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Gear4music (Holdings) plc
Annual report and accounts 2020
The Group delivered on its
2020 priority of returning to
profit, reflecting significant
commercial and operational
progress:
Gross margins improved
by 310bps by focusing
investment into higher
margin stock, strengthened
own-brand product ranges,
and redirected marketing
investment into higher
margin products.
Operational investment
ensured a robust infrastructure
was in place ahead of the
peak trading period, with
capacity headroom available
for further strong growth.
Over £7.5m cash at the year
end will support a refocus on
growth orientated projects
and delivering further
commercial improvements
during the next financial year.
HIGHLIGHTS
REVENUE* £m
£120.3m
+2%
2020
2019
2018
EBITDA** £m
£7.8m
+239%
2020
2019
2018
GROSS MARGIN %
25.9%
+310bps
120.3
2020
118.2
2019
80.1
2018
CASH AT YEAR END £m
£7.8m
+47%
7.8
2020
2.3
2019
3.5
2018
WEBSITE VISITORS m
CONVERSION RATE %
28.4
+5%
2020
2019
2018
3.29%
-11bps
28.4
2020
27.1
2019
16.9
2018
25.9
22.8
25.4
7.8
5.3
3.5
3.29
3.40
3.25
Unless stated, 2019 comparative information is on a 13 months basis following a change in the accounting reference date
to 31 March, and as such may not be directly comparable.
*
2020 revenue is the 12m period to 31 March 2020; 2019 comparative revenue in the 12m period to 28 February 2019
was £109.9m as previously disclosed.
** 2020 profit figures stated on an IFRS 16 basis, includes £1.4m of property rents no longer included in operating costs.
Our purpose, Who we are
At a glance
Chairman’s statement
Investment case
Understanding our markets
Strategic Report
IFC Highlights
1
2
4
6
8
10 Chief Executive’s review
14
16
18
22 Key performance indicators
24
28 People and culture
Sustainability
30
32 Risk and uncertainties
36 Viability and S172 statement
Business model
Strategy and progress
Strategy in action
Financial review
Corporate Governance
38 Corporate governance report
42 Board of Directors
44 Directors’ report
46
Statement of Directors’
responsibilities in respect
of the Annual Report and
the financial statements
Financial Statements
47
52
Independent auditor’s report
Consolidated statement of
profitand loss and other
comprehensive income
Consolidated statement of
financial position
Consolidated statement
of changes in equity
Consolidated statement of
cash flows
Notes (forming part of the
financial statements)
Company balance sheet
Company statement of changes
in equity
Notes to the Company financial
statements (forming part of the
financial statements)
53
54
55
56
80
81
82
FOR MORE ABOUT GEAR4MUSIC GO TO:
WWW.GEAR4MUSICPLC.COM
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Leveraging a market-leading bespoke
e-commerce technology platform, a wide
range of products including a unique own-
brand offering, and a low-cost European
logistics infrastructure, our objective is to
deliver value to customers and shareholders
through long-term profitable growth.
Operating in a £4.9bn European market,
Gear4music is the UK’s largest retailer of
musical instruments and music equipment,
having grown revenues from £24m in
2015 to £120m in 2020.
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Strategic ReportCorporate GovernanceFinancial Statements
AT A GLANCE
OUR
PRODUCT
RANGE IS
HITTING
ALL THE
RIGHT
NOTES
Gear4music is an e-commerce
retailer selling over 54,200 SKUs
across all major categories of
musical instruments and music
equipment. Products are sourced
from over 880 manufacturers,
and range from kazoos costing
less than £1, to digital pianos,
drum kits and guitars costing
thousands of pounds.
OUR NUMBERS
NUMBER OF ACTIVE CUSTOMERS
807,000
+11%
SKUs LISTED
54,200
+5%
NUMBER OF WEBSITES
20
NUMBER OF LANGUAGES
15
NUMBER OF CURRENCIES
9
REVENUE BY GEOGRAPHY
PRODUCT SPLIT
£58.5m
£61.8m
£79.4m
£35.4m
£54.5m
£63.7m
£82.1m
£31.3m
2020
UK
Europe
and ROTW
2019 (13m)
UK
Europe
and ROTW
2020
Own brand
Other brand
2019 (13m)
Own brand
Other brand
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LEADING BRANDS
OTHER BRANDS
OWN BRANDS
OUR PRODUCT RANGE
GUITARS
Electric, acoustic and
bass guitars, and related
accessories
27%
of product sales
KEYS
Acoustic and digital
pianos, keyboards
and synthesisers
22%
of product sales
LIVE AND PA
PA equipment, speakers,
stands and microphones
19%
of product sales
STUDIO
Mixers, headphones, microphones,
monitors and interfaces
13%
of product sales
DRUMS
Electric and acoustic, and
other percussion instruments
11%
of product sales
ORCHESTRAL
Strings, brass,
woodwind
and accessories
7%
of product sales
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CHAIRMAN’S STATEMENT
A BUSINESS
FOR
MUSICIANS
RUN BY
MUSICIANS
The business has bounced
back strongly from what was
a challenging year in FY19.
The Directors have delivered
on the strategies they outlined
to improve gross margins,
manage costs, and increase
operational capacity.
KEN FORD
CHAIRMAN
I am delighted to report that the business
has bounced back strongly from what
was a challenging year in FY19. The
Directors have delivered on the strategies
they outlined to improve gross margins,
manage costs, and increase operational
capacity ahead of the FY20 peak period,
and the results reported today bear
testament to success on each front.
As a leading specialist e-commerce
retailer operating in a fragmented niche
market, Gear4music has a track record
of delivering revenue growth, and the
opportunities undoubtedly remain
significant. The focus, however, in FY20
was on improving gross margin, profits
and restoring stakeholder confidence,
and this has been achieved with a £5.5m
increase in EBITDA to £7.8m and a £3.7m
increase in pre-tax profits. Alongside its
increased cash position at the period
end, the Group’s banking facilities have
been renegotiated, providing a significant
increase in working capital headroom to
support further growth of the business.
Gear4music listed on AIM in 2015
with annual revenues of £24m and
today, five years later, report revenues
in excess of £120m. This has been
achieved through a strategy founded
on best-in-class customer service,
e-commerce excellence, international
expansion, and supply chain evolution.
These results reflect significant effort on
the part of the Executive and Senior
Management team, and would not be
possible without the hard work, passion
and dedication of all our colleagues
across the business.
COVID-19
Since the outbreak of COVID-19, our
priority has been to safeguard the
health and safety of all employees. We
took all the necessary and reasonable
precautions to keep our staff safe, which
included facilitating remote working and
implementing extensive measures in our
warehouses to enable social distancing,
whilst ensuring our operations could
continue with minimal impact.
I am pleased to report there has
been very little disruption to order
processing and fulfilment throughout
the lockdown period, and the
exceptionally high customer demand
has been managed effectively.
I would like to thank all employees for
swiftly adapting to this different working
environment, which has allowed us to
continue processing orders and
successfully serve our customers.
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04
OUR VALUES,
PEOPLE AND
CULTURE
We know that the foundations of a
successful business are built on the
hard work of a team of talented and
motivated individuals.
We strongly believe in growing our
talent by recruiting only the best
people, identifying individual
strengths, and providing development
opportunities with the scope for
career progression as a result.
Our diverse workforce is the best
part of Gear4music: different
cultures, knowledge and skills
makes it a fantastic place to work,
and many of our employees are
musicians in their spare time.
SEE PEOPLE AND CULTURE
ON PAGE 28
CORPORATE GOVERNANCE
It is the Board’s responsibility to ensure
that the Group has a corporate
governance framework that is effective
whilst dynamic, as a foundation for a
sustainable growth strategy, and
identifying, evaluating and managing
risks and opportunities that will underpin
long-term value creation.
In 2018 the Group adopted and
embraced the 2018 QCA Corporate
Governance Code, and in 2019 refined
these themes in accordance with
Section 172(1) of the Companies Act
2006. Enhanced disclosures are included
in various sections of this year’s Annual
Report, and available on the Group’s Plc
website www.gear4musicplc.com/
investors/overview/.
CURRENT TRADING AND OUTLOOK
The financial performance and trading
momentum the business has achieved
during the year is testament to our
strategic delivery and the efforts of all
our staff, and has ensured that the
business is in a solid position to increase
its market share further in the UK and
across Europe.
COVID-19 has brought significant
changes to the retail market for musical
instruments and equipment, with an
accelerated shift away from physical
store sales towards online. As a result,
Gear4music has seen an exceptional and
sustained increase in demand for its
products over the first quarter to date.
Looking ahead, the Directors are
confident that our customer proposition,
operational infrastructure and strong
balance sheet will enable the Group to
achieve its business objectives during the
current financial year and beyond, and
are excited to embark on the next leg of
our growth journey.
KEN FORD
CHAIRMAN
22 June 2020
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Gear4music has a track
record of delivering
growth, and the
opportunities undoubtedly
remain significant.
KEN FORD
CHAIRMAN
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INVESTMENT CASE
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Gear4music is well positioned to
capitalise on the opportunities
available within its markets,
due to barriers to entry and its
unique competitive advantages:
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06
KEY STRENGTHS
REASONS
1. TRACK RECORD OF SUCCESS –
LONG-TERM REVENUE AND MARKET
SHARE GROWTH
SEE STRATEGY IN ACTION
ON PAGE 20
• Revenues have increased every year since launch in 2003
• We are the UK’s largest retailer of musical instruments and
music equipment
• Strong European growth validates website roll-out strategy
• Email database of 0.65m registered users, with active
customers increasing by 11% on a comparable 12-months
to end of March basis
2. BESPOKE AND PROPRIETARY
E-COMMERCE PLATFORM DELIVERS
COMPETITIVE ADVANTAGE
SEE STRATEGY IN ACTION
ON PAGE 18
• End-to-end solution encompassing all aspects of
trading operations
• 44 in-house software developers providing cost-effective
development
• Currently supports 20 websites in 15 languages and
9 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
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3. SPECIALIST KNOWLEDGE
FACILITATES STRONG
RELATIONSHIPS WITH
CUSTOMERS AND SUPPLIERS
4. WELL-DEVELOPED
PRODUCT RANGES
5. EFFICIENT LOGISTICS
SYSTEMS
SEE STRATEGY IN ACTION
ON PAGE 20
• 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
• Over 54,200 products from over 880 brands
• Reputation for quality and value for money
• Long-term relationships with the major branded musical
instrument and music equipment manufacturers
• A strong own-brand offering developed over 17 years, with a
reputation for ‘good’ and ‘better’ quality products at affordable
prices, whilst providing enhanced margin opportunities
• Over 3,400 own-brand SKUs
• Enhanced margin opportunities as volumes increase
• Proven and scalable distribution capabilities
• Operates from three modern facilities with a combined
284,000 square feet footprint
• The most appropriate courier delivery services are automatically
selected from more than 9,400 permutations depending on the
weight, size, value and destination of the goods being purchased
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UNDERSTANDING OUR MARKETS
SIGNIFICANT
MARKET
OPPORTUNITIES
In 2017 Music Trades estimated
the global music products markets
in 2015 to be $15.9bn.
The top ten European retail
markets for musical instruments
and music equipment (including
the UK) are worth approximately
£4.9bn and are undergoing a
profound shift towards online retail.
OUR BUSINESS
OVERVIEW
Gear4music is about making quality
music gear more accessible and
affordable for all musicians. Our mission
is to be 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 be the largest
retailer in the UK, and we continue
to make good progress in Europe.
A bespoke e-commerce platform allows
us to efficiently operate 20 websites,
in 15 languages and 9 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 £4.9bn European market
and expand our reach beyond this.
UK
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.
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EUROPEAN MARKETS WORTH
£4.9bn
UK MARKET WORTH
£0.9bn
08
TOP EUROPEAN MARKETS
OPERATIONS | LOCATIONS (REVENUES)
Gear4music
York | UK
2020: £120m
2019: £110m
2018: £80m
+37%
S&T Audio (PMT)
London | UK
2019: £61m
2018: £49m
+22%
Andertons
Guildford | UK
2019: £47m
2018: £36m
+30%
Woodbrass
Paris | France
2019: £46m
2018: £45m
+1%
Estimated
market size
(£m)*
1,371
991
860
664
232
208
191
163
123
95
4,897
Country
Germany
France
UK
Italy
Netherlands
Austria
Spain
Switzerland
Sweden
Norway
Total size
* Management estimate.
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Luthman
Stockholm | Sweden
Ceased trading in
October 2019
2018: £100m
Bax Shop
Goes | Netherlands
2019: £119m
2018: £110m
+8%
Musicstore
Cologne | Germany
2019: £127m
2018: £106m
+20%
Thomann
Burgebrach | Germany
2019: £868m
2018: £808m
+7%
1 day road/economy delivery
2 days road/economy delivery
3+ days road/economy delivery
Source: Music Trades
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CHIEF EXECUTIVE’S REVIEW
AN
INSPIRING
PERFORMANCE
DURING
FY20
Our primary FY20 objectives
were to restore gross margins
and improve our operational
strength, and with a 310bps
gross margin improvement
and a successfully executed
peak trading period, we have
achieved both of those
objectives whilst continuing
to grow the business.
ANDREW WASS
CHIEF EXECUTIVE OFFICER
BUSINESS REVIEW
Our primary FY20 objectives were to
restore gross margins and improve
our operational strength, and with a
310bps gross margin improvement
and a successfully executed peak
trading period, I am very pleased
to report that we have achieved
both of those objectives whilst
continuing to grow the business.
Our FY21 objectives are to accelerate
our market share growth, whilst
continuing to improve profitability
within a tightly controlled cost base.
After a period of focusing our software
development resources on upgrading
backend systems and infrastructure
during FY20, resources will be more
focused on customer experience and
growth orientated projects during FY21.
As a result of the actions we have taken,
we have a significantly more robust
commercial and operational foundation.
We will continue to evolve and invest into
our e-commerce platform, to ensure
that alongside the significant commercial
progress we are making, our industry-
leading customer proposition is retained
and refined to deliver long-term success.
OUR PEOPLE
We know that our success is predicated
on the hard work and talent of our
teams, but this has never been as
important as now. Not only has every
single member of our team had to
adapt in their personal and work
lives, but they have also delivered
exceptionally high volumes and have
maintained our high levels of service
through these unprecedented times.
I would like to take this opportunity to
thank our teams for their hard work and
commitment.
MARGIN MOMENTUM
Improving margins has been critical in
returning the business to profitability,
and we have made significant progress
as a result of the initiatives set out
last year. We have focused on higher
margin stock with more selective
inventory investment, strengthened
our own-brand product ranges to
accelerate their growth relative to other
brands, and redirected our marketing
investment into higher margin products
in order to increase their sales.
These measures have been supported
by an ongoing review of our courier
relationships to reduce delivery costs,
and updating our returns policies to
ensure they are competitive and
commercially viable.
As these initiatives continue during FY21,
we are confident that further margin
improvements can be made over time,
as we benefit from additional scale and
increased financial resources.
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FINANCIAL KPIs
Revenue*
UK revenue*
International revenue*
Gross margin
Gross profit
Total administrative expenses**
European administrative expenses**
EBITDA**
Cash at year end
Net debt
FY20
FY19 (13m)
Change
£120.3m £118.2m
£63.7m
£54.5m
22.8%
£26.9m
£26.9m
£2.8m
£2.3m
£5.3m
£7.5m
£61.8m
£58.5m
25.9%
£31.2m
£27.1m
£2.5m
£7.8m
£7.8m
£5.5m
+2%
-3%
+7%
+310bps
+16%
+1%
-10%
+239%
+47%
-27%
* See Note 2 of the financial statements
** FY20 figures are reported on an IFRS 16 basis; FY19 on an IAS 17 basis. FY19 EBITDA reported on an IFRS 16 basis
is £3.7m.
COMMERCIAL KPIs
Website visitors
Conversion rate
Average order value
Active customers
Products listed
See page 23 for commercial KPI definitions.
FY20
FY19 (13m)
Change
28.4m
3.29%
£117
807,000
54,200
27.1m
3.40%
£117
727,000
51,500
+5%
-11bps
–
+11%
+5%
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OPERATIONAL STRENGTH
During the year we have built
significantly more resilience into
our distribution operations to cope
with peak trading periods, alongside
improvements in productivity and
efficiency. We have strengthened our
management teams, extended working
hours, increased storage space, invested
in new equipment, and developed
upgraded software control systems.
We are confident that, with relatively
modest further investment, the business
will have sufficient capacity within its
three distribution hubs to allow strong
growth in the short and medium term.
DIGITAL STRATEGY
The ongoing development of our
bespoke e-commerce platform
has been the foundation of our
success that has given us a sustained
competitive advantage, and will
continue to be a key part of our
business strategy going forward.
During FY20 we made over 1,000
website and system deployments,
including a new returns platform,
enhanced product listing pages,
and a wide range of operational
system upgrades.
