Gear4music Regulatory News (G4M)

9 September 2021

Gear4music (Holdings) plc

AGM Statement, Trading and Acquisitions Update

Gear4music (Holdings) plc, ('Gear4music' or 'the Group') (LSE: G4M), the UK's largest retailer of musical instruments and music equipment, will hold its Annual General Meeting at 10.30am today.

Trading Update

- UK revenue returned to growth during July and August 2021

- Slower European revenue impacted by post-Brexit challenges

- New distribution centres in Ireland and Spain on track to open in September 2021

- Trading remains in-line with the Board's expectation

Acquisitions

- Contracts exchanged for acquisition of AV Distribution Ltd, to complete in Q3 FY22

- 'AV.com' domain name acquired separately

- Aggregate consideration £9.2m* represents a combined adjusted EBITDA multiple of 7.1x

- AV.com to launch by Q4 FY22, selling Home Audio and Visual equipment

* - on a cash free, debt free basis and assuming normalised levels of working capital

At the AGM Gear4music's Chief Executive Officer, Andrew Wass, will make the following statement:

"As previously announced, trading during Q1 FY22 was stronger than the Board had expected although, as anticipated, behind the exceptional period of trading during FY21. UK sales have pleasingly returned to growth during July and August. European sales have remained behind last year, primarily as a result of post-Brexit cross border shipping challenges creating a less competitive delivery proposition in some of our European markets.

Our two new distribution centres in Ireland and Spain will be operational by H2 FY22 as planned, and should eliminate most of the remaining post-Brexit challenges, significantly improving our European delivery proposition to provide a platform for further growth in our European markets by Q4 FY22.

In-line with our stated growth strategy, we are very pleased to announce that the Group has exchanged contracts for the acquisition of AV Distribution Ltd trading as AV Online ('AV Online'), an online retailer of Home Cinema and HiFi equipment and, separately, the acquisition of the website domain name 'AV.com'. AV Online increased revenues by 54% to £8.6m during the last financial year to 31 March 2021, generating adjusted EBITDA of £1.3m.

Operating in a £400m UK audio video market that is currently dominated by high-street based retailers, the Board believes that AV Online will greatly benefit from being transferred onto the Group's highly scalable European e-commerce platform and being rebranded to 'AV.com'.

Trading to date remains in-line with the Board's expectations, although we remain mindful of ongoing uncertainties around COVID-19 and the potential for supply chain disruption during H2 FY22. As a result of the operational and commercial actions we are taking, and the acquisitions we are making, the Board retains a high level of confidence that the Group is well positioned to deliver on its long-term growth strategy."

Acquisition details

Gear4music today announces that the Group has exchanged contracts for the acquisition of AV Distribution Ltd trading as AV Online and, separately, the acquisition of the website domain name AV.com. The completion of the AV Online acquisition is dependent upon receiving approval from the FCA under Change of Ownership provisions, which is expected in or around December 2021.

Founded in 2003 by Carl Pickles, AV Online operates from a 26,000 sq ft warehouse, offices and showroom in Bacup, Lancashire, and is an online retailer of audio-visual equipment, including home cinema systems, HiFi systems, speakers, cables, headphones and accessories.

AV Online has 21 members of staff, and generates sales principally from its main website audiovisualonline.co.uk, with further sales channels including Amazon, the showroom in Bacup, and several smaller websites operated by the business, including hificables.co.uk.

In the financial year ended 31 March 2021 ('FY21'), AV Online reported unaudited revenues of £8.6m (FY20: £5.6m), adjusted EBITDA of £1.3m (FY20: £0.6m) and profit before tax of £1.2m (FY20: £0.4m). Net assets at 31 March 2021 were £4.2m (FY20: £3.3m).

The consideration of £6.2m for AV Online (on a cash free, debt free basis and assuming normalised levels of working capital), and £3.0m for the AV.com domain name will be settled in cash drawn from the Group's £35m Revolving Credit Facility with HSBC, and represents a combined adjusted EBITDA multiple of 7.1 times. The purchase of AV Online will include £2.5m of inventory, and a freehold warehouse property recently valued at £1.3m.

The AV.com domain name was not owned by AV Online and was purchased by the Group separately.

The Board notes that these acquisitions will significantly increase the Group's addressable market size and believes there are significant synergies between the market in which Gear4music operates, and the closely related but separate AV market, which is currently dominated by high-street based retailers such as Richer Sounds.

The Board is confident that by moving the AV Online business onto Gear4music's highly scalable bespoke e-commerce platform, rebranding the business to AV.com, developing its product ranges, and expanding into Europe, AV.com can quickly grow its revenues and profits. The Board expects that the acquisitions will be earnings per share enhancing from FY23 onwards.

ENDS

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About Gear4music (Holdings) plc

Operating from a Head Office in York, and Distribution Centres and showrooms in York, Sweden and Germany, the Group sells own-brand musical instruments and music equipment alongside premium third-party brands including Fender, Yamaha and Roland, to customers ranging from beginners to musical enthusiasts and professionals, in the UK, Europe and, more recently, into the Rest of the World.

Having developed its own e-commerce platform, with multilingual, multicurrency websites delivering to over 190 countries, the Group continues to build its overseas presence.

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