand our reach beyond this.
Website
Country
Currency
www.gear4music.com
UK
Pound Sterling
www.gear4music.ie
www.gear4music.fr
www.gear4music.es
www.gear4music.pt
www.gear4music.de
www.gear4music.be
Ireland
France
Spain
Portugal
Germany
Belgium
www.gear4music.nl
Netherlands
Euro
Euro
Euro
Euro
Euro
Euro
Euro
www.gear4music.dk
Denmark
Danish Krone
Languages
English
English
French, English
Spanish, English
Portuguese, English
German, English
Dutch, French, German, English
Dutch, English
Danish, English
www.gear4music.no
www.gear4music.se
www.gear4music.fi
www.gear4music.it
Norway
Sweden
Finland
Italy
www.gear4music.ch
Switzerland
www.gear4music.at
www.gear4music.pl
Austria
Poland
Norwegian Krone
Norwegian, English
Swedish Krona
Swedish, English
Euro
Euro
Swiss Franc
Euro
New Zloty
Finnish, English
Italian, English
German, French, Italian, English
German, English
Polish, English
www.gear4music.cz
Czech Republic
Czech Crown
Czech, English
www.gear4music.si
www.gear4music.sk
Slovenia
Slovakia
www.gear4music.com/us
USA
Euro
Euro
US Dollar
Slovenian, English
Slovak, English
English, Spanish
Strategic ReportCorporate GovernanceFinancial Statements 08
Gear4music (Holdings) plc
Annual Report and Accounts 2018
Market overview continued
Scandinavian expansion
Growth in Scandinavian revenue:
114%
Since the opening of our Swedish
distribution centre, our customer
proposition throughout Scandinavia
has continued to improve, driven by
lower cost next-day delivery services
across much of the territory, and new
purchasing opportunities as a result of
our local showroom. In direct response
to strong, sustained revenue growth,
the decision has been taken to expand
our Swedish operations by moving into
a new building on the same business
park that is double the footprint and
twice the height of our existing building.
Our Scandinavian performance has
been very strong, and moving to the
new property will further strengthen our
competitive position. The new property
is owned by our existing landlord,
and we have negotiated to leave our
current property without penalty.
We expect a smooth transition,
and anticipate the new building
will become fully operational
before the 2018 peak season.
AMP
09
LIFYING
Scandinavian performance and prospects are very strong,
and moving to the new property will strengthen our position.
As the new property is owned by our existing landlord,
we can stay local, leave our current property without penalty,
and transition between properties whilst only paying one rent.
Robert Newport | Projects Director
Strategic ReportCorporate GovernanceFinancial Statements 10
Investment case
Gear4music is well positioned to capitalise on the opportunities
available within its markets, due to our unique competitive
advantages and barriers to entry:
FOR MORE INFORMATION
PAGE 12-15
Competitive advantages and
Barriers to entry
• We are an agile, predominantly online
retailer, and have an increasingly
well-recognised brand
• We are the UK’s largest retailer of
musical instruments and music
equipment
• ‘Gear4music’ is the number one
search term driving traffic in the
category ‘Music Shops’ (source:
Hitwise)
• Our bespoke e-commerce platform
provides a high degree of operational
flexibility and scalability which the
Directors believe cannot easily be
replicated
• A strong own-brand offering has been
developed over 15 years, and has
established a reputation for ‘good’ and
‘better’ quality products at affordable
prices, whilst providing enhanced
margin opportunities
• We have developed long-term
relationships with the major branded
musical instrument and music
equipment manufacturers, placing us
in a strong position during a period of
retailer consolidation
• We have proven and scalable
distribution capabilities allowing
next-day delivery throughout the UK,
Scandinavia and Northern Europe
• The Directors and senior
management have an intimate
knowledge of the musical instrument
and music equipment market
Key strengths
Track record of success – long-term
revenue and market share growth
• Revenues have increased every year
since launch in 2003
• 43% revenue growth in FY18, building
on 58% revenue growth in FY17, and
46% in FY16
• Momentum stepped up following
capital injections in 2012 and 2015
• Strong European growth validates
website roll-out strategy
• Database of 1.9m registered users,
with active customers increasing by
39%
Bespoke and proprietary
e-commerce platform delivers
competitive advantage
• Invested £5.9m to date
• End-to-end solution encompassing
all aspects of trading operations
• Intellectual Property owned by
Gear4music
• Currently supports 20 websites in 15
languages and nine currencies
• Ability to rapidly respond to changing
customer behaviours and
expectations
• Capability to expand into new markets
• Capacity to handle significantly
increased volumes and website traffic
• Additional functionality in continuous
development
• Software development team brought
in-house in FY17 to facilitate closer
integration and cost-effective future
development
Specialist knowledge facilitates strong
relationships with customers and
suppliers
• Strong, committed and experienced
management team
• Employees with in-depth specialist
knowledge
• Expertise means Gear4music is
trusted by major musical instrument
and music equipment brands
• Offers a wide range of choice to
customers and provides specialist
advice during and after the sales
process
Well-developed product ranges
• Over 44,700 products from over
790 brands
• Reputation for quality and value for
money
• Over 2,600 own-brand SKUs,
developed over a 15-year period
• Provide enhanced margin
opportunities as volumes increase
Efficient logistics systems
• Currently operates from three modern
facilities with a combined 245,000
square feet footprint
• Plans in place to increase Group
capacity to c.£150m
• The most appropriate courier delivery
services are automatically selected
from more than 4,200 permutations
depending on the weight, size, value
and destination of the goods being
purchased
Gear4music (Holdings) plcAnnual Report and Accounts 2018 11
Strategic ReportCorporate GovernanceFinancial Statements 12
Business model
IN TUNE
Gear4music is an online retailer of musical instruments and music
equipment, operating 20 websites in 15 languages and 9 currencies.
Gear4music is about making quality music gear more accessible and
affordable for all musicians.
FOR MORE INFORMATION
VISIT OUR WEBSITE
Our products
Our service
Our customers
At the year end we listed over
44,700 products from over
790 manufacturers.
Branded products
Gear4music has developed
long-term partnerships with
many well-recognised brands
within the music products
industry, who rely on the
specialist product knowledge
of Gear4music’s staff, the high
standard of customer service
that Gear4music provides,
and the high standard of
presentation both online
and at the Gear4music
showrooms.
Own-brand products
Ongoing development of
Gear4music’s own-brand
product range has been a
focus since Gear4music.com
was launched in 2003,
and now covers a wide
and varied range with over
2,600 products listed.
We believe that achieving
a very high degree of
customer satisfaction is
fundamental to sustained
long-term growth, and
we are committed to
continually improving the
service experienced by
our customers.
We leverage our technology
and empower our specialist
staff to ensure key
touchpoints deliver a
market-leading experience,
and monitor our progress
carefully using independent
sources such as Trustpilot.
Multilingual support for
overseas customers in
non-English speaking
countries continues to
be a key investment focus,
and a prerequisite for many
of the Group’s dealership
agreements when selling
outside the UK.
Ongoing product training
is routinely undertaken to
ensure staff have relevant
and up-to-date knowledge
to enable them to advise
customers.
Customer overview
Gear4music’s customer base
is primarily (over 95%) made
up of private individuals, from
beginners and parents
buying musical instruments
and music equipment for
their children, through to
professional musicians.
Customers tend to be the
end-users of our products.
On 28 February 2018 we
had 1.9m people registered
on our database (28 February
2017: 1.4m), of which
474,600 are active customers
(being customers who have
purchased from Gear4music
during the last 12 months).
As the Group rapidly
increased its European
business it acquired a further
408,500 new customers
(FY17: 288,900), and 105,000
customers returned to us to
place at least one follow-up
order. Average order value in
FY18 was £127, up from £124
in FY17, and £116 in FY16.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 13
How we work
Systems
Our bespoke and proprietary e-commerce
platform is an end-to-end solution covering
all aspects of retail operations, including
website content, inventory management,
multi-currency pricing, logistics and dispatch,
CRM, automated marketing, purchasing,
customer receipts and management reporting
(see page 21).
We believe this platform is a cornerstone of
our business and source of competitive
advantage, delivering reliability, scalability and
unique functionality, and we have an in-house
team of dedicated programmers constantly
improving our systems with new features and
functionality.
Delivery
Reliable delivery with competitive pricing is
fundamental to our proposition and success.
Our e-commerce platform is configured to
select the most cost-effective delivery options
from 13 different delivery service providers, to
provide our customers with a class-leading
range of delivery options.
We believe a successful e-commerce
business requires a unique combination of
talented staff, excellent products, efficient
systems, robust physical operations and
reliable delivery partners.
Staff
We have a strong, committed and experienced
management team, working alongside
passionate staff with in-depth knowledge of
their specialist area of focus.
Products
Our own-brand product ranges have taken
over 15 years to develop, working with some of
the best manufacturers from around the world
to ensure we build on our reputation for great
quality at affordable prices. In addition, we
have built strong relationships with the
industry’s biggest brand names, including
Yamaha, Roland, Fender and many more.
Premises
The Group currently operates from 301,000
square feet of operational space – 185,000
square feet in York, 72,000 square feet in
Germany, 38,000 square feet in Sweden, and
6,000 square feet in Manchester. Following
growth of over 100% in Scandinavia during
FY18, we will be increasing operational space
in Sweden by 40,000 square feet ahead of the
FY19 seasonal peak, which will provide up to
four times the current capacity.
Strategic ReportCorporate GovernanceFinancial Statements 14
Strategy and our progress
FINE TUNING
Our Strategy
Gear4music’s strategy is built around four pillars of growth:
FOR MORE INFORMATION
VISIT OUR WEBSITE
Our strategic priorities
Overview
E-commerce Excellence
We will continue to develop and improve our e-commerce offering,
optimising conversion and performance across our websites for both
new and existing customers. Using a combination of cutting-edge
technology, superior content and international marketing initiatives,
we’ll extend our reach and penetration into existing and new
international territories.
Jonathan Meager | E-commerce Director
Bespoke Platform Development
Our websites are driven by a bespoke and proprietary e-commerce
platform that has the capacity to handle significantly increased
volumes, and the capability to expand into new markets. Investment
enables us to respond to changing customer behaviours and
expectations, by rapidly developing new features and functionality to
drive website traffic, increase conversion rates and maximise
operational efficiencies and reliability. The system is designed to
deliver competitive advantage.
Tom Walder | Chief Technical Officer
International Expansion
We continue to develop and improve our customer proposition in each
of the territories we operate. We’ll achieve this by further localising our
websites to drive traffic and improve conversion, expanding our
multilingual customer service and marketing teams and, where the
business case supports it, by opening distribution centres to improve
delivery options and cut delivery times.
Robert Newport | Projects Director
Supply Chain Evolution
We will widen our supply chain reach to include purchasing
inventory in different countries and currencies, whilst at the same
time consolidating where possible and dealing directly with factories
and manufacturers. We will continue to extend the number of
products available to our customers, including those for next-day
delivery, and to continue the expansion of our own-brand product
ranges with new and exclusive products.
Gareth Bevan | Chief Commercial Officer
• Market-leading websites
• Intelligent digital marketing
• Evolving customer
experience
• Build customer trust
• Grow in-house
development team
• Accelerate innovation
• Increase efficiency, traffic
and conversion
• Reduce operational costs
• Territory-specific websites
• Localised customer
experience
• Local procurement options
• Reduce delivery timescales
and costs
• Continuous product range
extension
• Advance own-brand
proposition
• Factory direct where
possible
• Evolve logistics capability
Our marketing strategy continues to prove effective, with a 34% increase in website visitors, conversion
rates improving by 50bps, and 30% more repeat customers.
As at June 2018, we have a GDPR-compliant database of 820,000 subscribers receiving regular email
promotions. Our return on investment in marketing has been maintained, with spend as a proportion
of revenue of 8.3% in FY18 and FY17.
Our excellent 9.5 Trustpilot rating from over 37,000 reviews is a reflection of our ‘customer first’
approach.
Website deployments:
We designed and deployed 242 website updates and 286 system upgrades during the period. Highlights
included the launch of consumer finance in five European countries, enhancing our mobile check-out,
launching a US Dollar website, cloudification of our entire platform, and a host of back-end functionality
upgrades, including GDPR compliance.
International revenue
growth:
69%
International revenue growth of 69% took revenues to £35.8m in what is an estimated $15bn market.
During the year we have expanded our multilingual customer service team, invested further into
translation and marketing, and improved our local delivery and payment options.
Our distribution centres in Sweden and Germany continue to improve our local customer proposition
in terms of delivery timescales and costs.
In March 2018 we opened our German showroom which, in addition to physically showcasing our
products and building our brand in the locality, is creating additional buying opportunities in Euros
from German distributors.
At the year end we listed 44,700 products, which is up by 20% in 12 months. There are further
opportunities to increase this significantly.
Own-brand product sales have continued to grow impressively, with 45% growth during FY18, building
on the 58% growth achieved during FY17.
inventory in Swedish Krona and Euros.
During the year we have expanded our own and other-branded Buying teams and now purchase
Website visitors:
16.9m
34%
Conversion rate:
3.25%
50bps
242
286
System deployments:
SKUs listed:
44,700
21%
Own-brand SKUs:
2,600
8%
Gear4music (Holdings) plcAnnual Report and Accounts 2018 15
• Market-leading websites
• Intelligent digital marketing
• Evolving customer
experience
• Build customer trust
• Grow in-house
development team
• Accelerate innovation
• Increase efficiency, traffic
and conversion
• Reduce operational costs
• Territory-specific websites
• Localised customer
experience
• Local procurement options
• Reduce delivery timescales
and costs
• Continuous product range
extension
• Advance own-brand
proposition
• Factory direct where
possible
• Evolve logistics capability
Progress
Website visitors:
16.9m
34%
Conversion rate:
3.25%
50bps
Website deployments:
242
System deployments:
286
Our marketing strategy continues to prove effective, with a 34% increase in website visitors, conversion
rates improving by 50bps, and 30% more repeat customers.
As at June 2018, we have a GDPR-compliant database of 820,000 subscribers receiving regular email
promotions. Our return on investment in marketing has been maintained, with spend as a proportion
of revenue of 8.3% in FY18 and FY17.
Our excellent 9.5 Trustpilot rating from over 37,000 reviews is a reflection of our ‘customer first’
approach.
We designed and deployed 242 website updates and 286 system upgrades during the period. Highlights
included the launch of consumer finance in five European countries, enhancing our mobile check-out,
launching a US Dollar website, cloudification of our entire platform, and a host of back-end functionality
upgrades, including GDPR compliance.
International revenue
growth:
69%
International revenue growth of 69% took revenues to £35.8m in what is an estimated $15bn market.
During the year we have expanded our multilingual customer service team, invested further into
translation and marketing, and improved our local delivery and payment options.
Our distribution centres in Sweden and Germany continue to improve our local customer proposition
in terms of delivery timescales and costs.
In March 2018 we opened our German showroom which, in addition to physically showcasing our
products and building our brand in the locality, is creating additional buying opportunities in Euros
from German distributors.
At the year end we listed 44,700 products, which is up by 20% in 12 months. There are further
opportunities to increase this significantly.
Own-brand product sales have continued to grow impressively, with 45% growth during FY18, building
on the 58% growth achieved during FY17.
During the year we have expanded our own and other-branded Buying teams and now purchase
inventory in Swedish Krona and Euros.
SKUs listed:
44,700
21%
Own-brand SKUs:
2,600
8%
Strategic ReportCorporate GovernanceFinancial Statements 16
Gear4music (Holdings) plc
Annual Report and Accounts 2018
Strategy in action
FINE
TUNING
17
We are continually looking for ways to improve our customer
proposition and use data to better understand and improve
the customer experience.
Jonathan Meager | E-commerce Director
E-commerce platform
As a high-growth e-commerce business
with international ambitions, effective
marketing is critical to our success. Our
approach to marketing is return-focused
and heavily data-driven, enabling us to
efficiently deliver revenue growth and
build brand awareness.
Active customer numbers increased 39%
over the last 12 months to 475,000, with
a 34% increase in website visitors and a
50bps improvement in conversion.
Marketing spend as a proportion of
revenue was 8.3% in FY18 and FY17,
having been 8.7% in FY16 and 10.0%
in FY15.
Increase in website visitors:
34%
FINE
TUNING
Strategic ReportCorporate GovernanceFinancial Statements 18
Chief Executive’s statement
This has been a transformational year of investment for
Gear4music. During the year, our European distribution
centres became fully operational, we moved into our
new Head Office and we raised an additional £4.2m of
growth capital.
We accelerated investment in our employees, systems,
marketing and customer proposition, to firmly establish
ourselves as one of Europe’s leading online retailers of
musical instruments and music equipment.
Andrew Wass | Chief Executive Officer
Business review
We continue to make good progress on both our financial and commercial KPIs in
our third year as a listed business:
Financial KPIs
Revenue*
UK revenue*
International revenue*
Gross margin
Total admin expenses*
European admin expenses*
EBITDA
Cash at year end
* See Note 2 on page 58; Segmental reporting
Commercial KPIs
Website visitors
Conversion rate
Average order value
Active customers
Products listed
FY18
FY17
Change
£80.1m
£44.3m
£35.8m
25.4%
£18.4m
£1.5m
£3.5m
£3.5m
£56.1m
£34.8m
£21.3m
27.0%
£12.5m
£0.5m
£3.6m
£3.0m
+43%
+27%
+69%
-160bps
+47%
+220%
-3%
+18%
FY18
FY17
Change
16.9m
3.25%
£127
475,000
44,700
12.6m
2.75%
£124
340,000
37,100
+34%
+50bps
+3%
+39%
+20%
Distribution and property
Two years ago, we started the process
of expanding our distribution network
into Europe and doubling our
distribution capacity to over £100m.