During FY21 we will deliver the
next stages of our mobile website
development and upgrade our customer
communication and personalisation
tools alongside further efficiency
improvements.
Our longer-term digital strategy will
include introducing a number of
transformational ways customers will
be able to buy products on Gear4music
websites. This will start during FY21 with
the launch of our solution to allow the
sale and immediate download of digital
products, such as music software and
sample libraries.
Our FY21 objectives are
to accelerate our market
share growth, whilst
continuing to improve
profitability within a tightly
controlled cost base.
ANDREW WASS
CHIEF EXECUTIVE OFFICER
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CHIEF EXECUTIVE’S REVIEW
CONTINUED
GROSS PROFIT
£31.2m
+16%
EBITDA
£7.8m
+239%
BREXIT
With our European hubs and European
buying operations now firmly
established, we are well placed to
navigate any further changes that are
likely to become necessary following
the completion of Brexit. However,
subject to the outcome, revenue
growth during any transition period
may not be as strong. In the medium
and longer term, we are confident
that the Group will be well-positioned
to capitalise on the opportunities
presented in our European markets.
TRADING OUTLOOK
The COVID-19 lockdown has created
an exceptional period of trading
conditions for the Group. Our focus
has been on protecting the health and
safety of our employees, whilst ensuring
customer service levels are maintained.
Aside from the operational challenges
which the business has navigated
effectively, we have experienced
exceptionally strong trading at the
beginning of the current financial year.
With the shift from high street to online
consumer shopping continuing to
accelerate, we remain confident that our
business is appropriately configured to
achieve long-term profitable growth,
and that we are in a strong position to
build upon the excellent progress we
have made during FY20.
ANDREW WASS
CHIEF EXECUTIVE OFFICER
22 June 2020
We remain confident
that our business is
appropriately configured
to achieve long-term
profitable growth, and
that we are in a strong
position to build
upon the excellent
progress we have
made during FY20.
ANDREW WASS
CHIEF EXECUTIVE OFFICER
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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.
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
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Anti DDoS
technology
CE & 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
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Multi-hub
warehouse
management
Advanced
reporting
Global
stock
visibility
WMS
Returns
management
Advanced
inventory
management
Dispatch
management
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Integrated B
e s pok
Fully
integrated
POS
Single
customer
view
CRM
Personalised
content
Automated
customer
messaging
Email
marketing
platform
Strategic ReportCorporate GovernanceFinancial Statements
BUSINESS MODEL
MORE
ACCESSIBLE
AND
AFFORDABLE
FOR ALL
MUSICIANS
HOW WE WORK
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 17 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 284,000
square feet of operational space – 135,000
square feet in York, 72,000 square feet in
Germany, and 77,000 square feet in Sweden.
Our 50,000 square feet freehold Head office
provides back-office facilities sufficient to
support the business into the long term.
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, multicurrency pricing,
logistics and dispatch, CRM, automated
marketing, purchasing, customer
receipts and management reporting.
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 17 different delivery service
providers, to provide our customers with
a class-leading range of delivery options.
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OUR SERVICES
OUR CUSTOMERS
OUR PRODUCTS
PRODUCT
RANGE
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 quality
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 3,400
products listed.
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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 touch points deliver a market-
leading experience, and monitor our
progress carefully using independent
sources such as TrustPilot.
SPECIALIST STAFF
In FY20 we employed 466 people
(FY19: 431) across three countries,
and many have first-hand musical
instrument and equipment
knowledge, playing in bands
and producing their own music.
Ongoing product training is routinely
undertaken to ensure staff have
relevant and up-to-date knowledge
to enable them to advise customers.
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.
CUSTOMER
OVERVIEW
Gear4music’s customer
base is primarily made up of
private individuals (over 97%),
from beginners and parents
buying musical instruments
and music equipment for
their children, through to
professional musicians.
The Group supplies schools and
other educational establishments and
a small number of trade accounts.
On 31 March 2020 we had 0.65m
people registered to receive our
email communications, down
from 0.89m at 31 March 2019
as a result of GDPR adoption.
Active customers of 807,000 (being
customers who have purchased from
Gear4music during the previous 12
months), is up 11% on FY19 (727,000).
As the Group continues to increase
its European business it acquired a
further 704,000 new customers in
the period (FY19: 674,000), and
170,000 customers came back to us
to place at least one follow-up order
(FY19: 155,000).
Average order value in FY20 was £117,
in line with FY19, having been £127
in FY18.
AT THE YEAR END WE
LISTED OVER
PRODUCTS FROM OVER
54,200
880
MANUFACTURERS
OWN-BRAND
PRODUCT RANGE
3,400
PRODUCTS LISTED
TOTAL NUMBER
OF EMPLOYEES
466
ACROSS THREE COUNTRIES
AT 31 MARCH 2020
WE HAD
0.65m
PEOPLE SUBSCRIBED ON
OUR EMAIL DATABASE
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STRATEGY AND PROGRESS
Gear4music’s strategy is
built around…
THREE
PILLARS
OF
GROWTH
OUR STRATEGIC PRIORITIES
1. E-COMMERCE
EXCELLENCE
EVOLVE
GROWTH
STRATEGY
EVOLVE
IMPROVE
Bespoke platform
Efficiency and productivity
ACCELERATE
Digital marketing
ENHANCE
Customer experience
JONATHAN MEAGER
E-COMMERCE DIRECTOR
We will continue to develop our proprietary
e-commerce platform to drive website traffic,
increase conversion rates and maximise operational
efficiencies. We’ll use our bespoke technology, rich
content and digital marketing initiatives to extend
our reach into new and existing territories, and build
customer trust by delivering a first-rate customer
experience. We have some very exciting new
developments planned for FY21 and FY22.
Our websites are driven by a bespoke and
proprietary e-commerce platform, designed to
maximise opportunities and deliver competitive
advantage. It has the capacity to handle significantly
increased volumes, and the capability to expand
into new markets.
Having software development in-house helps
deliver the cost-effective investment in platform
development required to grow revenues and
profitability. 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.
PROGRESS
With over 28 million website visitors in the period, conversion rates over 3%, and active
customer numbers increasing to more than 807,000, and a 14% growth in repeat
customers, our e-commerce strategy continues to prove highly effective.
Marketing activities continue to be heavily data driven and focused on return on
investment, and in FY20 investment targeted higher-margin products. Marketing
efficiency improved in FY20 as costs as a percentage of sales decreased from 8.2%
in FY19 to 7.7% in FY20.
Our 4.8 TrustPilot rating from over 70,000 reviews is a reflection of our ‘customer first’
approach, the incredible efforts our teams make, and the attention to detail that is
required to build customer trust and loyalty. We will continue to learn from our
customers, and use our significant technical resources to design the new solutions
required to satisfy an evolving market.
Our bespoke e-commerce platform is the cornerstone of our success and a major
competitor differentiator, and our development team of 44 have worked tirelessly to
design and deploy 1,054 updates and upgrades during the period.
WEBSITE VISITORS
TRUSTPILOT RATING
28m
+5%
4.8/5
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OUR STRATEGIC PRIORITIES
2. SUPPLY CHAIN
EVOLUTION
OUR STRATEGIC PRIORITIES
3. INTERNATIONAL
EXPANSION
IMPROVE
EVOLVE
IMPROVE
ACCELERATE
ENHANCE
Logistics capability
Product margins
EVOLVE
IMPROVE
Regional procurement
Delivery options
ACCELERATE
Own-brand development
ACCELERATE
Website localisation
ENHANCE
Products and services
ENHANCE
Localised service
We will continue to extend our
product ranges with a focus on
margin-enhancing opportunities,
and we will leverage our
international buying teams to
widen our procurement options.
Further development of our
highly successful own-brand
ranges will remain a priority,
dealing directly with factories
and manufacturers to gain
competitive advantage. A highly
specialised purchasing team,
combined with our market-
leading European distribution
capability and bespoke
e-commerce platform makes
our business entirely unique.
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, enhancing
our multilingual customer
service teams, expanding our
international buying teams, and
refining our delivery options to
increase speed and convenience.
ROB NEWPORT
OPERATIONS DIRECTOR
GARETH BEVAN
CHIEF COMMERCIAL
OFFICER
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PROGRESS
At the year end we listed 54,200 products, which is up by 5%
in 12 months, and we know there are opportunities to grow
this significantly.
Whilst only representing 6% of listed SKUs, own-brand product
sales accounted for 29% of revenue (FY19: 27%), and continue
to grow impressively to £35.4m in the year.
PROGRESS
With international sales increasing to £58.5m in what is a $16bn
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 period we have expanded our multilingual customer
service team, invested further into translation and marketing, and
improved our local delivery and payment options.
In 2018 we opened our German showroom, which in addition to
physically showcasing our products and building our brand in the
locality, created buying opportunities from German distributors in
Euros. Later that year we relocated our Swedish operation providing
significant additional capacity to service the Scandinavian and
Northern European markets.
SKUs LISTED
54,200
+5%
OWN-BRAND REVENUE
£35.4m
+13%
INTERNATIONAL SALES
£58.5m
+7%
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STRATEGY IN ACTION
NUMBER OF DEPLOYMENTS
IN THE YEAR
1,054
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E-COMMERCE
EXCELLENCE
BESPOKE SOFTWARE DEVELOPMENT
We have invested £12.1m over 14 years in developing
our bespoke end-to-end e-commerce platform to
meet our exact requirements. ‘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.
READ MORE ON:
PAGE 13
Having software development
in-house enables us to quickly
and cost-effectively develop
new features and functionality.
JONATHAN MEAGER
E-COMMERCE DIRECTOR
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INTERNATIONAL REVENUE
SKUs LISTED
£58.5m
54,200
+7%
OWN-BRAND REVENUE
EUROPEAN ADMIN EXPENSES
£35m
£2.5m
-10%
STRATEGY IN ACTION
INTERNATIONAL
EXPANSION
CASE STUDY: SCANDINAVIA
Our Swedish operation continues to grow. The distribution centre
saw substantial growth over the last 12 months, including the
biggest daily orders yet on Cyber Monday 2019. The move from
our original property in September 2018 has enabled unrestricted
growth and allowed us to work with our landlords to develop
a purpose-built distribution centre close to Stockholm Arlanda
Airport, a property that includes one of the largest music
showrooms in Scandinavia.
Ahead of peak FY21, we have significantly extended our
maximum daily order processing capacity in anticipation of
continued seasonal sales increases. Stock levels continue to grow
and will develop further, ahead of the end of the UK’s transition
period out of the EU, ensuring a significant majority of orders to
Sweden, Norway, Denmark and Finland can be satisfied directly
from our Swedish hub. Additionally in Summer 2020 we will
complete our Swedish returns handling centre, enabling us to
provide enhanced customer service through better value, faster
processing of customer returns from across Scandinavia.
The Gear4music proposition in Sweden – great service and value
with a local footprint – has been welcomed by our Scandinavian
customers. Following the closure of a large local competitor in
Autumn 2019, Gear4music remain well positioned to capitalise
on the continued shift to online purchasing from many Swedish
customers compared to our leading European competitors
without a trading base in Scandinavia. A key part of the Gear4music
opportunity in Sweden is access to courier delivery options which
can only be unlocked by businesses with a local operating
structure, and as we approach our fifth year of operation in
Stockholm, the trading relationships we have built up continue
to strengthen with improved commercial opportunities.
Gear4music remain well positioned to
capitalise on the continued shift to online
purchasing from many Swedish customers
compared to our leading European
competitors without a trading base
in Scandinavia.
ROB NEWPORT
OPERATIONS DIRECTOR
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KEY PERFORMANCE INDICATORS
WE
MEASURE
OURSELVES
AGAINST
A NUMBER
OF KPIs
that reflect the key trading trends
and are linked to our strategic
pillars of growth.
FINANCIAL
REVENUE £m
£120.3m
+2%
2020
2019
2018
(+9% on a 12m basis)
GROSS MARGIN %
25.9%
+310bps
2020
2019
2018
CASH £m
£7.8m
+47%
2020
2019
2018
120.3
118.2
80.1
25.9
22.8
25.4
7.8
5.3
3.5
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CUSTOMER
CUSTOMER EXPERIENCE
TrustPilot rank
4.8/5
2020
2019
PROPORTION OF REPEAT
2018
CUSTOMERS %
21.0%
-30bps
2020
2019
2018
4.8
9.4
9.5
21.0
21.3
22.1
DEFINITIONS
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
Proportion of repeat customers:
Number of customers in the period
who have placed more than one order
COMMERCIAL
MARKETING COST
as a % of revenues
7.7%
-50bps
2020
2019
2018
UNIQUE VISITORS m
28.4m
+11%
2020
2019
2018
CONVERSION %
3.29%
-11bps
2020
2019
2018
AVERAGE ORDER VALUE (£)
£116.74
–
2020
2019
2018
SKUs LISTED
54,200
+5%
2020
2019
2018
7.7
8.2
8.3
28.4
27.1
16.9
3.29
3.40
3.25
116.74
117.39
127.33
54,200
51,600
44,700
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FINANCIAL REVIEW
OUR
PROFIT
FOCUS HAS
PRODUCED
A POWERFUL
PERFORMANCE
Our focus in FY20 was on
delivering solid revenue
growth whilst materially
improving profits and
profitability, and the
Group has delivered.
CHRIS SCOTT
CHIEF FINANCIAL OFFICER
As laid out at the start of the financial year, our focus in FY20
was on delivering solid revenue growth whilst materially
improving profits and profitability, and the Group has delivered.
A key objective was to improve our operational strength and
efficiency across the year and this was achieved as reflected in
operating unhindered during the FY20 peak trading period.
IMPACT OF COVID-19
As we approached the end of our financial year, Europe was
responding to COVID-19 and physical stores in our sector were
temporarily closing. As an online retailer operating in a niche
sector, we experienced exceptionally high levels of demand in
the final two weeks of March and this has continued into April
and May 2020, with the business continuing to operate
efficiently throughout this period.
TRANSITION TO IFRS 16
The financial statements for FY20 have been prepared under
the requirements of IFRS 16 for the first time. Implementation
of IFRS 16 has had no effect on how the business is run, or on
cash flows generated. It has, however, had an impact on the
presentation of the income statement, assets and liabilities,
and classification of certain cash flows.
IFRS 16 seeks to align the presentation of leased assets more
closely to owned assets. In doing so, right-of-use assets and
lease liabilities are brought onto the balance sheet, with the
lease liabilities recognised at the present value of future
lease payments.
To aid comparability with the prior period, adjusted financial
information shown before the impact of IFRS 16 is shown in the
table below. In summary the relative impact of IFRS 16 on the
Group income statement has been to increase EBITDA by
£1.4m, increase Operating profit by £0.2m, and decrease Profit
before tax by £0.2m
Revenue
Gross profit
Administrative expenses
EBITDA
Depreciation and
amortisation
Operating profit/(loss)
Financial expenses
Profit/(loss) before tax
FY19 IAS 17
13m
£m
FY19 Restated
IFRS 16
13m
£m
FY20 IFRS 16
12m
£m
118.2
26.9
(24.6)
2.3
(2.3)
(0.0)
(0.6)
(0.6)
118.2
26.9
(23.2)
3.7
(3.5)
0.2
(1.0)
(0.8)
120.3
31.2
(23.4)
7.8
(3.7)
4.1
(1.0)
3.1
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REVENUE
GROSS PROFIT
UK revenue
International revenue
Revenue
FY20 12m
£m
FY19 13m
£m
61.8
58.5
120.3
63.7
54.5
118.2
Reported revenue increased by £2.1m (2%) compared to the
13-month period last year, and £10.4m (9%) compared to the 12
months to end February 2019 as published last year. This builds
on 37% growth over comparable 12-month periods last year
and 43% in FY18.
UK revenues were up 5% relative to the 12-month period to
28 February 2019, taking Gear4music’s UK market share to an
estimated 7.2% (FY19: 6.9%).
European growth continues to represent a significant
opportunity and 12-month international revenue growth of 15%
was further to 42% in FY19. Revenues from sales outside of
Europe accounted for 1.3% of total revenue in both FY20
and FY19.
Other-brand product revenue
Own-brand product revenue
Other revenue
Revenue
FY20 12m
£m
FY19 13m
£m
79.4
35.4
5.5
82.1
31.3
4.8
120.3
118.2
We continue to make progress in our own-brand business with
revenue growth again over-delivering on the Group’s ambition
of keeping pace with the growth in other-brands.
In FY20 own-brand revenue accounted for 29% of total revenue
compared to 26% last year, with these sales generated from just
3,433 SKUs representing 6% of the total range (FY19: 3,218 SKUs).
Other-brand revenue growth was impacted by cutting out less
profitable sales and focusing on higher margin products.
Other revenue comprises carriage income, warranty revenue,
and commissions earned on facilitating point-of-sale credit for
retail customers. The proportion of revenues coming from
these sources increased to 4.6% of total revenue (FY19: 4.0%)
as more customers are willing to pay for value-added paid
delivery services.
