Focusrite Plc

Good morning and welcome to the Focusrite PLC interim results 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 situated in the right-hand corner of your screen. Just click Q&A, type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to run a short video.

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So we're going to take you through the presentation on here, and I'm going to take the first part of this, and Sally's going to take the second part, and hopefully give you a good narrative and understanding of how our first half has went on here. So if we go into the presentation here, the first thing I just want to set up and remind everybody is as we go forward with our business, we talk more about the group's overall strategy and revenue strategy. and everything really into two very broad categories we have our content creation uh part of our our group which is the the lion's share is 78 of the revenue and the audio reproduction uh part of the business which is about 22 of there um the audio reproduction is i guess you'd say more new and this is really kind of came to life when we acquired martin back in december of 19 on here with a whole thesis the idea that you know we saw a lot of opportunity on this part of the business Even though it works through a very different channel, we have some familiarity with it. And it felt like a really good way in terms of diversifying the business that we have. And I have to say, for this first half, that thesis of actually having the diversification has really proved well for us. And it's something that we're quite proud of with the journey that we've been on these past six months. So when we go to the highlights for the business on here, You can kind of see how we've done on here. Really, again, I think when we look at this diversification on here, it really kind of tells the story in terms of what we've seen over the first half. So the audio reproduction business, as we predicted, at the end of last year has really come back. And we're seeing growth over the first half over 50%. And this is just the natural culmination of live events coming back and the equipment and the rigs that we see that go out with that. In addition, the installation business, which is really all the permanent installations and things like theaters and nightclubs, cruise ships, houses of worship, has really come back in a big way on here. So lapping, you know, still somewhat anemic numbers from last year. But right now, audio reproduction is doing quite well and is back on a growth trajectory, back where we needed to be from pre-pandemic. So we're very happy about that. On the reverse side, the content creation part of the business, you know, coming off just an incredible two years, was down 16% on this. And so when you add that all up, the group from a year-over-year perspective was down a little over 7% versus half one in 22 on there. Gross margin, we've done some really good work around here. Obviously, freight costs coming down has been a really big component of this. Also, we've also been doing a lot in our routes to market, and that has proved out quite well. A lot of that was offset this first half from some more promotions that we did, and I'll talk about that in a little bit in terms of the play there that we've been doing in terms of the content creation business, the channel inventory, and some big transitions coming up. The net result is our EBITDA was 18.1%. for that part of the business. And when we talked at the beginning of the year, we also talked about some of the things that we were changing in terms of our channel, especially in the content creation part of the business. One of those was actually having a universe of treating of how we actually deal with EMEA. That has actually worked out quite well. And so when we talk about the regions, we'll talk about how that structure has really proved itself out. We're quite proud that over the course of this half a year, we've had 21 new products launched, and that's a good balance of things in both the content creation and the audio reproduction space. I'll talk a little bit more about those as we go into the different parts of the portfolio. And we had another acquisition in December of this year with Sonix, which was our first sort of software acquisition. Again, very exciting. important strategically to the business not only does their current portfolio really complimentary to a lot of our offerings but the DSP knowledge and expertise they bring is going to be quite beneficial as we go forward into a lot of new products that we want to do and then lastly one of the big topics that we couldn't talk enough about was component issues We're seeing that that has very much abated itself. We're back to sort of a normality on there where we're dealing with small issues, you know, that we might have a delay on one small part here or there for 30 or 60 days, but nothing that we can't really manage. So the timeline that we've seen in the visibility has improved dramatically on that, which has been very pleasing for us. So I'm gonna talk a little bit about the two different divisions of the business. I'm gonna start with the content creation part, which has been the most challenged across this year. So when we break this down and look at the