Focusrite (LSE:TUNE) — Interim Results

1:53 Good morning, and welcome to the FOCUSRITE PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and 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's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tim Carroll, CEO. Good morning, sir.

2:23 Thank you. Welcome, everyone. We're very excited. Sally and I are very excited to have everyone here with us today. We've got a pretty packed agenda to go through with some exciting news and backed up with some solid results. So let's just dive right in if we can, please. So I think the big thing that we wanna make sure is we go through the presentation and go through different facets of the business, what we do. These are the three kinda main things that we wanna make sure that people walk away and understand with of today. The first is is that if you followed us in the past, you know that over the past couple years, the group has made a number of investments in the company to grow up... For growth on here. And we're really pleased to actually see a lot of those actions that we've put forth are really starting to improve the profitability and deliver results.

3:08 And we'll take you through a number of examples of that. The second point we really wanna strive is we know that, you know, in the world today, there's lots of markets outside of our our business that are, you know, are are not doing great. And so we thought it would be a good opportunity just to remind everybody about the markets that we're in, And to also let you know that, you know, from every data point that we have, both internally and externally, the markets that we're in are very solid markets. You know, they are both from the live sound market and the content creation market are doing exactly what they've historically always done, which is basically been growing at sort of GDP plus. That's where they've been for many, many years, especially if you take out the sort of COVID bubble in the middle on here. And, you know, our job is to basically perform

3:55 in those markets and to be innovative and disruptive and really refine the way we do things to actually grow faster than that. And so we're gonna be pleased to talk to you about what's been going on there. And then the last one is really about, you know, just all of this has been, you know, occurred into more drop through for the business. And so we've seen our balance sheet strengthening, which really supports us for future growth on here. And underlying all that, you know, we're very pleased to report that, you know, the first six months were quite solid, and our trading since that time has actually been very robust, and we're expecting our results to be in line with expectations. So I'm gonna hand it over to Sally, and she's gonna take you through some of the financial highlights to go through. Sally? Thank you.

4:40 Thank you. So I think the main thing to take away from this slide is it really demonstrates how our operating model works, where you can see that revenue growth of two and a half percent because of the fixed overhead base we have, a little bit of sales and a bit of margin expansion really drops through to improve profitability. So you can see there the 14.7% growth in operating profit and the 25% growth in EPS. And you will notice we are talking about operating profit now rather than EBITDA. So we are conscious, you know, with the amount of R and D that we capitalize, amortization is going to become a bigger impact on our P and L. So we really want to focus on that profit after amortization. We're just looking at those numbers in isolation. Revenue growth of two and a half percent, which is quite positive growth in content creation of around 5%. Audio reproduction going backwards slightly with a strong order book. And Tim's gonna give you a lot more detail on that

5:31 later on. Gross margin, again, expansion, and that's a lot of self help with cost reductions as well as some targeted pricing. And I'll come into that in a bit more detail in the finance slides. And then you see all of that dropping through to 14% growth at an operating profit level. And then as our net debt is coming down, as you can see there, it's come down nicely. It's now 1,500,000 from the 10.8 a year ago and the 8.6 at February. So that's helped reduce our interest costs and therefore helped EPS. I'll come back to Tim now to talk about some of the operational highlights. Great. Thanks, Sully. Alright. So a number of things that we want to touch on here. First is, you know, if you followed our business for any period of time, you know that we are a R and D innovation company, you know, we're constantly coming out with new products on here.

6:17 But one of the things we get asked a lot of time is, well, you said that you've had so many product launches, so what? What does that mean? And so when we get into some more of the financials, Sally's gonna show you a couple slides in terms of what that contribution has been. But over this period, we've had a number of key refreshes on here. We've had some more expansion on the Martin line on here, and a flagship audio release for us, which has really helped cement the FOCUSRITE brand as that premium brand with a solid legacy on here. If you followed us when we had our eighteen month reviews, you know that we revealed at that time that we... Under the hood, we've been working on a very significant development in our r and d teams around a new platform, also coupled with a new piece of silicon that we've been working on. And we're pleased to report that that progress is continuing on there. We have our first product that we'll be shipping with this coming out in January of this next year on here, and a lot of really great things happening on there.