In readiness for continuing rapid growth,
we need to increase capacity to ensure
we can accommodate demand over the
next two years. Our Scandinavian
business has consistently performed
exceptionally well since we opened our
Swedish distribution centre in November
2016, growing by over 100% during
FY18. We have therefore taken the
decision to expand our operations in
Sweden, enabling us to increase
capacity ahead of FY19’s peak season.
We have agreed terms with our existing
Swedish landlord to relocate from our
current premises, without penalty, into a
new 76,800 square feet building in the
same area that we estimate has
approximately four times the capacity of
our existing site. Due to our portable
infrastructure, virtually all assets from the
existing site can be easily transferred to
the new site.
We have also committed to a new
ten-year lease at our existing distribution
facility in York, where we will be
increasing capacity by installing new
storage and handling equipment. This
will extend the operational lifespan of
our UK distribution facilities, avoiding the
need for major capital expenditure and
significant additional leasehold costs in
the short to medium term.
Capital expenditure for these two
projects is expected to total £1.4m, and
we estimate this will add c.£45m to our
revenue capacity, taking our total
distribution capacity to approximately
£150m whilst improving our operational
efficiency.
During FY19 we are also planning to
refurbish the new Head Office building
we acquired in June last year for
£5.35m. We have completed the move
and are pleased to report the building
was independently revalued at £7.35m in
February.
Strategy
We constantly review and refine our
business model, which is built around
four pillars of growth:
• E-commerce excellence
• Bespoke platform development
• International expansion; and
• Supply chain evolution.
E-commerce excellence
With nearly 17m website visitors,
conversion rates improving by 50 bps,
active customer numbers increasing to
more than 474,000, and 30% growth in
repeat customers, our e-commerce
strategy continues to be highly effective.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 19
FY18 has been a period of targeted investment that has
impacted on short-term profitability. FY19 will be focused
on generating returns from these investments, with the
objective of delivering strong and sustainable revenue and
profitability growth.
We move into the new financial year with a market-leading
e-commerce platform, infrastructure and customer proposition.
We are confident of achieving our objectives for FY19.
Andrew Wass | Chief Executive Officer
Our excellent 9.5 Trustpilot rating from
over 37,000 reviews is a reflection of our
‘customer first’ approach, the incredible
efforts of our team, and the attention to
detail that is required to build customer
trust and loyalty. We are constantly
refining the platform and we will
continue to learn from our customers
and use our significant technical
resource to design the new solutions
required to satisfy an evolving market.
Bespoke platform development
Our bespoke e-commerce platform is
the cornerstone of our success and a
major competitor differentiator, and our
development team have worked
tirelessly to design and deploy 242
website updates and 286 system
upgrades during the period.
Highlights included the launch of
consumer finance in five European
countries, enhancing our mobile
check-out, launching a US Dollar
website, cloudification of our entire
platform, and a host of back-end
functionality upgrades, including GDPR
compliance. We have a pipeline of
exciting features and upgrades we want
to deploy during the next 12 months.
International expansion
With international sales growing by 69%
to £35.8m during FY18 in what is a $15bn
market, expanding internationally
continues to be a key area of
opportunity and focus for the Group.
Localising our websites and customer
experience is at the core of our growth
strategy, and during the last year we
have expanded our multilingual
customer service team, invested further
into translation and marketing, and
improved our local delivery and
payment options.
In March 2018 we opened our German
showroom which, in addition to
physically showcasing our products and
building our brand in the locality, is
creating additional buying opportunities
in Euros from German distributors.
Supply chain evolution
At the year-end we listed 44,700
products, which is up by 20% in 12
months, and we believe there are further
opportunities to increase this
significantly.
Own-brand product sales have
continued to grow impressively, with
45% growth during FY18 to a total of
£21m, building on the 58% growth
achieved during FY17.
Logo update
After 15 years of excellent service, we
have decided it’s time to update the
Gear4music logo, as featured in this
Annual Report. Our websites will be
updated with the new logo later in the
year, along with a refreshed and
modernised look and feel.
Outlook
Whilst profitability has been restricted
during FY18 as a result of the
investments made into our European
operations and customer proposition to
drive market share, we remain confident
in our outlook for the coming year. As
we continue to implement our long-
term growth strategy during FY19, we
expect to see ongoing strong revenue
growth, alongside improving profitability
and cash generation.
Andrew Wass
Chief Executive Officer
2 July 2018
Revenue:
£80.1m
43%
EBITDA:
£3.5m
-3%
Strategic ReportCorporate GovernanceFinancial Statements 20
Gear4music (Holdings) plc
Annual Report and Accounts 2018
PLATFORM FEATURES
Our bespoke platform provides an end-to-end solution
encompassing the whole business. Having software
development in-house enables us to quickly and cost-
effectively develop new features and functionality.
We have invested £5.9m over 12 years
in developing a bespoke end-to-end
e-commerce platform designed to meet
our exact requirements. The ‘front-end’
websites are market leading localised
sites that have responsive design and
are multilingual and multicurrency,
supported by robust, flexible, fully
integrated back-office systems.
We have 34 software developers in the
business working on a pipeline of
exciting new developments and
features.
READ MORE ON
PAGES 14-15
21
Anti DDoS
technology
CITES &
ROHS
compliance
Data
‘encryption
at-rest’
Security
Advanced
fraud
prevention
PCI DSS
compliant
GDPR
compliant
European
courier
integrations
Delivery
date
calculation
1000s of
delivery
options
Fulfilment
Delivery
cost
calculation
Optimised
dispatch
locations
Intelligent
service
selection
Cloud
based
platform
Delivery
to 190
countries
Multi-
currency
Global capacity
Localised
purchasing
Multi-
lingual
Zonal
pricing
Responsive
design
Consumer
finance
integrated
Mobile
optimised
Website
160
payment
methods
Advanced
content
management
Data
driven
search
Multi-hub
warehouse
management
Advanced
reporting
Global
stock
visibility
WMS
Returns
management
Advanced
inventory
management
Dispatch
management
En d -
e
I
n
k
o
e
t
p
g
s
r
a
e
t
B
e
d
E n d U
n
i
q
u
e
I
e
n
e spok
tegrated B
Fully
integrated
POS
Single
customer
view
CRM
Personalised
content
Automated
customer
messaging
Email
marketing
platform
Strategic ReportCorporate GovernanceFinancial Statements
22
Key performance indicators
INSTRUMENTAL
We measure ourselves against a number of KPIs that reflect the
key trading trends and are linked to the strategic pillars of growth.
Financial
Revenue £m
Gross margin %
Cash £m
£80.1m
+43%
25.4%
-160bps
£3.5m
+18%
2018
2017
2016
£56.1m
£35.5m
£80.1m
2018
2017
2016
25.4%
27.0%
25.9%
2018
2017
2016
£3.0m
£3.5m
£3.6m
Commercial
Marketing return Marketing costs as %
of total revenue
Unique visitors m
Conversion %
8.3%
-
2018
2017
2016
16.9m
+34%
3.25%
+50bps
8.3%
8.3%
8.7%
2018
2017
2016
12.6m
10.1m
16.9m
2018
2017
2016
3.25%
2.75%
2.28%
Average Order Value (‘AOV’)
SKUs listed
£127.33
+3%
44,742
+21%
2018
2017
2016
£127.33
£124.02
£115.74
2018
2017
2016
44,742
37,122
31,517
Gear4music (Holdings) plcAnnual Report and Accounts 2018 23
Customer
Customer experience
Trustpilot rank
9.5
-0.1
2018
2017
2016
Total database size m
1.89m
+39%
9.5
9.6
9.5
2018
2017
2016
1.89m
1.36m
0.99m
Proportion of repeat customers %
22.1%
-160bps
2018
2017
2016
Definitions
22.1%
23.7%
25.5%
Unique visitors: A distinct person who visits a Gear4music site during a given
period
Conversion: Total number of online orders divided by the total number of
unique visitors
Average Order Value: Total revenue (gross of credit notes) divided by the total
number of orders
Total database size: Number of people whose details are held on the
Gear4music database
Proportion of repeat customers: Number of customers in the period who have
placed more than one order
Strategic ReportCorporate GovernanceFinancial Statements 24
Financial review
Overview
The Group has delivered strong results during an investment
period in European distribution to enable and drive future
growth. European distribution centre administrative expenses
of £1.5m compared with £0.5m in FY17 led to Operating profit
of £2.0m (FY17: £2.6m).
Revenue
UK revenue
International revenue
Revenue
FY18
£000
44,258
35,842
80,100
FY17
£000
34,865
21,263
56,128
Change
%
27%
69%
43%
Revenue increased by £24m in FY18 (FY17: £20.6m) equating
to growth of 43%, building on growth of 58% and 46% in the
last two years. Two-year revenue growth from FY16 to FY18
was 126% compared to 132% between FY15 and FY17.
UK revenue increased by £9.4m (27%) to £44.3m, giving the
Group an estimated 5.9% market share in the UK. European
growth continues to represent a significant opportunity and
international revenue growth of 69% was further to 124%
growth in FY17 and 73% in FY16.
The Group ships product outside Europe and in October 2017
the Group launched a US Dollar website, representing an
important initial step in our plans for growth outside of
Europe. Revenues from sales outside of Europe accounted for
1% of total revenue.
Revenue growth was evenly spread across the year, with 44%
in H1 and 42% in H2.
FY18
£000
FY17
£000
Change
%
Last year we reported on good progress made in our own-
brand business and own-brand revenue growth achieving the
Group’s ambition of keeping pace with the growth in other
brands. In FY18 we are pleased to report further progress, with
own-brand growth of 45% outpacing 42% growth in other
brands, with £20.9m revenue coming from 2,629 SKUs
(28 February 2017: 2,411). The proportion of revenue that
came from own-brand products in FY18 increased to 26.2%
(FY17: 25.7%).
Other revenue comprises carriage income, warranty revenue,
and commissions earned on facilitating point-of-sale credit
for retail customers. Warranty income is becoming an
increasingly minor component of revenue, with related
revenue falling from £315,000 in FY17 (0.6% of revenue), to
£302,000 in FY18 (0.4% of revenue).
Gross profit
Gross profit (£’000)
Gross margin
FY18
FY17
20,319
25.4%
15,145
27.0%
Change
%
+34%
-160bps
Strong revenue growth led to a £5.2m increase in gross profit
on last year, with gross margin reducing from 27.0% to 25.4%,
a result more in line with FY16 (25.9%).
The Group faced US Dollar-related cost push inflation towards
the end of FY17 and into FY18, directly on own-brand products
that are purchased in US Dollars and indirectly on other-
branded products that the Group has to date predominantly
purchased in Sterling, but the products are ultimately
manufactured in US Dollars. Whilst this was mitigated to a
degree through negotiation with suppliers and leveraging of
economies of scale and passing on through price increases
to customers where it made commercial sense, the net
overall impact has been a reduction in gross margin in the
financial year.
Against this backdrop of increasing intake costs, the Group
continues to invest in its customer proposition in terms of
competitive pricing, delivery options and costs.
Short and medium-term intake cost prospects are improving
with the strengthening of Sterling, the Group’s ability to source
other-branded products in Swedish Krona and Euros, and
further benefits of scale.
Local distribution centres have started to reduce delivery costs
to customers into their domestic and adjacent markets,
although to date this has been reinvested in our customer
proposition and passed on to the customer.
Administrative expenses and Operating profit
FY18
£000
FY17
£000
Change
%
Other-brand product
revenue
Own-brand product
revenue
Other revenue
Revenue
56,075
39,351
42%
UK administrative
20,947
3,078
80,100
14,449
2,328
56,128
45%
32%
43%
expenses
(16,823)
(12,050)
(40%)
European administrative
expenses
Total administrative
expenses
Operating profit
(1,535)
(479)
(220%)
(18,358)
1,961
(12,529)
2,616
(47%)
(25%)
Gear4music (Holdings) plcAnnual Report and Accounts 2018 25
Total administrative expenses increased 47% compared to a
43% increase in revenue as the full-year effect and phased
scaling-up of the Group’s European distribution centres led to
an additional £1.1m of European administrative expenses in
FY18 over FY17. Administrative expenses incurred in the UK,
which included Head Office and Buying functions, increased
by £4.8m (40%).
In FY18, marketing costs of £6.7m (FY17: £4.7m) and labour
costs of £6.3m (FY17: £4.3m) represented 71% of total
administrative expenses.
Marketing costs in FY18 increased in line with the increase in
revenue at 43% and as a percentage of revenue were in-line
with FY17 at 8.3%. This level of return is as expected, given
marketing decisions are heavily data and return driven and
includes an element of investment into key target European
markets where the Group is looking to build the brand and
gain market share.
In FY18, labour costs increased 48% to £6.3m (FY17: £4.3m) as
a result of a 49% increase in average headcount to support
current and future growth. As explained in last year’s Financial
review, total labour costs as a percentage of revenue in FY18
increased to 7.9% from 7.6% in FY17, which is in line with
FY16’s 7.8%.
As expected, given where the Group is at in its investment
cycle, FY18 EBITDA of £3.5m is £0.1m lower than last year and
equates to 4.3% of revenues compared to 6.4% in FY17 and
4.7% in FY16.
Financial expenses of £461,000 (FY17: £47,000) includes a
£265,000 net foreign exchange loss (FY17: £67,000 gain),
and £178,000 interest (FY17: £47,000) principally relating to
property-linked bank loans.
Profit before tax was £1.5m (FY17: £2.6m), which translates into
an EPS of 6.7p (diluted EPS of 6.7p).
Cash flow and net debt
The cash flow statement for the financial year reflects the
Group continuing to deploy growth capital to generate
returns, by investing in stock and the e-commerce platform
to improve the customer proposition and drive revenue.
Opening cash
Profit for the year
Movement in working capital
Depreciation and amortisation
Financial expense
Other operating adjustments
Net cash from operating activities:
Net cash from investing activities
Net cash from financing activities
Increase/(decrease) in cash in
the year
Closing cash
FY18
£000
3,001
1,386
(3,123)
1,497
196
201
157
(9,517)
9,899
539
3,540
FY17
£000
3,548
2,314
(3,518)
1,001
47
267
111
(2,295)
1,637
(547)
3,001
The business generated trading cash in the year and has
invested funds raised in capital expenditure, and into working
capital which can be unwound.
Stock increased by £5.4m (46%), broadly in line with revenue
growth, whilst stocking the European distribution centres.
This was partly funded by a £0.8m increase in stock loans and
a £2.4m increase in trade payables.
Net cash from investing activities of £9.5m includes the £5.6m
investment in the new freehold Head Office in June 2017,
£1.8m other tangible fixed additions in York, Manchester and
the European distribution centres, and £1.7m of software
development. No finance leases were drawn against any of
this expenditure.
Cash from financing activities of £9.9m includes a £6.0m
increase in debt relating principally to bank loans linked to the
freehold property purchase, and £4.2m net proceeds from the
fund raise and exercise of a warrant in June 2017.
Balance sheet and net assets
The Group had a strong year-end balance sheet, with net
assets of £18.9m (FY17: £11.7m), and £3.5m cash (FY17: £3.0m).
Software platform
Other intangible assets
Property, plant and equipment
Total non-current assets
Stock
Cash
Other current assets
Total current assets
Trade payables
Loans and borrowings
Other current liabilities
Total current liabilities
Loans and borrowings
Other non-current liabilities
Total non-current liabilities
Net assets
FY18
£000
4,304
2,074
10,054
16,432
17,055
3,540
2,704
23,299
(7,325)
(3,914)
(3,591)
(14,830)
(4,616)
(1,400)
(6,016)
18,885
FY17
£000
3,407
2,130
1,565
7,102
11,686
3,001
1,348
16,035
(4,970)
(2,621)
(2,409)
(10,000)
(24)
(1,391)
(1,415)
11,722
Investment in the software platform in the year was £1.7m
(FY17: £1.5m) to develop enhanced functionality and
resilience, taking total investment to date to £5.9m and net
book value to £4.3m (28 February 2017: £3.4m).
A freehold Head Office was acquired in June 2017 for £5.3m
in an off-market transaction, with a further £0.3m of directly
related costs being capitalised. Further to the Group’s
understanding of local rental values, an independent valuation
was commissioned, resulting in a £1.7m upwards revaluation.
The Group had net debt of £5.0m at the financial year end,
compared to net cash of £0.4m at the last financial year end,
including £5.2m of debt related to the freehold property purchase
outlined above, of which £4.6m is payable after one year.
Dividends
The Board remains confident in the cash-generative nature
of the core business, but in light of the returns available from
future growth, the Board does not consider it appropriate to
declare a dividend at this time, but will continue to review this
position on an annual basis.
Chris Scott
Chief Financial Officer
2 July 2018
Strategic ReportCorporate GovernanceFinancial Statements 26
Our people
ORCHESTRAL
We know that a team of talented and motivated individuals
are the cornerstone of a successful business. We look to
achieve this by growing our talent by recruiting only the best
people and providing development opportunities with the
scope for career progression.
At 28 February 2018 we employed 339
people across three countries, and
many of them have first-hand musical
instrument and equipment knowledge,
playing in bands and producing their
own music.
Our diverse workforce is a key attribute
with different cultures, knowledge and
skills making it a fantastic place to work.
