Focusrite Regulatory News (TUNE)

Strictly embargoed until: 07.00, 22 November 2016

Focusrite Plc

("the Company" or "the Group")

Final Results for the Year Ended 31 August 2016

Focusrite Plc (AIM: TUNE), the global music and audio products company, announces Final Results for the year ended 31 August 2016.

Financial highlights

· Group revenue grew by 13.1% to £54.3 million (FY15: £48.0 million)

· Adjusted EBITDA1 grew by 10.2% to £10.2 million (FY15: £9.3 million)

· Operating profit grew 13.0% to £7.1 million (FY15: £6.3 million)

· Profit before tax grew 9.9% to £7.1 million (FY15: £6.5 million)

· Basic earnings per share grew 13.5% to 11.8p (FY15: 10.4p)

· Adjusted2 diluted earnings per share grew 8.6% to 11.4p (FY15: 10.5p)

· Net cash of £5.6 million (FY15: £6.2 million)

· Proposed final dividend increased by 8.3% to 1.3p recommended making 1.95p for the year (FY15: 1.8p)

Operational highlights

· Continued growth across all geographies with 16 new products launched this year.

· Strong performance from Focusrite products with the launch of a new generation of the world's number one audio interface, Scarlett.

· Entrance into lucrative adjacent price segments with Clarett and Red ranges receiving positive channel and consumer reaction.

· Further strong sales growth of RedNet products, targeted at the live sound and broadcast business-to-business markets.

· Novation strategy executing to plan with new software updates to the Circuit and Launchpad Pro products.

· Launch of highly intuitive Blocs Wave app, making it easier for musicians to create their own sounds and songs from scratch on any iOS smartphone or tablet, with over 47,000 downloads to date.

· Strong growth in Rest of World with sales improving by 28.1% and opening of a new dedicated Asia office in Hong Kong to support further growth.

· Launch of new e-commerce websites in the UK and USA.

· Queen's Award for Enterprise for International Trade and named in the 'Sunday Times 100 Best Small Companies to Work For' for fifth successive year

1 Comprising of earnings adjusted for interest, taxation, depreciation, amortisation and non-underlying items.

2 Adjusted for non-underlying items (see note 4).

Commenting on the results, Executive Chairman Phil Dudderidge said:

"Focusrite has had an excellent second year of trading as a public company. We have continued to grow revenue and correspondingly our profits as we deliver on our strategic goals. There have been a number of drivers for this increase including an improving market share globally, a strong performance from new and existing products, and a number of new sales, marketing and distribution initiatives."

Commenting on current trading, Chief Executive Officer Dave Froker said:

"Pleasingly, our positive trading momentum has continued in the period since the year end. Our strategy is paying off as we grow our market share, revenue and profits. We've energetically introduced new innovative products which continue to be well received by our customers. We are managing our way through macroeconomic turbulence and the expansion of our channels to market is driving opportunities for growth. We look ahead with confidence."

Availability of Annual Report and Notice of AGM

The Annual Report and Accounts for the financial year ended 31 August 2016 and notice of the Annual General Meeting ("AGM") of Focusrite will be posted to shareholders by 5 December 2016 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 Annual General Meeting to be held on 10 January 2017.

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)

CHAIRMAN'S STATEMENT

Focusrite has had an excellent second year of trading as a public company and I am very pleased to report on the Company's performance and progress over the last 12 months.

We have continued to grow revenue and correspondingly our profits as we deliver on our strategic goals. The year-on-year performance has been strong, showing a significant increase in revenue of 13.1% to £54.3 million. There have been a number of drivers for this increase including improving market share globally, a strong performance from new and existing products, and a number of new sales, marketing and distribution initiatives.

Given the cash-generative characteristics of the business and the strength of our balance sheet, the Board has decided to recommended a final dividend of 1.3 pence per share (FY15 final dividend 1.2 pence), giving a total of 1.95 pence per share for the year (FY15: 1.8 pence). The final dividend is subject to shareholder approval, which is being sought at Focusrite's Annual General Meeting ('AGM') to be held in January 2017.

