Strictly Embargoed until 07.00, 16th November 2021

Focusrite plc

("the Company" or "the Group")

Final Results for the Year Ended 31 August 2021

Focusrite plc (AIM: TUNE), the global music and audio products company, announces Final Results for the year ended 31 August 2021.

Phil Dudderidge, Founder and Executive Chairman commented:

"We are delighted with these outstanding results, having overcome disruption to component suppliers, factories, logistics and changes to working practices. With so many lockdowns around the world, musicians, podcasters, and other creatives in audio and sound have been investing in Focusrite interfaces and 'studio packs' in record numbers while we work hard to meet that challenging demand.  Major global take-up in home recording has also resulted in significant growth in demand for ADAM Audio monitor loudspeakers and Novation products. In the professional audio industry, renewed demand from the live sound market promises further growth in 2022 and 2023 as sound service companies reinvest in the new generation of Martin Audio event systems".

Financial and operational highlights

•           Revenue growth of 34% across the group reflecting continued growth of core customer base.

o  Focusrite products up by 24% to £124.4 million (FY20: £100.7 million) driven principally by the   Scarlett 3^rd Generation range.

o  Novation revenue up by 14% as the new generations of Circuit and Launchkey products gained   traction.

o  Martin Audio grew by 23% (organic¹ constant currency growth) returning to pre COVID-19 levels at end of year.

•        Growth across all major geographic regions: North America was up by 47%; Europe, Middle East and  Africa  ('EMEA') by 23%; and the Rest of World by 32%.

•            Acquisition of Sequential completed in April 2021 for $20 million net of acquired cash.

•            Launch of a new brand, Optimal Audio, operating in the commercial audio market.

•        Year-end net cash balance of £17.6 million (FY20: £3.3 million), repaying debt drawdown of $10m for Sequential in four months

•            Increased investment in our people, technology, IT, management systems and tools.

•           13 new hardware products launched within Focusrite as well as numerous software/firmware updates.

•            Final dividend of 3.7p recommended, resulting in 5.2p for the year, up 24% on prior year.

1 The organic constant currency growth rate is calculated by comparing FY21 revenue to FY20 revenue adjusted for FY21 exchange rates and the impact of acquisitions (more detail in the Financial Review on page 12).

2 Comprising earnings adjusted for interest, taxation, depreciation, amortisation, goodwill impairment and adjusting items.

3 Adjusted for amortisation of acquired intangible assets, goodwill impairment and other adjusting items.

Commenting on the outlook Tim Carroll CEO, said:

"Since the year end, demand for the vast majority of our Group products has remained strong, and those sectors negatively impacted by COVID-19 are showing ongoing signs of recovery. All the Group's acquisitions are settling in well, numerous cross-business initiatives have already been completed and many more are slated to occur later this year, the benefit of which we expect in the latter part of FY22 and into FY23.  Our roadmap across all the brands remains robust, with many new product introductions planned to occur later in FY22. Accordingly, we are now cautiously optimistic about the prospects for modest revenue growth in the current year.

"Our growth strategy continues to pay off; providing focus and clarity on where we should invest and deploy our resources. This focus has been a crucial element in enabling us to navigate through the myriad of macroeconomic and pandemic related issues we have encountered across this past year.  Whilst there remains considerable opportunity for operational leverage across the Group as revenue increases, in FY22 operating costs will increase to reflect current tightness in supply chains, travel resuming and our intention to increase investment, where appropriate, in order to fuel future growth in the business".

"Our teams have worked passionately and diligently through these continuing uncertain times and delivered impressive financial and operational results for our investors. We look forward to another year of innovation and expansion."

 Availability of Annual Report and Notice of AGM

The Annual Report and Accounts for the financial year ended 31 August 2021 and notice of the Annual General Meeting ("AGM") of Focusrite will be posted to shareholders by 23 November 2021 and will be available on Focusrite's website at www.focusriteplc.com.

Dividend timetable

The final dividend is subject to shareholder approval, which is being sought at Focusrite's AGM to be held on 17 December 2021.

The timetable for the final dividend is as follows:

- ends -

Enquiries:

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

Notes to Editors

Focusrite plc is a global audio products group that develops and markets proprietary hardware and software products. Used by audio professionals and musicians, its solutions facilitate the high-quality production of recorded and live sound. The Focusrite Group trades under eight established brands: Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal Audio and Sequential.

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

The Focusrite Group has offices in four continents and a global customer base with a distribution network covering approximately 240 territories.

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

Chairman's Statement

It is almost seven years since Focusrite plc joined the AIM market (December 2014) and we have continued to deliver for our investors, customers and people. The growth of the business, organically and more recently through acquisition, has more than justified the confidence placed in our management and staff by the original institutional investors, a great number of whom remain invested in the Company, as well as those which have joined us more recently. We remain grateful to you all for your support.

It was a particularly proud moment when we discovered that we had won the prestigious Company of the Year Award at the AIM Awards 2021, which was held in Old Billingsgate, London in front of over 1,400 guests a few weeks ago.  It is a true testament to all the hard work and dedication of our employees, senior leadership team and Board of Directors.

As a business we have a primary purpose: to satisfy the needs and expectations of our customers, most of whom are investing their passion, careers and businesses in music creation, recording and performance.

I would like to express my personal thanks to all the stakeholders who contribute to our success and to the management teams that make it all happen, by ensuring that we make products that are the best choice for each and every customer, whether a musician, sound designer or technician who decides what is the best product to meet their needs.

We have a strong relationship with our partners that assemble and distribute our products to customers, globally, whose commitment has enabled Focusrite Group brands to meet the potential we have created in the market.

And we also have a huge reliance on our employees in our branded business units who invest their careers with us, to enable us to achieve our goals, and I thank them here for their contributions to our successful performance.

