F Y18 Re sults & I nve sto r upda te Ma y 2017 Ma y 2018 02 - - PowerPoint PPT Presentation

Ma y 2017

F Y18 Re sults & I nve sto r upda te

Ma y 2018

02

• Robust revenue growth and significant increases across all operational metrics
• Revenue growth of 43%, from £56m in FY17 to £80m in FY18
• International growth of 69%
• Significant, planned investment during FY18 to position the business for further growth
• Investment in European hubs and customer proposition, to gain market share
• Profitability reflected investment during FY18
• Confident outlook for the period ahead
• FY19 YTD trading in line with expectations
• Confident of delivering revenue and profit growth in FY19

Ove rvie w

Gro wth Stra te g y

4) SUPPL Y CHAIN E VOL UT ION

• Continuous product range extension
• Advance own‐brand proposition
• Factory direct where possible
• Evolve logistics capability

3) INT E RNAT IONAL E XPANSION

• Country specific websites
• Localised customer experience
• Local procurement options
• Reduce delivery timescales & costs

1) E

• COMME

RCE E XCE L L E NCE

• Market leading websites
• Intelligent digital marketing
• Evolving customer experience
• Build customer trust

2) BE SPOKE PL AT F ORM DE VE L OPME NT

• Accelerate innovation
• Grow in‐house development team
• Increase efficiency, traffic & conversion
• Reduce operational costs

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F Y18 Hig hlig hts

FY16 FY17 FY18

TOTAL REVENUE GROWTH

£80.1m

+43%

£80.1m £56.1m £35.5m FY16 FY17 FY18

INTERNATIONAL GROWTH

£35.8m

+69%

£35.8m £21.3m £9.5m FY16 FY17 FY18

EBITDA

£3.5m

‐4%

£3.5m £3.6m £1.7m* FY16 FY17 FY18

WEBSITE VISITORS

16.9m

+34%

16.9m 12.6m 10.1m FY16 FY17 FY18

UNDERLYING OPERATING PROFIT

£2.0m

‐24%

£2.0m £2.6m £0.9m* FY16 FY17 FY18

WEBSITE CONVERSION

3.3%

+50 BPS

3.3% 2.7% 2.3%

Sa le s Pro fita b ility We b site s

*Adjusted taking into account IPO costs of £606k in FY16

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Se c tion 4

Bac kgr

• und

Informa tion

Section 2

Dire c to rs

• Launched Gear4music.com in 2003
• Set up a recording studio business in 1992 after

studying popular music and sound recording at Salford

• Began selling IT systems for the audio recording

market in 1998

• Responsible for Strategy, Operations & Growth,

with a focus on systems development & customer experience

• Joined Gear4music in October 2012
• Chartered Accountant & Executive MBA graduate
• 11 years with KPMG: eight in the advisory practice
• Previous industry experience: Barclays Bank & CFO
• f Officers Club
• Responsible for Finance, HR & compliance;

Company Secretary

Chris Sc ott

CF O

• Joined Gear4music in July 2012
• Previously at DV247, the largest music equipment

retailer at that time, where he was responsible for purchasing, sales & marketing

• 16 years’ experience in music equipment retail
• Responsible for Purchasing, Pricing & Supplier

relationship management

Ga r e th Be va n

CCO

• Joined Gear4music’s board in June 2015
• Previously Chief Executive of Teather &

Greenwood & Former Chair of the QCA

• Currently a director of System1 Group PLC, and of

Scientific Digital Imaging plc

• Previously a director of AAM and Morgan Grenfell

Ke n F

• r

d

Cha irma n

• Joined Gear4music in March 2012
• Chairman of Neville Johnson Group & Construction

Materials Online

• Former CFO & COO of Myriad Childrenswear

Group

• Former Director of French Connection
• Chartered Accountant

De a n Mur r a y

Non- E xe c utive Dir e c tor

Andr e w Wa ss

CE O

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Stro ng Co mpe titive Adva nta g e

STRONG OWN‐BRAND OFFERING LARGE BRANDED PRODUCT RANGE MARKET LEADING LOCALISED WEBSITES STRONG ONLINE PRESENCE IN‐HOUSE LOGISTICS CAPABILITY BESPOKE, FLEXIBLE PLATFORM

High quality range of 2,600 SKUs at very competitive prices Over 42,100 products from 780 manufacturers, including major brands Responsive design, multilingual, multicurrency, range of delivery options Awareness through effective SEO & digital marketing Robust integrated systems developed in house over 12 years 235,000 sq ft total distribution space in UK, Sweden & Germany

PRODUCTS FRONT END BACK END

07

• Head Office, York
• UK Distribution Centre, York
• Development Office, Manchester