brands, there's sort of two different stories here. First off, if we look at Atom and Sequential, they both had good, strong first halves. Somewhat abated by some of the softer demand we're seeing, but a number of things that really sort of helped them. Number one, Atom was coming off a very low compare. from last year. So they probably more than any of our other brands were the most impacted by the component supplies. A number of key products that we were really, really light on in the first half of last year. We've come back from that. The team has done a great job of procuring all the components and the production is back in full swing. And so they've had a really good first half getting back into swing. Sequential also, a number of new products that were introduced that very much helped. Also, a lot of the strategy that we had when we bought Sequential, which was bringing sort of to bear the sales and marketing arms that we have globally and putting those products in the portfolio of our quota-carrying salespeople, has definitely paid off as well. And again, Sonics just bought in December, but really performing at expectations. So really, the bigger thing I want to talk about is the Focusrite innovation business on here. Again, so there's two things that are important to keep in mind on here. First off was just that when we ended last year, we had come off a period where the amount of inventory that we had in the channel was very, very light. Where we typically keep more around four months of inventory, we were really struggling. At the end of last fiscal year, we really kind of came out the other side of that and were able to supply the channel with a product to get them back to where we want and actually a little bit more because we were kind of prepping up for the holiday season. Second thing is that obviously the macroeconomic issues that we're all quite well of and the challenges we've seen globally and even very much more in some specific regions like China, for example, have come to play on here. And then lastly, one thing that we really have more control on is the planned inventory issues. channel reduction so anytime that we do a major product release we're working on actually making sure we're minimizing the channel inventory on those products before we announce so that we've got a as much as we can control a clean channel on that so the mixture of those is sort of the the net result i did want to take a moment and actually just kind of go into the the stock levels into our channel because this is an area where the journey we've been on for the past couple of years has been very interesting. So I think the first thing to mention is that normal pre-pandemic times, we normally had around four months of inventory in our channel. That was what we pretty much set as a KPI because when products are coming out of China, both time to get there, having to go to a distributor's warehouse and then into their reseller channel, that's about what you need to ensure that there's a constant flow of goods so that you're not running out. So what Sally has tried to put together on this graph is sort of a sort of visual history of where we were on here. So when you can see when we went into the FY21, really in the height of the pandemic, when the demand just peaked, we suddenly went from four months to down to less than half a month. Half a month of inventory basically means we have huge pockets of channel partners and resellers across the globe that are stocking out on our product. And a lot of this was aggravated not only by the demand, but really what was going on with component issues. Now we worked this and obviously we started to improve, but you can see across half two and even into half one of FY22, we were still remarkably below our KPI of four months, really around a month and a half. It wasn't until the end of last year where we really started to catch up and we got a lot of inventory back into the channel. A bit more than we wanted, but the channel was willing to take it because it had been so hand to mouth. Now, interesting enough, this was not just a Focusrite issue. This was an entire MI channel thing. So about the time that we were catching up, everybody who manufactures guitars, drums, any type of music instrument was doing the same thing. And so what we saw was really going into the holiday season, the channel quite stuffed with inventory at that point in time. Now, we were aware of this, and this was about the time that we actually started to see a slowing down of demand in the channel from a lot of just global issues, consumer spending, this type of thing. And so we did go heavier into promotions over that. Because we knew we wanted to get ourselves back to around that four-month KPI. And in addition to that, we also knew that we had a major product transition coming in the second half. And we wanted to make some inroads into that. So you can kind of see where we finished the first half. We've got the inventory about to where we want to be in terms of our KPI, about four months. And we're quite pleased with that because all industry indicators tell us that we're quite ahead of the pack. in our different categories on that. So that's a good place for us to be on there. But it sort of just gives an idea of what's been going on