nve sto r upd a te Y20 H1 Re sults & I F 02 F Y20 H1 Ove - - PDF document

F Y20 H1 Re sults & I nve sto r upd a te

02

A PE RI OD OF BAL ANCI NG GROWT H WI T H I MPROVI NG PROF I T ABI L I T Y

• Revenues grew by 16% from £42.5m to £49.4m
• Strong European sales growth of 33%; UK sales reflecting margin growth strategy
• EBITDA of £2.0m (FY19 H1 £0.7m); Operating Profit improved by £0.5m to £0.2m

F Y20 H1 Ove rvie w

SUST AI NE D MARGI N RE COVE RY RE MAI NS OUR PRI MARY OBJE CT I VE

• Gross margin improved by 250bps to 25.2% (FY19 H1: 22.7%)
• Gross profit increased by 29% from £9.6m to £12.5m
• Driven by a focus on higher margin product sales and reducing delivery costs

CONF I DE NT OUT L OOK F OR T HE PE RI OD AHE AD

• Well prepared for the peak trading period
• Well placed to deliver FY20 EBITDA expectations in line with Board expectations

F Y20 H1 Hig hlig hts

FY18 FY19 FY20

TOTAL REVENUE GROWTH

£49.4m

+16%

£49.4m £42.5m £31.2m FY18 FY19 FY20

INTERNATIONAL GROWTH

£24.6m

+33%

£24.6m £18.5m £13.3m FY18 FY19 FY20

EBITDA

£2.0m

+206%

£2.0m £0.7m £0.7m FY18 FY19 FY20

WEBSITE VISITORS

13.4m

+34%

13.4m 10.0m 7.1m FY18 FY19 FY20

EBITDA MARGIN

4.0%

+250bps

4.0% 1.5% 2.3% FY18 FY19 FY20

WEBSITE CONVERSION

3.0%

‐20bps

3.0% 3.2% 2.8%

Sa le s Pro fita b ility We b site s

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* FY20 data is for the 6‐months ended 30 September 2019; FY19 data is for the 6‐months ended 31 August 2019

F ina nc ia l Ove rvie w

Section 2

F Y20 H1 F ina nc ia l Hig hlig hts

PROF I T ABI L I T Y

FY20 FY19 FY18 £'000 % of total sales Gross profit 12,460 25.2% 22.7% 25.0% European Distribution (838) (1.7%) (2.0%) (2.2%) Marketing costs (3,931) (8.0%) (8.2%) (8.1%) UK labour costs (4,003) (8.1%) (7.8%) (8.4%) Other costs (1,692) (3.4%) (3.2%) (4.0%) EBITDA margin 1,996 4.0% 1.5% 2.3%

FY18 FY19 FY20

GROSS PROFIT

£12.5m

+29%

£12.5m £9.6m £7.8m FY18 FY19 FY20

EUROPEAN LOCAL COSTS *

£1.2m

£1.2m *

£0.8m

£0.7m

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* FY20 cost includes IFRS16 costs replacing rent

T ra d ing K PI s

Period ended 13m to 31 Mar 19 31 Aug 18 30 Sep 19 Rate of overall sales growth 36.3% 36.2% 16.2% Rate of UK sales growth 32.9% 34.1% 3.3% Rate of International sales growth 40.6% 39.0% 33.0% Own‐brand sales (£’000) 31,289 8,978 12,873 Own‐brand growth 39.6% 25.7% 43.4% Other‐brand sales (£’000) 82,125 31,959 34,355 Other‐brand growth 34.8% 39.5% 7.5% Own‐brand % of total sales 26.5% 21.1% 26.1% Marketing costs (£'000) 9,752 3,500 3,931 Marketing as % of sales 8.3% 8.2% 8.0% Total labour costs (£'000) 9,547 3,750 4,681 Labour costs as % of sales 8.1% 8.8% 9.5%

• Continuing strong sales growth

especially internationally, now representing 50% of sales (FY19 H1: 42%)

• UK growth impacted by

competitive local market in other‐ brands

• Own brand growth continues to
• utpace other brand growth
• Marketing cost increased 12%

compared to 16% revenue growth

• Labour costs % of sales reflect

investment in operations well ahead of peak

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* 13m growth % to 31 Mar 19 compares with 13 months to 31 Mar 18 * FY20 H1 growth compares 6m to 30 September 2019 with 6m to 31 August 2018

