Half Yearly Report

RNS Number : 6374D

Gear4music (Holdings) PLC

28 October 2015

 

28 October 2015

Gear4music (Holdings) plc

Interim results

Strong progress and well positioned ahead of key Christmas trading period

Gear4music (Holdings) plc, ("Gear4music" or "the Group") (LSE: G4M), the largest UK based online retailer of musical instruments and music equipment, today announces its unaudited financial results for the six months ended 31 August 2015.

Financial Highlights:

£'000	6-months ended 31 August 2015	6-months ended 31 August 2014	change
Revenue	12,493	8,767	+43%
Gross profit	3,305	2,332	+42%
Gross margin	26.5%	26.6%	-10bps
Adjusted EBITDA *	216	(250)	+466k
Adjusted EBIT *	(146)	(470)	+324k

* Adjusted to exclude £606,000 of exceptional costs relating to the IPO

Operational Highlights:

·     The Group completed its IPO in June 2015 raising £10m of gross proceeds

·     Investment in platform development and stock - more than 1,900 additional SKUs (+7%)

·     Continued strong revenue growth driven by impressive website visitor traffic and improved conversion rates. UK revenue of £9.6m (+38%), European revenue £2.9m (+62%)

·     Active customers** increased by 34.3%

·     Gross profit margin maintained

·     Strong balance sheet - £8.3m net assets and net cash

·     Investment in ecommerce projects - post period end launches for UK online consumer finance and international payment mechanism.

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

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

"I am delighted to report our debut interim results as a plc which show good strategic progress as we continue to grow our presence as a leading online retailer of musical instruments and equipment. We are seeing increasing appetite from customers as we improve our branded and Own-brand product offering, our website interface, back-end systems and service levels, both in the UK and across Europe.

"Since our IPO we have accelerated investment across the business - in the ecommerce platform, in stock and in people - to ensure we are strongly positioned to deliver on our growth strategy.

"The Group continues to trade with good momentum and in line with the Board's expectations and is well placed heading into the key Christmas trading period."

Gear4music will issue a trading statement in early January 2016.

Enquiries:

Gear4music                                                                                                                        [phone]

Andrew Wass, Chief Executive Officer

Chris Scott, Chief Financial Officer

Panmure Gordon                                                                                                             [phone]

(Financial Adviser, Nominated Adviser and Broker)

Fred Walsh / Peter Steel / Duncan Monteith - Investment Banking

Erik Anderson / Tom Salvesen - Corporate Broking

MHP Communications                                                                                                  [phone]

(Financial PR)

Andrew Leach

Simon Hockridge

Charlotte Coulson

About Gear4music.com

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

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

Business Review

On 3 June 2015 the Group completed its IPO on AIM, raising £10m of gross proceeds to invest in the continuing growth of the business. Today the Board is pleased to report the Group's results for the six months to 31 August 2015, which we believe represent good commercial and financial progress.

Customers and revenues

Revenue increased 43% on a 'like-for-like' ('LFL') basis during the period to £12.49m (H1 2014/15: £8.77m), with 38% sales growth in our core UK market and 62% in Europe. Sales growth in the first quarter of the current financial year was 40% compared with the corresponding period last year, accelerating to 45% growth in the second quarter following our IPO.

Total website visitor numbers increased by 29% to 4.41m (H1 2014/15: 3.42m), with visitors to the UK website increasing 19% and visitor numbers to the Group's 18 country-specific websites serving customers in Europe growing by 46%. The positive effect on revenues of the increase in website traffic was enhanced by improved conversion ratios in the UK from 2.14% to 2.45%, and in Europe from 0.77% to 0.86%.

The Group served 88,300 customers in the period, up 33% on last year. Numbers of 'new customers' increased by 31% whilst 'repeat customers' improved by 39%. Active customers have increased by 34%, and the number of people on our email subscriber database is up to 325,937.

Organic website traffic growth out-stripped sales growth, increasing the proportion of organic visits from 43% in the interim period last year to 47% this year. Mobile, including tablet, visitor growth also gained further momentum, increasing by 54%.

Post-IPO, we began further investment in our commercial and customer service teams, with the highly positive overall customer experience continuing to be reflected in gear4music.com's Trustpilot score of 9.5.

