Focusrite Plc

Good morning ladies and gentlemen and welcome to the Focusrite PLC analyst meeting. Throughout this recorded presentation, analysts will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab that's just situated on the right hand corner of your screen. Please simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all of the questions submitted today and publish responses where it's appropriate to do so. These will be available via your InvestorMeet company dashboard and we will notify you by email when these are ready for your review. I'd now like to hand you over to CEO Tim Carroll and CFO Sally McCone. Good morning.

Good morning, everyone. Thank you for joining us. So jumping right in here, we'll get past all this stuff. You can read that later. So in case if there's anybody, we can't see you, so I'm sure you can see us. If we haven't met us, here's what we look like. You can see us on video as well. We're going to take you through a half year, which we're very proud. It's been a great half year for us. I think in summary, the punchline is when we talked about how we thought this year was going to shape out at the end of last year, it's pretty much materialized how we thought. We've done quite well in terms of just both parts of our business on the content creation side and the live sound business. I know many of you know us and have been following us for a while. I think there may be a few people that are new to the company on here. We're going to try to strike a balance to make sure we're not boring the people that know us well, but make sure the people that are new are not sort of lost, if you will. So to kind of dive right in, here's our sort of opening slide that continues to grow. We're up to nine brands now. The newest edition is the one at the bottom, Linea, which we just acquired this past March. You know, the brands basically fall into two very specific categories on here. And I'll kind of put this slide in here just to give everybody a bit of a reminder. If you're ever in the elevator talking to somebody about Focusrite, the easiest way to actually kind of categorize our business is we have two basic parts of our business. There's the content creation side and the sound reproduction. The content creation side is all really about the creation of audio for different types of media. So that could be music. It could be podcasting. It's the audio that you hear in a TV show or a movie. It's any kind of streaming service. That could be games. It could be your artists doing things like Facebook Live, those type of things. The sound reproduction side is a very holistic way to describe anywhere that people go and hear audio played back, either live or prerecorded. So that could be live events like a big tour or festival, if you will. It could be a nightclub that you go to. It could be auditoria. So it could be, for example, a lecture hall for a school. Hospitality, lots of restaurants and smaller clubs, cafes and stuff. They're all looking for immersive audio experiences for their customers. Houses of worship are another big one as well for us on there. Anywhere that you're going to go and have installed sound, So a very, very simple level, that's a really great way to understand it. And if I go back to this slide here, you can see that our different brands pretty much play in different parts of this. So at a very high level, Focusrite, Focusrite Pro, Novation, Amplify, Atom Audio, Sequential, all are in majority in the content creation side, whereas Martin, Optimal, and Linea are all in the install part of the market on here. We are in over 240 territories. I think we're over about 505 employees now worldwide as we continue to grow both organically and by acquiring companies here. I'm going to hand it over to Sally and let her take you through the highlights on this. And she and I are going to trade off and go through a bunch of the detail.

Thank you, Tim. So as Tim's outlined, revenue and EBIT are very much in line with our expectations. And you can see from the charts here, that big step up we saw during the pandemic, we have maintained largely. So we're down 2.5% reported, 8.7% organic and adjusted for currency versus a record year last year, but still maintaining that growth against the pre-pandemic levels, beginning of FY20, up 86%. And actually, as you're going to come to see later, we're actually up on the second half of last year where we had some supply issues, so up 18% against that. If we look down at EBITDA, it's a slightly different picture. We are further down, and that's a reflection of a slightly lower gross margin and also a step up in costs to support a bigger, more international group, both of which we'll cover in more detail later. What else have we done during the half year? Well, we've talked about, we've invested in people and technology, seven new products. We've managed to rebuild stock, thanks to our operations teams working hard to guarantee that supply chain so we can finally rebuild a bit of our stock levels. And pleasingly, we've got a step change in the carbon footprint of our most popular products, and Tim's going to talk about that later. We ended the year with 18 million of net cash, and we've since gone on to spend some of that by acquiring Linear, as Tim mentioned, just after the half year. I'll come back to you in a minute.

