Global audio products group Focusrite (TUNE:AIM) reported a 23.5% jump in first half revenues to £49.9m, bolstered by acquisitions. Adjusted operating profit fell 12% to £6.4m as costs increased.
Investors responded to the results, for the six months to 29 February 2020, by marking the shares more than 3% lower to 580p.
BUYING GROWTH
Many may be wondering why organic growth has evaporated given that today's figures were largely before the COVID-19 pandemic forced store closures.
If the impact of businesses acquired is stripped out, revenue actually dropped 5.1% to £38.6m.
Focusrite bought live events and installed sound system supplier Martin Audio in December 2019 for £39.2m. That followed the £16.2m purchase of ADAM Audio in July 2019, which makes high precision speakers
Integration and cross-selling initiatives were said to be progressing well, while sales jumped 22% (ahead of expectations) and 13% respectively.
OUT WITH THE OLD, IN WITH THE NEW
The company made the decision to clear older inventory in its market leading and largest business segment, Focusrite Scarlett audio interfaces, which held back revenues.
However, this had a positive impact on re-orders of the new generation of products. End-user registrations were up significantly and this has continued into the new financial year.
STRONG CONSUMER DEMAND
Since lockdowns were introduced most physical stores have closed and as a result the company has made greater use of online resellers such as Amazon.
Consumer demand to make recording from home has driven increased demand for products and the firm is currently ramping-up production in order to meet the demand.
Chief executive Tim Carroll commented, ‘since the half year, consumer demand for Focusrite and ADAM Audio products has been high especially via e-commerce and we have seen record levels of product registrations at Focusrite indicating positive sell-through to end-users.’
CORONAVIRUS
Management has taken measures to reduce certain overheads, such as attending trade shows and travel budgets. The board prepared base-case cash flow projections for the next year which indicated the group would comply with leverage and interest cover requirements.
The projections showed that even the severe case scenario which assumed a 30% revenues short-fall for a six-month period from May, would result in the firm trading well within its loan facility limits. Net debt at the end of April was £16m, while the maximum allowed is £40m.
In contrast to the gloomier projections, the group is currently experiencing record levels of consumer registrations demand and revenues growth has accelerated in recent weeks.
The board has decided to defer making a decision on the dividend until later in the year, in light of the unprecedented uncertainty caused by the pandemic.