7:12 I think the the big thing is is that all those proof points we talked about what this chip was gonna bring, we're actually seeing those net out into realization, which is wonderful. The other one is routes to market. So, again, if you followed us for any period of time, you know that we have been constantly turning the crank on this and looking at how we refine that routes to market to improve the margin profile, and ultimately get closer to customers on here. So, the big news that we really had at the eighteen month period is the work that we've done in Japan on there. We had just really got that on the ground in March and working, and we're pleased to report that that is continuing to see really great growth on here. Coupled with the fact that our D2C business, our direct to customer business is continuing to be very, very strong. And behind that, as we've gotten more aggressive on terms of the selling profile, we've also done a lot of work on the logistics side and the fulfillment, which has helped improve the margin profile.

8:07 And then lastly, on operational excellence on here, you know, we're very pleased to report that in a very tough time to be trying to do something like this, we've had a number of significant cost reductions. A number of them around our packaging, but also just working with our contract manufacturers, looking how that we're outsourcing things, and also moving some production as well on there. And all that has culminated in a really nice benefit for us. Okay? So going into that, Sally's gonna take you through a deep dive on the the financials. Sally? K. Thank you, Tim. Yeah. Looking at the income statement there, again, many of the points we looked at just in the previous slide here, but you... I think you can see there with the revenue growth, gross margin improvement, and that growth in operating profit. What I will draw your attention to there is the adjusting items. So they're down on the prior six months. And just to flag, we have been very proactive in managing the tariff refunds as they were struck down in The US in February, and we've received in about 2,600,000 of refunds so far in this period to date. So thanks to our operations teams for helping deliver that.

9:15 There is a slight difference in the amount of cash we've got in and what we've recognized as an exceptional item in the p and l because we've recognized those amount of refunds that related to tariffs expense last year rather than those that have been resolved into stock this year, case you're wondering why there's a slight difference. But that basically... Those refunds we've shown as an adjusting item, and they've effectively offset the amortization on acquired intangibles, which we normally show as, an exceptional item. Just to note here, the profitability dropping through,

9:42 we do tend to have a weighting to the first half of the year in terms of sales volumes. That's historically always been the case. As we start to sell into our channel, if we want it in warehouses for November, Black Friday, and for Christmas, we have to start shipping it from China in August. So we'd always tend to have a slightly bigger half one. So that's why you can see these results looking quite so positive. I did say that we talk about margins. If we move on to the next slide and look at that improvement in margin. So 1.7% improvement. And the bulk of that was in our core product margins, the difference between cost and price. And you'll see later on when we talk about growth, we did put prices up around 3% over the group as a whole. But that was really passing on inflationary increases.

10:28 The bulk of the expansion is due to cost improvements, where we've worked with contract manufacturers either to consolidate manufacturing into certain con... Contract manufacturers, redesigning the packaging, sourcing components, looking at redesign of products, a whole host of activities that's delivered a million of annualized savings. And Tim's gonna come on and talk about that in a bit more detail when we talk about operational excellence. But also on this slide, you can see here the expansion, a bit due to duty. So tariffs have been struck down, but they are still at a much higher level than they were before, so it's not such a dramatic increase. You know, we've still got 10 to 20% tariffs in Eastern Asia and Europe, where we had none before the Liberation Day announcements. And then Japan, we mentioned at the year end that we'd moved our distribution channel in Japan through to direct, through to resellers.

11:17 That's helped improve margin by point three percentage points. It will have an impact in overheads, though, just part of the slight increase you'll see in admin overheads. And then the mix really, Sonox, our software company, had a very strong comparator last year. And as a result, they've had a slightly

11:35 slightly less contribution into this year, so we're seeing a slight negative impact from that. Now if we move forward and look at the cash flow. So, again, obviously, the tariff impacts you can see there, the adjusting on had had a positive impact, but, really, it's about the improved profitability in our working capital and particularly the stock reduction, which we'll see on the balance sheet dropping through. So we've got very strong cash generation as we did in the last six months too. And so we've got net debt of 1.5. And, again, as we've talked about with the waiting, we do tend to see a little bit of a seasonal outflow in half two, which is quite working capital intensive for us for the holiday season. So I would expect net debt to increase by the time we get to February, but still be lower than it was of February 26.

