Focusrite Plc

Good morning and welcome to the Focusrite PLC final results investor presentation. Throughout this broad presentation, investors will be in listen-only mode. Questions can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Just simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, if your question is submitted today and published response is where appropriate to do so, I'd like to submit the following poll. Before we begin, we're going to run a short video.

Get up on your feet, this is a shakedown. Order up that beat just like a takeout. Show me you got soul inside those new shoes. And you can rock and roll with an attitude. So good, so fresh, just the way. You're the new MC, you got the remix. Keep it on repeat, just let the beat kick. Everywhere you go, you bring the roof down. Everybody knows you got your own sound.

I'd now like to hand you over to Tim Carroll, CEO.

Hi, good morning everyone. And thank you for joining us. My name is Tim Carroll. I'm the CEO of the Focusrite Group. Joining me today is Sally McCone, our CFO. And we're coming to you from our new headquarters for Focusrite Novation here in lovely High Wycombe to talk to you about our annual results, add a little bit of color about how the business is going and just talk to you in general about what is happening in all the world of audio here. So, To kind of tee off on here, I wanted to take this first slide here and talk about just how we break our business down. And if you've been following us for a while, you know that we have kind of come, as the group has grown, to talk about our business in these kind of two very broad divisions, content creation and audio reproduction. And, you know, to give a little bit of color on this, you can see on this slide, you know, the breakdown of the different brands that we either have organically had or grown and expanded or through M&A have acquired as well. To give you just a little background on what these are, they're pretty self-explanatory titles, but content creation essentially is all of our brands, our products and solutions that are really dedicated to the purpose of creating great audio. Now, that is primarily music, but it also covers things like podcasting, you know, any type of online social media streaming. Also, you know, dialogue, sound effects, soundtracks for TV, movies, this type of thing as well. So you can see this is pretty much the genesis of the company, where our origin was. And you can see that it's still a big chunk of our overall revenue. A little bit newer to the party is our audio reproduction division, where we had dabbled in this up until 2019. But really, at the end of 2019 is when we actually had a what we would call a real kind of moment in terms of investing in this. And this is when we acquired Martin Audio. Audio reproduction is basically all about broadcasting audio for any kind of event. It can be for the music that you hear in a nightclub or at your gymnasium in a restaurant. It can be what you hear at a theater, at an opera house, a house of worship, and then all the way to the biggest festivals. If any of you had the chance to attend either Hyde Park or Glastonbury this past year or in previous years, those giant speakers that you saw hooked up that hopefully were not making your ears bleed Those were ours. So you can either thank us or hate us for it. But I hope you had a great experience on that. And so this is a branch of our business that started off really with Martin. And we have expanded this both organically with Optimal Audio, which really addresses more of the lower end part of the installation market, and Linear Research, which came on board, which actually supplies all the amplification and a bit of the secret sauce in what we do. And I'll talk about that in a minute. So there's sort of a broad overlay on what was going on. Going into our next slide, this is really just an overall review of the year. And one of the things about why we talk about our business in these two big divisions is because even though it's all audio related, they are fundamentally very different. It's a very different set of customers. a very different channel everything about the business uh transacts differently and as well as we as we look at the journey that um we've been on with these two divisions this past year and really for the past three to four years they've been materially different uh and i think the way we look at this is that uh you know it was great to have this diversification in a very uncertain world where we've seen you know ups and downs across things So before Sally kind of does a deep dive into the finances, here's sort of an overview. Very challenging year for us, especially in the content creation part of the business. We saw the business really start to soften up at the beginning of the year. We talked about this at the half year, about the holiday season was soft. It was about the time when we started to see things like inflation, cost of living really kick in. And unfortunately, that was sort of predicated by the fact that there was a huge glut of inventory in our channel that happened due to the component crisis starting to unwind right about when our reseller channel across all different products, not just ours, but drums, flutes, oboes, drum kits, whatever, was really starting to explode. So we talked a lot about how we spent a lot of time unwinding that inventory and how we were going to continue to do that during the second half to really get our inventory and our channel in a better position to regulate that, but also to get back to a point where we needed to be for a major product transition. I think we've executed well on that, which and from all the indices that we can see that we've actually performed materially better than most folks in our industry and categories on there. So a very difficult year for content creation. But as you're going to see a little later on, our brands look like they've not only maintained share in the winds where we have a very mature high market share, we've also gained some market share in a soft market. On the flip side of this was audio reproduction. We talked about at the beginning of this past year that we were seeing the early signs that live sound was coming back. There was a great two summers ago sort of festival resurgence of events. You know, for us, that was a good indicator. Most of the people supplying this kit had been shut for two or three years, so there was no cash really in the industry. But, you know, that summer and everything that kind of ensued from there really inspired people to go out to events. and put you know the the industry back in and we really reaped the rewards of that over the course of this year live sound had a really strong year a really good pipeline of of things not only um for the the full year and going in on there and this is across pretty much all the different parts we'll talk about including installation uh the big festivals and the big uh tours uh we did a lot this year in terms of r d um we introduced 32 new products during the year that we're quite proud of On there, we did a lot in terms of our routes to market, which I'll talk a little bit later in terms of just continuing to reshape and mature our structure to be scalable as we grow both organically and think about future acquisition. And we had another acquisition this year, one of our first big software IP companies, Sonix, which came on board in December of 22. So I'm going to pause for a moment and I'm going to let Sally take you through the financials. And I'll be back to talk a little bit about the strategy and the market. Sally.