Importantly, all our achievements represent the collective efforts of an outstanding workforce. With the majority of our employees being active musicians there is a real enthusiasm for what we do and a wealth of inherent expertise.

Approximately a third of our people are engaged in product development and I am very proud of their world-class capabilities. Our marketing and sales staff are exemplars in the global market we inhabit, employing state-of-the-art digital marketing techniques to ensure that the Focusrite and Novation brands are recognised as the 'Best Choice at Every Price Point', a company ambition that we are continually striving to achieve.

In this regard, FY16 produced a number of significant product achievements, most notably the complete renewal of our Focusrite Scarlett audio interface range, the global leader in the sub-$500 product category. This complete design revision of Scarlett improves the audio performance, industrial design and control software, and as a result will continue to defend and improve our market share in a competitive market. Scarlett Gen.2 is also bundled free with 'Avid Pro Tools | First' recording software for the first time. This is a ringing endorsement of Focusrite as the perfect partner for Pro Tools.

Additionally we remain active across all price points in the professional music recording market, addressing identified market requirements. The new Focusrite Clarett and Red ranges ($500-$4000) were successfully launched this year, as were second generation RedNet products, targeted at high-calibre institutional customers such as Microsoft and Disney, as well as broadcasters and universities.

Progress at Novation, our Company's music creation brand, was predominantly driven by our innovative Circuit product. Launched in the first half of FY16, Circuit is a new concept musical instrument, which actually inspires and helps in the creation of electronic music. Regular software enhancements are meeting customer aspiration and Circuit is becoming a considerable success in this new category.

During FY16, we have also been active on the sales, distribution and marketing side of the business and recently established a marketing and sales subsidiary in the Asia Pacific region to represent our brands in these territories, working without third-party distributors. This region continues to show substantial growth.

In Europe we appointed a new distributor for France and Benelux. Algam is the market-leading distributor of musical instruments and professional audio products in these geographies and this move has resulted in a valuable increase in sales in these territories.

Our largest market remains the USA and six years ago we established Focusrite Novation Inc. as a marketing subsidiary to promote and support our brands alongside our third-party distributor. This continues to prove a successful business model with sales into the retail channel continuing to increase in FY16.

We acknowledge our excellent relationships with all our authorised retailers, distributors and resellers in the USA and across the rest of the world and we thank them for their continued custom and support.

Overall it has been a real year of progress and I am delighted that as a result of all our employees' hard work, we were the proud winners of the Queen's Award for Enterprise for International Trade and, for the fifth year running, were included in the Sunday Times 100 Best Small Companies to Work For.

Finally, I would also like to take this opportunity to express my appreciation to retiring Chief Executive Office, Dave Froker. He has been a valuable and integral member of the Focusrite team for several years and has made a terrific contribution to our success. We wish him every happiness in his retirement back home in the USA. The process for finding a successor to Dave Froker continues and is well advanced. Furthermore, I would also like to acknowledge the entire executive team for their tireless commitment to growing the business and, most importantly, to 'always making things happen'!

As we look forward to the next financial year, we will be focused on the same mantra!

Phil Dudderidge

Executive Chairman

CHIEF EXECUTIVE'S STATEMENT

Focusrite has been quoted on the AIM market now for almost two years and during that time we have gone from strength to strength. We continue to hit our growth benchmarks and perform well both operationally and financially.

Our growth this year was driven by new product releases which were supported by positive industry and consumer acceptance. The Group continues to penetrate new market segments and price points with best in class, user-friendly products. Customer and sales channel satisfaction feedback remains strong on new and existing products and continued high levels of end-user satisfaction are illustrated by our top net promotor scores for individual products.

Growth strategy

Our strategy of innovation and expansion continues to work and we are leading the market with our cutting edge technology and design, which continues to attract industry recognition. We remain committed to making music easier to make for professionals and hobbyists and our success is driven by our entrepreneurial and pioneering team, many of whom are themselves musicians.