very good that's great all right so we'll go through a little bit of each of the product sectors and talk here so focus rights the first one here this is our interfaces that um for uh for content creation for audio creation like the little red starlet box you see here um so if you were if you were kind of looking at the uh the horizon of what happened during the pandemic this was probably um the the category that was probably the most positively impacted on this so you know very very large year-over-year um compares on this and this is where we had looked at the data we looked at the uh the growth rates we had the customers coming in how they identified themselves on this and what was very clear was that we knew that you know um there was going to be a softening of this business over last first half which was just extraordinary But all the signs and data we're pointing towards that, you know, if you look at the growth rate on this pre-pandemic, it was going to be quite healthy on there. And you can actually see that on here on the numbers that we've provided on here. So again, you know, a number of things happening here. There were component shortages on here. However, I think the one thing and we'll show a chart later on that shows how we've done with end user registrations. One of the things, though, I think that we're really proud about this year is that throughout all of the component issues and the shipping and logistics nightmares, we fundamentally never really had any period of time where the channel was out of stock of our products on there. If a customer wanted our product, they were able to get it, which was, you know, a quite a feat to do on there. So, you know, again, completely in line with the narrative that we that we talked about at the end of the year. This was within expectation. We're quite pleased that we were able to maintain these type of levels and that we've seen solid registration data and that we've actually seen this very, very large growth over pre pandemic numbers. So just a little bit of a hint into the second half. In this space, in the Focusrite space, we do have a pretty significant product launch coming out in half two that will be materializing in the mid-May, early June timeframe on there. So we're very excited about that. Moving on, Focusrite Pro. So this one, if you remember when we talked at the end of last year, when we were talking about the component shortages, this is one that had what we call in the US a bit of a double whammy. Not only were there component shortages, but one of the primary chip providers for most of the professional audio products, the factory in Japan burned down. This was the AKM factory, and there was no alternative to procure these parts. So us, along with our competitors, had to go through a very exhaustive rework product cycle on this. We're about halfway through that, but it has impacted some of the availability of the products on here. But still, when we compare this, when we look at, you know, the products that we've had available in a time to do this rework, you know, this is actually a good result for us. And as we come out the other end of that and we look at the pipeline, and especially if you follow any of the industry data that talks about just the sheer amount of content at the professional level, you know, this is a very healthy market for us to be in and it will continue to grow. Novation. Novation is our products are mostly around electronic music creation. So there's a very wide mix of products for high end, for professionals, all the way down to things like launch pads and things that are more in the consumer thing. A bit of a mixed bag with Novation on here. Again, when you look at the pre-pandemic growth, Not as big, but still there. And one of the primary reasons on there is just the life cycle. We did have some significant new product launches in the first half with the circuit family on here. But that was also sort of offset by the fact that there were a number of products that are starting to get a little long in the tooth, if you will. So on the launch pad and these type of things where the volumes are still healthy, but they've subsided from where they were. a year or two ago on there. But we do have some new product introductions. And what's really important to this group of customers, we have a lot of updates coming for these products that add more enhancement. And every time we do that, we definitely see a bump in these products. Amplify, our software initiatives on here that's comprised of our iOS apps and our new desktop app. We bundle this with all our Focusrite innovation hardware. The iOS platform has been a great marketing tool for us for a number of years, still a relatively small part of our business. And we've really focused all of our energy on the electronic music maker because that's where a lot of our core IP and stuff was set. But some really good proof points in terms of when we turned on Amplify Studio and set this as a subscription, the numbers, whereas compared to the group revenue, still very small, but absolutely moving in the right direction. So you can see the number of subscribers over the first half grew 245%. And our MRR, our monthly recurring revenue, is up 175%. So small but growing, and we'll continue, I think, to make a path where it's becoming a more material thing. And we're also using this as a footprint to do something that's a little bit wider audience for our Scarlett customers in the future. So when we talked at the end of last year about how we were cautiously optimistic about components and supply, Atom Audio is probably where we had the biggest struggle on this. Atom, you can see the family of products here. The T-Series, which are the ones that actually performed so well during the pandemic, along with the Scarlett interfaces, Some of the parts and the cabinetry went on allocation due to a myriad of issues. It was only component issues. It was lockdowns in parts of China that kept us from procuring the cabinetry that we needed. But the net result of that is that we did not have nearly as many T-Series as we wanted for the holiday season. And that's a non-recurring event annually, if you will. So we weren't able to seize the full opportunity there. The second thing was, is the A series, which is probably, you know, I would describe as the bread and butter of the Atom series. That is the semi and professional line of products that makes up a big part of the revenue. This was poised for a major product transition in the first half, which didn't materialize because of the same issues. The good news is that we have resolved both of these. The T-Series are back in mass production. The channel has them. The numbers have been revitalized. And the A-Series was just launched literally last month and started shipping out of China this month on here with orders from the channel above expectations. So, you know, this is where we took the brunt of I think the component issues and supply issues that we had. The good news is they've been resolved and we're expecting the second half for Adam to be quite robust. Martin Audio had a really great first half, and this was pretty much exactly how we described. It actually has accelerated, I think, faster than we thought at the end of last year. We talked about how there were signs that this business was coming back, but great growth over the first half of last year on this, with the pipeline developing not only for installed sound places like nightclubs, theaters, houses of worship, but a lot of live events coming back. So a lot of festivals, a lot of tours starting to come back as well. And this is business that we have a pipeline that grows and we can see this because it's business that we typically have awareness of and orders in place about four to six months. And that is actually growing quite big with the order book on there. And then in parallel with that, as we talked about, we added Linea in March of 22. I'll talk a little bit more about the strategic importance of that in a moment on here. And then sequential, which was one of our acquisitions for last year. They had a really good, strong first half. This was another one that we came into the year. The components they use are very materially different than what we have in the rest of the group. And so there was some concern about availability. We set our expectations cautious. A lot of the component issues were not a problem and they had a very, very strong first half. They've got some incredible new products coming out in the second half that were very exciting as well. And you'll also see a note on here that one of the things about sequential we talked about when we bought them was that they really didn't have a global sales and marketing department. So one of the inroads that we've done and we've executed on is we've actually moved the demand gen and the sales for the sequential products in Europe over into our Atom team. And in Australia, we've done the same thing and in the UK. And we'll continue to do that and expand the footprint of the sequential name on there. And then lastly, again, we acquired Linea in March. Linea is a company that makes power amps with a very sophisticated DSP in them. These are the amps that are used in primarily all the Martin Audio products. We've known them quite a while on this. And, you know, strategically very important for a couple of reasons. Number one, it was a great footprint in technology. extend ourselves into the live sound business. Linea has a good customer base, pretty much served by the same customers, live sound rental companies that we have with Martin. So we know that channel very well. But also when we look at the roadmap and where we want to take Martin Audio in terms of the DSP requirements and what's needed there, it was really important for us to bring this under our entire own camp and be able to steer and direct the company on there. So acquired, settling in quite well. This brand is actually reporting in to Don Harder, who was the MD for Martin Audio. They've settled in well. Early signs since we've done this is their business has been quite robust, and we're very excited about having them on board. And then back over to Sally.