Thank you, Tim. Thank you. And good morning, everybody. So if we start off, I think if we're going to look now at the income statement to start off with, and I'll take you to some of the highlights here before we step back and look at some of the other financial highlights. So revenue for the year was down 2.9% at organic constant currency. So that's adjusting for exchange rates and acquisitions. It was down about 9%. And Tim's going to come on and talk about that in a lot more detail later, explaining how that was impacted by various brands and across our regions. So a slight shortfall in revenue. Gross margin, pleasingly, though, was up in the year. And I'm going to come on and talk about some of the factors impacting that in one of the later slides. Overheads were up and there's quite a lot going on there. So, again, I'm going to come to that in a bit more detail to explain about that. So the combination of lower sales, the higher margin, but the higher costs as well. when our EBITDA was down about 7% across the year. Now, that's actually flowed through to about a 20% decline in our EPS. And the result of that is the fact it's impacting that. We had quite a big FX gain, a one-off, just to do with the retranslation of some intercompany balances in 22, which has not repeated. So in our finance income line, you'll see that's moved from a positive to a cost this year. And that's just the cost of servicing our drawdowns on our loan this year. The tax rate has also increased this year, as you'll be aware. The UK tax rate, which most of our profits are taxed on, has gone up from 19% to 25% in April. So that's meant our effective tax rate has increased from about 19% to about nearly 22% this year and will go up further next year. So I think that's a good summary of the income statement. If we now go on to the next slide and look overall. So quite a lot of points there we've addressed, we've talked about the movement there. I think also just to draw out another positive for the year, our net debt. It was net debt of 0.3 last year end, net debt of 1.3. So a slight increase in net debt, but our operating cash flow was positive in the year and was used to fund the acquisition of Sonox, which Tim referenced earlier. So if we now go on and look at some of the other statements, so as gross margin we talked about. So that positive movement of 2.2 percentage points in gross margin was actually a benefit of about four points to do with freight. So our freight in and out is also including our gross margin. I think we can all remember the issues back in 22, particularly around Christmas, of trying to get products into Europe, particularly out of China, as everyone was rushing to get stuff back after COVID. So freight rates almost doubled during that year. And now they've returned back to normal. So our freight has gone back to being about three to four percent of sales rather than the sort of five to seven we were seeing before. And that's given us a four point benefit. However. because of as tim talked about this glut of inventory in the channel together with the cost of living impacts we've seen during the year we've had to do much more promotions than we would have done historically we've promoted for longer and we promoted deeper and that's eaten into our product margin by about two percentage points which gives us that net benefit of two when you take it with the freight benefits we've had now if we look forward we wouldn't expect to do so much promotions as we did this year but we will undoubtedly still need to do some due to the inflation impacts are still carrying on, and added to which our new product, particularly the new Scarlet range, is a slightly diluted margin, just because we haven't had the production efficiencies we've seen with the old generation of 3. So we would expect our gross margin to be roughly stable as we move into FY24. We now move on and we look at some of those factors impacting overheads. So it's quite a busy slide. There's quite a lot going on here, but we've had quite a lot going on with our cost base. So I think there's the things we would understand. As Tim talked about 32 new products, that's impacted our amortization and depreciation as we've brought new products on stream and the development of those that started to amortize. And also we've had refurbishments in three of our main sites, Adam Martin and Focusrite. to encourage people as part of our return to work programme. As Tim mentioned, we're in a new facility here in High Wycombe, so that's impacted depreciation. Inflation has also caused an increase of about 1.4 million. And most of our inflationary impacts is to do with people costs. And we've tried to target our salary increases as best we can to help those we think are most impacted. And people costs are at 60% of our overhead, so that's had quite a big impact. Added to which acquisitions with Linear annualising and Sonox joining, that's also added to our cost base. And we've also invested for growth too, that's particularly in audio reproduction, particularly in Linear, which had an absolutely outstanding year doubling production. We've invested to support that both in production and in sales teams in audio reproduction. We're now a bigger, more complex group, and that's inevitably meant some spend during the year to look at things, you know, increased cybersecurity, sort of provisions for things like tax advice, and also just to make sure we've got a robust infrastructure and can just talk to each other on the same platforms. There's a bit as well to do with share-based payments and bonuses. So share-based payments costs are normally about a million a year, but this year we've reassessed some of the assumptions about how much we'll invest. And that's resulted in a credit of 300,000 to the P&L. So that's a swing of about 1.6 compared to the prior year. That has been offset this year by the bonus, which was very low last year and was normalised this year to sort of the non-target level. So those two have offset. But next year, we would not expect to see that big positive, the big credit from the share based payments as we look forward to our overhead base. So if we now move on and look at the balance sheet, I think the main thing to note here is how relatively stable it is. There's not a huge amount of changes from the prior year. And the prior year, we saw quite a lot of changes. Our stock normalised following the component shortages and demand surges of COVID. There's a bit of increase in intangible assets, which is both investment in new products, but also the acquisition of Sonox and the result of goodwill and intangible assets that that's brought on board too. Other than that, our inventory has increased a little bit. So our working capital overall is now 24% of sales. And historically, it's been about 20%. So it's a little bit higher. And that's to do with this transition from Scarlet Gen 3 to Gen 4. But we're holding stock of both ranges at the moment. But as Tim alluded to, as we sell, the Gen 3 would expect that to wind down. Other than that, debtors and creditors are both relatively stable. Games pay our creditors on time, and we have very few issues with credit collection. So I think The other thing I would draw your attention to is most of our cash flow, our net debt, although very low, we have a drawdown on our credit facility, which we renewed in September. So we have a revolving credit facility with HSBC and NatWest. It was 40 million. We renewed in September to be 50 million. And we also have an uncommitted according facility for a further 50 million, should we need it for some of our M&A activity. We now move forward and just look at cash flow. And I think that pleasingly, the overall result the free cash flow an outflow last year as we rebuilt the balance sheet after covid is now a positive so free cash flow of 10.5 million which is just under seven percent of sales historically that's been about 10 to 12 percent of sales and we would expect to return to those sort of levels going forward um the other thing i think i'll draw your attention to investing 14.4 million that is a little bit higher than we would expect normally because we've invested in the refurbishments in our offices i mentioned earlier And that's had an impact of about 2.2 million. Other than that, we would expect CapEx to carry on at that kind of level as we continue to invest in our product roadmap as we go forward. And we talked a bit about net debt and we talked about the cash flow. So I think now I'm going to hand back to Tim, who's going to talk to you a bit more. Oh, no, I'm not. I'm going to carry on talking about environmental social governance. Sorry. Just to draw the attention to that, there's some more slides in the appendix about our social governance activities in particular. But I did want to draw your attention to environment. It is a fundamental part of our strategy right from the beginning of designing of all our new products. We look at the sustainability impact and how we can make our products more environmental. We've talked in the past about how our Vocaster is made from recycled plastic, Scarlett is made from recycled aluminium. We have included a lot more in our annual report and have complied fully with TCFD. It's first year for us to do it on a mandatory basis. But we have a separate standalone report looking at environment and climate change. It's available on our website, our new Focusrite PLC website, which I would... recommend that you go and have a look at and it will provide a lot more detail on that. On that basis, I'm definitely going to hand back to Tim to talk about the operational review.