UK SWEDEN

• Located near Stockholm
• Distribution hub & Showroom
• Fulfilment throughout Scandinavia

GERMANY

• Located near Düsseldorf
• Distribution hub & Showroom
• Fulfilment throughout Central Europe

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Ope ra tio ns L

• c a tio ns

Pla tfo rm F e a ture s

WMS

Multi‐hub warehouse management Dispatch management Advanced inventory management Global stock visibility Returns management Advanced Reporting Anti DDoS technology GDPR compliant PCI DSS compliant Data “encryption at‐rest” Advanced fraud prevention CITES & ROHS compliance Cloud based platform Zonal pricing Multi‐ lingual Multi‐ currency Localised purchasing Delivery to 190 countries European courier integrations Intelligent service selection Optimised dispatch locations 1000’s of delivery

• ptions

Delivery cost calculation Delivery date calculation Single customer view Personalised content Email marketing platform Automated customer messaging POS Fully integrated Responsive design Data driven search Advanced content Management Mobile

• ptimised

160 payment methods Consumer finance integrated

Global Capacity Security CRM Website Fulfilment

INTEGRATED END‐END UNIQUE BESPOKE

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£0 £10,000,000 £20,000,000 £30,000,000 £40,000,000 £50,000,000 £60,000,000 £70,000,000 £80,000,000 £90,000,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

K e y Mile sto ne s

Original Gear4music website launched Moved into new premises with distribution facilities Bespoke operating platform launched with website design upgrades £3.4m investment by Key Capital Partners Multilingual European websites launched Moved into new 135,000 sq ft premises, and website update £28m IPO

Sales

£4.2m equity fundraising First European hub launched

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E uro pe a n Ma rke t Oppo rtunity

TOP EUROPEAN MARKETS

Country Estimated Market Size (£m)

Germany 1,194 France 863 UK 749 Italy 578 Netherlands 202 Austria 181 Spain 166 Switzerland 142 Sweden 107 Norway 83

Total Size 4,265

Market size data source: Key Capital Partners DD 2012, Market growth Music Trades Competitor revenue source: Music Trades

£749m UK mar ke t

COMPETITORS

Competitor Country Estimated Revenue (£m) Change

• Est. Euro

Market Share

Thomann Germany 700 +19% 16.4% Musicstore Germany 112 +5% 2.6% MRH/4 Sound/Luthman Sweden 92 +7% 2.2% Bax Shop Netherlands 96 +25% 1.8% Gear4music UK 80 +43% 1.3% Woodbrass France 48 +26% 0.9% Andertons UK 36 +20% 0.6% S&T Audio (PMT) UK 34 +10% 0.7%

• Highly fragmented market
• Market growing at c.2%
• Gear4music market share c.5.9%
• Ongoing shift: high street to online
• Estimated UK online market c.£178m

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Ge a r4music in E urope

• European revenues hit £35m in FY18
• FY18 European sales growth of 69%
• 15 languages & 8 currencies
• Distribution hubs in Sweden and Germany
• Additional hubs under consideration

I nte rna tio na l Gro wth

Expansion strategy:

Current activities

• Delivery available to over 190 countries
• Scandinavia delivering fastest growth following launch
• f Swedish distribution hub in November ‘16
• USA delivering highest revenues outside Europe
• Local buying operational in Sweden and Germany

A bespoke distribution platform

• Any distribution hub can deliver to any country
• System decides which delivery options to present
• ‘Split Basket’: Multiple line orders can be dispatched from

multiple countries if necessary

• Local courier integrations provide enhanced services

Global Market sizes*:

• $16bn Worldwide
• $7.8bn USA
• $3.8bn Asia
• $5.8bn Europe
• $1bn UK
• $400m Scandinavia

*Source: Worldwide = Music Trades, Europe = Gear4music research (2012)

① Enable delivery destination

② Launch market specific website ‐ Translate if required ‐ Localise currency & payment options ③ Establish local distribution if viable ‐ Localised next day delivery options

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UK Distrib utio n & Sho wro o m

• Relocated in November 2013
• 135,000 square feet on the outskirts of York
• Facilities include storage, dispatch, returns,

showroom, video production & photography

• Capacity to handle annual revenues of £65m
• 7‐day operation

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FY18 H1 Business Review

• Section 3

Busine ss Re vie w

Section 3

E uro pe a n Ope ra tio ns

F Y19 Inve stme nt

• 1st full year of European operations in Sweden and Germany
• 95,000 orders dispatched during FY18
• 28 staff working across both locations
• German showroom opened in March 2018
• Local German purchasing team now in place
• Swedish hub performing exceptionally well
• Over 100% Scandinavian growth during FY18
• Additional capacity required for Scandinavia
• Plan in place to move existing Swedish distribution hub
• Same Landlord: negotiated flexible move without penalty
• 76,800 sq ft & 11m high, provides 4x existing capacity
• Includes purpose build showroom
• Plan to be operational by November 2018
• Virtually all assets can be transferred to the new site