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Product sales (£m)
Product profit (£m)
Product margin
Carriage costs (£m)
Carriage costs as % of
sales
Gross profit (£m)
Gross margin
FY20
12m
114.8
35.1
30.5%
8.8
7.3%
31.2
25.9%
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113.4
31.6
27.8%
9.1
7.7%
26.9
22.8%
Change
+270bps
-40bps
+310bps
In FY19 we referenced the highly competitive nature of the
UK market for other-brand products leading to low product
margins. Our response in FY20 was to cut out lower margin
sales and focus our efforts and resources on higher margin
products.
Continued revenue growth and a step-up in gross margin
combined to generate a £4.3m increase in gross profit in the
year compared to the 13-month prior year period. Gross
margin improved 310bps as a result of a 270bps improvement
in product margins, driven by a marked improvement in
other-brand margin, and sales mix effect of relatively more
own-brand sales.
The Group benefits from buying scale relative to its UK
competitors, and its ability to source other-branded products
in Swedish Krona and Euros and receive product directly into its
European distribution centres is an important part of our plans
to mitigate the effects of Brexit.
The Group purchases its own-brand products in US Dollars
and product margins can be impacted by exchange rate
fluctuations. The Group has various mitigating tools and
own-brand margins improved in FY20, having been stable
in FY18 and FY19.
Gear4music includes ‘costs of delivery’ within cost of sales
which is a different accounting treatment to some other
e-commerce retailers. Delivery costs were £8.8m in the period
and represented 7.3% of total revenue (FY19: 7.7%).
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FINANCIAL REVIEW
CONTINUED
ADMINISTRATIVE EXPENSES AND OPERATING PROFIT
Reported operating profit has improved by £4.1m from a small
operating loss last year to a £4.1m profit in FY20.
CASH FLOW
Opening cash
Profit/(loss) 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 in cash in the year
Closing cash
FY20 12m
£m
FY19 13m
£m
5.3
2.6
(0.9)
3.7
1.0
1.0
7.4
(3.9)
(1.0)
2.5
7.8
3.5
(0.2)
0.1
2.3
0.4
0.0
2.6
(4.9)
4.1
1.8
5.3
Cash increased by £2.5m over the year driven by a £2.8m
improvement in profits.
The increase in stock of £3.4m (18%) is a year-end snapshot
reflecting the business bringing in large volumes of stock in
February and March 2020 ahead of COVID-19 lockdown.
Net outflow from investing activities of £3.9m includes £2.8m
of software development (FY19: £2.7m) and £0.7m of tangible
fixed additions. Depreciation and amortisation of £2.5m is
added back in ‘net cash from operating activities’ with respect
to these asset categories.
Net outflow from financing activities of £1.0m (FY19: £4.1m
inflow) includes £0.9m of IFRS 16 property lease payments,
offsetting increased reported cash from operating activities on
add back of £0.9m of right-of-use asset depreciation.
BALANCE SHEET AND NET ASSETS
The Group has a strong and improved year-end balance
sheet, with net assets of £21.6m (FY19: £18.7m), £7.8m cash
(FY19: £5.3m), and net debt of £5.5m (FY19: £7.5m).
Property, plant and equipment
IFRS 16 Right-of-use asset
Software platform
Other intangible assets
Total non-current assets
Stock
Cash
Other current assets
Total current assets
Trade payables
Loans and borrowings
Lease liabilities
Other current liabilities
Total current liabilities
Loans and borrowings
Lease liabilities
Other non-current liabilities
Total non-current liabilities
Net assets
31 March
2020
£m
31 March
2019
£m
11.2
9.0
7.1
2.0
29.3
22.0
7.8
2.5
32.3
(10.1)
(10.0)
(1.1)
(4.3)
(25.5)
(3.4)
(9.5)
(1.6)
(14.5)
21.6
10.8
–
5.8
2.0
18.6
18.7
5.3
1.6
25.6
(7.5)
(8.6)
–
(4.0)
(20.1)
(4.3)
–
(1.1)
(5.4)
18.7
UK administrative expenses
European administrative expenses
Total administrative expenses
Operating profit/(loss)
FY20 12m
£m
FY19 13m
£m
(24.6)
(2.5)
(27.1)
4.1
(24.1)
(2.8)
(26.9)
(0.0)
Total administrative expenses increased 1% on the FY19
13-month period, relative to a revenue increase of 2%.
The application of IFRS 16 results in property rents no longer
being included within operating costs and being replaced by
an additional depreciation charge. In FY20 this meant rents of
£0.6m in the UK and £0.8m in Europe being replaced by an
additional £1.2m depreciation charge.
Combined marketing and labour costs of £19.0m accounted
for 70% of total administrative expenses (FY19: 72%).
Marketing costs in the year were £9.3m (FY19 13m: £9.8m)
equating to 7.7% of revenues compared to 8.3% in FY19 as the
business focused on improving return on investment, and
targeting higher margin products.
Labour costs in FY20 increased to £9.7m representing a 2%
increase on the FY19 13-month period, and an 11% increase in
average cost per month, with headcount increasing by 35 (8%)
to 466. Labour costs accounted for 8.1% of revenue in line with
8.1% in FY19.
FY20 EBITDA of £7.8m is £5.5m higher than last year of which
£1.4m is due to the application of IFRS 16. Accounting for
property rents no longer included in EBITDA, adjusted EBITDA
of £6.4m is £4.1m (178%) ahead of FY19. These figures equate to
a reported EBITDA margin of 6.4% and an adjusted margin of
5.3% compared to 1.9% last year and 4.3% in FY18.
Administrative expenses in FY19 included a £0.4m credit
relating to the release of a rent accrual for the difference
between cash paid and the average rent charge as expensed
in relation to the leasehold distribution centre at Clifton Moor,
York. The signing of a new lease in March 2018 triggered
the release.
OTHER EXPENSES AND NET PROFIT
Net financial expenses of £1.0m (FY19: £0.6m) include £0.4m of
IFRS 16 lease interest not in the FY19 comparative, £0.4m loans
and borrowing interest (FY19: £0.3m) relating to property loans,
import loan, and asset finance, and a £0.1m net foreign
exchange loss (FY19: £0.2m loss).
The Group reports a profit before tax of £3.1m compared
to a £0.6m loss last year, reflecting a £3.7m improvement.
Net profit of £2.6m (FY19 net loss: £0.2m) translates into a basic
EPS of 12.4p and diluted EPS of 12.2p (FY19: -0.8p), the highest
reported since IPO in 2015.
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On 1 April 2019 on the application of IFRS 16, right-of-use assets
valued at £10.2m were recognised having netted off £0.8m of
lease incentive accrual previously held on the balance sheet,
and lease liabilities of £11.0m recognised. At 31 March 2020
right-of-use assets had been depreciated to £9.0m and the
lease liability paid down to £10.1m.
The investment in our bespoke e-commerce platform in the
period was £2.8m (FY19 13m: £2.7m) and focused more toward
back-office functionality and resilience than in previous years,
and in FY21 will return to focus on more growth orientated
projects. Platform amortisation in the year was £1.5m
compared to £1.2m in the FY19 13-month period, taking net
book value to £7.1m (31 March 2019: £5.8m).
The Group had net debt of £5.5m at the year end (31 March
2019: £7.5m), including debt of £4.0m that relates to and is
secured by the freehold head office revalued to £7.5m at
31 March 2020. Year-end net debt is made up of £2.1m of net
debt payable under one year and £3.4m due over one year.
DIVIDENDS
The Board is confident in the prospects for the business and
recognises the importance of retaining cash reserves to
support future growth, and as such 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.
On behalf of the Board
CHRIS SCOTT
CHIEF FINANCIAL OFFICER
22 June 2020
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Strategic ReportCorporate GovernanceFinancial Statements
PEOPLE AND CULTURE
A BUSINESS
FOR
MUSICIANS
RUN BY
MUSICIANS
OUR PEOPLE
We know that the foundations of a successful
business are built on the hard work of a team
of talented and motivated individuals.
We strongly believe in growing our talent by recruiting
only the best people, identifying individual strengths,
and providing development opportunities with the
scope for career progression as a result.
Our diverse workforce is the best part of Gear4music:
different cultures, knowledge and skills makes it a
fantastic place to work, and many of our employees
are musicians in their spare time.
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 staff discounts on musical products and
equipment and in FY20 estimate over 75% of our team
made a relevant purchase.
RECRUITMENT AND RETENTION
We need to attract talent into our
business 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).
As at 31 March 2020, 59 employees are
participating in Group share option plans
in recognition of their contribution to the
continuing success of the business.
In FY20 our average headcount
increased by 8% from 431 to 466, and
our retention levels are good.
MENTAL HEALTH
We want to support positive mental
health and the wellbeing of all our
employees. We know that mental health
affects everyone and want to build
an environment where people feel
comfortable to talk about mental health.
Initiatives in 2020 included:
• Certified Mental Health First Aid
training for ten colleagues across our
three UK sites;
• The creation of a new Mental Health
and Wellbeing Policy;
• Additional HR support including
employee welfare meetings, Wellness
Action Plans as recommended by
MIND, and stress risk assessment
tools;
• Employee Assistance Programme
with access to online resources, 24/7
helpline and counselling services;
• A commitment to continuously
review our mental health support
across the organisation and provide
further initiatives in the future.
GENDER PAY GAP REPORT
As of April 2019, we are pleased to report
that our mean gender pay gap (6.5%)
has improved on last year (9.2%) and
2017 (12.6%).
• Women’s hourly rate is 6.5% lower
(mean) and 10.3% higher (median)
• Top salary quartile has 81.3% men and
18.7% women
• Upper middle salary quartile has
69.1% men and 30.9% women
• Lower middle salary quartile has
80.2% men and 19.8% women
• Lower salary quartile has 82.5% men
and 17.5% women
• 0% of men and women received
bonus pay
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.
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EXECUTIVE
BOARD
ANDREW WASS
CEO
CHRIS SCOTT
CFO
GARETH BEVAN
CCO
OPERATIONAL
BOARD
JONATHAN MEAGER
E-COMMERCE
DIRECTOR
JOINED 2007
ROB NEWPORT
OPERATIONS DIRECTOR
CHARLOTTE MAHON
HR DIRECTOR
JOINED 2016
JOINED 2015
SENIOR
MANAGEMENT
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HEAD OF UK
BUYING
JOINED 2018
HEAD OF DIGITAL
MARKETING
JOINED 2015
SWEDISH COMMERCIAL
MANAGER
JOINED 2016
GERMAN GENERAL
MANAGER
JOINED 2017
UK LOGISTICS
MANAGER
JOINED 2005
HEAD OF CUSTOMER
SERVICE
JOINED 2005
SWEDISH LOGISTICS
MANAGER
JOINED 2016
GERMAN LOGISTICS
MANAGER
JOINED 2020
29
Strategic ReportCorporate GovernanceFinancial Statements
SUSTAINABILITY
DEVELOPING
OUR APPROACH
TO SOCIAL
RESPONSIBILITY
This section contains a summary
of our progress in three key areas.
MODERN SLAVERY
We are committed to adopting and
improving practices that ensure there is
no slavery and human trafficking in our
supply chain or any other part of our
business. The products we sell are
manufactured in many different
countries, and we aim to ensure that
these values are upheld across our
supply chain.
To achieve this, we are committed to
identifying and assessing areas of our
business where there could be potential
risks of modern slavery, be that directly
or indirectly within our supply chain. We
seek to develop and implement effective
systems and controls to review and
monitor compliance with our policy.
We sell many well-known other-
branded products and in the year
ending 31 March 2020 third-party
brands accounted for 66% of our
sales. We purchase these products
from European-based suppliers, many
of whom are part of larger global
organisations. These organisations
acknowledge and generally publish their
commitment to anti-slavery practices.
Our own-brand products are
sourced from manufacturers in
several countries around the globe
and are often manufactured to own
specification and design. As of 31 March
2020, we had active relationships
with over 50 manufacturers,
predominantly in the Far East.
We conduct our own independent
inspections of third-party facilities
involved in the manufacture of our
products. During these inspections we
carry out extensive checks and produce
written ‘factory inspection’ reports
that are shared with the managers
and/or owners of the facilities, and
include formal recommendations
to be actioned where appropriate.
We will stop using any factories that fail
to meet the standards that we set. In the
29-month period since first publication
of our policy, we have conducted
40 factory inspections.
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ENVIRONMENT
As a growing company we have
a responsibility to reduce our
environmental impact, and we can
achieve this through technology,
continuous improvements in operational
efficiency, and doing things in new ways.
Initiatives in 2020 included:
• Revamped packaging – in FY20 we
developed a bespoke range of
packaging including angled guitar
boxes and cymbal boxes. These
packaging solutions provide a more
secure shipping solution resulting in
fewer damaged items, and help
reduce our environmental footprint
through better trailer fill; reduce our
usage of extra packaging materials to
block and brace the product; improve
line efficiency through better packing
flow; and ultimately provide a better
customer experience with less
packaging waste.
• Alternative void fill solution – made
from near 100% recycled materials
and designed to significantly reduce
the amount required to achieve the
same result.
• Reduced paper use – Management
estimate the impact of paperless
trade integrations with couriers and
paperless invoicing has led to saving
of c.400 trees in 2019.
Our carbon intensity is reported in the
Directors’ report on page 45.
CHARITABLE PARTNERSHIPS
CHANGING
LIVES
Music can make a real difference to people’s wellbeing
and we’re supporting the Changing Lives charity by
donating musical instruments to people in need.
COVID-19 has impacted all of our lives, and the need to
stay at home has transformed how we live. Dealing with
the implications of the pandemic is not easy, particularly
for the most vulnerable and socially excluded. Not only
do they deal with the stress of their circumstances,
the opportunity for relief might not always be available.
But light relief is an important element in preserving
mental wellbeing.
Changing Lives is a charity that operates in the North of
England and the Midlands. It provides compassionate
shelter, support and other services, with more than
100 projects in the UK. Having been in operation for over
50 years, Changing Lives aims to help with homelessness,
employment, women/children’s support, and drug/
alcohol dependency.
Their shelters are an essential part of people being able to
build a future for themselves. Finding the roots of strengths
and talents in their residents, Changing Lives combines
recovery with building esteem and skills. Using the ‘Theory
of Change’ process, Changing Lives gives people the
chance to change their lives for the better. Almost 20%
of staff at Changing Lives have also been through the
process themselves.
Relief from the pressures of difficult times can be hard to find.
We believe that learning to play music enriches people’s lives,
improves confidence, relieves stress, and helps build bonds
between people. While there is no one-size-fits-all way to
improve mental wellbeing, music has seen some strong
scientific evidence for its ability to help improve mental
health. This is something that we’re well positioned to help
with, and we’re delighted to lend our support.
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JESSIE’S
FUND
Jessie’s Fund enables thousands of children with life
limiting illnesses or serious disabilities to be heard
through the language of music.
By providing opportunities for them to access music
therapy and to participate in musical activities, children
who have few ways of communicating are given a voice.
Jessie’s Fund was founded in memory of a bright and
musical little girl who died at the age of nine. Based in her
home city of York, the award-winning charity benefits
children in hospices, special schools and hospitals all over
the UK.
Gear4music is delighted to be in a supportive partnership
with Jessie’s Fund: as two York-based organisations,
both with music at their core, and both with a wide
geographical reach, we have much in common. With
our help Jessie’s Fund will be able to reach many more
children for whom music can feel like a lifeline.
We continue to support our friends at Music For All –
a charity that has a primary focus of ‘making more
musicians’ by supporting musical education as well as
helping individuals and community projects within the UK.
MUSIC
FOR ALL
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Strategic ReportCorporate GovernanceFinancial Statements
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 on these processes is set
out in the governance section.
This section focuses 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:
WWW.GEAR4MUSICPLC.COM
OPERATIONS
Risk
COVID-19
UK’S DECISION
TO LEAVE THE
EU/‘BREXIT’
Description
Mitigation
COVID-19 has had a significant and enduring
impact on people, societies, business and
national economies. It is difficult to predict the
level and shape of consumer demand post-
lockdown, and the short-term and permanent
impact in different markets.
COVID-19 has had a significant impact on retail
and warehousing operations.
Consumer confidence and disposable income
may be lower and more difficult to forecast
post-lockdown.
Shopping habits may have changed
post-lockdown.
Operational capability and capacity could be
impacted if one or more distribution centres were
forced to close
Supply chains and product availability could be
adversely impacted.
Uncertainty in the UK and European economies
ahead of the end of the transition period on
31 December 2020, could potentially impact
on consumer confidence and the ability of the
Group to maintain sales growth.
Governments could influence cross-border
controls, which could make it more difficult for us
to move products across borders to customers
and/or between our distribution centres.
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.
Controls on the freedom of movement of people
may impact the availability of European workers
in the UK.
The safety of our employees and customers has
been and continues to be our priority.
By quickly and effectively adapting our working
practices, all of our distribution centres remained
open through the crisis.
A large proportion of our own-brand products are
sourced from China and, as we do every year, we
built up stock ahead of Chinese New Year and
had sufficient stock on-hand to manage until
factories reopened.