there. And I think the net result of that on that second line is that as it started to reset in the first half of 23, the net result of that is it really resulted in about one month lower sell into the channel in terms of working those volumes back down. We talk a lot about the different tests that we use about the strength of our business and just the overall health of it. And especially for the Focusrite innovation products, the end user registrations is probably one of the best litmus tests we have. Our revenue is when we sell into a channel, but really the strength of the brands and how well we're doing is on any given day, week, month, whatever period you want to look at, how many humans across the globe are opting in for a Focusrite group product? And so this is showing sort of what's been going on with these global registrations on there. And you can see that compared to pre-pandemic, we're still way up, up 22% from where we were pre-pandemic, which is really good healthy growth when you look at that category. Compared to last year, we look to be about 7% down from where we were. And when all the data that we have from our different music industry trends, a lot of it very US-centric, but also just looking at different channel partners and distributors, it looks that the entire market is down somewhere in the 8.6% range. So we're definitely doing better on there. And again, we'll talk about this in a minute. APAC was definitely down even more than that. But What we can tell from the competitors we have, we're actually faring quite well on there. In the scheme of all this that's been going on, one thing that we're obviously very keen to keep an eye on is just how we're doing competitively. And over the past two or three years, especially in a number of our major product categories, we've seen a number of new competitors come into the space. From what we can tell, many of them driven by our success on here. So one thing we're always keen to watch on is in any market, whether it's soft or high demand, how are we doing in terms of our share and the pull that our brands have? And there's two big leading e-com sites. One, Tome in the space across EMEA, the largest music retailer really across EMEA. That is very, very open in terms of how products are doing. They not only monitor their top 10 overall, but in specific categories. And this is something that's updated every week. And you can see on here that in both the speaker and the interface category that we're occupying a number of the top spots, especially for Scarlett. Now, this is just a snapshot for one week. But if you go and look at this data, it's very easy to find. We just didn't pick Scarlett. what was a great week for this. This is very indicative of what we see pretty much every week on there, where we typically, in their top 10, we usually occupy anywhere between four and five spots. And that has been very consistent through this whole dynamic that we've seen in terms of the market. very much lines up with what we're hearing from our reseller channel as well, is in terms of our brand is still in a soft market, you know, one of the biggest pulls and the highest demand product on there. So we're quite pleased with that, with everything going on, with the pressure that, you know, not only the channel, but customers are, that we're actually seeing our products still fare so well in here. Along with that, we talked about the products that we introduced over this past year, 21 new products. And again, a broad spectrum across both the content creation and the live sound. Along with that, we've won a number of very prestigious awards on here. And I think that really speaks to the teams that when working on these products through the pandemic, most of the product development on these is two to three years on here. So a lot of these products that started as we work through working at home, the pandemic, And trying to fulfill, you know, this is a real good shout out to the R&T teams, the investment that we make on here. So a couple of these to point out. Sound on Sound, probably the biggest, most well-known trade magazine in our industry. They do a yearly award thing. We won a number of these. Best new synthesizer. Best new mic processor. best studio monitors, best keyboard controller on here, which is great. Optimal, which is doing really well, won Best New Product Manufacturer of the Year at the AV Awards. Very prestigious and very competitive thing. And we were very proud pleased in the U.S., the Music Retailer, which is the number one sort of magazine for the entire dealer network, they choose different manufacturers of the year. We won recording equipment of the year, which is actually really amazing because this was a year where we didn't really have much new NPI in that year. It was all about just how well our brands pulled people in. So it was great to get that sort of accreditation from our channel, if you will. So I'm gonna switch now and talk a little bit about the audio reproduction business on here. So again, gone really from what was almost a complete shutdown of the business back in the first half of 20, back to tremendous growth, a real swing back as we've seen live events and the people's desire to go and hear music or experience live events really coming back on here. So