12:21 And then just to reiterate that point, looking at the balance sheet, you can see there that stock reducing nicely. Sorry. Move on. Stock reducing nicely as we go down across the balance... Across the periods. And that's a combination of, you know, we've talked a bit about the Scarlet generation for my

12:39 refresh, And we always wanted to have stock to sell as b stock through our channel. That's gradually unwinding. And our audio reproduction teams have done some great work over this period in improving stock processes and efficiencies, which has also brought stock down. So our working capital now at about 27% of revenue, historically, we've... It's been around 25%, but that was before we had some manufacturing companies in the mix. So whilst there's always room for improvement, getting down to around this level is roughly where I would expect it to be. And now I'm gonna hand back to Tim, who's gonna talk through some of the operational points. Great. Thanks, Sally. Alright. Wonderful. Alright. So let's take a look at our two divisions. So just to remind everybody, we report our business in these two divisions. One is content creation, one is audio reproduction. Why do we do that? Because they have very different channels, very different product life cycles, very different customers, and the rhythm of the day to day business is very different.

13:31 But we're gonna kinda break this down. So this is showing you across the two divisions, sort of how the performance was on here. So you can see very strong performance for content creation, which we're very excited about. Audio reproduction, the revenue has been a little lumpy, but I'm gonna go into some detail about, you know, why we actually feel quite confident about where that business is heading and the trajectory it's on. So let's kinda dive into the details here. We'll take a look at content creation first on here. So this is showing regionally sort of what happened. So you can see EMEA and APAC had very strong first half on here, which is really good to see. Americas was a little down. Now a big part of this was planned, because if you remember earlier on, when the tariffs were really kinda out of control and there was so much volatility, we did signal that we were bringing some more product into The US just to make sure that we could basically, you know, avoid any other big disruptions on this. And so what we've done over this first half is we've unwound a little bit of that extra stock on there. I think the most important thing is that last bullet point on this slide, and that is that The US sell through, the other words, the sell through from our distributor to their channel and to their end users on there was up 5%.

14:42 So overall, the demand for the products has been quite strong, and we'll see that kinda come back and rebalance on there. But it was important for us to do that last little bit of stock correction to get us back in balance there. In terms of new products supporting growth, Sally, this is a great slide. Do you want to take this one? Yeah. Thank you. So this is a new slide we've added into the pack for this reporting season. And this is once... You know, we've talked in the past a lot about we've launched 17 products, 18 products. But kind of what does that mean, and how does that help support growth? And it's really more meaningful and impactful in content creation. So we've broken out the content creation growth into various components of growth, is which effectively price and volume and our new products. So for 5% overall, as I've talked about earlier, we did put prices up. So it was about 3% for the group, 2.7% for content creation.

15:30 And then volume, again, point four looks relatively low. But don't forget, as Tim was talking about with The US, we deliberately did some destocking there. So while sellout has been good, we have sold less into the channel to get stock back to a normalized level. So only about half a point of volume. But then what you can see there is the impacts of new products. So this is products that we've launched since the 09/01/2025. So it's products that are new, basically, in this six month period compared to the prior six month period. And we particularly had a refresh of a range of their apps or version of our Launchkey. They work with a really popular piece of software that people use to create music, FL Studio, and we expanded the range to include control pads as well as keys. So that's driving that growth. Now the old versions, we've stopped selling since the red bit.

16:19 And also we had some anniversary additions, which we'd launched last year to celebrate our fortieth anniversary, which again are no longer in the mix. So overall, you can see that up and down. We've got a two percentage points of growth for content creation through those new products and innovation coming through. Alright. Now let's take a turn and I'll talk a little bit about audio reproduction on here. So again, you know, the revenue number's down a little bit, but, you know, I think overall, we're quite confident about what we're doing here and where we see this market going. So first off, here's a breakdown regionally what's going on. So just a little backdrop on this just to remind everybody. Audio reproduction had a huge swing back from COVID that was really happening across really in '23 and the first part of twenty four.