The Group remains committed to the opening of a London showroom. We have appointed property agents to identify suitable locations on our behalf and continue with the site evaluation process.

Customer KPIs	H1 2015/16	H1 2014/15	Change
Revenue	£12.49m	£8.77m	+43%
Total unique website visitors	4.41m	3.42m	+29%
Conversion rate	1.79%	1.64%	+15bps
Average order value	£115.67	£112.26	+3.0%
Active customers	187,840	139,663	+34.3%
Proportion of repeat customers	28.4%	27.2%	+120bps
Email subscriber database	325,937
Trustpilot rating	9.5/10

Products

We have actively increased stock levels since IPO, adding further breadth and depth to our range, ahead of the peak trading period. The carrying value of stock was £8.02m at 31 August 2015 (31 August 2014: £4.99m, an increase of 61%). The number of SKUs available has been increased from 27,400 at 1 March 2015 to 29,300 at 31 August 2015 (+7%), with the addition of 11 new brands including Kawai, TRX and Roli.

Given the lead-times associated with importing our Own-brand products and the IPO completing mid-way through the period, the investment in other branded stock has been quicker to implement. Improved availability of other brands is reflected in the sales mix for the period, with Own-brand product sales accounting for 21.9% of total product sales (H1 2014/15: 25.3%).

Own-brand products launched during the period include:

·     Gear4music playLITE - a range of very lightweight instruments including Trumpets and Trombones that are ideal for children learning to play;

·     Gear4music SubZero R2 ribbon and tube microphones - high quality stylish studio microphones at very competitive price points; and

·     Deluxe Ukuleles at £39.99 that are a step-up from the very popular £13.99 'standard' Gear4music Ukulele.

The existing range of children's pianos has also been extended with new colours, and several new Own-brand digital drum kits have been launched.

The Group is committed to developing its Own-brand product ranges and has plans in place to expand the team and accelerate product development. We expect that, as a result, the level of Own-brand stock relative to other branded stock will rebalance over the second half.

Product KPIs	H1 2015/16	H1 2014/15	Change
Own-brand product sales	£2.73m	£2.22m	+23%
Other brand product sales	£9.25m	£6.20m	+49%
Products listed	29,334	24,282	+21%
Brands listed	604	501	+21%

Technology

The Group invested £395,000 in its ecommerce platform in the period (H1 2014/15: £277,000) and we can report good progress on a number of key projects. The in-house video studio was completed in June 2015, with 111 product videos being published before the period-end.  There have also been backend upgrades to logistics and courier systems in anticipation of the peak trading period, and a product page redesign. Post period-end, in September 2015 we also launched our UK online Consumer Finance and International payment mechanisms and there are early indications that both have had a positive direct impact on trading.

Current trading and prospects

As ever, trading in the second half will be fundamental to the prospects for the year as a whole. The strength of the first half performance coupled with the Group continuing to trade in line with the Board's expectations means that we are well placed heading into the key retail trading period. The Group expects to issue a Christmas trading update in early January.

Financial Review

Sales

Sales in the interim period increased by 43% on the same period last year which, in itself, represented growth of 31% on the same period in 2013/14. There was good sales growth against the same period last year across our key territories, including 38% in the core established UK market. Sales into Europe continue to grow in proportion to the Group, with a quarter of total sales coming from this market toward the end of the interim period.

Gross Profit

Gross profit increased by £973,000 (+42%) compared with the same period last year, representing a gross margin of 26.5% (H1 2014/15: 26.6%).

Operating Profit and Administrative Expenses

Administrative expenses include £606,000 of exceptional costs incurred in relation to the IPO. Excluding these costs, the underlying operating loss in the period was £146,000 which represents a £324,000 improvement on the same period last year.

Financial KPIs	H1 2015/16	H1 2014/15	Change
Revenue	£12.49m	£8.77m	+43%
Marketing costs	£1.17m	£0.96m	+23%
Marketing costs as % sales	9.4%	10.9%	+150bps
Labour costs	£1.16m	£0.94m	+23%
Labour costs as % of sales	9.3%	10.8%	+150bps

The Board has and will continue to invest in marketing and people as the key success drivers of the business, and indeed these were areas earmarked for investment at IPO. Given the IPO completed halfway through the period, the impact on our cost base and the related revenue benefit of these investments will come through to a greater extent in the second half of the year.