Financial performance

Having clearly outlined to investors our strategy for growth, which focuses on the four key areas of Innovate, Disrupt, Make Easy and Expand, we have this year shown that the wider operational team has the capability to execute that strategy.

As a result we have grown Group revenues by 13.1% to £54.3 million (FY15: £48.0 million). Following last year's Novation product introductions and growth, the real engine for growth this year has been the Focusrite products, with sales increasing by 20.4% from £31.2 million to £37.6 million. Profitability also grew with adjusted EBITDA up by 10.2% to £10.2 million (FY15: £9.3 million).

Regionally, the USA grew by 15.6% with further growth in our Scarlett range, boosted by the launch of the 2nd generation, and strong uptake of our Clarett and Red products in the second half. Europe grew by 5.2%, despite Brexit and currency movements and the Rest of World region grew by 28.1%, notably in Asia where our Novation products, in particular, have proved very popular.

The market

Pleasingly, the overall music equipment market still continues to grow and the Company grew market share despite facing some macroeconomic headwinds.

The most notable of these was the UK's Brexit vote in June 2016 and the resulting significant currency exchange rate volatility both before and after the result. It is too early to know if there will be any impact on underlying consumer demand for our products as a result of Brexit, but to date we have seen no evidence of this.

The USA still has a relatively healthy economy, and overall seems in better shape than the Eurozone and Latin America. Asia continues to grow faster than the rest of the world despite China's slowdown, although it is currently a small part of our business, but we hope to capitalise more on this region of the world now we have a dedicated presence in Hong Kong.

Products

During the year we introduced 16 new products across our business segments. Our major product launches and growth drivers this year have been within the Focusrite business segment, which accounts for 69.2% of our overall turnover. All new products were delivered on schedule and are gaining market share. The feedback via our sales channels and from end customers has been positive.

Within Focusrite our major initiative this year was the launch of the new generation of Scarlett, an improved version of the world's number one audio interface. The new and upgraded Scarlett range is targeted widely, from aspiring musicians recording at home (a large market) through to professional producers and sound engineers. This second generation of Scarlett has been well received by our sales channels and consumers and has received enthusiastic industry media reviews.

Alongside this, we also entered the lucrative adjacent price segments with new Clarett and Red interfaces. The Clarett Thunderbolt line is priced between $500 and $1,300 and has sold well since its introduction. The Red Series offers unequalled sound quality, speed and ease of use for professional recording engineers and producers, and has been widely acclaimed in the trade media. It started shipping in April and sales are now starting to build up nicely.

We also continue to open up new market segments with our RedNet products, which enable numerous high-quality audio signals to be distributed via 'Audio over IP' based technology, utilising common off-the-shelf networking infrastructure. Delivered in real time across a network, these products are targeted at the live sound and broadcast business-to-business markets.

In the previous financial year we introduced a large number of new Novation products and so this year has been a quieter year for this brand as expected. We have executed our new strategy for this market segment by continuously upgrading our innovative Circuit groove box with new software. We continue to strive to make music easier to make and in this regard we are particularly pleased with the performance and market acceptance of Circuit, across all our sales channels.

As announced at the time of the interim results, we launched Blocs Wave, the second iOS app from our London based software team. The app has been designed for everybody to use, whether a professional or beginner, and is highly intuitive. Blocs Wave makes it easier for musicians to create their own sounds and songs from scratch on any iOS smartphone or tablet. With initial support from Apple, downloads have been strong with over 47,000 to date.

Finally, although a small part of our overall product mix, we continue to distribute third-party products and during the year, we agreed a new distribution deal for sE Electronics microphones in the UK.

New initiatives

We are always looking at ways to expand our sales channels, improve our distribution and capture margin.

During the year we opened an office in Hong Kong as mentioned above. This will give us a better understanding of our customers and help to maintain close links with our contract manufacturers in China. Ultimately, we plan to increase the proportion of the Group's revenue coming from Asia.

Additionally, we launched Focusrite's first web-store in the UK. We have now expanded this to the USA and some European territories and although still in its infancy we see the potential for creating a direct sales channel for our products. In addition, where customers wish to try our products prior to buying, we will direct them to the dealers that sell our products, providing a further benefit to those dealers.