We placed significant other-brand stock orders
ahead of lockdown, and have maintained good
availability across our ranges. Our supply chains
do not appear to have been materially impacted at
this stage.
Early indications are that some of the shopping
habits that consumers have displayed during
lockdown, including channel shift to online,
may persist post-lockdown.
Gear4Music is financially robust and well placed
to benefit from the transition to a ‘new normal’.
Developments continue to be monitored.
We would look to minimise cross-border activity
with our European operations fulfilling a higher
proportion of European demand, and our UK
operation focusing on the UK. The Group has
trading subsidiaries in Sweden and Germany and,
if and when appropriate, operational arrangements
could be adapted and these entities become
standalone businesses.
The Group has established teams and significant
capacity in its Swedish and German sites.
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
proportionally more other costs in Euros and Krona
partly mitigates the risk.
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OPERATIONS CONTINUED
Risk
Description
Mitigation
RAPID GROWTH
NEW JURISDICTIONS
TECHNOLOGICAL
CHANGES
DISTRIBUTION
CENTRES
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.
.
The Plc and Operational Boards actively monitor
and respond, so as to maintain systems and
practices that are appropriate for the operations
and scale of the Group.
FY20 has been a period of consolidation with a
high proportion of senior management time and
software development resource dedicated to
improving internal processes and controls, and
overall Group resilience.
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. .
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The Group’s expansion into new jurisdictions may
not be successful. Further expansion into markets
outside the UK 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 UK 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 and 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 UK, the Group’s attempt to expand into
new geographic markets may be unsuccessful.
Unless the Group is able to respond to
technological advances it may not be
able to effectively build and/or maintain
a competitive advantage.
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 its 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 operates three distribution centres
and as such is not completely reliant on a
single site.
The Board will routinely direct Management
to seek professional input into any such
major developments.
The Group has local subsidiaries in Sweden and
Germany and recruited local management familiar
with local laws and regulations.
Any future advances into Europe will continue
to be in a measured and capital efficient manner.
The Group continues to allocate a significant annual
budget to software development: £2.8m in FY20
and have plans to increase this spend in FY21.
Software development is in-house enabling the
Group to assert greater control and drive cost
efficiency to help mitigate such risks.
The Group operates from three locations, mitigating
the risk of over-dependence on any single location.
The Group, in conjunction with its insurance broker,
ensures 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.
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Strategic ReportCorporate GovernanceFinancial Statements
RISKS AND UNCERTAINTIES
CONTINUED
OPERATIONS CONTINUED
Risk
Description
Mitigation
WAREHOUSING,
ONWARD
DISTRIBUTION TO
CUSTOMERS AND
LOGISTICS
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 significant experience in the sector.
Any rapid increase 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.
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 operates from three distribution centres,
each with their own local logistics relationships,
thereby reducing the dependency on any single site
or local network.
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.
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CHANGE TO SEARCH
ENGINES’ ALGORITHMS
DATA SECURITY AND
IT RELIABILITY
BRAND AND PROPOSITION
MARKET
RECOGNITION
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
backup 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.
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.
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 to prevent their natural listings
from being manipulated, 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. 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.
Developing and maintaining the reputation of,
and value associated with, the Group’s brands is
of central importance to the ongoing 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 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.
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BRAND AND PROPOSITION CONTINUED
Risk
Description
Mitigation
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.
Amazon sells 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.
RESOURCES AND RELATIONSHIPS
SUPPLY AND SALE OF
THIRD-PARTY
BRANDED PRODUCTS
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.
Whilst sales of third-party branded products
accounted for approximately 66% of the Group’s
turnover in FY20 (FY19: 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.
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RELIANCE ON
SUB-CONTRACT
MANUFACTURERS
DEPENDENCE ON
KEY PERSONNEL
The Group sub-contracts manufacture of its
own-brand musical instruments and equipment
to independent third-party businesses in
Southeast 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 17 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 manufacturers,
that the Group seeks to adhere to rigidly.
The loss of any key individual or the inability to
attract appropriate personnel could impact upon
the Group’s future performance.
Should the Group fail to retain or attract suitably
qualified and experienced personnel, it may not
be able to compete successfully.
The Senior Management team is compensated
through a combination of market-rate salaries and
longer-term share-based incentives to align their
remuneration with the continued success of
the Group.
The Board continues to recruit into key management
positions as and when positions are identified.
An Operational Board meets on a regular basis to
focus on all trading and commercial matters.
Key man insurance is in place re: Andrew Wass,
Gareth Bevan and Chris Scott.
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Strategic ReportCorporate GovernanceFinancial Statements
DUTY TO PROMOTE THE SUCCESS OF THE COMPANY
Engaging with our stakeholders and acting in a way that
promotes the long-term success of the Company, while taking
into account the impacts of our business decisions on our
stakeholders, are central to our strategic thinking and our
statutory duties in accordance with Section 172(1) of the
Companies Act 2006 (‘s.172’). The content in this section
constitutes our s.172 statement, as required under the
Companies (Miscellaneous Reporting) Regulations 2018.
Our impact on, and engagement with, our key stakeholder
groups are considered within the implementation of our Group
strategy. Our principal stakeholder groups include: employees,
customers, suppliers, the environment and our shareholders.
How we engage with these groups is covered throughout
the report.
The Board of Directors consider, both individually and together,
that they have acted in the way that they consider, in good faith,
would be most likely to promote the success of the Company
for the benefit of its members as a whole, having regard to the
stakeholders and matters set out in s.172 (a–f of the Companies
Act) in the decisions taken during the year. Our plan is designed
to have a long-term beneficial impact on the Company and
its stakeholders.
VIABILITY AND S172 STATEMENT
ASSESSMENT OF PROSPECTS AND VIABILITY
The Directors are confident that the Group has sufficient
financial resources, and in 2020 the business has demonstrated
continued revenue growth and markedly improved profitability.
As such the Group is well placed to manage its business risks
and flourish.
The Group operates annual budgeting and monthly
reforecasting cycles, linked to strategic review and planning.
Weekly and monthly reporting is used to monitor, control and
report on performance.
OPERATIONS
The Group’s business activities and position in the market,
together with the factors that are likely to affect future
development and performance are set out in the Strategic
Report on pages 1 to 35.
The Directors have considered the Group’s growth prospects
based on its product proposition and online offering in the UK
and Europe, and concluded that potential growth rates remain
strong as channel shift continues and customers move online.
There is a diverse supply chain with no key dependencies and
over 80% of Administrative expenses relate to marketing and
labour costs.
FINANCES
The Group’s policy is to ensure that it has sufficient facilities to
cover its future funding requirements. Short-term flexibility is
available through import loans and overdraft facilities.
At 31 March 2020 the Group had £7.8m cash (31 March 2019:
£5.3m) and on 1 June 2020 the Group’s bankers, HSBC,
confirmed that the Group’s import loan and overdraft facilities
had been renewed at a combined £14m (FY19: £10m) for a
further 12 months. The Directors are confident that the facilities
will be renewed in 2021 and this has been factored in to their
going concern assessment.
As with any company placing reliance on external funding for
financial support, the Directors acknowledge that there can be
no certainty that this support will continue, although, at the
date of approval of these financial statements, they have no
reason to believe that it will not do so.
COVID-19
The Directors have carefully considered the impact of COVID-19
on the Group’s financial position, liquidity and future performance.
All three distribution centres have remained open throughout
the pandemic, and higher levels of orders have continued to
be fulfilled. In the period post year end, sales have remained
at materially elevated levels compared to business plan with
improved margins, and we have also incurred lower marketing
costs than we would typically expect.
Having duly considered all of these factors and having reviewed
the forecasts for the coming year, the Directors have a
reasonable expectation that the Group has adequate resources
to continue trading for the foreseeable future.
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Strategic ReportCorporate GovernanceFinancial Statements
CORPORATE GOVERNANCE REPORT
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
experience. 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 page 42.
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 Group is controlled by the Board of Directors. The Board is
headed by the Chairman, comprises five Directors, of which
three are Executive and two are Non-Executive, meeting the
QCA Code’s guidance that a board should have at least two
independent non-executive directors (‘NEDs’). It is recognised
that the CEO, being a major shareholder, risks individual
dominance of the Board but the Board’s view is that the
independent NEDs and committees mitigate this risk.
CHAIRMAN’S INTRODUCTION
It is the Board’s responsibility to ensure that Gear4music
is managed for the long-term benefit of all shareholders.
A corporate governance framework that is effective whilst
dynamic is one of the foundations of a sustainable growth
strategy and identifying, evaluating and managing risks and
opportunities will underpin long-term value creation.
QUOTED COMPANIES ALLIANCE CORPORATE
GOVERNANCE CODE
Last year the Directors applied the Quoted Companies Alliance
Corporate Governance Code (the ‘QCA Code’), a proportionate,
principles-based approach constructed around ten broad
principles with accompanying guidance, and this section
outlines how the Group operates in each of these key areas.
By following the QCA Code, my Board colleagues and I seek to
ensure that the Group operates efficiently and effectively and
communicates well, to promote confidence and trust in the
Group’s Board and management. The Board aims to balance the
interests and expectations of the Group’s many shareholders and
stakeholders by observing a transparent set of rules, practices
and processes. I believe that by adhering to this clear set of
guidelines, the Group is well placed to deliver medium and
long-term success.
The Board is satisfied that the five Directors collectively provide
a broad range of relevant skills and experience, and that the
composition strikes a good balance between independence
and knowledge of the business, to enable it to effectively
discharge its duties and responsibilities. At an appropriate stage
in the development of the business the Board commits to
appoint a third Non-Executive Director to match the number of
independent Non-Executives to the number of Executives, and
gender balance will be a key criterion in this appointment.
KEN FORD
CHAIRMAN AND NON-EXECUTIVE DIRECTOR
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 is not involved 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.
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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.
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
and their shareholdings as disclosed.
The Board is supported by and receives recommendations
from two committees – an Audit Committee and a
Remuneration Committee.
RE-ELECTION
At each Annual General Meeting one third (or whole number
less than one third) of the directors retires by rotation, and in
August 2019 this was Ken Ford, Chris Scott and Gareth Bevan.
In addition, Directors are subject to re-election at the Annual
General Meeting following their appointment.
SHAREHOLDER COMMUNICATIONS
The Group seeks to maintain a regular dialogue with both
existing and potential investors to ensure that its strategy,
business model and performance are clearly understood.
Understanding what investors and analysts think and helping
these audiences understand our business, is an important part
of taking our business forward.
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The Chief Executive Officer and Chief Financial Officer regularly
meet with investors and analysts to provide them with updates
on the Group’s business and to obtain feedback regarding the
market’s expectations of the Group. The Group’s NOMAD and
public relations advisor provide written feedback after these
presentations and meetings, and this feedback is shared with
the Board.
The Group invites all shareholders to attend its Annual General
Meeting where they can meet and question the Directors, and
express ideas or concerns. The Notice of the Meeting is sent
to shareholders at least 21 days before the Meeting and the
chairs of the Board and all committees together with all other
Directors, routinely attend the AGM and are available to answer
questions raised by shareholders.
Where voting decisions are not in line with the Group’s
expectations the Board will engage with those shareholders to
understand and address any issues.
The Board receives copies of all articles relating to the
Group that are published in the financial press, via its public
relations advisors.
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.
An Operational Board comprising the three Executive Directors
and three further directors of the trading subsidiary, meets
regularly to analyse and discuss operational and commercial
matters, and identifies any material matters to escalate to the
Plc Board. The Operational Board met ten times in the financial
year.
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
2018 to the date of approval of the Annual Report and Accounts
and is consistent with the guidance for directors on internal
control issued by the Turnbull Committee.
The table below shows the number of Board meetings and
Audit Committee and the Remuneration Committee meetings
held in the period from 1 April 2019 to the date of approval of
the Annual Report and Accounts. The table also show the
attendance of each Director:
Director
Ken Ford
Andrew Wass
Chris Scott
Gareth Bevan
Dean Murray
Role
Non-Executive Chairman
CEO
CFO
CCO
NED
Board
meetings
Audit
Committee
meetings
Remuneration
Committee
meetings
13/13
13/13
13/13
13/13
13/13
3/3
3/3
3/3
2/2
2/2
2/2
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Strategic ReportCorporate GovernanceFinancial Statements
CORPORATE GOVERNANCE REPORT
CONTINUED
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;
• a comprehensive budgeting process completed once a year
•
that is reviewed and approved by the Plc Board;
• detailed monthly reporting of trading results including
detailed profit and loss accounts, balance sheets and cash
flows, with supporting variance analysis;
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.
AUDIT COMMITTEE REPORT
OVERVIEW
The Audit Committee (‘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.
Meetings of the Committee are held at least twice per year and
the auditor is invited to these meetings. The Committee meets
early in the financial year to discuss and agree the scope for the
forthcoming external audit, and again 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.
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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
‘whistleblowers’ 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
In FY20 Grant Thornton UK LLP were appointed auditors to the
Company, replacing KPMG LLP.
Fees in relation to services provided by the external auditor in
FY20 (Grant Thornton UK LLP) and FY19 (KPMG LLP) were:
Audit fee
Other fees
Total fees
FY20
£000
90
–
90
FY19
£000
75
–
75
The Committee is satisfied with the independence and
objectivity of the auditors, Grant Thornton UK 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.
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 shareholding 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.
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.
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.
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 minimum,
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
noting their appointment may be terminated with one
month’s notice.
Executive
Andrew Wass
Chris Scott
Gareth Bevan
Non-Executive
Ken Ford
Dean Murray
Total
DIRECTORS’ INTERESTS
Details of the Directors’ shareholdings are included in the
Directors’ report on page 44.
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.
All Executive Directors have service agreements terminable by
the Company with six months’-notice.
The remuneration of each of the Directors for the year
ended 31 March 2020 is set out below. In FY20 Andrew Wass
took a six-month voluntary pay reduction in light of FY19
financial performance. These values are included within the
audited accounts.
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Basic salary
£000
Benefits
£000
Pensions
£000
Total FY20
(12 months)
£000
Total FY19
(13 months)
£000
114
166
154
36
33
503
2
2
1
–
–
5
3
6
5
–
1
15
119
174
160
36
34
523
252
211
201
38
35
737
On 1 May 2019 life cover policies were put in place in relation to Gareth Bevan and Chris Scott, with their families as the beneficiaries.
DIRECTORS’ SHARE OPTIONS
Executive
Scheme
1 April
2019
Awarded during
the period
Vested and
exercised during
the period
Andrew Wass
Chris Scott
Gareth Bevan
Director cash plan 2017
LTIP
CSOP
LTIP
CSOP
LTIP
–
45,000
3,606
45,000
3,606
52,500
–
–
–
–
–
–
–
–
–
–
–
–
31 March
2020
–
45,000
3,606
45,000
3,606
52,500
Date
granted
June 2017
Nov 2018
June 2017
Nov 2018
June 2017
Nov 2018
EMI AND DIRECTOR CASH PLAN
An EMI share incentive plan for Chris Scott and Gareth Bevan
and equivalent discretionary cash bonus plan for Andrew Wass,
vested in full in June 2018.
Chris Scott received a bonus of £24,553 and Gareth Bevan a
bonus of £25,443 to cover the income tax, National Insurance
and exercise price of the award. Chris Scott and Gareth Bevan
both received 9,978 shares valued at £71,482 at that time. Andrew
Wass exercised his entitlement under the Director cash plan to
an equivalent award of £72,041, and this was settled in cash.
CSOP
There is a CSOP share incentive plan in place for Chris Scott
and Gareth Bevan and equivalent discretionary cash bonus plan
for Andrew Wass. The performance conditions have not been
met and these Director options will lapse in FY21.
LTIP
In FY19 a new long-term incentive plan (‘LTIP’) involving
Andrew Wass, Chris Scott, and Gareth Bevan was put in place
and involved the issue of 210,000 ‘B’ Ordinary shares in
Gear4music Limited, a subsidiary of the Company. These ‘B’
shares vest from 2021–26 and can be exchanged on a
one-for-one basis for new Ordinary Company shares subject to
meeting specified criteria, including reaching a specified target
share price for 80% of the award, and pre-determined revenue
and profitability targets for 20%.
The initial subscription cost was covered by way of bonus and
Andrew Wass, Chris Scott, and Gareth Bevan received bonuses
of £7,217, £7,217 and £8,350 respectively.
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41
Strategic ReportCorporate GovernanceFinancial Statements
BOARD OF DIRECTORS
PROVIDING
LEADERSHIP
TO THE GROUP
ERIC (KEN) FORD
CHAIRMAN AND
NON-EXECUTIVE DIRECTOR
ANDREW WASS
CHIEF EXECUTIVE
OFFICER
CHRISTOPHER (CHRIS) SCOTT
CHIEF FINANCIAL OFFICER
AND COMPANY SECRETARY
Ken was previously Chief Executive of
the quoted investment bank Teather
& Greenwood. Ken brings over 36
years of City experience and a strong
understanding of shareholder value,
strategic planning and corporate
transactions. Ken is a former
Chairman of the Quoted Companies
Alliance (‘QCA’) and is a Fellow of
the Chartered Securities Institute.