17:04 That's when there'd been pretty much a year of live events and stuff, and there was cash back in the industry. So a lot of people were retooling. They were building new clubs, new theaters, this type of thing. So there was a huge boon on that and that we were... We definitely shared in. Since that point in time though, the business has come back to on balance on here, and we are... We're seeing that our our numbers that we we see in APAC and EMEA are pretty much on course with what the market data is seeing. You may look at that APAC number, and that looks quite ugly, but the the the... Behind the scenes on that, the lion's share of that is in China. China's an interesting story too because when all of that came back, if you remember, China was in lockdown for quite a long... Longer than other countries were, and so the net result of that was is when people could go outside and experience events, that huge roll up that we saw worldwide was even more accelerated in China.

17:58 But what's happened since that time is China... With the Chinese government and what's been going on with cost of living there, there's been a complete just

18:07 pullback from that. I was in China during the summer, and it was actually quite amazing to see that most of the nightclubs and the shopping malls and the places that the last time I was out a year ago were so packed, there wasn't very much going on. And many of the music venues and the big festivals were really having very poor attendance. I think it's just a pullback in general of what we've seen and what people are seeing generally in China. But we're not so concerned about that because even though China is the bigger part of the market, when we look holistically across the rest of APAC, India is doing quite well, as is Japan. We're seeing other areas growing on here. And I think the thing we're most excited about is our growth in Americas. If you remember in the past, if you followed us, we showed different market share diagrams to show how our ranges like Martin Audio and Linea, you know, where our market share was in Europe and Asia, but then where it was in Americas was completely upside down from what the market data showed. And that really signaled to us a really big opportunity.

19:06 And so what we've done is we've put more infrastructure, invested in more presales and salespeople,

19:11 and we're really starting to see that come through with that growth on here. The The US, again, for the the the category in general has been pretty flat to down a little bit. So to see us grow there is a really good signal. And through that, we've actually had some really significant wins. We've had our first big sports arena in Texas that closed with the Martin Audio system. We put in a big system for Sundance Film that was, you know, generally owned by a much more dominant company over in The US. So a lot of really good proof points of what we're doing is correct here on here. And then also, think that one thing that we we want to make sure people understand is that, you know, the audio reproduction business works on a very different rhythm. So again, our content creation business, the easiest way to think of that is a run rate business.

19:59 We sell products into a channel. They sell through them on a monthly basis, and then they re... Restock. That's pretty much how it works. There's a little bit in the audio reproduction business you can see on the bottom, but the majority of the business really is in this pipeline business. Part of it in the middle, you'll see is the rental company purchases.

20:18 These are the rental companies that are buying our products to go out and do like a Glastonbury or a Coachella or for a large tour and this stuff. And you can see that the basic pipeline from, you know, conversation to fruition on that, four to six months. But the biggest part of the business really is in the installation business, and this is the permanent install. So this would be a sound system in a nightclub. It'd be a sound system in a big house of worship or at a theater or an opera house. These have much longer lead times because they're either operating inside when one of these facilities has downtime, or it could be a completely new facility being built from the ground up, and so everything has to follow that construction and everything. But I think the most important thing is is when we look forward at our order book for audio reproduction, it's quite solid. We've had some record setting order months inside the six months, and our book to bill ratio is now at one point o nine. So we see that as all very positive signs about where we think this business is headed.

21:19 Okay? Alright. Another big part of what we talk about when we update everybody is just where we are in terms of our market share. So, you know, there's a lot of our our leading channel partners like Thomann, who's, you know, one of the biggest here in Europe, Sweetwater in The US, and then obviously Amazon, that actively publish, you know, what is their most popular products. And, you know, we are consistently and remain in those kind of top five sales points for pretty much every category. And part of that's been an interesting journey. So our... Again, as I talked about at

21:51 the beginning, our very mature market share products have maintained their space on there, but a number of our new products that we brought out or or have a opportunity to grow, we're seeing them come up in the ranks there, which is really good on here. The Novation Launchkey and the Atom desktop speakers are two examples of that on here. And then lastly, you know, on this, you know, part of this overall strategy in the future is what's going on with our FASIC, our silicon, which is in the final stages of this production, and we do have our first product coming out as a proof point of what this is capable of doing early next year. Okay? A little bit on market refinement here. So, again, I mentioned earlier talking about Japan and what we've done here. So, again, this was a bit of a a progress transition on here. In January 25, we were... Started with a hybrid model as we were working through all the red tape that's required to get a business set up in Japan. But you can kinda see even that when we basically cut off the distributor there and started putting together a force that would... That was not part of the the group at that point in time, but eventually folded in, just having

22:58 that kind of focus on the business and starting to develop those direct relationships with the channel really made a marked difference. And you can see the uptick in the business. And you can see as we've progressed and to have the launch date that we've had in March on here where we finally got the whole team and the organization on there, you can see that growth continuing on here. And then our d to c business has also, you know, been very strong. You know, this has become a meaningful, very material part of our content creation business, and we continue to lean into this. As I mentioned earlier, you know, as we get more aggressive on bringing customers into our brand sites and transacting there, the other thing that we've been doing behind the scenes is a lot on the logistics side on actually refining that to improve the margin profile on that as well.