The COVID-19 pandemic has challenged all businesses but as you will read in the following CEO and CFO reports, Focusrite plc has achieved outstanding results while overcoming disruption to component suppliers, assembly factories, international logistics and markets, as well as dealing with the challenges of enforced changes to everyday working practices.

In the professional audio industry, the global suspension of live music performance for 18 months (and still in recovery) impacted our new member of the Group, Martin Audio, which was acquired just three months before the pandemic hit in March 2020.  I am pleased to report the commitment and agility with which the Martin Audio team has pivoted the focus of their business to Installed Sound (including places of worship, auditoria and nightclubs) and away from Touring and Festival Sound for which it was historically best known.  They have delivered a great performance (no pun intended) in the 2021 financial year as you will read in the following pages, to the credit of CEO Dom Harter and his team. Renewed demand from the live market promises further growth in 2022 and 2023 as the sound service companies reinvest in the new generation of Martin Audio event systems.

With so many people affected by lockdown regulations around the world, musicians and people using Zoom particularly for creative purposes like voice-overs as well as podcasters, have been investing in Focusrite audio interfaces and 'studio packs' in record numbers while we battle to meet that demand, month in, month out. Home recording generally is booming and that has also been reflected in significant growth in demand for ADAM Audio monitor loudspeakers and Novation products too.

Most recently, our acquisition of Dave Smith's Sequential brand of synthesisers has reinforced our commitment as a Group to this genre of musical instrument. Sequential is arguably the 'Rolls-Royce' of synthesiser brands and with Novation as a stablemate the Group is in a very strong position to grow in this  market.

Focusrite plc is recognised in our industry as a successful and friendly home for complementary branded businesses, with the ongoing successful integration of our ADAM Audio and Martin Audio acquisitions. This fits our ambition to build the Group through acquisitions which can address adjacent segments within the vertical markets we serve; music recording and creation, live performance, audio post-production for film and streaming content, media education and audio networking (which has applications in all of the verticals).

I would like to thank Jeremy Wilson, our Chief Financial Officer ('CFO') who left in March 2021, for his leadership and stewardship of the finance team, as well as his contribution to the achievement of our continued growth, profitability and cash generation.

Our business is becoming more complex with organic growth and acquisitions too. I would like to commend our Chief Executive Officer ('CEO'), Tim Carroll, CFO Sally McKone and the entire Group Executive Team for embracing the challenges and enabling the Group to deliver record results in FY21. We look forward to continuing the trends we have established over recent years.

Phil Dudderidge

Founder and Executive Chairman

15 November 2021

Chief Executive's Statement

Introduction

I am very proud to share with you our results for the financial year ended 31 August 2021. The Group has continued our pattern of record-breaking financial performance, fuelled by organic growth across all brands as well as a partial year contribution from Sequential, our latest acquisition, and a full-year contribution of Martin Audio.

FY21 presented us with a mix of opportunities and challenges.  As the pandemic continued throughout the world, we witnessed more people turning to creative content creation including music, podcasting and video, which resulted in continued high demand for audio recording related solutions.   The Group also experienced the continued closure of live sound events which had a negative impact on our offerings in that market.  Component shortages and shipping/logistics issues have also been very challenging throughout this year, but to date, the Group has fared well through this with long-term planning and intensive data analysis. This past year saw more investment in our people, technology and tools to ensure our plans were achievable and to give us as much insight as possible into customer buying behaviours and trends in the market mitigating its effects.

Our employee base has now grown to over 475 strong and we continue to invest in our people, promoting from within as well as continuing to hire top talent in all divisions across the Group.

Our office footprint is global, with key locations in the UK (High Wycombe and London), Germany (Berlin), Hong Kong, Mexico, Australia and the US (Los Angeles, Nashville and San Francisco). Our employees are a highly passionate group of individuals, many of whom are also accomplished musicians, DJs, audio engineers, live sound specialists and podcasters in their own right.   We are so fortunate to have so many people who leave work and actually use our solutions in real world environments; bringing their experiences and feedback back into work to continually improve our offerings.

The wellbeing of our employees continues to be a top priority. The ongoing work at home environment as well as the slow, methodical return to work plans brought many unique challenges to the Group.  By providing the necessary tools, support and flexibility, the Group rose to the challenge and as a result, the vast majority of our employees have managed well through all of this and continued to ensure that strategic objectives and initiatives hit their timelines. The Group has also made significant steps in ensuring we are maturing in our diversity and inclusion policies and green initiatives, two subjects that are very important to our employees, Board and management.

This year has seen increased focus and investment into both areas. The Group hired our first Head of Sustainability. This role champions all aspects of how we can do our part to move forward global green initiatives. Even at this early stage, this role has already helped us make decisions that will have impact. For example, the Group was able to switch to a new renewable electricity contract that reduced the carbon footprint of our UK offices.   Additionally, the Group has made strident efforts to raise awareness on D&I issues in our industry, including numerous internal training/awareness seminars and support of charities and institutions that promote equal opportunity for everyone.

Our operations

The Group's products are sold in approximately 240 territories throughout the world. We continue to refine our routes to market as macroeconomic conditions change and new opportunities come to light.  We utilise a mix of retailer/system integrators (online as well as brick and mortar shops), distributors in specific countries where localisation, support and supply to the local channel are factors, and direct to the end user via our own e-commerce platform and in-app software purchases.

