Focusrite Plc

Good morning and welcome to the Focusrite PLC Analyst Meeting. Throughout this recorded presentation, attendees will be in listen-only mode. Questions are encouraged and they can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. I would now like to hand you over to CEO Tim Carroll. Good morning to you.

Good morning, everybody. Thank you for joining us today. Sally and I are coming to you from our office here in High Wycombe in Artisan in one of our new fancy recording studios designed to test all of our equipment out and for our employees to use. We're also opening up an Atmos room for some surround stuff using Adam and Martin technology as well. So the next time you come and visit us, we hope to show you around and show you some of the cool things we've done. Today, we're here to take you through the details on our first half for 2024. Now, there's a lot of detail in here as the environment we find ourselves in continues to be complex with a number of challenges and opportunities across the different brands. And as we've discussed previously, with our two different divisions, content creation and audio reproduction, we continue to see them be on very differentiated journeys over the past three years. And we see many of these current challenges and opportunities that we're encountering from our two divisions being heavily influenced by macroeconomic and global issues that have risen over time. So our goal today is to take you through a narrative that kind of explains what's been going on with all the numbers and a lot of underlying data so that you're all clear on what has transpired and why we strongly believe that our growth strategy, our portfolio and our market remain a solid investment opportunity. If you look at this next slide here, we've basically evolved to now we're 13 brands over these two different divisions. Just five years ago, back in 2019, we were four brands focused almost entirely on content creation at that point in time. Since then, we've had seven acquisitions, adding nine brands to the mix. The acquisition of Martin in December of 19 was really, was the beginning of us sort of formulating our second division, audio reproduction. These two divisions have grown dramatically over the years, again, with very differentiated customers, routes to markets, and again, very different journeys that we've encountered. As we go through the presentation, I think you'll see this diversification that we have has served us quite well in some very, very challenging times. So as we kind of head into the presentation here again, two different stories, if you will, on what's been happening on here, we're gonna break this down into the two divisions. So starting with content creation, very tough environment with a lot of macro economic headwinds happening. However, all of our data and all the industry data that we have suggests that we are faring better than many others, maintaining and in many cases growing our share. And our underlying registration data, which if you remember from past talks is so important to us actually having a barometer on the health of the business shows that we are actually well ahead of pre-COVID still and pretty much flat year over year. R&D hasn't slowed down as well. There's a lot of new product introductions, both through placements and net news that are happening in the second half. So we're going to go through a lot of data that kind of backs all that up, if you will, as we go through. We switched to audio reproduction. The rebound in terms of live sound, live events continues with a very strong performance and a very strong pipeline for the second half. On a note with that, we also had another acquisition in the first six months, Outboard Timex, which has really helped us put a big stake in the ground in terms of immersive workflows. So still very proactive on looking for tech and brands to provide incremental value for us. And I think you'll see from the numbers and everything, even though it's been a tough go on the content creation side, We're making sure that the investments are proper and supporting everything that's happening for the audio reproduction business. Okay, so we're gonna take a bit of a dive into the content creation side of the business here and go here. So really a bit of a mixed results across the different brands. I'm gonna start with Focusrite here. And really the main story with Focusrite is what's been going on with Scarlett. Scarlett, as you know, is one of our biggest revenue generating brands on here. The group's largest product group actually on here has been for a long time on here. So as we've previously discussed from the end year, 23 was really a year of overall softer demand driven by a lot of macroeconomic issues and a natural sort of rebalancing that was happening with a lot of our customer base from spending a lot of time in their homes to actually going out and playing live music or experiencing music again. uh the whole industry also i went through a period where the every single product category was widely overstocked this was the culmination of being so hand-to-mouth during the pandemic finally catching up around the beginning of 23 right when cost of living issues and people were going out and experiencing live events again uh that has really uh put a dent in terms of what the channel has had been able to do in terms of reorders We've done a lot to rework, work through that. And we're going to talk about that. Most of the third gen stock that we had when we introduced fortune at the beginning of the year, we had more than we had hoped to have in a channel. So part of our strategy was really to work through a lot of that. And the channel knew that the fourth gen products were coming and they