Thank you, Sally. I thought you were just going to test me to see how well I knew that slide, which I do. I know it well. Great. All right. OK, so now we're going to kind of move into more of the operational review. And as I talked about at the top of this, really, when we look at our business and think about those two divisions, the businesses are so differentiated. And really, the journey they've been on, not just this year, but really for the past three or four years, has been so completely different that it's almost imperative to talk about the business in these two different contexts and separate them. So that's what I'm going to do here. So we're going to start here with our content creation business again and talk about the journey we've been on. So a little backdrop on here. If you remember the When the pandemic started and the year that ensued on that, we saw a huge surge for demand in these products, as a lot of home-based technology did on there. And as things began to subside, there were a couple of aftermath things that happened with this. One of the biggest was really on what was happening with components, not just in our world, But across everything, it became quite scarce and then they became quite expensive. We talked about in a couple of our previous annual reports about the price increases that we did to offset that. Watching the market, making sure that we didn't think we were pricing ourselves out of the market. One of the things that was helping us in this is that this wasn't just a Focusrite problem. Every brand across everything and we saw category wide price increases on there. But as I mentioned earlier, when we got to the holiday season last year, we were just coming out of that. I think the whole world was. Suddenly components were starting to free up. And our channel specifically, who had really been through about the past year and a half, absolutely hand to mouth, hardly anything on their shelves. because everybody was just trying to keep up with demand and supply from the component things, suddenly everybody caught up. And our channel gladly took a lot of product for the upcoming holiday season. And this is, again, not just us. We're talking about guitars, drums, keyboards, everything out there. And this was about when things started to really get soft. And we started hearing a lot about cost of living inflation. And so the impact on that is something that we saw early on and took to heart. And so as we went into that last year's holiday season, we realized that we were going to need to do more promotional activity than we had. And we did, and to some success on there. But kind of going forward, things have not gotten any easier in the content creation market. We've seen for pretty much the first time that oversupply issues with other categories has had an impact with us. So it would be fair to say that we've seen from our efforts Our inventory wind down with a lot of resellers and distributors where they should have been ordering more and they simply were not because they were so glutted on all the other products on there. And that has had some impact. So when we look at the content creation growth by brand, you can see sort of the breakdown on how the brands have kind of fared here. Focusrite, as we talked about, we did the unwinding on that through last holiday season, and we carried on to that throughout most of the second half of this past year, getting ready for our product launch. Now, if you've ever followed us, the way we typically like to do a product launch is the day we announce to the public, we want the product in stock with the resellers, and we want the resellers to be pretty much on the last legs of their previous generation on there. Now that's in a perfect world. We're not in a perfect world by any stretch of the imagination. And so we did have more inventory than we were expecting to have on the older generation. So even with the unwinding we did. So what we've done is we actually placed chunks of what we had left with a couple of our more strategic partners that we knew actually had the ability and the scale to not only help promote the older generation, but also help us launch the fourth gen as well. So you can see all that destocking those efforts had a big hit on the Focusrite business in the first half, but it did come back to growth in the second half, which is a good sign on there. Novation, which is more about all of our electronic music products, very much a big part of this portfolio is really aimed at a younger audience who happen to be the ones that have really been impacted most by cost of living. And again, not just a Novation problem, a category problem on here. But, you know, one of the recurring themes you're going to see throughout this presentation is from all the data that we get, which is, you know, from the category information we get from our bigger resellers, a lot of the U.S. industry data and then our own kind of sell through and extrapolation. We are quite confident that we have fared much better throughout this whole period than the majority of our competitors on here. Adam Audio actually sort of broke the mold. They had some growth year over year. There was a couple of things that attributed to that. First off, they came off of a relatively low compare. Last year during this whole component crisis, of all of our brands, Adam was probably the most negatively impacted. it really jarred the introduction of one of their prime product lines, the A-Series, which is sort of their mid-range studio monitors, where we didn't have any availability of those for almost two full quarters last year. We obviously solved that and got this into the channel. So that was partially part of the low compare. The second thing is, I'll talk about this in a bit, We've done a lot in terms of our routes to market and with our acquired brands. One of the things we're very proud of is that we've been able to bring them into the group and actually leverage all the back end infrastructure we have in terms of finance, IT, logistics, purchasing, but also putting the portfolio into our global sales and demand gen teams. And that has done quite well. So Adam had a good year. Sequential and Oberheim, again, a very tough compare last year because we bought the Oberheim brand and came out with a flagship synth for them. So they had very strong numbers here before. But this was, from all the industry data we had, one area that was most negatively impacted. The industry is citing this part of the category has been down 25%. Now, again, as I said, you see that we weren't down nearly that much. I think that speaks to the strength of the brand. And the fact that, you know, we were able to take their portfolio again, put it into the global sales team and actually expand the visibility across there. And then again, Sonix that I talked about, which was our acquisition on December, in line meeting expectations. And one great thing about this team is we're already working with their development team on actually incorporating some of their skill, knowledge and IP into future hardware products. If we look at this regionally, the story basically, when we look at North America and EMEA, again, in a soft market, you know, relatively down year over year. I think the big story here, the one that was probably the most painful for us was Asia. Now, if you look at our results from the year before, Asia was up about 34%. And now they were down roughly about the same. Well, why is that? Well, we think it's for a couple of reasons. Number one, primarily China, which was the biggest part of our business, was in extended lockdowns, almost nine to 10 months longer than anybody else. And so when that finally released, what we saw, not just us, I think it was reported pretty much everywhere, was just an absolute just knife edge transition from people spending money on things related to their home or home technology to suddenly travel, cars, holidays, that type of thing. This is still a work in progress. We think China is still going to take a time to wind back and get on there, but definitely a struggle in Asia. Also partially due to the fact that Japan and Korea, which are relatively big markets for us, Cost of living, inflation and currency and effects seem to really drag them down as well. Now, we do have a very structured team in place with APAC. And again, from all the indicators we have, we are actually in a very challenging market. We are actually performing well on there. So and we do believe that this market will come back. We're starting to see early signs of that happening. Just a little backup and talking about us maintaining our market leading position. There's a lot of different data sources that we do. A couple of the easiest ones is some of the largest continental players that we have as resellers. So Toman here in Europe, Sweetwater, one of the biggest ones in the US, and then Amazon, which is a bit of a consolidation between what we do with them in the US and also here in Europe. But as you can see, Toman and Sweetwater, they consistently publish what their top most popular and best sellers on there. And we're very proud of the fact that our products are typically heavily populated in the top five of these categories on there in terms of the top sellers, not only in our specific categories, but usually one or two of our products are usually in their top 10 across everything they sold. And that's been quite consistent. The other thing that we spend a lot of time and effort is our Trustpilot and our NPS scores. So you can see we put a couple examples here, but we know and can prove that, you know, as