Focusrite Regulatory News (TUNE)

Strictly Embargoed until 07.00, 28th November 2023

Focusrite plc

("Focusrite" "the Company" or "the Group")

Final Results for the Year Ended 31 August 2023

Focusrite plc (AIM: TUNE), the global music and audio products company, announces its Final Results for the year ended 31 August 2023.

Financial and operational highlights

Revenue decrease of 2.9% reflects organic constant currency5 (OCC) decrease of 9.5% partially offset by acquisitions and foreign exchange translation benefits against a challenging market backdrop.

· Content Creation revenue down by 9.7% (15.3% OCC decrease) to £137.0 million (FY22: £151.8 million), an improvement on first half decline of 16.1% with Focusrite brands returning to growth in H2.

· Audio Reproduction revenue growing by 30.1% (19.6% OCC growth) to £41.5 million (FY22: £31.9 million), benefitting from a strong supply chain and a resurgence in demand for live experiences.

· Gross margin increased by 2.2% points, with freight costs normalising, partially offset by investment in promotions to counteract cost of living challenges.

· Adjusted EBITDA of £38.6 million down 7.4% from FY22, impacted by lower sales and investment in Group infrastructure.

· Operating profit of £24.3 million down 15.3% impacted by increased amortisation from product launches and amortisation of acquired intangibles.

· Launch of 32 new products across all brands throughout the year, including 4th generation of flagship Scarlett audio interface.

· Acquisition of Sonnox, an established provider of market leading software, completed in December 2022 for £7.2 million net of cash acquired (£1.9 million).

· Final dividend of 4.5p recommended, resulting in 6.6p for the year, up 10% on prior year.

1 Adjusted for amortisation of acquired intangible assets, acquisition and restructuring costs and other adjusting items

2 Comprising earnings adjusted for interest, taxation, depreciation and amortisation.

3 Restated to include the deferred tax impact of amortisation on acquired intangible assets

4 Net debt defined as cash and cash equivalents, overdrafts and amounts drawn against the RCF including the costs of arranging the RCF

5 Organic constant currency growth. This is calculated by comparing FY23 revenue to FY22 revenue adjusted for FY23 exchange rates and the impact of acquisitions.

Commenting on the final year results and current trading Tim Carroll CEO, said:

"Despite challenging macroeconomic conditions, our Group has delivered a resilient performance, achieving revenue and profit figures in line with market expectations. With our existing portfolio, planned product launches throughout the coming year, streamlined go-to-market strategies, and shared back-office support structures, we are well-positioned to embrace the opportunities and challenges the new year presents.

Current market conditions for our Content Creation division remain difficult and our revenue year to date has been impacted by a degree of sales channel de-stocking. However, underlying demand for our products, as evidenced by customer registrations, remains satisfactory. Performance in our Audio Reproduction division remains strong. 

Overall, at this early stage and as we head into our key holiday season, our expectations for the year remain unchanged.

Whilst we remain mindful of the significant global economic and political challenges, as well as ongoing cost pressure in the supply chain, we have successfully built our inventory positions back to more normalised levels and have robust plans for future component supplies as well. With key new products launched towards the end of FY23 and more introductions planned for the year ahead, we remain confident in the organic growth potential of existing brands. Additionally, with the benefit of our cash generation, the Group has demonstrated its ability to execute on our proactive M&A strategy, carefully considering acquisitions that not only enhance earnings but also expand our market potential, increase our R&D capabilities, and contribute both scale and dynamism to our business.

We remain optimistic about our future prospects."

Availability of Annual Report and Notice of AGM

The Annual Report and Accounts for the financial year ended 31 August 2023 and notice of the Annual General Meeting ("AGM") of Focusrite will be posted to shareholders by 20 December 2023 and will be available on Focusrite's website at www.focusriteplc.com.

Dividend timetable

The final dividend is subject to shareholder approval, which will be sought at Focusrite's AGM on 19 January 2024.

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 eleven established brands: Focusrite, Focusrite Pro, Novation, Ampify, ADAM Audio, Martin Audio, Optimal Audio, Linea Research Sequential, Oberheim and Sonnox.

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 synthesizers 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. Linea designs, develops, manufactures and sells market innovative professional audio equipment globally. Sequential designs and manufactures high end analogue synthesizers under the Sequential and Oberheim brands. Sonnox is a leading designer of innovative, high quality, award winning audio processing software plug-ins for professional audio engineers.

The Company 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 Report

Focusrite plc has undergone substantial growth since the pre-COVID era, expanding our presence globally with 11 distinct brands operating in diverse yet complementary markets. Over the past year, we have seen tangible results stemming from our strategic diversification efforts, which have enhanced our resilience in the face of global and industry-wide challenges.

We take immense pride in the business we have become, accompanied by impressive financial achievements since our initial public offering in December 2014. Although facing a challenging time this year, our track record speaks for itself, with revenue growth, strong cash generation, robust gross margins, a progressive dividend policy, and a successful acquisition strategy that has delivered attractive total returns to our valued shareholders.

At the core of our operations lies a global market with underlying growth factors, which we estimate at £5.5 billion across all our divisions. The ongoing technological advancements have democratised content creation and catalysed growth across the world. In this landscape, we find ourselves at the forefront of innovation.

Throughout the past year, the Group has undergone substantial changes while maintaining a strong presence in various markets, both vertically and geographically. We continue to drive innovation, foster strong relationships with our established customer base, and maintain an expansive distribution network spanning approximately 240 territories worldwide.

Whilst we celebrate our growth achievements, we remain vigilant in acknowledging factors that have impacted our revenue performance. Notably, our Focusrite-branded Scarlett audio interface range experienced a decline in volume in a market that had previously surged in demand during the pandemic. However, we proudly retained our global market leadership in this category. In July, we unveiled the 4th generation of Scarlett interfaces, which has already garnered widespread acclaim, bolstering our confidence in this range's market share for the years ahead.

To enhance marketing and representation efficiency, the Group has restructured its distribution networks in Europe and the US, aligning the acquired brands with our original Focusrite and Novation brands.

In the wake of the COVID-19 pandemic, the Audio Reproduction market is witnessing a surge in demand for experiences, including live and installed sound. The businesses within our Audio Reproduction division, including Martin Audio, Linea Research, and Optimal Audio, are all experiencing healthy growth, compensating for anticipated short-term contractions in our Content Creation brands from the past year. ADAM Audio is also making good progress following operational challenges in FY22 predominantly as a result of market wide shortages.

In May 2023, the Group Headquarters and home of Focusrite and Novation brands relocated to a new, more modern location in High Wycombe, providing us with vastly improved working conditions and stability for the foreseeable future. Concurrently, we have refreshed our investor-facing materials, and I encourage investors to explore our new plc website at https://focusriteplc.com/.