Last year we sold over 1.5 million physical products, had over 1.4 million downloads of our various software titles, and began our subscription and rent-to-own software offerings, which is growing steadily month on month.  Our manufacturing approach is multifaceted, driven by the specific needs of each individual business unit.  FAEL (Focusrite, Focusrite Pro, Novation and Ampify) hardware and software is all designed in the UK and hardware products are produced in Malaysia and China.  ADAM Audio products are all designed in Berlin.  Some ADAM Audio products are manufactured in Berlin whilst the higher volume retail products utilise Chinese contract manufacturing. Martin Audio's products are all designed in the UK, with a portion of their range built in the UK and the balance using Chinese contract manufacturing as well.  Our newest acquisition, Sequential, develops all of their products in the US and assembly is also completed in the US.

Our market

Our products and solutions service a wide spectrum of customers all of whom are seeking high-quality audio results.  Until 2020, the majority of our offerings were focused on music and audio creation, with solutions designed for a wide range of customers, including the absolute beginner, hobbyist and both the aspiring and seasoned professional.  The majority of the Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio and Sequential portfolio aligns with these customer personas.

With the acquisition of Martin Audio in late 2019 and the launch in 2021 of the Optimal Audio brand, we expanded our offerings into professional audio reproduction. The Martin Audio and Optimal brands offer professional quality sound reproduction solutions for small bands to the largest professional tours and festivals, and for permanent installations for bars, clubs, corporate, houses of worship, theatres and performance halls.  Having a stake in both the production of audio content as well as the reproduction gives the Group a well differentiated experience in that our solutions help artists throughout their entire journey of creating, recording and performing.

Each of the individual business units continue to focus on innovation, ensuring a healthy roadmap of both new versions of our core products as well as totally new solutions each year. The world of audio creation and reproduction is constantly evolving, and with that we spend considerable effort and resources on our R&D efforts to ensure we are at the forefront of technology, new standards and workflows for our customers.  Along with organic development, the Group carefully considers new acquisitions that will add to our market potential and expanding R&D resources.

We actively collate industry market data along with our own internal data collection efforts to better understand our customers, their needs and buying behaviours. From this, we categorise our customers into personae for audio creation sectors and by venue for audio reproduction.  For audio content creators, these are:

·     Aspiring Creator: A customer who may have little to no music or audio recording experience but is interested in learning more.

·    Passionate Maker: A customer who has the desire to create or produce high-quality music or audio content (such as podcasting).

·   Serious Producer: A customer for whom audio and/or music production is more than just a hobby and is considering a potential career path in these fields.

·     Music Master/Facility: Highly skilled musicians, audio engineers, producers and business entities focused on the production of music or audio content for their livelihood.

For audio reproduction, the classifications are as follows:

·   Hospitality: Cafes, bars, restaurants and hotels

·   Houses of Worship:  From 50-seat chapels to 10,000-seat mega churches.

·   Auditoria: Education and conference spaces

·   Nightclubs: Nightclubs of all sizes

·   Live Events: Concerts, festivals, theatre, corporate showcases.

Operating review

The Group has had another successful year building our core customer base, increasing revenues, whilst prudently managing our cost base to maintain healthy gross margins and drive EBITDA[1] performance and cash generation.

Revenue for the Group grew by 34%: comprised of growth from FAEL of 24%, growth from ADAM Audio of 37%, growth from Martin Audio of 70% (full year vs eight months previous), and four months of Sequential.  Adjusted EBITDA¹ increased 67% over FY20.

Many factors contributed to this successful outcome: continued success of legacy products and products introduced in previous years, new product introductions, accelerated growth of user base, further evolution in our routes to market approach and continued tight control on expenses.

Throughout this past year, the Group has encountered a number of challenging macroeconomic events, such as Brexit, continued work at home and restricted travel due to COVID-19, component shortages together with freight and logistics issues. To date, we have been able to mitigate the negative impact of these, by sensible business planning and in some cases, maximise opportunities.  We are aware that these issues will continue well into this new year, but we remain confident in our level of preparedness and ability to adapt where necessary.

Purchase of Sequential

In late April of 2021, the Group announced the completion of the acquisition of Sequential, a legendary American synthesiser company founded and run by Dave Smith. This is our third acquisition since the beginning of 2019.  The initial consideration was $20 million, with a further payment to be made to Sequential employees of up to $4 million if agreed gross profit targets are met.

Demand for analogue synthesisers is high and Sequential revenues increased by 90% in the 12 months to August 2021 compared to the same period in the prior year.

Sequential employs 18 full-time team members, and all except one work out of the high-tech region of the San Francisco Bay Area. Approximately 35% are engaged in research and development.

We have already identified many opportunities to use the strengths of the Group to help Sequential to grow, covering areas such as: component sourcing, distribution logistics, global customer support availability, marketing automation and reseller channel expansion.

Demand for Sequential products remains strong and despite similar component availability challenges that we face in other Group companies, we remain excited about their product roadmap and growth potential, with multiple new products anticipated throughout 2022.

Continued impact of COVID-19

As the pandemic continued throughout this past fiscal year, a number of challenges discussed in the previous year's Annual Report continued: these included work at home mandates, various lockdowns in our own facilities and with our contract manufacturers, and a continued end user preference for e-commerce purchases vs brick and mortar. As with the previous year, the Group was well equipped to handle these challenges.  Additionally, the prolonged period of the pandemic did bring new global challenges, most notably around component availability across the supply chain and constraints on logistics and shipping.

Component availability is an ongoing concern that every manufacturer has to deal with, even during normal business times.  Over this past year, demand for silicon and wafer sky-rocketed as many companies found themselves unprepared for the increased demand in electronics.  This was severely aggravated with many companies, which purchase on a 'just-in-time' model, cutting back orders during the early stages of the pandemic, leading to many manufacturers paring down capacity.  When the demand started to come back, the entire wafer producing industry found itself unprepared to satisfy this demand. This has resulted in materially elongated lead times, spot buys at much higher than normal pricing, and in some cases, the need to rework products in order for them to utilise a more available or less costly component.  To date, the Group has weathered the storm on this well, with only small intervals of stock unavailability and moderate increases for cost of goods. Part of this is attributable to leveraging component buys at the Group level rather than at an individual business unit level and placing long lead time orders and commitments early on when these issues first began to arise. While this is still an ongoing issue, we are confident in our ability to supply a steady flow of product through our channel to ensure any stock unavailability is kept to a minimum.