On the logistics side of the business we successfully transitioned our business to Kuehne + Nagel to achieve more highly integrated supply chain and delivery management. This is expected to impact our logistics positively and further improve the efficiency of our operations.

Our people

Managed by a skilled operations board with combined music industry experience in excess of 100 years and with an average Focusrite service of over 12 years each, we can truly demonstrate strength and depth in our management team.

Supporting them we have an energetic, committed and creative young workforce who develop, market and sell our products. A very high proportion of our workforce are users of our products, 62% are 35 years of age or below and 87% own shares or stock options in Focusrite Plc. It has been my great pleasure and privilege to help guide and lead them while I have been Chief Executive.

Current trading and outlook

Pleasingly, our positive trading momentum has continued in the period since the year end. Our strategy is paying off as we grow our market share, revenue and profits. We've energetically introduced new innovative products which continue to be well received by our customers. We are managing our way through macroeconomic turbulence and the expansion of our channels to market is driving opportunities for growth. We look ahead with confidence.

This will be my last report as Chief Executive of Focusrite, as I have announced my retirement and intention to return to the USA. I would like to thank all of my Board colleagues, as well as all of our employees, who are truly world-class colleagues, for their support and dedication. I remain a shareholder in the business and am confident that the Company can achieve even greater things over the longer term.

Dave Froker

Chief Executive Officer

FINANCIAL REVIEW

Overview

The Group has delivered another positive year exceeding market expectations with revenue up 13.1%, adjusted EBITDA up 10.2% and adjusted diluted earnings per share up 8.6%.

Income statement

Revenue

Revenue grew from £48.0 million to £54.3 million, continuing the record of double digit percentage growth achieved each year since 2009. In FY15, the faster growth was in the Novation range as the Group launched several new or updated products within that brand. In FY16, the Group has launched more new or updated products in the Focusrite range and consequently the Focusrite brand has increased revenue by 20.4%. This included the high end RedNet range which increased by 15.9%. The Novation brand declined by 3.4% although consumer registrations increased by 11.9% indicating that the revenue decline was due to the managing of stock held by dealers rather than a decline in consumer demand.

Regionally, the USA grew by 15.6% to £21.4 million, Europe by 5.2% to £22.6 million and the Rest of World by 28.1% to £10.3 million. The primary driver of growth in the Rest of World region was Asia, which has been a great market for the Novation products and in which the Group launched a new sales office in Hong Kong in early 2016.

As ever, exchange rates played a part with the US Dollar and the Euro both strengthening against Sterling during FY16. At constant exchange rates, revenue grew by 7.5%.

Gross profit

Gross profit increased to £20.9 million (FY15: £18.6 million), a gross margin of 38.4% (FY15: 38.8%). The gross margin reduced slightly due to the strengthening of the US Dollar which increased revenue but also increased cost of sales by a similar value in Sterling terms, thereby reducing the gross margin as a percentage of revenue.

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, tax, depreciation, amortisation and non-underlying items) increased by 10.2% to £10.2 million (FY15: £9.3 million). The rate of growth was slightly slower than the rise in revenue due to the lower gross margin, a greater amount spent on sales (with the US and Asia offices) and marketing (with significant new product launches).

In FY16, there was a non-underlying cost of £0.5 million due to legal cases relating to intellectual property and distribution contracts which have no significant effect on our ongoing business. The one remaining case relates to the cessation of a distribution contract and the Group continues to defend its position vigorously.

In FY15, there was an exceptional cost of £0.7 million relating to the costs of the Initial Public Offering, when the Group floated on the AIM market in December 2014.

Income statement

Foreign exchange and hedging

During the period, there have been significant movements in both the US Dollar and the Euro.