The Group is well positioned in all major markets, with enduring demand for high-quality audio products in music and sound production, recording, and entertainment industries across the globe. The catalysts for our business opportunities lie in music education and the global thirst for content and live entertainment, and we are always ready to embrace the challenges and prospects presented.

I extend my sincere gratitude to our investors for their continued confidence and support, to our dedicated employees for their hard work and innovation, and our distribution partners for their invaluable role in delivering our products to the masses.

We have successfully cultivated a diverse portfolio of world-leading brands, each holding strong positions within their respective segments. This diversification bolsters our resilience against global and industry-specific headwinds. There is much to look forward to and, with a proven track record of growing both organically and via selected M&A, we approach the future with much to be optimistic about.

Phil Dudderidge

Non-Executive Chairman and Founder

CEO Statement

CEO's Statement

I'm pleased to present our final results for 2023, highlighting the Group's journey over the past year. It was a year of challenges and opportunities, and the Group tackled both with a focus on our growth strategy, resulting in strong performance in a challenging market. As part of our strategic expansion, we welcomed Sonnox, a renowned software company specialising in professional audio effects and tools, into our Group.

Some of the challenges we faced in 2023 carried over from the previous year, notably the impact of rising living costs on home recording solutions and ongoing high component costs. As discussed in the half year report, this resulted in softer sell through on many Content Creation products focused on the home recordist, and a build-up of inventory in the channel. The Group effectively addressed both issues with our product inventory unwinding in the channel to targeted levels and pricing actions taken to protect margin without impacting our sell through volumes to end users. Our products continue to be top sellers in their various categories. In parallel, the Group witnessed a surge of demand for live and installed sound solutions, reinforcing the view that live events are back in a big way.

With 11 brands spanning Content Creation and Audio Reproduction, the Group's R&D efforts resulted in the successful launch of 32 new products and updates to 23 existing ones during the fiscal year. Additionally, we have continued to refine our go-to-market approach; most notably this past year with a combined EMEA sales and marketing team for our Content Creation brands, which has resulted in greater leverage and scale.

Our primary locations are in the UK (High Wycombe, Letchworth, Oxford and London), Germany (Berlin), Hong Kong, Australia (Melbourne), and the US (Los Angeles, Nashville and San Francisco). Our employee base, which now totals 557, consists of a remarkable group of passionate professionals, including accomplished musicians, DJs, audio engineers, live sound experts, and podcasters/streamers. We are fortunate to have employees who actively use our solutions in real-world scenarios, contributing their experiences, feedback, and technical expertise. We continue to invest in our people and look wherever possible to promote from within, whilst seeking out top talent from around the world across all divisions and brands.

Our Group Structure

The Group's portfolio of solutions can be categorised into two broad categories:

· Content Creation: Solutions that enable the creation of audio content for distribution or personal enjoyment- approx. 77% of total FY23 revenue comprised of four unique business units and eight industry leading brands.

· Audio Reproduction: Solutions that enable the reproduction of sound-approx. 23% of total FY23 revenue comprised of two unique business units and three brands.

Our two divisions cater to distinct customer bases; employ different routes to market; and involve product-specific technical requirements for our products. Each individual business unit continues to focus on innovation, ensuring a robust roadmap of refreshes for current products whilst also introducing completely new solutions. Content Creation and live sound reproduction workflows are constantly evolving, and the Group aims to lead the industry by spending considerable effort and resources in our various R&D efforts.

To support these brands we have implemented a unified go-to-market strategy, managed by cohesive regional teams for each division. Additionally, all business units benefit from Group-led services across Finance, IT, and HR.

The Group is dedicated to gaining valuable insights from our customers, actively collecting data during their on-boarding and user journey as they use our solutions. We closely monitor customer Net Promoter Scores (NPS), which serves as a key performance indicator (KPI) across all our businesses. Additionally, we collate our own proprietary data with industry market sources to ensure we consistently stay attuned to our customers' evolving needs and purchasing behaviours. More detail on our markets and customer types is provided elsewhere in this report.

Additionally, the Group maintains a very proactive stance towards M&A, carefully considering potential acquisitions that are not only earnings enhancing, but which can also expand our reach into existing and new markets and add to our R&D capabilities.

Operating review

Despite the challenging environment and the gradual return to normality following the pandemic, the diversity of the Group's portfolio has mitigated these impact and maintained our position as market leaders. In the past year, our Content Creation division was down 9.8% compared with the prior year, whilst our Audio Reproduction brands, witnessing a strong return of live events globally, were up 30.1%. The Group's diversification across these two divisions has served us well across the past three years: when the pandemic hit and live events were shut, our Content Creation brands witnessed an unprecedented increase in demand, offsetting the decline in Audio Reproduction. As a result, while consumer-focussed brands in the content creation space grapple with rising living costs, inflated channel inventories, and artists returning to a more balanced recording and live performance schedule, the Group's Audio Reproduction brands have experienced a significant surge in demand during this live events revival.

Content Creation

Content Creation encompasses the creation of audio content using various technologies. It spans from personal enjoyment to professional content production across diverse mediums, such as music, podcasting, and audio for film. The global demand for content creation continues to increase, with industry reports such as IFPI Global Music Report 2023 indicating not only sustained growth but also an expanding global reach, driven by emerging markets, enabling individuals worldwide to reach a global audience.

The pandemic and subsequent lockdowns accelerated this growth, as many people turned to music and podcast creation as a creative outlet. Musicians and streamers used technology to stay in touch with their audiences and increase their productivity. However, challenges relating to component availability and shipping logistics began to plague all industries around mid-2022 which, for our industry, resulted in exceptionally low stock levels across our Global channel. At the beginning of this past fiscal year, both component supply and freight costs began to ease up, resulting in a massive inflow of inventory to the channel. This coincided with concerns about rising living costs.

The net result was a very bloated channel, not just in our sectors, but across all sectors such as guitars, wind instruments, pianos and other instruments. Industry trade publications have reported this phenomenon, with recent data from Music Trades indicating a 65% decrease compared to the prior year in guitar exports to the US for the quarter from April to June 2023. As outlined in our half year presentation, the Group realised this early into the year and worked very collaboratively with our global channel partners on promotions and incremental marketing campaigns to drive down inventory. These efforts proved effective and from all data points, we believe the Group performed materially better than our competitors and was able to maintain our market share and, in some instances, grow share as well.

Regionally, both North America and EMEA witnessed low single digit declines in revenue year over year. APAC saw a larger decline, most notably due to China, where the extended lockdowns ending, and the larger scale of inflation had greater impact. To help mitigate this the Group has continued to refine our route to market strategy across our Content Creation brands. We now have unified regional teams in the US, Latin America, Canada, EMEA and APAC, representing all our brands. This approach leverages our scale to optimise channel performance.