Net Profit

The underlying net loss for the period (excluding IPO costs) was £497,000 compared to £902,000 last year, which represents a significant improvement and has provided us with good trading momentum going into the key trading period.

Cashflow and Balance Sheet

The IPO generated net proceeds of £9m after expenses, of which £4.5m was used to repay the private equity investor loan notes in full, thereby removing the expensive interest cost and deleveraging the Group's balance sheet. After this net cash into the Company was £4.4m which we have put to use in the business, continuing to invest in the ecommerce platform, extending the range and level of products held in stock, online marketing initiatives and expanding our team.

As with many retailing businesses, August typically represents the low point in our annual cash cycle. Cash at 31 August 2015 was £1.45m which was a £1.53m improvement on August 2014.

The Group received a £4.4m net cash injection on IPO and, in the absence of any meaningful interest rates to be had on cash deposits, the funds have been used in lieu of drawing Trade Finance loans on Own-brand stock, thereby mitigating the 2.95% interest charge and fees.

Working Capital KPIs	H1 2015/16	H1 2014/15	Change
Inventories	£8.02m	£4.99m	+61%
Trade and other receivables	£0.29m	£0.29m	+1%
Trade and other payable	(£4.68m)	(£3.14m)	+49%
Net working capital	£3.63m	£2.14m	+£1.49m

Cash invested in working capital is £1.5m higher at this period end than at last year, principally due to active investment into cash-funded stock.

Capital expenditure in the period was £825,000 of which £395,000 related to investment in software development/the proprietary ecommerce platform, and £430,000 related to plant and equipment and fixtures and fittings, of which £252,000 was funded on finance leases.

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

Definitions

'Active customers' - customers who have purchased products within the last 12 months

'Repeat customers' - customers who have made a purchase in a defined period, and have historically made at least one other purchase

Unaudited consolidated interim statement of comprehensive income

			Note			6 months ended 31 August 2015	6 months ended 31 August 2014	Year ended 28 February  2015
						£000	£000	£000
Revenue						12,493	8,767	24,240
Cost of sales						(9,188)	(6,435)	(17,483)
Gross profit						3,305	2,332	6,757
Administrative expenses  before exceptional items			1,2			(3,451)	(2,802)	(6,381)
Administrative expenses - exceptional items			1,2			(606)	-	(165)
Total administrative expenses			1,2			(4,057)	(2,802)	(6,546)
Operating (loss)/profit			1,2			(752)	(470)	211
Financial expense			4			(304)	(444)	(1,008)
Loss before tax						(1,056)	(914)	(797)
Taxation			5			(47)	12	111
Loss for the period						(1,103)	(902)	(686)
Loss per share attributable to equity shareholders of the Company:
Basic and diluted loss per share		3				(10.1p)	(71.3p)	(54.2p)

Unaudited consolidated interim statement of financial position

			31 August 2015	31 August 2014	28 February  2015
	Note		£000	£000	£000
Non-current assets
Property Plant and Equipment	6		1,268	971	991
Intangible assets	7		2,948	2,620	2,764
			4,216	3,591	3,755
Current assets
Inventories	8		8,023	4,994	5,326
Trade and other receivables	9		293	290	216
Cash and cash equivalents			1,449	-	916
			9,765	5,284	6,458
Total assets			13,981	8,875	10,213
Current liabilities
Other interest bearing loans and borrowings	10		(616)	(1,419)	(1,320)
Trade and other payables	11		(4,675)	(3,140)	(4,522)
Provisions			-	(34)	-
			(5,291)	(4,593)	(5,842)
Non-current liabilities
Other interest-bearing loans and borrowings	10		(220)	(4,591)	(4,570)
Other payables	11		(73)	(43)	(35)
Deferred tax liability			(103)	(153)	(55)
			(396)	(4,787)	(4,660)
Total liabilities			(5,687)	(9,380)	(10,502)
Net assets/(liabilities)			8,294	(505)	(289)
Equity
Share capital			2,016	1,266	1,266
Share premium			8,933	-	-
Retained earnings			(2,655)	(1,771)	(1,555)
Total equity			8,294	(505)	(289)