I nc o me Sta te me nts

Period ended 13m to 31 Mar 19 31 Aug 18 30 Sept 19 £'000 £'000 £'000 Total Sales 118,155 42,521 49,397 Product Profit* 31,558 11,264 13,966 Product Margin 27.8% 27.5% 29.6% Gross Profit 26,916 9,636 12,460 GP% 22.8% 22.7% 25.2% EBITDA 2,281 652 1,996 EBITDA as % of sales 1.9% 1.5% 4.0% Depreciation & Amortisation (2,292) (983) (1,771) Net Finance expenses (598) (214) (504) Taxation 446 177 134 Net loss (163) (368) (145) Earnings per share (0.8p) (1.8p) (0.7p)

• Sales growth of 16%
• Marked improvement in gross

margin from 22.7% to 25.2.%

• European DC overheads of £1.2m

(FY19 H1: £0.8m)

• 4.0% EBITDA margin (FY19 H1:

1.5%)

• Depreciation includes £0.5m

relating to ‘Right of Use’ assets under IFRS16

• Finance expenses include £0.2m in

interest relating to new lease liabilities under IFRS16

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

I F RS16 T a b le

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£m Excluding IFRS16 IFRS16 Reported numbers Gross profit 12.5 ‐ 12.5 Overheads (11.2) 0.7 (10.5) EBITDA 1.3 0.7 2.0 Depreciation and Amortisation (1.2) (0.6) (1.8) EBIT / Operating Profit 0.1 0.1 0.2 Financial expenses (0.3) (0.2) (0.5) PBT (0.2) (0.1) (0.3)

• Recognised property leases for

York, Manchester, Sweden and Germany

• Effective 1 April 2019; no prior year

restatements

• Opening Right of Use assets: £9.8m
• Opening lease liabilities: £10.6m

Ba la nc e She e t Ove rvie w

• Strong balance sheet – £18.6m net

assets; £3.4m cash at bank at a seasonal low‐point in the year

• Net Debt of £9.7m (FY19 H1:

£7.6m)

• Continued investment in software

platform – £1.4m (FY19 H1: £1.1m)

• Stock increased £2.7m (13%) in

part reflecting seasonal uplift ahead of peak

• Adoption of IFRS16 resulted in
• pening Right of Use assets of

£9.8m and lease liability of £10.6m

As at 31 Mar 19 31 Aug 18 30 Sep 19 £'000 £'000 £'000 Freehold land and buildings 7,191 7,276 7,117 Other PPE including Right of Use asset 3,575 2,535 13,054 Intangible asset – software platform 5,814 4,905 6,563 Intangible assets – brand and goodwill 2,013 2,046 1,984 Fixed assets 18,593 16,762 28,718 Inventories 18,661 21,326 24,032 Trade and other receivables 1,657 3,825 3,812 Cash and cash equivalents 5,304 2,655 3,395 Current assets 25,622 27,806 31,239 Loans and borrowings (8,555) (5,912) (9,146) Trade and other payables (11,533) (14,874) (17,745) Current liabilities (20,088) (20,786) (26,891) Net current assets 5,534 7,020 4,348 Loans and borrowings (4,272) (4,343) (3,970) Other long term liabilities (1,148) (943) (10,473) Non‐current liabilities (5,420) (5,286) (14,443) Net assets 18,707 18,496 18,623

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10

£000’s

Ca sh F lo w Ove rvie w

Open/Close

Busine ss Re vie w

Section 3

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Co mme rc ia l & Ope ra tio na l pro g re ss

Comme rc ia l Prog re ss

• Invested into higher margin SKUs:
• Own brand focus
• Reduced investment into lower margin other brands
• Marketing focused on higher margin SKUs
• Courier agreements renegotiated
• Returns policies reviewed and efficiency improved
• Upgraded Warehouse Management System now in place
• 24/7 operations planned between November and January in the UK
• UK Management team expanded
• Expanded UK on‐site storage capacity
• UK Third party contingency facilities in place
• Continuing shift to European distribution hubs