23:43 K? And then operational excellence. I touched on this at the top on here. A number of things going on here in terms of what... How we're doing. Sally talked about contract manufacturer changes. We've been moving some products over... Overseas where the margin profile is better. We've been working on raw materials, which obviously is a challenge for lots of businesses right now, but doing larger lead time builds on those, along with what we've always had in place, which is six months to some products and components we're carrying out a year and a half to two.

24:15 There's some redesign that we've been doing to help improve the margin profile. And also, the packaging, which it sounds like there may not be much there, but some of our products have very large scale. We have some family of our products that we sell up to 500,000 a year, so improving that cost profile on the packaging actually does really help on here. So a lot really going on behind the scenes on here and what we've been able to do. Okay. So I'm gonna jump now and go to the summary and outlook on here. And, Sally, you wanna talk about our current trading? Yeah. Sure. Thank you. So this, you'll see here, is the same as a direct lift from the RNS that went out yesterday, And you can see, trading has been encouraging since the, period end, since the end of August.

25:01 And, basically, you know, as we talked about, there is a wait until the half one, but we're very much reiterating guidance and expecting to be in line with those expectations. And if you're wondering what those expectations are on the RNS, they are stated in the footnote, so they're clearly outlined there in terms of sales and operating profit. I'll hand back to you now, Tim. Great. Alright. So we're gonna just kinda sum it up here. So I wanna come back to these three points I mentioned at the top on here, and I hope you can see... It's a lot of data that we shared with you in a relatively short amount of time, but I hope you can see that there's been a lot of actions across all different facets of the business that are really focused on driving, you know, this improved profitability on here. So, you know, the global sales growth, the gross margin expansion on here, and that growth that we've seen as it drops through in the operating profit and operating margins is really pleasing.

25:49 Again, just to remind everybody, again, that the markets that we're in, all the data suggests they're very strong markets to be in. You know, we have a plan to to go out and and outperform, you know, how they grow on here. So a lot of that is through the innovation that we've done. We've had a number of proof points of new products that we've done, especially with Novation and a few new ones in audio reproduction on here, which is great. And great, that all kind of flows through to that strengthened balance sheet that we talked about. So really good cash generation on here and very, very happy that we got our net down so much across this period on here. And then the last thing, you'll see a flag on here, we are having a Capital Markets Day on November 25. This will be recorded and we will be making the slides available for for all of you to peruse on on there. So please look for those to be published on the PLC website.

26:42 And I think with that, we're going to basically jump into some of our q and a that has come up on the screen. So if you'll give us just a moment, we'll kinda go through these. I think I've been looking at them a little bit. I think there's a number that we've answered with the slides, but let's kinda see where we go from. Okay. Yeah, and we will... All the questions, we will make sure they do have an answer on the IMC website later on if we don't get to them now. There's a question that was pre submitted about just our FACEC and what we see as the opportunity around that, and does it require significant reengineering the product? So let me take that one. So to talk a little bit about how how did we get to this place where we're developing our own silicon, essentially, as we looked at how our products are progressing and what the market and our customers are requiring of our products, it became very clear that our hardware is really transforming into more of software that's actually encased in a hardware box. And what I mean by that is that our hardware is expected to do a lot more of

27:44 terms of what it's capable of doing in in that whole value chain and tech... In workflow than it did just a mere three or four years ago. And so we looked at that. It became clear that, you know, that wasn't just for one product. It was across everything. And what we really needed to do was turn a corner between doing sort of products one off, you know, we'd start and complete something and then start something new, and there wasn't a lot of reuse. We really needed to transition quickly to a world where we were actually working on a platform, so there was a lot that our R and D teams were doing on developing a lot of technology and library of assets that could go into multiple different products. And as we worked through that, it was clear that we needed to pretty much align ourselves with a, you know, a certain type of silicon, and we started asking ourselves the question about, well, you know, with the scale we have, could we develop our own?