Okay, thank you. So a lot of this is a repeat of the slide we looked at earlier, so I won't go through it in too much depth, because we'll come on to that later. But I think what I'll draw your attention to, if you look at the graphs off to the right of the slide, these are slightly different. So instead of being all half one, we've got half one and half two. So you can see the point we made earlier there about the fact that this half year is up on half two last year, which was impacted by supply issues, both in terms of sales and profit. It's significantly up on the second half of FY21. I think we'll come on to it as we talk about the income statement, some of the points there, but equally EPS has followed a similar trend to profit, but our dividend has grown in line with our progressive policy up 23% from 1.5% in the first half of last year. Thank you. Just looking at revenue now across the regions, and we can see there a very similar trend to the company as a whole, basically. So particularly North American Europe, we've seen the Focusrite brands down in sort of the low teens and Adam significantly further. Martin growing well in all regions and particularly I think it's pleasing against North America, which had a very strong comparative last year, growing at 120%. And I think what draws attention to there is our rest of the world region, which is mainly APAC and driven by APAC, which grew at over 13%, was up even against a strong comparative 100% growth last year. we also if you look at those pie charts you can see that big global spread we've got we're in 240 territories as tim said earlier so we're in every major market in the world and we're going to grow in those So if we move on now and look at the income statement in a bit more detail, I think we talked about revenue quite a lot, both by brands and by geography. And I'll come on to talk about gross profit in a bit more detail in the next slide. So if we look at overheads here, which are at 4.8 million, there's quite a few factors going on there. So first of all, it includes sequential for the first time compared to last year, last half year. And so that's 1.6 million. We flagged at the year end results that we knew we had COVID savings of about £2 million, which we're going to reverse. I don't think, you know, it's half and half. We've had a million reverse, but certainly in the reach of £700,000 or £800,000 of extra costs as we start travelling again to visit customers, increase marketing, increase trade shows and visits. added to which we've had some inflation, about 3%, it's probably about half a million. And the rest is investment to support growth and a larger group. So we've invested in our customer service teams and our operations teams just to support the extra volume. And as we're now a bigger international group, Particularly with IT, just making sure we can talk to each other securely, that we have improved processes to do with governance on our ERP systems. We've invested in all of that. So there's very much a sort of step change in investment, I think, some of which was done in half two last year. That's led to EBITDA down 24% compared to last year, but pleasingly it's at 24% of revenue, which is higher than it was pre-pandemic at 18%. And tax pretty steady at around an underlying rate of 16%, which will gradually move closer to the UK headline rate as that increases. OK, now, as promised, we'll talk a bit about gross margin in a bit more depth, and it's quite a key measure. So overall, our gross margin's down 1.4 points from the last half year. Now, we know we've seen significant cost increases. I would love to be able to say definitively, overall, the group has had this percentage cost increase. We just don't quite have the systems and reports do that just yet. What I do know is we've seen product cost increases of anywhere between 2% and 20%, depending on suppliers. And all brands have relied on their strength, which has enabled them to put up price increases. from about 6% to 10% across the period. And overall, I do know that that has meant that our underlying product margins, that's just pure sales, less the cost of goods, has increased by one and a half percentage points half year to half year. Now, we don't put price just to cover the product costs. Freight costs have gone up. I think that's been in the news quite a lot about underlying freight rates. But actually, our freight costs have gone up by about 2% of sales. A bit of that is the underlying rate, but a bit of it is more short-term factors to do with the fact that we've had an increasing mix of air freight. in our freight costs as we made sure we had product on the shelves. Tim said we didn't stock out in the run up to Christmas. And freight rates in particular spiked. I think we all remember all the stories before Christmas of people trying to get stuff in for Christmas presents, whether it was John Lewis hiring particular ships. There was a definite spike in rates in that run up to Christmas. So that's offset a bit of our increase in product margin. And in other, it's a bit of FX. It's a bit of premium costs for spot buys for components so we can secure supply and keep it going, which has led to overall that decrease of 1.4 percentage points, which I think underlying strength in our product margin, but with some short term factors that have diluted it. So if we go on now and look at the balance sheet, a few things to draw your attention to here. So in intangible fixed assets, it's increased in the last half year due to the purchase of sequential, which we talked a lot about at the year end, but a bit of goodwill, mainly brand and technology. There's also a slight increase in tangible assets, which was due to the signing of our lease for our Martin facility, we've renewed for another 10 years. So that's increased that. And also you'll see in non-current liabilities a corresponding increase. Working capital has increased. We're not back to the historic levels of 20 percent of revenue. We've still got a bit of rebuilding to do, but we've made some quite pleasing increases there. I know generally inventories going up is not a good thing, but for us at the moment it is because it's helping us secure supply. So you can see from 16 million at this point last year to 21 million at the year end and now at 25 million and a bit to go. debtors is also up a little bit but that's really just to do with phasing we had lower sales in august than we have in february when we ended the half year out and so we ended with cash at 18 million at the end of the period and obviously we've since gone to use some of that to fund the acquisition of linear so we now look at cash flow in a little bit more detail i think a lot of it we've already talked about I think the 4.4 million of investing, it says including acquisitions, as that refers more to 20 and 21 on this sheet. But we have stepped up to support those new product launches that Tim has mentioned for half two. So just to point out, 18 million of cash on the balance sheet at the period end, together with a 40 million revolving credit facility with HSBC and NatWest to help us within the future acquisition pipeline and obviously to support any getting concerned. And then interim dividends do very healthy cover both in cash and in terms of our EPS. Okay, so with that, I'm now going to hand back to Tim, who's going to talk a bit more about our ongoing challenges.