Ken is currently Chairman of AIM-quoted
company SDI Group plc and a Non-
Executive Director of PrimaryBid Limited.
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.
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 a further nine years
in their advisory practice including
a year on secondment at Barclays Bank.
He holds an Executive Masters in
Business Administration.
Ken is Chairman of the Remuneration
Committee and a member of the
Audit Committee.
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GARETH BEVAN
CHIEF COMMERCIAL
OFFICER
DEAN MURRAY
NON-EXECUTIVE
DIRECTOR
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
21 years’ experience in musical
equipment retail.
Dean joined the board of Gear4music
in March 2012 as a Non-Executive
Director and originally as Chairman.
Dean is a Chartered Accountant.
Dean’s previous roles include former
Chief Financial Officer and Chief
Operating Officer of Myriad
Childrenswear Group, and
was recently Chairman of French
Connection Group plc and the
Neville Johnson Group.
Dean is currently Chairman of BHID
Group Limited, Construction Materials
Online Limited, Yumi International
Limited, and Weird Fish Holdings Limited,
and is a Director of M.S. Team Limited.
Dean is Chairman of the Audit
Committee and a member of the
Remuneration Committee.
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43
Strategic ReportCorporate GovernanceFinancial Statements
DIRECTORS’ REPORT
The Directors present their report and the audited financial
statements for the year ended 31 March 2020.
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-brand 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 35. This report includes sections
on strategy and markets and considers key risks and key
performance indicators.
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.
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 52 to 79.
DIVIDENDS
The Directors do not recommend the payment of a dividend
(FY19: nil).
GOING CONCERN
After making appropriate enquiries, the Directors have
confidence that the Group has adequate resources to continue
in operational existence for the foreseeable future. COVID-19
created operational challenges alongside exceptionally strong
trading for the first two months of FY21. For these reasons,
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 page 29 and
pages 38 to 43. 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 page 41.
SIGNIFICANT SHAREHOLDERS
The Company is informed that at 31 May 2020, individual
registered shareholdings of more than 3% of the Company’s
issued share capital were as follows:
Andrew Wass
AXA Investment Mgrs
TB Amati Investment Funds
FIL Limited
Blackrock Investment Ltd
Octopus Investment Ltd
Canaccord Genuity Group Inc
Number of
shares
% of issued
share capital
7,161,993
2,486,419
1,269,789
1,144,767
978,742
841,039
799,968
34.2%
11.9%
6.1%
5.5%
4.7%
4.0%
3.8%
DIRECTORS’ SHAREHOLDINGS
The beneficial interests of the Directors in the share capital
of the Company at 31 March 2019 and 31 March 2020 were
as follows:
1 April 2019
Number of
shares
31 March 2020
Number of
shares
31 March 2020
% of issued
share capital
Executive Directors
Andrew Wass
Gareth Bevan
Chris Scott
Non-Executive Directors
Dean Murray
Ken Ford
7,161,993
114,760
104,840
7,161,993
114,760
104,840
197,520
40,000
197,520
40,000
34.2%
0.6%
0.5%
1.0%
0.2%
In November 2018 a long-term incentive plan was announced
involving Andrew Wass, Chris Scott and Gareth Bevan and three
directors of Gear4music Limited. The plan involved the issue of
210,000 ‘B’ Ordinary shares in Gear4music Limited that vest
from 2021–26 and can be exchanged on a one-for-one basis
for new Ordinary Company shares subject to meeting specified
criteria, including reaching a specified target share price for 80%
of the award, and pre-determined revenue and profitability
targets for 20%.
All share option plans and are outlined in the Remuneration
Committee report on page 41, and on pages 76 to 78.
The middle market price of the Company’s Ordinary shares on
31 March 2020 was 172.5 pence (31 March 2019: 217.5 pence),
and the range in the year was 142.5 pence to 280.0 pence, with
an average price of 212.7 pence.
RESEARCH AND DEVELOPMENT
The Group capitalised £2.8m during the year (FY19: £2.7m)
of software development costs relating to the in-house
e-commerce software platform. Amortisation of the software
platform totalled £1.6m in the period (FY19: £1.2m).
FINANCIAL INSTRUMENTS
The Group’s policy and exposure to financial instruments is set
out in Note 18.
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.
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DONATIONS
During the year ended 31 March 2020 the Group made no
donations (FY19: £nil).
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 31 March 2020 was
24 days (31 March 2019: 27 days). This is a weighted average by
invoice value, with reference to actual invoice and payment dates.
GREENHOUSE GAS EMISSIONS
The disclosures required under ‘Streamlined Energy and
Reporting’ (‘SECR’) are included below, and insight into
initiatives to reduce the direct environmental impact of the
Group are detailed on page 31.
Year ended
31 March
2020
Period ended
31 March
2019
Scope 1 – Combustion of fuel and
operation of facilities (kWh)
9,392
9,863
Scope 2 – Electricity, heat, steam, and
cooling purchased for own use (kWh) 4,108,558
4,207,511
Total energy use (kWh)
4,117,950
4,217,374
CO2e equivalent (kg CO2e)
1,052,392
1,077,788
Intensity measurement – kg CO2e
per customer order
0.93
0.98
Note: These emissions were calculated using the methodology set out in HM
Government’s ‘Environmental Reporting Guidelines: Including streamlined energy and
carbon reporting guidance’ (March 2019), and applies the conversion factors from Defra.
This information has been prepared consistent with the guiding principles of the ‘Climate
Disclosure Standards Board’ protocol. This information has not been independently
audited. As required, only the impact of the Group’s direct activities have been included.
All material sources of emissions are reported.
CORPORATE GOVERNANCE
Details regarding the Group’s corporate governance
arrangements as required by the Companies (Miscellaneous
Reporting) Regulations 2018, are detailed in the Governance
section included in this Annual Report.
AUDITOR
Following a tender process, Grant Thornton UK LLP were
appointed auditors to the Company, replacing KPMG LLP.
A resolution for the reappointment of Grant Thornton UK 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
22 June 2020
Registered office: Holgate Park Drive, York, YO26 4GN
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STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE
ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
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. Under 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 they
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.
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.
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.
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.
ANDREW WASS
DIRECTOR
22 June 2020
CHRIS SCOTT
DIRECTOR
22 June 2020
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GEAR4MUSIC (HOLDINGS) PLC
OPINION
OUR OPINION ON THE FINANCIAL STATEMENTS IS UNMODIFIED
We have audited the financial statements of Gear4music (Holdings) plc (‘the Parent Company’) and its subsidiaries (the ‘group’)
for the year ended 31 March 2020, which comprise the Consolidated Statement of Profit and Loss and Other Comprehensive
Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows, the Company Balance Sheet, the Company Statement of Changes in Equity and notes to the financial
statements and notes to the company balance sheet, each including a summary of significant accounting policies. The financial
reporting framework that has been applied in the preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that
has been applied in the preparation of the Parent Company financial statements is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and
Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice).
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 31 March
2020 and of the group’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; 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 under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’
section of our report. We are independent of the group and the Parent Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
THE IMPACT OF MACRO-ECONOMIC UNCERTAINTIES ON OUR AUDIT
Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a
consequence of the effects of macro-economic uncertainties such as COVID-19 and Brexit. All audits assess and challenge the
reasonableness of estimates made by the directors and the related disclosures and the appropriateness of the going concern basis
of preparation of the financial statements. All of these depend on assessments of the future economic environment and the
Group’s future prospects and performance.
COVID-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report
their effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts
unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the Group’s future
prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future
implications for a Group associated with these particular events.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
•
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt
•
about the group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at
least 12 months from the date when the financial statements are authorised for issue.
In our evaluation of the directors’ conclusions, we considered the risks associated with the group’s business model, including
effects arising from macro-economic uncertainties such as COVID-19 and Brexit, and analysed how those risks might affect the
group’s resources or ability to continue operations over the period of at least 12 months from the date when the financial
statements are authorised for issue. In accordance with the above, we have nothing to report in these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty
in this auditor’s report is not a guarantee that the group will continue in operation.
OVERVIEW OF OUR AUDIT APPROACH
• Overall materiality: £240,000, which represents 0.2% of revenue;
• Key audit matters were identified as revenue recognition, capitalisation of internally
generated development costs, valuation of goodwill and other intangible assets and
Going Concern; and
• We performed full scope audit procedures on the financial information of the significant
group components Gear4music (Holdings) plc and Gear4music Limited. We performed
analytical procedures on the non-significant components, Gear4music Sweden AB,
Gear4music GmbH and Gear4music Norway AS.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GEAR4MUSIC (HOLDINGS) PLC
CONTINUED
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that 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.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
REVENUE RECOGNITION
Under ISA (UK) 240 there is a presumed risk that
revenue may be misstated due to the improper
recognition of revenue.
The risk is assessed to be in relation to manual
adjustments to revenue in the year, being the sales
cut off provision, the warranty income provision and
the returns provision. We have assessed this risk to
reside primarily within these revenues as there in an
increased risk of error in these transactions due to the
judgements applied by management. There is an
increased risk that these revenues did not occur if
they have been recognised through a manual journal
process.
In respect of revenue recognised for the sale of
goods, there is a risk that revenue is recognised before
the risks and rewards of ownership have transferred to
the customer.
We therefore identified revenue recognition as a
significant risk, which was one of the most significant
assessed risks of material misstatement.
CAPITALISATION OF INTERNALLY GENERATED
DEVELOPMENT COSTS
The group capitalises internally generated
development costs. In the year ended 31 March 2020
£2.8m of these costs were capitalised within other
intangible assets.
There is a risk that the specific requirements under
International Accounting Standard (IAS) 38 ‘Intangible
Assets’ regarding capitalisation of internally generated
intangible assets are not met, due to the judgements
applied by management and that the gross book
value is materially misstated.
We therefore identified capitalisation of internally
generated development costs as a significant risk,
which was one of the most significant assessed risks
of material misstatement.
Our audit work included, but was not restricted to:
• Gaining an understanding of the design of the controls in place over
significant revenue streams and performing a walkthrough test to
confirm they were implemented as designed;
• For a sample of months, testing the operating effectiveness of these
controls
• Evaluation of the group’s revenue recognition accounting policies for
consistency with the requirements of IFRS 15 ‘Revenue from Contracts
with Customers’;
• Testing a sample of revenue transactions across all material revenue
streams and agreeing them invoice and proof of delivery to confirm that
income has been appropriately recognised in accordance with the
group’s accounting policy;
• Analytical procedures comprising comparison of revenue from the sales
of goods and provision of services with equivalent revenue in the prior
year and budget and corroborating explanations from management for
unusual and significant variances;
• Performing analysis of and sample tested credit notes raised throughout
the year, and post year end, determining if these credit notes raised
related to the reported year, and thus determine if the credit note
provision in place was complete and accurate;
• Reviewing and recalculating the warranty income adjustment,
challenging management on the deferred income balance included in
the financial statements; and
• Performing cut off testing by sampling dispatches made close to the
year end and agreeing through to proof of delivery to determine if the
sale was recognised in the correct period. We have reviewed
management’s cut off provision in combination with this testing to
ensure it is complete and accurate.
The group’s accounting policy on revenue recognition is shown in Note 1.15
to the financial statements and related disclosures are included in Note 2.
KEY OBSERVATIONS
Based on our work performed, we have not identified any material
misstatements with respect to revenue recognition and manual
adjustments to revenue, specifically the warranty, income and returns
provisions.
Our audit work included but was not restricted to:
• Gaining an understanding of the design of the controls in place over the
capitalisation of internally generated development costs and performing
a walkthrough to confirm they were implemented as designed;
• Challenging management’s capitalisation policy for intangible assets to
ensure it is reasonable and in accordance with the relevant financial
reporting framework; and
• Testing on a sample basis the additions to intangible assets in the year to
supporting documentation and evidencing that they have been
appropriately capitalised;
The group’s accounting policies on capitalisation of internally generated
development costs are shown in Notes 1.1 to the financial statements and
related disclosures are included in Note 9 and Note 22.
KEY OBSERVATIONS
Based on our audit work, we have identified that the capitalisation of
internally generated developments costs has been accounted for in
accordance with the group’s accounting policies. We have not identified
any material misstatements with respect to capitalisation of these costs.
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48
Key Audit Matter – Group
How the matter was addressed in the audit – Group
VALUATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS
The group records goodwill and other intangible
assets of £9.1m as at 31 March 2020.
Management has undertaken its annual impairment
review by determining the recoverable amount which
is the higher of value in use and fair value less costs of
disposal. Management have calculated value in use
using a discounted cash flow model, allowing for the
uncertain macro-economic environment. There are
significant judgements in these calculations including
forecasting future operating cash flows and
estimating the discount rate used.
We therefore identified valuation of goodwill and
other intangible assets as a significant risk, which was
one of the most significant assessed risks of material
misstatement.
Our audit work included, but was not restricted to:
• Gaining an understanding of the design of the controls in place over the
impairment of goodwill and other intangible assets and ensuring that
they were implemented as designed;
• For intangible assets, excluding goodwill, challenging management’s
assessment of their useful economic lives, developing an expectation of
amortisation expense for the year and comparing against the
amortisation charge recorded in the financial statements;
• Challenging the assumptions included within management’s calculation
of the value in use, which included gaining an understanding of the key
factors and judgements applied in determining future revenues, altered
appropriately to allow for possible future impacts of the COVID-19
pandemic;
• Challenging the number of the CGUs and the allocation of assets to
the CGUs;
• Challenging of the discount rates and growth rates used in the model;
and
• Performance of sensitivity analysis on the forecast cash flows and their
impact on the carrying value of the intangible assets.
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GOING CONCERN
As stated in ‘the impact of macro-economic
uncertainties on our audit’ section of our report,
COVID-19 is one of the most significant economic
events currently faced by the UK, and at the date of
this report its effects are subject to unprecedented
levels of uncertainty. This event could adversely
impact the future trading performance of the
company and as such increases the extent of
judgement and estimation uncertainty associated
with management’s decision to adopt the going
concern basis of accounting in the preparation of the
financial statements.
As such we identified going concern as a significant
risk, which was one of the most significant assessed
risks of material misstatement.
The group’s accounting policies on valuation of goodwill and other
intangible assets are shown in Notes 1.9 to 1.12 to the financial statements
and related disclosures are included in Note 9.
KEY OBSERVATIONS
Based on our audit work, we have identified that the valuation of goodwill
and other intangible assets was accounted for in accordance with the
group’s accounting policies. We have not identified any material
misstatements in the carrying value of goodwill and other intangible assets.
We undertook procedures to evaluate management’s assessment of the
impact of COVID-19 on the Group’s Going Concern status. Our audit work
included, but was not restricted to:
• Obtaining management’s forecasts covering the period to June 2021,
including their assessment of the impact of COVID-19;
• Evaluating the key assumptions applied in the forecast for
reasonableness and determined whether they had been applied
appropriately. We also considered whether the assumptions are
consistent with our understanding of the business and with current
lockdown restriction guidance;
• Requesting that management prepare additional sensitised forecasts to
model a range of downside scenarios and assessing these sensitised
forecasts for reasonableness;
• Obtaining confirmation that borrowing facilities have been renewed
post year end;
• Assessing management’s determination of the impact of potential
mitigating factors;
• Assessing the reliability of management’s forecasting by comparing the
accuracy of actual historical financial performance to historic forecast
information; and
• Assessing the adequacy of the going concern disclosures included
within the Financial Statements.
KEY OBSERVATIONS
Based on the procedures performed, we have not identified any issues
regarding management’s assessment of the impact of COVID-19 on the
Group’s Going Concern status.
We have not identified any key audit matters relating to the audit of the financial statements of the Parent Company.
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GEAR4MUSIC (HOLDINGS) PLC
CONTINUED
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature,
timing and extent of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a
whole
Performance materiality
used to drive the extent of
our testing
£240,000 which is 0.2% of revenue. The
revenue benchmark is considered the most
appropriate because it is a key performance
indicator for the group’s stakeholders and is less
volatile than profit during the Group’s growth
phase.
£239,000 which is 1.6% of the Parent Company’s
total assets, capped at component materiality.
This benchmark is considered the most
appropriate because the activities of the Parent
Company are primarily those of a holding
company and its major activities relate to holding
investments in the group’s subsidiaries.
70% of financial statement materiality.
70% of financial statement materiality.
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Communication of
misstatements to the audit
committee
£12,000 and misstatements below that
threshold that, in our view, warrant reporting on
qualitative grounds.