The Group has a largely effective natural hedge in US Dollars. Therefore, while, the US Dollar strengthened from an average USD:GBP exchange rate of $1.56 in FY15 to $1.45 in FY16, the positive impact on revenue is negated by the impact on cost of sales because the Group's products are bought in US Dollars from China and therefore become correspondingly more expensive in Sterling terms

The Euro represents approximately 25% of revenue and little cost. The Group hedges its Euro cash flows up to one financial year ahead. In FY16, the average rate was €1.29 and approximately 75% of the flows were hedged at €1.39 creating an effective exchange rate of €1.37. In FY15, the average EUR:GBP exchange rate was €1.35 and approximately 75% of the Euro flows were hedged at €1.27 creating an effective exchange rate of €1.29. The hedged exchange rate for the coming financial year (FY17) is €1.28.

In previous years, the outstanding hedging contracts have been revalued and movement in fair value shown in the income statement. The hedging contracts relating to FY17 have been matched to income flows and, providing the hedging contracts remain effective, movements in fair value are shown in a hedging reserve in the balance sheet.

Corporation tax

The effective tax rate for FY16 was approximately 12.2% as the Group is expected to benefit from tax credits in respect of research and development and share options.

Earnings per share

The basic earnings per share increased by 13.5% to 11.8p (FY15: 10.4p) driven by the higher profit before tax and the lower effective tax rate. In a similar fashion, the adjusted diluted earnings per share increased by 8.6% to 11.4p (FY15: 10.5p).

Earnings per share

Balance sheet

Cash flow

1Defined as net cash from operating activities less net cash used in investing activities

Balance sheet

Non-current assets

The non-current assets comprise mainly capitalised research and development costs. Approximately 80% of research and development costs are capitalised and they are amortised over three years. The typical product life is three to six years. This policy is unchanged from last year.

Working capital

Working capital increased from 15.7% of revenue to 22.4% of revenue. The biggest factor driving this was the increased level of stock. The Group developed and launched several new and innovative Focusrite and Novation products without a demand history both this financial year and in the previous year and, in light of the lead times being as long as six months, decided to increase stock to reduce the risk of running out of stock, should demand soar. As the demand pattern becomes more predictable, the stock quantities will be reduced. A second, less significant factor was a change in payment terms afforded to one customer.

Cash flow

Cash at the period end was £5.6 million, up from £4.0 million at the half year but down from £6.2 million at 31 August 2015, driven by the higher stock and debtors explained previously. Notwithstanding these factors, the free cash flow remained positive at £0.2 million (FY15: £2.7 million) and the Group has a £10 million revolving credit facility with HSBC.

Dividend

In accordance with the Group's progressive dividend policy, the Board is proposing a final dividend of 1.3 pence per share (FY15 final dividend 1.2 pence), which would result in a total of 1.95 pence per share for the year (FY15: 1.8 pence). At this level, the dividend is covered approximately six times by earnings. The Group remains focused on growth and maintains a significant dividend cover to afford continued investment in order to generate further growth in the future.

Summary

The Group has grown revenue by 13.1% in the year, adjusted EBITDA by 10.2% and adjusted diluted earnings per share by 8.6%. The Group is cash-generative and well-funded, supported by £5.6 million of cash and a £10 million revolving credit facility. The performance this year has continued the trend, over many years, of strong growth and the Group is working hard to maintain that positive progress going forward.

Jeremy Wilson

Chief Financial Officer

PRINCIPAL RISKS AND UNCERTAINTIES

Risk factors

In common with all businesses, the Group faces risks, the effective management of which is necessary to enable it to achieve its strategic objectives and secure the resilience of the business for the long term. Management of risk is critical to the effective running of the business and is considered as part of the Group's decision-making processes.

FORWARD LOOKING STATEMENTS

Certain statements in this full year report 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 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 AUGUST 2016

The notes form part of the financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 AUGUST 2016

The financial statements were approved by the Board of Directors and authorised for issue on 22 November 2016. They were signed on its behalf by:

Dave Froker Jeremy Wilson

Chief Executive Officer Chief Financial Officer

The notes form part of the financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 AUGUST 2016

The notes form part of the financial statements.