New distribution hub in Stockholm New German showroom

F Y18 Pr

• gr

e ss

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UK Ope ra tio ns

F Y19 Inve stme nt

• Moved to new HQ in York
• Purchased for £5.35m, recently valued at £7.35m
• Tenant sub‐let extended to 2021
• Relocated platform development team in Manchester
• Over £65m dispatched from UK logistics hub in FY18
• Original revenue capacity was estimated at £50m
• Lease extended on current UK logistics building to 2028
• Plan to increase capacity through investment during FY19:
• VNA Racking & man‐up order pickers
• New Returns Centre mezzanine floor
• Additional goods‐in & dispatch doors
• Avoids Short‐term requirement for additional UK warehouse

UK Distribution Hub Head office in York, UK

F Y18 Pr

• gr

e ss

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Custo me rs & We b site s

Unique monthly visitors ‘000 FY16 FY15 FY14 FY13 FY17

We bsite visitor g rowth

1500 1000 500

F Y18 Custome r sta tistic s

FY16 FY17 FY18 diff Total unique website visitors 10.1m 12.6m 16.9m +34% Total pages viewed 52m 88m 123m +41% UK website visitors 5.7m 6.5m 8.2m +27% European website visitors 4.4m 6.2m 8.5m +38% UK conversion rate 3.08% 3.64% 3.97% +33 BPS European conversion rate 1.21% 1.82% 2.62% +80 BPS Total mobile visitors 2.6m 4.0m 6.9m +73%

F Y18 We bsite data

• More than 95% of

customers are end users

• Customers range from

parents & beginners to professionals

• Rated 9.5 on Trust Pilot UK

2000

FY16 FY17 FY18 diff Total database 992,000 1,360,000 1,892,000 +39% Email subscriber database 306,000 650,000 840,000 +29% Active customers (12 months) 226,000 341,000 475,000 +39% Repeat customers last 12 months 25.5% 23.7% 22.1% ‐160 BPS Average order value £115.74 £124.02 £127.33 +3% Sales life time value £199 £210 £214 +2% Average customer acquisition cost £14.60 £14.50 £14.80 +2% Age Range % of UK Revenue 18‐24 13% 25‐34 22% 35‐44 25% 45‐54 22% 55‐64 12% 65+ 6%

Customer Demographics

2500

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FY18

Pro duc t sa le s, F Y18

N.B. Categories totalling 1% or less of sales are excluded

GUIT ARS: 27% KE YS: 21%

Pianos, synths, digital keyboards.

L IVE & PA: 20%

Speakers, lighting, microphones. Revenue: £16.4m Growth: 51% Revenue: £15.3m Growth: 48%

DRUMS: 12%

Electric, acoustic & percussion Revenue: £9.2m Growth: 30%

ST UDIO: 11%

Mixers, headphones, monitors, interfaces. Revenue: £8.6m Growth: 38%

ORCHE ST RAL : 7%

String instruments, brass, woodwind. Revenue: £5.5m Growth: 39% Electric, acoustic & bass guitars Revenue: £21.2m Growth: 45%

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10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 2011 2012 2013 2014 2015 2016 2017 2018

HISTORICAL REVENUE/SKU GROWTH

• No. of SKUs

Revenue (£'000)

0% 10% 20% 30% 40% 50% 60% 70% 80% 2014 2015 2016 2017 2018

REVENUE/STOCK RELATIONSHIP

Increase in stock Increase in revenue

Summa ry

Stra te g y

• FY18 investment strategy successfully deployed
• European hubs set to demonstrate tangible returns

in FY19

• Robust infrastructure in place for further growth
• Well positioned to deliver FY19 strategy & results

F ina nc ia l

• Continuing strong sales growth
• Profitability reflects stage in investment cycle
• Strong balance sheet
• Cash available for further investment

F ina nc ia l Ove rvie w

Section 2

T ra ding K PI s

Period ended 29 Feb 16 28 Feb 17 28 Feb 18 Rate of sales growth 46.4% 58.2% 42.7% Rate of UK sales growth 38.7% 34.0% 26.9% Rate of International sales growth 73.0% 124.5% 68.6% Own‐brand sales (£’000) 9,164 14,449 20,947 Own‐brand growth 32.8% 57.7% 45.0% Other‐brand sales (£’000) 24,842 39,351 56,075 Other‐brand growth 52.2% 58.4% 42.5% Own‐brand % of total sales 25.8% 25.7% 26.2% Marketing costs (£'000) 3,079 4,664 6,681 Marketing as % of sales 8.7% 8.3% 8.3% Total labour costs (£'000) 2,797 4,289 6,332 Labour costs as % of sales 7.9% 7.6% 7.9%