these scores go up, our revenue improves as well. So this is very important for us. And we continue to maintain very high regards in terms of NPS and Trustpilot, materially better than most of our competitors on there. And that's another reason that, you know, we feel very strongly about our market leading position on here. A little bit about Scarlett Gen 4. Again, probably the biggest category of products for the company. A major transition that we just transacted on at the end of this last fiscal year. I've put up a couple of the reviews on here. As you can see, the industry has accepted this product with wide open arms. I don't think we could ask for better reviews than we've got. on this and the the feedback we're getting from our end customers as these make their way into uh their workflows and they're starting to use it um it's clear that we have done a good job of taking what is a incredibly successful product and coming out with the next true next generation with more features values and benefits for our customers Uh, we talked about innovation. So in the content creation space, 15 new products across this year, across a lot of the brands, um, and a lot of product updates, and we kind of give these equal weighting new products are fantastic just to interject more energy and things, but product, our dates are something our customers love when we actually actually do updates to get more features and value to existing products. And that is something that plays heavily into our NPS scores. And then lastly, just talking a little bit about Sonix again. Again, acquired in December, setting in well. We're very happy with the performance they've had. They had a major product release called VOCA, which is a really great vocal processing tool in the second half of this year that has also had some great reviews and done quite well in terms of customer uptake. I'm going to shift gears now and talk a little bit about audio reproduction. So in audio reproduction, if you rewind to when the pandemic hit, as soon as that became a thing, this business essentially shut worldwide, everywhere. As a matter of fact, most of Martin's competitors shut their doors completely and didn't open for an extended period of time. We opted not to do that because our feeling was is not even really knowing how long this was going to last. We wanted to be prepared when things did reopen because we assumed there would be such a big surge of it. If you look across any region across and anywhere in the world, culturally, music live events are such a big part of the culture that we knew this was something that if people were missing for a while, it would come back in a big way. And it most certainly has. So at the beginning of this past year, we talked about how we were seeing all the early kind of rumblings that this business was definitely about to surge, and it definitely surged this year. As coming off the two years ago, summer festival and tour season being successful, The rental companies, the system integrators starting to get cash in. People were coming back, wanting to experience live events. That all drove a lot of retooling, new infrastructure as well. And we were very happy that we, because we had kept Martin open and were working on production of new products and also this manufacturing, we were ready. And so you can see the growth over here, year over year, really great. Part of that was that strategy. Another part of it, as Sally talked about, was Linea. We acquired them. They are the amplification that Martin uses. Very integral part of the whole workflow and the whole kind of secret special sauce that we bring to this industry on there. Bringing them in-house and then the group actually being able to actually come in and help them with Purchasing actually give them the capital to invest in more people. And we've been able to double the production on there that played well. And then optimal audio, which is really sort of more for the low end installation, the gyms, the nightclubs, small restaurants that really started to come into its own this year as well as we saw a lot of new places and a lot of retooling happened with that. When you look at the regional performance, again, a very different story than content creation, very significant growth across all the regions. And I'll call out, if you look at that rest of world, Asian number there, they grew 26%. That pretty much backs up what I was saying is that we saw as soon as people could get out, the clubs, the live venues, everything, everybody started retooling for that. And so really good growth as well on there. little bit just about you know uh this past uh summer um which was a really good indicator i think this is what people were looking at because it's just so front of mind so visible um a really successful festival season so martin audio um you know hosts many of the stages at glastonbury and hyde park um a big part of why we we do that is because of our IP and the way that our speakers and our amplification work together, we're able to fill a space no matter what kind of crazy size it is, outdoors or indoors. But we're also able to, especially for Hyde Park, once you cross over that street from the festival and go into a neighborhood area, our DSP and our amplification speakers can actually lower the sound dramatically on there so that we hit all the city ordinances on noise. that's a major factor a big differentiator for us so again the uh the localized tours the festivals everything really came back in a big way on that and uh which is a really great sign for the industry And talking a little bit just about, you know, where we are in terms of the portfolio for audio reproduction. One of the easiest ways to think about this business is in what we call sound throw. So how much, you know, does a solution actually fill a room? So we look at it as sort of zero to 15 meters for a small place. 1530 for a medium sized place and 30 plus for a bigger place. So you can see sort of what in green, what the market data tells us in terms of the split between this and where Martin's portfolio is on here. So you can see we're heavily weighted in the smaller area. We have a good play in the 30 plus, but the mid region is one area that we had a bit of a gap on. And if you look at the next slide, you can kind of see how the portfolio works on that. In 2021, we really didn't have a viable solution for this kind of very important 15 to 30 meter throw. We do now. Taurus was definitely one of the byproducts of keeping Martin open during the pandemic. and allowing the R&D teams to devise this so that we were ready to go on this. There's been a lot of innovation in all these areas, but filling that up on there and also refurbishing and the flex point for our new products in that space has really paid off and a lot of benefit for us this year. A little bit about a strategic update. If you go to the next slide here, if you've ever looked at our presentations, our growth strategy essentially has not fundamentally changed since I joined in 17. These are the four things that we think are important for us to run the business. They've served us well, making a great place to work. The our people are the lifeblood of this company. We have so many musicians, engineers, DJs, you know, podcasters that work for us. And, you know, their real world experience and what they bring in is fantastic. And same thing on the live sound side. We have a lot of people at Martin that go out and they mix gigs and play live. So they know how our products work. We want to make sure that we continue to actually have a great place for these folks to work and for them to stay and to attract new talent as well. Growing our customer base is really important as well. A lot of what we invest in R&D, the outcome of that, all the new products and the product updates are really important. But not only doing refreshes, but also looking for new products to extend our portfolio. And there's an active activity on pretty much every one of our brands going on in that as well. New markets, you know, looking at markets that we think are opportunistic, that maybe we've just been using standard distribution, getting closer to the customer. Also, also looking at M&A and how that opens up new markets for us as well. And then I've mentioned it several times, talking about how crucial things like NPS, Trustpilot scores, word of mouth reviews are for our customers. You know, that's all really the tip of the arrow on that is really the customer support and the onboarding journey that we've invested so much time, energy and bandwidth in to make sure it is absolutely industry-wide the best that we can be. I think it's important just when you when you look at the trajectory that the group has been on, you know, our strategy has worked. We have delivered growth over a number of years. There's a couple bullet points on this from, you know, since we listed, you know, we've had a 17.8 percent CAGR. You're going to see in a minute that is abundantly higher than the market average in our in our group. And even when you factor out all the acquisitions, 10.2 organic on there. So pretty amazing. And we're quite proud of that. And really, when you look at the acquisitions we've done, they've all vetted in well. They have all been accretive. They've all added value and added an extra 74 million pounds of revenue to us since 19, which we're very happy about. And then again, going back to our core business, Focusrite, With everything that's going on with M&A and all the trials and tribulations we've had across the pandemic, along with the opportunities we've had, we're quite proud