were very supportive of us actually having both the third gens in the channel selling through the remaining bits and introducing the fourth gen at the same time. That strategy seems to have worked because the net result is we were able to unwind a lot of their inventory and a lot of our third gen inventory. Now, we knew kind of going into that eyes wide open that was going to have some impact on fourth gen cells. And it did. And to be honest, to a little bit higher degree than we thought. But I think what we've seen as the third gen products unwind in different regions, the fourth gen has picked up. on there, which is a very encouraging site. And we'll take you through some slides on that that kind of shows you that, what's going. Again, we think that was absolutely the right decision for us to make on there to unwind, to use in the holiday period, which is a very price sensitive period to get through a lot of the third gen inventory. And from that point of view, it was quite successful. As we move on to the rest of the portfolio, Novation, actually, you know, a bit behind in terms of reported growth, but, you know, a very varied product portfolio on there. A number of the products in here are actually faring much better than the industry, some on average on there, but you can see the sort of net result of there. So, and again, this product portfolio, very much a lot of it is pointed towards a younger audience, which are ones that have been impacted more by cost of living. Atom Audio, kind of bucking the trend, has had a very strong half one result. Part of this is just the culmination of all the work we've done in terms of getting Atom into our group routes to market strategy on here, getting them into regions with larger distributors, leveraging the fact that they're part of the Focusrite group. We also moved their distribution in the US to our distributor AM&S, which had a one-off impact as well. Sequential Oberheim, our high-end cents, very much impacted by what's been going on economically on there. The majority of the sequential portfolio is at the 3,000-plus range, which we've seen a lot of that category be heavily impacted on there. The good news here is that the lower end products, which we've really just started introducing to the market, are performing quite well. And a lot of the MPI that's coming, especially something new for the second half, is pointed directly and focused at that particular part of the market. And then Sonix, which is one of our newer content creation brands that make plugins and DSP for a lot of the popular recording workstations, very much in line with expectations, using a lot of the group synergies to actually market to them and a lot of cross-collaborative developments using their teams that you're going to see the fruition of that start to come to life in the second half as well. So when we look at the regional performance for content creation, you can see it's been a very tough market for all three regions on here. Again, I think there's the sort of macro economic issues. There's the fact that people have moved a bit from focusing on home studio workflows to doing playing live on there. Those are sort of, you know, kind of overarching everything. But for every one of the regions, there are some specific areas. North America, the student loan repayments, again, for a lot of our new customers has been an issue on there. Also, elevated credit balances and stuff. We've seen that actually, you know, impact as well from what the channel shows. EMEA has had a tough time, especially with a lot of resellers in the UK and Germany closing shop, just not being able to survive what they've gone through on here. And then obviously, as we move through the post-holiday season, a lot of the inventory is starting to clear, a lot of distributors starting to come back, but it's definitely had an impact. Now, rest of Asia, which is pretty much everywhere else in the world, we've talked about and pulled out China specifically on here, which has really impacted our APAC numbers on there. China had huge growth for us for a long period during the pandemic and even after most regions were out of lockdown. But, you know, if you remember, that period, that region actually was in elongated lockdowns. And so we've actually seen the Chinese, the China numbers actually very soft here. However, when we look at this next slide on here, what you'll see is, you know, while it's been a pretty tough performance and story for the content creation, you know, in parallel to that, the live sound business, which you'll see on these bar graphs here, on the right, the audio reproduction ones, has grown leaps and bounds. So it really supports that what we've seen in terms of just as soon as people were able to go outside, an absolute knife edge transition from doing anything in the home to going out and experiencing events. We don't usually do this, but there's a couple of industries that actually report their findings, too, that have seen the same thing. So you can see the data from Yamaha and Roland on here talking about not only the fact that they're dealing with the same thing we are, dealer inventory adjustments, but also just the difficulties that they've seen in China as well. One really positive thing on here is we've talked about our direct business, our direct to end user business. We went through a retooling of our websites to actually have a really good experience for customers to actually be able to experience our brands, all of our marketing and be able to buy from us directly inside that same website. Those came on board and fruition in full in 23. And we're happy to report that that business has continued to grow on here. I think there's just a natural progression with our