Likewise, logistics and freight have also experienced increased lead times and costs to ship product to and from our contractor manufacturers and various warehouses. This has been exacerbated by various port pandemic closures as well as increased demand for the availability of sea and air freight carriers and containers. Like component availability, this is an ongoing economy-wide global problem and the Group is working in close contact across our various channels, with our third-party logistics providers and with  our manufacturers to keep product flowing into customers' hands.

Throughout all the continuing and new challenges that COVID-19 is causing, the Group is performing well, with very healthy revenue and margin results and a number of new product introductions, a new acquisition, and continued execution on our growth strategy.  As always, we will continue to monitor these events and work with our partners to deliver solutions on a timely basis.

Brand overview:

Focusrite

The Focusrite branded product family, which includes Scarlett and Clarett audio interfaces had another strong year, with a 28% year-on-year organic increase in revenue. Audio interfaces provide the conduit between the world of recordable material (e.g., instrument, voice, sound effects) and the computer and Digital Audio Workstation ('DAW') software that allows one to capture, edit and mix audio components into a final product.  Demand for audio interfaces remained strong throughout the year as more and more audio content was created for various platforms, including music creation, voice recording (podcasting and voiceover) and soundtracks for video.  Additionally, but still to a much smaller degree than the above, we continue to see more customers purchasing audio interfaces for higher fidelity streaming workflows such as gaming and conference calls. Whilst the pandemic and associated lockdowns certainly drove many customers to seek out this type of technology for their home studio or working needs, the demand post lockdown has continued to be materially higher than pre-COVID-19 levels. We believe that the various lockdowns and work from home mandates accelerated the growth and recognition of these solutions as viable audio production tools, consequently increasing our base of customers worldwide.

Additionally, late this past year the Group launched a new set of audio plug-ins branded Focusrite FAST plug-ins.  Developed in tandem with Sonible, a well-known audio Digital Signal Processing ('DSP') company, these plug-ins incorporate AI that enables customers at any level to sonically sculpt their audio content in unique and creative ways. These plug-ins have received numerous accolades from our community.

Focusrite Pro:

The Focusrite Pro suite of solutions provides professional audio engineers and facilities with the best quality audio in scalable systems that fit the need for any professional workflow, including music creation, post-production, broadcast and live sound.

This brand launched several new products this past year that were well accepted across the professional community. This included several updates to our industry standard RedNet solutions, the A16R Mk II and D16R MK II, as well as several net new solutions:  the R1, a studio grade desktop remote controller, the Red8, a new entry into our pro line of audio interfaces and new DANTE-enabled option cards for the world-renowned ISA mic pre. 

The Focusrite Pro brand had a very successful year, rebounding from the pandemic and finishing up 40% from the previous year.

Novation: 

Electronic music, and its many genres, continues to grow and to democratise the art of music creation. The Novation brand encompasses a suite of products and solutions focused on the creation and playback of electronic music. 

The product range includes industry recognised premium keyboard and pad controllers, grooveboxes and synthesisers and is aimed at a wide swathe of end users, from the absolute beginner just exploring how to make beats, all the way through to the professional DJ, producer, and musician.  This past year, the Novation brand introduced two new members of the Circuit groovebox family:  Circuit Tracks and Circuit Rhythm. These two products have received numerous accolades from the industry as powerful music creation tools that enable musicians of all experience levels to create great sounding tracks.  Additionally, Novation introduced the AFX Station, an update to our award-winning Bass Station synth.  These new products, along with continued strength in the existing portfolio resulted in revenue growth of 15% to prior year.

Ampify:

Ampify expands the Group's electronic music offerings into iOS and cross-platform desktop solutions that allow anyone to experiment with and create high-quality soundtracks.  The apps are all free to download.  

Ampify Studio, our desktop music creation app, is bundled with all Focusrite and Novation hardware and is a great first immersive learning step into the world of audio creation and production. Our iOS music creation apps are considered industry leading, including functionality to emulate our Launchpad hardware and easily create great sounding tracks.  All the apps have paid feature upgrades, which include enhanced editing tools as well as access to a large suite of royalty-free sounds and loops in a wide range of musical genres.  This library of sounds is constantly increasing, with new sound packs coming out approximately every two weeks. 

Over the past year, our Ampify iOS App had 1.4 million downloads, with roughly 565,000 in-App purchases. The number of in-App purchases declined year over year as we introduced a subscription service for content and features for the most popular iOS App, Launchpad, as well as for Ampify Studio. The total number of active subscriptions ended the year at 5,700 and is growing every month. 

ADAM Audio:

The ADAM Audio brand of professional studio monitors and headphones are utilised by every customer persona in the audio creation customer sectors described earlier. ADAM Audio's reputation for best-of-breed monitoring solutions across all their offerings and price points continues to grow. ADAM Audio achieved a 37% growth in revenue for the year ended 2021. Additionally, the ADAM Audio sales and marketing team took over distribution of FAEL (Focusrite, Focusrite Pro and Novation) products for Germany. Having a local team with strong ties to the reseller community has paid off, with ADAM Audio growing the German FAEL business by over 23%.