Focusrite/Focusrite Pro branded solutions include the Scarlett, Clarett, Vocaster, Red and Rednet range of audio interfaces. Scarlett, focused primarily on the home studio customer, continued to dominate the market, holding on to its leading market share even with a number of new competitors entering the space. As one of the Group's larger revenue-generating portfolio of products, Scarlett also had the additional challenge of a major product transition happening late in the second half. This required the Group to drive down inventory levels at an accelerated rate over the second half to insure a smooth product transition to the next generation. The 4th Generation Scarlett Solo, 2i2, 4i4 and related bundles launch was announced at the end of August 2023 to industry wide accolades on the products new features and specs. The Group successfully reduced inventory levels of the 3rd generation products, whilst working strategically with several key continental partners to place much of the remaining inventory of the 3rd gen product to be sold through the holiday season, in the first half of FY24. This was made possible due to the price difference between the 3rd and 4th generation products, allowing us to effectively market a premium product to customers who would potentially opt for a lower-priced, lower specification product.

Focusrite's Red and Rednet solutions continue to set industry standards for professionals and facilities with complex workflows requiring reliability and quality. These products were deeply impacted by the AKM factory fire in Japan, which was the sole source for many professional grade audio products. The re-work required to source and implement alternative silicon for these products was a substantial undertaking, requiring nearly two years of development resources. We are finishing the rework on the last remaining items and production is beginning to ramp up again.

Novation/Ampify branded products are a collection of hardware and software solutions dedicated to the art of electronic music. These products also cater to a wide range of customers, from the beginner to the professional electronic music maker. This category, like others in the industry, experienced reduced demand, primarily among younger artists affected by cost-of-living issues. Inside the different product categories, the Group saw the most softness in the groovebox and launchpad products, very much aligned to a younger, more price sensitive market. This was partially offset by an increase in our keyboard controller category, which the group has expanded to support several different computer-based recording platforms and workflows. Ampify, our freemium software offering, saw a slight decline in both perpetual and subscription sales, aligning with industry trends, and influenced by global cost of living factors. These offerings remain a great vehicle for attracting new customers.

ADAM Audio's revenue increased slightly compared to FY22, defying the industry-wide trend, reported in many market studies, of approximately 20% year over year declines. This performance was partially due to a low comparator in FY22, as ADAM Audio had numerous components issues the previous year that resulted in extended stock outs on key products, and a delay in introducing the new A series line. All products have now been in stock and available for the full year and, based on the various industry reports we receive and our own channel sales data, we believe ADAM Audio increased their market share year-on-year in a very challenging environment. While a larger portion of the revenue came from the lower-priced T Series this past year, we are seeing the new A Series solutions generating good traction in the professional market, with many choosing these solutions for upgrading their rooms to new immersive mixing formats, such as Dolby ATMOS.

Sequential and Oberheim also faced a challenging year: global industry reports highlighted a 25% decline in the synthesizer category compared to the previous year. Higher-priced products, such as those from Sequential and Oberheim, experienced even more declines. Sequential / Oberheim revenue for the year was down 10.9% on FY22, which, while a better result than industry data for the entire category, was partially driven by strong new product introductions in the previous year that were not repeated in FY23. This decline was partially offset by the introduction of the Oberheim OBX and Sequential Trigon 6 desktop modules. Both brands remain incredibly strong in this category.

Sonnox was acquired by the Group in December of this past year. Sonnox is a pure software business, with itsportfolio sold by a select group of global resellers as well as direct to end user. Sonnox had a solid year, with sales meeting expectations. This performance was a combination of consistent sales of legacy products, successful planned seasonal promotions, and the launch of Voca toward the end of the fiscal year. Going forward, the Sonnox development team will continue to execute on its internal roadmap as well as working with several of the Group's other brands for future products. 

Summary: After a challenging FY23, we anticipate the market stabilising in FY24, but with limited growth given the ongoing macro economic climate. For our established Focusrite brands, where we have achieved significant market penetration of up to 30% in some segments, we expect growth to align with the market, supported by new product introductions. For our newer brands, there is room to capture market share, increase penetration, and achieve above-market growth, driven by market expansion and new product offerings.

Audio Reproduction

The Group's Audio Reproduction brands, Martin Audio, Optimal Audio and Linea Research, are focused on delivering state of the art audio to audiences across a wide spectrum. From the largest music festivals to renowned theatres, music halls, night clubs, houses of worship, universities and more, our solutions ensure rich and memorable auditory experiences. As discussed in last year's annual report, the global Audio Reproduction industry faced a significant hiatus during most of the pandemic. Towards the end of 2022, live events gradually returned, and we forecasted an accelerating return to normal for the industry across this past year. This acceleration materialised, resulting in a significant increase year over year for our brands in this space as well as the entire industry. Revenue for Audio Reproduction brands for the Group finished the year 30.1% up year over year and have carried over into the new year with a healthy order book.

Our Martin Audio brand of products is seen and heard in some of the largest music festivals and tours, as well as many of the most prestigious music halls and theatres across the globe. Most notable this past year, Martin Audio solutions dominated the Glastonbury and Hyde Park music festivals, utilising a patented design that allows maximum coverage in the audience space whilst minimising the noise exterior to the event. Martin Audio introduced a range of new products across the year, including a new addition to the award-winning Torus family and the new Flexpoint series, providing advanced solutions for shorter throw needs across live sound and installations. In total, Martin Audio had 15 new product introductions in the past year, a testament to the Group's decision to keep Martin Audio operational throughout the pandemic when many competitors temporarily closed their doors.

Linea Research, one of the Group's FY22 acquisitions, makes professional grade amplification for use in a multitude of live sound settings. Linea Research had an outstanding year, exceeding budget expectations and ramping up production to double the number of amplifiers previously produced. This result played heavily into Martin Audio's success as well, with most of its powered offerings utilising Linea Research amplification. Linea Research has also benefitted from the Group's scale and leverage, both for purchasing raw components and for logistics and operational support.

Optimal Audio, the Group's new commercial audio brand, is dedicated to bringing high-quality sound to a host of commercial installations. Launched in April of 2022, Optimal Audio has gained popularity among system integrators as an easy to use, high quality sound solution for installations such as restaurants, gyms, smaller clubs, and universities. After a slow start with availability due to the 2022 component crisis and a prioritisation call to focus on Martin Audio branded solutions, production has ramped up and the pipeline is growing as system integrators globally have begun specifying Optimal audio into their bids.

Summary: As mentioned earlier, the audio reproduction market is currently thriving, with customers valuing audio experiences following the COVID-19 lockdowns. We anticipate this market will gradually normalise over the next year, returning to lower levels of growth. Martin's robust product pipeline and opportunities to take market share are expected to deliver growth levels surpassing the overall market trend.

Routes to Market

The Group's two divisions are now supported by dedicated regional sales teams. Given the distinct nature of both end customers and channels, each division benefits from professional regional sales and marketing teams across EMEA, Americas and APAC. As part of our growth strategy, the Group continues to refine its routes to market, looking for ways to optimise reach and return in every global region.