customers that are, you know, they're desiring to buy direct from the manufacturer. And, you know, we're very pleased on this. And we've talked about how, you know, really we were expecting over the next three to five years for this to, you know, to become somewhere in the low double digits in terms of total share of our business. You can see that we're well underway on that happening. I'm going to go to a little data that we get from our industry. This is citing music trades, which is a U.S. source on here. And I just want to use this as a sort of a backdrop to give you a little bit more color about what's been happening in the industry and how we've been faring on this. So this basic, the data here is showing they track two different things. They track retail sell through to end users, and they also track imports from China into the U.S. because in most categories, The lion's share of products in our industry are coming from Shine On here. So you can see what they've been reporting on here is that the sales have been down 6.5% for recording and 8.1% in 22% and continued across 23% on here. uh on there and when you look at the import data it's even more grim than that i mean you can see that you know it's been off 23 we've seen some uh sectors that have been down um as much as 60 and like in the guitar market on there so very interesting but when you take this data and we overlay this with what we're seeing in terms of our end user registrations it's very interesting So for computer music hardware, which mainly is our audio interfaces like Scarlett, um, you know, the data on the left is basically highlighting what was reported in those music trades things. But when you look at the data on the right, this is our end user registrations that we're seeing. So, you know, the U S is our largest market showed a decline of 11.8% for 23. And again, The latest reported data shows a continued decline of 6.5% this year. And versus 2019 pre-pandemic, it's only showing the businesses up 8.3%. When you look at us, we're up 50% versus 2019. And also when you look at our registrations versus last year, 23, they're pretty much spot on in terms of flat on there. So that's one thing that gives us a good indication in terms of how we're faring with how the rest of the industry is reporting data. Now, that's just one data point. There's some other ones that we want to reference as well. A number of our biggest resellers on sort of a continental level across U.S. and Europe, they actively report their top sales products in different categories. This is something that we monitor regularly. consistently and if you've ever been in one of our presentations you'll see that we have cited this many times before this is the latest data from toman and sweetwater talking about the audio interface category and it shows just how strong our products have been across this very difficult time period What you're seeing there is for Toman, both the audio interface category and the studio monitor category. And you can see that in that, in that top 10, and this is just one moment in time, but it's very, very much the average of what we're seeing on a weekly basis there. You know, we usually have anywhere between five and six in the top 10 and usually the top two spots. You can see that quite well in the studio monitor category. For Sweetwater, again, the same thing. They actually published what they call their most popular, which is their largest revenue and product in the category. And you can see that we have four of the top five spots there for Sweetwater, which, again, is one moment in time, but very consistent from what we've seen. If we take a look at another reseller for us, Amazon, that I know all of you are very familiar with, They don't publish that kind of data, but what they do and that we actually use as a good gauge of the business is we look at their scores in terms of how we rate as a seller. We've always been rated as a best seller for our Scarlett products. And we look at the type of comments that we're getting. You can see that across the board for our Scarlett products, we get mostly four and five star reviews. A lot of people citing things like, ease of use, solid reliability, and a great out-of-box experience. Again, a lot of our Amazon customers are typically more novices and just getting into this. And so we use this as a good gauge to understand how we're doing in terms of navigating those people to their first recording experience on here. Okay, talking about the Scarlett transition a little bit more from third gen to fourth gen, I wanted to share a little bit of data here. So, you know, we talked about how the holiday period was promoting both the third and the fourth gen and how our channel in parallel, you know, was actually supporting and introducing the fourth gen as well. So traditionally the Scarlett range, you know, has consisted of sort of a sub $500 products and over $500 products. Now, if we go back a number of years, we used to have a product in the Scarlett category at what was always considered a strategic $99 price point. From all the component issues that we had, increases in pricing and stuff, we had to vacate that with the third gen, and we moved up. At that point in time, it looked like it was OK. There was still strong demand for the product on there. And so we pretty much went with that. However, we have been monitoring that category a lot. And we know that with the cost of living things, there is a lot that's been happening in that $99 price point. So one of the decisions we made with the third and fourth gen transition was to actually keep the third gen solo active in the channel. And we were able through working with our contract manufacturer to actually cost down this