£11,900 and misstatements below that threshold
that, in our view, warrant reporting on qualitative
grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and
risk profile and in particular included:
• documenting our understanding of and evaluating the processes and controls relevant to the key audit matters outlined above;
• evaluation by the group audit team of identified components to assess the significance of that component and to determine the
planned audit response based on a measure of materiality, considering each as a percentage of the group’s total assets, liabilities,
revenues and profit before tax;
• performing full scope audit procedures on the financial information of the Parent Company, Gear4music (Holdings) plc, and the
group’s largest subsidiary, Gear4music Limited. The financial information of the group’s overseas subsidiaries were subject to
analytical procedures;
The components subject to a comprehensive audit approach represent 99% of group revenue, with the components subject to
analytical procedures representing 1% of group revenue. The accounting functions are performed centrally for all group
components subject to full scope audit procedures and all such procedures have been undertaken by the group audit team.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the Annual
Report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
OUR OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 IS UNMODIFIED
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the report of the directors for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the Strategic Report and the report of the directors have been prepared in accordance with applicable legal requirements.
•
MATTERS ON WHICH WE ARE REQUIRED TO REPORT UNDER THE COMPANIES ACT 2006
In the light of the knowledge and understanding of the group and the Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the Strategic Report or the report of the directors.
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MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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.
RESPONSIBILITIES OF DIRECTORS FOR THE FINANCIAL STATEMENTS
As explained more fully in the statement of directors’ responsibilities for the financial statements set out on page 46, the directors
are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the 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 the directors 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 FOR THE AUDIT OF THE FINANCIAL STATEMENTS
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 an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a 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 the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
USE OF OUR REPORT
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.
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MARK OVERFIELD BSC FCA
SENIOR STATUTORY AUDITOR
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Leeds
22 June 2020
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Strategic ReportCorporate GovernanceFinancial Statements
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
AND OTHER COMPREHENSIVE INCOME
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Financial expenses
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
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/(loss) for the period
Basic profit/(loss) per share
Diluted profit/(loss) per share
The accompanying notes form an integral part of the financial statements.
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
120,326
(89,170)
31,156
(27,089)
118,155
(91,239)
26,916
(26,927)
4,067
(989)
3,078
(488)
2,590
309
(93)
(37)
2,769
12.4p
12.2p
(11)
(598)
(609)
446
(163)
–
(89)
(9)
(261)
(0.8p)
(0.8p)
Note
3,4
6
7
8
11
5
5
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Lease liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Other payables
Lease liabilities
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Foreign currency translation reserve
Revaluation reserve
Retained earnings
Total equity
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Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
Note
8
8
9
12
13
14
15
16
17
15
16
17
11
19
19
19
19
19
11,219
8,962
9,084
29,265
22,015
2,501
7,839
32,355
61,620
10,766
–
7,827
18,593
18,661
1,657
5,304
25,622
44,215
(9,949)
(14,442)
(1,148)
(8,555)
(11,533)
–
(25,539)
(20,088)
(3,439)
(107)
(9,519)
(1,407)
(4,272)
(263)
(885)
(14,472)
(5,420)
(40,011)
(25,508)
21,609
18,707
2,095
13,152
(34)
1,674
4,722
21,609
2,095
13,152
3
1,424
2,033
18,707
Notes 1 to 22 form part of these financial statements.
These financial statements were approved by the Board of Directors on 22 June 2020 and were signed on its behalf by:
ANDREW WASS
DIRECTOR
22 June 2020
Company registered number: 07786708
CHRIS SCOTT
DIRECTOR
22 June 2020
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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Balance at 28 February 2018
2,087
13,055
12
1,424
2,307
18,885
Share
capital
£000
Share
premium
£000
Foreign
currency
translation
reserve
£000
Revaluation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Loss for the period
Other comprehensive income
Issue of shares net of expenses
Share-based payments charge
Deferred tax adjustment re: share-based payments
Balance at 31 March 2019
Profit for the year
Other comprehensive income
Freehold property revaluation
Deferred tax impact of revaluation
Share-based payments charge
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Balance at 31 March 2020
–
–
8
–
–
–
–
97
–
–
2,095
13,152
–
–
–
–
–
–
–
–
–
–
2,095
13,152
–
(9)
–
–
–
3
–
(37)
–
–
–
(34)
–
–
–
–
–
(163)
–
–
(22)
(89)
(163)
(9)
105
(22)
(89)
1,424
2,033
18,707
–
–
309
(59)
–
2,590
(34)
–
–
133
2,590
(71)
309
(59)
133
1,674
4,722
21,609
The accompanying notes form an integral part of the financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Profit/(loss) for the period
Adjustments for:
Depreciation and amortisation
Financial expense
Loss on sale of property, plant and equipment
Share-based payment charge
Taxation
Decrease/(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
Repayment of borrowings
Payment of lease liabilities
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign exchange gains
Cash and cash equivalents at end of period
The accompanying notes form an integral part of the financial statements.
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
Note
2,590
(163)
3,8,9
6
7
13
12
16
7
8
9
9
15
14
3,687
989
11
133
488
7,898
(844)
(3,354)
3,273
6,973
501
7,474
50
(740)
(2,820)
(400)
2,293
349
34
(22)
(446)
2,045
1,047
(1,606)
497
1,983
593
2,576
–
(1,785)
(2,703)
(400)
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2
0
(3,910)
(4,888)
–
1,565
(806)
(546)
(1,205)
(992)
2,572
5,304
(37)
7,839
105
5,030
(352)
(593)
(105)
4,085
1,773
3,540
(9)
5,304
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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 Holgate Park Drive, York, YO26 4GN.
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 Companies Act 2006. The Company has elected to prepare its
Parent Company financial statements in accordance with FRS 102; these are presented on pages 80 to 86.
The Group’s accounting policies are set out below and have been applied consistently in the consolidated financial statements,
except in relation to IFRS 16 ‘Leases’ as detailed below in Note 1.2.
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 year ended 31 March 2020 and the 13-month period ended 31 March 2019.
Measurement convention
The financial statements have been prepared on the historical cost basis except for land and buildings that are stated at their fair value.
1.2 ADOPTION OF NEW AND REVISED STANDARDS
Various new or revised accounting standards have been issued which are not yet effective.
The key standard affecting the Group is IFRS 16 Leases that is applicable to the Group for the year ending 31 March 2020 and was
not early adopted by the Group.
IFRS 16 ‘Leases’
Overview
The Group has adopted IFRS 16 for accounting periods commencing 1 April 2019 replacing IAS 17 and applied the modified
retrospective approach. Comparative figures have not been restated.
IFRS 16 impacts the Group’s consolidated financial statements by recognising right-of-use assets representing its right to use the
underlying assets and a corresponding lease liability representing its obligation to make lease payments.
Under IAS 17, the Group recognised operating lease expenses on a straight-line basis over the term of the lease, and recognised
assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense
recognised. Lease incentives received or paid were recognised as an integral part of the total lease expense over the term of the
lease. Rent prepayments were disclosed within prepayments, and deferred income in respect of landlord incentives on property
leases was disclosed within trade and other payables.
Under IFRS 16 right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the lease commencement date and any lease incentives received or premiums paid. The right-of-
use asset is depreciated on a straight-line basis over the life of the lease. Lease liabilities are measured at the present value of the
remaining lease payments, discounted at an incremental borrowing rate which reflects the characteristics of the underlying assets at
1 April 2019. Interest is recognised on the lease liability, resulting in a higher interest expense in the earlier years of the lease term.
Under IFRS 16, rent charges are replaced by a depreciation charge for the right-of-use asset and an interest expense on the lease
liability. The total expense recognised in the Income Statement over the life of the lease is unaffected by the new standard.
There is no impact on cash flows, although the presentation of the Cash Flow Statement has changed with an increase in cash
flows from operating activities being offset by an increase in cash flows from financing activities.
The Group has four leased properties (in York, Manchester, Sweden and Germany). The impact of adopting IFRS 16 is as follows:
Transition to IFRS 16
On transition to IFRS 16 the range of incremental borrowing rates applied to lease liabilities recognised under IFRS 16 were:
Properties
3.9–4.2%
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1 ACCOUNTING POLICIES CONTINUED
1.2 ADOPTION OF NEW AND REVISED STANDARDS CONTINUED
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 April 2019:
Property, plant and equipment
Lease liabilities
IAS 17
Carrying
amount at
31 March 2019
£000
10,766
(453)
10,313
Reclassification
£000
Remeasurement
£000
10,177
(10,983)
(806)
–
–
–
IFRS 16
Carrying
amount at
1 April 2019
£000
20,943
(11,436)
9,507
The following is a reconciliation of total operating lease commitments at 31 March 2019 (as disclosed in the financial statements to
31 March 2019) to the lease liabilities recognised at 1 April 2019:
Total operating lease commitments disclosed at 31 March 2019
Impact of discounting
Finance lease obligations (Note 15)
Total lease liabilities recognised under IFRS 16 at 1 April 2019
Notes relating to IFRS 16 are included at 1.2, 8, 15 and 17.
£000
12,748
(1,765)
453
11,436
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1.3 GOING CONCERN
The Group’s business activities and position in the market are described in the Strategic Report.
An assessment of the Group’s prospects and viability is detailed in the Strategic Report on page 36.
Having duly considered all of these factors and having reviewed the forecasts for the coming year, 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.
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1 ACCOUNTING POLICIES CONTINUED
1.6 CLASSIFICATION OF FINANCIAL INSTRUMENTS ISSUED BY THE GROUP
In accordance with IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the
following two conditions:
(a) they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial
assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable
to the Company (or Group); and
(b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the
Company exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so
classified takes the legal form of the Company’s own shares, the amounts presented in this financial information for called up share
capital and share premium account exclude amounts in relation to those shares.
1.7 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.
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Trade and other receivables
Trade and other receivables are recognised initially at transaction price. Subsequent to initial recognition they are measured at
amortised cost using the effective interest method, less any expected credit losses. The Directors have concluded that any such
credit losses are immaterial.
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
• Freehold land and buildings
4–5 years’ straight-line
20–25% on reducing balance
25% on reducing balance
3–5 years’ straight-line
50-years straight-line
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Assets held under lease are depreciated over their expected useful lives on the same basis as owned assets.
Land and buildings are stated at fair value.
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
1 ACCOUNTING POLICIES CONTINUED
1.8 PROPERTY, PLANT AND EQUIPMENT CONTINUED
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).
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.
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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 expensed 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 value; and
• a provision for the expected product loss on dealing with returns stock.
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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 CGU 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 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 or a Monte Carlo simulation 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.
1.15 REVENUE
Product sales and carriage income
To determine whether to recognise revenue, the Group follows a five-step process:
1
2
3 Determining the transaction price
4 Allocating the transaction price to the performance obligations
5 Recognising revenue when/as performance obligation(s) are satisfied
Identifying the contract with a customer
Identifying the performance obligations
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
1 ACCOUNTING POLICIES CONTINUED
1.15 REVENUE CONTINUED
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring
the promised goods to its customers.
Revenue from the sale of goods and carriage income are recognised when the customer receives the goods ordered at which
point title and risk passes to third parties and revenue can be reliably measured.
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. This balance is held within accruals and
deferred income (Note 16). The value of inventory for sales returns is included in inventory at the year end (Note 12).
Other revenue
Warranty income is recognised ‘over time’ under IFRS 15, by assuming an inputs method that measures progress by reference to
costs incurred towards satisfying that performance obligation as compared to the total expected costs. A contract liability is
recognised for consideration received in respect of unsatisfied performance obligations as deferred income in the statement of
financial position (Note 16).
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 31 March
2020 this income totalled £285,000 (FY19: £240,000). No discount is offered on any sales made through these credit providers.
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1.16 EXPENSES
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 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 period comprises current and deferred tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods.
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 (’CODM’) has been identified as the Board of Directors.
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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 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
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
61,821
58,505
63,672
54,483
120,326
118,155
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
24,562
2,527
27,089
24,113
2,814
26,927
The majority of Group assets are held in the UK except for local right-of-use assets and property, plant and equipment in Sweden
(31 March 2020: £4.5m) and Germany (31 March 2020: £2.7m).
Revenue by Product category
Other-brand products
Own-brand products
Warranty income
Other
3 EXPENSES
Included in profit/loss are the following:
Depreciation of property, plant and equipment
Depreciation of right-of-use 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 – plant and machinery
Auditor remuneration – audit of these financial statements
Auditor remuneration – audit of last year’s financial statements
Auditor remuneration – this year’s audit of financial statements of subsidiaries
Auditor remuneration – last year’s audit of financial statements of subsidiaries
Auditor remuneration – other
Release of rent accrual
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
79,416
35,432
337
5,141
82,125
31,289
296
4,445
120,326
118,155
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
909
1,215
1,563
8
11
–
23
40
–
50
–
–
–
1,039
–
1,254
37
34
1,425
8
–
30
–
45
–
(421)
Auditor remuneration in FY20 relates to Grant Thornton UK LLP; auditor remuneration in FY19 related to KPMG LLP.
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
4 STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including Directors) during the period, analysed by category,
was as follows:
Administration
Selling and distribution
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Equity-settled share-based payments (see Note 20)
Cash-settled share-based payments (see Note 20)
Social security costs
Contributions to defined contribution plans
Year ended
31 March
2020
Number
Period ended
31 March
2019
Number
179
287
466
184
247
431
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
7,736
133
53
1,167
659
9,748
8,146
(22)
(11)
954
480
9,547
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Directors’ remuneration is detailed in the Remuneration Report on page 41 which forms part of these financial statements, and
disclosed in Note 3 of the Notes to the Company Financial Statements on page 84.
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 CSOP and LTIP dilutive potential Ordinary shares (see Note 20) into Ordinary shares.
Profit/(loss) 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/(loss) per share
Diluted profit/(loss) per share
6 FINANCE INCOME AND EXPENSES
Fair value movement
Total finance income
Bank interest
IFRS 16 lease interest
Net foreign exchange loss
Unwinding of discount on deferred consideration
Total finance expense
Total net finance expense
Year ended
31 March
2020
Period ended
31 March
2019
2,590
20,945,328
228,119
(163)
20,926,717
–
21,173,447
20,926,717
12.4p
12.2p
(0.8p)
(0.8p)
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
5
5
33
33
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
389
442
144
19
994
989
352
–
249
30
631
598
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7 TAXATION
RECOGNISED IN THE INCOME STATEMENT
Current tax expense
UK corporation tax
Overseas corporation tax
Adjustments for prior periods
Current tax expense/(credit)
Deferred tax expense
Origination and reversal of temporary differences
Deferred tax rate change impact
Adjustments for prior periods
Deferred tax expense
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Year ended
31 March
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£000
Period ended
31 March
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£000
(77)
45
91
59
266
82
81
429
488
(584)
20
(29)
(593)
123
–
24
147
(446)
The corporation tax rate applicable to the Company was 19% for the year ended 31 March 2020, and 19% for the period ended
31 March 2019. The Budget of 11 March 2020 reversed the expected reduction in corporation tax rate to 17% from 1 April 2020.
The corporation tax rate has therefore remained at 19% and was substantively enacted on 17 March 2020. The deferred tax assets
and liabilities at 31 March 2020 have been calculated based on that rate.
RECONCILIATION OF EFFECTIVE TAX RATE
Profit/(loss) for the period
Total tax charge/(credit)
Profit/(loss) excluding taxation
Current tax at 19% (2019: 19.0%)
Tax using the UK corporation tax rate for the relevant period:
Non-deductible expenses
Deferred tax rate change impact
Adjustments relating to prior year – deferred tax
Adjustments relating to prior year – current tax
R&D claim additional deduction
Impact of overseas tax rate
Deferred tax assets not recognised
Total tax charge/(credit)
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
2,590
488
3,078
584
22
82
81
91
(420)
2
46
488
(163)
(446)
(609)
(116)
(1)
(15)
24
(29)
(252)
1
(58)
(446)
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
8 TANGIBLE FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 March 2018
Additions
Disposals
Balance at 31 March 2019 and 1 April 2019
Additions
Disposals
Revaluation
Balance at 31 March 2020
Depreciation and impairment
At 1 March 2018
Depreciation charge for the year
Disposals
Balance at 31 March 2019 and 1 April 2019
Depreciation charge for the period
Disposals
Revaluation
Balance at 31 March 2020
Net book value as at 31 March 2020
Net book value as at 31 March 2019
Plant and
equipment
£000
Fixtures and
fittings
£000
Motor
vehicles
£000
Computer
equipment
£000
Land and
buildings
£000
787
472
–
1,259
435
(62)
–
3,291
1,136
(43)
4,384
558
–
–
1,632
4,942
444
212
–
656
252
–
–
908
724
603
1,230
528
(14)
1,744
520
–
–
2,264
2,678
2,640
62
–
–
62
–
–
–
62
15
13
–
28
8
–
–
36
26
34
611
177
(10)
778
122
–
–
900
358
127
(5)
480
129
–
–
609
291
298
Total
£000
12,101
1,785
(53)
13,833
1,115
(62)
150
7,350
–
–
7,350
–
–
150
7,500
15,036
–
159
–
159
–
–
(159)
2,047
1,039
(19)
3,067
909
–
(159)
–
3,817
7,500
7,191
11,219
10,766
FREEHOLD PROPERTY REVALUATION
At 31 March 2020 the freehold office premises at Holgate Park were 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’).