28:33 And we put together a proposal on that, and we were pleased to see that we could. And I think the... To answer your question, what are the big benefits of it? Well, the first thing, it's made for us and our needs. So unlike the kinda current day, what most people in our industry doing is they're going out and basically partnering and choosing silicon or a platform that's not really designed for our industry. It's designed for the automotive industry or the entertainment industry. And they work great. There's nothing wrong with them. But what that means is that we're paying for a lot of functionality on that chip that we don't necessarily use, like a video engine or tons of memory that we don't really require. And so what we were able to do with this chip is we were able to develop something that was made for us and our our uses. The cost is... Looks like it's gonna be less than what we'd be doing from a third party. And because it's designed for what we need, the price performance value is much better. And to give it in basic scale, if one of our products required two third party chips, it requires one of these.

29:33 And so that, you know, that doesn't sound like a lot on a on a two to one thing, but a lot of our products need four, eight, or more of these of these chips on here. So that does actually start to add up. And then the last piece of the benefit on here is that, you know, we were at the mercy of a lot of these companies that were having to basically retool or, you know, do a transition a to a new chip every three years because of the larger industries. We don't really need that. And so the thing we've developed, we think it'll have a shelf life for all the products that we foresee in the future for eight to ten years. So that's really the big development on there. K. Thanks. Another

30:12 question, just building on that one. It said, it's from Damon. In July, you didn't quantify the margin benefit. Now the chip is in production, what gross margin uplift or cost saving per unit do you expect and what share of content creation revenue carries it by FY twenty nine? So I think, you know, we haven't talked about specific margin benefits. We will go into that in a bit more detail at the Capital Markets Day. I think what we have talked about is the chips are a relatively small part of our bill of materials and, you know, so it's about... Average chip is about $3 or so. And we would expect to see saving roughly about a dollar, but depends on how many chips are in the various ones. Some more complicated products will have multiple chips in. So we're expecting to see about 1 to $2 savings on average per unit.

30:59 And it's when those high volume products start coming out. And by high volume, if we think of Scarlets, we sell roughly half a million Scarlets a year. So if you take that, you can roughly kind of see the impact just on that one particular, albeit a very significant volume that we'll have on that. We'll talk a bit more about that in the Capital Markets Day. There was another question then building on CapEx, which is about the amount of development costs we have, which are capitalized but not yet amortizing, which has increased from 13,700,000 a year ago to 18.3. How much is basic over what life will it be amortized? And what's the total development amortization in FY twenty eight against this year's capitalization?

31:40 So we don't give specific numbers around that. Suffice to say, you would expect, as we've been capitalizing slightly ahead, that our amortization will be increasing. And our capital expenditure, you know, has sort of peaks. We expect it to stabilize, to trend down slightly. And Facebook, as Tim just talked about, has a product life we're expecting around eight to ten years. So we'll be amortizing over that. And our product life, so they are tending to go out a bit. But for some of our hardware products, it can be between four and eight depending on which range it is, if that answers your question.

32:11 I think that one on growth you've answered in the slides. Yeah. So there's a new slide there about, you know, growth and volume, half price, half volume, so it's very much seeing that come through. And I think then we were talking, like, collapsing the new products into volume, if that helps.

32:26 Okay. I think that one's pretty much the same as the other. Yeah. Another question about facing, which we have talked about. Okay. Let's see. I think I did mention that the Capital Markets Day will be recorded, so that will be up on the PLC site, and I think the slides will be shared as well. Yeah. It'll probably... I think we'll probably share it through the IOC site as well. There was a question about Japan there. Assume this sales grew 20 of your ever following decision to go direct. I assume this is a one off input. Please help me understand the underlying drivers of why going direct led to such a large increase in sales. The biggest reason is is because if... And this is very indicative of a lot of markets that we see. When you deal with a traditional distributor, you're one brand of many, and you're only gonna get whatever bandwidth you get on there. And, you know, and so... And they own the relationships with the resellers and a lot of times the channel. And

33:20 so you're really at their mercy, especially in a market like Japan where everything has to be translated. And we just, quite honestly, we're not happy. We... We've been through a number of them, and we just decided that, you know, Japan was a large market. We knew that there was a big opportunity there. And we knew that, you know, from what we did in Australia and how we have been doing business in The UK and Germany that if we actually own that reseller relationship and we had our own feet on the street to do all the demand gen and the content creation really for that market, it would have a really big impact. And that's exactly what's happened. Yep.