continued growth on here, a lot of new product introductions. I think this is one thing we're really proud about because, again, what we saw happen really in the first half of 20 is most of the competitors in Martin's space, they literally shut the doors and turned the lights off. We kept the business open. And a lot of that was to keep the R&D going because we knew that this would come to an end and we We wanted to make sure that we had a lot of the new products and the roadmap intact as much as we can. And we've really seen that happen over the course of this first half. A lot of major product introductions really timed right when the market's coming back. So very good on that. And again, optimal as well, which is really more on the commercial side. A big opportunity for us as we kind of flush out that. So really good growth on here. We're very, very pleased with how this is working. Again, it really talks to the diversification that we've had. Again, a couple just examples of just, you know, what we've seen sort of globally. You know, most of these live events, the big festivals, the majority of them that are happening kind of now into this upcoming summer, they're sold out. I mean, so there's a big proof point there about how much people miss live events and how important that is to pretty much every region's culture and DNA. So that's great to see. And then a couple of examples of a number of the facilities kind of across the board that have taken the time and really reinvested to upgrade their systems or move into immersive audio, this type of thing. So there's a couple of things. There's a gym on here. You can see a permanent installation and a church, a lot of this, which is sort of the bread and butter of this installation business. So really good to see that kind of coming back on here. We talked a little bit about our acquisition this year, Sonix. We talked a lot over the course of the past years about how a software company was something that we were putting our eyesights on. Sonix was a great company for us. Not only is their IP well aligned to our content creation customer base, so a lot of attach rate there, but also the skill and talent set that this team has is very much aligned with where our product direction is going over the next three to five years. So, having this kind of expertise in-house and, you know, with their DSP and their resources is going to be very advantageous to us. So, again, another really good acquisition for us, settling in well, you know, accretive to the business. And also, I think the extra bonus is, you know, is that the fact that, you know, these teams are really going to be able to work in tandem with companies a number of the other brands' engineering teams to bring some of their IP and expertise to bear. And then on the regional performance on here, so you can see a bit of red and a bit of green on here. I think the story is that across the board in every region, we saw our audio reproduction business grow. So you can see some pretty gigantic swings, like, for example, in North America, in EMEA, and that is a lot about those businesses coming back. You can see in Asia that it was only 2.7%. I think that speaks directly to what we're seeing sort of across both divisions in there is that, you know, with China kind of going through what it's gone through over this first half with China, The pandemic is still happening in lockdowns and coming out of there. Also, with a number of the, I guess, the more aggravated economic issues in terms of currency and things like that, you can see that even with the audio reproduction, which has come back, that growth has been quite muted across there. We are seeing signs that across the board where things are coming back, specifically in China, which has been a very challenging area for us. The content creation side, you can kind of get a sense of the numbers on here. So, again, North America really focused right in Novation, really down mostly to the channel stock. And also to the fact that, you know, we are prepping for this big product introduction coming in the second half on there. EMEA, not as much down on there. Again, I think we attribute that to the fact that how we restructured that team and working closer with the partners. That is a really good business model that's sort of proven itself that we plan on implementing other places. And I think, again, the biggest impact we've had across all the businesses, all the different regions has been in the content creation side for Asia. They're down significantly over last year. They were up significantly last year as well as we continue to see a boon. I think in general, Asia typically lags with what we see in leading indicators about six months. As things were starting to subside on the content creation side, they were still peaking, especially in areas like China on there. But with a lot of the problems that we've seen in that area, that business has definitely been suffering over the first half of this year. We have been working very closely with the channel partners on there and our distributors. Early signs are things are starting to unwind and get better. We're watching that very closely. So I'm going to hand it over to Sally now, and she's going to take you through a few more of the financial slides.