Yeah, thanks, Sally. So just a couple of points on here and no in particular order, but just to let you know. So first off is obviously what's going on in the Ukraine. Just important to know that the group has ceased trading with Russia and Belarus. And obviously, there's no way to ship into Ukraine this from, you know, from a revenue impact. very small. It's about 1% of group total. We don't have any employees or significant suppliers in the region on there. One piece of good news is one of the distributor that we had in Ukraine who was able to get out her and her family. We have we've actually brought her and sponsored her here and she's going to start working for us immediately. So we're very happy that we were able to do that. We talked about component supply issues. I think the general sense is it is getting better. The clarity in terms of what we're able to get and the procurement, the forecast going out is definitely much better than it was six months ago on there. Big hats off to our operations team. I mean, one of the things that I'm very proud of is that this is one area where we really show that we can act and perform like a group. Instead of in silos, each one of the brand managers going out and looking to procure components on there. We did a very, very exhaustive search looking for like for what we needed. And that gave us a lot more scale and leverage when we were able to go in and negotiate on this. And I think in many cases allowed us to actually procure more for some of the brands. It got us out of the Atom thing quicker for sure on there. I think if they didn't have the group behind them, that would not have materialized as quick on there. Freight and logistics challenges. I think obviously well documented in the news as we say about here, the costs remain high. We, in all of our forecasts, we're not expecting them to go back to the pre-pandemic levels on here. What we are expecting to do, because we've managed the component buys so well, is that there's a natural sort of move back to sea freight versus air freight. We're also seeing in the world of sea freight that there's new lines or ways for us to actually get products quicker than the current market. very bloated time schedules where you have boats that are literally leaving China and making five port stops before they get to where we're going. We're seeing that there is a number of these that are able to actually do less stops so that we can actually get the products quicker, which is helpful on there. then sally talked about this in terms of cost inflation uh material costs we're monitoring these when we hit an inflection point where we think they're actually making an impact on the margin we have done a number of price increases um on this uh that last bullet point you know um we as always have been a premium price product in our in our in any one of the segments that we're in um we do watch and monitor what the competition is doing here most of them have done price increases as well on there things have quite well stabilized where i think that you know the income of this is everything is a bit more costly but we are still considered a premium price product but we continue to watch this um every time every time we've done any price increase we monitor the dealer register the dealer sell through the end user registrations day by day to see if we can see any kind of net impact today we have not in any of the ones that we've done we have not seen any that have caused a hit to demand which is nice I'm talking about just in general about the business. This is one thing that we continue to mature on in terms of just best practice in our strategy, you know, in terms of our people, you know, being a great place to work. One of the things that we're very, very heads down on right now is the return to work. We have a lot of people coming back into the office now. We're doing everything we can to make sure that that is an engaging experience. It's a safe experience and people feel comfortable doing that. We're also very much embracing the hybrid work at home. The one, you know, i think that was interesting about these last two years it was sort of a grand experiment to understand what departments what roles and jobs can actually function quite well uh working remotely and we're actually using that um you know so as we come out the other side of this we'll look very different but i think uh the the opportunity and the flexibility will be much bigger I'm going to get on the planet one just a minute on here. On our partners, in terms of our contract manufacturers, one thing, unfortunately, with COVID, we haven't been able to go and do our regular visits to our China factories that we've done. We have our quarterly QBRs with them. And as soon as we're able to travel out there, we will. But I think the thing is, is we're very choosy about the people that we work as suppliers. on here um the ones that we have the ones that we've been had relationships for a long time we do that because we want to be important to them we also want to understand that they've got an aligned culture and strategy with us especially in terms of best practice around people on there And then obviously just the passion that we have for the industry still becomes one of the big culture things. One of the things we're really aware of is as the group grows, we don't want to lose that at heart. The fact that we have so many people here that leave work every day and they go out and DJ or play or podcast or whatever, that's a huge part of our culture. So that passion is really important and it kind of plays through in everything into the hiring that we