Audio Reproduction worked diligently to expand the global distribution network for Optimal Audio. The focus was on forging partnerships with entities that are closely aligned with system integrators well known for specialising in the targeted customer groups. Additionally, new partners in the equipment rental market, such as 22Live in the UK, emerged to meet the challenges of the resurgence of live events, making significant investments in Martin Audio's Wavefront Precision range.

Within Content Creation, the Group was able to make some key changes to its go-to-market strategy. Historically, each business unit in Content Creation had its own individual sales personnel managing relationships with their global channels. In many instances, each business unit engaged with the same resellers or distributors. The Group had already consolidated our Content Creation efforts in Australia the previous year, with the new structure proving highly beneficial in terms of extending leverage and focus within the reseller community.

Consequently, the Group initiated the same strategy in EMEA, bringing together several disparate teams into one unified Content Creation sales and marketing team for all associated brands. The result has again proven to be very effective. As a result, in the last quarter of this past year, we began to restructure the US team into a similar unified regional team supporting all Content Creation brands. We anticipate that these newly formed unified teams will allow us to forge closer connections with our channel partners and end users while providing scalability and improved organisational structure as the Group pursues organic growth and acquisitions.

Our eCommerce platform has also been completely rebuilt during the year, initially for the Focusrite brands, but now giving us a platform for all our Content Creation brands and to provide a more robust route for our direct to consumer channel.

Summary and Outlook

Despite challenging macroeconomic conditions, our Group has delivered a resilient performance, achieving revenue and profit figures in line with market expectations. With our existing portfolio, planned product launches throughout the coming year, streamlined go-to-market strategies, and shared back-office support structures, we are well-positioned to embrace the opportunities and challenges the new year presents.

Current market conditions for our Content Creation division remain difficult and our revenue year to date has been impacted by a degree of sales channel de-stocking. However, underlying demand for our products, as evidenced by customer registrations, remains satisfactory. Performance in our Audio Reproduction division remains strong. 

Overall, at this early stage and as we head into our key holiday season, our expectations for the year remain unchanged.

Whilst we remain mindful of the significant global economic and political challenges, as well as ongoing cost pressure in the supply chain, we have successfully built our inventory positions back to more normalised levels and have robust plans for future component supplies as well. With key new products launched towards the end of FY23 and more introductions planned for the year ahead, we remain confident in the organic growth potential of existing brands. Additionally, with the benefit of our cash generation, the Group has demonstrated its ability to execute on our proactive M&A strategy, carefully considering acquisitions that not only enhance earnings but also expand our market potential, increase our R&D capabilities, and contribute both scale and dynamism to our business.

We remain optimistic about our future prospects.

Tim Carroll

Chief Executive Officer

Financial Review

Overview

Against a challenging market, the Group has seen revenues decline by 2.9% and, despite a stronger gross margin, adjusted EBITDA has reduced by 7.4%, with a decline of 23% in adjusted diluted earnings per share ('EPS').

Income statement

1 Non underlying costs and income as defined in note 2 and note 7 to the financial statements.

Revenue

Revenue for the Group decreased by 2.9% to £178.5 million from £183.7 million; adjusting for acquisitions and constant currency, this is an organic decline of 9.5%. Sonnox was acquired in December 2022 and FY23 included eight months of revenue. Linea Research was acquired in March 2022 and FY22 includes six months of revenue.

The Euro average exchange rate was ?1.15 (FY22: ?1.18). Sterling has weakened against the US dollar from an average of $1.31 in FY22 to $1.21 in FY23. This has had the impact of increasing reported revenue but the currency impact is broadly neutral at a gross profit level as the majority of costs of sale are also incurred in US dollars.

1 OCC (organic constant currency growth). This is calculated by comparing FY23 revenue to FY22 revenue adjusted for FY23 exchange rates and the impact of acquisitions.

The reported full-year revenue declined by 2.9%, but there was an improvement compared to the half-year (HY23: -7.2% reported). Revenue in the second half of the year grew by 1.5% compared to the same period in FY22. In the first half of the year, high inventory levels in our sales channel, resulting from industry-wide restocking in FY22, and the impact of cost of living issues on demand led to destocking. However, as stock levels began to normalise in the second half, revenue returned to growth, supported by the launch of new products, including the 4th generation Scarlett Audio Interface, which although released in August was sold into resellers in the preceding quarter.

The overall revenue figures mask a more complex result across our divisions, but pleasingly highlight the benefits of an increasingly diverse portfolio across the Group. Our Content Creation brands were faced by difficult markets, down by approximately 20% on the prior year according to many trusted market sources. This compares with Audio Reproduction, which is still benefiting from the increased demand for live experiences following the end of COVID-19, particularly at the premium end of the market in which our brands predominantly operate.

Within Content Creation, our biggest business unit, Focusrite, returned to growth in the second half following destocking in the first half and supported by the successful launch of our 4th generation range of Scarlett interfaces. This brand finished the year 16.2% lower on an organic constant currency basis and 11.2% lower on a reported basis at £86.3 million (FY22: £97.2 million). Our Novation synthesizer brand, which had fewer new products compared to other brands to offset, reported a decline in line with the overall market. Both ADAM Audio and Sequential were adversely impacted in FY22 by component shortages, limiting supply and, as a result, had weak comparators in the first half. This resulted in stronger growth in the first half, and a reported decline in the second half. For the full year, ADAM Audio's revenue benefited from improved supply of the new A Series and the ongoing popularity of the entry level T Series monitor range. This resulted in revenue growth of 3.9% for the year (-1.1% on an organic constant currency basis) to £18.5 million (FY22: £17.8 million).

Sequential operates at the premium end of the synthesizer market, with products selling for approximately $3,000 to $5,000; as a result, they were particularly hard hit by the cost of living crisis and experienced a decline of reported revenue of 10.5% (-15.2% on an organic constant currency basis) for the year. This appears to be ahead of the overall market decline according to market sources, due to the launch of its new products, such as the Trigon 6 and OBX modules, with Sequential retaining their premium rating.

Sonnox was acquired by the Group in December 2022, and contributed £1.1 million in revenue during FY23. This result was in line with expectations. Towards the end of the year Sonnox launched as planned its new Voca plug-in contributing to the revenue result.

Audio Reproduction began the first half of the year with strong growth of 50.7%, finishing the year with reported revenue growth of 30.1% (19.6% on an organic constant currency basis). This translates into revenue of £41.5 million for the year, compared with £31.9 million in FY22. The resurgence in live sound following COVID-19 lockdowns helped drive this growth, as did the extension of the Optimal Audio range, which contributed £1 million to Audio Reproduction's overall sales. The standout result for the year has been the strength of Linea Research, which has doubled output since joining the Group in March 2022, following investment from Martin Audio in delivering a new ERP system and supply chain support.

1 OCC (organic constant currency growth). This is calculated by comparing FY23 revenue to FY22 revenue adjusted for FY23 exchange rates and the impact of acquisitions.