Unaudited consolidated interim statement of cash flows

	Note		6 months ended 31 August 2015	6 months ended  31 August  2014	Year ended 28 February  2015
			£000	£000	£000
Cash flows from operating activities
Loss for the period before exceptional costs:			(1,103)	(902)	(686)
Less: Exceptional IPO costs:			606	-	-
Underlying operating loss:			(497)	(902)	(686)
Adjustments for:
Depreciation and amortisation	2,6,7		362	220	466
Financial expense	4		259	434	878
(Profit) on sales of property, plant and equipment			1	(8)	(9)
Taxation	5		47	(12)	(111)
			172	(268)	538
(Increase)/decrease in trade and other receivables			(77)	(134)	(59)
Decrease)/(increase) in inventories			(2,697)	(772)	(1,104)
Increase/(decrease) in trade and other payables			191	835	2,209
Increase/(decrease) in provisions			-	-	(34)
Share based payments charge	12		3	-	-
Net cash from operating activities			(2,408)	(339)	1,550
Cash flows from investing activities
Proceeds from sale of property, plant and equipment			1	8	10
Acquisition of property, plant and equipment			(430)	(272)	(412)
Development costs capitalised			(395)	(277)	(551)
Net cash from investing activities			(824)	(541)	(953)
Cash flows from financing activities
Proceeds from pre-IPO issue of shares			32	-	-
Net proceeds from IPO			7,745	-	-
Proceeds from new borrowings	10		252	224	213
Repayment of loan notes	10		(2,484)	-	-
Net interest paid			(710)	(42)	(185)
Repayment of other borrowings			(983)	(37)	(300)
Payment of finance lease liabilities			(87)	(58)	(117)
Net cash from financing activities			3,765	87	(389)
Net increase/(decrease) in cash and cash equivalents			533	(793)	208
Cash and cash equivalents at beginning of period			916	708	708
Cash and cash equivalents at end of period			1,449	(85)	916

Unaudited consolidated interim statement of changes in equity

				6 months ended 31 August 2015	6 months ended 31 August 2014	Year ended 28 February  2015
				£000	£000	£000
Share Capital
Opening				1,266	1,266	1,266
Issue of shares				750	-	-
				2,016	1,266	1,266
Share Premium
Opening				-	-	-
Issue of shares				9,255	-	-
Share issue costs				(322)
				8,933	-	-
Retained earnings
Previous periods				(1,555)	(869)	(869)
Share based payment charge				3	-	-
Loss for the period				(1,103)	(902)	(686)
				(2,655)	(1,771)	(1,555)
Total equity				8,294	(505)	(289)

Notes to the Interim Financial Information

General Information

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

1             Accounting policies

1.1          Basis of preparation

The unaudited consolidated interim financial information for the period ended 31 August 2015 has been prepared in accordance with the AIM rules for Companies, comply with IAS 34 'Interim Financial Reporting' as adopted by the European Union, and should be read in conjunction with the 'Historical Financial Information' section of the Admission document which is available on the Group's investor website.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at the year ended 28 February 2015.

The Group's accounting policies have been revised where applicable to conform to IFRS. The Group's accounting policies are set out below. The accounting policies have been applied consistently to all periods presented.

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

1.2          Going concern

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

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

1.3          Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Transactions eliminated on consolidation

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

Notes to the Interim Financial Information (continued)

1.4          Foreign currency

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

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

Functional currency

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

1.5          Classification of financial instruments issued by the Group

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

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

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

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

1.6          Non-derivative financial instruments

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

Trade and other receivables

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

Trade and other payables

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

Cash and cash equivalents

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

Interest-bearing borrowings

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

Notes to the Interim Financial Information (continued)

1.7          Property, plant and equipment

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

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

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

·      Plant and equipment                          20-25% on reducing balance

·      Fixtures and fittings                           20-25% on reducing balance

·      Motor vehicles                                     25% on reducing balance

·      Computer equipment                          3-5 years straight line

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

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

1.8          Business combinations

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

The Group measures goodwill at the acquisition date as:

·      the fair value of the consideration transferred; plus

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

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

Costs related to the acquisition are expensed as incurred.