At 28 February 2018 our multi-national
team spoke 15 different languages.
A business for musicians run by
musicians
We are proud of our passionate staff
with in-depth knowledge of their
specialist area of focus. We offer
generous staff discounts on musical
products and equipment and in FY18
most of our team made a relevant
purchase.
Recruitment and retention
We need to attract talent to support
our growth plans, and offer competitive
salaries and a range of benefits to
help attract and retain great people
(https://www.gear4music.com/careers/
why-gear).
At 28 February 2018, 79 employees were
participating in Group share option
plans in recognition of their contribution
to the continuing success of the
business.
In FY18 our headcount increased by 31%
from 259 to 339 and our retention levels
are good.
Apprenticeships
We believe it is important to encourage
young people into the workplace and
provide training and development for
the future. Working with recognised
training providers we provide on-the-job
training, resulting in a professional
qualification fit for a modern workplace.
We aim to offer between five and ten
apprenticeships per year across many
parts of the business, including Retail,
Warehousing, Graphic Design, Web
Content and Marketing.
Gender pay gap report
As of April 2017, we are pleased to report
that our mean gender pay gap (12.6%) is
better than the national average (17.4%),
and our median rate shows that the
women’s average hourly rate is higher
than the men’s.
The mean reflects the fact that the top
three highest-paid employees are male.
The median reflects that there are
proportionally more females in the
upper middle quartile and proportionally
less females in the lower quartile.
• Women’s hourly rate is 12.6% lower
(mean) and 14.8% higher (median)
• Top salary quartile has 84.8% men and
15.2% women
• Upper middle salary quartile has
63.2% men and 36.8% women
• Lower middle salary quartile has 86%
men and 14% women
• Lower salary quartile has 93.1% men
and 6.9% women
• Women’s bonus pay is 0% lower
(mean) and 0% lower (median)
• 0.5% of men and 0% of women
received bonus pay
Gear4music (Holdings) plcAnnual Report and Accounts 2018 27
Executive Board
FOR MORE INFORMATION
PAGES 38-39
Andrew Wass
CEO
Chris Scott
CFO
Gareth Bevan
CCO
Operational Board
Tom Walder
Chief Technical Officer
Joined Jan 2017
Jonathan Meager
E-commerce Director
Joined 2007
Robert Newport
Projects Director
Joined May 2016
Senior management
Swedish Commercial
Manager
Joined Nov 2016
German Commercial
Manager
Joined Mar 2017
Head of UK Buying
Joined May 2013
Digital Marketing
Manager
Joined May 2016
Swedish Logistics
Manager
Joined Sept 2016
German Logistics
Manager
Joined Nov 2016
UK Logistics Manager
Joined 2005
Customer Service
Manager
Joined 2005
Strategic ReportCorporate GovernanceFinancial Statements 28
Risks and uncertainties
The Board recognises that certain risks and uncertainties can
have significant rewards for the prospects of the business,
and as such require careful identification, evaluation and
management.
The Board takes overall responsibility
for risk management, with a focus on
evaluating the nature and extent of
significant risks, and formulating
mitigations around the risks required to
be taken in order to deliver the strategic
objectives. The Audit Committee has
responsibility for overseeing the
effectiveness of appropriate risk
management processes and internal
control systems. More detail of these
processes is set out in the governance
section.
The purpose of this section is to focus
on the principal risks and uncertainties
to our business model that could
impact on our achieving our strategic
objectives, and our future performance.
FOR MORE INFORMATION
VISIT OUR WEBSITE
Operations
Risk
The UK’s decision
to leave the
EU/‘Brexit’
Rapid growth
Description
Mitigation
Uncertainty in the UK and European
economies following the UK’s EU
Referendum vote (Brexit), and potential
impact on consumer confidence could
affect the ability of the Group to maintain
sales growth.
Controls on the freedom of movement of
people may impact the availability of
European workers in the UK.
European competitors may gain an
advantage over the Group if higher duties are
imposed on UK imports into the EU, or
currencies move adversely to the Group.
The Group’s business has grown rapidly.
Operations and practices adopted at earlier
stages of the Group’s development may be
inappropriate for a business of an increased
size and scale.
The Group may need to expand and
enhance its infrastructure and technology
and improve its operational and financial
systems and procedures and controls in
order to be able to match its growth. The
Group may face challenges in matching the
pace of its expansion with corresponding
improvements and enhancements in its
systems, controls and procedures. The
Group will also need to expand, train and
manage its growing employee base.
Developments in the EU are being
monitored subsequent to the UK’s decision
to leave the EU.
The Group has trading subsidiaries in
Sweden and Germany and, if and when
appropriate, trading arrangements could be
adapted and these entities become
standalone European retail businesses.
Competitor activity and offerings are
reviewed regularly to remain abreast of
market developments and identify
competitive advantages.
Fluctuating exchange rates are regularly
reviewed and operational and financial
mitigations considered. Buying products and
incurring other costs in Euros and Krona
partly mitigates the risk.
As detailed in the Governance section,
the Plc and Operational Boards actively
monitor and respond to developments, so as
to maintain systems and practices that are
appropriate for the operations and scale of
the Group.
The Group continues to recruit into key
management positions.
The Group has again expanded its Finance
function, providing greater capacity and
better segregation of duties, further
improving the control environment.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 29
Operations continued
Risk
Description
Mitigation
New jurisdictions
The Board will routinely direct Management
to seek professional input into any such
major developments.
Advances into Europe will continue to be in a
measured and capital efficient manner.
The Group has local subsidiaries in Sweden
and Germany and recruited local
management familiar with local laws and
regulations.
The Group’s expansion into new jurisdictions
may not be successful. Further expansion
into markets outside the United Kingdom
would expose the Group to a variety of risks,
including different regulatory requirements,
complications with staffing and managing
foreign operations, variations in consumer
behaviour, fluctuations in currency exchange
rates, potential political and economic
instability, potential difficulties in enforcing
contracts and intellectual property rights, the
potential for higher rates of fraud and
adverse tax consequences.
The Directors have limited experience of the
legal and regulatory regimes of jurisdictions
outside the United Kingdom and their
consequences for the Group’s business.
In addition, the Group will likely have to
compete in new jurisdictions with
companies already operating in the relevant
market, which may understand the local
market better than the Group.
To the extent that the Group overestimates
the potential of a new geographic market,
incorrectly judges the timing of the
development of a new geographic market or
fails to anticipate the differences between a
new geographic market and the United
Kingdom, the Group’s attempt to expand into
new geographic markets may be
unsuccessful.
Technological
changes
Unless the Group is able to respond to
technological advances, e.g. through
adapting and optimising Gear4music’s
websites, on a cost-effective and timely
basis, it may not be able to effectively build
and/or maintain a competitive advantage.
In FY17 the Group brought software
development in-house to assert greater
control and improve cost efficiency to help
mitigate such risks.
The Group continues to allocate a significant
annual budget to software development.
Distribution
centres
The Group operates three distribution
centres and, as such, is not completely reliant
on a single site.
The Group operates from three locations,
mitigating the risk of over-dependence on
any single location.
Any disruption to a distribution centre’s
efficient operation may have an effect on the
Group’s business.
Distribution centres may suffer prolonged
power or equipment failures, failures in their
information technology systems or networks
or damage from fires, floods, other disasters
or other unforeseen events which may not
be covered by or may exceed the Group’s
insurance coverage.
The Group, in conjunction with its insurance
broker, ensures it maintains sufficient and
appropriate insurance cover is in place. This
includes Business Interruption cover.
The Group has a formal disaster recovery
plan in place that details actions in specific
situations.
Strategic ReportCorporate GovernanceFinancial Statements 30
Risks and uncertainties continued
Operations continued
Risk
Description
Mitigation
Warehousing,
onward
distribution to
customers and
logistics
Change to search
engines’
algorithms
Data security and
IT reliability
The supply of product to customers in a
timely manner is critical to the success of the
Group. The Group therefore operates its own
warehouses, run by senior management that
have many years of experience in the sector.
Rapid increases in revenue may require
further expansion of current warehouse
space.
There is a risk that the Group may experience
interruptions to the operation of these
logistics and distribution networks that could
prevent the timely or proper delivery of
products, which could damage the Group’s
reputation, deter customers, prospective
customers, suppliers and/or prospective
suppliers.
Changes to search engines’ algorithms or
terms of service could cause the Group’s
websites to be excluded from or ranked
lower in natural search results.
Search engines frequently modify their
algorithms and ranking criteria which
could impair the Group’s Search Engine
Optimisation (‘SEO’) activities.
If the Group is unable to recognise and adapt
quickly to such modifications in search
engine algorithms, the Group could suffer a
significant decrease in traffic and revenue.
The Group relies heavily on its IT
infrastructure and e-commerce system, and
in particular its websites. If any one or more
of its websites were to fail or be damaged
this could impact the Group’s ability to trade.
If the Group’s IT and data security systems
do not function properly there could be
website slowdown or unavailability, loss of
data, a failure by the Group to protect the
confidential information of its customers
from security breaches, delays in transaction
processing, or the inability to accept and fulfil
customer orders, which could affect the
Group’s business.
The Group operates from three distribution
centres, each with their own local logistics
relationships, thereby reducing the
dependency on any single site or local
network.
There are regular reviews of capacity across
locations and follow-up plans developed
that the Board believes should allow the
Group to fulfil an increasing number of
orders from the existing sites and identify
step-changes for consideration as and when
required.
The Group maintains multiple delivery
service providers to reduce the dependency
on any single provider, and tracks service
level agreements on an ongoing basis. This
provides system flexibility to switch providers
within a matter of days if required.
The Group will continue to operate search
engine optimisation activities that adhere to
search engine guidelines.
The Group seeks to mitigate this risk by
investing in IT infrastructure, including robust
cloud-based back-up systems.
The Group has a disaster recovery plan in
place which has been designed to minimise
the impact of data loss or corruption from
hardware failure, human error, hacking or
malware.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 31
Brand and proposition
Risk
Description
Mitigation
Market
recognition
Rigorous monitoring of customer feedback
helps ensure issues are identified and
rectified on a timely basis.
Own-brand products are carefully selected
and rigorously tested prior to initial order.
Developing and maintaining the reputation
of, and value associated with, the Group’s
brands is of central importance to the
success of the Group. Brand identity is a
critical factor in retaining existing and
attracting new customers. The Group is
reliant on its natural search result rankings
and paid advertising as it seeks to build
market share and attract new customers.
Any failure by the Group to offer high-quality
products across a range of instruments,
manufacturers and price points, excellent
customer service and efficient and reliable
delivery, could damage its reputation and
brands and could result in the loss of
customer confidence and a reduction in
purchases.
Unfavourable publicity concerning the
Group could also damage the Group’s
brands and its business. If the Group fails to
maintain its brands or if excessive expenses
are incurred in this effort, the Group’s
business may be affected.
Competition
The UK and European retail market for
musical instruments and music equipment is
competitive. A number of competitors may
have financial resources greater than those
of the Group.
Both Amazon and eBay sell musical
instruments and music equipment.
The Group has a track record of successfully
competing on a wide range of factors,
including quality and range of products,
price, product availability, product
information, convenience, delivery options
and service.
Strategic ReportCorporate GovernanceFinancial Statements 32
Risks and uncertainties continued
Resources and Relationships
Risk
Description
Mitigation
Supply and sale
of third party
branded products
Whilst sales of third party branded products
accounted for approximately 70% of the
Group’s turnover in FY18 (FY17: 70%), the
Directors do not consider that the Group is
significantly reliant on any one or more
major brand/brand owner.
The Directors believe that the relative size of
the Group, its purchase volumes and the
strength of its relationship with the brand
owners, built over a prolonged period in
many cases, make it unlikely that any such
arrangements would be terminated.
The Group purchases products from a
number of large global musical instrument
and music equipment brand owners, and the
Group’s business depends on its ability to
source a range of products from well-
recognised brands on commercially
reasonable terms.
The relationships between the Group and
the third-party brand owners are generally
based on annual contracts that the Group
seeks to renew each year. The third-party
brand owners may cease selling products to
the Group on terms acceptable to it, fail to
deliver sufficient quantities of products in a
timely manner, terminate their relationship
with the Group and enter into agreements
with the Group’s competitors, or experience
raw material or labour shortages or increases
in raw material or labour costs. Any
disruption to the availability or supply of
products to the Group or any deterioration to
the terms on which products are supplied to
the Group could affect its business.
Reliance on
sub-contract
manufacturers
The Group sub-contracts manufacture of its
Own-brand musical instruments and
equipment to independent third-party
businesses in South-East Asia. Any disruption
to supply or issues such as poor product
quality could have an adverse impact on the
Group’s reputation.
The impact of any issues arising with
sub-contractors’ products is exacerbated by
the lead times involved (12-16 weeks).
The Group has been successfully importing
for over 15 years and has relationships with
over 30 manufacturers providing re-sourcing
options.
The Board believes that the Group has robust
take-on and ongoing monitoring procedures
covering areas such as quality control and
delivery performance for new and existing
sub-contract manufacturers that the Group
seeks to adhere to rigidly.
Dependence on
key personnel
The loss of any key individual or the inability
to attract appropriate personnel could
impact upon the Group’s future
performance.
In FY17 three further directors were
appointed to the board of Gear4music
Limited, and an Operational Board formed to
focus on all trading and commercial matters.
Should the Group fail to retain or attract
suitably qualified and experienced personnel,
it may not be able to compete successfully.
The Board continues to recruit into key
management positions as and when
positions are identified.
The Senior Management team is
compensated through a combination of
market-rate salary and longer-term
share-based incentives to align key people’s
remuneration with the continued success of
the Group.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 33
Strategic ReportCorporate GovernanceFinancial Statements 34
Corporate governance report
Corporate Governance Codes
The Board recognises the value and
importance of high standards of
corporate governance and since IPO
has adopted many aspects of the UK
Corporate Governance Code (‘the
Code’) so far as the Board considers
them appropriate and practical for a
group Gear4music’s size. Following due
consideration of the recent changes to
the AIM rules, the Board has committed
to adopt the QCA Corporate
Governance Code. More details on
implementation and disclosure will
appear on the Group’s Plc website in
due course.
The Board of Directors and
Committees of the Board of
Directors
The Board, which is headed by the
Chairman, comprises five Directors, of
which three are Executive and two are
Non-Executive, providing a broad range
of relevant skills and experiences.
The Board considers Ken Ford and
Dean Murray to be ‘independent’
Non-Executives under the criteria
identified in the Code. Directors’ profiles
are detailed on pages 38 and 39.
The Board met regularly throughout the
year with ad hoc meetings held when
required.
The Role of the Board
The role of the Board is to provide
leadership to the Group and to ensure
the obligations of being a public
company are adhered to. The Board
bears collective responsibility for
delivering ongoing success through the
development of appropriate strategies
that are aligned to the Group’s
objectives, and deliverable with due
consideration of risk and the resources
available. The Board is also responsible
for ensuring that a framework of
effective controls is in place.
The division of responsibilities between
the Chairman and the Chief Executive
Officer is clearly defined. The Chairman
is responsible for ensuring the
effectiveness of the Board and setting its
agenda. The Chairman has no
involvement in the day-to-day running
of the business. The Chief Executive
Officer has direct charge of the Group
on a day-to-day basis, and the Executive
team has collective responsibility for the
implementation of the Group’s
strategies and is accountable to the
Board for the financial and operational
performance of the Group.
There are certain matters that are
reserved for the Board’s consideration
and these include, but are not limited to
matters of strategy, key commercial
developments, risk management, the
consideration and approval of budgets,
significant capital expenditure and
recruitment, acquisitions and disposals,
and the approval of financial statements.
The formal Board agenda includes an
Executive report detailing the
commercial, operational and financial
performance of the Group. Further to
formal Board meetings, the Board
receives weekly key trend information
covering all trading aspects of the
business.
The Board determines the fees paid to
Non-Executive Directors.
The performance of the Board is
evaluated informally on an ongoing
basis with reference to all aspects of its
operation including, but not limited to,
the appropriateness of its skill level, the
way its meetings are conducted and
administered (including the content of
those meetings), the effectiveness of the
various Committees, whether Corporate
Governance issues are handled in a
satisfactory manner, and whether there
is a clear strategy and objectives.
A new Director, on appointment, is
briefed on the activities of the Group.
Professional induction training is also
given as appropriate. The Chairman
briefs Non-Executive Directors on issues
arising at Board meetings if required,
and Non-Executive Directors have
access to the Chairman at any time.
Ongoing training is provided as needed.
Directors are continually updated on the
Group’s business and on insurance and
on issues covering pensions, social,
ethical, environmental and health and
safety by means of Board reports.
In the furtherance of his duties or in
relation to acts carried out by the Board
or the Group, each Director has been
informed that he is entitled to seek
independent professional advice at the
expense of the Group. The Group
maintains appropriate cover under a
Directors’ and Officers’ insurance policy
in the event of legal action being taken
against any Director.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 35
Each Director is appraised through the
normal appraisal process. The Chief
Executive Officer is appraised by the
Chairman, the Executive Board
members by the Chief Executive Officer,
and the Non-Executive Board members
by the Chairman. Each Director has
access to the services of the Company
Secretary if required.
The Non-Executive Directors are
considered by the Board to be
independent of management and are
free to exercise independence of
judgement. They receive no other
remuneration from the Group other
than the Directors’ fees.
The Board is supported by, and receives
recommendations from, two
committees – an Audit Committee and
a Remuneration Committee.