North America represents 44% of the Group's revenue and saw a 3.8% organic constant currency revenue decline, impacted by destocking and a weaker market hit by cost of living issues. Due to the strength of the dollar during the year, reported revenue increased by 4.3%. Content Creation brands declined year on year by 2.2% reported (-8.2% organic constant currency). However, Audio Reproduction experienced strong growth of 56.9% (reported) and 31.9% organic constant currency. The combination of new products, a strong supply chain and investment in the market have all served to deliver a firm foundation for growth in the US for Audio Reproduction.

EMEA, which represents 39% of Group revenue, declined by 0.8% (-4.9% on an organic constant currency basis) to £69.5 million. As within the US market, Audio Reproduction was strong, delivering 17.1% growth (9.6% on an organic constant currency basis), with production from Linea Research helping to deliver improved levels of product availability compared with the competition. Content Creation brands declined by 5.4% (-8.6% on an organic constant currency basis), with ADAM Audio delivering a return to growth and Focusrite remaining stable, but with Sequential and Novation contributing to the overall decline.

ROW comprises mainly APAC and LATAM and represents the remaining 17% of Group revenue. The APAC region experienced a particularly challenging year, with prolonged lockdowns in China, and high levels of stock at distributors as a result of the lower demand. Overall, the region was down 19.9% compared with FY22 (27.7% on an organic constant currency basis). Pleasingly, our Audio Reproduction division saw growth, with all brands reporting double digit increases as demand for experiences increased. This resulted in growth of 26.6% in the region (23.1% organic constant currency), however, this was not enough to offset the 35.3% decline across Content Creation (42.7% organic constant currency).

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 is the inclusion of Sonnox as a separate segment following its acquisition in December 2022.

Gross profit

Gross margin improved during FY23 increasing to 47.5%, up from 45.3% in FY22, which had been impacted by high freight rates and the increased costs from component spot buys. During the reported year freight rates returned to pre-COVID-19 levels, benefiting margin by 3.9% points, and component cost spot buys reduced significantly with a further 0.8% point benefit. This was partially offset by increased promotions across the year, with heavier discounts for longer promotional periods offered than historically had been the case. These were implemented as a response to the increased pressures caused by the cost of living crisis and high levels of stock in the channel. Altogether with cost increases this resulted in a 3.2% point decline in our core product margin, which partially offset the freight benefits.

Promotional levels in FY24 are expected to return to more normal levels for current ranges, with some ongoing activity to support the 3rd generation of Scarlett, with a planned transition to be marketed as a lower-cost alternative at a different price point, similar to Apple's approach to iPhone transitions. In addition, the new 4th generation Scarlett will be mildly dilutive to margin, as new products do not yet attract the production efficiencies at scale that well-established products typically achieve. As a result, we expect overall gross margin to be broadly flat in the next year.

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 £60.5 million, up from £54.6 million last year. These costs also include depreciation and amortisation of £8.1 million (FY22: £7.0 million), amortisation of acquired intangible assets of £4.5 million (FY22: £5.1 million) and non-underlying items of £1.7 million (FY22: £0.9 million), which are discussed in more detail below. Excluding non-underlying items and depreciation and amortisation, administrative costs were £46.3 million (FY22: £41.6 million), an increase of £4.7 million over the prior year.

Acquisitions partially contributed to this increase, with the addition of Sonnox contributing £0.8 million and the annualisation of Linea Research a further £0.4 million. Audio Reproduction has invested in additional staff to support the increase in production and to drive sales and marketing efforts globally, including increased trade show activity during the year. 

During a time of heightened inflation, we have sought to retain staff and structured pay increases with the aim of directing resources to those most impacted by cost pressures. With approximately 60% of our cost base relating to labour costs, this has resulted in an inflationary increase of around £1.4 million across the year. Changing assumptions about the vesting of share-based payments has resulted in a £0.3 million credit this year (FY22: £1.3m charge), which is not expected to repeat next year, but was offset this year by the increase in bonuses from a lower level in FY22.

We are now a much larger and more complex international Group and so have invested during this year in strengthening our infrastructure. Thes investments include cyber security and a new eCommerce platform for the Focusrite brands, capable of being scaled across all of Content Creation. As part of our return to work programme, we have also invested in the Group's office space, with a new office for the Focusrite brands and refurbished offices for both Martin Audio and ADAM Audio. This has resulted in one-off costs of £0.4 million due to the disruption which are not expected to repeat in FY24.

Adjusted EBITDA

EBITDA is a non-GAAP measure, but it is widely recognised in the financial markets and it is used (as adjusted for non-underlying items) as a key performance measure and as the basis for some of the incentivisation of senior management within the Group. Adjusted EBITDA decreased from £41.7 million in FY22 to £38.6 million in FY23. This was primarily as a result of the lower sales and overhead cost factors described above.

[1] EBITDA is defined as earnings before tax, interest, depreciation, and amortisation. Adjusted EBITDA includes items treated as non-underlying which are explained in note 5 to the Consolidated Financial Statements.

Depreciation and amortisation

Depreciation of £2.7 million (FY22: £2.2 million) was charged on tangible fixed assets on a straight-line basis over the assets' estimated useful lives. This increased in the year due to the investment in the office refurbishments and resultant increases in fixtures and fittings, which are written off over three to five years. Amortisation on non-acquired intangibles 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 periods of between two and ten years, reflecting the different lifespans of the products across our brands. Normally, the capitalised development costs are greater than the amortisation, reflecting the continued investment in product development in a growing group of companies.

During FY23, capitalised development costs were £8.6 million (FY22: £7.9 million), compared with amortisation of £4.8 million (FY22: £3.9 million). Development cost spend is slightly higher than the prior year, mainly due to inflation, as the implementation of our product roadmap continues across all brands. In addition, this year we acquired further licences to utilise certain technologies, which have added £1.7 million to intangible assets, with further investment expected in FY24.

The amortisation of the acquired intangible assets totalled £4.4 million during the period (FY22: £5.1 million) and has been disclosed within adjusted items. This year we have amended our accounting policy relating to the amortisation of acquired intangibles under development, such that it now commences from the date of first usage of the underlying product rather than from the date of acquisition of the business, and this has resulted in a £1.0 million reversal of amortisation charged in previous periods, excluding this gross amortisation was £5.4 million.

Non-underlying items

In FY23, the Group acquired Sonnox, with associated acquisition costs relating to the transaction of £0.4 million (FY22: £0.6 million relating to the Linea Research acquisition). During the year earnouts relating to the Linea Research and Sequential acquisitions were completed and paid out resulting in a cost of £0.8 million (FY22: £1.2 million relating to the Sequential earn out).