product, which is something that we do over time with most of our products to a point where we were comfortable having this in the market at $99 in terms of both our margin and how it contributed to the product line. That has been a good play for us. It's actually not cannibalized our fortune sales. And what it has done is it's pulled a lot of share from some of the people that are down in that market on here. The sub $500 product, the middle part of this is where you see most of the fourth gen products that have been introduced today. And again, in the higher market, this is still the third gen products. The gen four of these products will actually be shipping out of 24. But if you look to the right on here, I think this sort of backs up what I was talking about earlier. You can see that when we launched these in August, predominantly we were still selling all third gen. But you can see over time what's happened is that the third gen sales have come down, is that inventory has unwound, and the fourth gen sales have taken over on that. And we think that this trend will continue on there. Again, you'll still see some of the lighter colored pink on there because we're going to keep the solo in there. But we're very pleased with the fact that as different regions and channels have worked their way through the third gen, the fourth gen has picked back up. And we think that that trend will continue on here. Well, I'm going to move over to audio reproduction now and talk about this. Again, a tale of two cities, a very different journey and a very different set of results. Very strong business, great growth for the first half on here and a very healthy pipeline going on here. You know, the desire to be out and experience events is driven many new installations, tours, and a lot of new rooms have come on board and a lot of upgrades to existing rooms on here. Now, If you looked at our annual report, you know that typically the solutions in this market are sort of categorized by different sizes. It's called throw, how much they actually can fill a space. And we kind of break it down into three different areas. There's sort of the zero to 15, which is for smaller installations and events. Martin's always been really strong and had a strong suite of products in there. That's about 38% of the market. The 15 to 30 is for more mid-range solutions. And up until very recently, actually from a lot of the development that Martin was able to do during the pandemic, we didn't really have a strong offering yet, but we do now on here. And then there's the 30 plus, which is the really large scale things where Martin's always had a good play on there, but we've had some new product refreshes and stuff come on there. The point is, is that in all these markets now, we have a a product category to portfolio that addresses all the needs there. So we have the best lineup that we've ever had that has really worked to our advantage over this high demand time on there. We've been able to not only just focus on one area or segment, but we've had great attach rates across all of it. Part of that has also been backed up by the fact that when we bought Linea, which is the amplification for Martin, we've been able to actually give them all the resources to need to double their production, which has definitely helped Martin as well. And Optimal Audio, which is more of the consumer installation products, is continuing to grow as we see things like clubs and gyms and stuff want to upgrade and have a really good audio in their rooms as well. Regionally, again, a very different picture from the content creation business. You see strong growth in EMEA and the rest of the world. You'll see that North America is a little behind. That has really nothing to do with the state of the market. It's really just in terms of product availability for us and getting the products on there. The pipeline for North America is quite strong, and the business overall is really doing well. So again, rental companies, permanent installations on there. We've pulled out a couple of the different installations and things that we've done across the different portfolio just to give you an idea of how much business is going on in this part of the market. I mentioned earlier that we had an acquisition in this first half, Sheriff Technologies. As live events really get back into their stride, I think what we've seen is a number of new theaters, concert halls, auditoriums coming online, all supporting immersive workflows, something that really differentiates the experience that a customer has versus what they can get in their own little home theater environment. So a lot of new installations and a lot of the existing places retooling for that. That's really a key driver that differentiates, I think, events across the board. And we're seeing it happen not only for music, but for theater, everything that's out there. And it really is just that. It's really making the audience more intimately engaged with what the show can provide in a way that's just not achievable in somebody's home. And so, again, happening across all the sectors. And I think for us, this was a great acquisition for us because this was something that if we were going to have to actually develop organically, it was going to take us a while to get there. And so by actually acquiring Sheriff and integrating this into Martin, this accelerated what we're going to be able to do on here. The great news also is that Sheriff has been doing this for a long time, so they're well-trusted. by many professionals on there. So another great fit for our M&A and part of our growth strategy. So I'm going to take a pause there and hand this over to Sally, who's going to take you through the financial review. Sally.