It is recognised that the Code does not
treat the Chairman as independent and
it is considered best practice that he
should not sit on the Audit or
Remuneration Committees. The Board,
however, takes the view that as the
number of Non-Executive Directors is
only two, including the Chairman, his
participation will continue as the
Committees gain the benefit of his
external expertise and experience in
areas which the Group considers
important.
The table below shows the number of
Board meetings and Audit Committee
and Remuneration Committee meetings
held in the period from 1 March 2017 to
the date of approval of the Annual
Report and Accounts. The table also
shows the attendance of each Director:
Re-election
At each Annual General Meeting
one-third (or whole number less than
one-third) of the Directors will retire by
rotation. In addition, Directors are
subject to re-election at the Annual
General Meeting following their
appointment.
Shareholder communications
The Chief Executive Officer and
Chief Financial Officer regularly
meet with institutional shareholders
to foster a mutual understanding of
objectives. The Directors encourage
the participation of all shareholders,
including private investors, at the
Annual General Meeting and as
a matter of policy the level of
proxy votes (for, against and vote
withheld) lodged on each resolution
is declared at the meeting.
The Annual Report and Accounts is
published on the Company’s investor
website and can be accessed by
shareholders.
Internal controls
The Board is responsible for the Group’s
system of internal controls and for
reviewing its effectiveness. Such a
system is designed to manage rather
than eliminate the risk of failure to
achieve business objectives and can
only provide reasonable and not
absolute assurance against material
misstatement or loss.
The Group highlights potential financial
and non-financial risks which may
impact on the business as part of the
monthly management reporting
procedures. The Board receives these
monthly management reports and
monitors the position at Board
meetings.
Director
Role
Ken Ford
Andrew Wass
Chris Scott
Gareth Bevan
Dean Murray
Non-Executive Chairman
CEO
CFO
CCO
NED
Board
meetings
Audit
Committee
meetings
Remuneration
Committee
meetings
9/9
9/9
9/9
9/9
9/9
3/3
3/3
3/3
3/3
3/3
3/3
The Board confirms that there are
ongoing processes for identifying,
evaluating and mitigating the significant
risks faced by the Group. The processes
have been in place from 1 March 2017 to
the date of approval of the Annual
Report and Accounts and are consistent
with the guidance for Directors on
internal control issued by the Turnbull
Committee.
The Group’s internal financial control
and monitoring procedures include:
• clear responsibility on the part of line
and financial management for the
maintenance of good financial
controls and the production of
accurate and timely financial
management information;
• the control of key financial risks
through appropriate authorisation
levels and segregation of accounting
duties;
• detailed monthly budgeting and
reporting of trading results, balance
sheets and cash flows, with regular
review by management of variances
from budget;
• reporting on any non-compliance
with internal financial controls and
procedures; and
• review of reports issued by the
external auditor.
The Audit Committee, on behalf of the
Board, reviews reports from the external
auditor together with management’s
response regarding proposed actions.
In this manner they have reviewed the
effectiveness of the system of internal
controls for the period covered by the
accounts.
On 1 March 2017, the Group formed an
Operational Board with the appointment
of three further Directors to the trading
subsidiary, Gear4music Limited. The
Operational Board analyses and
discusses operational and commercial
matters, and identifies any material
matters to escalate to the Plc Board.
The Operational Board met seven times
in the financial year.
Strategic ReportCorporate GovernanceFinancial Statements 36
Corporate governance report continued
Audit Committee report
Overview
The Audit Committee (‘the Committee’)
is established by, and is responsible to,
the Board. It has formally delegated
duties and responsibilities and has
written terms of reference. Its main
responsibilities are:
• to monitor and be satisfied with the
truth and fairness of the Group’s
financial statements before
submission to the Board for approval,
ensuring their compliance with the
appropriate accounting standards, the
law, and the AIM Rules;
• to monitor and review the
effectiveness of the Group’s system
of internal control;
• to make recommendations to the
Board in relation to the appointment
of the external auditor and their
remuneration, following appointment
by the shareholders in general
meeting, and to review and be
satisfied with the auditor’s
independence, objectivity and
effectiveness on an ongoing basis;
and
• to implement the policy relating to
any non-audit services performed by
the external auditor.
Membership of the Audit Committee
Dean Murray is the Chairperson of the
Committee and the other member is
Ken Ford, both of whom are Non-
Executive Directors and have wide
experience in regulatory and risk issues.
Role and operation of the Audit
Committee
The Committee is authorised by the
Board to seek and obtain any
information it requires from any officer
or employee of the Group, and to obtain
external legal or other independent
professional advice as is deemed
necessary by it.
Meetings of the Committee are held at
least twice per year and the auditor is
invited to these meetings. The
Committee meets once (usually during
January) to discuss and agree the scope
for the forthcoming external audit, and
again (usually during April) to review the
findings of the external audit in relation
to internal control and the financial
statements. At this meeting, the
Committee carries out a full review of
the year-end financial statements and of
the audit, using as a basis the Report to
the Audit Committee prepared by the
external auditor and taking into account
any significant accounting policies, any
changes to them and any significant
estimates or judgements. Questions are
asked of management of any significant
or unusual transactions where the
accounting treatment could be open to
different interpretations.
The Committee receives reports from
management on the effectiveness of
the system of internal controls. It also
receives from the external auditor a
report of matters arising during the
course of the audit which the auditor
deems to be of significance for the
Committee’s attention. The statement
on internal controls and the
management of risk, which is included
in the Annual Report, is approved by the
Committee.
The 1998 Public Interest Disclosure Act
(‘the Act’) aims to promote greater
openness in the workplace and ensures
‘whistle blowers’ are protected. The
Group maintains a policy in accordance
with the Act which allows employees to
raise concerns on a confidential basis if
they have reasonable grounds in
believing that there is serious
malpractice within the Group. The
policy is designed to deal with concerns,
which must be raised without malice
and in good faith, in relation to specific
issues which are in the public interest
and which fall outside the scope of
other Group policies and procedures.
There is a specific complaints procedure
laid down and action will be taken in
those cases where the complaint is
shown to be justified. The individual
making the disclosure will be informed
of what action is to be taken and a
formal written record will be kept of
each stage of the procedure.
The external auditor is required to give
the Committee information about
policies and processes for maintaining
their independence and compliance
regarding the rotation of audit partners
and staff. The Committee considers all
relationships between the external
auditor and the Group to ensure that
they do not compromise the auditor’s
judgement or independence,
particularly with the provision of
non-audit services.
External auditor and non-audit
services
Fees in relation to services provided by
the external auditor in FY18 and FY17
were:
£000
Audit fee
Tax fees
Total fees
FY18
50
17
67
FY17
40
60
100
The Committee has considered the ratio
of audit fees to non-audit fees and is
satisfied with the independence and
objectivity of the auditors, KPMG LLP.
Remuneration Committee report
As an AIM-listed company, Gear4music
(Holdings) plc is not required to comply
with Schedule 8 to the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2008. The content of this report is
unaudited unless stated.
Membership of the Remuneration
Committee
During the year, the Remuneration
Committee comprised Ken Ford and
Dean Murray. They have no personal
financial interest in the Group except for
fees in relation to their holding of office
and their shareholdings as disclosed,
with no potential conflict of interests
and no day-to-day involvement of the
Group.
The Remuneration Committee reviews
the performance of the Executive
Directors and makes recommendations
to the Board on matters relating to
remuneration, terms of service, granting
of share options and other equity
incentives.
The Remuneration Committee meets at
least twice a year.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 37
Remuneration policy
The remuneration policy is designed to
attract, retain and motivate high-calibre
executives to ensure the Group is
managed successfully to the benefit of
shareholders.
Share ownership is encouraged and all
the executives are interested in the share
capital.
In setting remuneration levels, the
Committee takes into consideration
remuneration levels and practices in
other companies of a similar size and in
similar sectors.
Non-Executive Directors
Remuneration of the Non-Executive
Directors is determined by the Executive
Directors. Non-Executive Directors are
not entitled to pensions beyond the
required statutory minimums, annual
bonuses or employee benefits, nor are
they entitled to participate in share
option arrangements relating to the
Company’s shares.
Each of the Non-Executive Directors has
a letter of appointment stating his
annual fee and that his appointment is
initially for a term of three years. Their
appointment may be terminated with
one month’s notice.
Their fees are reviewed annually and set
in line with prevailing market conditions
and at a level which will attract and
retain individuals with the necessary
experience and expertise to make a
significant contribution to the Group’s
affairs.
Executive
Andrew Wass
Chris Scott
Gareth Bevan
Non-Executive
Ken Ford
Dean Murray
Peter Armitage1 (resigned 19 October 2016)
Total
Directors’ remuneration
The normal remuneration arrangements
for Executive Directors consist of basic
salary and private medical insurance.
The CEO is also entitled to a car
allowance and a pension allowance.
Four Directors, including the CEO, are
enrolled in the Group workplace
pension scheme.
Second awards were made on 30 June
2017, further to the announcement of
the Company’s FY17 annual trading
results and following due consideration
by the Remuneration Committee.
Subject to continued employment and
meeting performance conditions, these
awards are scheduled to vest on 31 May
2020.
All Executive Directors have service
agreements terminable by the Company
with six months’ notice.
Further awards are expected to be made
following the announcement of the
FY18 results.
Total remuneration
The remuneration of each of the
Directors of the Group for the year
ended 28 February 2018 is set out
below. These values are included
within the audited accounts.
Directors’ interests
Details of the Directors’ shareholdings
are included in the Directors’ report on
page 40.
Directors’ share options
There are EMI and CSOP share incentive
plans in place for Chris Scott and Gareth
Bevan, and equivalent discretionary cash
bonus plans for Andrew Wass, to reward
the Executives for delivering success to
the mutual benefit of shareholders, and
specifically to promote continuing
earnings growth.
The first awards were made on 31 May
2016, further to the announcement of
the Company’s FY16 annual trading
results and following due consideration
by the Remuneration Committee.
These awards vested on 31 May 2018.
Basic salary
£000
Benefits
£000
Pensions
£000
Total FY18
£000
Total FY17
£000
195
147
123
34
32
–
531
2
1
1
–
–
–
4
3
3
11
–
–
–
17
200
151
135
34
32
–
552
189
141
112
33
31
19
525
1 Peter Armitage was KCP’s appointed Investment Director and resigned on 19 October 2016 on the sale of KCP’s final shareholding in the Group.
Strategic ReportCorporate GovernanceFinancial Statements 38
Board of Directors
Eric (Ken) Ford
Chairman and Non-Executive Director
Age 68
Ken was previously Chief Executive of Teather & Greenwood, the
investment bank, becoming Deputy Chairman and Chairman of Corporate
Finance. Ken brings a strong understanding of shareholder value, strategic
planning and corporate transactions. Mr Ford is a former Chairman of the
Quoted Companies Alliance (QCA) and member of the EU Advisory
Committee to the Corporation of London. Fellow of the Chartered
Securities Institute. Ken’s previous directorships include Aberdeen Asset
Management and Morgan Grenfell.
Ken is currently Chairman of AIM-quoted companies System1 Group plc
and Scientific Digital Imaging plc.
Ken is Chairman of the Remuneration Committee and a member
of the Audit Committee.
Andrew Wass
Chief Executive Officer
Age 47
Andrew has over 20 years’ business management experience, having
founded Gear4music Limited (then called Soundpro Limited) in 1995. In
1998 he began selling IT systems for the audio recording market before
launching ‘Gear4music’ in 2003. Since then Andrew has retained overall
responsibility for driving the Group’s growth.
Between 1992 and 1998, Andrew set up and ran his own recording studio
business, having studied Popular Music and Sound Recording at the
University of Salford. Andrew is a keen pianist.
Christopher (Chris) Scott
Chief Financial Officer and Company Secretary
Age 42
Before joining Gear4music in October 2012, Chris was the Finance
Director at Officers Club, overseeing the sale of the business to Blue Inc.
Chris joined KPMG LLP in Leeds in 1997, qualified as a Chartered
Accountant in 2000 and went on to spend nine further years in their
advisory practice, including a year on secondment at Barclays Bank.
He holds an Executive Masters in Business Administration.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 39
Gareth Bevan
Chief Commercial Officer
Age 40
Gareth joined Gear4music in July 2012. He was previously at DV247, the
largest UK-based musical equipment retailer at that time, where he was
responsible for purchasing, sales and marketing. He has 19 years’
experience in musical equipment retail.
Dean Murray
Non-Executive Director
Age 55
Dean joined the Board of Gear4music in March 2012 as a Non-Executive
Director and originally as Chairman. Dean is a Chartered Accountant,
former Chief Financial Officer and Chief Operating Officer of Myriad
Childrenswear Group, and is currently a Director of M.S. Team Limited,
and Chairman of BHID Group Limited, Construction Materials Online
Limited, Yumi International Limited and Weird Fish Holdings Limited.
Dean is Chairman of the Audit Committee and a member
of the Remuneration Committee.
Strategic ReportCorporate GovernanceFinancial Statements 40
Directors’ report
The Directors present their report and the audited financial
statements for the year ended 28 February 2018.
Principal activity
The principal activity of the Group is the retail of musical
instruments and equipment, through 20 Gear4music-branded
websites in 15 languages, and showrooms in York, Sweden
and Germany. It retails own and other branded products.
Business review and future developments
An overview of the Group’s operation is included in the
Strategic Report section of the Annual Report and Accounts
on pages 2 to 32. This report includes sections on strategy
and markets and considers key risks and key performance
indicators.
Significant shareholders
The Company is informed that, at 13 April 2018, individual
registered shareholdings of more than 3% of the Company’s
issued share capital were as follows:
Andrew Wass
BlackRock Investment Mgt
Old Mutual plc
Octopus Investments
Seneca Investment Mgrs
Hargreave Hale
AXA Investment Mgrs
Number of
shares
% of issued
share capital
7,161,993
1,953,133
1,506,244
1,152,422
899,281
799,968
706,200
34.3%
9.4%
7.2%
5.5%
4.3%
3.8%
3.4%
A review of the Group’s current operations and future
developments is covered in the Chief Executive Officer’s and
Chief Financial Officer’s reports.
Directors’ shareholdings
The beneficial interests of the Directors in the share capital of
the Company at 28 February 2018 were as follows:
Financial results
Details of the Group’s financial results and position are set out
in the Consolidated statement of profit and loss and other
comprehensive income, other primary statements and notes
to the accounts on pages 48 to 83.
Dividends
The Directors do not recommend the payment of a dividend
(FY17: nil).
Going concern
After making enquiries, the Directors have confidence that the
Group has adequate resources to continue in operational
existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the
Annual Report and Accounts. This is described in more detail
in Note 1.
Directors
The Directors who served on the Board and on Board
Committees during the year are set out on pages 38 to 39.
One-third of the Directors are required to retire at the Annual
General Meeting and can offer themselves for re-election.
Information on Directors’ remuneration and share option
rights is given in the Remuneration Committee report on
pages 36 to 37.
Executive Directors
Andrew Wass
Gareth Bevan
Chris Scott
Non-Executive Directors
Dean Murray
Ken Ford
Number of
shares
% of issued
share capital
7,161,993
100,382
90,462
199,520
20,000
34.3%
0.5%
0.4%
1.0%
0.1%
At the financial year end, Chris Scott and Gareth Bevan held
share options over 9,978 shares each under the Director EMI
plan, and over 2,288 shares each under the CSOP scheme.
Andrew Wass has cash-settled options to an equivalent
amount subject to the same performance conditions. Both
plans and all awards are outlined in the Remuneration
Committee report on pages 36 and 37, and on pages 71 to 74.
The middle market price of the Company’s Ordinary shares
on 28 February 2018 was 651.0 pence (28 February 2017:
660.0 pence), and the range in the year was 502.5 pence
to 865.0 pence, with an average price of 707.0 pence.
Research and development
The Group capitalised £1.69m during the year (FY17: £1.48m)
of software development costs relating to the in-house
e-commerce software platform.
Financial instruments
The Group’s policy and exposure to financial instruments is set
out in Note 17 on pages 65 to 70.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 41
Qualifying third-party indemnity
The Company has provided an indemnity for the benefit of its
current Directors which is a qualifying third-party indemnity
provision for the purpose of the Companies Act 2006.
Employee involvement
It is the Group’s policy to involve employees in its progress,
development and performance. Applications for employment
by disabled persons are fully considered, bearing in mind the
respective aptitudes and abilities of the applicants concerned.
The Group is a committed equal opportunities employer and
has engaged employees with broad backgrounds and skills. It
is the policy of the Group that the training, career
development and promotion of a disabled person should, as
far as possible, be identical to that of a person who is fortunate
enough not to suffer from a disability. In the event of members
of staff becoming disabled, every effort is made to ensure that
their employment with the Group continues.
Donations
During the year ended 28 February 2017 the Group made
donations totalling £250 (FY17: £881).
Supplier payment policy and practice
The Group does not operate a standard code in respect of
payments to suppliers. The Group agrees terms of payment
with suppliers at the start of business and then makes
payments in accordance with contractual and other legal
obligations.
The number of creditor days outstanding at 28 February 2018
was 28 days (FY17: 26 days). This is a weighted average by
invoice value, with reference to actual invoice and payment
dates.
Disclosure of information to auditor
The Directors who held office at the date of approval of this
Directors’ report confirm that, so far as they are aware, there is
no relevant audit information of which the Company’s auditor
is unaware and each Director has taken all the steps that he or
she ought to have taken to make himself or herself aware of
any relevant audit information and to establish that the
Company’s auditor is aware of that information.