During the year, the Group also undertook a restructuring exercise to create regional sales and marketing teams across the Content Creation division. This has resulted in costs of £0.5 million paid in the year. In FY22, non-underlying costs were offset by £0.8 million of income relating to the sale of a trademark. Non-underlying items also include amortisation of the intangible assets from acquisitions of £4.4 million (FY22: £5.1 million). This has increased due to the inclusion of Sonnox and the annualisation of Linea Research on amortisation of brands and technology, but has been offset by the one off adjustment of amortisation of £1.0 million incorrectly charged in prior years on assets not yet brought into use. See notes 5 and 15 to the Group's financial statements for more information.

Foreign exchange and hedging

Sterling has remained relatively stable compared to the euro between years, but has the average rate has weakened against the US dollar.

During the year, Sterling has weakened against the average US dollar rate from $1.31 to $1.21. The US dollar accounts for 40% of Group revenue but over 80% of the cost of sales, so this has resulted in increased revenue but has a neutral impact 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 Sterling. The policy adopted by the Group is to hedge approximately 75% of the Euro flows for the current financial year (year ended August 2023) and approximately 50% of the Euro flows for the following financial year (FY24). In FY23, approximately three-quarters of Euro flows were hedged at ?1.16, and the average transaction rate was ?1.15, thereby creating a blended exchange rate of approximately ?1.16. In FY22, the equivalent hedging contracts were at ?1.13, compared to a transactional rate of ?1.18 and so creating a blended exchange rate of ?1.14.

Finance costs of £1.6 million (FY22: £2.3 income) are made up of the interest on the Group's revolving credit facility ('RCF') draw downs. FY22 included a large gain from retranslation of US dollar balances within the Group.

Corporation tax

In FY23, the corporation tax charge totalled £4.9 million on reported profit before tax of £22.7 million, an effective tax rate of 21.8% (FY22: 18.9%). Adjusting for non-underlying items, the effective tax rate is 21.7% (FY22: 19.6%) on adjusted profit before tax of £28.9 million. Going forward, we expect the effective tax rate to remain broadly in line with the UK corporate tax rate.

Earnings per share

The basic EPS for the year was 30.4 pence, down 28.5% from 42.5 pence in FY22. This decrease is due to a combination of factors: the reduction in operating profits, the non-repeat of a significant foreign exchange gain in finance income in FY22 due to an exceptionally strong dollar at the year end, and the increase in the UK corporate tax rate from 19% to 25% from April 2023. The alternative measure, including the dilutive effect of share options, is the adjusted diluted EPS. This decreased by 23.0% from 49.9 pence in FY22 to 38.4 pence in FY23.

1 Adjusted for amortisation of acquired intangible assets, and other adjusting items. See reconciliation note 2 to the financial statements

Balance sheet

Non-current assets

The non-current assets comprise: goodwill of £16.1 million, other intangible assets of £66.7 million, and property, plant and equipment of £12.5 million. The goodwill of £16.1 million (FY22: £13.7 million) has increased due to the acquisition of Sonnox this year for a total consideration of £7.2 million including goodwill of £2.7 million.

The other intangible assets of £66.7 million (FY22: £62.0 million) consist mainly of capitalised research and development costs and acquired intangible assets relating to product development and brand. The capitalised development costs in use have a carrying value of £10.0 million (FY22: £7.1 million), which has increased with the launch of 32 products this year. Products and technology under development comprising £8.5 million (FY22: £7.3 million), of which £2.0 million relates to acquired assets under development (FY22: £1.5 million). In the year £8.6 million of costs were capitalised (FY22: £8.3 million) and underlying amortisation was £4.8 million (FY22: £3.9 million). Approximately 65% of development costs are capitalised and they are amortised over the life of the relevant products. Acquired capitalised development costs had a carrying value of £24.2 million (FY22: £22.8 million) at year end. These have increased due to the inclusion of Sonnox's development costs of £4.7 million less the annual amortisation charge of £3.5 million.

The remaining intangible assets, totalling £23.9 million (FY22: £24.6 million), include brands acquired as part of the acquisitions, to be amortised over ten years for ADAM Audio, 20 years for Martin Audio, 15 years for Sequential and Linea Research and 10 years for Sonnox.

Tangible assets have increased this year from £10.9 million at the end of FY22 to £12.5 million at the end of FY23, due to the refurbishment costs this year across three of our businesses. Focusrite has moved to a new office in High Wycombe, providing space for growth and an engaging working environment designed specifically with hybrid working in mind. Martin Audio and ADAM Audio offices have both been refurbished as part of their return to work programme. The work at Martin Audio has also built improved34 demonstration spaces and facilities for research and development.

Working capital

At the end of the year, working capital was 24.0% of revenue (FY22: 19.9%). This increase can be attributed in part to planned phasing of stock levels for both generations of Scarlett. The older generation will be marketed as a lower-cost alternative through selected partners and our own eCommerce channel and, as a result, we expect inventory levels to reduce during FY24. Debtor balances are also high due to strong sales in the final quarter of the year, but with effective credit management there have been minimal issues with collections or bad debts during the year. Creditors continue to be paid on time.

Cash flow

1 Defined as cashflow before equity dividends, acquisition of subsidiary (net of cash acquired) and adjusting items.

The net debt balance at the year end was £1.3 million (FY22: net debt £0.3 million). In September 2023, the Group signed a new £50 million RCF, with an additional £50 million uncommitted facility with HSBC and NatWest due to expire in September 2027. At the year end, the Group had drawn down £28.2 million of the RCF (FY22: £13.2 million) to fund the acquisitions of Sonnox as well as support our working capital requirement.

The underlying free cash flow for the full year was a cash inflow of £12.2 million (FY22: cash outflow of £3.4 million), leading to a year end net debt position of £1.3 million. Within this, the movement in working capital included an outflow of £6.6 million (FY22: outflow of £26.9 million), due largely to stock holding for product transitions and debtor phasing. Capital investment this year totalled £14.4 million (FY22: £12.5 million); of this, £9.2 million related to capitalised R&D, reflecting the Group's ongoing commitment to product development. We expect this level of investment to continue into FY24 to support the Group's product roadmap.

Dividend

The Board is proposing a final dividend of 4.5 pence per share (FY22 final dividend: 4.15 pence), which would result in a total of 6.6 pence per share for the year (FY22: 6.0 pence). This represents an adjusted earnings dividend cover of 5.8 times (FY22: 8.7 times).

Summary

FY23 was marked by economic challenges including macroeconomic instability and industry-wide inventory surpluses. Throughout this period, the Group adhered to its strategic path. FY24 begins with the finalisation of a product transition of our primary Scarlett range, a restructured sales and marketing team, a new banking facility in place and a rebuilt eCommerce platform. The portfolio is also broader by introducing a Sonnox to the Focusrite family. These initiatives provide us with the structure and scale to deliver on our future plans.