make, into the kind of companies we acquire and the type of products we want to make. And on the part about just being a, a very aware vendor of making products on here. Here's a really good proof point. As many of you know, we brought in a full-time head looking over all of our green initiatives last year. He's done a lot of great work, not only with the buildings and looking at energy supplies and stuff, but one of the things that we've done on one of our biggest selling products on here is we were able to look at the footprint for the Focusrite Scarlett. Now, I'm going to mispronounce this because I'm from the US. But what we were able to do is we were able to actually start to move a good chunk of the scarlet to recycled aluminum, which has a 95% lower emissions and about 40% of the scarlet masses on this. So the first ones that started with recycled aluminum have come out in March. And this will be phased in to other SKUs. And the plan is where possible for future new SKUs is to use this as much as possible. So a really good step in the right direction, a really good story for us on here. Lastly, before we get into the close and take questions on here, just a reminder of what our growth strategy is. This fundamentally hasn't changed in the five plus years that I've been here. Yes, we've tweaked it and it's matured and stuff, but fundamentally it stayed the same. Being a great place to work, making sure that we're attracting the right kind of employees and keeping them very, very important. A couple of things that have happened on there. We now have a full-time head of sustainability, which I talked about earlier, very important to our employees. We also have a chief people officer now who's working on a lot of different initiatives across all the good work we've done at Focusrite on D&I, but also starting to actually thread together all the different HR policies and people things that we have worldwide as we grow our global footprint. You know, growing our customer base, the number of people that are into content creation at the hobbyist and professional level continues to grow every year. On that, we're making sure that we are right in step with that. And again, as you've seen, you know, live events uh continue to grow and you know require new exciting ways to inspire people not only do people want to come back to events but they're looking for things like you know uh full sort of you know adobe atmos and different ways and things like that to integrate on that so a lot of that is going into our r d and our research on there um new market opportunities you know um we are consistently reviewing this um there's a lot going on for so for example this year australia uh was an area where we've done such so much investment um we decided to actually um uh go direct to the resellers there so we're not using a distributor down there we have a team on the ground doing all the demand gen all the logistics and that's done really well Latin America, where we've made a really big investment, continues to be a good example of that as well. And we're looking to take that footprint and all the lessons learned and continue to expand that where we see the opportunity. And then also, you know, that not only comes organically, but through acquisition. You know, Linea was our latest one. Nothing else to really talk about in detail now, but we certainly don't believe we're done on the acquisition front. And then lastly, just about the lifetime value of our customers. The products that we're doing, a lot of innovation going on there. Sally talked about the expenses we take to continue to build out our tech support. We're now 24-7 follow the sun tech support on many of our products. We continue to look at our out of box experience and make sure it is world class and second to none. We think that's really, really important because those are the type of things that actually continue to help us generate industry-leading NPS scores, which we know from all the data that we have as a direct correlation between how we're doing with that and how well we're succeeding on the revenue side. So back to the summary and outlook. Am I taking this one? I'll take this. Okay. I think the important thing to take away, you know, the results we had, we're very, very pleased. They're very much in line with what we were expecting to do in the first half. And that's with, you know, everything all in, you know, you know, headwinds and tailwinds on there. Adam had a tough one. They're coming out of life. Sound is continued. We talked about on the content creation side, how we were not expecting to, we were gonna see some softness over last year because it was such unprecedented levels, but we truly believe that if you looked at pre-pandemic, we were gonna continue to see that base grow. That's all proved out on there. Sally's taken through the numbers on here and how they've worked out on here. Again, right in line with our expectations. Talking about component supplies, again, I mentioned earlier, we have not materially run out of any stock except for the Atom stuff, which I'm very proud of, considering how that could have gone. And we've done a lot in terms inroads of rebuilding the stock on here. Cash is in good position. Another acquisition that I think is going to settle in quite well. Half two is going to be a very exciting half for us. We have a number of new product launches, some of them very material, coming across different brands in the portfolio on there. And we are quite optimistic that we're going to have a strong half two and meet our full year forecast. So I think with that, we're going to stop and go into Q&A.