Auditor
Further to the conclusion of a competitive tender process
for audit services, the Group reappointed KPMG as auditors.
A resolution for the reappointment of KPMG LLP as auditor
of the Company is to be proposed at the forthcoming Annual
General Meeting.
By order of the Board
Chris Scott
Chief Financial Officer
2 July 2018
Registered office: Kettlestring Lane, Clifton Moor, York,
YO30 4XF
Strategic ReportCorporate GovernanceFinancial Statements 42
Statement of Directors’ responsibilities in respect
of the Annual Report and the Financial Statements
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the parent
Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error, and have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the
Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic report and a Directors’
report that complies with that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors are responsible for preparing the Strategic
report, the Directors’ report and the financial statements
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and
parent Company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange,
they are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards
as adopted by the European Union (‘IFRSs as adopted by the
EU’) and applicable law and have elected to prepare the parent
Company financial statements in accordance with UK
accounting standards and applicable law (UK Generally
Accepted Accounting Practice), including FRS 102 The
Financial Reporting Standard applicable in the UK and
Republic of Ireland.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and
parent Company and of their profit or loss for that period.
In preparing each of the Group and Parent company financial
statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable,
relevant, reliable and prudent;
• for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
EU;
• for the parent Company financial statements, state whether
applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained
in the financial statements;
• assess the Group and parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters
related to going concern; and
• use the going concern basis of accounting unless they
either intend to liquidate the Group or the parent Company
or to cease operations or have no realistic alternative but to
do so.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 43
Independent Auditor’s Report
To the members of Gear4music (Holdings) plc
1 Our opinion is unmodified
We have audited the financial statements of Gear4music (Holdings) plc (‘the Company’) for the year ended 28 February 2018
which comprise the Consolidated Statement of Profit and Loss and Other Comprehensive Income, Consolidated Statement of
Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows, Company Balance
Sheet, Company Statement of Changes in Equity and the related notes, including the accounting policies in Note 1.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at
28 February 2018 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with UK accounting standards,
including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the
audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
Materiality: Group financial statements as a whole
£104,800 (2017: £135,000)
5% of normalized profit before tax (2017: 5% of profit before tax)
Coverage
100% (2017: 100%) of Group profit before tax
Risks of material misstatement vs 2017
Recurring risks
Capitalisation of development costs
Revenue recognition – returns provision
Existence of revenue and associated costs
Recoverability of Parent company loan
to subsidiary
p
tu
tu
tu
Strategic ReportCorporate GovernanceFinancial Statements 44
Independent Auditor’s Report continued
To the members of Gear4music (Holdings) plc
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:
The risk
Our response
Capitalisation of internal
development costs
(£1.7m; 2017: £1.5m)
Accounting treatment
The Group invests heavily in the software
platform.
Our procedures included:
• Accounting analysis: assessing whether the
Group’s accounting policies are in line with
relevant accounting standards;
Note 1.10 (accounting policy)
and Notes 9 and 22 (financial
disclosures)
Following the acquisition of the software
development team at the end of the
prior period, there is an increased level of
judgement involved in assessing whether
the criteria set out in accounting standards
for the capitalisation of such costs had
been met – in particular the capitalisation of
internal staff costs.
• Personnel interviews: we corroborated
Management’s judgement that all developers
work solely on the development, rather than
the maintenance of the platform, through
discussions with Directors outside of the finance
function to understand the scope of work
performed by the development team; and
• Testing application: for a sample of internal
Revenue recognition – returns
provision
(Provided within total Group
revenue of £80.1m; 2017:
provided within total Group
revenue of £56.1m)
Note 1.15 (accounting policy)
and Note 22 (financial
disclosures)
Subjective estimate
The Group generates revenue through the
sale of goods and extended warranties
through its websites.
Customers have the right to return the
goods within 30 days of delivery. Should
customers return any goods, the Group
will refund the associated revenue relating
to the returned goods. There is a risk that
judgements made by Management in
calculating the level of provision recorded
at the period end for returns could result in
a material error in reported revenues and
profits.
staff costs capitalised in the period review the
individual’s job description for evidence that the
staff work solely on development of the platform.
Our procedures included:
• Methodology implementation: reviewing the
methodology used to calculate the returns
provision based on our understanding of the
business;
• Historical comparison: assessing the key
assumption driving the calculation above, being
historical returns rates, against actual returns as
a proportion of sales made during the 2017/18
financial period;
• Test of detail: comparing the value of actual
returns made in the 30-day returns period post
year end, relating to sales recognised in the
financial year against the provision made by
management; and
• Assessing transparency: considering the
adequacy of the Group’s disclosures about the
degree of subjectivity involved in determining the
year-end returns provision.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 45
The risk
Our response
Timing of revenue and
associated costs
(Included within total Group
revenue of £80.1m; 2017:
included within total Group
revenue of £56.1m)
Note 1.15 (accounting policy)
and Note 2 (financial
disclosures)
Accounting treatment
The Group offers extended warranties
of up to six years on certain products to
customers for additional consideration.
The Group recognises warranty revenue
on dispatch of the goods. Accounting
standards require that consideration
received for such extended warranty
periods should be spread evenly over the
warranty period.
Our procedures included:
• Independent re-calculation: re-calculation of
management’s assessment of i) the estimated
financial impact of recognising warranty income
on dispatch of associated goods rather than
spreading revenue evenly over the extended
warranty period and ii) the estimated financial
impact of recognising product revenue and
associated cost of sales on dispatch rather than
on delivery to determine whether the combined
impact is material;
The Group recognises warranty and product
revenue on dispatch of goods. Accounting
standards require product revenue and
associated cost of sales to be recognised
when the risks and rewards have transferred
to the customer which is considered to be
on delivery.
• Test of detail: assessing the appropriateness
of Management’s assumptions used in these
calculations by comparing to courier service
level agreements and based on our knowledge
of the business and industry, gained from
performing our other audit procedures; and
• Test of detail: agreeing sales and dispatch data
used in these calculations to underlying records.
Recoverability of Parent
company’s loan to subsidiary
(£10.7m; 2017: £6.9m)
Refer to Note 1.5 (accounting
policy) and Note 6 (financial
disclosures).
Errors in the timing of recognising revenue
and associated costs could be material.
Low risk, high value
The carrying amount of the Parent
company’s loan to its subsidiary represents
75% (2017: 68%) of the Company’s total
assets. The recoverability is not at a high
risk of significant misstatement or subject
to significant judgement. However, due
to their materiality in the context of the
Parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall Parent
company audit.
Our procedures included:
• Re-performance: re-performance of
Management’s calculation of the amortised cost
calculation to determine its accuracy;
• Test of detail: agreeing inputs into this
calculation such as book value and repayment
terms to loan agreements and subsidiary
accounts and considering the appropriateness of
the effective interest rate applied; and
• Test of detail: Comparing the carrying amount
of the total loan balance with the relevant
subsidiaries’, comparing the carrying amount of
the loan with the expected value of the business
based on a suitable multiple of the subsidiaries’
forecast profit before tax.
Strategic ReportCorporate GovernanceFinancial Statements 46
Independent Auditor’s Report continued
To the members of Gear4music (Holdings) plc
Normalised profit before tax
£2.1m (2017: reported profit
before tax £2.3m)
Normalised PBT
Group materiality
Group materiality
£104,800
(2017: £135,000)
£104,800
Whole financial
statements materiality
(2017: £135,000)
£100,000
Range of materiality at
two components
(£57,200–£100,000)
(2017: £134,000–
£135,000)
£7,040
Misstatements reported
to the Audit Committee
(2017: £4,875)
Group revenue
Group profit before tax
100%
(2017: 100%)
100
100
■ Full-scope for Group
audit purposes 2018
■
100%
(2017: 100%)
100
100
Group total assets
4
100%
(2017: 100%)
98
96
3 Our application of materiality and an overview
of the scope of our audit
Materiality for the Group financial statements as a whole was
set at £104,800 (2017: £135,000), determined with reference
to a benchmark of profit before tax (PBT), normalised by
averaging over the last two years due to fluctuations in the
business cycle, of £2.1m. Materiality represents 5.0% of the
benchmark (2017: 5% reported profit before tax).
Materiality for the parent Company financial statements as a
whole was set at £57,200 (2017: £135,000), determined with
reference to a benchmark of Company total assets, of which
it represents 0.4% (2017: 1%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £7,040 in
addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s four (2017: four) reporting components,
including the parent Company, we subjected two (2017: two)
to full-scope audits for Group purposes and two (2017: two)
to specified risk-focused audit procedures. The latter were
not individually significant but were included in the scope
of our Group reporting work in order to provide further
coverage over the Group’s results. All procedures were
undertaken by the Group audit team at the Group’s head
office based in York.
The components within the scope of our work accounted for
the percentages illustrated opposite.
4 We have nothing to report on going concern
We are required to report to you if we have concluded that
the use of the going concern basis of accounting is
inappropriate or there is an undisclosed material uncertainty
that may cast significant doubt over the use of that basis for a
period of at least 12 months from the date of approval of the
financial statements. We have nothing to report in these
respects.
5 We have nothing to report on the other
information in the Annual Report
The Directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not
cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Strategic report and Directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the
strategic report and the Directors’ report;
• in our opinion, the information given in those reports for
the financial year is consistent with the financial statements;
and
• in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 Specified risk-focused audit procedures 2018■ Full-scope for Group audit purposes 2017■ Specified risk-focused audit procedures 20172
47
6 We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 42, the Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing
the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level
of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s 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 and the Company’s members, as a body, for our audit work, for this report, or
for the opinions we have formed.
Katharine L’Estrange (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
2 July 2018
Strategic ReportCorporate GovernanceFinancial Statements 48
Consolidated Statement of Profit and Loss
and Other Comprehensive Income
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Financial income
Financial expense
Profit before tax
Taxation
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation of property, plant and equipment
Deferred tax movements
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences – foreign operations
Total comprehensive income for the year
Basic profit per share
Diluted profit per share
The accompanying notes form an integral part of the financial statements.
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
Note
80,100
(59,781)
20,319
(18,358)
1,961
–
(461)
1,500
(114)
1,386
1,716
(203)
2
2,901
6.7p
6.7p
56,128
(40,983)
15,145
(12,529)
2,616
67
(47)
2,636
(322)
2,314
–
–
10
2,324
11.5p
11.4p
2,3,4
3
6
6
7
8
11
5
5
Gear4music (Holdings) plcAnnual Report and Accounts 2018 49
Consolidated Statement of Financial Position
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Other interest-bearing loans and borrowings
Trade and other payables
Non-current liabilities
Other interest-bearing loans and borrowings
Other payables
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Foreign currency translation reserve
Revaluation reserve
Retained earnings
Total equity
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
Note
8
9
12
13
14
15
16
15
16
11
18
18
18
18
18
10,054
6,378
16,432
17,055
2,704
3,540
23,299
39,731
1,565
5,537
7,102
11,686
1,348
3,001
16,035
23,137
(3,914)
(10,916)
(2,621)
(7,379)
(14,830)
(10,000)
(4,616)
(751)
(649)
(6,016)
(24)
(1,069)
(322)
(1,415)
(20,846)
(11,415)
18,885
11,722
2,087
13,055
12
1,424
2,307
18,885
2,016
8,933
10
–
763
11,722
The Notes 1 to 22 form part of these financial statements.
These financial statements were approved by the Board of Directors on 2 July 2018 and were signed on its behalf by:
Andrew Wass
Director
2 July 2018
Company registered number: 07786708
Chris Scott
Director
2 July 2018
Strategic ReportCorporate GovernanceFinancial Statements
50
Consolidated Statement of Changes in Equity
Share capital
Opening
Issue of share capital
At 28 February 2018
Share premium
Opening
Issue of shares
Share issue costs
At 28 February 2018
Foreign currency translation reserve
Opening
Other comprehensive income
At 28 February 2018
Revaluation reserve
Opening
Freehold property revaluation
Deferred tax movement
At 28 February 2018
Retained earnings
Opening
Share-based payment charge
Deferred tax prior year adjustment re: share-based payments
Profit for the year
At 28 February 2018
Total equity
The accompanying Notes form an integral part of the financial statements.
18
13,055
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
2,016
71
2,087
8,933
4,278
(156)
10
2
12
–
1,716
(292)
1,424
763
69
89
1,386
2,307
2,016
–
2,016
8,933
–
–
8,933
–
10
10
–
–
–
–
(1,590)
39
–
2,314
763
18,885
11,722
Note
18
18
18
19
11
18
18
Gear4music (Holdings) plcAnnual Report and Accounts 2018 Consolidated Statement of Cash Flows
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Foreign exchange losses
Financial expense
Loss on sale of property, plant and equipment
Share-based payment charge
Taxation
Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables
Tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Capitalised development expenditure
Acquisition of a business
Net cash from investing activities
Cash flows from financing activities
Cash from share issue
Proceeds from new borrowings
Interest paid
Payment of finance lease liabilities
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying Notes form an integral part of the financial statements.
51
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
Note
1,386
2,314
3,8,9
6
7
13
12
16
7
8
9
9
17
14
1,497
2
196
6
69
114
3,270
(1,356)
(5,369)
3,602
147
10
157
19
(7,443)
(1,693)
(400)
(9,517)
4,193
5,986
(178)
(102)
9,899
539
3,001
3,540
1,001
10
47
–
39
322
3,733
(608)
(4,780)
1,870
215
(104)
111
–
(717)
(1,478)
(100)
(2,295)
–
1,878
(47)
(194)
1,637
(547)
3,548
3,001
Strategic ReportCorporate GovernanceFinancial Statements 52
Notes (forming part of the Financial Statements)
General information
Gear4music (Holdings) plc is a public limited company, is incorporated and domiciled in the United Kingdom, and is listed on
the Alternative Investment Market (‘AIM’) of the London Stock Exchange.
The Group financial statements consolidate those of the Company and its subsidiaries (collectively referred to as the ‘Group’).
The parent Company financial statements present information about the Company as a separate entity and not about its Group.
The principal activity of the Group is the retail of musical instruments and equipment.
The registered office of Gear4music (Holdings) plc (company number: 07786708), Gear4music Limited (company number: 03113256)
and Cagney Limited (dormant subsidiary; company number: 04493300) is Kettlestring Lane, Clifton Moor, York YO30 4XF.
The Group has two trading European subsidiaries: Gear4music Sweden AB and Gear4music GmbH, and one dormant European
subsidiary, Gear4music Norway AS. All three are 100% subsidiaries of Gear4music Limited.
1 Accounting policies
1.1 Basis of preparation
The financial statements have been prepared in accordance with the AIM rules for Companies, and apply the recognition,
measurement and disclosure requirements of International Financial Reporting Standards as adopted by the EU (‘Adopted IFRSs’)
and make amendments where necessary in order to comply with the Companies Act 2006. The Company has elected to
prepare its parent Company financial statements in accordance with FRS 102; these are presented on pages 76 to 83.
The Group’s accounting policies are set out below and have been applied consistently in the consolidated financial statements.
Subjective judgements made by the Directors in the application of these accounting policies that could have significant effect
on the financial statements are considered in Note 22.
Accounting period
The financial statements presented cover the years ended 28 February 2018 and 28 February 2017.
Measurement convention
The financial statements have been prepared on the historical cost basis except for the following assets and liabilities that are
stated at their fair value:
– Land and buildings
1.2 Adoption of new and revised standards
Various new or revised accounting standards have been issued which are not yet effective. The key ones affecting the Group are
described below. The Group does not intend to early adopt these standards.
• IFRS 9 ‘Financial instruments’ will be effective for the year ending February 2019 onwards. IFRS 9 introduces new
requirements for the classification and measurement of financial assets and financial liabilities, a new basis for recognising
provisions based on expected credit losses, and simplified hedge accounting. The Group has considered the impact of IFRS 9
and, given the nature of the Group’s business, its debt structure and absence of hedging, adoption is not expected to have a
material impact on the Income Statement or Balance Sheet.
• IFRS 15 ‘Revenue from contracts with customers’ will be effective for the year ending February 2019 onwards, and is not
expected to materially impact on the Group’s profit. The significant majority of the Group’s revenue comes from products
sales made direct to customers at standard prices and estimates are already made of anticipated returns.
• IFRS 16 ‘Leases’ will be effective for the year ending February 2020. IFRS 16 fundamentally changes the accounting for leases
by lessees and 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.
The Group has four leased properties (in York, Manchester, Sweden and Germany) and a small number of warehouse
equipment on operating leases. The minimum lease commitments on these at the financial year end are disclosed in Note 20
and these leases will be recognised on balance sheet once this standard is adopted. Warehouse equipment leases have
£7,992 of lease commitments remaining and these are scheduled to be repaid in full in the financial year ended February
2019, and as such will only be relevant for comparative purposes.
On the adoption of IFRS 16, lease agreements will give rise to both a right-of-use asset and a lease liability for future lease
payables. The right-of-use asset will be depreciated on a straight-line basis over the life of the lease. Interest will be
recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term. The total expense
recognised in the Income Statement over the life of the lease will be unaffected by the new standard. However, IFRS 16 will
result in the timing of lease expense recognition being accelerated for leases which would be currently accounted for as
operating leases.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 53
1 Accounting policies continued
1.2 Adoption of new and revised standards – IFRS 16 continued
There will be no impact on cash flows, although the presentation of the Cash Flow Statement will change significantly, with an
increase in cash flows from operating activities being offset by an increase in cash flows from financing activities. The Group is
working to ensure that relevant data is collected and key assumptions such as discount rates are duly considered and agreed.