that we've grown that business. It's 28% higher in FY23 than it was in FY19. So that's a pretty good stat that we're proud of. Again, sort of backing up how we've grown compared to the market. This is US data that we use on here, but you can see what is telling us that the categories, especially for Focusrite Novation, have traditionally grown at. And you can see that we have performed materially better than this. And this is why when we talk about our outlook, what we've come to recognize and really want to drive home is that with the number of brands we have, we have some brands that are quite mature like Focusrite and Novation. with really good penetration. And we have others that are not nearly as far on that journey where we think there's more for them to actually gain, both regionally and through just the fact that they're part of a bigger group on here. And so, again, just another way to kind of back up and talk about this. This is some, again, some market size data in terms of what we see across content creation and audio reproduction. And you can see that the US is the largest market in both of these divisions, however, When you look at our business, what you'll see on the bottom part of that is only for Focusrite Innovation, which is our most mature brand, is that the largest part of our business. Every one of our other businesses is typically either in Europe. You can see sequential. It's about even on there. But even with audio reproduction, the bigger part of their business is in Europe and actually primarily the UK, which we're sort of the home team players. So a lot of room we think for expansion on there as time goes on. I mentioned routes to market. This is something that we're consistently looking at and changing over time to fit our business. If you rewound about five years ago, especially for content creation, most all of our business transacted through a distributor in a region and the distributor handled everything. We have made a huge shift from that. Even the places where we're still using distribution, that is usually coupled with a local team that is helping to do all the demand generation, having the relationships with the resellers and the end users as well. Latin America is a great example of that, and that has made a marked difference to our business there. In some markets where we think that they're of a size and we have enough scale, we've actually removed the distributor entirely and gone direct to resellers. So in the UK, Germany and Australia, we're using that methodology and that has actually proven quite successful as well. And then lastly, we also it's a small part of our business, but it is growing at a good, healthy rate is the amount of business we transact directly with end users on here. So to give you an idea on that, that part of our business, it actually grew 29% over last year. A lot of that was predicated on we'd been doing over the past two or three years, a lot of investment, getting our websites ready to do this type of business. Now our direct to customer business, when you look at all of our largest revenue regions, if you look at the Americas and you look at Europe, our DTC is our fourth largest revenue region now and growing. So again, it's a small part of the business overall, but it's one of the fastest growing ones. And it's one that we are definitely keen to see continue to grow. We talked about acquisitions. I've said this a few times, but just to back it up, the acquisitions we've done, we're quite proud of them. They've all done quite well. They've been all accretive to the business in a very, very short amount of time. They've strengthened the group and the group itself has been able to bring a lot of skill and leverage to them as well. So acquisitions M&A is definitely part of our ongoing strategy. We are proactive about this. And as you can imagine, in a very difficult environment, we're seeing more and more things come our way for us to take a look at as well. So I would certainly say that we're not done here and watch this space. And really, the way we've designed the group, all the systems and things we put in place, we've kind of we've landed on this structure, which we're quite happy with, which really kind of talks about the two divisions. Everything that we're doing in terms of the brands are really innovation centers working on the products and doing what they know how to do. All complemented by, you know, great sales team and all the back end support that they have across the board. finance, HR, digital, legal, handling things like logistics, purchasing. And that has worked out really well for us. And we think that this is a great structure for us to have, not only to grow organically what we have, but also as we add more brands through acquisition in the future, they should be able to slot right into this. In terms of just where we are in terms of our guidance, I think we would say that we're being cautious with everything we've learned over the past, I think, three years. I think our basic vibe is we're not sure what's coming next. There's early signs that the content creation business is coming back. Scarlett's fourth gen has been really good accepted. We did just get some really good data back from the Black Friday Cyber Monday. Early results looked like we had a really strong showing on that, which is really good. So there's all the internal and things we get from our channel. There's also a lot of other industry data that we look at. This slide is talking about just the growth expected and how much content creation is done on there. And you can see it's broke down between audio, um and video and a few other things and you see you know the the overall expectation is for this to grow now the audio part on the bottom doesn't look like it's growing tremendously but it is growing but i'd remind you that that top part of that is video and for people who are making video If you spend a lot of time making a great video and you don't have any audio on it, you've basically made surveillance video. So we actually combine that with us and look at that as an opportunity as well. Also, another really interesting thing is that all these stats are showing that while the US is definitely the biggest market, the biggest growth areas are in other areas. And we're quite proud of that. And we think we actually have a hand in that because our technology, that's exactly what it allows people to do. It allows them at their home to actually create really great sounding content and share it with a global audience. So again, another reason I think for us to be optimistic about the future. Audio reproduction, very much the same. You can see the huge dip that the whole industry took, but you can see how things have come back. And this is sort of a amalgamation of looking at things like future ticket sales, what's happening in terms of the pipeline, because this business is very much a pipeline on here. And I think everybody would agree wholeheartedly this business is back. We're still in a bit of a backswing of this coming back from such a repressed thing. But we are going to get back to the nominal growth rates that we see in this business. And so really when you add all this up, these are the things that we're really focused in across this year and next is continuing to make a great place to work. We talked about how we're in a new facility here for Focusrite. We've done a lot of retooling and we've really embraced the whole sort of hybrid working, working from home thing and making our offices more of a hub for product people and engineering and R&D people to collaborate together. Continuing to grow our customer base across all the brands. And again, as you saw, there's big opportunities, not only for us to continue to hold on to the high shares that we have and refine that routes to market so we can maximize the margin dollars, but also grow the other brands as the same journey that we saw with Focusrite. Ongoing investment in R&D, 31 products last year, we're not done. There's a lot of really cool stuff happening this year as well and into the future. New markets, you know, again, what we've done in terms of our routes to market and also, you know, the constant hunt for acquisitions and then lifetime value. You know, we're really proud, especially on the content creation side. We're one of the few companies that have 24 seven followed some technical support. You can talk to a live human being no matter where you are. Any time on that, that is a big differentiator. And that's something that we are very proud of that, along with the onboarding journey, especially for new users on that. And that's something we'll continue to refine. So as we go forward, I think this slide sort of sums up. We're still in a difficult period for content creation. Early signs are looking promising on here. And as you saw from our statement, we're holding through our guidance this year. there we do expect you know to see um the content creation be business be relatively flat across this year on here getting back to sort of low single digit growth on there and the audio reproduction business having a banner year last year we're starting to see that sort of balance out and get back to its normal uh thing as well so um when you add it all together you can kind of see that you know we're talking about mid to high single digit group for the growth over the medium term Lower again this year, but stronger growth in audio reproduction and the newer content creation brands. And again, always potential for more acquisitions. So Sally, I'm going to hand it over to you and let you do the summary and outlook.