The appraisal was carried out using Level 3 observable inputs including prices for recent market transactions for similar properties
and incorporates adjustments for factors specific to the property in question, including plot size, location, encumbrances and
current use.
If the property had not been revalued in FY18 and FY20 the net book value would have been £5,324,000.
RIGHT-OF-USE ASSETS
Assets leased under leases
At 31 March 2020, the net carrying amount of leased plant and equipment assets was £761,000 (31 March 2019: £526,000), and the
accumulated depreciation against these leased assets was £193,000 (31 March 2019: £44,000).
Security
The Group’s bank borrowings are secured by fixed and floating charges over the Group’s assets.
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8 TANGIBLE FIXED ASSETS CONTINUED
RIGHT-OF-USE ASSETS CONTINUED
Leasehold properties
The Group has four leased properties: Distribution centres and showrooms in York, Sweden and Germany, and a software
development office in Manchester.
As at 31 March 2020 the associated right-of-use assets are as follows:
Cost
Balance at 1 April 2019
Additions
Balance at 31 March 2020
Depreciation
At 1 April 2019
Depreciation charge for the year
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Net book value as at 31 March 2020
Notes relating to IFRS 16 are included at 1.2, 8, 15 and 17.
9 INTANGIBLE ASSETS
Cost
At 1 March 2018
Additions
Balance at 31 March 2019 and 1 April 2019
Additions
Balance at 31 March 2020
Amortisation
At 1 March 2018
Amortisation for the year
Balance at 31 March 2019 and 1 April 2019
Amortisation for the period
Balance at 31 March 2020
Net book value as at 31 March 2020
Net book value as at 31 March 2019
Land and
buildings
£000
10,177
–
10,177
–
1,215
1,215
8,962
Total
£000
8,950
2,703
11,653
2,820
Goodwill
£000
Software
platform
£000
1,848
–
1,848
–
6,538
2,703
9,241
2,820
Brand
£000
564
–
564
–
1,848
12,061
564
14,473
–
–
–
–
–
1,848
1,848
2,234
1,193
3,427
1,507
4,934
7,127
5,814
338
61
399
56
455
109
165
2,572
1,254
3,826
1,563
5,389
9,084
7,827
The amortisation charge is recognised in Administrative expenses profit and loss account.
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 business from Venditan Limited, which effectively
brought development of the Group’s proprietary software platform in-house. This transaction is detailed in the FY17 Annual Report.
Goodwill balances are denominated in Sterling:
Gear4music Limited
Software development business
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
417
1,431
1,848
417
1,431
1,848
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
9 INTANGIBLE ASSETS CONTINUED
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 31 March 2020 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 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 31 March 2025
was used to provide cash flow projections that have been discounted at a pre-tax discount rate of 10% (2019: 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, and Management’s experience and expectation;
• Product costs are assumed to be broadly flat and gross margins are forecast to slightly improve from 2020; and
• Wage increases are a function of recruitment and a person-by-person review of current staff, with a range of % increases.
No impairment loss was identified in the current year (2019: £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. A number of
reasonable sensitivities were put through the model, including changes to the discount rate (15%) and the results did 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
Ownership
Gear4music Limited
Cagney Limited
Gear4music Sweden AB Metallvägen 45a, 195 72 Rosersberg, Stockholm
Holgate Park Drive, York, YO26 4GN
Holgate Park Drive, York, YO26 4GN
03113256
04493300
Ordinary
Ordinary
100%
100% via G4M Ltd
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Gear4music GmbH
Gear4music Norway AS PO Box 2734, Solli, 0204 Oslo, Norway
County, Sweden
Lahnstraße 27, 45478 Mülheim an der Ruhr, Germany HRB 29067
917 313 210
559070-4762 Ordinary
Ordinary
Ordinary
100% via G4M Ltd
100% via G4M Ltd
100% via G4M Ltd
All Group companies have 31 March financial year ends.
Investment in share capital is £4,550 in Sweden, £21,660 in Germany and £2,806 in Norway.
Cagney Limited and Gear4music Norway AS are dormant companies.
11 DEFERRED TAX ASSETS AND LIABILITIES
MOVEMENT IN DEFERRED TAX DURING THE YEAR
Property, plant and equipment
Short-term timing differences
Movement in deferred tax during the prior year
Property, plant and equipment
Short-term timing differences
Share-based payments
Recognised in
other
comprehensive
income
£000
(93)
–
(93)
Recognised in
other
comprehensive
income
£000
–
–
(89)
(89)
At 1 April
2019
£000
(908)
23
(885)
At 1 March
2018
£000
(783)
32
102
(649)
Recognised
in income
£000
At 31 March
2020
£000
(413)
(16)
(429)
(1,414)
7
(1,407)
Recognised
in income
£000
At 31 March
2019
£000
(125)
(9)
(13)
(147)
(908)
23
–
(885)
A deferred tax asset is not recognised with respect to historic losses in Gear4music (Holdings) plc (consistent basis to prior years).
There are no tax losses carried forward in Gear4music Limited.
Losses of £1,507,000 are carried forward at 31 March 2020, equating to an unrecognised asset of £286,000.
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12 INVENTORIES
Finished goods
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
22,015
18,661
The cost of inventories recognised as an expense and included in cost of sales in the period amounted to £81.6m (£83.4m in the
period ended 31 March 2019).
Management has included a provision of £80,000 (31 March 2019: £107,000), 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 value, and a provision
based on the expected product loss on dealing with returns stock.
13 TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
1,651
850
2,501
856
801
1,657
CREDIT RISK AND IMPAIRMENT
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 carrying amount of trade receivables represents the maximum credit exposure. The Group does not take collateral
in respect of trade receivables.
Trade receivables comprise balances due from schools and colleges, and funds lodged with payment providers.
CUSTOMER RECEIVABLES
The Group faces low credit risk as customers typically pay for their orders in full on shipment of the product, with the only exception
being a small number of education accounts with schools and colleges that have 30-day terms (1.9% of 2020 revenues; 1.8% of
2019 revenues).
FUNDS LODGED WITH PAYMENT PROVIDERS
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance totalled £215,000 on 31 March 2020 (31 March 2019:
£128,000) and 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.
14 CASH AND CASH EQUIVALENTS
Cash and cash equivalents per balance sheet
Cash and cash equivalents per cash flow statements
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
7,839
7,839
5,304
5,304
15 INTEREST-BEARING LOANS AND BORROWINGS
This note contains information about the Group’s interest-bearing loans and borrowing 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
31 March
2020
£000
Period ended
31 March
2019
£000
3,439
–
3,439
9,949
–
9,949
3,990
282
4,272
8,384
171
8,555
13,388
–
13,388
12,374
453
12,827
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
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15 INTEREST-BEARING LOANS AND BORROWINGS CONTINUED
Bank loans comprise an import loan 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 140-day import loans drawn under the import loan 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. Import loan and overdraft facilities were approved for renewal in June
2020 for a 12-month period.
There are two term loans that were drawn around the time of the freehold property acquisition in 2017:
• The first loan was for £3.73m and is a five-year loan with capital repayments scheduled over 20 years, and interest is 2.04% over
LIBOR, and capital outstanding of £3.22m at 31 March 2020; and
• The second loan was for £1.80m and is a five-year loan with interest of 2.85% over LIBOR, and capital outstanding of £0.81m at
31 March 2020.
All borrowings are denominated in Sterling.
CHANGES IN LIABILITIES FROM FINANCING ACTIVITIES DURING THE YEAR
Balance at 1 April 2019
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of borrowings
Total changes from financing cash flows
Other changes
Interest expense (Note 6)
Interest paid
Movement in interest accrual (included in accruals and deferred income – Note 16)
Fair value movement on loans
Total other changes
Balance at 31 March 2020
CHANGES IN LIABILITIES FROM FINANCING ACTIVITIES DURING THE PREVIOUS YEAR
Balance at 1 March 2018
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of borrowings
Payment of finance lease liabilities
Total changes from financing cash flows
Other changes
New finance leases
Interest expense (Note 6)
Interest paid
Movement in interest accrual (included in accruals and deferred income – Note 16)
Fair value movement on loans
Total other changes
Balance at 31 March 2019
Notes relating to IFRS 16 are included at 1.2, 8, 15 and 17.
Loans and
borrowings
£000
12,374
1,565
(546)
1,019
380
(355)
(25)
(5)
(5)
13,388
Loans and
borrowings
£000
Finance lease
liabilities
£000
Total
£000
8,506
23
8,529
4,495
(593)
–
3,902
–
348
(309)
(39)
(34)
(34)
12,374
–
–
(105)
(105)
535
4
(3)
(1)
–
535
453
4,495
(593)
(105)
3,797
535
352
(312)
(40)
(34)
501
12,827
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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
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
10,090
1,686
197
8
2,461
14,442
99
–
8
107
7,464
1,915
393
8
1,753
11,533
61
186
16
263
Accruals at 31 March 2020 include £97,000 (FY19: £62,000) relating to the estimated cash bonuses accrued relating to the CSOP
scheme, and Director Cash Plan (see Note 20).
Deferred consideration is due in relation to the acquisition of a software business in January 2017 and comprised 15 quarterly
instalments of £100,000 payable on 1 January/April/July/October. At 31 March 2020 two quarterly instalments remain outstanding
(31 March 2019: six). 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 and are linked to job
creation, and these criteria have been satisfied.
The Directors consider the carrying amount of other ‘trade and other payables’ to approximate their fair value. The interest expense
of £19,000 (FY19: £30,000) in relation to the unwinding of the discount is disclosed in Note 6.
Accruals at 28 February 2018 included £446,000 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 this accrual was
released in full resulting in a £421,000 credit that is included in administrative expenses in the period ended 31 March 2019.
17 LEASE LIABILITIES
Lease liabilities are presented in the statement of financial position as follows:
Current
Non-current
Balance at 1 April 2019
Adoption of IFRS 16
Cash flows:
Repayment
Proceeds
Total changes
Balance at 31 March 2020
31 March
2020
£000
1,148
9,519
10,667
Lease
liabilities
£000
453
10,983
(1,205)
436
(769)
10,667
The Group has leases for plant and machinery and four properties. Each lease is reflected in the statement of financial position as
a right-of-use asset and a lease liability. The Group classifies its right-of-use assets in a consistent manner to its property, plant and
equipment (see Note 8).
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
17 LEASE LIABILITIES CONTINUED
The table below describes the nature of the Group’s leasing activities by type of right-of-use asset recognised on balance sheet:
Right-of-use asset
Property
Plant and equipment
Number of
right-of-use
assets leased
Range of
remaining
term
Average
remaining
lease term
Number of
leases with
extension
options
Number of
leases with
options to
purchase
Number of
leases with
termination
options
4
10
2–9yrs
1.5–3yrs
6.5yrs
2yrs
–
–
–
10
1
–
The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 31 March 2020 were as follows:
Lease payments
Finance charge
Net present value
Notes relating to IFRS 16 are included at 1.2, 8, 15 and 17.
Within 1 year
£000
1–5 years
£000
1,751
415
1,336
6,367
1,133
5,234
More than
5 years
£000
4,368
271
4,097
18 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, 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.
(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 31 March 2020 the Group had £7.8m of cash and bank balances (31 March 2019: £5.3m).
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Secured loans
Trade payables
Secured loans
Trade payables
Carrying
amount
Year ended
31 March
2020
£000
Face value
Year ended
31 March
2020
£000
Effective
interest rate
%
Contractual cash flows
Within
1 year
£000
1–2 years
£000
2–5 years
£000
Over 5 years
£000
2.99
–
13,388
10,090
13,609
10,090
9,585
10,090
23,478
23,699
19,675
546
–
546
636
–
636
2,842
–
2,842
Effective
interest rate
%
2.99
–
Carrying
amount
Period ended
31 March
2019
£000
12,374
7,464
19,838
Face value
Period ended
31 March
2019
£000
12,408
7,464
Within
1 year
£000
8,384
7,464
19,872
15,848
Contractual cash flows
1–2 years
£000
2–5 years
£000
Over 5 years
£000
546
–
546
727
–
727
2,751
–
2,751
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18 FINANCIAL INSTRUMENTS CONTINUED
RISK MANAGEMENT FRAMEWORK CONTINUED
(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. There are a small
number of education accounts with schools and colleges that have 30-day terms (1.9% of 2020 and 2019 revenues).
Funds lodged with Amazon, Digital River, Klarna and V12 Retail Finance totalled £215,000 on 31 March 2020 (31 March 2019:
£128,000) and 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 31 March 2020, the Group had cash reserves of £7.8m and could utilise these funds to part 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.
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
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
(7,839)
13,388
(5,304)
12,374
5,549
7,070
–
5,549
453
7,523
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, remains 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
31 March
2020
£000
Impact on
closing
equity/profit
and loss
Period ended
31 March
2019
£000
Impact on
closing
equity/profit
and loss
(51)
51
(38)
38
The Group sells into Europe and the Rest of the World in nine currencies including Sterling, Euros and more recently US Dollars. In
the period ended 31 March 2020, 47% (2019: 44%) of total revenues were in non-Sterling currencies, of which 43% (2019: 48%) were
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 operations 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 known
liabilities are converted into Sterling, restricting the period between the transaction and the point of conversion, thereby reducing
the transactional risk.
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
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18 FINANCIAL INSTRUMENTS CONTINUED
RISK MANAGEMENT FRAMEWORK CONTINUED
(d) Foreign Exchange Risk continued
The Group purchases own-brand instruments and equipment from the Far East, transacting in US Dollars. The lead time from
committed order to receipt of stock is typically 12–16 weeks, during which time the Group bears currency risk. The Group also
trades with one supplier (2019: 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 impacts on stock intake prices of the Group, directly on own-brand products and indirectly on
other-brand 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.
Trade and other receivables
Sterling
US Dollar
Euro
Other European currencies
Cash and cash equivalents
Sterling
US Dollar
Euro
Other European currencies
Trade payables
Sterling
US Dollar
Euro
Other European currencies
Local sales tax
Sterling
Euro
Other European currencies
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
557
572
366
155
1,650
6,452
1
523
863
7,839
7,246
1,430
943
471
10,090
342
743
1,205
2,290
309
88
356
103
856
4,355
2
409
538
5,304
6,634
213
255
362
7,464
522
690
899
2,111
The Group’s cash and cash equivalents are not sensitive to foreign exchange variations as currencies held are held to the extent that
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.
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18 FINANCIAL INSTRUMENTS 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 31 March 2020 and
31 March 2019:
Trade and other receivables
Cash and cash equivalents
Bank loans
Finance lease liabilities
Trade and other payables
Deferred consideration
31 March 2020
31 March 2019
Book value
£000
Fair value
£000
Book value
£000
2,396
7,839
(13,609)
–
(14,246)
(200)
2,396
7,839
(13,388)
–
(14,246)
(197)
1,657
5,304
(12,408)
(453)
(12,115)
(600)
Fair value
£000
1,657
5,304
(12,374)
(474)
(12,115)
(579)
(17,820)
(17,596)
(18,615)
(18,581)
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected
in the table.
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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 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 priced 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).
31 March 2020
Bank loans
31 March 2019
Bank loans
Reconciliation of Level 2 fair value:
Bank loans
Level 1
£000
Level 2
£000
Level 3
£000
–
–
(13,388)
(12,374)
–
–
At 1 April
2019
£000
Net increase in
bank debt
£000
At 31 March
2020
£000
(12,374)
(1,014)
(13,388)
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
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19 SHARE CAPITAL AND RESERVES
SHARE CAPITAL
Authorised, called up and fully paid:
Ordinary shares of 10p each
Year ended
31 March
2020
Number
Period ended
31 March
2019
Number
20,945,328
20,945,328
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 3 June 2018, the Company issued and allotted 78,207 new Ordinary shares of 10p each on exercise of options under the
Company’s EMI Schemes (see Note 20). This took the number of Ordinary shares in issue from 20,867,121 to 20,945,328,
representing dilution of 0.4%.
SHARE PREMIUM
Opening
Issue of shares
Closing
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
13,152
–
13,152
13,055
97
13,152
Proceeds received in addition to the nominal value of the shares issued have been included in share premium, less registration and
other regulatory fees and net of related tax benefits.
FOREIGN CURRENCY TRANSLATION RESERVE
Opening
Translation loss
Closing
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
3
(37)
(34)
12
(9)
3
The foreign currency translation reserve comprises exchange differences relating to the translation of the net assets of the Group’s
foreign subsidiaries from their functional currency into the Parent’s functional currency.
REVALUATION RESERVE
Opening
Freehold property revaluation
Deferred tax
Closing
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
1,424
309
(59)
1,674
1,424
–
–
1,424
The revaluation reserve represents the unrealised gain generated on revaluation of the freehold office property on 28 February 2018
and 31 March 2020. It represents the excess of the fair value over deemed cost.