Sally, that's great. Thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab that's situated in the right-hand corner of your screen. But just while Tim and Sally take a few moments to review those questions submitted already, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Tim, Sally, as you can see, we've received a number of questions throughout today's presentation, and thank you to all the analysts for submitting their questions. If I could please just ask you just to run through that Q&A tab and where it's appropriate to do so, if you could just read out the question, give your response, and then I'll pick up from you at the end. Thank you.

Yeah, sure. I'm not sure these are in the right order or not, but I'm just going to take it. Oliver asked, has the decision to gather customer data been bearing any fruit yet? What are the advantages of this data for the next five years? How is it utilized and what opportunities lie in this utilization? It's become incredibly important to us. And I think what Oliver is referring to here is that for many of our customers, our products in the Focusrite innovation range, when a customer buys this and connects them to their computer the first time, they go through an auto registration process. It's the out-of-box journey, if you will, that really constructs this to what they're trying to do and navigates them on that. We gather a lot of information about what their skill level is, what they're trying to do, and we can also ascertain and see what their pain points are on here. The other really good thing about this is that, you know, obviously our revenue is when we sell into a channel and for our direct econ business, it's when we sell to a direct customer. But the real litmus test for us in terms of how the company is doing is on any given day, how many people, customers and users are actually buying one of our products and registering it. And that for us is the thing that we really do. And so that data has become quite useful, not only for us to actually look at where are the gaps in terms of we're missing opportunities to sell different parts of the portfolio. What are we not doing as good as we could do to improve NPS scores, but also I'd say the customer data, the registration is something that we're using heavily in our forecasting process. So not just what the channel thinks they're going to sell, but what we're actually selling in any given region, in any given period, and end users on that. And that has been absolutely invaluable to us. You want to pick one?