• Accelerated European expansion –

platform for growth

• Significant Own‐brand sales growth
• ut‐stripped Other‐brand growth
• Maintained marketing returns
• Investment in labour to support

future growth

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I nc o me Sta te me nts

Period ended 29 Feb 16 28 Feb 17 28 Feb 18 £'000 £'000 £'000 Total Sales 35,489 56,128 80,100 Product Profit* 9,954 16,774 23,197 Product Margin 29.1% 31.0% 30.1% Gross Profit 9,186 15,145 20,319 GP% 25.9% 27.0% 25.4% EBITDA 1,075 3,617 3,458 EBITDA as % of sales 4.7% 6.4% 4.3% Depreciation & Amortisation (786) (1,001) (1,497) Net Finance expenses 283 20 (461) Taxation ‐ (322) (114) Net Profit 612 2,636 1,386 Earnings per share 0.2p 11.5p 6.7p

• Sales growth of 43%
• Gross margin reduction from currency

pressure and investment in proposition

• European DC overheads of £1.54m

(FY17 £0.48m)

• 4.3% EBITDA margin as business

invests in European hubs

• Finance expenses includes £265,000

foreign exchange loss and £178,000 bank interest

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* Representing product profit, excluding warranty income and consumer finance commissions

Ba la nc e She e t Ove rvie w

• Strong balance sheet ‐ £18.9m net

assets; £3.5m cash at bank

• £5.35m debt‐funded freehold
• acquisition. Subsequently revalued to

£7.35m

• Net Debt of £5.0m (FY17: £0.4m net

cash)

• Continued investment in software

platform ‐ £1.69m (FY17: £1.48m)

• Continued investment in stock – up

£5.4m (46%)

• Debtors includes £1.2m prepaid stock

in transit and £0.6m cash with payment providers As at 29 Feb 16 28 Feb 17 28 Feb 18 £'000 £'000 £'000 Freehold land and buildings ‐ ‐ 7,350 Other PPE 1,239 1,565 2,704 Intangible asset – software platform 2,483 3,407 4,304 Intangible assets – brand and goodwill 755 2,130 2,074 Fixed assets 4,477 7,102 16,432 Inventories 6,906 11,686 17,055 Trade and other receivables 740 1,348 2,704 Cash and cash equivalents 3,548 3,001 3,540 Current assets 11,194 16,035 23,299 Other interest bearing loans and borrowings (834) (2,621) (3,914) Trade and other payables (5,188) (7,379) (10,916) Current liabilities 6,022 (10,000) (14,830) Net current assets 616 6,035 8,469 Loans and borrowings (127) (24) (4,616) Other long term liabilities (163) (1,391) (1,400) Non‐current liabilities (290) (1,415) (6,016) Net assets 9,359 11,722 18,885

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£000’s

Ca sh F lo w Ove rvie w

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Open/Close

Ma jo r Sha re ho lde rs

Name Number of shares % of issued share capital Andrew Wass 7,161,993 34.3% BlackRock Investment Ltd 1,953,133 9.4% Old Mutual Plc 1,506,244 7.2% Octopus Investments Limited 1,026,429 4.9% Seneca Partners Ltd 899,463 4.3% Cannaccord Genuity Group Inc 896,714 4.3%

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I mpo rta nt: Disc la ime r a nd No tic e to Re a de rs

This presentation is being made only to and directed at: (a) persons who have professional experience in matters relating to investments falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “FPO”); or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49 of the FPO (all such persons together being referred to as “relevant persons”); or (c) any other person to whom this promotion may lawfully be directed. Any person who is not a relevant person should not act or rely on this presentation or any of its contents. This presentation may contain forward‐looking statements with respect to certain of the plans and current goals and expectations relating to the future financial conditions, business performance and results of Gear4music (Holdings) plc (“G4M”). By their nature, all forward‐looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of G4M, including amongst other things, G4M’s future profitability, competition in the markets in which G4M and its subsidiaries operate and its ability to retain existing customers and win new customers, changes in economic conditions generally, terrorist and geopolitical events, legislative and regulatory changes, changes in taxation regimes, exchange rate fluctuations and volatility in G4M’s share price. As a result, G4M’s actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward‐looking statements. G4M undertakes no obligation to publicly update or revise forward‐looking statements, except as may be required by applicable law and regulation (including the AIM Rules). No statement in this presentation is intended to be a profit forecast or be relied upon as a guide to future performance.

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