1 Of the retained earnings totalling £22,536,000, £171,317 relates to the gain on exercise of share options from the EBT and is therefore non-distributable.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 AUGUST 2016

NOTES TO THE COMPANY ACCOUNTS

FOR THE YEAR ENDED 31 AUGUST 2016

Availability of audited accounts:

Copies of the 31 August 2016 audited accounts will be will be available on 22 November on the Company's website (www.focusriteplc.com/investors) for the purposes of AIM rule 26 and will be posted to shareholders in due course.

1 Revenue

An analysis of the Group's revenue is as follows:

2 Business segments

Information reported to the Group's Chief Executive (who has been determined to be the Group's Chief Operating Decision Maker) for the purposes of resource allocation and assessment of segment performance is focused on the main product groups which Focusrite sells. The Group's reportable segments under IFRS 8 are therefore as follows:

Focusrite - Sales of Focusrite branded products

Novation - Sales of Novation branded products

Distribution - Distribution of third-party brands including KRK speakers, Ableton, Stanton, Cerwin-Vega, Cakewalk and sE Electronics

Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment:

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 3. Segment profit represents the profit earned by each segment without allocation of the share of central administration costs including Directors' salaries, investment revenue and finance costs, and income tax expense. This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.

Central administration costs comprise principally the employment-related costs and other overheads incurred by Focusrite and its USA subsidiary, net of inter-Company commission income. Also included within central administration costs is the charge relating to the share option scheme of £120,000 for the year ended 31 August 2016 (2015: £122,000).

Segment net assets and other segment information

Management does not make use of segmental data relating to net assets and other balance sheet information for the purposes of monitoring segment performance and allocating resources between segments. Accordingly, other than the analysis of the Group's non-current assets by geographical location shown below, this information is not available for disclosure in the consolidated financial information.

The Group's non-current assets, analysed by geographical location were as follows:

Information about major customers

Included in revenues shown for 2016 is £21.3 million (2015: £18.5 million) attributed to the Group's largest customer. Amounts owed at end of year is £5.2 million (2015: £2.7 million).

3 Profit for the year

Profit for the year has been arrived at after charging/(crediting):

4 Non-underlying items

During the year ended 31 August 2016, the Group incurred one-off litigation costs relating to intellectual property and distribution contracts, totalling £0.5 million, which were charged to the income statement. This is stated net of a receipt of £0.25m on a legacy dispute, which had previously been written off. In December 2014, the Group floated on the AIM. Non-recurring IPO related costs totalled £0.7 million, which were charged to the income statement for the year ended 31 August 2015.

5 Tax

Corporation tax is calculated at 20.00% (2015: 20.58%) of the estimated taxable profit for the year. Taxation for the USA subsidiary is calculated at the rates prevailing in the respective jurisdiction.

The tax charge for each year can be reconciled to the profit per the income statement as follows:

6 Dividends

The following equity dividends have been declared.

During the year, the Company paid an interim dividend in respect of the year ended 31 August 2016 of 0.65 pence per share.

On 22 November 2016, the Directors recommended a final dividend of 1.3 pence per share (2015: 1.2 pence per share), making a total of 1.95 pence per share for the year (2015: 1.8 pence per share).

7 Earnings per share

Reported EPS

The calculation of the basic and diluted EPS is based on the following data:

At 31 August 2016, the total number of ordinary shares issued and fully paid was 58,075,000. This included 4,494,504 (2015: 5,676,000) shares held by the EBT to satisfy options vesting in future years. The operation of this EBT is funded by the Group so the EBT is required to be consolidated, with the result that the weighted average number of ordinary shares for the purpose of the basic EPS calculation is the net of the total number of shares in issue (58,075,000) less the number of shares held by the EBT (4,494,504). It should be noted that the only right relinquished by the Trustees of the EBT is the right to receive dividends. In all other respects, the shares held by the EBT have full voting rights.

The effect of dilutive potential ordinary share issues is calculated in accordance with IAS 33 and arises from the employee share options currently outstanding, adjusted by the profit element as a proportion of the average share price during the period.

Adjusted EPS

8 Notes to the cash flow statement