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

Goodwill impairment testing

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

Notes to the Interim Financial Information (continued)

1.9          Intangible assets

Software platform

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

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

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

Other intangible assets

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

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

Amortisation

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

·      Brand                                                                     10 years; and

·      Software Platform                                               3-8 years

1.10        Inventories

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

A provision is made in respect of inventories as follows:

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

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

1.11        Impairment excluding inventories and deferred tax assets

Financial assets (including receivables)

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

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

Notes to the Interim Financial Information (continued)

Non-financial assets

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

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

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

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

1.12        Employee benefits

Defined contribution plans

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

Share-based payments

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

1.13        Provisions

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

1.14        Revenue

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

Notes to the Interim Financial Information (continued)

1.15        Expenses

Operating lease payments

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

Finance lease payments

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

Exceptional items

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

Government and other forms of grant

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

Financing income and expenses

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

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

1.16        Taxation

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

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

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

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

Notes to the Interim Financial Information (continued)

1.17        Adopted IFRS not yet applied

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

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

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

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

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

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

1.18        Segmental Reporting

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

Notes to the Interim Financial Information (continued)

2              Expenses

Included in profit/loss are the following:

			6 months ended 31 August 2015	6 months ended 31 August 2014	Year ended 28 February  2015
			£000	£000	£000
Depreciation of tangible fixed assets			151	104	222
Amortisation of intangible assets			211	116	244
Amortisation of government grants			21	10	15
Loss/(profit) on disposal of property, plant and equipment			1	(8)	(9)
Exceptional items:
Exceptional deal costs			606	-	165

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

3             Earnings per share

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

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

			6 months ended 31 August 2015	6 months ended 31 August 2014	Year ended 28 February  2015
Loss attributable to equity shareholders of the parent (£'000)			(1,103)	(902)	(686)
Basic weighted average number of shares			10,887,840	1,265,625	1,265,625
Dilutive potential ordinary shares			23,381	25,960	25,960
Diluted weighted average number of shares			10,911,221	1,291585	1,291,585
Basic loss per share			(10.1p)	(71.3p)	(54.2p)
Diluted loss per share			(10.1p)	(71.3p)	(54.2p)

Notes to the Interim Financial Information (continued)

4              Finance expense

			6 months ended 31 August 2015	6 months ended 31 August 2014	Year ended 28 February  2015
			£000	£000	£000
Bank interest			15	30	52
Loan note interest			233	393	804
Finance leases			11	11	21
Net foreign exchange loss			45	10	131
Total finance expense			304	444	1,008

Loan note interest in the period ending August 2015 was due to the Group's private equity investor, Key Capital Partners ("KCP"). On IPO these loan notes were repaid in full and as such will not be incurred going forward.

5             Taxation

No current tax charge is recognised for the period on the basis the Company generated a loss before tax of £1.1m, and settled significant accrued interest in relation to the KCP loan notes on 8 June 2015.

The deferred tax liability has been increased to £103,000 due to movements in fixed assets, interest, and rent.

The corporation tax rate applicable to the company was 20% in the period to 31 August 2015.

Notes to the Interim Financial Information (continued)

6             Property, plant and equipment

	Plant and  equipment	Fixtures and fittings	Computer equipment	Motor Vehicles	Total
	£000	£000	£000	£000	£000
Cost
Balance at 1 September 2014	185	1,134	226	8	1,553
Additions	8	118	13	-	139
Disposals	-	-	-	(8)	(8)
Balance at 28 February 2015	193	1,252	239	-	1,684
Additions	264	101	65	-	430
Disposals	-	(6)	-	-	(6)
Balance at 31 August 2015	457	1,347	304	-	2,108
Depreciation
Balance at 1 September 2014	63	353	159	7	582
Charge for the period	19	84	15	-	118
Disposals	-	-	-	(7)	(7)
Balance at 28 February 2015	82	437	174	-	693
Charge for the period	44	87	20	-	151
Disposals	-	(4)	-	-	(4)
Balance at 31 August 2015	126	520	194	-	840
Net book value as at 31 August 2015	331	827	110	-	1,268
Net book value as at 1 March 2015	111	815	65	-	991
Net book value as at 31 August 2014	122	781	67	1	971

Notes to the Interim Financial Information (continued)

