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MusicMagpie
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=== H122 trading and outlook: Expected moderation === FY21 ended strongly with record sales in the UK and US during Black Friday. The sales momentum continued in to Q122, however, as the period progressed volumes and trade-in activity moderated in line with consumer trends. The H122 (end May 2022) trading update confirmed a modest c 2% year-on-year decline in revenue to £71.3m (£72.8m in H121). Strong growth in Technology revenue of 15.9% to £46.0m (£39.7m in H121) partially compensated for the previously flagged normalisation of Media and Books revenue, a decline of 23.6% to £25.1m from H121’s £33.1m, a period that benefited from increased sales due to COVID-related lockdowns. Adjusted EBITDA of £2.6m in H122 compares with H121’s £6.2m, reflecting the strength of growth in rental subscriptions and the decline in revenue, and was in line with management’s expectations, with confidence in achieving full year expectations. The rental business has continued to demonstrate strong growth, with c 24k active subscribers at end H122 versus c 19k at end Q122, 13.5k at end FY21 and 7.5k at end H121. The growth highlights the appeal of the rental offer, which may become even more so given the challenging economic backdrop and outlook for consumer discretionary income due to inflationary pressures from utility bills and national insurance increases. The forward contracted order book was £2.2m at end Q122. Consumer Technology revenues for Q122 were in line with management’s expectations, but management noted a trend towards lower sales volumes at a higher average selling price and an increase in the proportion of products sourced from intermediary wholesale partners, which was expected to compress the gross margin on outright sales by four percentage points in FY22. The H121 trading update confirmed that margin performance during the period was in line with the revised expectations for the full year. The H121 Technology revenue performance reflected the expected near-term dampening of Technology outright revenue growth from the new rentals. Management expects a gradual acceleration of growth in the UK as the incremental rental revenue increases to complement underlying market growth. At the Q122 stage, management highlighted that disc media revenue had performed in line with management’s expectations, ie a long-term underlying decline of close to 10% pa. In addition, Books revenue had maintained at levels seen in H221 with expectations it will remain at this level for the remainder of the year, consistent with its outlook for the medium-term of remaining relatively stable. Management believes both categories will continue to provide a good level of profitability and cash generation. At the end of Q121, as already highlighted, there was ongoing momentum in trading through the SMARTDrop kiosks, with a cumulative 8,000 units traded at a cost of £2.3m, versus c 5,300 smartphones at a cost of £1.5m at end FY21.
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