Okay, thank you. So thanks. So after looking at the slightly longer term expectations we've got, we're now just going to tie it back and give us a bit of summary of the guidance for the next year in particular. So as Tim mentioned, you know, we still see difficult conditions in content creation. You know, just already referenced some of the issues we're seeing in Asia with the ongoing impact still of the release from COVID and inflation. So we do think underlying demand is still strong. We're seeing our registrations, but we're expecting to see maybe a slight growth to flat market for content creation. But audio reproduction is still very strong this year, although growth will be slowing as we see it begin to normalize. And if we then move on gross margins, as I mentioned earlier, we're expecting to see flat on this year with some of the benefits from lower promotions offset by the dilutive effect of new products. And overheads, we wouldn't expect to see the same sort of increase we've seen this year, but there will undoubtedly still be some impacts from inflation and we won't see that big credit from share based payments that we had this year. And cash flow, as I mentioned, we expect to return to our historic levels of around 10% to 12% of sales. And so overall, we're not expecting from this announcement to see our profit expectations unchanged from what's already out there. And finally, I'm going to hand back to Tim for a final summary slide.

yeah so just to kind of wrap it up before we go into q a so again um a difficult year but we're very very proud of the performance we had all things considering on there we think we are in a really good position not only in terms of how we fared through that but really setting ourselves up for the future on here really good strong delivery and all products across all the different categories including one of our big flagship transitions on there A really great story in terms of the integration on all of our acquisitions, especially the story around linear research and Oberheim. And so far today, early days, but things are going quite well with Sonics on there. A lot of investment in our people, both as an infrastructure and, you know, in systems on there. We now we've sort of completed the circle on actually setting up our content creations teams worldwide in each of the regions. We now have teams that have the entirety of that portfolio on there, leveraging our scale, working with the channel partners and the end users in that way. And again, our strategy, you know, no matter what is being thrown at us next, I think our play, what has always worked for us is try to stay as heads down as we can, execute on that. And that has worked well for us. And that is what we're going to continue to do. So with that, I'm going to say thank you for joining us, and I think we're going to jump into any Q&A that we have.