Yeah, so I'll do, this is another one from Oliver. So could you talk about scalability? How much leverage could we expect on your cost base if say you grow low double digits in the next few years, next five years? Maybe just educate us on the components in the general direction. OK, so I think we do have a good scalable model. And I think you can see that from the drop through we saw with the extreme volumes over the last couple of years. If we look at what makes up our cost base, as ever, it's mainly people. And within people, it's a bit of sales and marketing. But generally, that's managing sort of large customers through our supply chain base. So an increase in sales should not necessarily warrant a big increase in sales teams, a bit more marketing. Where we will see an increase is to take the example of Australia, where we've moved away from a distributor and have our own internal distributor in Australia, as Tim outlined. So obviously then we've had to employ a sales manager, operations manager, a bit more resource in Australia. Overall, that gives us a net benefit to EBITDA. It gives us a higher gross margin, a bit more overhead. So we'd see a bit of overhead increase there. Principally, though, if you look at the big chunks in our cost base, operations and customer service, we will invest in that support volume and R&D and engineering. That's probably the single biggest element we've got in there. And I think to your point there, Oliver, yes, we will invest in it, but we would expect that investment to pay back. So that would mitigate the sort of low single digit growth. if we're in that case we wouldn't expect to see that amount of increase so um i'm not sure that's answer your question a lot of detail but you know i suppose what we're saying is the bits that we would expect to scale we would expect to deliver growth and returns other than that it's a relatively stable cost base

Cool.

One for you.

Yeah. All right. I'm going to take this one from James. Given the consumer backdrop, your half over half performance appears to hold up well against that. Yes, it does. Can you remind us of your exposure to different types of demographics in more detail and whether the likes of your more popular Scarlett devices may be impacted by the mass market consumer squeeze as it unfolds? So it's a really good question, James, and something that we're obviously watching. And again, that our end user registration can can can really help us with because we can see in any given market based on inflation, what's going on with retail sales, what's happening. I think for now, what we've what we've seen is we can't really discern or see anything that suggests that the demand for our products is decreasing. for many of those factors on there. I know a number of you follow probably Gear for Music and saw their announcement on there, and they talked about a very soft February and March. We have not really experienced that. There's seasonality in our business. As we come into the spring, we typically see a small dip pre-COVID. We've seen that. It's nothing out of the ordinary on that, and very, very small on there. But in general, you know, I think the difference is, is that, you know, our our customers are looking for a premium price product. So I think, you know, for us and again, a lot of the demand we do is in that area on there. And again, the other thing that we follow is we look at all the products. All the different industry data that we get in this market. So again, when you look at things like the amount of news music submissions going up on Spotify, you look at the new subscription numbers for music and things like that. You look at the amount of content being made, the number of like, you know, Facebook live audio things, the number of podcasts. All of those are still going up and to the right, which is a good indicative sign for us that those consumers, where they are in the spectrum, are very much wanting this type of product.