Sally McKone

Chief Financial Officer

Principal Risks and Uncertainties

Overview

Effective risk management is key to enabling and supporting our business strategy and commitments to our customers, community, climate and environment. We are committed to conducting our business responsibly, safely and legally, while making risk-informed decisions when responding to opportunities or threats that present themselves. The Board and General Executive Committee are responsible for the effective management of risk across the Focusrite Group.

Principal risks are those significant risks that to pose the most potential threat to our strategy, performance, viability, people, impact on the environment and/or reputation now or in the near and distant future.

The table below sets out our principal risks. Please note, this list does not include all of our risks. Risks which change or are not presently known or are currently considered to be less material, may also have adverse effects.

At present, there continues to be a heightened level of macroeconomic uncertainty relating to cost inflation leading to rising prices, which has been exacerbated by the war in Ukraine and the Middle East. These are impacting our customers' disposable income, thereby changing the products they buy and increasing our operational costs. We understand the short-term risks and impacts, and we have the right teams, governance, innovative products and strategies in place to be able to ride out the current storm. The longer-term impacts remain uncertain and we continue to monitor the associated risks closely and respond accordingly.

The long-term impacts remain uncertain and we continue to monitor the associated risks closely and respond accordingly.

Save for business strategy development and implementation all of our principal risks have increased this year as a result of the impact of the external macroeconomic and geopolitical situations on trading conditions. We a knock-on effect on each of our principal risks, in particular the pressure they place on our supply chains. A deep dive of the Product Supply risk was discussed at the February 2023 Board meeting and a review of the implications of manufacturing in China is provided as a case study of the Board's S172 application within the FY23 Annual Report and Accounts.

Changes to Risk Scores vs Prior Year

Information security, data privacy, business continuity and cyber risks Risk increasing

Organisations are becoming more vulnerable to cyber threats due to the increasing reliance on computers, networks, programs, social media and data globally. A relatively small data breach or a common cyber attack has a massive negative business impact. Whilst the measure we are taking to ensure our cyber security programme increases each year we, along with many other businesses, are finding that the frequency and sophistication of cyber security incidents is increasing.

Product innovation, Product supply, People and Macro-economic/Geopolitical conditions Risks increasing

There is a heightened level of macroeconomic uncertainty relating to cost-inflation leading to rising prices which has been exacerbated by the wars in Ukraine and the Middle East. These are impacting our customers' disposable income, thereby changing the products they buy and increasing our operational costs which, together, affects several of our principal risks. 

The supply chain risks facing the Group have again changed shape over the last year. The global business climate is increasingly uncertain, with manufacturers facing a myriad of challenges, including high energy prices and unexpected fluctuations in raw material costs as well as the continuing wars in Ukraine and the Middle East and rising geopolitical tensions disrupting global supply chains. Many raw materials are becoming harder to secure and their fluctuating costs can have a significant impact on the profitability and pricing of products. As the various factors are not expected to be alleviated in the short term, this will remain a significant risk for the Group.

When it comes to geopolitical tensions we recognise that there is no single solution but this does not mean that doing nothing is our response. Instead, we will diversify our strategies to help build a safety net. For examples, boosting our manufacturing capabilities in order to ensure we can quickly scale up production should a location become unviable, putting ourselves at the forefront of developments in the cyber world, not just attacks but also, how we might harness AI to protect us.

Emerging Risk Themes

Emerging risk themes are reported to the Audit Committee alongside our principal risks. We conduct horizon scanning to enable a medium- and longer-term view of potential disruptors to our business. As part of our risk assessment process, we analyse internal and external sources of emerging risk themes through review of leading external publications including attending industry seminars and forums, gathering insights via top-down and bottom-up risk workshops with internal stakeholders, and seeking professional consultation where required. We are currently tracking several emerging risk themes such as political, economic, technological, environment and talent. An example of an emerging theme that has the potential to impact our position and requires a plan of action is set out below:

Ultimately, we believe that collaboration with our business partners is key to navigating these uncertain times.

Artificial Intelligence

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 2023

The accompanying notes on pages 26 to 37 form part of these abbreviated financial statements.

Consolidated Statement of Comprehensive Income

For the year ended 31 August 2023

Consolidated Statement of Financial Position

As at 31 August 2023

The financial statements were approved by the Board of Directors and authorised for issue on 28 November 2023. They were signed on its behalf by:

Tim Carroll Sally McKone

Chief Executive Officer Chief Financial Officer

Consolidated Statement of Changes in Equity

For the year ended 31 August 2023

Consolidated Cash Flow Statement

For the year ended 31 August 2023

Notes to the Final Results

For the year ended 31 August 2023

1. BASIS OF PREPARATION

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 August 2023 or 2022 but is derived from those accounts. Statutory accounts for 2022 have been delivered to the registrar of companies, and those for 2023 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006

Going concern assumption

The Board of Directors has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence and meet their liabilities as they fall due for a period of at least 12 months from the approval of these financial statements ('the going concern period').  Accordingly, the financial statements have been prepared on a going concern basis.

The Group meets its day-to-day working capital requirements from cash balances and a revolving credit facility of £50.0 million which was renewed in September 2023 for a four year period with an option to extend for a further fifth year. The availability of the revolving credit facility is subject to

continued compliance with certain covenants.

The Directors have prepared projected cash flow forecasts for the going concern period. These forecasts include a severe but plausible downside scenario, which includes potential impacts from risks identified from the business including

· Loss of our largest customer, our distributor for Focusrite and Novation in the US

· Loss of a key contract manufacturer, potentially due to increased storm intensity, as flagged in our climate risk analysis

Whilst climate change is considered to bring both risks and opportunities to the Group, as outlined in our ESG section on pages 42 to 58 of our Annual Report for FY23, we consider the quantifiable risk in the short term to relate to increased storm intensity, resulting in the potential loss of a distributor or contract manufacturer and

this is included within our scenarios.  The increased geopolitical risk which could impact our manufacturing partners in China has also been considered, but has not been modelled, given the considered likelihood and scale of global sanctions would not deem this a plausible scenario.

The base case covers a period of at least 12 months from the date of signing and includes demanding but achievable forecast growth. The forecast has been extracted from the Group's FY24 budget and three-year plan for the remainder of the going concern period.

Key assumptions include:

? Future growth assumptions consistent with the business plans of each business unit and adjusted for the annualisation of recent acquisitions.

? Working capital requirements in line with historic trends and a stablisation from the current position

? Continued investment in research and development in all areas of the Group.

? Dividends consistent with the Group's dividend policy

? No additional investment in acquisitions in the forecast period

? Foreign exchange rates in line with those prevailing as at 31 August 2023

Throughout the period the forecast cash flow information indicates that the Group will have sufficient cash reserves and headroom on the loan facility to continue to meet its liabilities throughout the forecast period.

The Directors have modelled severe but plausible downside scenarios of the risks identified above. This model assumes that purchases of stock would, in time, reduce to reflect reduced sales, if they occurred. The Group would also respond to a revenue shortfall by taking reasonable steps to reduce overheads within its control. In this scenario, a draw down from the loan facility of an average of around £30 million for a period of 8 months is expected, however the Group would be expected to remain well within the terms of its loan facility with the leverage covenant (net debt to adjusted EBITDA in the period not exceeding the maximum of 2.5x.