Ope ra tiona l Prog re ss

Swedish distribution hub – June 2019 Returns processing centre

F Y20 H1 We b site me tric s

FY18 FY19 FY20 diff Total unique website visitors 7.1m 10.0m 13.4m +33% Total pages viewed 37.5m 50.1m 66.1m +32% UK website visitors 3.4m 4.3m 5.0m +16% European website visitors 3.7m 5.7m 7.9m +38% UK conversion rate 3.59% 4.61% 4.78% +17 BPS European conversion rate 2.14% 2.20% 2.08% ‐12 BPS

H1 We bsite da ta

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Mobile shift c ontinue s

• Mobile conversion improving, but remains lower than desktop

FY18 FY19 FY20 diff UK mobile visitors 1.6m 2.2m 3.3m +51% European mobile visitors 1.7m 2.9m 5.2m +80% Mobile % of total 47% 52% 65% +1300 BPS Mobile revenue £8.2m £13.8m £20.3m +47% Mobile conversion 1.65% 1.95% 1.96% +1 BPS

Unique monthly visitors FY17 FY16 FY15 FY14 FY18

We bsite visitor g rowth

2m 1m 3m 4m FY19

N.B. FY20 figures are for the 6 month period to 30 September 2019; FY18 and FY19 figures are for the 6 month period ended 31 August 2017 and 2018 respectively

We bsite c onve rsion ra te

%

1 2 3 4 5 FY16 FY17 FY18 FY19 UK Conversion Rate European Conversion Rate

F Y20 H1 Custo me r me tric s

Custome r sta tistic s

FY18 FY19 FY20 Diff Total database 1.55m 2.19m 3.19m +46% Email subscriber database 0.73m 0.79m 0.72m ‐9% Active customers (12 months) 0.39m 0.55m 0.77m +40% Repeat customers last 12 months 25.8% 26.6% 27.0% +40 BPS Sales life time value £200 £190 £183 ‐4%

Profita ble from first tra nsa c tion

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• More than 95% of

customers are end users

• Customers range from

parents & beginners, to professionals

Custome r De mog ra phic s Re pe a t c ustome r numbe rs, F Y15 – F Y19

FY18 H1 FY19 H1 FY20 H1 Average order value £131.66 £127.48 £120.05 Gross profit per transaction £32.92 £28.94 £30.25 Relevant Marketing cost £2.34m £3.28m £3.65m New customers acquired 131,993 203,784 246,047 Cost of acquisition £17.69 £16.08 £14.82

0% 10% 20% 30% 18‐24 25‐34 35‐44 45‐54 55‐64 65+

Age % of UK Revenue

40,000 80,000 120,000 160,000 FY15 FY16 FY17 FY18 FY19 N.B. FY19 figures are for the 13 month period to 31 March 2019

Pro duc t sa le s, F Y20 H1

Categories totalling 1% or less of sales are excluded

GUIT ARS: 27% KE YS: 20%

Pianos, synths, digital keyboards

L IVE & PA: 21%

Speakers, lighting, microphones Revenue: £9.4m Growth: 19% Revenue: £10.2m Growth: 2%

DRUMS: 10%

Electric, acoustic & percussion Revenue: £4.7m Growth: 14%

ST UDIO: 13%

Mixers, headphones, monitors, interfaces Revenue: £6.2m Growth: 20%

ORCHE ST RAL : 7%

String instruments, brass, woodwind Revenue: £3.3m Growth: 36% Electric, acoustic & bass guitars Revenue: £13.0m Growth: 21%

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10 20 30 40 50 60 20 40 60 80 100 120 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 SKUs ‘000 Revenue £’000

HIST ORICAL RE VE NUE / SKU GROWT H

Revenue (£'000) SKUs 0% 10% 20% 30% 40% 50% 60% 70% 80% FY14 FY15 FY16 FY17 FY18 FY19

RE VE NUE / ST OCK RE L AT IONSHIP

Increase in stock Increase in revenue

Gro wth Stra te g y

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E

• COMME

RCE E XCE L L E NCE BE SPOK E PL AT F ORM DE VE L OPME NT I NT E RNAT I ONAL E XPANSI ON SUPPL Y CHAI N E VOL UT I ON

Market leading websites Intelligent digital marketing Evolving customer experience Build customer trust Accelerate innovation Grow in‐house development team Increase efficiency, traffic & conversion Reduce operational costs Country specific websites Localised customer experience Local procurement options Reduce delivery timescales & costs Continuous product range extension Advance own‐brand proposition Factory direct where possible Evolve logistics capability