Fantastic. Tim, Sally, thank you very much indeed for the presentation. Ladies and gentlemen, do please continue to submit your questions just using that Q&A tab on the right-hand side of the screen. But just while the team take a few moments to review those questions already submitted today, I'd like to remind you, recording the presentation along with the copy of the slides and the published Q&A can be accessed via your dashboard. As you can both see, we've received a number of questions throughout today's presentation. Thank you to all the investors for submitting those. May I just ask you to start at the top, read out the question where appropriate to do so, and give your response, and I'll pick up from you at the end.

Okay. Right, thank you. So I think if we start off, if I just go through the questions, I think the first one is about inventory. So our inventory turnover days appear to be quite high at the moment, and given the current trading environment, are we confident there won't be any inventory write-downs? So I think as we mentioned in the presentation, inventory is quite high at the moment because of the transition of Scarlett Gen 3 to Gen 4, which was planned transition for us to have both products in the channel. And it really is just a function of having that inventory in the market so we can supply both at different product levels and potentially take market share at a lower price level. Added to which, there have been component issues in the past, and as we move more to a direct channel rather than through distribution, we hold the stock that maybe distributors would have held. So we are comfortable that we have the right levels of stock to continue to guarantee supply. Question there about will you look to accelerate M&A or is the strategy to expand organically, which I think...

Yeah, so I think the strategy is to do both. There's a lot of plan in terms of expanding to new categories with some of our brands, which would be organic. But M&A is something that we are proactive on. We have a full-time person in biz dev who knows the type of things that we're looking at, who's out there sort of kicking the tires, if you will. And he's also the one that's fielding all the incoming things on there. Again, I think when it comes to the type of thing we're looking for in terms of an acquisition, I think we're still following a pretty rigorous kind of criteria, which is it has to be something that we think fits our business and complimentary that we understand and know. We want a well-run business. We don't have any desire to clean up a mess. And I can tell you that, especially recently, there's been a number of those that have come our way, and we just can't make any sense of even thinking about trying to take something on that could be a drag on the business for a few years. We want a good management team, and we want to be able to look at where they are in their journey and understand and actually put a value on what we think the group can actually benefit. That's been our criteria for everything we've bought and that has worked for us and I think we'll carry on that way.

Okay, next question, I think, a little for you, Tim. How are Scarlet Gen 4 sales performing? Are they in line with expectations?

Yeah, so Scarlet 4th Gen sales, they are ramping up every week. As you know, we have in our onboarding journey, when somebody buys one of these, they go through an onboarding journey, and if they complete that, and we look at the serial number, and we haven't seen it, we register and tick that up as a new sale. The Scarlet 4th Gen sales are increasing week over week. You know, right now, they're If we had done a knife edge transition and I had the Gen 3 on there, we probably would see them higher. We hadn't planned that, though, because we knew we had the Gen 3s in the channel. And those are the ones that we heavily promoted during the Black Friday and Cyber Monday thing. So we saw a huge spike in the Gen 3. But interesting enough, the Gen 4 sales increased as well. So they're both moving in the right direction. So we're quite optimistic about that.