33:57 There's a common question here. In conversation you've had with your largest shareholder and founder, is he supportive of a FOCUSRITE running standalone strategy, where is the path to return FOCUSRITE to growth and then market the business for sale? And have you had any conversations with Howard who are typically seen as being an activist investor?

34:15 So I'm not... To just cover the question, I mean, Phil is still on the board. He's an honorary exec director. He's recently stood down as chairman as you would expect as he's... Get to spend more time enjoying... I mean, enjoying himself, particularly his family. So he's very much involved in the strategy. FOCUSRITE is FOCUSRITE is part of the group and is running a standalone strategy. He's very much in growth. You can see content creation is in growth. So... No. Absolutely. We're very much part of, as you can see, our strategy all about driving organic growth. And as we get more cash, maybe looking at inorganic growth too. So, yeah, Phil is very much involved, very much supportive, and our plan is to continue to drive incremental profitable growth for the whole group. Mhmm. And, yes, at Harbour Capital, we have conversations there as we do with...

35:00 Engage at all our roadshows. And so, yeah, we're in very positive, supportive conversations with them too. So

35:12 what's caused the three prior period errors, and what has changed in controls? I think that's a great question on that. So there's quite a lot of detail around those into the... In the February 26 accounts, but we have changed and we've restated because some of them have flowed through to impact on this year. And so, basically, it was a combination of, as you've seen, we've had quite a lot of change and quite a lot of growth over the last few years. And particularly in the period of February, we had an eighteen month period. So we're quite long, complicated period, and we changed auditors. And as ever, when you change auditors, which is one of the reasons I think absolutely you should change auditors, you get a fresh pair of eyes, and they really go through and help pick that and look for other things. So we have a great relationship with we changed to, and they've really helped us go through that. And, absolutely, we've made quite a significant amount of changes in our controls, looking at strengthening the finance team, bringing in more regular governance, and strengthening the documentation and our internal control program, which we can talk about in the annual report when we get to it for the February results.

36:20 There's another question about net debt at 1.5. What's the order of priority between buybacks, dividend, and m and a? I think, first off, we're looking to get to, you know, cash positive on here. I think our our preference would be to actually, you know, continue to to look for acquisitions, you know. We've done some big ones in the past, but more recently, we've done a lot of bolt ons. They've been really good, meaningful drop throughs to the business and really enabled other technology and more opportunities. So I think that would definitely be our preference on there. If those are simply devoid or whatever, then I think we may look at the other options. But I think really using the the cash to actually go out and acquire more bolt ons would be our preference. Yeah. Absolutely. And then are we seeing increased competition from cheaper Chinese competitors? Yeah. Always.

37:10 You know, that's that's an ongoing thing. I wouldn't say it's any bigger than it ever has been. But, you know, quite honestly, you know, for us, we we don't... It doesn't really impede or or be much of a risk to our business. We're not we're not the the solution that people go to when they're looking for the cheapest way to actually do something. We're a premium priced solution pretty much at every price point. So the customer that's out there looking to spend the least money possible, that's probably the people that are gonna be drawn to that that Chinese, you know,

37:41 type of product on there. For us, you know, the people that we typically attract, especially at the beginning, are folks that have a real vested interest in having success here, and they go back and they do a little research, and they look at all the Trustpilot scores, they look at our websites, they look at the story of the brands, and that's what really draws them in, and that is a big meaningful differentiator between us and those other brands. K. We've got a comment here from Vishal. Thanks for the detail. Please, you've moved to EBIT. Thank you. We thought it was a time to move to that, definitely. And our question on gross margin, the move to 46, is that the level we want sustain or is the aspiration to move towards 50%? So absolutely, you know, we're always looking at ways of maximizing our margin. I think as we've said in the past, we see 45 to 47 as our sort of sustainable range we want to stay in. There are a few variable factors in our margin, you know, some of the chip costs and the freight costs, which we will always seek to pass on where we can. But it does mean that sometimes, you know, we get some users slightly better margin than others. So we... But we do wanna stay in that range with the options to maximize it where possible. But we are conscious that in our market, price increases, standard annualized inflationary increase is not standard when you look at some of our competitors, and we need to ensure we remain competitive and offer value to our customers.