Okay. Thank you, Tim. Okay. So we'll start off with a just general overview of the financials. And as Tim's talked about, revenue was down in the half year by 7%. But I think if we look back and we've got those graphs by the side taking us right back to pre-pandemic, you can see there we're still 73% up. over half one FY20, which basically was six months immediately preceding the pandemic. Now, yes, a lot of that is to do with acquisitions. But if we take that out and look at just Focusrite, that's still up 30% on the same period. So, there's still a lot of growth that's come through there that we've managed to retain. And I think as well, if you look, you see that revenue has just shorter doubled, 72%, but profits below 9% to 18%, we've doubled those and retained those over that period as well. So looking at a bit more detail in the current half year, we've seen revenues down about 7%. Our gross margin has improved, and I'll come on and talk about that in a bit more detail in a later slide. Our EBITDA is down 18.1%, and that's really due to the sales volumes, as we'll come on and look at the income statement. Our cash flow is down, and that's partly to support the stock build. We've also had some acquisitions come in as well, two since the last half year. Our adjusted diluted EPS, 18 pence, is down 31%. And just to note there that we've restated our prior years there. And that's because we've reassessed how we look at the tax charge on adjusting items. And rather than just looking at purely at cash, we've now included the deferred tax, which has just brought down the EPS just a little bit. It's about 2p on the full year and 0.9 on the half year. So that has been restated. And there's a slide in the appendix that shows that. Net debt, we're in a net debt position of 13.2. And there's quite a big swing there. But again, it's all to do with the stock and the acquisitions we've funded. And we'll come on to that when we look at the cash flow. However, our interim dividend, we put at 2.1p, which is up 13.5% in line with our progressive policy. And I think hopefully showing confidence in what we see as the cash generative and profitability of the future prospects of the company. So if we move on now, let's look at the income statement in a bit more detail. I think as Tim's talked about, we've seen revenue decline. That has been partially offset by the improvement in gross margin, which is really about freight costs normalizing again, and we've reinvested that in some promotions, which you're gonna see on the next slide. Admin expenses are up a little bit. Included in that is the impact of acquisitions, which is about 0.8, added to which there's a bit more amortization, supporting some of those new product releases that we've seen come online during the half year. And overall, if you take the rest in balance, we've seen an increase of about 3%. So, we're trying to keep inflation down as far as we can, impacting the cost base. I think the only thing to note there, tax charge is creeping up in line, as we said, with the UK headline rate, and it's now at 22.4% for the half year. So as I said, looking at gross margin in a bit more detail. So overall, an increase of half a percentage point. That has very much been driven by the improvement in the freight costs, which have now really backed down to pre-pandemic levels. And from where they were before, around 7% of sales, they're now back down to around 3%. So we've seen a 4% improvement there. Now, we have reinvested some of that back into promotions. As Tim was talking about, it's a very competitive environment, particularly over the holiday season. we wanted to ensure our prices were competitive. So, it was longer and deeper promotions than we would do normally over that period. Added to which is a few higher costs, holding more stock, we have more warehouse charges, that's in other. And the product margin, a slight decrease, which is really, although we did put some price increases through, some of those cost increases we saw at the end of FY22 are now starting to come through and impact cost of sales. So, looking forward, we would probably expect our margin to decline slightly in the second half as we continue to see promotional activity to support sales going forward in the current environment. If we look at the balance sheet now, there's quite a lot of movement between the last half year and this half year over that 12-month period, but it's relatively stable from the year end through to this half year. And so, you see in the non-current assets, the fixed assets, a lot of that is to do with the acquisitions, but also our ongoing investment in new products impacting the intangible assets. And you can see that there, Sonox, Linea, Oberheim, all been included. So, inventory is also stable since here and up slightly, but obviously significantly up since the half year. And that is very much around supporting building back to normal levels of inventory. It's a little bit higher than we'd like at the moment, and that's to do with the product transition. So, basically, we've got a full complement of the stock of our old ranges while we transition to building the new ones. And that's part of the reason