Okay, great. Thank you for that, Tim. And so what I'm going to do is, as Tim said, take you through the financials. Tim spent a lot of time talking about the revenue. And as you can see, it's down about 10%. That's had a bigger impact on the profit measures. And that's for a combination of reasons. One, obviously, sales are down. So that's the first one. But also, there's some one-offs going on, which I'm going to come on to explain. It's in the income statement that have impacted profit. And added to which, I think it demonstrates the drop through model we've got. So hopefully as sales, when sales increase, you have to see that similar drop through come through to profit on the way back up as well. I'm also going to talk about cash as well, because obviously we've had a significant increase in our net debt. And I've got some slides that outline the reasons behind that. But for now, let's start off. Let's have a look at the income statement. Okay, so we've talked quite a lot about revenue and the various moving parts of that, which is a relatively complex story. Our gross margin is down 1.3 percentage points. I'm gonna come onto that in a bit more detail. I've got a bridge around that, but essentially our underlying margins are stable on the first half of last year. We've had a big one-off impact due to a stock provision relating to Vocaster. Some of you may remember when we launched Vocaster a couple of years ago, and we had to delay the launch of that for about 12 months due to component availability. Remember, the back end of the pandemic is very difficult to get certain components. We chose to prioritize the Scarlet range, rightly so, which delayed Vocaster. As a result, the market had softened quite significantly for podcasting. You might have seen quite a few news items around that. So we were left with too much stock. What we have done now is sell out basically the vast majority of all that stock now to a distributor, but we've taken a provision to recognise the lower value of that stock in this half year. Overheads, slight increase of half a million. However, if you take into account inflation and the annualization of our new acquisitions, there are some underlying savings. Part of that is due to reduced bonuses and options with the performance. But we are seeing some of the operational savings coming through due to the reorganizations last year, too. Depreciation and amortization has increased. That is partly due to new products going online. But there is a point eight acceleration due to Vocaster. Now, half a million of that would have been amortized in the second half of this year anyway. But we brought it forward just to recognize the fact that that product is largely sold out for us now. Including adjusting items, although they are flat year on year, what that masks is a much lower sort of acquisitions cost. It was about 1.7 last year when we bought Sheriff. It's only about 0.1 this year in terms of underlying reorganisation and acquisition costs. But our acquired amortisation has increased by about a million. And again, you may remember last year there was a million pound one off benefit as we changed our accounting policies to recognise the fact that we should amortise these as they came into use and not when we acquired them. So we had a right back, which obviously is not repeated this year. So quite a few one offs going on there around margin, vocaster and the amortisation last year. Other than that, if we look down, net financing charges have increased slightly, and that's obviously with the higher interest rates and the higher debt that we now have. And tax, slightly higher than the corporate tax rate because we've got a prior year adjustment that we've recognised in the first half of this year relating to an adjustment to some pattern box claims. But other than that, we'd expect it to carry on around the UK corporate tax rates. I'm now going to talk about margin. We talked about the bridge there. So you can see there, the flattened line year on year with just that impact due to vodcast, which I've talked about just now. Going on in product margin, basically, as we talked about at the year end, we have seen a slight improvement because we've done much less promotions in this half year than we did last half year. And we talked a lot there about, as Tim's mentioned, that big glut of stock that was in the channel where everybody was promoting for extended periods of time. So we've done less of that. However, I think, again, as we're all aware, there have been some challenges with freight. Freight costs are starting to go up. There was the Baltimore incident as it issues in the Red Sea. And so we've seen a slight increase there. There's a little bit of an extra increase as well, mainly to do with warehousing costs, you know, with that higher