There's a question about working capital as a percentage of sales. Where do we expect it to be in FY24 and longer term? As I mentioned, 24% at the moment is a little bit high and we like historically it's been about 20% and we would expect to return to those levels or move towards it next year and then move towards it over the medium term. For you, I think, Timber, advancing on the M&A side, should we expect a bolt-on or a bigger target? content reproduction or new vertical multiples have gone down?

Yeah, that's a good question. So I think that our proactive hunt is sort of equal on both the content creation and the reproduction side. I mean, you saw the split in our revenue. It's about 75-25. There's no KPI to get that in balance, but I would like to actually see the audio reproduction business actually get a bit more on equal footing because that diversification has worked really well for us. In terms of the size of what we're looking for, I think Sally talked a little bit about the credit facility we have on there. I think in a perfect world, our preference would be to continue to bolt on things that we have done. Those have been really, I think, probably easier to do than something bigger on there. And, you know, we've been able to see the benefit directly on that. However, we're not opposed to looking at something bigger, but I think it needs to be, you know, something that would actually fit inside our workings and our criteria.

Okay. We've got a question about buybacks and would we consider those as a way of returning cash to shareholders? So I think if we look at our capital allocation, we've always considered the best return for shareholders is to deliver that overall growth, capital growth. And for us, it's very much about investing in our new products and it's about M&A. So we absolutely as a board would consider this as an option. But I think looking at basically we would be taking down debt at the moment. to buy back shares doesn't necessarily feel like the best way we could add value, but we would never say never. And I think as a board, we should definitely consider all options, but that would be how we would look at it when we consider our capital allocation, I think.

Next question is about AI and how do we think about it for our business? So when we think about not any of the backend stuff, which I think there's value in terms of data analysis, but when we talk about just how it fits into the workflow of how people use stuff, it's kind of interesting because Our industry has been here several times before. When samplers first came out, everybody said, oh, that's the end of traditional musicians. When drum machines came out, oh, no drummer will ever be employed again. None of that stuff actually materialized. As a matter of fact, all it did is it actually made what they did actually more credible and more desired, if you will. So we look at AI. I mean, we actually have some software plugins called Fast that actually use AI to help people who don't really know the nomenclature or how recording technology works to help them get a sound. And we see that as a tool. We think it's going to be something of benefit for people. And if it's actually used to help people create their first idea for a song and that's what sparks them to want more and to learn more, that's fantastic. We see that as a big benefit. The next question is about interface competition. It's increased over the last couple of years. Yes, it certainly has. You know, I think the success we had being a public company has been recognized by many. We saw no less than four or five major competitors come at us, especially for our Scarlett business over these past three years. What I can tell you from what we can tell from talking to the resellers, looking at the category, we can't piece that any of them have really taken any considerable share from us at all. Let's see. Can you tell us more about the strategy regarding acquisitions? Why have you been so active lately?

I think we've talked quite a lot about M&A, haven't we?

Oh, yeah. Well, no, I think it's something that we're comfortable with, and we actually do see it as a viable part of our growth strategy on there. We, you know, 74 million extra pounds of revenue since we started doing acquisitions that have all been accretive and added value. It's a good play for us. So, again, we're being choosy on these type of things, if you will. So, you know, I don't think anything's really fundamentally changed there. On product lifecycle, are they shortening? Actually, no. I think, if anything, maybe they're increasing a little bit because components, people coming back and working hybrid, that type of thing is taking a little bit longer. there's no kind of rule here, a rule of thumb, but we kind of look at the market and a lot of it is sort of driven, not only, you know, by us and when we think we've got a backlog of new features, it's also driven by how people are creating audio and that whole workflow, both at the home studio and the professional level is, it continues to involve and we need to make sure that we're on top of that. So that's, that's one of the things that we, you know, we, we, we focus on, on there just to, you know, to, to ensure that, Yeah.

That's fantastic. I think you've covered off all the questions we've had come through. And of course, any further questions, you'll be able to review those. And we publish responses where appropriate to do so on the InvestorMeet company platform. Tim, perhaps just before redirecting investors to provide you with their feedback, which I know is particularly important to you and the team, I could just ask you just for a few final closing comments.

Sure. Sorry, I've been sitting in this chair too long. First off, thank you for staying with us for a long period of time. We know that this presentation has a lot of information, and it's a lot of data-heavy stuff. And hopefully, I know we talk fast because we really wanted to share a lot with you, but it has been a really fascinating, interesting journey we've been on for the past, well, since I started, but really for the past three or four years. And the stories and the narratives around how audio reproduction and content creation works has been so different that we think it was important to parse those out to really give you the full picture on there. I think if you take away anything, I hope you understand that we're very heads down in terms of innovation, R&D. We see opportunity in both of our divisions. And, you know, we are, again, I think being a bit cautious just from everything that we have seen over the past couple of years. But the long term, we're quite optimistic about the future. We're in a really fun, killer set of verticals. And we have a lot of fun deploying and making products on there. And thank you for your time.

That's fantastic. Tim, Sally, thank you very much indeed for updating Investors' Acre. Please ask investors not to close the session. It should be automatically redirected to provide your feedback, and all the team can better understand your views and expectations. It's going to take a few moments to complete, and that's greatly valued by the company. On behalf of the management team of Focusrite PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.