7             Intangible assets

			Goodwill	Software platform	Brand	Total
			£000	£000	£000	£000
Cost
Balance at 1 September 2014			417	2,163	564	3,144
Additions			-	272	-	272
Balance at 28 February 2015			417	2,435	564	3,416
Additions			-	395	-	395
Balance at 31 August 2015			417	2,830	564	3,811
Amortisation
Balance at 1 September 2014			-	383	141	524
Amortisation for the period			-	100	28	128
Balance at 28 February 2015			-	483	169	652
Amortisation for the period			-	183	28	211
Balance at 31 August 2015			-	666	197	863
Net book value as at 31 August 2015			417	2,164	367	2,948
Net book value as at 1 March 2015			417	1,952	395	2,764
Net book value as at 31 August 2014			417	1,780	423	2,620

 

8              Inventories

	31 August 2015	31 August 2014	28 February 2015
	£000	£000	£000
Finished goods	8,023	4,994	5,326

The cost of inventories recognised as an expense and included in cost of sales in the period ended 31 August 2015 amounted to £9.2m, and in the period ended 31 August 2014 totalled £6.4m.

Notes to the Interim Financial Information (continued)

9              Trade and other receivables

			31 August 2015	31 August 2014	28 February  2015
			£000	£000	£000
Trade receivables			97	120	84
Prepayments			196	170	132
			293	290	216

10           Other interest-bearing loans and borrowings

			31 August 2015	31 August 2014	28 February  2015
			£000	£000	£000
Non-current liabilities
Bank loans			-	232	195
Finance lease liabilities			220	196	138
Loan notes			-	4,163	4,237
			220	4,591	4,570
Current liabilities
Bank loans and overdraft			414	1,300	1,202
Finance lease liabilities			202	119	118
			616	1,419	1,320
Total liabilities
Bank loans and overdraft			414	1,532	1,397
Finance lease liabilities			422	315	256
Loan notes			-	4,163	4,237
			836	6,010	5,890

Bank loans comprise a Trade Finance facility provided by the Group's bankers, HSBC, and is secured against the by fixed and floating charges over the Group's assets.  The interest rate on import loans drawn under the Trade Finance agreement is 2.45% per annum over HSBC's Sterling Base Rate, and on an overdraft is 3.25% over base. Interest on import loans is paid at the maturity of the relevant loan. Interest on the overdraft is paid monthly in arrears. The Trade finance facilities were renewed on 15 July 2015 for 12 months.

On 8 June 2015 the Group paid £4,469,477 to KCP the Group's private equity investor, of which £3,169,477 was settled in cash and £1,300,000 in equity, in full and final settlement of the loan notes and accumulated interest due.

Notes to the Interim Financial Information (continued)

11           Trade and other payables

			31 August 2015	31 August 2014	28 February  2015
			£000	£000	£000
Current
Trade payables			3,738	2,355	3,231
Accruals and deferred income			750	596	1,072
Government grants			28	14	15
Other taxation and social security			159	175	204
			4,675	3,140	4,522
Non-current
Government grants			73	43	35

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

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

12           Share based payments

The Group operates a share option plans for qualifying employees of the Group. Options in the plans are settled in equity in the Company and are subject to vesting conditions. On 3 June 2015 on Admission of the Company to AIM, an initial award of a total of 23,381 shares was made to eight key employees. These shares have an exercise price equal to the nominal value of the shares (10p) that the Company will subsidise by way of a bonus, and subject to certain conditions will be automatically exercised on the third anniversary of the date of grant (3 June 2018).

13           Related party transactions

Immediately prior to admission Chris Scott (CFO) and Gareth Bevan (CCO) were allotted an aggregate of 259,600 shares further to their exercise of pre-existing options, and Andrew Wass was allotted 64,920 shares in accordance with the investor agreement with Key Capital Partners.

Immediately following admission eight key employees were awarded options to an aggregate of 23,381 shares that, subject to performance criteria, will vest on the third anniversary of their award.

On 8 June 2015 the Group paid £4,469,477 to Key Capital Partners, the Group's private equity investor, of which £3,169,477 was settled in cash and £1,300,000 in equity, in full and final settlement of the loan notes and accumulated interest due. Key Capital Partners re-investment took their shareholding to 4,829,482 (23.96%).

 

END

 

 

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