why creditors are so low at this half year. So we've had a big outflow there because our trade creditors are quite low at the moment because our contract manufacturers are transitioning between lines. So we just don't have a big balance with them at the moment. We do expect that to normalize in half two, which is part of the reason we expect cash to improve in the second half. So, working capital a bit high, 27%, a bit higher than our historic norms of about 20. We expect an improvement in the second half. So, that's left us with net debt of 13.6. And you can see there we've got a cash balance of 26.3. Sorry, cash balance of 13. And we've drawdown on our RCF of 40 million of 26.9. If we then go on and look at the cash flow in a bit more detail, we've talked about that drawdown increasing on the loan. We've actually repaid $2 million of it already in the half year, and we look forward to continuing to pay in the second half. So overall, our cash flow as a result is lower than our historic norms, about 10% to 12%. It's an outflow of about 2.7% free cash flow of sales in the half year. And again, that's very much around that inventory build and the phasing with creditors that we've seen in the half year. We do have the revolving credit facility, which is due to expire in December 2024. And I think as we've touched on the dividend, we've covered and we expect to pay our cash this year. Now go forward. So... Tim's talked a lot about the macroeconomic environment. If we think about the other risks and challenges we've managed over the half year, I think the three, which are common for many companies, there is, for those of us that are based, our contract manufacturers in China, the risk of China and the geopolitical situation there, cost inflation is obviously an issue, and then ensuring we can retain and motivate our people in a very competitive job market at the moment. So, how have we looked at those? Shall we just... Sorry. Nearly over, don't worry. Regarding China, we are dependent on China for a lot of our manufacturing. We're very aware of this, and we are looking to work with our manufacturers to look at alternative sources. For most of our products that go to the U.S., they already come out of Malaysia, and that's something we continue to explore. However, much of the raw materials we make comes from China. So even if we were to relocate to a quite limited pool, we're still very much dependent on China manufacturers as our most electronic manufacturers. For cost inflation, we continually monitor and price our products. We look at all our ongoing input costs and make price changes. We're applicable across all our brands. And again, all our brands have made price changes in the half year. And again, cost for our people, we're constantly looking to benchmark and also look at our packages to see what other options we have to help make it as competitive as possible to work for Focusrite. If we now go for and look at our ESG commitments, Environmental commitment. Now we've touched on here, this is about planting trees. Now we do have quite a lot of wood input. If you think about the cabinet tree to do with Adam and Martin, and we've committed to putting 10 times more wood back in than we take out. And we're working with the Eden Reforestation Project to do this, which is a great organization. They work with local communities and it is all about planting trees. I know there's a lot of focus on this area. Andy, our head of sustainability, is very diligent in this area. This is absolutely not about preventing stuff from being burned down. This is going out and planting trees. And as you can see, we've planted, I think, 70,000 new trees out of, I think, the 9 million that Eden Forestation have done. So this is a really good testament to show how we're linking this and directly our sales to the environment. But more importantly, for all our new products, our head of sustainability is involved right in the design process, be it the packaging, the electronics, the sourcing, everything we look at to see where we can do to reduce our footprint where we can. Looking not just at ESG, it's not just about the environment, though. It's all about our commitment to community and to our people. And one of the things we've done this year we're very proud of, our head of sales in the Latin American region was instrumental in giving 4,000 electronic instruments, I think it there's a youth careers program in Columbia, yeah, with the Interdevelopment Bank to help them, not just sort of part of education, but to help them as part of a program to get them started with careers in the music industry. You know, so we're really proud to be involved in that. It was a great event. But more than that, education is a big vertical for us, whether we're selling in small sets of scarlets to schools or it's installation in campuses or, And we try and do that by helping, for example, provide instructions to some faculties on how they can get funding to help with their facilities and really seeing as a partner in this area. So education is a very big vertical for us across multiple of our brands. I'm going to hand back to Tim now to tell you about strategy for the future.