The Group will take all necessary steps to comply with the requirements of IFRS 16 and expects to make further disclosure in the
next Annual Report.
1.3 Going concern
The Group’s business activities and position in the market are described in the Strategic Report. The Directors believe that given
the Group has significant financial resources and has demonstrated continued strong revenue growth and there is a good level
of underlying profitability from operating activities, the Group is well placed to manage its business risks.
The Group’s policy is to ensure that it has sufficient facilities to cover its future funding requirements. Short-term flexibility is
available through trade finance and overdraft facilities. At 28 February 2018, the Group had £3.6m of cash and bank balances and
on 10 May 2018 the Group’s bankers, HSBC, confirmed that the Group’s trade finance and overdraft facilities had been approved
for renewal at £6m (FY2017: £4m) for a further 12 months. HSBC has confirmed the Group met its covenants in FY2018.
Having duly considered all of these factors and having reviewed the forecasts for the coming year including the investments
outlined in the CEO’s statement, the Directors have a reasonable expectation that the Group has adequate resources to
continue trading for the foreseeable future, and as such continue to adopt the going concern basis of accounting in preparing
the financial statements.
1.4 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.
1.5 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.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are
translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet date. The
revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the
foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign
operations are reported as an item of other comprehensive income and accumulated in the translation reserve.
Functional currency
The consolidated financial statements are presented in Sterling, which is the Group’s functional currency.
1.6 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.
Strategic ReportCorporate GovernanceFinancial Statements 54
1 Accounting policies continued
1.6 Classification of financial instruments issued by the Group continued
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.
1.7 Non-derivative financial instruments
Non-derivative financial instruments comprise investments, 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.
1.8 Property, plant and equipment
Certain classes of property, plant and equipment as stated below 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
• Fixtures and fittings
• Motor vehicles
• Computer equipment
4-5 years straight line
20-25% on reducing balance
25% on reducing balance
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 1.16.
Land and buildings are stated at fair value.
Revaluation
Revaluations are made with reference to independent, third-party professional inspection of the site. Independent valuations
will be sought on a regular basis such that the carrying value does not materially differ from its fair value.
Surpluses which arise from the revaluation exercise are included within other comprehensive income (in the revaluation reserve)
unless they are reversing a revaluation adjustment which has been recognised in the income statement previously, in which
case an amount equal to a maximum of that recognised in the income statement previously is recognised in income.
Where the revaluation exercise gives rise to a deficit, this is reflected directly within the income statement, unless it is reversing a
previous revaluation surplus against the same asset, in which case an amount equal to the maximum of the revaluation surplus
is recognised within other comprehensive income (in the revaluation reserve).
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued
55
1 Accounting policies continued
1.9 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.
1.10 Intangible assets
Software platform
Computer software development costs that generate economic benefits beyond one year and meet the development asset
recognition criteria as laid out in IAS 38 ‘Intangible assets’, are capitalised as intangible assets.
These costs include the payroll costs of employees directly associated with the development of the software platform, and other
direct external material and service costs. Costs are capitalised only where there is an identifiable development that will bring
future economic benefit. All other website and maintenance costs are expenses in the statement of comprehensive income.
Capitalised software development costs are amortised over their estimated useful lives and charged to administrative expenses
in the statement of comprehensive income.
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 from
the date they are available for use. The estimated useful lives are as follows:
• Brand
• Software platform
10 years; and
3-8 years
1.11 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; and
• a provision for the expected product loss on dealing with returns stock.
Strategic ReportCorporate GovernanceFinancial Statements
56
1 Accounting policies continued
1.12 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.
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, 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 (‘CGUs’). 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.
1.13 Employee benefits
Defined contribution plans
A defined contribution pension 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 payment transactions
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments
are obtained by the Group.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using the Black-Scholes model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that do meet the related service and non-market performance
conditions at the vesting date.
Share-based payment transactions in which the Group receives goods or services by incurring a liability to transfer cash or other
assets that is based on the price of the Group’s equity instruments are accounted for as cash-settled share-based payments.
The fair value of the amount payable to employees is recognised as an expense, with a corresponding increase in liabilities, over
the period in which the employees become unconditionally entitled to payment. The liability is remeasured at each balance
sheet date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or
loss.
1.14 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.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 57
1 Accounting policies continued
1.15 Revenue
Revenue from the sale of goods and delivery receipts is recognised upon dispatch from the warehouse.
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. Returns are dealt with on receipt of the product into the
warehouse which triggers an automatic credit, and an estimate for returns is provided for at the year end.
The Group offers retail point-of-sale credit on orders over £50, through agreements with external credit providers. The Group
does not retain any credit risk and commissions are recognised within revenue on recognition of the credit sale. In the year
ended 28 February 2018 this income totalled £112,000 (FY2017: £102,000). No discount is offered on any sales made through
this credit provider.
1.16 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 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.
1.17 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
amounts 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.
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.
Strategic ReportCorporate GovernanceFinancial Statements 58
2 Segmental reporting
The Group’s revenue and profit was derived from its principal activity, which is the sale of musical instruments and equipment.
In accordance with IFRS 8 ‘Operating segments’, the Group has made the following considerations to arrive at the disclosure
made in these financial statements. IFRS 8 requires consideration of the Chief Operating Decision Maker (‘CODM’) within the
Group. Operating segments have been identified based on the internal reporting information and management structures with
the Group. Based on this information it has been noted that the CODM reviews the business as one segment and receives
internal information on this basis. Therefore, it has been concluded that there is only one reportable segment.
Revenue by geography
UK
Europe and Rest of the World
Administrative expenses by geography
UK
Europe and Rest of the World
Revenue by product category
Other-brand products
Own-brand products
Other
3 Expenses
Included in profit/loss are the following:
Depreciation of tangible fixed assets
Amortisation of intangible assets
Amortisation of government grants
Loss on disposal of property, plant and equipment
Rentals under operating leases – land and buildings
Rentals under operating leases – plant and machinery
Auditor remuneration – audit of financial statements
Auditor remuneration – other
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
44,258
35,842
80,100
34,865
21,263
56,128
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
16,823
1,535
18,358
12,050
479
12,529
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
56,075
20,947
3,078
80,100
39,351
14,449
2,328
56,128
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
645
852
31
6
973
11
50
17
391
610
31
–
466
11
40
60
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 59
4 Staff numbers and costs
The average number of persons employed (full-time equivalents) by the Group (including Directors) during the period, analysed
by category, was as follows:
Year ended
28 February
2018
No.
Year ended
28 February
2017
No.
Administration
Selling and distribution
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Equity-settled share-based payments (see Note 19)
Cash-settled share-based payments (see Note 19)
Social security costs
Contributions to defined contribution plans
Amounts paid to third parties in respect of Directors’ service
130
183
313
87
123
210
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
5,428
69
8
701
126
–
6,332
3,808
39
57
333
33
19
4,289
Directors’ remuneration is disclosed in Note 3 of the Notes to the Company Financial Statements on page 81.
5 Earnings per share
Diluted profit 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.
Year ended
28 February
2018
Year ended
28 February
2017
Profit attributable to equity shareholders of the parent (£000)
Basic weighted average number of shares
Dilutive potential Ordinary shares
Diluted weighted average number of shares
Basic profit per share
Diluted profit per share
6 Finance income and expense
Finance income
Net foreign exchange gain
Total finance income
Finance expense
Bank interest
Finance leases
Net foreign exchange loss
Fair value movement on deferred consideration
Total finance expense
1,386
2,314
20,713,281 20,156,339
79,288
88,155
20,801,436 20,235,627
6.7p
6.7p
11.5p
11.4p
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
–
–
169
9
265
18
461
67
67
29
18
–
–
47
Strategic ReportCorporate GovernanceFinancial Statements 60
7 Taxation
Recognised in the income statement
Current tax expense
UK corporation tax
Overseas corporation tax
Adjustments for prior periods
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Deferred tax rate change impact
Adjustments for prior periods
Deferred tax expense
Total tax expenses
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
4
10
(24)
(10)
79
–
45
124
114
104
–
–
104
203
(7)
22
218
322
The corporation tax rate applicable to the Company was 19.08% in the year ended 28 February 2018 and 20% in the year ended
28 February 2017. Reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted
on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016.
This will reduce the Company’s future current tax charge accordingly. The deferred tax assets and liabilities at 28 February 2018
have been calculated based on these rates.
Reconciliation of effective tax rate
Profit for the period
Total tax charge
Profit excluding taxation
Current tax at 19.08% (2017: 20.00%)
Tax using the UK corporation tax rate for the relevant period
Non-deductible expenses
Difference between current and deferred tax rates
Adjustments relating to prior year – deferred tax
Adjustments relating to prior year – current tax
R&D claim additional deduction
Impact of overseas tax rate
Total tax charge
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
1,386
114
1,500
286
32
(8)
45
(24)
(219)
2
114
2,314
322
2,636
–
527
(189)
(38)
22
–
–
–
322
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 61
Total
£000
2,256
717
2,973
7,443
(31)
1,716
12,101
1,017
391
1,408
645
(6)
2,047
8 Property, plant and equipment
Plant and
equipment
£000
Fixtures and
fittings
£000
Motor
vehicles
£000
Computer
equipment
£000
Land and
buildings
£000
Cost
At 1 March 2016
Additions
Balance at 28 February 2017 & 1 March 2017
Additions
Disposals
Revaluation
Balance at 28 February 2018
Depreciation and impairment
At 1 March 2016
Depreciation charge for the year
Balance at 28 February 2017 & 1 March 2017
Depreciation charge for the period
Disposals
Balance at 28 February 2018
Net book value as at 28 February 2018
Net book value as at 28 February 2017
463
90
553
234
–
–
787
180
113
293
151
–
444
343
260
1,464
443
1,907
1,384
–
–
3,291
618
218
836
394
–
1,230
2,061
1,071
–
64
64
29
(31)
–
62
–
6
6
15
(6)
15
47
58
329
120
449
162
–
–
611
219
54
273
85
–
358
253
176
–
–
–
5,634
–
1,716
7,350
–
–
–
–
–
–
7,350
10,054
–
1,565
Freehold property revaluation
On 30 June 2017, the Group acquired a freehold office premises at Holgate Park, York for £5.30m. Total amounts capitalised on
acquisition were totalled £5.63m.
At 28 February 2018, the freehold property was revalued at market value using information provided by an independent
chartered surveyor. The valuation was carried out in accordance with the provisions of RICS Appraisal and Valuation Standards
(‘The Red Book’).
Leased assets
At 28 February 2018, the net carrying amount of leased tangible fixed assets was £98,000 (2017: £232,000), and the
accumulated depreciation against leased assets was £286,000 (2017: £265,000).
Security
The Group’s bank borrowings are secured by fixed and floating charges over the Group’s assets.
9
Intangible assets
Cost
At 1 March 2016
Additions
Balance at 28 February 2017 & 1 March 2017
Additions
Balance at 28 February 2018
Amortisation
At 1 March 2016
Amortisation for the year
Balance at 28 February 2017 & 1 March 2017
Amortisation for the year
Balance at 28 February 2018
Net book value as at 28 February 2018
Net book value as at 28 February 2017
Goodwill
£000
Software
platform
£000
Brand
£000
Total
£000
417
1,431
1,848
–
1,848
–
–
–
–
–
1,848
1,848
3,367
1,478
4,845
1,693
6,538
884
554
1,438
796
2,234
4,304
3,407
564
–
564
–
564
226
56
282
56
338
226
282
4,348
2,909
7,257
1,693
8,950
1,110
610
1,720
852
2,572
6,378
5,537
The amortisation charge is recognised in Administrative expenses in the profit and loss account.
Strategic ReportCorporate GovernanceFinancial Statements 62
Intangible assets continued
9
Goodwill
On 19 March 2012, goodwill arose on the acquisition of the entire share capital of Gear4music Limited (formerly known as
Red Submarine Limited).
On 1 January 2017, goodwill arose on the acquisition of a software development team from Venditan Limited, the team
responsible for the development of the Group’s proprietary software platform. This transaction is outlined in detail in last year’s
Annual Report.
Goodwill balances are denominated in Sterling.
Gear4music Limited
Software development team
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
417
1,431
1,848
417
1,431
1,848
Impairment testing
In accordance with IAS 36, Impairment of assets’, the Group reviews the carrying value of its intangible assets. A detailed review
was undertaken at 28 February 2018 to assess whether the carrying value of assets was supported by the net present value-in-
use calculations based on cash flow projections from formally approved budgets and longer-term forecasts.
Intangible assets comprise goodwill, the Gear4music brand name, and the proprietary software platform.
A Cash Generating Unit (‘CGU’) is defined as the smallest group of assets that generate cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups thereof. The Group is deemed to have a single CGU to
which the goodwill, the software platform and the brand are allocated. An impairment review has been performed on this CGU.
The recoverable amount of this CGU has been determined based on value-in-use calculations. In assessing value in use, a
five-year forecast to 28 February 2023 was used to provide cash flow projections that have been discounted at a pre-tax
discount rate of 10%. The cash flow projections are subject to key assumptions in respect of revenue growth, gross margin
performance, overhead expenditure and capital expenditure. Management has reviewed and approved the assumptions
inherent in the model:
• Revenue forecasts based on growth by geographical market, at a range of growth levels based on market size and estimate of
opportunity, trends, specific projects underway, and Management’s experience and expectation.
• Product costs are assumed to be broadly flat and gross margins are forecast to improve from FY18 towards those achieved in
FY17.
• Wage increases are a function of recruitment and a person-by-person review of current staff, with a range of percentage
increases.
No impairment loss was identified in the current year (FY17: £nil). The valuation indicates significant headroom and therefore a
terminal growth rate assumption has not been needed to be applied in order to support the valuation of this CGU. Any
reasonably possible change in other key assumptions, including the discount rate, would not result in an impairment of the
related goodwill or other intangible assets.
10 Investments in subsidiaries
The Company has the following investments in subsidiaries which are included in the consolidated results of the Group:
Subsidiaries
Registered office address
Registered number
Class of
shares held
Gear4music Limited
Cagney Limited
Kettlestring Lane, Clifton Moor, York YO30 4XF
Kettlestring Lane, Clifton Moor, York YO30 4XF
03113256
04493300
Ordinary
Ordinary
Gear4music Sweden AB
Tallbacksgatan 16 B, 195 72 Rosersberg,
559070-4762
Ordinary
Stockholm County, Sweden
Gear4music GmbH
c/o BMH Brautigam&Partner Rechtsanwalte,
HRB 29067
Ordinary
Gear4music Norway AS
Schluterstr. 37, 10629 Berlin, Germany
PO Box 2734, Solli, 0204 Oslo, Norway
917 313 210
Ordinary
Ownership
100%
100% via
G4M Ltd
100% via
G4M Ltd
100% via
G4M Ltd
100% via
G4M Ltd
Investment in share capital is £4,550 in Sweden, £21,660 in Germany and £2,806 in Norway.
All Group companies have 28 February financial year ends.
Cagney Limited and Gear4music Norway AS are dormant companies.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 63
11 Deferred tax assets and liabilities
Movement in deferred tax during the year
Temporary differences on intangibles, property, plant and equipment
Carried forward tax losses
Share-based payments
Movement in deferred tax during the prior year
Property, plant and equipment
Carried forward tax losses
12 Inventories
Finished goods
Recognised in
other
comprehensive
income
£000
At 1 March
2017
£000
Recognised in
income
£000
At
28 February
2018
£000
(352)
30
–
(322)
(292)
–
89
(203)
(139)
2
13
(124)
(783)
32
102
(649)
At 1 March
2016
£000
Recognised in
income
£000
(350)
246
(104)
(2)
(216)
(218)
At
28 February
2017
£000
(352)
30
(322)
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
17,055
11,686
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £55.7m (£38.0m in
the year ended 28 February 2017).
Management has included a provision of £79,879 (28 February 2017: £69,500), representing a 100% provision against returns
stock subsequently found to be faulty, that is retained to be used for spare parts on the basis there is no direct NRV, and a
provision based on the expected product loss on dealing with returns stock.
13 Trade and other receivables
Trade receivables
Prepayments
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
1,645
1,059
2,704
1,123
225
1,348
Trade receivables includes cash lodged with payment providers, Amazon and the Group’s consumer finance partner, and UK
and international education and trade accounts where standard credit terms are 30 days (see Note 17b).
14 Cash and cash equivalents
Cash and cash equivalents per balance sheet
Cash and cash equivalents per cash flow statements
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
3,540
3,540
3,001
3,001
Strategic ReportCorporate GovernanceFinancial Statements 64
15 Other interest-bearing loans and borrowings
This note contains information about the Group’s interest-bearing loans and borrowings which are carried at amortised cost.
Non-current liabilities
Bank loans
Finance lease liabilities
Current liabilities
Bank loans
Finance lease liabilities
Total liabilities
Bank loans
Finance lease liabilities
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
4,616
–
4,616
3,890
23
3,913
8,506
23
8,529
–
24
24
2,520
101
2,621
2,520
125
2,645
Bank loans comprise a Trade Finance facility and term loans all provided by the Group’s bankers, HSBC, and are secured by fixed
and floating charges over the Group’s assets.
The interest rate on 180-day import loans drawn under the Trade Finance agreement is 2.45% per annum over HSBC’s Sterling
base rate, and on an overdraft if and when drawn, 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. Trade finance and overdraft facilities were approved for
renewal on 10 May 2018 for a 12-month period.