level of stock that we've got at the moment. But basically underlying flat and we would expect that to continue into the second half with just this one off impact due to Vocaster. OK, we're now going to move on and look at the balance sheet. It's. Broadly stable, I think the key change there is net debt, which I'm going to come on to on the next slide. Just to give you a bit of colour on some of the categories, our non-current assets increased, and that's the acquisition of Sheriff and our ongoing investment in our new products. The level of capitalisation of R&D, we would expect to remain fairly stable. It's running at about four and a half, five million a half year. But we did have a one-off purchase, which we flagged as a capital commitment at year end, relating to a significant bit of technology we're investing in at the moment. Working capital is very high. It's 37 percent of revenue against our historic norms of 25 percent. And I'm going to come on to that when we talk about cash flow. But it's very much around stock debtors remaining elevated, partly to do with the transition that Tim's talked about with Scarlet. Current liabilities, as you can see, relatively flat and we tend to pay our creditors to terms. Net debt will come on to a non-current liabilities is deferred tax. It's the ongoing payments for the Oberheim brand, which we bought in 22 and our lease liabilities. So nothing too significant in those. So as I was looking at net debt, the movements we've got there, so there's some stuff, obviously the acquisition of Sheriff, there's the capex we talked about, our usual stuff, lease interest and dividends. So you see the big movement is all in working capital and it looks like it's all creditors. And actually, if you think about our seasonality for our working capital cycle, we tend to have a lot of sell into the channel in advance of the sort of holiday, Thanksgiving, Christmas period. And so we tend to have a lot of creditors and a lot of debtors on our balance sheet at the end of August. And indeed, in the first half of 23, we saw an outflow for creditors and their outflow because we're paying out of stock we purchased for holiday season. What we've not seen in this half year is inflows in debtors and in stock. And let's look at both of those. So stock, actually, in content creation, our stock has gone down, but it's been offset by increases in audio reproduction. As we talked about the growth they're seeing there, they brought in more stock to secure supply across what's quite a broad range of SKUs. And as a result, that's increased. We expect that to unwind a bit in the second half of the year as they sell that out and also as they've got a chance to streamline their purchasing processes. So we'd expect stock to unwind in the second half. Debtors has increased. And actually that relates mainly to one of our big distributors in the US where we have an arrangement with them such that if they have too much stock in their channel, then they can hold back payment to us. So we don't have an issue with bad debts. Most of our debtors are paying to time and we don't have an issue with the credit with this distributor. We just need to help them work down stock in the channel. That's absolutely what we're doing. And hence the reason, you know, We took this into reduce sales slightly in the last trading update we gave to help wind this down and also work with them to promote it. So, again, we would expect to see that largely unwind in the second half and to see a fairly significant positive cash flow. I'm not sure we're going to get back to net cash by the year end, but I would certainly expect to see a big dent in that net debt. OK, if we now go on. to the cash flow. I mean, we've talked quite a lot about the movements here, so I'm not going to go into it in too much detail. I think, again, if you look at investing, you can kind of see that stability, again, We've got this one off payment we flagged at the year end to do with our technology investment. And all of this is supported by our net debt facility. So we have a revolving credit facility with HSBC in that West. It's for committed funds of 50 million with an uncommitted accordion for another 50 million should we need it. I think I'll also flag on here the dividend. Obviously, we've got the dividend that we paid out in a half year and the board have recommended an interim dividend of 2.1p, which is flat on the last half year. So I think it still gives us the sort of dividend cover we were looking for. And although it's flat, we're not cut it given the cash flow and where we are with profits. And I think that's all good. shows our confidence in the cash flow we can generate in the second half. So with that now, I'm going to hand you back to Tim, who's going to give you a look at our strategy.