Thank you, Sally. So we're almost done, everyone. We can take some Q&A. I just want to reiterate this. This is a slide that we show virtually every time we talk to you because it really is sort of the foundation of how we run the business on here. You know, the things that we spend our time focusing on. So being a great place to work. Again, this is really about just. making sure that we are attracting and retaining the best talent and have an environment where people can be creative and working on this. So a lot going on here. First off, just there's two big office upgrades. For those of you who have ever visited us out here in High Wycombe and Windsor House, we're literally moving in the next two weeks to a new office just right down the road, but a much newer space that's been custom designed for us that we're very excited about getting our employees on there. And we've also gone from just like ENPS being a thing we've done at Focusrite. We're actually spanning that across the entire group. One of the great outcomes from actually having a chief people officer now on there. So again, a lot of good work on there. Growing our customer base. I talked on this. R&D is really super important. It's at the heart of what we do. 21 new products across this year on there. Over beyond that, 50 new product updates. And we won another Queen's Award for Enterprise. So, again, a lot of proof points that, you know, the amount, the time and the energy and investment that we're putting into the portfolio, you know, is reoccurring and a benefit for the group overall. Expanding into new markets, again, a really important thing. Not only thinking about it in terms of acquisitions, Sonix is a good proof point on that, but really looking at the markets that we play in and thinking about how do we expand with everything that's going on in terms of market dynamics. So, again, what we've put together in EMEA has really proven quite well. complemented by what we did in Australia last year in terms of going direct to reseller on there. We've learned a lot from that, but I think what we've learned is, and really the hypothesis we had is that the closer we get to our customers, and our customers are not only our end users, but our resellers, the more control and the better leverage and the better result that we have in these territories. So that's something that we want to continue on. And then really, again, lifetime value for our customers. The things that we really spend a lot of time and energy on, tech support, the out-of-box experience, really following and working on those NPS scores are all really important for us. And we're quite pleased with how we continue to have industry-leading NPS scores on here. And also we know from our customers firsthand that they're very concerned or interested in what we're doing in terms of sustainability. So we're quite proud of the things that we have incorporated into our products. And again, as Sally said, our head in this department is intimately involved when we're looking at the design of the products, the packaging and everything on that. And that's something that we are gonna be much more vocal about as we go forward on here. So really, the summary outlook, again, we're a much bigger business than we were just a couple of years ago, 11 brands. The diversification strategy that we've implemented has actually been quite helpful. And I think it's really proven that in tough and challenging times, having that diversification, especially with the brand strength that we have, is a really good thing. Every brand that we've acquired has settled in well and I would classify as a success. The most recent ones, Linea and Sonix, are no exception to that. And we're still expecting great things from them. When we break down and look at the business, again, content creation really impacted by the softer markets that we've seen. Some surplus inventory that we're working on quite well. And also, you know, the fact that we have a major product transition on here. A lot of promotions, things going on that have sort of offset the margin on there. But we believe it's the right move and we'll come out of this stronger. Audio reproduction, really a big resurgence. And everything that we predicted and talked about at the end of last year has really come to fruition on there. So we're leveraging that, building product just as quick as we possibly can, leveraging the fact that we have some new products that have come out that were the direct result of us deciding to keep the doors open on Martin back when a lot of competitors closed the door. So that worked out good. Strong market share maintained. Again, we've seen a lot of new competition and a very challenging market on there, and we're still seeing our products come out on top. We just came back from the NAMM show, which is typically in January, but because of them trying to get back on schedule, it was actually in April this year. talked to a number of our channel partners across the globe. And unanimously, they all think that in the scheme of things, this challenging news, our brands are still drawing people in and they're very thankful of the relationships and what we bring to the market on there. So again, trading since the half year, Quite solid. We're pleased with that. Not only that, but the end user registration and the pipeline for the Livestown business. So we're expecting our revenue in the second half to be in line with our expectations, driven by the continuing of the strength in the Livestown business, some new product introductions. But we are going to have some elevated costs because we are going to continue on with our promotional activity as we continue to wind down channel inventory and prep ourselves for the product introduction. So all in all, we're quite confident about where we're going to be for the second half. And in looking back on the first half, we're actually I think we're quite pleased in terms of how we've been able to perform in such a tough market. So I think that's it for us. I'm going to turn it back over to Paul for a minute for the Q&A.

That's great. Tim, Sally, thank you indeed for your presentation. Ladies and gentlemen, do please continue to submit your questions. Sorry, I should have said do please continue to submit your questions. I just want the team to take a moment to review those and we'll then publish those on the Investing Company platform. So back over to you guys. If you could just read out the question where appropriate to do so and give your response, that would be great.

Okay, are we back? All right, great. Sorry, Paul, for some reason we can't hear you. We've got a couple of questions on here. Sally, do you want to take the first one? Why did payables decrease by £9.4 million in H1? Yeah, sure.

So I think hopefully we covered that when we were looking at the presentation. So as I said, it's a phasing issue with some of our contract manufacturers where at the moment they're transitioning, so we just don't have a balance with them. So yes, that was the reason why we would expect it to normalize in half two. Next one for you, Tim.