There are two term loans that were drawn around the time of the freehold property acquisition in June 2017:
• the first loan was for £3,727,500 equating to a 70% LTV against the property valuation and is a five-year loan with capital
repayments scheduled over 20 years, and interest is 2.04% over LIBOR; and
• the second loan was for £1,797,500 and is a five-year loan with interest of 2.85% over LIBOR.
All borrowings are denominated in Sterling.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
Less than one year
Between one and five years
Minimum lease
payments
At 28 February
2018
£000
Interest
At 28 February
2018
£000
Principal
At 28 February
2018
£000
24
–
24
1
–
1
23
–
23
Minimum lease
payments
At 28 February
2017
£000
Interest
At 28 February
2017
£000
Principal
At 28 February
2017
£000
106
24
130
5
–
5
101
24
125
Finance leases relate to assets located at the distribution centre in York, with net book values of £98,000 (28 February 2017:
£232,000).
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 65
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
7,325
1,456
393
35
1,707
10,916
169
555
27
751
4,970
1,151
393
28
837
7,379
100
938
31
1,069
16 Trade and other payables
Current
Trade payables
Accruals and deferred income
Deferred consideration
Government grants
Other taxation and social security
Non-current
Accruals and deferred income
Deferred consideration
Government grants
Accruals at 28 February 2018 include:
– £446,000 (2017: £630,000) of rent accrued but not paid, being the difference in cash paid and the average rent charge as
expensed, as per the commercial agreement reached with the landlord of the leasehold distribution centre at Clifton Moor,
York. On 21 March 2018, the Group entered into a new 15-year lease with a 10-year clean break clause and, as such, this
accrual will be released in full in FY19; and
– £161,000 accrual (2017: £100,000) relating to the estimated cash bonuses accrued relating to the Employee and Director
share option schemes, and Director Cash Plan (see Note 19).
Deferred consideration is due in relation to the acquisition of the software development team in January 2017 and comprises
ten quarterly instalments of £100,000 payable on 1 January/April/July/October. These amounts are valued in the accounts at
fair value and subsequently amortised.
Government grants are being spread over the useful economic life of the associated asset and relate to Regional Growth Fund
and Leeds City Enterprise Partnership grants towards the acquisition of various capital items. Grant conditions exist linked to job
creation, and these criteria have been satisfied.
Deferred consideration is valued at fair value. The Directors consider the carrying amount of other ‘trade and other payables’ to
approximate their fair value.
17 Financial instruments
Financial risk management
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk),
credit risk and liquidity risk. The Group’s policies on the management of liquidity, credit, interest rate and foreign currency risks
are set out below.
The main purpose of the Group’s financial instruments, which comprise of term loans, hire purchase, finance leases, cash and
liquid resources and various items arising directly from its operations, such as trade receivables and trade payables, is to finance
the Group’s operations.
Risk management framework
Regular reviews of strategic risks are performed by the Board.
Exposure to foreign currency exchange rates is considered during the budgeting and forecasting processes, and throughout
the year.
General commercial risk is considered at an annual insurance review in conjunction with an independent broker, and the
appropriate insurance policies put in place.
Strategic ReportCorporate GovernanceFinancial Statements 66
17 Financial instruments continued
Risk management framework continued
(a) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s policy is to ensure that it has sufficient and appropriately structured facilities to cover its future funding
requirements. Short-term flexibility is available through import loans and overdraft facilities and the netting off of surplus funds.
The carrying amounts are the amounts due if settled at the period end date. The contractual undiscounted cash flows include
estimated interest payments over the life of these facilities.
At 28 February 2018, the Group had £3.6m of cash and bank balances.
Secured loans
Trade payables
Secured loans
Trade payables
Carrying
amount
Year ended
28 February
2018
£000
8,490
7,325
Face value
Year ended
28 February
2018
£000
8,506
7,325
Effective
interest rate
%
3.03
–
Within
1 year
£000
3,890
7,325
15,815
15,831
11,215
Contractual cash flows
1-2 years
£000
546
–
546
2-5 year
£000s
1,320
–
1,320
Contractual cash flows
Effective
interest rate
%
2.7
–
Face value
and carrying
amount
Year ended
28 February
2017
£000
2,520
4,651
7,171
Total
Year ended
28 February
2017
£000
2,537
4,651
7,188
Within
1 year
£000
2,537
4,651
7,188
1-2 years
£000
2-5 year
£000s
–
–
–
–
–
–
Over
5 years
£000
2,750
–
2,750
Over
5 years
£000
–
–
–
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations.
The Group faces low credit risk as customers typically pay for their orders in full on shipment of the product. Trade sales
accounted for 2.0% of 2018 revenue (2017: 1.2%) but credit terms are rarely offered.
There are a small number of education accounts with schools and colleges that have 30-day terms (1.8% of 2018 revenue; 1.9%
of 2017 revenue).
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance totalling £557,000 on 28 February 2018 (28 February
2017: £394,000) are included in Trade debtors. Credit risk in relation to cash held with financial institutions is considered low risk,
given the credit rating of these organisations.
(c) Interest rate risk
The Group’s bank borrowings incur interest at variables rates of between 2.45% and 3.25% above the bank’s base rate or LIBOR,
which exposes the Group to interest rate risk. Loans are with UK-based institutions and denominated in Sterling.
At 28 February 2018, the Group had cash reserves of £3.6m and could utilise these funds to settle debts and mitigate any
associated interest risk.
The Group’s policy with regard to interest rate risk is to monitor actual and anticipated changes in base rates, and if deemed
appropriate seek out alternative financing proposals to ensure retaining a competitive rate.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 67
17 Financial instruments continued
Risk management framework continued
(c) Interest rate risk continued
Profile
At the balance sheet date, the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments
Cash
Bank loans
Fixed-rate instruments
Finance leases
Total net financial liabilities/(assets)
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
(3,540)
8,506
4,966
23
4,989
(3,001)
2,520
(481)
125
(356)
Sensitivity analysis
The calculations below assume that the change occurred at the balance sheet date and had been applied to risk exposures
existing at that date. This analysis assumes that all other variables, in particular foreign currency rates, remain constant and
considers the effect of financial instruments with variable interest rates.
Increase of 50 basis points
Decrease of 50 basis points
(d) Foreign exchange risk
All borrowings are denominated in Sterling.
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
Impact on
closing equity/
profit and loss
Impact on
closing equity/
profit and loss
(29)
29
(6)
6
The Group sells into Europe and the Rest of the World in nine currencies, including Sterling, Euros and, more recently, US
Dollars. In the year ended 28 February 2018, 43% (2017: 37%) of total revenue was in non-Sterling currencies, of which 46%
(2017: 51%) was in Euros. Where costs (including local tax liabilities) are incurred in these respective currencies, currency
balances are retained and payments made in these currencies, thereby mitigating any associated currency loss. The scaling up
of the Group’s distribution centres in Sweden and Germany has increased the proportion of liabilities denominated in Swedish
Krona and Euros (see Note 2), further extending the natural hedge. Surplus foreign currency holdings are reviewed on a daily
basis and balances in excess of expected liabilities are converted into Sterling, restricting the period between the transaction
and the point of conversion, thereby reducing the transactional risk.
The Group purchases own-branded instruments and equipment from the Far East, transacting in US Dollars. The lead time from
committed order to receipt of stock is typically 12-14 weeks, during which time the Group bears currency risk. The Group also
trades with one supplier (2017: one supplier) on a trade credit basis with terms of 60 days. The Group has the trading platform
ability and sufficient price flexibility to be able to pass on some adverse currency variances should it choose, and the Group
generates enhanced margins on these products such that a proportion of these losses could be absorbed. The Group do not
currently enter into forward contracts but reviews the situation and would consider committing to such a position should it
make commercial sense to do so.
The strength of the US Dollar in the second half of FY17 and start of FY18 impacted on stock intake prices of the Group, directly
on own-branded products and indirectly on other-branded products as, whilst the majority of stock had been purchased in
Sterling, the branded manufacturers faced similar price inflation. The Group looks to mitigate such events by re-negotiating
orders and investing in larger volumes to leverage increasing purchasing economies of scale.
Strategic ReportCorporate GovernanceFinancial Statements 68
17 Financial instruments continued
Risk management framework continued
(d) Foreign exchange risk continued
Trade and other receivables
Sterling
US Dollar
Euro
Other European currencies
Cash and cash equivalents
Sterling
Euro
Other European currencies
Trade payables
Sterling
US Dollar
Euro
Other European currencies
Local sales tax
Sterling
Euro
Other European currencies
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
312
740
88
505
255
510
64
294
1,645
1,123
2,746
309
485
3,540
5,781
1,200
160
184
7,325
(171)
617
842
1,288
2,486
205
310
3,001
4,329
400
93
148
4,970
(163)
305
552
694
The Group’s cash and cash equivalents are not sensitive to foreign exchange variations as currencies held are held to the extent
they are required to settle a liability in that currency, or they are converted into Sterling.
Non-Sterling trade receivables include cash lodged with payment providers that is promptly settled. International trade debtors
represent an immaterial amount such that the Group is not sensitive to associated foreign exchange variations.
Euro funds are retained to settle Euro-denominated payables. US Dollar-denominated trade payables are not currently bought
forward against, but only represent a small exposure that can be otherwise managed, and the Group has started selling in
US Dollars.
(e) Debt and capital management
The Group’s objective when managing capital, which is deemed to be share capital, is to maximise the return on net invested
capital while maintaining its ongoing ability to operate and guarantee adequate returns for shareholders and benefits for other
stakeholders, within a sustainable financial structure.
The Group monitors its gearing ratio on a regular basis and makes appropriate decisions in light of the current economic
conditions and strategic objectives of the Group.
There were no changes in the Group’s approach to capital management during the period. The Group does not have any
externally imposed capital requirements. The funding requirements of the Group are met by cash generation from trading,
the utilisation of external borrowings, and the cash raised on placing of Ordinary shares.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 69
17 Financial instruments continued
Risk management framework continued
(e) Debt and capital management continued
Fair values and carrying values of financial instruments
A comparison by category of the book values and fair values of the financial assets and liabilities of the Group at 28 February
2018 and 28 February 2017:
28 February 2018
28 February 2017
Trade and other receivables
Cash and cash equivalents
Bank loans
Finance lease liabilities
Trade and other payables
Deferred consideration
Book value
£000
Fair value
£000
Book value
£000
Fair value
£000
2,704
3,540
(8,506)
(23)
(10,719)
(1,000)
2,704
3,540
(8,490)
(24)
(10,719)
(948)
(14,004)
(13,937)
1,348
3,001
(2,520)
(126)
(7,117)
(1,400)
(6,814)
1,348
3,001
(2,520)
(140)
(7,117)
(1,331)
(6,759)
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments
reflected in the table.
Trade and other payables and receivables
The fair values of these items are considered to be their carrying value as the impact of discounting future cash flows has been
assessed as not material.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. The fair
value of short-term deposits is considered to be the carrying value as the balances are held in floating rate accounts where the
interest rate is reset to market rates.
Long-term and short-term borrowings
Bank loans are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost using the effective interest method.
Derivative financial instruments
The Group does not routinely enter into forward exchange contracts. The fair value of any material forward exchange contracts
held would be calculated by management based on external valuations received from the Group’s bankers.
Deferred consideration
The deferred consideration is assumed to be 100% payable. The consideration has been discounted to present value at 2.7%,
being equivalent to the prevailing market rate of interest for a similar financial instrument.
Fair value hierarchy
The table below analyses financial instruments, measured at fair value, into a fair value hierarchy based on the valuation
techniques used to determine fair value.
– 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).
– Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Strategic ReportCorporate GovernanceFinancial Statements 70
17 Financial instruments continued
Risk management framework continued
(e) Debt and capital management continued
Fair value hierarchy continued
28 February 2018
Bank loans
Deferred consideration
28 February 2017
Bank loans
Deferred consideration
Reconciliation of Level 2 fair value
Bank loans
Reconciliation of Level 3 fair value
Deferred consideration
18 Share capital and reserves
Share capital
Authorised, called up and fully paid:
Ordinary shares of 10p each
Level 1
£000
Level 2
£000
Level 3
£000
–
–
–
–
–
–
(8,490)
–
(8,490)
(2,520)
–
(2,520)
–
(948)
(948)
–
(1,331)
(1,331)
At 1 March
2017
£000
Net increase
in bank debt
£000
At 28 February
2018
£000
(2,520)
(5,970)
(8,490)
At 1 March
2017
£000
(1,331)
Payment less
unwound
discount
£000
At 28 February
2018
£000
383
(948)
Year ended
28 February
2018
Number
Year ended
28 February
2017
Number
20,867,121 20,156,339
The Company has one class of ordinary share and each share carries one vote and ranks equally with the other ordinary shares
in all respects, including as to dividends and other distributions.
On 18 May 2017, the Company completed the placing of 610,000 new Ordinary shares at a price of 690 pence per share, raising
£4,209,000 in gross proceeds (£4,064,730 net proceeds). The Company also issued 100,782 new Ordinary shares pursuant to
the full exercise of a warrant instrument and received a further £140,087 in gross proceeds (£125,887 net proceeds). A total
710,782 new Ordinary shares were admitted on 24 May 2017, taking the number of Ordinary shares in issue from 20,156,339 to
20,867,121, representing dilution of 3.5%.
Share premium
Opening at 1 March
Issue of shares
Share issue costs
Closing at 28 February
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
8,933
4,278
(156)
13,055
8,933
–
–
8,933
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 71
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
10
2
12
–
10
10
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
–
1,716
(292)
1,424
–
–
–
–
18 Share capital and reserves continued
Foreign currency translation reserve
Opening at 1 March
Translation gain
Closing at 28 February
Revaluation reserve
Opening at 1 March
Freehold property revaluation
Deferred tax
Closing at 28 February
The revaluation reserve represents the unrealised gain generated on revaluation of the freehold office property on 28 February
2018. It represents the excess of the fair value over deemed cost.
Retained earnings
Opening at 1 March
Share-based payment charge
Deferred tax
Profit for the year
Closing at 28 February
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
763
69
89
1,386
2,307
(1,590)
39
–
2,314
763
Reserve
Retained earnings
Description and purpose
Cumulative net profits recognised in the consolidated income statement.
19 Share-based payments
There are four incentive schemes in place (2017: three):
• an Employees’ EMI scheme;
• a Directors’ EMI scheme relevant to Chris Scott and Gareth Bevan;
• two Directors’ cash bonus plans relevant to Andrew Wass who, by virtue of his 34% shareholding, is cash rather than equity
rewarded; and
• a CSOP scheme set up in the financial year as, by virtue of its size, the Group was no longer eligible for EMI.
The equity-settled share option plans are for qualifying employees of the Group, and options are settled in equity in the
Company and subject to vesting conditions.
All equity-settled share options have an exercise price equal to the nominal value of the shares (10p) that the Company will
subsidise by way of a bonus provided there are sufficient distributable reserves, and subject to certain conditions will vest on
the third anniversary of the date of grant for initial awards on IPO, the second anniversary for other EMI awards, and the third
anniversary for CSOP awards.
The fair value of the cash-settled liability is re-measured at each balance sheet date and settlement date.
Employee EMI Plan
The Board has responsibility for the operation of the Employee EMI Plan and may grant share options over shares to eligible
employees. The Board has discretion to select participants in the Employee EMI Plan from eligible employees of the Group.
Eligible employees will generally have been employed by the Group for more than three years at the time of award but could be
a shorter period at the discretion of the Board.
Awards under the Employee EMI plan awards are only subject to service conditions.
Subject to continued employment, awards will normally be deemed to have been exercised at the end of the relevant
vesting period.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of
exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising
Strategic ReportCorporate GovernanceFinancial Statements
72
in relation to the awards.
19 Share-based payments continued
Director EMI Plan
The Remuneration Committee has responsibility for the operation of the Director EMI Plan and may grant share options over
shares to eligible employees and retains discretion as to the operation of the plan.
Executive Directors of the Company are eligible to participate in the Director EMI Plan. Participation is at the discretion of the
Remuneration Committee.
Awards under the Director EMI Plan may be exercisable at the end of the vesting period subject to meeting EPS-based targets
between the date of grant and vest, and subject to service conditions.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of
exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising
in relation to the awards.
Director Cash Plans
The Remuneration Committee has responsibility for the operation of the Director Cash Plan and may grant cash bonus awards
over shares to eligible employees and retains discretion as to the operation of the plan.
Executive Directors of the Company are eligible to participate in the Director EMI Plan or CSOP. An Executive Director who
participates in the Director EMI Plan is not eligible to participate in the Director Cash Plan. Participation is at the discretion of the
Remuneration Committee.
Awards under the Director Cash Plan are subject to performance conditions. Awards will be exercisable at the end of the
relevant vesting period subject to EPS-based performance conditions and continued employment.
Awards will be settled in cash.
CSOP
The Board has responsibility for matters relating to employee members of the Plan and may grant share options over shares to
eligible employees. Eligible employees will generally have been employed by the Group for more than three years at the time of
award but could be a shorter period at the discretion of the Board. The Board has discretion to select participants from eligible
employees of the Group.
The Remuneration Committee has responsibility for matters relating to Director members of the Plan and may grant share
options over shares to eligible employees and retains discretion as to the operation of the plan. Executive Directors of the
Company are eligible to participate in the plan. Participation is at the discretion of the Remuneration Committee.