This success comes from every department within ADAM Audio stepping up and showing great initiative. Our sales and marketing teams have refined past campaigns whilst also developing new and cutting-edge ways to showcase our products to our passionate and growing audience. Our AAAP (ADAM Audio Academic Program) has been expanded into new regions and markets while our 'Women in Music' initiative is progressing strongly, shedding a much-needed light on the under-representation of women within the audio industry. These campaigns, alongside our sales and marketing initiatives, are devoted to our core vision: being as close to and relational as possible with our end customers.  Lastly, the ADAM Audio research and development team has also been hard at work developing new, groundbreaking technologies; some of this work will reveal itself with product launches in 2022. 

Martin Audio:

Martin Audio remains the UK's largest manufacturer of professional loudspeakers for both live and installed sound. 2021 saw the brand enter its 50th year, during which time Martin Audio's equipment has been found supporting acts from Pink Floyd in the early days through to major artists at some of the world's largest festivals such as All Points East, BST Hyde Park and Rock in Rio. Alongside this, since the early 1990s, Martin Audio has been manufacturing high-end professional installed sound systems which can be found in some of the most prestigious facilities in the world, such as the Nobu Hotel in Chicago which was fitted out with Martin Audio's recently revamped CDD enclosures in October 2020.

FY20 gave the Martin Audio team a huge challenge as many markets went into lockdown, but the resilience of the team delivered a positive EBITDA[2] in an eight-month period. In FY21 the team set the ambitious task of rebuilding the business to pre-COVID-19 levels. This was achieved with the team at Martin Audio contributing £3.8 million EBITDA² in FY21.

The team refocused the short-term roadmap throughout the pandemic focusing on bolstering and growing the smaller installed sound business. This was particularly true in China where local small entertainment venues have seen a boom; the net result being significant revenue growth in APAC.

Closer to home, as we entered the second half of the year Martin Audio announced the launch of the TORUS constant curvature array series for use in both live sound and installed sound for throws of up to 30 metres, applying core Martin Audio IP to this new market sector for the brand.

Alongside TORUS, and in support of all users, Martin Audio unveiled the company's first truly 3D system design software - Display3 - a sound system design tool allowing users to import complex 3D renderings from SketchUp and map the coverage of a sound system as a heat map, clearly displaying the coverage of sound to the client. This is of use to all sound system designers, and it felt particularly apt to be offering rental partners a free design tool allowing them to better understand the performance of a sound system as live sound began to return in the second half of 2021.

FY21 saw a strong performance from the team, carefully managing cost and rebuilding the sales channels through COVID-19. This was alongside bringing the Optimal Audio brand to market and supporting the #WeMakeEvents campaign. Additionally, Martin Audio was honoured with a Queens Award for Enterprise in Innovation this year for our Wavefront Precision optimised line arrays.

Optimal Audio:

Optimal Audio offers a one-stop solution of control, amplification and loudspeakers for small to medium-sized commercial installations, with a focus on supporting multi-zone venues. The portfolio provides a streamlined product offering working seamlessly together to deliver high-quality sound that is easy to install and can be operated by anyone, not just engineers. There is currently nothing else at this price point on the market which has the functionality and versatility to allow such a quick and simple setup. Alongside its own dedicated staff, a number of colleagues from across the Group - most notably within Martin Audio - helped to bring Optimal Audio to fruition with the long-term ambition that the brand will have its own distinct team. Feedback from the commercial install community has been very positive, with a number of premier distributors and system integrators signing on shortly after public launch.

Sequential:

Sequential is a premium synthesiser maker and has been a leading force in the resurgent popularity of analogue synthesisers over the last decade. They are a mainstay of performing and recording artists and can be seen and heard on countless stages and recordings. Sequential also brings the first US-based research and development team into the Group.

The Sequential portfolio of high-end analogue synthesisers perfectly complements the Group's existing Novation brand of synthsesisers: greatly expanding the number of solutions we have for professional musicians looking for new ways to enhance their sonic palette. Sequential's product offerings are deeply rooted in the history of synthesisers, with a number of modern-day versions of classic instruments known and coveted by professional musicians.  The acquisition has been warmly received by the industry and performed well and to expectations in the four months since becoming part of the Group.

Routes to market:

The Group utilises a multi-pronged approach to market, including brick and mortar shops, e-tail focused resellers, system integrators, rental companies, distributors and our own direct-to-end user e-store.  We continue to invest in more people in local regions, allowing us to service our resellers and customers locally and in their own language. Additionally, the Group has reaped benefits from having the major regions handle their own demand generation and marketing collateral, ensuring that our products resonate with the local community and cultures.

Regional review:

I am very pleased to report that once again our success was global, with all major regions and brands reporting strong growth and overall Group gross margin increasing as well.

North America:

North America, including the US and Canada, is still our biggest market and accounts for 43% of total Group revenue. This past year, North America grew by 47%, which included a full year of Martin Audio and four months of Sequential. On an organic[3] basis, North America revenue was up 46% year over year, with all brands experiencing strong growth. With circa 60 employees now in North America across sales, marketing, tech support and R&D, our North America operations continue to grow. Effective from 1 September 2021, we have consolidated all our individual business units under one company: Focusrite Group US.  Under this umbrella, we will be able to leverage the talent and scale of the individual brands' presence in North America to provide lift for the entire Group efforts in the region. This will include cross-selling of the various brands utilising the skills and relationships of each sales member, and the scale of our tech support teams to provide more coverage to all brands, as well as more unified marketing efforts and scalable back-office functions.

Europe, Middle East and Africa ('EMEA'):

Our European operations continue to grow, with dedicated offices in the UK and Berlin. Additionally, last year saw the Group move to a new distribution strategy for the UK and Germany: ADAM Audio, with their local German team, began distributing FAEL products for Germany. Likewise, the FAEL UK team took over distribution of ADAM Audio products in the UK. Both changes netted considerable growth in the brands for these respective regions.  Overall, EMEA accounted for 40% of Group revenue last year. EMEA Group revenue grew 23% year over year, with all brands reporting growth; organic[4] growth was 15%. 