Awesome. Thank you, Sally. Great. OK, so many of you have been following us for a long time. You've seen this slide over and over again. You see it over and over again because it's basically what we focus on and the thing that drives us across all of our businesses, all of our decisions, how we operate and handle ourselves on a day-to-day basis. We found this strategy has served us well both in very strong periods and in challenging periods as well. So across the board, when we look at this, being a great place to work, making sure that we're providing our employees opportunities to collaborate, to grow, to expand their horizons and stuff has been really important. Especially here in the UK, attracting talent is not getting any easier on there. So that's something that we still have a lot of focus on. Growing our core customer base. Again, 11 new products in half one, a lot more planned in H2. The continued investment in our D2C e-comm teams and a lot still going on in terms of, you know, just new product introductions that are not only refresh products, but also net new products as well. And then new markets, you know, we kind of categorize that as, you know, to continue to refine the markets that we're in. There's a lot that's happening right now with Japan and Brazil kind of following on all the actions that we've taken in Australia and other parts of the world that have worked out well. Anytime that we can get closer to our customers, it looks like there's a net positive for that. So we're going to continue on with that. And then obviously the other prong of that is just acquisition. So again, a new acquisition with Sheriff Technology. I'm very pleased with this one. It looks like it's gonna be a great benefit and value for our audio reproduction business on there. And lastly, lifetime value for our customers is really, you know, making sure that our service, our out of box experience, everything that we provide for our customers, whether they're absolute novice all the way through professionals is, you know, is second to none. And I think I'm very happy with that when we track our NPS scores. across the different product portfolios. I showed you the Amazon reviews before on that. We're doing quite well on that. And that's, we think, is a big part of why our brands, even in a challenging market, have performed so well in the different categories in the current environment that we're in. So we've shared a lot of data with you today, but one thing we haven't shown you so far is just some insight as to what different analysts that follow, not our industry, but follow the actual industry of what our products are made for are on. So I thought I would take a few moments to share some of this with you on here. So we'll start with content creation. So you can see, That across the board, I've picked a few, but there's a wide spread of what people believe this market is going to be growing on. I think you can take that as it was. We look at it and go, hey, they're all moving up to the right. That's good news for us. The amount of content that people are creating, both at a hobbyist level all the way through professional, continues to grow. And if you look at this one on the left-hand side, you can see how they break this down into different parts and different sort of genres, if you will, of content. Now, you may be drawn to the audio, which is the bottom thing, which looks like it's growing, but not very much. That's primarily music. You know, we understand that we're not just in that business. You know, we also very much have a stake in the video part of the business as well, because if you don't have audio with the video, you know, as I've said before, you basically got some nice surveillance footage. So, you know, they go hand in hand on there. I think the one on the right is also interesting because it's really showing about what's happening sort of at the hobbyist level on here that you've got people that identify as musicians. That's still a big part of that. But you can see that consumer creators are actually taking over a part of this and a growing market as well. And we're happy to see that because a lot of our products are out of box experience. Our whole workflows are really designed for those folks that are absolutely net new. They may not be musicians per se, but they are actually creating content where audio or music is a big part of that on there. So all very encouraging signs for here. If we switch to audio reproduction, again, the first thing you draw your attention to is just how severe the decline in this market was back in 20 and 21. But you'll see that all predictions are that the businesses come roaring back on here, which we're very excited about. And our pipeline and everything we've seen seems to suggest that. One thing that you'll notice is that, you know, while we are in this period where the business is growing in the 20% on there, there's no expectation that's going to carry on. We expect this business to kind of normalize back to what it's being on there. So part of our guidance going forward will be making sure that we think about that, that rebound effect from what we're still going through. Couple other interesting things to point out. If you look at this pie chart on here, you'll see they're kind of breaking down all the different sort of types of installations and stuff on there. Now, if we looked at this back when we bought Martin and overlaid where our products fit, we'd be able to actually say we actually fit in maybe three or four of those. I'm really happy to say that our portfolio now from our acquisitions and our organic development, we address all of these, which is part of why we're having the success that we are having on there. And the last graph on the bottom is just showing sort of the construct, the makeup of how this business is on there. And you can see that we actively are in the speakers and the amplifiers. Others is a little bit of everything, but there is the immersive technology on there. So we're playing in a lot of those. Microphones is another one that we don't actively play in. And we've talked about, in terms of our M&A strategy, that's something that we're interested in, not only for the audio reproduction, but for the content creation business as well. So I'm going to hand it back over to Sally for just to go through a little bit of the trading outlook.