Yeah, I think so. Let's see. Three questions. Thanks, James. 21 new products in the first half compared to seven in the first half of last year. How should we think about that cadence going forward? Well, I guess the first point is, you know, if we're being completely honest, we have more brands, and we should naturally be releasing more products. When you think about just the normal product lifecycle on things, you know, development time is going to be anywhere from, you know, two to four years depending on what they are on that. And I think that's just a natural occurrence on there. R&D in terms of what we're capitalizing and spending hasn't changed, you know, on there. So, yeah. I can't really say that 21 will be the norm going forward, but I think you should see a continued, when you trend it over half or whatever period you want, you should see a continued increase in the amount of MPI that we're doing. That's both product refreshes and net new products as well. Let's see here. Do you believe that your knowledge today might mean you are at a greater advantage than you might have been a number of years ago? Yes. So that's a really good point, talking about our user registration. So, you know, different brands are at a very different maturity levels on this. I'd say at Focusrite and Novation, we're probably best in class in this than anyone else in our industry. I don't think anybody else does as good of a job of collecting information and understanding customers than we do. And a lot of that feeds not only into the next generation of products, but also the back-end support, everything that we do on there. So, yes, I think our journey on that, we're much more knowledgeable about our customers and understanding customers. their pain points and really understanding how, especially that onboarding journey, how do we discern and have a good, fruitful experience for the absolute new beginner versus the hobbyist who's already done this for a while and the professional. very different work streams that we're focused on. And what's been going on sort of behind the scenes is a lot of that is coming to bear into the other brands as well, when we're able to share that information and actually get them on the same type of journey, if you will. And with your internal knowledge of your product releases, how do you feel about the current state of competitive products that will be up against and released? How has competitive analysis and customer wish list gone into development? So on the competitive analysis and customer wish list, I say those play heavily into what we put into the new products on there. So I'd say they're the lion's share of what goes into the new products. Probably the customer feedback first in terms of what they want. and to a smaller degree, the competitive, the piece on there. But in terms of the major product changes, how do you feel about the current state of competitive products? Well, I think I mentioned this earlier, over the course of the past two and a half years, we've seen a number of new competitors, some that either played in a different space than us or some that new ones that have come in in there. And we watched that very closely. Some of these have a well-known brand in other spaces. And to date, what we can tell you is that we have not seen either individually or collectively any of them take any material market share from us. But we don't stand on those laurels. We definitely are thinking about what have they done? Where did they get it wrong? And what does this do in terms of changing how we would look at our products, our introductions, our routes to market, how we talk to customers, and all that plays in. So I think the current state is quite competitive, probably more than it has ever been in the past. But it's something that we're definitely keeping an eye on. And I think we're pleased so far that the strength of our brands and the pull that we have has played quite well. Let's see from Alistair, could you please give us a sense of when the new products launch and have to, trying to get a sense of whether. Okay, so that's a really good question. So these products have not been introduced to the public. So apologies if I'm not gonna give you a specific date, but I'll talk in sort of broad terms. Typically in the content creation space, when we launch a new product, we start shipping these products into the channel roughly about three months in advance. That's enough time for the products to get there en route via boat and to work their way into the distributor's warehouse and then into the reseller channel. Our typical MO when we launch a new product is the day we release it to the public, we want the product to be available for sale to end users on that day so that the resellers and distributors have stock on there. So if you think about the most advantageous time to launch a new product, it's probably towards the coming up on the holiday season on there, which really starts to really kind of culminate towards the end of our fiscal year. Not by design. That's just how it is. So I think if you put those two things together, you can hopefully understand how that's going to play out for us. Good. Any other questions?

That's fantastic. I think, Tim, Sally, thank you for updating analysts today. I think you've covered off all those questions you can. And of course, if there are any further questions that come through, the team will be able to review those and we'll publish all responses where appropriate to do so on the Investor Meet Company platform. On behalf of the management team of Focusrite, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you and good morning to you all.