Rest of World ('ROW'):

The ROW region comprises Asia Pacific ('APAC') and Latin America ('LATAM').  Overall ROW represents 17% of the Group's revenue and grew by 32% year on year; organic4 growth was 25%.

Latin America continues to be a region where the Group invests resources to get closer to the customer. The team, located throughout Mexico and Brazil, is focused on all demand generation and reseller/distribution relationships for the various countries. Marketing materials, seminars, social media and artist relationships are managed locally, ensuring that our products resonate well with the local artist and audio community.  The net result for these efforts has shown another strong year for Latin America, growing 59% year over year.

Like Latin America, the APAC region has seen increased focus and investment from the Group. With offices in Hong Kong and Australia supporting demand generation, account management and customer support, the APAC region has grown into a structure that will support the many regional markets in the territory and allows for future expansion as we look to increase our presence in areas with high growth potential. For this past year, the APAC region experienced 28% growth year over year.

Summary and outlook

Since the year end, demand for the vast majority of our Group products has remained strong, and those sectors negatively impacted by COVID-19 are showing ongoing signs of recovery. All the Group's acquisitions are settling in well, numerous cross business initiatives have already been completed and many more are slated to occur later this year, the benefit of which we expect in the latter part of FY22 and into FY23. Our roadmap across all the brands remains robust, with many new product introductions planned to occur later in FY22. Accordingly, we are now cautiously optimistic about the prospects for modest revenue growth in the current year.

Our growth strategy continues to pay off; providing focus and clarity on where we should invest and deploy our resources. This focus has been a crucial element in enabling us to navigate through the myriad of macroeconomic and pandemic-related issues we have encountered across this past year. Whilst there remains considerable opportunity for operational leverage across the Group as revenue increases, in FY22 operating costs will increase to reflect current tightness in supply chains, travel resuming and our intention to increase investment, where appropriate, in order to fuel future growth in the business. 

Our teams have worked passionately and diligently through these continuing uncertain times and delivered impressive financial and operational results for our investors. We look forward to another year of innovation and expansion.

Tim Carroll

Chief Executive Officer

15 November 2021

Financial Review

Overview

Overall the Group has had a highly successful year, delivering impressive revenue growth of 34%, adjusted EBITDA[5] growth of 67%, and 75% in adjusted diluted earnings per share (EPS)[6]. 

Income statement

Revenue

Revenue for the Group grew 34% from £130.1 million to £173.9 million; and after adjusting for acquisitions and constant currency this represents an organic growth of 28%. In FY21 Martin Audio contributed a full 12 months compared to just eight months in FY20.  Sequential was acquired at the end of April 2021 and FY21 includes four months of revenue contribution.

The Euro average exchange rate was €1.14 (FY20: €1.14).  The USD weakened from $1.27 in FY20 to $1.36 in FY21. This has reduced revenue by £3 million but is neutral at a gross profit level as the majority of cost of sales are also charged in USD.

Growth of 34% for the full year has slowed since the half year (HY21: 91% reported), in part due to the strong comparators in H2 FY20 during the initial lockdowns, but also due to the supply constraints experienced and widely reported in the second-half of this year, in particular for electronic chips used in many of the Group's products.  Whilst our operations teams have secured supply and largely prevented stock outages with our supply partners, this has inevitably been a drag on our second half results and we expect this to continue throughout at least the first half of next financial year.

The FAEL segment comprises the products used in the recording and broadcasting of music or voice. The primary ranges are Scarlett and Clarett, our biggest selling products. In this segment, revenue increased by 24% to £124.4 million (FY20: £100.7 million), driven by ongoing strong demand across our user base.

ADAM Audio makes studio monitors of the type used by many of the Group's customers. Revenue has grown by 37% in the year to £23.8 million (FY20: £17.4 million), with demand remaining strong across the range and particularly for the more competitive T series monitors.

Martin Audio has returned to growth in the second half of the year, as live sound begins to return to pre-COVID-19 levels.  Growth for the full year was 70%, and on an organic basis 23%, with revenue of £20.4 million for 12 months, compared to £12.0 million for eight months in FY20.

Sequential was acquired at the end of April 2021 and had revenue in the period of £5.3 million.

All the major geographic regions grew for each of the major product categories year on year. North America represents 43% of the Group's revenue and grew at 47% (organic: 46%) to £74.6 million and is now the largest region for the Group. Within this region, FAEL grew at 43% for the year, despite demand in the second half constrained by supply.  Martin Audio saw markets begin to open and reported growth of 73% for the second half of the year.

EMEA, which represents 40% of Group revenue, grew by 23% (organic: 15%) to £69.3 million. This growth was led by ADAM Audio products at 35% for the year, which were less impacted by the components shortage than Focusrite, which grew at 12% for the year.

The ROW comprises mainly Asia and South America and represents the remaining 17% of Group revenue. Revenue in ROW grew by 32% (organic: 25%). APAC grew at 28% year over year and was particularly strong for Martin Audio, with 76% growth across the year due to strong demand in the installed sector. Investments in sales and marketing delivered growth of 58% in Latin America.

Segment profit

Segment profit is disclosed in more detail in note 8 to the Group's financial statements 'Business segments'. The revenue is compared with the directly attributable costs to create a segment profit. The only major change has been the inclusion of Sequential upon acquisition.

Gross profit

In FY21, the gross margin was 48.4%, up from 46.0% in FY20, which was an increase from 42.2% in FY19. This steady increase is the result of several short and long-term factors. FY21 includes the one-off benefit of a refund of US duty of £1.5 million, following a reassessment of duty codes in 2020.