Okay, it's a question here from Alistair at Pamiel. So you touched on it for the other product segments, but can you talk about the extent to which supply shortages might have held back revenue for the core Focusrite products? So I think what we talk about there is, we the biggest thing i think i would say we've seen is in gross margin in that to secure that supply as i said we've bought those components maybe a bit of a premium a short-term factor in gross margin but that has meant we have secure supply so i don't think we'll have seen a significant hold back on revenue in this half just focus right but no no yeah just check yeah

Another one from Oliver about the longevity and strength of the brands. Could you talk to the customer stickiness? What are you doing to keep and grow with the customers, cross-selling and introducing new products? How can we get confident in the superiority of your brands in 10 years? What will you have to achieve to be significantly stronger in 10 years than you are today? There's a lot in there. I think the first thing is just the customer stickiness is that, you know, we have pretty solid data that shows that when we get a Focusrite innovation or Atom customer, they do stick with us for life. Different products, the level that somebody upgrades or changes is different. For example, it's not unusual for somebody to keep a pair of Adam recording monitors for a good eight to 10 years. So they're generally set in one place and they just work and they sound great. On the Focusrite Scarlett side, though, I mean, that typical kind of life cycle is about four to five years. And that's with us innovating and coming out with new features and functionality. I've talked about this before, but it also has to do a lot with, you know, the laptop that people upgrade to and the connectivity standards it has. People want the latest and greatest thing. That's another factor. In terms of just the longevity of the brand, I would say, you know, if you think about, you know, we've been in this business since the 80s and pretty much every one of the brands, one of the criteria, you know, not only for Focusrite, but all the acquisitions has been a brand that is recognized as, you know, the industry leader with a long history and track record doing the one thing they do. So Martin Audio. You know, live sound, Atom, studio monitors, sequential, high-end synthesizers, Novation, electronic music products, Focusrite, audio interface. You know, these are brands that have been around and have a very long history. And that actually for our customers really means a lot. We've learned that on there. And so that's something that we think we can continue to grow and to leverage on there. And how do we continue to be significantly stronger? I think it's continued to reinvest in the company. The way people are creating audio and the demands on the artists at the hobbyist and the professional level continue to increase. We know that, you know, there's more and more people getting into this. It's very easy for people to actually create something and put it online and have the entire world be your audience for it. We think there's a lot of opportunity there. Okay.

And I think the last question we've got at the moment from Andrew B. I think it's Andy. So do you have a feel for what level of stocks your retailer distributor clients are currently holding? And are there any specific products where inventory levels are unusually low or high? So I think we talked a bit about inventory rebuild. Certainly we've seen some, and I think our distributor clients have too. I think we probably went end of the year last year. They probably had about a month within the channel overall on average. And we think they've probably rebuilt up to about two months. It differs across regions, you know, where we can get supply in to about two months. We've had a bit of selling in this half year, but still a bit to go. We would expect them to be holding about three months. Regarding any areas where product levels are particularly high or low, is there any ones you can think of?

A few SKUs, mostly because the channel was, I think, back in the holiday period, was very concerned about getting any products in for the holiday period. So a lot of them, you know, upped their orders. So, you know, if I can't get everything from Novation, I'll get it from this place or whatever. We were able to actually satisfy a lot of that. So we had a little bit of carryover. It's rather insignificant, really just on a couple SKUs and very much in just one or two regions. And it's working its way through. And I think that was our last question.

I think it was.

Tim, Sally, that's perfect. Thank you very much indeed for addressing all those questions that have come in from analysts this morning. And of course, if there are any further questions submitted today, we'll make these available immediately after the presentation has ended. And ladies and gentlemen, we'll publish those responses where it's appropriate to do so on the Investment Company platform. And we'll notify you by email when these are ready for your review. Sally, Tim, perhaps we'll redirecting investors to provide you with their feedback, which I know is particularly important to yourselves and the company. If I could please just ask you for a few closing comments to wrap up with, that'd be great.

I think just for me, first off, thank all of you for your time. We really, really appreciate it. We know that you're very, very busy. For those of you who have followed us for a while, thanks for staying with us. I hope you've enjoyed the story and the journey that we've been on. For those of you who are new, Please, if you have any questions, because I know we flew through this pretty quickly, happy to answer them or have you come out and see the products as they're doing. I think the thing I hope you walk away with is the narrative we set at the beginning of this year in terms of how we thought it was going to play out has pretty much played out in that way. We're very, very happy with the results, and we're very excited for the second half.

Yep.

Tim, Sally, that's great. Thank you very much indeed for taking the time to update analysts today. Can I please ask analysts not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of FocusRide PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.