Separately, as a reverse stress test, the Directors estimate that if the Group were to experience a shortfall in revenue of greater than 35% permanently from the start of the forecast period, leverage could rise to the upper limits allowed by the banking covenants by August 2024. This scenario includes consequential reductions in the purchases of stock and dividends However, the Directors' view is that any scenario of a revenue shortfall of greater than the severe yet plausible scenario above is not realistic.

In practice, the Group is still currently experiencing stable levels of consumer registrations and customer demand, and therefore the revenue levels have been maintained in line with historic trends since year end. The Group has continued to invest in stock prior to the holiday season, with the Group's net debt balance increasing from net position of £1.3 million reported at year end to approximately net debt of £9.6 million at 16 November 2023, which is expected to improve following the upcoming 2023 holiday season. As a result, the Directors are confident that the Group and Company will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

2 ALTERNATIVE PERFORMANCE MEASURES ('APMs')

The Group has applied certain alternative performance measures ('APMs') within these financial results. A reconciliation to GAAP measures is provided in the table below or are cross referenced to tables within the Financial review section. The APMs presented are used in discussions with the Board, management and investors to aid the understanding of the performance of the Group. The Group considers that the presentation of APMs allows for improved insight to the trading performance of the Group. The Group consider that the term 'Adjusted' together with an adjusting items category, best reflects the trading performance of the Group.

Adjusting items are those items that are unusual because of their size, nature or incidence, and are applied consistently year on year. The Directors consider that these items should be separately identified within their relevant income statement category to enable full understanding of the Group's results. Items included are acquisition costs, earnout payable to employees of acquired businesses, profit on sale of trademarks and restructuring costs.

The following APMs have been used in these financial results:

? Organic constant currency growth - this is calculated by comparing current period revenue to prior period revenue adjusted for current period exchange rates and the impact of acquisitions, shown within the Financial Review.

? Adjusted EBITDA - comprising earnings (operating profit) adjusted for interest, taxation, depreciation, amortisation and adjusting items. This is shown on the face of the income statement.

? Adjusted operating profit - operating profit adjusted for adjusting items.

? Adjusted earnings per share ('EPS') - earnings per share excluding adjusting items.

? Free cash flow - net increase/(decrease) in cash and cash equivalents excluding net cash used acquisitions, movements on the bank loan and dividends paid.

? Underlying free cash flow - as free cash flow but adding back adjusting items.

? Net debt - comprised of cash and cash equivalents, overdrafts and amounts drawn against the RCF including the costs of arranging the RCF.

A reconciliation of all items is provided in the table below

1 Restated to include the deferred tax credit arising on the amortisation of acquired intangibles, which was not previously included.

3 acquisition of a subsidiary

On 19 December 2022, the Group completed the acquisition of 100% of the share capital of Sonnox Limited ("Sonnox"). The total gross cash consideration was £9.1 million paid in full on completion. The acquisition was funded by a drawdown of £9.2 million on the existing revolving credit facility of £40 million with HSBC and NatWest. Sonnox had £1.9 million of cash at the acquisition date such that the net cash consideration was £7.2

million.

Sonnox is a well-established and acclaimed brand in the audio industry. Its range of innovative and award-winning plugins are used in a wide range of audio applications including mixing, mastering, live sound, broadcast, TV and film, and even scientific and forensics projects.

For the period between the acquisition date and 31 August 2023, Sonnox contributed revenue of £1.1 million and a profit before tax of £0.2 million to the Group. If the acquisition had occurred on 1 September 2022, management estimates that Sonnox's revenue would have been £2.4 million and profit before tax for the period would have been £1.2 million.

In 2022 the Group purchased Linea Research for £12,227,000, including cash of £1,354,000, resulting in acquired intangible assets additions of £6,500,000 and goodwill of £3,387,000 arising due to this business combination.

Acquisition-related costs

The Group incurred acquisition-related costs of £367,000 on legal fees and due diligence costs relating to the acquisition of Sonnox. These have been included in adjusting item costs to give investors a better understanding of the costs related to the acquisition of Sonnox. Additionally, because of their size, nature and the fact they vary from acquisition to acquisition, the Group considers it a better reflection of the trading performance to show these separately.

Identifiable assets acquired and liabilities assumed

The following table summarises the recognised amounts of assets acquired, and liabilities assumed at the date of acquisition:

The acquired deferred tax liability has been estimated by applying the uplift in asset fair value to the average expected corporate tax rates over the life of the assets.

Measurement of fair values

The valuation techniques used for measuring the fair value of material assets acquired were as follows:

Goodwill

The goodwill recognised is attributable to:

· the skills and technical talent of the Sonnox workforce;

· income growth potential from new products, future relationships and a proportion of synergies;

· alignment to the Group's existing customer base; and

· strong strategic fit.

As a result of the strong strategic fit, we expect revenue and cost synergies to result for Focusrite brands as a result of this transaction. Therefore, a proportion of the goodwill and technology and patents in development recognised in this transaction will be attributed to Focusrite CGU rather than the Sonnox CGU.

Intangible assets sensitivity analysis

In assessing the estimated useful life of the intangible assets, management considered the sensitivity in the forecast sales on the valuation of the developed technology and brand. The following table details the sensitivity to a 10% increase and decrease in the sales forecast and related cost of sales impact this would have on the valuation of the assets.

4 Revenue

An analysis of the Group's revenue by reportable segment and by location of customer is as follows:

The amount of revenue sold to external customers in the UK was £20,782,000 (2022: £21,830,000).

5 Business segments

Information reported to the Board of Directors for the purposes of resource allocation and assessment of segment performance is focused on the main product groups which the Group sells. Similarly, the results of Novation and Ampify also meet the aggregation criteria set out in IFRS 8 Segmental Reporting. The Group's reportable segments under IFRS 8 are therefore as follows:

Focusrite - Sales of Focusrite and Focusrite Pro branded products

Novation - Sales of Novation or Ampify branded products

ADAM Audio - Sales of ADAM Audio branded products

Martin Audio - Sales of Martin Audio, Optimal Audio and Linea Research branded products

Sequential - Sales of Sequential branded products

Sonnox - Sales of Sonnox branded products

Segment revenues and results

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 3 of the full Annual Report. 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 Board of Directors 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 the Group. Also included within central administration costs is the credit relating to the share option scheme of £282,000 for the year ended 31 August 2023 (2022: charge £1,313,000).

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

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

Information about major customers

Included in revenues shown for FY23 is £48.1 million (FY22: £51.3 million) attributed to the Group's largest customer, which is located in North America. Amounts owed at the year-end were £10.0 million (FY22: £7.9 million).

6 Profit for the year

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