Historically there have been a number of factors at play. One factor is routes to market, with more products being sold either directly to dealers rather than distributors or directly to the consumer. Over the long term the change in business mix, with the removal of the lower margin distribution business and the growth of the higher margin ADAM Audio business at approximately 58% has also been another structural factor.  Focused cost and price management, reducing royalties and tariffs, and management of margin to get the best value within the reseller channel are other longer-term factors. Going forward the Group is mindful of the impact of components shortages and increased freight charges on future revenue and underlying gross margin.

Administrative expenses

Administrative expenses consist of sales, marketing, operations, the uncapitalised element of research and development and central functions such as legal, finance and the Group Board. These expenses were £48.3 million, down from £52.0 million last year. These costs include depreciation and amortisation of acquired intangible assets, £4.0 million (FY20: £3.0 million), a goodwill impairment in FY20 of £10.2 million relating to Martin Audio and adjusting items of £1.6 million (FY20: £1.9 million), which are explained below in the adjusting items section. Excluding these items, administrative costs were £42.7 million (FY20: £36.9 million), an increase of £5.8 million over the prior year.

Acquisitions contributed to this increase with the annualisation of Martin Audio, contributing £1.6 million and the inclusion of Sequential a further £1.0 million. In addition, the Group has invested in IT systems to provide secure and scalable platforms to enable teams working at home for much of the year. To support the growth of the Group we expect this investment to continue to strengthen our IT controls and allow teams across our brands to collaborate effectively on new projects. Offsetting these increases were COVID-19 related savings of approximately £2 million due to lower travel costs and an almost complete lack of trade shows during the period. These costs are expected to return as markets reopen.

EBITDA⁷

EBITDA is a non-GAAP measure but it is widely recognised in the financial markets and it is used within the Group as the basis for some of the incentivisation of senior management. Adjusted EBITDA increased from £28.6 million in FY20 to £47.5 million in FY21, an increase of 67% (see table below).

Depreciation and amortisation

Depreciation of £2.0 million (FY20: £1.9 million) is charged on tangible fixed assets on a straight-line basis over the assets' estimated useful lives. Amortisation is mainly charged on capitalised development costs, writing-off the development cost over the life of the resultant product. Development costs related to an individual product are written-off over a period up to three years for Focusrite and Novation, up to eight years for ADAM Audio and up to 11 years for Martin Audio, reflecting the different lifespans of the products. Normally, the capitalised development costs are slightly greater than the amortisation, reflecting the continued investment in product development in a growing group of companies.

During FY21, the capitalised development costs were £4.9 million (FY20: £4.6 million), compared with the amortisation of £3.5 million (FY20: £3.0 million). In FY21 the Group's engineering teams refocused on meeting demand and then supply constraint issues, and as a result direct investment into new products decreased as a percentage of revenue.  This is expected to recalibrate in FY22 back to historic levels, as the Group's R&D teams build out the future product roadmap, leveraging teams across all the Group brands.

Adjusting items

In FY21 the Group acquired Sequential with associated acquisition costs relating to the transaction of £0.7 million. In addition, as part of the acquisition price, the Group has agreed to pay employee bonuses in relation to agreed gross profit targets to December 2022; £0.8 million of adjusting item costs has been included for these bonuses, which are expected to increase pro rata in FY22. A further £0.1 million of employee-related costs associated with restructuring have also been included in adjusting costs in FY21.

In FY20 the acquisition of Martin Audio had associated acquisition costs totalling £1.7 million. Adjusting items also include amortisation of the intangible assets from acquisitions of £4.0 million (FY20: £3.0 million). This has increased due to the inclusion of amortisation on the Sequential brands and is expected to increase next year due to annualisation.  For further explanation please see note 15 to the Group's financial statements.

In FY20, at the height of the pandemic, the Group reassessed the £12.6 million of goodwill relating to the acquisition of Martin Audio. Taking into consideration the impact of the consequential lockdowns on the industry and the uncertainty over the impact on future margins, and despite a clear belief that the live sound market would recover in the foreseeable future, the Board recognised an impairment of £10.2 million. This has been reassessed at the current year end, and no further impairment is considered necessary, with Martin Audio returning to growth in H2 FY21 and performing in line with expectations.

Foreign exchange and hedging

Euro exchange rates have been consistent over the last year, with more volatility in the Dollar rates. 

The average USD rate has weakened from $1.27 to $1.36. The USD accounts for over 50% of Group revenue but over 70% of cost of sales, so this has decreased revenue but is neutral in terms of gross profit.

The Euro comprises approximately a quarter of revenue but little cost. The Group has continued entering into forward contracts to convert Euro to GBP. The policy adopted by the Group is to hedge approximately 75% of the Euro flows for the current financial year (year ended August 2022) and approximately 50% of the Euro flows for the following financial year (FY23). In FY20, approximately three-quarters of Euro flows were hedged at €1.11, and the average transaction rate was €1.14, thereby creating a blended exchange rate of approximately €1.12. In FY21, the equivalent hedging contracts were at €1.11, again close to the transactional rate of €1.14 and so creating a blended exchange rate of €1.12.

Elsewhere, within finance income and finance costs, there is the interest paid on the revolving credit facility.

Corporation tax

Historically, the effective corporation tax rate as a proportion of profit before tax has been 10-12% due largely to enhanced tax relief on development costs. In FY20, the corporation tax charge was £2.9 million on reported profit before tax of £7.0 million; at an underlying level the effective tax rate was 13.3% on adjusted profit before tax of £23.0 million. 