Great. Thank you, Tim. Yes. So as Tim's talked about, it is a difficult market and it remains difficult. In the appendix, we've given you some more data on Q1 for music trades. So we know that's going to be difficult for the second half, but we do have some new product introductions in. So we expect our revenue to be more weighted towards the second half for Q1. content creation and with audio reproduction it's been trading very well and has a strong pipeline so we expect that to continue into half two so as we gave guidance in the trading update in mid-march we'd expect revenue for the full year to be not less than 155 million as i talked about with gross margins we expect them to be broadly flat on our underlying margins that we saw in the first half this year and with overheads again a similar position broadly stable with those actions in place to offset inflation and the impact of the annualization of our acquisitions As I hopefully talked about in some detail, we expect our cash flow position to improve significantly and that working capital position to unwind in the second half. So our overall expectations are unchanged from those we get guidance on in the middle of March, at which point now I'm going to. Come back to Tim for a final close.

Great. Last slide, guys. So I think in summary, I hope this has given you some context about what we've been through, how we've actually been persevering on this content creation side, how we've been actually leveraging all the opportunities in the audio reproduction side. You know, when you take all of our different brands and think about all the different customers, when you add it all up, it's a 5.5 billion market size on there, you know, driven by, you know, the creation experience of listening to music and, you know, anything with audio on there. We have, you know, 13 world leading brands in this, you know, that are transacting across the 240 territories worldwide on here. From the data I've shown you, you know, we're quite comfortable that, you know, our brands are performing well in a very tough environment on the content creation side that they are either holding or they're gaining share, market share, and they are. And obviously with the audio reproduction business, that has continued to grow. So, you know, stability there and growth. We're continuing to innovate, you know, a number of new products for the first half, mostly in live sound. A bunch of new products coming in the second half, some refreshes, some net new products that we're very excited about as well. So I think when we look at that in total, when we look at that, one thing you could include as well, on the content creation, if the market is that tough and all the industry data is that grim, if our products are actually performing better than that and holding their share, gaining share and holding top sales positions, as things start to unwind and come back to some normality, we should be well poised to actually take advantage of that, which we believe we are. And obviously the pipeline for audio reproduction stays strong. We've added Sheriff. We've got the best portfolio we've ever had. So I think we're in great shape on that. And then obviously you may have seen the announcement we just had in this past couple of days, but we're very much focused on sustainable practices. So there's a lot that we've been putting up on LinkedIn about all the work that we've done with the Scarlet Gin Forest and a lot of the new products on there. And we just signed up, you know, obviously for the science-based targets initiatives as well. So a lot of great stuff going on. You know, again, our growth strategy, we're heads down on that. We think that we're, you know, that's going to serve us well. And, you know, we're looking forward to the future.