Employee awards under the CSOP awards are only subject to service conditions. Directors’ awards are subject to meeting
EPS-based targets between the date of grant and vest, and subject to service conditions.
Subject to continued employment, awards will normally be deemed to have been exercised at the end of the relevant three-
year vesting period.
Awards will be satisfied by the issue of new shares. The Company will grant a cash bonus to option holders in the month of
exercise, the net value of which will be equivalent to the income tax, employee national insurance and the exercise price arising
in relation to the awards.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 73
19 Share-based payments continued
The terms and conditions of specific grants are as follows:
Grant date/employees entitled
Employee EMI Award 1 – Equity-settled award to
eight key employees on IPO, granted by parent
on 3 June 2015
Employee EMI Award 2 – Equity-settled award
to one key employee, granted by parent on
17 February 2016
Employee EMI Award 3 – Equity-settled award
to two key employees, granted by parent on
26 May 2016
Method of
settlement
accounting
Equity
Number of instruments
Vesting conditions
23,383
Continued
employment
Contractual life
of options
3 June 2018
Equity
1,845
Continued
employment
17 February
2018
Equity
9,433
Continued
employment
26 May 2018
Employee EMI Award 4 – Equity-settled award
Equity
to 44 employees, granted by parent on
31 May 2016
Initially 27,406;
3,816 forfeit; now
23,590
Continued
employment
31 May 2018
Director EMI Award 1a – Equity-settled award to
Equity
19,956
Chris Scott and Gareth Bevan, granted by parent
on 31 May 2016
Director Award 1b – Cash-settled award to Andrew
Cash
Wass, granted by parent on 31 May 2016
Cash equivalent to
monetary result for
the other Directors
EPS-based
performance criteria
and continued
employment
EPS-based
performance criteria
and continued
employment
31 May 2018
31 May 2018
Employee CSOP Award 5 – Equity-settled award
to 75 employees, granted by parent on 30 June
2017
Equity
Initially 7,248;
390 forfeit; now
6,858
Continued
employment
30 June 2020
Senior Mgmt. CSOP Award 2a – Equity-settled
Equity
7,212
award to Chris Scott and Gareth Bevan and two
others, granted by parent on 30 June 2017
Director Award 2b – Cash-settled award to Andrew
Cash
Wass, granted by parent on 30 June 2017
Cash equivalent to
monetary result for
the other Directors
30 June 2020
30 June 2020
EPS-based
performance criteria
and continued
employment
EPS-based
performance criteria
and continued
employment
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the year
Forfeited during the year
Exercised during the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted
average
exercise price
2018
Number of
options
2018
Weighted
average
exercise price
2017
Nil
Nil
–
Nil
–
Nil
–
79,226
(1,409)
–
14,460
–
92,277
1,845
Nil
Nil
–
Nil
–
Nil
–
Number of
options
2017
25,226
(2,795)
–
56,795
–
79,226
–
No share options were exercised in the year. The first award was eligible for exercise on 17 February 2018 and awards totalling
76,362 are eligible for exercise in May-June 2018. The options outstanding at the year end have a nil exercise price and a
weighted average contractual life of 0.57 years (28 February 2017: 1.25 years).
Strategic ReportCorporate GovernanceFinancial Statements 74
19 Share-based payments continued
The fair values of employee share options were calculated using a Black-Scholes model along with the assumptions detailed below:
Date of grant
3 June 2015
17 February 2016
26 May 2016
31 May 2016
31 May 2016
30 June 2017
30 June 2017
Share price on
date of grant
(pence)
Exercise
price
(pence)
143.0
135.0
132.5
132.5
132.5
720.0
720.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Volatility
(%)
1%
1%
11.8%
11.8%
11.8%
52.6%
52.6%
Vesting
period
(years)
Dividend
yield
(%)
Risk-free rate
of interest
(%)
Fair value
(pence)
3
2
2
2
2
3
3
0%
0%
0%
0%
0%
0%
0%
0.70%
0.70%
0.45%
0.43%
0.43%
0.43%
0.43%
143.0
135.0
132.5
132.5
132.5
720.0
720.0
The expected volatility is wholly based on the historic volatility (calculated based on the weighted average remaining life of the
share options). The total expenses recognised for the year and the total liabilities recognised at the end of the year arising from
share-based payments are as follows:
Equity-settled share-based payment expense
Cash-settled share-based payment expense
Opening at 1 March
Recognised in equity
Recognised as a liability
Closing at 28 February
20 Commitments
Operating lease commitment
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2018
£000
69
8
77
104
116
65
181
2017
£000
39
57
96
8
47
57
104
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
1,112
4,635
–
5,747
887
3,103
–
3,990
Operating lease commitments relate to property leases of the distribution centre in York, the software development office in
Manchester, and distribution centres in Sweden and Germany.
The lease on the York distribution centre was scheduled to end on 22 June 2020. On 21 March 2018, the Group entered into a
new 15-year lease with a 10-year clean centre break clause.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes (forming part of the Financial Statements) continued 75
21 Related parties
In FY18, 79 employees, including Chris Scott and Gareth Bevan, were granted a total of 14,460 equity-settled share options
(2017: 56,795 options to 48 employees), and Andrew Wass was awarded a cash-settled option (see Note 19).
Transactions with key management personnel
The compensation of key management personnel is as follows:
Key management emoluments including social security costs
Company contributions to money purchase pension plans
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
503
17
520
470
5
475
Key management personnel comprise the Chairman, CEO, CFO and CCO. All transactions with key management personnel
have been made on an arms-length basis.
Four Directors are accruing retirement benefits under a money purchase scheme (2017: four).
22 Accounting estimates and judgements
The preparation of consolidated financial information in conformity with IFRSs requires Management to make judgements,
estimates and assumptions concerning the future, that affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. These judgements are based on historical experience and Management’s best
knowledge at the time and the actual results may ultimately differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis and revisions to accounting estimates are recognised in the period in which the estimates are
revised and in any future periods affected.
The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of assets and
liabilities are discussed below:
• An accrual for sales returns in the 30-day money back guarantee period is made based on historical returns and actual returns
could vary from this estimate.
• Direct software development costs are capitalised as intangible assets. Judgement is applied in assessing the flow of future
economic benefit, and in identifying which costs are capitalised and which are written off as an expense. Alternative
judgement could result in certain costs being expensed.
• The basis for stock provision and by association the carrying value – given the nature of the products sold, product margins
earned, and trading terms with suppliers, Management currently provide for faulty returns retained for spare parts, and an
estimate of the product loss to deal with problem stock. At 28 February 2018 the provision is £79,879 (FY2017: £69,519) on
gross stock of £16.97m (FY2017: £11.76m). There are no other provisions made.
• Assumptions inherent in the intangible asset and goodwill impairment review – such calculations require judgement relating
to the appropriate discount factors and the short, medium and long-term growth prospects. The impairment test carried out
is based on a five-year approved management forecast and a 10% discount rate (see Note 9).
• The useful life of tangible and intangible fixed assets – Management selected depreciation and amortisation periods
appropriate to the assets held, and consistent with industry and accounting norm. Amortisation periods were independently
reviewed as part of an intangible asset valuation exercise on IPO. Different UELs could be applied that would change the profit
and loss charge and balance sheet carrying value.
Strategic ReportCorporate GovernanceFinancial Statements 76
Company Balance Sheet
Fixed assets
Investments
Current assets
Cash in hand and at bank
Debtors (including £10.74m (2017: £6.89m) due after
more than one year)
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Capital and reserves
Called-up share capital
Share premium account
Profit and loss account
Shareholders’ funds
2018
2017
Notes
£000
£000
£000
£000
3,517
3,195
10
6,910
6,920
(34)
7
17
5,6
10,766
10,783
(39)
8
9
9
9
10,744
14,261
14,261
2,087
13,055
(881)
14,261
6,886
10,081
10,081
2,016
8,933
(868)
10,081
The Notes 1 to 10 form part of these financial statements.
These financial statements were approved by the Board of Directors on 2 July 2018 and were signed on its behalf by:
Andrew Wass
Director
2 July 2018
Company registered number: 07786708
Chris Scott
Director
2 July 2018
Gear4music (Holdings) plcAnnual Report and Accounts 2018
Company Statement of Changes in Equity
Share capital
Opening
Issue of share capital
At 28 February 2018
Share premium
Opening
Issue of shares
Share issue costs
At 28 February 2018
Retained earnings
Previous periods
Shared-based payments
Loss for the year
At 28 February 2018
Total equity
The accompanying Notes form an integral part of the financial statements.
77
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
Note
9
2,016
71
2,087
8,933
4,278
(156)
(868)
69
(82)
(881)
2,016
–
2,016
8,933
–
–
8,933
(756)
39
(151)
(868)
9
9
14,261
10,081
9
13,055
Strategic ReportCorporate GovernanceFinancial Statements 78
Notes to the Company Financial Statements
(forming part of the Financial Statements)
1 Accounting policies
The Company’s principal activity is to act as the holding company for the Group, whose principal activity is the retail of musical
instruments and equipment.
1.1 Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 102, The Financial Reporting
Standard applicable in the UK and Republic of Ireland, (‘FRS 102’) as issued in August 2014. The amendments to FRS 102 issued
in July 2015 and effective immediately have been applied. The presentation currency of these financial statements is Sterling.
All amounts in the financial statements have been rounded to the nearest £1,000.
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own profit and loss
account.
In these financial statements, the Company is considered to be a qualifying entity (for the purposes of this FRS) and has applied
the exemptions available under FRS 102 in respect of the following disclosures:
• reconciliation of the number of shares outstanding from the beginning to the end of the period;
• cash flow statement and related notes; and
• key management personnel compensation.
As the consolidated financial statements of the Company include the equivalent disclosures, the Company has also taken the
exemptions under FRS 102 available in respect of the following disclosures:
• certain disclosures required by FRS 102.26 Share based payments; and
• the disclosures required by FRS 102.11 Basic financial instruments and FRS 102.12 Other financial instrument issues in respect
of financial instruments not falling within the fair value accounting rules of Paragraph 36(4) of Schedule 1.
The Company proposed to continue to adopt the reduced disclosure framework FRS 102 in future periods.
Accounting period
The financial statements presented cover the years ended 28 February 2018 and 28 February 2017.
Measurement convention
The financial statements have been prepared on the historical cost basis.
Functional currency
The financial statements are presented in Sterling, which is the Company’s functional currency.
1.2 Going concern
These financial statements are prepared on a going concern basis as explained on page 53.
1.3 Investment in subsidiaries
Investments in subsidiaries are stated at cost less any provision for impairment.
1.4 Classification of financial instruments issued by the Company
In accordance with FRS 102.22, financial instruments issued by the Company are treated as equity only to the extent that they
meet the following two conditions:
(a) they include no contractual obligations upon the Company 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; 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.
Gear4music (Holdings) plcAnnual Report and Accounts 2018 79
1 Accounting policies continued
1.5 Basic financial instruments
Basic financial instruments comprise investments, other receivables, cash and cash equivalents, loans and borrowings, and
trade and other payables.
Trade and other debtors
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 creditors
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.
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.
1.6 Impairment
Financial assets (including debtors)
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.
Non-financial assets
The carrying amounts of the Company’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.
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’).
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.
1.7 Provisions
A provision is recognised in the balance sheet when the Company 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.
Strategic ReportCorporate GovernanceFinancial Statements 80
1 Accounting policies continued
1.8 Employee benefits
Defined contribution plans
A defined contribution pension 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 payment transactions
Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments
are obtained by the Group.
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using the Black-Scholes model, taking into account the terms and conditions upon
which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for
which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognised as an expense is based on the number of awards that do meet the related service and non-market performance
conditions at the vesting date.
Share-based payment transactions in which the Group receives goods or services by incurring a liability to transfer cash or other
assets that is based on the price of the Group’s equity instruments are accounted for as cash-settled share-based payments. The
fair value of the amount payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the
period in which the employees become unconditionally entitled to payment. The liability is remeasured at each balance sheet
date and at settlement date. Any changes in the fair value of the liability are recognised as personnel expense in profit or loss.
1.9 Financial 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.
Dividend income is recognised in profit and loss on the date the Company’s right to receive payment is established.
1.10 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. 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.
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes to the Company Financial Statements(forming part of the Financial Statements) continued 81
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
5
17
4
60
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
535
17
–
552
501
5
19
525
2 Expenses
Included in profit/loss are the following:
Auditor remuneration – audit of financial statements
Auditor remuneration – other
3 Directors’ remuneration
Directors’ remuneration
Company contributions to money purchase pension schemes
Amounts paid to third parties in respect of Directors’ service
There are four Directors (2017: four) for whom retirement benefits are accruing under a money purchase pension scheme.
The aggregate remuneration of the highest paid Director was £200,000 (2017: £189,000), including Company pension
contributions of £3,049 (2017: £840) made to a money purchase scheme on their behalf.
4 Fixed asset investments
Cost
At 28 February 2017
Capital contribution
At 28 February 2018
Subsidiary
undertakings
£000
3,195
322
3,517
Investments in subsidiary undertakings are included in the balance sheet at cost less any provision for diminution in value. The
Company has the following investments in subsidiaries:
Subsidiaries
Registered office address
Registered number
Class of
shares held
Gear4music Limited
Cagney Limited
Kettlestring Lane, Clifton Moor, York YO30 4XF
Kettlestring Lane, Clifton Moor, York YO30 4XF
03113256
04493300
Ordinary
Ordinary
Gear4music Sweden AB
Tallbacksgatan 16 B, 195 72 Rosersberg,
559070-4762
Ordinary
Stockholm County, Sweden
Gear4music GmbH
c/o BMH Brautigam&Partner Rechtsanwalte,
HRB 29067
Ordinary
Gear4music Norway AS
Schluterstr. 37, 10629 Berlin, Germany
PO Box 2734, Solli, 0204 Oslo, Norway
917 313 210
Ordinary
Ownership
100%
100% via
G4M Ltd
100% via
G4M Ltd
100% via
G4M Ltd
100% via
G4M Ltd
Cagney Limited and Gear4music Norway AS are dormant companies.
Strategic ReportCorporate GovernanceFinancial Statements 82
5 Deferred tax assets
Movement in deferred tax during the year
Unused tax losses
Movement in deferred tax during the previous year
Unused tax losses
6 Debtors
Due within one year:
Other debtors
Due after more than one year:
Amounts owed by Group undertakings
At 1 March
2017
£000
Recognised
in income
statement
£000
At
28 February
2018
£000
–
–
–
–
–
–
At 1 March
2016
£000
(128)
(128)
Recognised
in income
statement
£000
At
28 February
2017
£000
128
128
–
–
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
22
22
21
21
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
10,744
10,744
6,889
6,889
The loan to Group undertakings is repayable in 12 months and 1 day from the year end. No interest is charged on the balance.
7 Cash and cash equivalents
Cash and cash equivalents per balance sheet
Cash and cash equivalents per cash flow statements
8 Creditors: amounts falling due within one year
Trade creditors
Accruals and deferred income
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
17
17
10
10
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
6
33
39
7
27
34
Gear4music (Holdings) plcAnnual Report and Accounts 2018Notes to the Company Financial Statements(forming part of the Financial Statements) continued
83
Year ended
28 February
2018
Number
Year ended
28 February
2017
Number
20,867,121 20,156,339
9 Share capital and reserves
Share capital
Authorised, called up and fully paid
Ordinary shares of 10p each
The Company has one class of ordinary share and each share carries one vote and ranks equally with the other ordinary shares
in all respects including as to dividends and other distributions.
On 18 May 2017, the Company completed the placing of 610,000 new Ordinary shares at a price of 690 pence per share, raising
£4,209,000 in gross proceeds (£4,064,730 net proceeds). The Company also issued 100,782 new Ordinary shares pursuant to
the full exercise of a warrant instrument and received a further £140,087 in gross proceeds (£125,887 net proceeds). A total of
710,782 new Ordinary shares were admitted on 24 May 2017, taking the number of Ordinary shares in issue from 20,156,339 to
20,867,121, representing dilution of 3.5%.
Share premium
Opening at 1 March
Issue of shares
Share issue costs
Closing at 28 February
Retained earnings
Opening at 1 March
Share-based payment charge
Loss for the year
Closing at 28 February
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
8,933
4,278
(156)
13,055
8,933
–
–
8,933
Year ended
28 February
2018
£000
Year ended
28 February
2017
£000
(868)
69
(82)
(881)
(756)
39
(151)
(868)
10 Related parties
In FY2017 Chris Scott and Gareth Bevan were granted 9,978 equity-settled share options each, and Andrew Wass was awarded
an equivalent cash-settled option to result in the same monetary value being returned on vesting.
In FY2018 Chris Scott and Gareth Bevan were granted 2,288 equity-settled share options each, and Andrew Wass was awarded
an equivalent cash-settled option to result in the same monetary value being returned on vesting.
Strategic ReportCorporate GovernanceFinancial Statements 84
Notes
Gear4music (Holdings) plcAnnual Report and Accounts 2018 INTR
Gear4music (Holdings) plc
Kettlestring Lane
Clifton Moor
York YO30 4XF
UK
Holgate Park Drive
York YO26 4GN
UK
0330 365 4444
ir@gear4music.com
www.gear4music.com
www.gear4musicplc.com
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Nominated Advisor (NOMAD)
and Joint Broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Joint Broker
Registrars
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Auditors
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1 Sovereign Square
Sovereign Street
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Aldwych House
71-91 Aldwych
London
WC2B 4HN
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