In FY21, the corporation tax charge totals £6.7 million on reported profit before tax of £35.0 million, an effective tax rate of 19.3%. Allowing for adjusting items, the effective tax rate is 17.0% on adjusted profit before tax of £40.6 million. This increase in effective tax rate is due to the Group moving to the Research and Development Expenditure Credit ('RDEC') basis of relief in which the Group receives smaller credit to operating costs and the profit is then taxed at the headline rate (19% in the UK).  Previously to this, the Group was able to claim relief for research and development in the UK as a small or medium-sized enterprise ('SME').

Moving forward we expect the effective tax rate to remain closer to the UK headline rate of 19%, increasing to 25% in April 2023 in line with the proposals outlined by the Chancellor.

Earnings per share

The basic EPS for the year was 48.8 pence, up 587% from 7.1 pence in FY20. This increase is due to the strong growth in operating profits and the impact of the goodwill impairment of £10.2 million in profits in FY20. The more comparable measure of the growth of the trading profits including the dilutive effect of share options, is the adjusted diluted EPS. This grew to 57.5 pence, up 75% from 32.8 pence in FY20.

More information on the adjustments included to calculate adjusted basic and adjusted diluted EPS is in note 9 of the financial statements.

Balance sheet

Non-current assets

The non-current assets comprise: goodwill of £10.1 million, other intangible assets of £49.1 million and property, plant and equipment of £3.6 million. The goodwill of £10.1 million (FY20: £7.9 million) relates to acquisitions as follows: £0.4 million for Novation purchased in 2004, £4.9 million for ADAM Audio purchased in July 2019, £2.4 million for Martin Audio purchased in December 2019 and £2.4 million for Sequential purchased in April 2021.

The other intangible assets of £49.1 million consist mainly of capitalised research and development costs and acquired intangible assets relating to product development and brand. The capitalised development costs have a carrying value of £30.3 million (FY20: £26.0 million). This increase of £4.3 million comprises the excess during the year of capitalised development costs over the amortisation (£1.4 million) and acquired capitalised development costs (consisting of acquired designs and designs in development with a year end net book value of £6.0 million). Approximately 70% of development costs are capitalised and it is intended that they are amortised over the life of the relevant products.

In addition, the remaining intangible assets, totalling £18.8 million (FY20: £14.4 million), include brands acquired as part of the acquisitions, to be amortised over ten years for ADAM Audio, 20 years for Martin Audio and 15 years for Sequential.

Working capital

At the end of the year, working capital was 6.6% of revenue (FY20: 8.8%). In both years this is much lower than the historic norm of approximately 20%. The ongoing substantial increase in demand and the supply constraints seen in the latter half of FY21 have meant that inventory levels have remained low at the year end. Manufacturing capacity has been increased and we believe that supply constraints will ease such that stock will be replenished towards the mid-point of FY22. In addition, the Group has continued to place great emphasis on the timely collection of debts. Consequently, overdue debtors, especially within FAEL, have been very low. Creditors continue to be paid on time.

The working capital at ADAM Audio and Martin Audio has remained broadly stable across the year. ADAM Audio has seen a slight increase in levels of stock in order to support the distribution of Focusrite products, and Martin Audio has seen an increase in the overall level of debtors, reflecting the higher level of sales at the end of FY21 compared to FY20.  

Cash flow

⁸ Defined as net cash from operating activities less net cash used in investing activities less the amount of the revolving credit facility utilised.

In FY21, the net cash balance at the year end was £17.3 million (FY20: £15 million). The Group also has a £40 million revolving credit facility with HSBC and NatWest due to expire in December 2024, taken on to fund the Martin Audio acquisition in 2019. In April 2021 the Group drew down $10 million (£8 million) of debt to fund the acquisition of Sequential, this has now been repaid, leaving the Group with a net cash position at the end of the year.

During the second half, the strong increase in revenue contributed to both higher profits and lower stock. Therefore, the underlying free cash flow for the full year was £31.5 million (FY20: £28.2 million) leading to a year end net cash position of £17.3 million. Within this, the movement in working capital was an inflow of £1.7 million (FY20: inflow of £13.7 million). With the intended rebuilding of stock within the Group in the next financial year there will be a marked outflow of working capital to return closer to historic levels of 20% working capital compared to revenue. Capital investment this year totalled £7.0 million (FY20: £9.6 million), of this £4.9 million related to capitalised R&D reflecting the Group's ongoing commitment to product development. We expect this to increase in FY22, as we develop further several major new initiatives on our product roadmap.

Dividend

In line with the Group's progressive dividend policy, the Board is proposing a final dividend of 3.7 pence per share (FY20 final dividend: 2.9 pence), an increase of 28%, which would result in a total of 5.2 pence per share for the year (FY20: 4.2 pence). This represents an adjusted earnings dividend cover of 11.1 times (FY20: 7.8 times).

Summary

The Group has again performed well, showing substantial financial improvement despite facing several external headwinds. The ongoing successful integration of Martin Audio and ADAM Audio into the Group has continued, with the launch of the Optimal brand, and the distribution of each other's brands in ADAM Audio and FAEL. The acquisition of Sequential in April 2021 has further added to the Group portfolio of world-leading brands, with plans to support the growth through our common US entity, which caters for all Group brands. Despite the challenges of 2021 the Group has grown significantly and continues to put down strong foundations to support future development.

Sally McKone

Chief Financial Officer

15 November 2021

FORWARD-LOOKING STATEMENTS

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

Consolidated Income Statement

For the year ended 31 August 2021

Consolidated Statement of Comprehensive Income

For the year ended 31 August 2021

Consolidated Statement of Financial Position

As at 31 August 2021

The financial statements were approved by the Board of Directors and authorised for issue on 15 November 2021. They were signed on its behalf by:

Tim Carroll                                           Sally McKone

Chief Executive Officer              Chief Financial Officer