39:02 And there was a follow-up question on interest charges annualizing at two and a half. When do we see that step down? So you... It has stepped down slightly this year. You will have seen. I think the thing to note in interest charges, quite a few things going on in there. So we have part of the lease costs go through there as well. Some of the dilapidations costs go through the interest charges and some of the FX movements as well. So I would expect to see it step down as the cash generates, but it's never gonna go down to sort of nil or be a net positive, I think, given some of the accounting charges that go through it.

39:35 Question on net debt. H one and h two net debt will have increased. Do we expect net debt to become net cash in half one of next year? So I think, yes. I think given our cash generation, we would expect to return to net cash during next year. I'm not gonna be giving guidance around h one, h two, but generally, our h one is more positive than h two, but we do tend to see a positive inflow throughout the year. There's a question about are there any other markets like Japan where could benefit from a similar action? I think it's a a watching brief. We we were looking at that. I think Japan was the the last one of the group that we thought was really low hanging fruit. There are other other other ones that we are kinda watching on the radar, but I think at this point, it's really about refining that, really maximizing what we're doing there, and putting a lot more emphasis on what we're doing in our d to c channel as well.

40:31 Yeah. There's a question around sequential. What potential trade offs do we consider in moving production of sequential and over time since over to China given it's a premium perception? Would that be impacted?

40:43 Yeah. Well, I think... I'd like to think that that that whole debate is over. The majority of of Sequential and Oberheim's competitors, all their products are already made overseas on here. And even with us, I mean, some of the the products we've introduced over the past couple years, the Take five, the Forum, the Tao five, they're all made in China. We haven't had any real noise on that. I think I think people just knowing that the the the brain trust of this is, you know, the... That... Those crown jewels of people that we have, you know, at sequential developing these products, it's less it's less important about where the product is actually made now. And I think... What's the final question? Are software sales ever likely to be a material contributor to the group? Feels like it's a pretty small percentage today and the cost of acquiring would be high.

41:33 Yeah. So I I would say that, you know, the... We have Sonix, which is a small contributor to the group on there. But we're watching the... Just the whole software side of our industry carefully, and it's going through a pretty, pretty heavy state of being consolidated in here. And and so, you know, we're we're seeing a lot of softness in that market. I think for us, what we're actually looking more into is actually being able to unlock more features in our future hardware using our platform in Fasix. So instead of just selling a software add on, you could kind of think of it as the same thing, but it actually may be just unlocking more features inside the piece of hardware you already own. I think there's some things that we would include on there that come with the package that would be necessary to differentiate, but we also believe that there could be other things that... Of value to certain parts of the customers that we could unlock for a small transaction fee. So I think that's probably where you'd see us in that more. It's not necessarily a full software play, like thinking of plug ins and stuff in our industry, but it is effectively unlocking more features that are actually software inside our hardware.

42:43 Great. Okay. I think that was the last question. Well, wonderful. I think we're gonna wrap. Thank you guys for all your time. We'll hand you back to Lily now, I think. Yep. That's great. Thank you for asking these questions you care for investors. And, of course, the company can review your questions submitted today, we'll publish those responses on the investment company platform. Just before redirecting investors to provide you with their feedback, which you know is particularly important to the company, Tim, could I just ask you for some closing comments? Yeah. Thank you all for staying with us and for some really great questions on here. I hope it comes through. We're very excited and very happy with the results that we've had. We see... Have a lot of confidence for the business going forward. A lot of the things that we've been working on, investing on have really started to come to fruition. We're excited about our new platform, the changes we made in our routes to market and a lot of the changes that we're doing to really drive a lot of operational efficiency through the business. So continue to watch this space. We appreciate your interest in us, and look for more information soon.

43:41 That's great. Thank you for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that management team can best understand your views and expectations. This may take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of management team, we'd like to thank you for attending today's presentation, and good morning to you all.