RETAINED EARNINGS
Opening
Share-based payment charge/(credit)
Deferred tax
Profit/(loss) for the period
Closing
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
2,033
133
(34)
2,590
4,722
2,307
(22)
(89)
(163)
2,033
Retained earnings represents the cumulative net profits recognised in the consolidated income statement.
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20 SHARE-BASED PAYMENTS
The Group operates share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the
Company and are subject to vesting conditions.
There were no new awards or vests made in the financial year ending 31 March 2020. In the financial period ending 31 March 2019
options granted under an Employees and Directors EMI scheme were exercised and settled in full, and a Director cash bonus plan
was also settled in full.
At the start and end of the year there were three incentive schemes in place:
• a Directors’ cash bonus plan relevant to Andrew Wass who, by virtue of his 34% shareholding, is cash rather than equity rewarded;
• a CSOP scheme; and
• an LTIP relevant to six senior employees including Andrew Wass, Chris Scott and Gareth Bevan.
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
a specified anniversary of the date of grant.
The fair value of the cash-settled liability is remeasured at each balance sheet date and settlement date.
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EMPLOYEE EMI PLAN – EXERCISED AND SETTLED IN FULL IN FY19
On or before 3 June 2018 awards over all 58,251 shares under this plan were satisfied by the issue of new shares and the Company
paid a cash bonus to option holders, the net value of which was equivalent to the income tax, employee National Insurance and
the exercise price arising in relation to the awards. All options have been exercised in full.
DIRECTOR EMI PLAN – EXERCISED AND SETTLED IN FULL IN FY19
On 3 June 2018 awards over all 19,956 shares under this plan were satisfied by the issue of new shares and the Company paid
a cash bonus to option holders, the net value of which was equivalent to the income tax, employee National Insurance and the
exercise price arising in relation to the awards. All options have been exercised in full.
DIRECTOR CASH PLAN 1 – SETTLED IN FULL IN FY19
On 3 June 2018 Andrew Wass (Chief Executive Officer) exercised his entitlement under the plan to an award of £72,041 that was
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 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.
An initial award of 14,460 shares under option was made in June 2017.
In June 2018 a further award over 7,403 shares was made, and the total number of shares under option under the CSOP scheme
at 31 March 2019 was 19,102.
DIRECTOR CASH PLAN 2
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 CSOP. An Executive Director who participates in the CSOP
is not eligible to participate in the Director Cash Plan. Participation is at the discretion of the Remuneration Committee.
Awards under the 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.
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
20 SHARE-BASED PAYMENTS CONTINUED
LTIP
In November 2018 a long-term management incentive plan to incentivise senior employees was set up, in a manner aligned with
the interests of the Company’s shareholders.
The Plan involved the issue of 210,000 ‘B’ Ordinary shares in Gear4music Limited, a subsidiary of the Company. These ‘B’ shares
vest from 2021–26 and can be exchanged on a one-for-one basis for new Ordinary Company shares subject to meeting specified
criteria, including reaching a specified target share price for 80% of the award (see below), and pre-determined revenue and
profitability targets for 20%.
The ‘B’ shares are non-voting, non-dividend restricted shares. The initial subscription cost was paid by way of a cash bonus that has
been expensed in FY19.
Financial year ending:
31 March 2021
31 March 2022
31 March 2023
31 March 2024
31 March 2025
31 March 2026
Share price
hurdle
Maximum number
of shares vesting
£13
£16
£20
£24
£29
£35
27,300
29,400
33,600
35,700
39,900
44,100
The share price hurdle being the average closing mid-price in the 30-day period following announcement of preliminary results.
The Remuneration Committee has responsibility for matters relating to members of the Plan. The Executive Directors of
Gear4music Limited are the participants in the Plan.
The terms and conditions of specific grants are as follows:
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Method of
settlement
accounting
Equity
Equity
Equity
Equity
Equity
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
Employee EMI Award 4 – Equity settled
award to 44 employees, granted by Parent
on 31 May 2016
Director EMI Award 1a – Equity settled award
to Chris Scott and Gareth Bevan, granted by
Parent on 31 May 2016
Director Award 1b – Cash settled award
to Andrew Wass, granted by Parent on
31 May 2016
Employee CSOP Award 5 – Equity settled
award to 75 employees, granted by Parent
on 30 June 2017
Senior Mgmt. CSOP Award 2a – Equity
settled 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 Wass, granted by Parent on
30 June 2017
Employee CSOP Award 6 – Equity settled
award to 73 employees granted by Parent
on 30 June 2018
LTIP – Equity settled award to the six
directors of Gear4music Limited
Number of
instruments
Vesting conditions
Contractual life
of options
23,383
Continued employment
Settled
1,845
Continued employment
Settled
9,433
Continued employment
Settled
Initially 27,406;
23,590 at 28 Feb 2018
Continued employment
Settled
Cash Cash equivalent to monetary
result for the other Directors
7,248 granted;
5,337 at 31 Mar 2019
377 forfeit in year; now 4,960
Equity
Equity
19,956
EPS-based performance
criteria and continued
employment
EPS-based performance
criteria and continued
employment
Settled
Settled
Continued employment
30 June 2020
7,212
EPS-based performance
criteria and continued
employment
30 June 2020
Cash Cash equivalent to monetary
result for the other Directors
Equity
Equity
7,403 granted;
6,553 at 31 Mar 2019
606 forfeit in year; now 5,947
210,000
EPS-based performance
criteria and continued
employment
30 June 2020
Continued employment
30 June 2021
80% linked to share price
20% linked to revenue and
profitability improvements
All subject to continued
employment
From August
2021 to August
2026
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20 SHARE BASED PAYMENTS CONTINUED
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the period
Forfeited during the period
Exercised during the period
Granted during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
Weighted
average
exercise price
2020
–
–
–
–
–
–
–
Number of
options
2020
229,102
(983)
–
–
–
228,119
–
Weighted
average
exercise price
2019
–
–
–
–
–
–
–
Number of
options
2019
92,277
(2,371)
(78,207)
217,403
–
229,102
–
No options were exercised in the year (FY19: 78,207 shares). The options outstanding at the year-end have a nil exercise price and a
weighted average contractual life of 3.83 years (31 March 2019: 4.83 years).
The fair values of employee share option awards under the CSOP were calculated using a Black-Scholes model and awards under
the LTIP on a Monte Carlo simulation model, based on the assumptions detailed below:
Date of grant
30 June 2017
30 June 2017
30 June 2018
8 Nov 2018
Share price on
date of grant
(pence)
Exercise
price
(pence)
720.0
720.0
719.5
563.0
0.0
0.0
0.0
0.0
Volatility
(%)
52.6%
52.6%
30.6%
44.5%
Vesting
period
(years)
Dividend
yield
(%)
Risk free rate
of interest
(%)
3
3
3
2–7
0%
0%
0%
0%
0.43%
0.43%
0.73%
0.92%
Fair value
(pence)
720.0
720.0
719.5
555.0
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 period and the total liabilities recognised at the end of the period arising from share-based
payments are as follows:
Equity settled share-based payment expense
Cash-settled share-based payment expense
Opening
Recognised in equity
Recognised as a liability
21 RELATED PARTIES
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
31 March
2020
£000
Period ended
31 March
2019
£000
133
36
169
148
317
220
97
317
(22)
(11)
(33)
181
148
86
62
148
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
474
15
489
621
82
703
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 (2019: four).
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NOTES (FORMING PART OF THE FINANCIAL STATEMENTS)CONTINUED
21 RELATED PARTIES CONTINUED
SHARE-BASED PAYMENTS
EMI and Director Cash Plan – vested in financial period ended 31 March 2019
An EMI share incentive plan for Chris Scott and Gareth Bevan and equivalent discretionary cash bonus plan for Andrew Wass, vested
in full in June 2018. Chris Scott received a bonus of £24,553 and Gareth Bevan a bonus of £25,443 to cover the income tax,
National Insurance and exercise price of the award. Chris Scott and Gareth Bevan both received 9,978 shares. Andrew Wass
exercised his entitlement under the Director Cash Plan to an equivalent award of £72,041, and this was settled in cash.
LTIP – awarded in financial period ended 31 March 2019
In FY19 a new long-term incentive plan involving Andrew Wass, Chris Scott, and Gareth Bevan was put in place and involved the
issue of 210,000 ‘B’ Ordinary shares in Gear4music Limited, a subsidiary of the Company. These ‘B’ shares vest from 2021–26 and
can be exchanged on a one-for-one basis for new Ordinary Company shares subject to meeting specified criteria, including
reaching a specified target share price for 80% of the award, and pre-determined revenue and profitability targets for 20%.
The initial subscription cost was covered by way of bonus in FY19 and Andrew Wass, Chris Scott, and Gareth Bevan received
bonuses of £7,217, £7,217 and £8,350 respectively.
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:
JUDGEMENTS
• 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 or capitalised;
• 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 and are reviewed each year by the Directors. Different UELs could be
applied that would change the P&L charge and Balance sheet carrying value;
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In FY20 the Directors reviewed the amortisation period and reduced the period from eight to six years for capitalised amounts in FY20.
ESTIMATES
• 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. As this 30-day period has passed prior to issuing the financial statements, hindsight shows this
estimate is accurate.
• Warranty income is recognised ‘over time’ under IFRS 15, by assuming an inputs method that measures progress by reference to
costs incurred towards satisfying that performance obligation as compared to the total expected costs. The proportion of costs
compared to total expected costs in an estimate based on historical data for this performance obligation.
• An adjustment to revenue is calculated based on the expected delivery date for items delivered around the year end. This estimate
is based on historical delivery dates with reference to courier statistics around the year end.
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COMPANY BALANCE SHEET
Fixed assets
Investments
Current assets
Cash in hand and at bank
Debtors (including £10.30m (2019: £10.47m) 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 b/f
Profit/(loss) in the period
Shareholders’ funds
2020
2019
Notes
£000
£000
£000
£000
4
6
5
7
8
8
8
4,164
3,852
25
10,326
10,351
(38)
19
10,488
10,507
(46)
10,313
14,477
14,477
2,095
13,152
(934)
164
14,477
10,461
14,313
14,313
2,095
13,152
(881)
(53)
14,313
Notes 1 to 9 form part of these financial statements.
These financial statements were approved by the Board of Directors on 22 June 2020 and were signed on its behalf by:
ANDREW WASS
DIRECTOR
22 June 2020
Company registered number: 07786708
CHRIS SCOTT
DIRECTOR
22 June 2020
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COMPANY STATEMENT OF CHANGES IN EQUITY
Balance at 1 March 2018
Loss for the year
Issue of shares net of expenses
Share-based payments charge
Balance at 31 March 2019
Profit for the year
Share-based payments charge
Balance at 31 March 2020
The accompanying notes form an integral part of the financial statements.
Share
capital
£000
Share
premium
£000
Retained
earnings
£000
Total
equity
£000
2,087
13,055
(881)
14,261
–
8
–
–
97
–
(30)
–
(23)
(30)
105
(23)
2,095
13,152
(934)
14,313
–
–
–
–
31
133
31
133
2,095
13,152
(770)
14,477
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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 as a retailer 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 end of the period;
• Cash flow statement and related notes; and
• Key management personnel compensation.
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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 year ended 31 March 2020 and 13-month period ended 31 March 2019.
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 pages 36 and 57.
1.3 INVESTMENT IN SUBSIDIARIES
These are separate financial statements of the Company. Investments in subsidiaries are carried at cost less impairments.
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.
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.
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1 ACCOUNTING POLICIES CONTINUED
1.5 BASIC FINANCIAL INSTRUMENTS CONTINUED
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
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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.
Inter-company loans
Amounts owed by Group undertakings are initially recognised at fair value. Subsequently, they are measured at amortised cost
using the effective interest rate method less provision for impairment. If the arrangement constitutes a financing transaction, then it
is measured at the present value of future payments discounted at a market rate of interest for a similar debt instrument.
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 CGU 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.
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 or a Monte Carlo simulation 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.
Share-based payment costs which are borne by the Parent Company on behalf of employees employed by the subsidiary entity are
recharged through the inter-company.
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Strategic ReportCorporate GovernanceFinancial Statements
NOTES TO THE COMPANY FINANCIAL STATEMENTS
(FORMING PART OF THE FINANCIAL STATEMENTS)
CONTINUED
1 ACCOUNTING POLICIES CONTINUED
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 timing 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
timing difference can be utilised.
2 EXPENSES
Included in profit/loss are the following:
Auditor remuneration – audit of financial statements
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
40
30
Auditor remuneration in FY20 relates to Grant Thornton UK LLP; auditor remuneration in FY19 related to KPMG LLP.
3 DIRECTORS’ REMUNERATION
Directors remuneration
Company contributions to money purchase pension schemes
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
507
16
523
656
81
737
There are four directors (FY19: four) for whom retirement benefits are accruing under a money purchase pension scheme.
The aggregate remuneration of the highest paid Director was £174,000 during the year (FY19: 13-month period: £252,000),
including Company pension contributions of £6,000 that were made to a money purchase scheme on their behalf.
4 FIXED ASSET INVESTMENTS
Cost
At 1 April 2019
Capital contribution
At 31 March 2020
Investments in subsidiaries are carried at cost less impairments.
Subsidiary
undertakings
£000
3,852
312
4,164
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4 FIXED ASSET INVESTMENTS CONTINUED
The Company has the following investments in subsidiaries:
Subsidiaries
Registered office address
Gear4music Limited
Cagney Limited
Gear4music Sweden AB Metallvägen 45a, 195 72 Rosersberg, Stockholm
Holgate Park Drive, York, YO26 4GN
Holgate Park Drive, York, YO26 4GN
Registered number
Class of
shares held
Ownership
03113256
04493300
Ordinary
Ordinary
100%
100% via G4M Ltd
Gear4music GmbH
Gear4music Norway AS PO Box 2734, Solli, 0204 Oslo, Norway
County, Sweden
Lahnstraße 27, 45478 Mülheim an der Ruhr, Germany HRB 29067
917 313 210
559070-4762
Cagney Limited and Gear4music Norway AS are dormant companies.
5 DEBTORS
DUE WITHIN ONE YEAR:
Other debtors
DUE AFTER MORE THAN ONE YEAR:
Amounts owed by Group undertakings
Ordinary
Ordinary
Ordinary
100% via G4M Ltd
100% via G4M Ltd
100% via G4M Ltd
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Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
26
26
16
16
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
10,300
10,300
10,472
10,472
The loan to Group undertakings is repayable in 12 months and 1 day from the year end. No interest is charged on the balance.
As at 31 March 2020, receivables from subsidiary undertakings were unimpaired and considered by management to be fully recoverable.
6 CASH AND CASH EQUIVALENTS
Cash and cash equivalents per balance sheet
7 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Accruals and deferred income
8 SHARE CAPITAL AND RESERVES
Share capital
Authorised, called up and fully paid:
Ordinary shares of 10p each
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
25
19
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
1
37
38
1
45
46
Year ended
31 March
2020
Number
Period ended 31
March
2019
Number
20,945,328
20,945,328
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 3 June 2018, the Company issued and allotted 78,207 new Ordinary shares of 10p each on exercise of options under the
Company’s EMI Schemes (see Note 20). This took the number of Ordinary shares in issue from 20,867,121 to 20,945,328,
representing dilution of 0.4%.
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Strategic ReportCorporate GovernanceFinancial Statements
NOTES TO THE COMPANY FINANCIAL STATEMENTS
(FORMING PART OF THE FINANCIAL STATEMENTS)
CONTINUED
8 SHARE CAPITAL AND RESERVES CONTINUED
SHARE PREMIUM
Opening
Issue of shares
Closing
RETAINED EARNINGS
Opening
Share-based payment charge
Profit/(loss) for the year
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Closing
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
13,152
–
13,152
13,055
97
13,152
Year ended
31 March
2020
£000
Period ended
31 March
2019
£000
(934)
133
31
(770)
(881)
(23)
(30)
(934)
9 RELATED PARTIES
In FY19 an EMI share incentive plan for Chris Scott and Gareth Bevan vested in full, with the exercise total of 9,978 equity-settled
share options each. An equivalent discretionary cash bonus plan for Andrew Wass vested in full with payment of £72,041.
Also, in FY19 a new long-term incentive plan involving Andrew Wass, Chris Scott, and Gareth Bevan was put in place and involved
the issue of 210,000 ‘B’ Ordinary shares in Gear4music Limited, a subsidiary of the Company. These ‘B’ shares vest from 2021–26
and can be exchanged on a one-for-one basis for new Ordinary Company shares subject to meeting specified criteria, including
reaching a specified target share price for 80% of the award, and pre-determined revenue and profitability targets for 20%.
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NOTES
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NOTES
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88
Gear4music (Holdings) plc
Holgate Park Drive
York YO26 4GN
UK
Kettlestring Lane
Clifton Moor
York YO30 4XF
UK
0330 365 4444
ir@gear4music.com
www.gear4music.com
www.gear4musicplc.com
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