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Summa ry

Stra te g y

• Continuing to grow market share, particularly in Europe
• Focus on higher margin products is working
• Operational systems improved; infrastructure in place to

deliver FY20 peak trading

• FY21 software and systems investment will return to

growth orientated projects

F ina nc ia l

• Gross margins improved whilst growing sales
• Improving profitability
• Strong balance sheet
• Trading in line with board EBITDA expectations

Ba c kg round Informa tion

Section 4

Dire c to rs

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Andrew Wass

CEO

• 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

Chris Scott

CFO

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

Gareth Bevan

CCO

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

time, where he was responsible for purchasing, sales & marketing

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

management

Ken Ford

Chairman

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

Chair of the QCA

• Currently a director Scientific Digital Imaging plc
• Fellow of the Securities Institute

Dean Murray

Non‐Executive Director

• 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

K e y Mile sto ne s

Sales

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£0 £20,000,000 £40,000,000 £60,000,000 £80,000,000 £100,000,000 £120,000,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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 £4.2m equity fundraising First European hub launched New Swedish distribution hub & website refresh

E uro pe a n Ma rke t Oppo rtunity

TOP EUROPEAN MARKETS

Country 2012 Estimated Market Size (£m) 2019 Estimated Market Size (£m)

Germany 1,194 1,371 France 863 991 UK 749 860 Italy 578 664 Netherlands 202 232 Austria 181 208 Spain 166 191 Switzerland 142 163 Sweden 107 123 Norway 83 95

Total Size 4,265

4,897

Market size data source: Key Capital Partners DD 2012, estimated 2% growth per annum

£860m UK ma rke t

• Highly fragmented market
• Market growing at c.2%
• Gear4music market share c.6.9%
• Ongoing shift: high street to online
• Estimated UK online market c.£300m

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Ge a r4music in E urope

• European revenues hit £55m in 12m to 30 Sep 19
• FY20 H1 European sales growth of 33%
• 15 languages & 8 currencies
• Distribution hubs in Sweden and Germany
• Additional hubs under consideration

UK Inte rne t tra ffic sha re

Share of total visitors per month Source: Hitwise UK 18% 12% 6% 24%

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Andertons

2018 Revenues £33m 2017 Revenues £30m Growth 10%

Woodbrass

2018 Revenues £41m 2017 Revenues £48m Growth (13%)

S&T Audio (PMT)

2018 Revenues £37m 2017 Revenues £33m Growth 12%

Luthman

CEASED TRADING ON 10TH October 2019 2018 Revenues £100m

Bax Shop

2018 Revenues £100m 2017 Revenues £96m Growth 4%

Music Store

2018 Revenues £123m 2017 Revenues £112m Growth 10%

Gear4music

2019 Revenues: £110m 2018 Revenues: £80m Growth 37%

Thomann

2018 Revenues £733m 2017 Revenues £708m Growth 4%

1 day road/ economy delivery 2 days road/ economy delivery 3+ days road/ economy delivery

Ope ra tio ns & Co mpe tito rs

Gear4music delivery timescales: *Revenue data source: Music Trades

Stro ng Co mpe titive Ad va nta g e

Strong Own‐brand

• ffering

Large branded product range Market leading localised websites Strong online presence In‐house logistics capability Bespoke, flexible platform

High quality range of 3,300 SKUs at very competitive prices Over 52,600 products from 889 manufacturers, including major brands Mobile & desktop, multilingual, multicurrency, range of delivery options Awareness through effective SEO & digital marketing Robust integrated systems developed in house over 14 years 280,000 sq ft total distribution space in UK, Sweden & Germany

PRODUCTS FRONT END BACK END

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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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Ma jo r Sha re ho ld e rsa s a t 31 Oc to b e r 2019

Name Number of shares % of issued share capital Andrew Wass 7,161,993 34.2% Axa Investment Managers 2,390,037 11.4% TB Amati Investment Funds 1,269,789 6.1% FIL Limited 1,144,767 5.5% BlackRock Investment Ltd 978,742 4.7% Octopus Investments Limited 841,039 4.0% Cannaccord Genuity Group Inc 799,968 3.8%

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